Question Paper Business Law – I (MB2F1): October 2008

 Answer all 70 questions.
 Marks are indicated against each question.
Total Marks : 100
1. Which of the following statements is false in respect of a company registered under the Companies Act, 1956?
(a)
The company has the capacity to sue and be sued

(b)
The company enjoys the same rights and liabilities as its members

(c)
An incorporated company’s wealth is clearly distinguished from that of its members

(d)
The members of a limited company are liable to contribute towards payment of its debt to a limited extent

(e)
No member can claim ownership rights over the assets of the company, during its existence.

( 1 mark)
2. A partnership where every partner has a right to dissolve the firm by giving a notice to all the other partners specifying his intention to dissolve the firm is known as
(a)
Limited Liability Partnership

(b)
Unlimited Liability Partnership

(c)
Partnership at will

(d)
Unregistered Partnership

(e)
Partnership by contract.

( 1 mark)
3. The mercantile agent who is employed to negotiate and make contracts for the purchase or sale of goods for remuneration is known as
(a)
Factor

(b)
Commission agent

(c)
Del credere agent

(d)
Broker

(e)
Auctioneer.

( 1 mark)
4. Which of the following agreements is considered as voidable contract under the Contract Act?
(a)
Agreements where consent is obtained by way of fraud

(b)
Agreements in restraint of marriage

(c)
Agreements by incompetent parties

(d)
Agreements with unlawful consideration

(e)
Agreements under mutual mistake of fact material to the agreement.

( 1 mark)
5. Any rule of action which is usually observed by men – any rule, which is expression of some actual uniformity of some voluntary action is known as
(a)
Physical law

(b)
Natural law

(c)
Conventional law

(d)
Imperative law

(e)
Customary law.

( 1 mark)
6. Which of the following persons is qualified to be appointed as a director of a company under the Companies Act, 1956?
(a)
Karthik who is an undischarged insolvent

(b)
Mukesh who has applied to a competent Court to be adjudged an insolvent

(c)
Amit who was found to be of unsound mind by a competent court and such finding is still in force

(d)
Vimal who has not paid any call in respect of shares of the company held by him and three months have elapsed from the last date fixed for payment of calls

(e)
Kaushik who has been convicted by Court for an offense involving moral turpitude and sentenced to imprisonment for one year and three years have elapsed from the date of the expiry of the sentence.

( 2 marks)
7. The Articles of Association of Kinetic Electronics Ltd., provide that 15 members present in person shall constitute a valid quorum for its general meeting. A general meeting of the company was convened by its Board of Directors on July 23, 2008 (Wednesday) to consider certain matters. At the meeting 12 members (including 3 of the 6 directors) were present in person and 4 members by proxy even after half an hour of the appointed time. Which of the following statements is true in respect of the quorum requirements for the above adjourned meeting under the Companies Act, 1956?
(a)
The meeting shall be adjourned to the same day next week at the same time and place

(b)
As more than one-third of the strength of the board is present, the meeting can be validly conducted

(c)
As the 15 members are present, the quorum requirement of the Articles of Association of the company is satisfied

(d)
As no quorum is present, the meeting stands dissolved

(e)
As the required quorum is not present even after half an hour from the appointed time, the members present shall constitute the quorum.

( 2 marks)
8. Suresh, Anuj and Prabhakar entered into a partnership. However, they did not register the partnership. Suresh was aggrieved that although he was the one who was managing the affairs of the firm, he was not given due share of the profits of the firm for his contribution. Hence, he decided to file a civil suit for the recovery of the profits due from the other partners. Which of the following statements is true in respect of the rights of Suresh to claim the share of profits by way of a civil suit?
(a)
Suresh cannot file a civil suit against the other partners as the firm is a valid partnership

(b)
Suresh cannot file a civil suit against the other partners because disputes relating to sharing of profits are not under the purview of the Court of Law

(c)
Suresh cannot file a civil suit against other partners as the firm has not been registered

(d)
Suresh cannot file a civil suit against other partners as he has not contributed anything in excess of his capital

(e)
Suresh can sue the other partners as they enjoy a legal identity distinct from that of the partnership.

( 2 marks)
9. Anil and Sanjay were business associates. Anil invited Sanjay for dinner at his house on his son’s birthday, which was a working day. Sanjay cancelled some of his important business meetings and reached Anil’s house on the appointed date and time. However, to his surprise, Sanjay found that Anil’s house was locked and the party was cancelled. Which of the following statements is true in respect of the above circumstances?
(a)
There is a valid contract as there was a promise to attend the party upon invitation

(b)
There is a valid contract as there was a business relationship between Anil and Sanjay

(c)
As Sanjay had suffered a loss on account of the agreement, he can claim compensation from Anil

(d)
There is a valid contract as there is a promise

(e)
There is no valid contract as it is a casual agreement between friends.

( 2 marks)
10. Under section 402 of the Companies Act, 1956, the power to appoint directors in a company for the purpose of prevention of oppression and mismanagement rests with
(a)
Registrar of Companies

(b)
Regional Director

(c)
National Company Law Tribunal

(d)
Debentureholders of the company

(e)
Financial Institutions holding shares of the company.

( 1 mark)
11. Which of the following is the requirement under the Companies Act, 1956, for a company that intends to shift its registered office from one location to another within the same city?
(a)
Pass special resolution and obtain confirmation of Regional Director

(b)
Pass ordinary resolution and obtain confirmation of Regional Director

(c)
Pass ordinary resolution and obtain confirmation of Registrar of Companies

(d)
Pass Board resolution and intimate the change to the Registrar of Companies within thirty days of such change

(e)
Pass special resolution and obtain confirmation of Registrar of Companies.

( 1 mark)
12. A kind of charge where the goods remain in the possession of the borrower for his use is known as
(a)
Pledge

(b)
Mortgage

(c)
Hypothecation

(d)
Exchange

(e)
Negative Lien.

( 1 mark)
13. The bank in the exporter country which authenticates and forwards the Letter of Credit to the beneficiary or the exporter without any other commitment is the
(a)
Issuing Bank

(b)
Advising Bank

(c)
Negotiating Bank

(d)
Confirming Bank

(e)
Reimbursing Bank.

( 1 mark)
14. If in a contract, the promisor receives consideration simultaneously with his promise, the consideration in such a case is known as
(a)
Past consideration

(b)
Present consideration

(c)
Executory consideration

(d)
Future consideration

(e)
Void consideration.

( 1 mark)
15. Tariff is a tax imposed on the
(a)
Goods manufactured in the country

(b)
Goods exported out of the country

(c)
Goods imported into a country

(d)
Goods sold in the country

(e)
Services rendered within the country.

( 1 mark)
16. Arjun Rawat, the owner of a cinema theatre borrowed money from City Bank by hypothecating his cinema projector and the accessories with the bank. The bank allowed the projector and the accessories to remain with Arjun Rawat since they formed the equipment of running a cinema. Later, Arjun Rawat sold the projector and the accessories along with the theatre to another person. Which of the following statements is true in respect of the above circumstances?
(a)
The bank cannot recover anything from Arjun Rawat, as the non delivery of possession of projector and accessories negates the hypothecation

(b)
The Bank can recover only damages for breach of contract but not any repayment of the loan under hypothecation

(c)
The subsequent buyer becomes liable to repay the loan instead of Arjun Rawat as the liability passes under hypothecation

(d)
Arjun Rawat is accountable to the bank to repay the debt as the transaction is a hypothecation and sale is subject to hypothecitation with the bank

(e)
The bank is automatically entitled to seize the projector and accessories and sell them to recover its loan.

( 2 marks)
17. Systemic Equipments Pvt. Ltd., carries on independent business in scientific and precision instruments. At its AGM held on September 10, 2008, Amar was appointed as a director for the first time. He has not filed his consent to act as director with the Registrar of Companies within the prescribed period of 30 days. Which of the following statements is true in respect of the non-filing of Amar’s consent to act as a director of Systemic Equipments Pvt. Ltd., under the Companies Act, 1956?
(a)
Amar is deemed to have automatically vacated his office as a director

(b)
Amar has to be reappointed by the members to continue as a director of the company

(c)
Amar can continue as a director as he is not required to file any consent to act as a director

(d)
Amar can continue only as an additional director till he files his consent

(e)
Apart from vacating the office, Amar shall be liable to pay the fine prescribed under the Companies Act, 1956.

( 2 marks)
18. Mohanlal Jain, the Karta of a Hindu Undivided Family (HUF) manages the business of the HUF. While the HUF business was in a crisis, without consulting other coparceners of the HUF, he raised a loan from a finance company in the name of HUF to stabilize its business. Which of the following statements is true in respect of the repayment of the loan?
(a)
As Mohanlal Jain had not consulted other coparceners in raising the loan, he is personally liable to repay the loan

(b)
As Mohanlal Jain had not consulted other coparceners in raising the loan, the HUF is liable to repay only half of the loan

(c)
As the loan was taken without the consent of other coparceners, neither the HUF nor Mohanlal Jain is liable to repay the loan

(d)
As the HUF has a separate legal entity, the loan can be recovered only with the partition of the HUF

(e)
As Mohanlal Jain, has taken the loan as Karta of the HUF, the HUF is liable to repay the loan.

( 2 marks)
19. Mahesh, a popular Magician, enters into a contract with the management of a Friends Club, to conduct a magic show at the club on October 28, 2008 as a part of the Club’s Deepavali celebration. Later, Mahesh entered into an agreement with City Hotel to give a performance at the same time on the same date, as they offered a higher remuneration. Which of the following statements is true in respect of the above circumstances under the Indian Contract Act, 1872?
(a)
Friends Club can file a suit against Mahesh for grant of injunction restricting Mahesh from performing at City Hotel

(b)
Friends Club can only file a suit for damages against Mahesh for breach of contract after the end of his show at City Hotel

(c)
Friends Club can file a suit against Mahesh for grant of injunction restricting Mahesh only if they agree to pay the higher remuneration

(d)
Friends Club cannot file a suit against Mahesh for grant of injunction restricting Mahesh as he has not yet breached his contract

(e)
Friends Club cannot file any suit against Mahesh as the agreement between them is a religious agreement that cannot be enforced by Court of Law.

( 2 marks)
20. In the event of default in holding the Annual General Meeting (AGM) by a company under the Companies Act, 1956, which of the following is empowered to call the AGM?
(a)
The Shareholders of the company

(b)
The Auditors of the company

(c)
The Registrar of Companies

(d)
The National Company Law Tribunal

(e)
The Regional Director.

( 1 mark)
21. The date of issue of the prospectus is the date
(a)
Of printing of the prospectus

(b)
On which the prospectus in sent to the Registrar of Companies for its registration

(c)
On which the prospectus is registered by the Registrar of Companies

(d)
On which the prospectus first appears as an advertisement

(e)
On which the approval of the Central Government is obtained.

( 1 mark)
22. Which of the following can be classified as a commercial tax?
(a)
Income tax

(b)
Professional tax

(c)
Wealth tax

(d)
Estate tax

(e)
Sales tax.

( 1 mark)
23. Under the Indian Stamps Act, 1899, a demand promissory note that is not duly stamped
(a)
Is inadmissible as evidence in a Court of Law

(b)
Is admissible as evidence in a Court of Law, if the duty is paid subsequently

(c)
Is admissible as evidence in a Court of Law without any payment of any duty

(d)
Is admissible as evidence in a Court of Law, if two times the amount of duty payable upon it is paid subsequently

(e)
Is admissible as evidence in a Court of Law by paying penalty at the discretion of the Collector.

( 1 mark)
24. When the party supposed to perform, commits default on the stipulated day, the contract becomes
(a)
Void

(b)
Illegal

(c)
Valid

(d)
Unenforceable

(e)
Voidable at the option of the promisee.

( 1 mark)
25. When the person to whom a proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted is known as
(a)
Offer

(b)
Acceptance

(c)
Consideration

(d)
Promise

(e)
Consensus ad idem.

( 1 mark)
26. Abhinav Ltd., imported certain articles from Singapore. These articles were chargeable to a basic customs duty of 30% ad valorem. However, half of the goods were lost after their unloading at the Chennai Port, before clearance by Customs Authorities. Which of the following statements is true in respect of the duty payable on the goods under the Customs Act?
(a)
Abhinav Ltd., has to pay the total customs duty irrespective of the fact that a part of the goods have been lost

(b)
Abhinav Ltd., need not pay any duty as he is eligible for automatic waiver of duty for lost goods

(c)
Abhinav Ltd., can get duty exemption only if the goods are lost by reason of pilferage before the goods are cleared for home consumption

(d)
Abhinav Ltd., can get remission of the duty only if the goods are cleared for home consumption and the loss is not due to pilferage

(e)
Abhinav Ltd., can get a remission of the duty if the goods are lost otherwise than by reason of pilferage or destroyed at any time before clearance for home consumption.

( 2 marks)
27. Sunrise Limited, a public company was incorporated on 12-05-2008 has been issued a certificate for commencement of business on 12-08-2008. Under section 165 of the Companies Act, 1956, the company may hold its statutory meeting between
(a)
12-05-2008 to 12-11-2009

(b)
12-06-2008 to 12-12-2009

(c)
12-09-2008 to 12-09-2009

(d)
12-08-2008 to 12-08-2009

(e)
12-09-2008 to 12-02-2009.

( 2 marks)
28. Mahesh, a director of Reliable Investments Ltd., purporting to act on behalf of the company borrowed Rs.5 lakh from Makkhan Singh, an outsider. Mahesh not only exceeded his authority but also misused the money without the knowledge of the other directors. Upon the default of the company to repay the borrowed amount, Makkhan Singh wishes to proceed against the company by invoking the doctrine of indoor management. Which of the following statements is true in respect of the above borrowing under the Companies Act, 1956?
(a)
Makkhan Singh can recover his money from the company as Mahesh was purportedly acting on behalf of the company

(b)
Makkhan Singh can recover his money from the Board of Directors of the company, in their personal capacity

(c)
Makkhan Singh can recover his money from Mahesh in his personal capacity

(d)
Makkhan Singh cannot recover his money from any one as he is an outsider

(e)
Makkhan Singh cannot invoke the doctrine of indoor management as he is not a shareholder of the company.

( 2 marks)
29. Shanmugham Tillers Ltd., Chennai entrusted certain samples of their agricultural implements to Southern Railways, Chennai with a special note to deliver the consignment before August 10, 2008 as the implements were to be displayed in All India Agricultural Exhibition at Pragati Maidan, New Delhi to be held from August 18, 2008 to August 25, 2008. However, the consignment reached New Delhi on August 29, 2008 well after the conclusion of the exhibition. Which of the following categories of damages can be claimed by Shanmugham Tillers Ltd., under the Indian Contract Act, 1872?
(a)
Nominal damages

(b)
Special damages

(c)
Vindictive damages

(d)
General damages

(e)
No damages can be claimed.

( 2 marks)
30. Sadanand, one of the drivers employed by Tulip Travels drove a bus with passengers that met with an accident. Sadanand had a valid license for driving light motor vehicle. Which of the following statements is true in respect of these circumstances?
(a)
Sadanand is guilty of the crime of negligent driving but not any tort

(b)
Sadanand is guilty of committing a tort amounting to malfeasance

(c)
Sadanand is guilty of committing a tort amounting to misfeasance

(d)
Sadanand is guilty of committing a tort amounting to non-feasance

(e)
Sadanand is not guilty of either a crime or a tort.

( 2 marks)
31. The premium received on the issue of shares being in the nature of capital reserve cannot be utilized for
(a)
Issue of fully paid bonus shares

(b)
Payment of dividend

(c)
Writing off preliminary expenses

(d)
Writing off discount allowed on issue of shares

(e)
Writing off any commission on issue of shares.

( 1 mark)
32. The tax on payment of fringe benefits is borne by
(a)
The employer in respect of only the monetary perquisites

(b)
The employer in respect of only the non-monetary perquisites

(c)
The employer in respect of both monetary perquisites and non-monetary perquisites

(d)
The employee in respect of only the monetary perquisites

(e)
The employee in respect of only the non-monetary perquisites.

( 1 mark)
33. Which of the following statements is true in respect of a Hindu Undivided Family (HUF) business unit?
(a)
It consists of heterogeneous members

(b)
A coparcener cannot demand partition of the joint family business

(c)
Any coparcener can contract debts for the purpose of business

(d)
It being a separate legal entity is assessed to tax as a separate person

(e)
Registration is compulsory in case the number of members exceeds twenty.

( 1 mark)
34. Where there is no opportunity of communicating to the concerned parties about an urgency and a person in such a situation acts as an agent for the benefit of another, it is known as
(a)
Agency by estoppel

(b)
Agency by holding out

(c)
Irrevocable agency

(d)
Agency by necessity

(e)
Agency by ratification.

( 1 mark)
35. A situation wherein the offeree changes the terms of the offer made by the offeror is known as
(a)
General offer

(b)
Specific offer

(c)
Positive offer

(d)
Negative offer

(e)
Counter offer.

( 1 mark)
36. Shailesh Traders of Pune in the State of Maharashtra sent certain goods to its branch in the State of Karnataka. This transaction was assessed by the Sales Tax Authorities as inter-state sales, for which Shailesh Traders raised an objection. Which of the following statements is true in respect of the reference of the dispute under the Central Sales Tax Act?
(a)
It can be referred to the Appellate Commissioner of the State of Maharashtra, from where the goods were sent

(b)
It can be referred to the Appellate Commissioner of the State of Karnataka, where the goods were sent

(c)
It can be referred to the Central Sales Tax Appellate Authority constituted by the Central Government

(d)
It can be referred to the Sales Tax Tribunal of the State of Maharashtra from where the goods were sent

(e)
It can be referred to the Sales Tax Tribunal of the State of Karnataka, where the goods were sent.

( 2 marks)
37. Tarun, a shareholder of Visual Communications Ltd., appointed Ravindra as his proxy by depositing the proxy form with the company, before the meeting. In that meeting Ravindra wanted to participate in a discussion, for which he was refused permission. Which of the following statements is true in respect of the rights of a proxy under the Companies Act, 1956?
(a)
Ravindra should be allowed to vote on show of hands

(b)
Ravindra has the right only to speak at the meeting

(c)
Ravindra may vote only on poll

(d)
Ravindra can appeal to the NCLT to declare the meeting as invalid

(e)
The matter has to be decided by the majority vote of members personally present.

( 2 marks)
38. Arundhati Infosystems Ltd., issued a prospectus to the public for the subscription of shares. In the prospectus, the promoters assured a return of 80% in future, by estimating the demand and sales for the product proposed to be sold by the company. The company could not declare a dividend even after three years from the date of issue of the shares. Abdul Khader, one of the shareholders proposes to file a suit against the company, alleging misstatements in the prospectus. Which of the following statements is true in respect of the above circumstances under the Companies Act, 1956?
(a)
The present directors of the company are personally liable for the payment of damages only

(b)
The promoters of the company are personally liable for the payment of damages only

(c)
The present directors as well as the promoters of the company are personally liable for the payment of damages only

(d)
The present directors as well as the promoters of the company are personally liable for the payment of damages as well as price paid for shares

(e)
No one can be held liable since there is no misrepresentation of material fact in the prospectus issued by the company.

( 2 marks)
39. Arun agreed to extend his guarantee for the overdraft facility to be extended by Maharastra Bank to Gaurav. The credit limit for Gaurav was fixed at Rs.2,50,000 after Arun extended his guarantee. However, three months later, the bank reduced the credit limit for Gaurav to Rs.1,50,000 and then again increased it to Rs.2,50,000 without consulting Arun. Which of the following statements is true in respect of the liability of Arun as the surety under the Contract Act?
(a)
Arun is discharged from his liability as a surety the moment the bank had decreased the credit limit to Rs.1,50,000 without consulting him as it amounts to variation in the terms of the contract

(b)
Arun is discharged from his liability as a surety the moment the bank had restored the credit limit to Rs.2,50,000 without consulting him as it amounts to variation in the terms of the contract

(c)
Arun is discharged from his liability as a surety as the bank had failed to take his consent for variations in the overdraft limits

(d)
Arun is not discharged from his liability as a surety but his liability stands reduced to Rs.1,50,000

(e)
Arun is not discharged from his liability as a surety as there was no variation in the terms of the written contract of guarantee which is a continuing guarantee.

( 2 marks)
40. Nandan who was interested in buying a house for himself in Mumbai sent a mail to Akash saying “Will you sell your Mud Island Bunglow to me? Mail the minimum price expected.” Akash sent a reply stating “Lowest expected price for the Bunglow is between Rs.2 crore to Rs.2.5 crore”. In reply to this mail, Nandan stated by mail “I agree to buy the Bunglow for Rs.2 crore. Please arrange for the registration of the title deeds of the Bunglow.” Which of the following statements is true in respect of the above circumstances?
(a)
There is a valid contract as Akash had quoted the lowest expected price of the Bunglow in response to Nandan’s offer to buy it

(b)
There is a valid contract as Nandan agreed to pay a price that was equal to the lowest expected price

(c)
There is a valid contract only if Nandan sends the amount of Rs.2.5 crore immediately and then demands for the registration of title deeds

(d)
There is no valid contract as the enquiry of lowest expected price amounts to a price indication as distinguished from offer

(e)
There is a valid contract as the acceptance was duly communicated.

( 2 marks)
41. Dhiraj who was appointed as an additional director at the Board meeting held on December 31, 2007 continues to be in his office on the ground that the annual general meeting of the company for the year 2007-08 was not held as required under the Companies Act, 1956. Which of the following statements is true in respect of the position of Dhiraj under the Companies Act, 1956?
(a)
Dhiraj shall hold the office as an additional director till the completion of five years

(b)
Dhiraj shall hold the office as an additional director up to the conclusion of the AGM for 2007-08

(c)
Dhiraj shall hold the office as an additional director until his removal by the shareholders

(d)
Dhiraj shall vacate the office on the date the AGM of the company for 2007-08 should have been held

(e)
Dhiraj shall hold the office up to conclusion of one year from the date of his appointment.

( 2 marks)
42. Millennium Textiles Ltd., has been continuously making profits for the past five years and the Board of directors have been recommending dividends each year. In the current year the company has embarked upon some expansion plans for which funds are needed. This year also, the Board of directors of the company has recommended a dividend of 40% as usual. However, some of the members are of the view that in light of the requirement of funds for the expansion plans, no dividend should be declared and accordingly moved a resolution to that effect in the AGM of the company. The Board of directors of the company objected to the move saying that the declaration of dividend is the exclusive power of the Board of directors of a company. Which of the following statements is true in respect of declaration of dividend under the Companies Act, 1956?
(a)
The shareholders can only increase the rate of dividend declared by the Board of directors

(b)
The shareholders have to requisition for an Extra-ordinary General Meeting to cancel the dividend recommended by the Board of Directors

(c)
Shareholders of a company can only approve the rate of dividend declared by the Board of directors

(d)
The shareholders are empowered to reduce the rate of dividend recommended by the Board of Directors

(e)
The shareholders can exercise their discretion to increase or decrease the rate of dividend recommended by the Board of directors.

( 2 marks)
43. Bhaskar was appointed by Diwakar as his agent to sell Bhaskar’s property for an amount not less than Rs.20 lakh. Diwakar was to receive an agreed amount of remuneration for his services. Unknown to Bhaskar there was a mine in his estate which was worth Rs.2 crore. On coming to know of the existence of the mine, Diwakar himself purchased the property for Rs.25 lakh, without disclosing the fact to Bhaskar. On coming to know of Diwakar’s dishonesty, Bhaskar refused to pay the remuneration and repudiated the sale of his property. Which of the following statements is true in respect of the agency under the above circumstances?
(a)
Bhaskar cannot repudiate the sale but he need not pay any remuneration to Diwakar

(b)
Bhaskar can neither repudiate the sale nor refuse to pay remuneration as Diwakar had got the property of sold for an amount greater than expected

(c)
Bhaskar can not only repudiate the sale but also refuse to pay the agreed remuneration

(d)
Bhaskar can repudiate the sale but he has to pay the agreed remuneration to Diwakar

(e)
Bhaskar cannot repudiate the sale but he can force Diwakar to pay Rs.2 crore for the property.

( 2 marks)
44. Shweta , a minor fraudulently represented to Narayan, a moneylender that she was a major and executed a promissory note for Rs.25,000 and she promised to repay within a period of 2 years. After the expiry of 2 years when Narayan demanded his money from Shweta, she refused to pay and pleaded her minority as a defence. Which of the following statements is true in respect of the above circumstances under the Indian Contract Act, 1872?
(a)
Shweta has to repay the loan as she cannot plead minority subsequently after entering into the contract

(b)
Shweta has to repay the loan as there was a misrepresentation on her part

(c)
Shweta need not repay as the money can be recovered only out of the property mortgaged by her

(d)
Shweta need not repay any amount to Narayan as a contract with a minor is void ab initio

(e)
Shweta can raise the plea of minority only after repaying the loan and then claim damages from Narayan.

( 2 marks)
45. A transfer of shares is complete as between the transferor and the transferee when
(a)
The transfer deed is executed by the transferee

(b)
The transfer deed is executed by the transferor

(c)
The transfer deed is received by the company

(d)
The transfer is registered in the Company’s register

(e)
The transfer deed is executed and share certificates are handed over to the transferee.

( 1 mark)
46. Which of the following statements is true in respect of a private company under the Companies Act, 1956?
(a)
Its shares are freely transferable

(b)
Joint holders of shares are considered as separate members

(c)
Consent of directors has to be filed with the Registrar of Companies

(d)
It requires a minimum of three members

(e)
It can raise capital only by private arrangement.

( 1 mark)
47. Which of the following is not considered as immovable property?
(a)
Building

(b)
Land

(c)
Rights to way

(d)
Standing timber

(e)
Hereditary allowances.

( 1 mark)
48. A contract by a third party to perform the promise, or discharge the liability of a promisor, in case of promisor’s default to a promisee is known as
(a)
Irrevocable agency

(b)
Contract of guarantee

(c)
Contract of indemnity

(d)
Employment contract

(e)
Arbitration.

( 1 mark)
49. Who among the following persons is disqualified to enter into a valid contract under the Contract Act?
(a)
A lunatic during lucid interval

(b)
An Indian voluntarily residing in a country that is not at war with India

(c)
A person who is a citizen of a country that is not at war with India

(d)
An insolvent person after the ‘order of discharge’

(e)
A convict.

( 1 mark)
50. A tort is a form of
(a)
Civil wrong that arises due to breach of a legal duty

(b)
Crime

(c)
Civil right that arises due to breach of a legal duty

(d)
Civil wrong that amounts to crime

(e)
Crime that amounts to civil wrong.

( 1 mark)
51. Pavithra Motors entered into a hire purchase agreement with Surender for the sale of a motor car. Accordingly, Pavithra Motors delivered the car to Surender on the condition that Surender should pay the agreed amount in 20 monthly installments and the ownership shall be transferred on the payment of last installment. Surender failed to pay the 10th installment, as a result of which Pavithra Motors proposes to terminate the agreement. Which of the following statements is true in respect of the above circumstances?
(a)
Pavithra Motors cannot terminate the agreement until all the installments become due and Surendra fails to pay

(b)
Pavithra Motors need not terminate the agreement as the ownership has not passed on to Surender

(c)
Pavithra Motors can terminate the agreement only if it transfers the car in the name of Surender

(d)
Pavithra Motors cannot terminate the agreement as it has assumed the character of installment sales where the ownership of the car will be passed on to Surender on the payment of last installment

(e)
Pavithra Motors can terminate the agreement because under hire purchase the seller can terminate the agreement due to default by buyer, any time before the ownership passes.

( 2 marks)
52. A company was formed for the purpose of manufacturing medicines for the treatment of cancer under a patent to be granted by the Central Government. The company did not start its operations even after 10 months from its incorporation. Aggrieved by this delay in commencing its business, one of the shareholders of the company filed a petition for the winding up of the company. Which of the following statements is true in respect of the above circumstances under the Companies Act, 1956?
(a)
The company cannot be wound up as it is deemed not to have ceased carrying on its business

(b)
The company can be wound up only if its liabilities exceed the value of its assets

(c)
The company can be wound up only on an application by the creditors

(d)
The company can be wound up only on an application by the Registrar of Companies

(e)
The company cannot be wound up as members of the company cannot file a petition for the winding up of the company.

( 2 marks)
53. Naresh and Mohit intend to start a business as a Limited Liability Partnership (LLP) and enter into an agreement under the Indian Contract Act for the division of profits and losses in accordance with the capital contributed by them. However, after a period of three years, Naresh wants to transfer whole of his economic interest in the firm in favour of Ramchandra, a third person. Which of the following statements is true in these circumstances?
(a)
Naresh is not allowed to transfer his economic interest in the firm until the firm is dissolved

(b)
Naresh can freely transfer his economic interest either in whole or in part to a third person

(c)
The transfer of whole of the economic interest by Naresh will lead to winding up of the firm

(d)
Naresh cannot transfer the whole of his economic interest in favour of only one person

(e)
The transfer of whole of the economic interest by Naresh will make the liability of the LLP unlimited.

( 2 marks)
54. Aniruddh sold his car to Bhavesh. Aniruddh knew that the engine of his car had gone for major repairs after an accident. When Bhavesh asked Aniruddh as to whether the car had ever met with a accident, Aniriddh remained silent. Later, Bhavesh found out that the car’s engine had gone for major repairs due to which it was giving very low mileage. Bhavesh is planning to sue for setting the contract aside on the ground of fraud. Which of the following statements is true in under these circumstances
(a)
Bhavesh can sue for setting the contract aside on the ground of fraud as Aniruddh’s silence amounts to fraud

(b)
Bhavesh can sue for setting the contract aside on the ground of misrepresentation as Aniruddh’s silence amounts to misrepresentation

(c)
Bhavesh can sue for setting the contract aside on the ground of unilateral mistake as Aniruddh’s silence amounts to unilateral mistake

(d)
Bhavesh can sue for setting the contract aside on the ground of mutual mistake as Aniruddh’s silence amounts to bilateral mistake

(e)
Bhavesh cannot sue for setting the contract aside on the ground of fraud as Aniruddh’s silence is immaterial to the contract.

( 2 marks)
55. The passing over of the direct or indirect control of the assets of the target company to the acquiring company involves
(a)
Merger

(b)
Takeover

(c)
Compromise

(d)
Arrangement

(e)
Reorganization.

( 1 mark)
56. ‘A purported activity beyond the powers of the company will be ineffective even if ratified by all the members of the company’. This rule is based on the
(a)
Doctrine of constructive notice

(b)
Doctrine of indoor management

(c)
Doctrine of ultra vires

(d)
Doctrine of restitution

(e)
Doctrine of relation back.

( 1 mark)
57. Where the mortgager transfers the possession of the mortgaged property to the mortgagee with authorization to receive the rents and profits accruing from the property in lieu of interest or partly in payment of the mortgage-money, such type of mortgage is known a
(a)
Simple Mortgage

(b)
Mortgage by Conditional Sale

(c)
Usufructuary Mortgage

(d)
English Mortgage

(e)
Anomalous Mortgage.

( 1 mark)
58. A banker is authorized to combine the deposit and loan accounts as there is existence of mutual debts between the bank and the customer. Such right of combining accounts is known as
(a)
Banker’s general lien

(b)
Banker’s special lien

(c)
Set-off

(d)
Indemnification

(e)
Bank Guarantee.

( 1 mark)
59. Under the Contract Act, the use of a relationship of trust and confidence by one party to exploit the other party to derive some contractual advantage is said to amount to
(a)
Coercion

(b)
Undue influence

(c)
Fraud

(d)
Misrepresentation

(e)
Mistake.

( 1 mark)
60. Which of the following is considered as a quantitative trade restriction in international trade?
(a)
Health and safety regulations

(b)
Import quotas

(c)
Product standards

(d)
Environmental standards

(e)
Customs procedures.

( 1 mark)
61. Ashok delivered his car to Krishna, a mercantile agent for sale at a price not less than Rs.1,85,000. However, Krishna fraudulently sold the car for Rs.1,40,000 to Anand who purchased the car in good faith and without knowledge of any fraud. Later, when it came to his knowledge, Ashok sued Anand for recovery of the car. Which of the following statements is false in respect of the recovery of the car by Ashok under the Sale of Goods Act, 1930?
(a)
Ashok can recover the car from Anand as Krishna had no title to the car

(b)
Ashok cannot recover the car from Anand as he had purchased the car in good faith

(c)
Ashok cannot recover the car from Anand but claim only the amount of Rs.45,000 being the difference between Rs.1,85,000 and Rs.1,40,000 from Anand

(d)
Ashok cannot recover the car from Anand but can claim only the amount of Rs.1,85,000 from Anand

(e)
Ashok cannot recover the car from Anand as the ownership of the car had passed on to Krishna who had bought the car in good faith from a mercantile agent.

( 2 marks)
62. The Articles of Association of Mallika Steels Ltd., provide that a person should hold a minimum of 100 shares of the face value of Rs.50 each as his qualification shares, to be appointed as a director. The name of Vipul has been proposed for directorship of the company. However, Vipul does not hold any shares in the company. Which of the following statements is true in respect of the appointment of Vipul as the director of the company under the Companies Act, 1956?
(a)
Vipul cannot be appointed as a director of the company as he does not hold any shares in the company

(b)
Vipul can be appointed as a director of the company, provided a special resolution is passed for his appointment

(c)
Vipul can be appointed as a director of the company, provided prior consent of the Central Government is obtained

(d)
Vipul can be appointed as a director, provided he agrees to acquire the required qualification shares within a period of two months from his appointment

(e)
Vipul can be appointed as a director only after obtaining qualification shares.

( 2 marks)
63. Anand, who was appointed as director of Sobha Pharmaceuticals Ltd., in the last general meeting resigned from the post. Which of the following statements is true in respect of the above circumstances under the Companies Act, 1956?
(a)
The Board of Directors can appoint another person as a director in the casual vacancy

(b)
The Board of Directors can appoint another person as a director only for permanent vacancy

(c)
The Board of Directors can appoint another person as an alternate director

(d)
The Board of Directors can appoint another person as an additional director

(e)
The Board of Directors can appoint another person as a director of the company subject to confirmation by the members in a general meeting.

( 2 marks)
64. Pramod Kumar was engaged by Harishchandra Publications to write a book to be published by parts in a weekly magazine. After a few parts had appeared, the magazine was abandoned. Which of the following statements is true in respect of the rights of Pramod Kumar under the Contract Act, 1872?
(a)
He can sue Harishchandra Publications for exemplary damages for breach of contract

(b)
He can insist that Harishchandra Publications continue to bring out the magazine with parts of his book

(c)
He can file a suit against Harishchandra Publications to recover the entire consideration for the contract

(d)
He can file a suit for recovery of the proportionate consideration for the work he had done on the contract on the principle of quantum meruit

(e)
He has no remedy against Harishchandra Publications.

( 2 marks)
65. Which of the following statements is false in respect of winding up of a company under the Companies Act, 1956?
(a)
A voluntary winding up prevents the institution of new proceedings against the company

(b)
In case of voluntary winding up, the company continues to exist until it is dissolved

(c)
The liquidator’s duty towards creditors and contributories comes to an end on the dissolution of the company

(d)
A company may be voluntarily wound up by passing special resolution, in case members want to wind up a company in spite of it being solvent

(e)
A voluntary winding up will be deemed to have commenced from the date of the passing of the resolution.

( 1 mark)
66. In which of the following cases corporate veil need not be lifted by a Court of law under the Companies Act, 1956?
(a)
Where a company has been formed for defrauding the creditors

(b)
Where a company is used to evade taxes and other legal obligations

(c)
Where a company is formed for the furtherance of welfare legislation

(d)
Where there is a need to determine the technical competence of a company

(e)
Where there is a need to determine the enemy character of the company.

( 1 mark)
67. CENVAT (Central Value Added Tax) credit under the Central Excise Act is not available for duty paid when
(a)
Paints are used as inputs

(b)
Final product is exempt from duty

(c)
Packaging materials are used as inputs

(d)
Raw materials are used as inputs

(e)
Materials used in relation to manufacture.

( 1 mark)
68. Which of the following statements is true in respect of a sole proprietorship?
(a)
The liabilities that arise from it are not personal liabilities of the owner

(b)
It needs to be registered under the law

(c)
It enjoys perpetual succession

(d)
It needs to file separate tax returns

(e)
It can be carried out under a trade name.

( 1 mark)
69. Under the Contract Act, the order from a Court that prohibits a party to do or refrain from doing a certain act can be obtained by filing a suit for
(a)
Specific performance

(b)
Rescission

(c)
Injunction

(d)
Damages

(e)
Quantum meruit.

( 1 mark)
70. Which of the following is not an essential element of a valid contract?
(a)
Free consent

(b)
Offer and its acceptance

(c)
Legality of object

(d)
Certainty and possibility of performance

(e)
Adequate monetary consideration.

( 1 mark)

END OF QUESTION PAPER
Suggested Answers
Business Law – I (MB2F1): October 2008
ANSWER REASON
1. B The company enjoys rights and liabilities, which are not same as that of its members.
Being a distinct legal entity, the company has the capacity to sue and be sued.
The members of a limited company are only liable to contribute towards payment of its debt to a limited extent.
The wealth of the shareholders and the wealth of the company are separate.
An incorporated company’s wealth is clearly distinguished from that of its members.
Therefore, it is wrong to suggest that the company enjoys rights and liabilities that are same as that of its members. Hence, option ‘B’ is correct answer. <>
2. C In case of partnership at will, every partner has a right to dissolve the firm by giving a notice to all the other partners specifying his intention to dissolve the firm. <>
3. D Broker is the mercantile agent who is employed to negotiate and make contracts for the purchase and sale of goods. He has neither control nor possession goods. He serves as a connecting link and tries to bring out a business contract between the principal and the third party. In case the deal materializes, then he receives the commission known as brokerage. <>
4. A A contract is voidable when the consent of a party to a contract is obtained by fraud, misrepresentation, coercion or undue influence. In case of agreements in restraint of marriage, agreements by incompetent parties, agreements with unlawful consideration and agreements under mutual mistake of fact material to the agreement, the contract is void. Hence, option ‘A’ is the correct answer. <>
5. E According to Salmond, any rule of action which is usually observed by men – any rule, which is expression of some actual uniformity of some voluntary action is known as Customary law.
The expression of the uniformities of nature – general principles expressing the regularity and harmony observable in the activities and operations of the universe is known as Physical law.
The law which is based on the principles of natural right and wrong is known as Natural law.
Any rule or system of rules agreed upon by persons for the regulation of their conduct towards each other is known as Conventional law.
A rule which prescribes a general course of action imposed by some authority which enforces it by superior power either by physical force or any other form of compulsion is called as Imperative law. <>
6. D According to Section 274 of the Companies Act, 1956, a person who has not paid any call in respect of shares of the company held by him, whether alone or jointly with others and six months have elapsed from the last date fixed for the payment of the call is disqualified from acting as a director of a company.
In the given instance, Vimal has not paid any call in respect of shares of the company held by him and only three months have elapsed from the last date fixed for payment of calls, which means he is not disqualified from being appointed as a director in a company. Hence, option ‘D’ is correct answer. <>
7. A If the quorum is not present within half an hour from the appointed time, (i) the meeting if called upon the requisition of members shall stand dissolved; (ii) in any other case, the meeting shall be adjourned to the same day in the next week at the same time and place or to such other day, time and place as the Board of Directors may determine.
As the adjourned meeting is only a continuation of the original meeting, the requirement of issuing notices can be dispensed with. If at the adjourned meeting also, the quorum is not present within half an hour from the appointed time of the meeting, the members present will be the quorum.
Therefore, in the given instance, the meeting shall be adjourned to the same day next week at the same time and place. Hence, option ‘A’ is correct answer. <>
8. C A partner of an unregistered firm cannot sue the firm or any other partner of such firm by way of a civil suit to enforce any right accrued from a contract i.e., a partnership deed or conferred by the Partnership Act. However, the aggrieved partner can institute criminal proceedings against such firm or any of its partners.
Therefore, in the given case, Suresh cannot file a suit against other partners as the firm has not been registered. Hence, option ‘C’ is correct answer. <>
9. E A contract is the result of a promise to do a certain thing in exchange for a promise from another person. Non-business, religious or charitable agreements need not be contracts. Casual agreements between friends and family or household agreements are not held as contracts. <>
10. C Under section 402 of the Companies Act, 1956, the power to appoint directors in a company for the purpose of prevention of oppression and mismanagement rests with National Company Law Tribunal. The Central Government can also appoint directors in a company for the purpose of prevention of oppression and mismanagement under Section 408 of the Companies Act, 1956. <>
11. D A company can shift its registered office from one place to another within the same city, town or village by a board resolution. Notice of such change should be intimated to the registrar in Form 18 within thirty days of such change.
Hence, ‘D’ is correct answer. <>
12. C A kind of charge where the goods remain in the possession of the borrower for his use is known a hypothecation.
The transfer of an interest in a specific immoveable property for the purpose of securing the payment of money advances or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to pecuniary liability is known as mortgage. <>
13. B The bank in the exporter country which forwards the Letter of Credit to the beneficiary or the exporter is called as the advising bank.
The bank which opens a Letter of Credit on the request of the applicant or buyer is referred to as an Issuing/Operating/Importer’s bank
The bank in the beneficiary or exporter country which makes payment on the bills drawn by the seller and accepts the documents is called as a Negotiating Bank.
Where the advising bank in addition to advising credit to the beneficiary confirms such credit, such an advising bank shall be deemed as a Confirming Bank.
The bank appointed by the issuing bank to reimburse the Negotiating, Paying or Confirming Bank is known as Reimbursing Bank. <>
14. B Consideration may be of three kinds, viz. past consideration, executed or present consideration and executory or future consideration.
Present consideration is an act or forbearance made or suffered or done in return for a positive promise. In this case the promisor receives consideration simultaneously with his promise. For example, in a sale by cash, consideration is present or executed. Present consideration is also known as executed consideration. <>
15. C A tariff is a tax imposed on imported products. Tariffs increase the price of imported goods in the domestic market. <>
16. D In hypothecation, the hypothecator holds the goods as an agent and not as the owner. The goods are liable to be returned to the hypothecatee under the circumstances stated in the contract of parties. If the hypothecator refuses to return the goods to the hypothecatee, the hypothecatee has a right to seek court help in recovering them.
The decision of the Andhra Pradesh High Court in Bank of Chittor vs. Narasimhulu, is an illustration to explain this principle. A cinema projector and accessories were pledged with a bank. The bank allowed the property to remain with the pledgers since it formed part of the equipment of running a cinema. Subsequently, the pledgers sold the machinery. The Court held that the sale was subject to the pledge. “There was a constructive delivery or delivery by attornment to the bank”. <>
17. C As per Section 264(2), a director shall not act as one unless he has within 30 days of his appointment, signed and filed with Registrar his consent in writing to act as such director. Section 264 does not apply to
 A director re-appointed after retirement by rotation or immediately after retirement,
 An additional or an alternate director or a person filling a casual vacancy, appointed as a director or re-appointed as an additional or alternate director immediately on expiry of his term of office,
 A person named as a director of the company under its articles as first registered, and
 A director of a private company which is not a subsidiary of a public company.
Therefore, in the given case, as Amar is a director of an independent private company, he need not file any consent to act as a director. Hence, option ‘C’ is correct answer. <>
18. E The Karta is bestowed with full control over the affairs of the family business and is not questioned on the acts done for the benefit and in the name of the family.
Therefore, in the given case, as Mohanlal Jain, has taken the loan in the name and for the benefit of the HUF, the HUF is liable to repay the loan. Hence, option ‘E’ is correct answer. <>
19. A An order of injunction makes the guilty party refrain from doing or not doing precisely the act, which is causing the breach of contract.
Illustration: R enters into an agreement with M to present an entertainment program at M’s hotel on the eve of the New Year’s Day. Later, R enters into another agreement with N to conduct the same type of performance at the same time at N’s hotel. M treats it as anticipatory breach of performance on the part of R and seeks an injunction from the court. The court may pass an injunction order against R not to present the program at N’s hotel at that time. <>
20. D Section 167 empowers the NCLT to call for an Annual General Meeting in case of default in holding the meeting in accordance with Section 166. <>
21. D Section 55 specifies that every prospectus has to be dated. The date of publication of prospectus should be differentiated from the date of its issue. While the date which appears on the prospectus is the date of publication, the date of issue is the date on which the prospectus first appears as an advertisement. <>
22. E Sales tax/Vat, Excise duty, Customs duty and Service tax etc., come under the category of indirect taxes. These are also known as commercial taxes. Income tax, Professional tax, Wealth tax and Estate tax are direct taxes. <>
23. A The following documents which if unstamped or inadequately stamped are not at all admissible as evidence:
 Demand promissory notes
 Usance bills of exchange
 Acknowledgement of debt (section 35).
Except the above documents all other documents are admissible in evidence even if they are inadequately stamped by paying penalty at the discretion of the Collector. <>
24. E When the party supposed to perform commits default on the stipulated day, the contract becomes voidable at the option of the promisee. <>
25. D According to section 2(b) of the contract Act, “When the person to whom a proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise”. Hence, option ‘D’ is correct answer. <>
26. E Remission of duty on lost, destroyed or abandoned goods (Section 23):
 Without prejudice to the provisions of Section 13, where it is shown to the satisfaction of the Assistant Collector of Customs that any imported goods have been lost otherwise than as a result of pilferage or destroyed any time before clearance for home consumption, the Assistant Collector shall remit the duty on such goods.
 The owner of any imported goods may, at any time before an order for clearance of goods for home consumption under section 17 or an order for permitting the deposit of goods in a warehouse under section 60 has been made, relinquish his title to the goods and thereupon he shall not be liable to pay the duty thereon.
Therefore, in the given case, Abhinav Ltd., can get a remission of the duty if the goods are lost otherwise that by reason of pilferage and the goods are not cleared for home consumption. Hence, option ‘E’ is correct answer. <>
27. E Statutory meeting must be held not less than one month but within 6 months from date of commencement of business. (Sec.165).
Therefore the statutory meeting should be held any time during 12-09-2008 to 12-02-2009. On 12-09-2008, one month is just over. Hence, meeting can be held on that day, as the words used are not less than one month. Similarly, sixth month gets over on 12-02-2009. Hence, option ‘E’ is correct answer. <>
28. C Directors are personally liable for any diversion of the funds for purposes other than what is specified in the company’s memorandum.
Therefore, in the given case, Makkhan Singh can recover his money from Mahesh in his personal capacity. Hence, option ‘C’ is correct answer. <>
29. B Special damages are awarded from a breach of contract under some peculiar circumstances. At the time of entering into a contract the party has notice of special circumstances, which makes special loss, the likely result of the breach in the ordinary course of things. These are the damages which are claimed in addition to the damages arising from the breach of the contract. <>
30. B The term ‘malfeasance’ refers to the actual commission of an unlawful act. It consists of doing an act which one has a legal duty to refrain from doing.
Illustration: Unknown to passengers, A drives a motor car without a driving license. An accident is caused and the passengers are injured. A is guilty of ‘malfeasance’ because driving a car without license was an act which he was under a legal duty not to do.
Therefore, in the given case, Sadanand is guilty of committing a tort amounting to misfeasance. Hence, option ‘B’ is correct answer. <>
31. B Share premium is in the nature of capital reserve and can be used for:
 Issue of fully paid bonus shares;
 Writing off preliminary expenses and any commission or discount allowed on issue of shares; and
 Providing for premium payable on redemption of preference shares or debenturs of the company.
The share premium raised is not available for payment of dividend as it is not profit. <>
32. C Perquisites are the benefits, both monetary and non-monetary, provided by the employer to his employees in addition to the cash salary or wages. The tax on fringe benefits or perquisites is called Fringe Benefit Tax (FBT). Usually, these perquisites are taxed in the hands of employees, but this tax is collected from the hands of the employer. It means the employer has to bear the tax on payment of fringe benefits. <>
33. D In case of a Hindu Undivided Family (HUF) business unit:
 A HUF business unit consists of homogeneous members since it consists of members of the joint family itself.
 A coparcener can demand partition of the joint family business
 The Karta has the sole authority to contract debts for the purpose of business, other
coparceners cannot do so.
 A HUF being a separate legal entity is assessed to tax as a separate person. It is eligible for all the deductions and exemptions, including the benefit of basic limit chargeable to tax and wealth tax available to an individual.
 Registration is not compulsory for carrying business even if the number of members exceeds twenty.
Hence, option ‘D’ is correct answer. <>
34. D Where there is no opportunity of communicating to the concerned parties about any urgency and a person in such a situation acts as an agent for the benefit of another, agency by necessity is said to have arisen. <>
35. E A counter offer is a situation wherein the offeree attempts to change the terms of the offer initially made by the offeror. A counter offer implies rejection of the original offer. Hence, option ‘E’ is correct answer. <>
36. C Normally appeal against assessing authority lies with State sales tax authorities (like Appellate Commissioner or Tribunal etc.). If there is a dispute concerning the sale of goods effected in inter-state sale, it is referred to a separate ‘Central Sales Tax Appellate Authority’ constituted by the Central Government. In other matters, the appeal will lie with State Appellate authorities as per local sales tax law. <>
37. C A member of a company entitled to attend and vote at a meeting may vote either in person or by proxy. A proxy has no right to participate in the discussions in the meeting. A proxy can vote only on a poll.
Therefore, in the given instance, Ravi may vote only on poll. Hence, option ‘C’ is correct answer. <>
38. E The misrepresentation should relate to a material fact. Where it is represented that something will happen or be done in future, this does not amount to a representation of fact. It is only an estimate or a forecast. Hence, there should be a misstatement relating to an existing fact. In Bentley vs. Black it was held that a calculation of future profits is not a representation of fact.
Therefore, in the given case, No one can be held liable since there is no misrepresentation of material fact in the prospectus issued by the company. Hence, option ‘E’ is correct answer. <>
39. E The validity of a contract of guarantee will not be affected in case there is a written contract of guarantee and there is no variance of the same in writing.
Hence, in the given case, Arun is not discharged from his liability as a surety as there was no variation in the terms of the contract. <>
40. D An agreement presupposes an offer by one party which is accepted by another party. Therefore one without the other does not bring an agreement into existence which can be legally enforced. Mere offer does not conclude a contract. It is in this aspect that distinction is sought to be made between an offer and an invitation to offer. There must be a ‘lawful offer’ and a ‘lawful acceptance’ for a valid contract. An offer is distinguished from Auctions, Pricelists or catalogues, price indications and prospectuses.
Therefore in the given instance there is no valid contract as the asking of lowest expected price amounts to a price indication as distinguished from offer. Hence, option ‘D’ is correct answer. <>
41. D The Board may, if authorized by the Articles, appoint an additional director who holds office only up to the date of the next AGM.
Therefore, in the given instance, Dhiraj shall vacate the office on the date the AGM of the company for 2007-08 should have been held. Hence, option ‘D’ is correct answer. <>
42. D A final dividend for any financial year can, as a rule, be declared and paid only when the balance sheet and profit and loss account are presented to the shareholders at the annual general meeting, and the shareholders after a consideration of the amount recommended by the directors, approve the same or such lesser amount as may appear to them to be reasonable and proper. The shareholders can approve the recommended rate of dividend or lower the same, but cannot increase the amount of dividend.
Therefore, in the given instance, the shareholders are empowered to reduce the rate of dividend recommended by the Board of Directors and reduce it to zero. Hence, option ‘D’ is correct answer. <>
43. C The agent is duty bound to transact the agency work in the interest if his principal’s business and not otherwise. That means he is not entitled to do anything for his personal benefit out of his principal business.
The principal may repudiate such agent’s transaction if he can prove that :
 A material fact has been dishonestly concelaed from him; or
 The dealing of the agent has beendisadvantageous to him.
Illustartion: X appoints Y to sell her estate at Ahmedabad. Susequently, Y discovered a mine in her principal’s estate. Without disclosing this fact to her, she buys the estate for herself. The princiapl may repudiate the transaction.
Therefore, in the instant case, Bhaskar can not only repudiate the sale but also refuse to pay the agreed remuneration. Hence, option ‘C’ is correct answer. <>
44. D Section 10 of the Indian Contract Act, 1872, lays down that the contracting parties should be competent to contract. Section 11 states that every person is competent to contract who is of the age of majority according to the law to which he is subject and who is of sound mind and is not disqualified from contracting by any law to which he is subject. In the landmark case of Mohiri Bibi vs. Dharmodas Ghose, the Privy Council ruled that the minor’s contract was void ab initio.
Therefore in the given instance, Shweta can raise the plea of minority and she need not repay any amount to Narayan as a contract with a minor is void ab initio. <>
45. E A transfer is complete between the transferor and the transferee when the transfer deed is executed and share certificates are handed over to the transferee. However, as between the company and the transferee, it is complete, only when the transfer is registered in the Company’s register. Hence, option ‘E’ is correct answer. <>
46. E A private company is normally a closely knit company with a very few members. Hence free transferability of shares is restricted. Joint holders of shares are treated as single member. Consent of directors need not to be filed with the Registrar of Companies. It requires a minimum of two members. Therefore the other options are false statements.
A private company can raise capital only by private arrangement as there is a restriction on issue of prospectus. Hence, option ‘E’ is correct answer. <>
47. D Immoveable property is defined as including “land, benefits to arise out of land and things attached to earth”. According to Transfer of Property Act, “immoveable property does not include standing timber, growing crops or grass”. Thus immoveable property can be said to include land, buildings, hereditary allowances, rights to way, light, ferries, fisheries, or any other benefit to arise out of land like rents of land and things attached to the earth, except standing timber, growing crops or grass. <>
48. B As per section 126 ‘contract of guarantee’ is a contract to perform the promise, or discharge the liability of a third person in case of his default. <>
49. E All the agreements made by lunatics during lucid intervals are valid. An alien enemy is the citizen of a country that is at war with India. An agreement with an alien enemy is void. After the ‘order if discharge’ an insolvent is competent to enter into contracts. Convict is a person disqualified by law to enter into a contract. <>
50. A A tort is a form of civil wrong. Someone will commit a civil wrong, if he/she breaches a legal duty owed to another. Not all civil wrongs amount to torts. Sometimes someone who commits a tort may at the same time commit a crime and become liable to suffer criminal punishment for what he has done. To constitute a tort there must be a wrongful act. <>
51. E In a hire purchase agreement:
 The goods are delivered by the owner to a person on a condition the person receiving such goods should pay the agreed amounts in some timely installments.
 The property in such goods is to pass completely to the person who hires the goods on the payment of the last installments only.
 The person has the right to terminate the agreement at any time before the property paases on.
Therefore, in the given case, Pavithra Motors can terminate the agreement because under hire purchase the seller can terminate the agreement any time before the ownership passes due to default by buyer. Hence, option ‘E’ is correct answer. <>
52. A Under Section 433 (C), if a company does not commence its business within a year from its incorporation, or suspends its business for a whole year, the Court may order winding up of the company.
Therefore, in the given case, as the company is deemed to have not ceased to carry on business, it cannot be wound up. Hence, option ‘A’ is correct answer. <>
53. B A partner of a Limited Liability Partnership (LLP) can freely transfer his economic interests either in whole or in part to a third person. Such transfer, however, shall neither cause the dissociation of the partner with the LLP, nor the dissolution or winding up of the LLP. However, such a transferee shall be disabled from participating in the conduct of the LLP business and from accessing information of the LLP activities.
Therefore, in the given case, Naresh can freely transfer his economic interest either in whole or in part to a third person. Hence, option ‘B’ is correct answer. <>
54. A According to section 17 of the Indian Contract Act, 1872, where a person conceals a material fact, it amounts to fraud. If a person intentionally takes steps to conceal a material fact which is very important for the formation of a contract, it amounts to fraud. Moreover, if he knows that disclosure of such concealed facts would be detrimental to his interest, it is an act of fraud.
Therefore, in the given case, Bhavesh can sue for setting the contract aside on the ground of fraud as Aniruddh’s silence amounts to fraud. Hence, option ‘A’ is correct answer. <>
55. B Any amalgamation or reconstruction may take the form of takeover or a merger.
Takeover is the passing over of the direct or indirect control of the assets of the target company to the acquiring company. In a merger, the shareholding in the combined enterprise will be spread between the shareholders of the two companies. <>
56. C A purported activity beyond the powers of the company will be ineffective even if ratified by all the members of the company. This rule is commonly known as ‘doctrine of ultra vires’. <>
57. C Where the mortgager transfers the possession of the mortgaged property to the mortgagee until the payment of the mortgage-money and to receive the rents and profits accruing from the property in lieu of interest or partly in payment of the mortgage-money, this type of mortgage is known as usufructuary mortgage. Hence, option ‘C’ is correct answer. <>
58. C A banker is authorized to combine the accounts in case there is existence of mutual debts between the bank and the customer for payment of money to each other. Such power of combining accounts is known as set off. <>
59. B Under the Contract Act, the use of a fiduciary relationship of trust and confidence by one party to exploit the other party to derive some contractual advantage is said to amount to undue influence. Hence, option ‘B’ is the correct answer. <>
60. B Quantitative trade restrictions include import quotas and exclusionary and costly licensing requirements. Health and safety regulations, Product standards, Environmental standards, procurement requirements and Customs procedures are considered as non-tariff barriers in the course of international trade. <>
61. E According to Section 27 of the Sale of Goods Act, 1930, the buyer of goods from a mercantile agent who has no authority to sell, gets a good title to the goods if
 The agent is in possession of the goods or documents of title to the goods with the consent of the owner.
 The agent sells the goods while acting in the ordinary course of business of a mercantile agent
 The buyer acts in good faith
 The buyer has not at the time of sale notice that the agent has no authority to sell.
Therefore, in the given case, Ashok cannot recover the car from Anand as the ownership of the car had passed on to Krishna who had bought the car in good faith from a mercantile agent. Hence, option ‘E’ is correct answer. <>
62. D A director will have to take up qualification shares only if required by the articles of association. According to Section 270, if the articles require a director to take up qualification shares, then such a person to be eligible to act as a director must acquire such qualification shares within two months of his appointment as director. On the expiry of two months, he automatically vacates his office if he has failed to acquire these shares.
Therefore, in the given instance, Vipul can be appointed as a director, provided he agrees to acquire the required qualification shares within a period of two months from his appointment. Hence, option ‘D’ is correct answer. <>
63. A According to Section 262, if the office of a director appointed in a general meeting is vacated before the expiry of his term either by reason of death, resignation, disqualification, failure of a director to accept the office or for any other reason except that of retirement by rotation, then subject to the articles, the board of directors may fill the vacancy at a meeting of the Board. This provision is applicable to a public company and a private company which is a subsidiary of the public company.
Therefore, in the given case, the board of Directors can appoint another person as a director in the casual vacancy. Hence, option ‘A’ is correct answer. <>
64. D Quantum meruit means simply ‘for what its worth”. It also means “as much as he deserves” The law recognizes the right of one to recover from the other for sums delivered for which no return value is given. This right gives rise to the cause of action known as ‘quantum meruit’.
Therefore, in the given case, Pramod can file a suit for recovery of the proportionate consideration for the work he had done on the contract on the principle of quantum meruit. Hence, option ‘D’ is correct answer. <>
65. A  A voluntary winding up will neither result in a stay of existing proceedings nor will it prevent the institution of new proceedings
 In case of voluntary winding up, the company continues to exist until it is dissolved
 The liquidator’s duty towards creditors and contributories comes to an end on the dissolution of the company
 A company may be voluntarily wound up by passing special resolution, in case members want to wind up a company in spite of it being solvent
 A voluntary winding up will be deemed to have commenced from the date of the passing of the resolution.
Hence, option ‘A’ is correct answer. <>
66. C The Courts have diverted from the Salomon principle and pierced the corporate veil in the following instances:
 Protection of revenue
 Prevention of fraud or improper conduct
 Determination of the character of the company
 Where company is used to avoid welafare legislation
 For determination of the technical competence of the company.
Therefore, option ‘C’ is correct answer as the corporate veil need not be pierced by the Courts where company is used for the furtherance of welfare legislation. <>
67. B CENVAT credit will be available for duty paid on :
 Raw materials (not all)
 Material used in relation to manufacture
 Packakging material
 Paints.
No credit is available if the final product is exempt from duty. Hence, option ‘B’ is correct answer.. <>
68. E The sole proprietorship business can be carried out in the name of the sole proprietor or under a trade name.
All the liabilities that arise from a sole proprietorship are the personal liabilities of the owner. A sole proprietorship need not be registered. The life cycle of a sole proprietorship is limited to the owner’s life span and hence, it does not enjoy perpetual succession. All the incomes and expenses of the business are included in the sole proprietor’s income tax returns and hence there is no need to file separate tax returns for a sole proprietorship. Therefore, all the other options are false statements.
Hence, option ‘E’ is correct answer. <>
69. C When a contract is broken, the injured party has one or more of the following remedies:
 Suit for rescission
 Suit for injunction
 Suit for specific performance
 Suit for damages
 Penalty by Courts, and
 Suit for Quantum meruit.
Injunction is the order from a Court that prohibits a party to do or refrain from doing a certain act. Hence, option (c) is correct answer. <>
70. E The following are the essential elements of a valid contract:
 Free consent
 Offer and acceptance
 Capacity
 Consideration
 Lawful Object
 Certainty and Possibility of performance
 Terms of contract should be clear
 Agreement must not be declared void
 Legal formalities.
In a contract consideration need not be adequate and in monetary terms. Consideration may be an act, abstinence or forbearance. Hence, option ‘E’ is correct answer. <>


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