LAW, BC & ETHICS – NEWLY ADDED QUESTIONS IN LATEST PRACTICE MANUAL(APRIL 2016)

Dear Students,
Following questions are newly added in the April 2016 edition of ICAI Practice Manual. Since these
questions are newly added by ICAI we were unable to cover them in our 35th Edition materials. Since
all these questions are newly added, they will be very important from exam point of view. Please pay
more attention on these questions.

1. THE CONTRACT ACT

Q.NO.1 Mr. U offered to sell his house to Mr. X for Rs. 15,00,000. Mr. X accepted the offer by
post. On the very next day Mr. X sent a telegram revoking the acceptance which reached Mr. U
before the letter of acceptance. Is the revocation of acceptance valid? Would it make any
difference if both the letter of acceptance and the telegram of revocation of acceptance reach
Mr. U at the same time?

Communication and revocation of acceptance when complete: The problem is related with the
communication and time of acceptance and its revocation. As per Section 4 of the Indian Contract
Act, 1872, the communication of an acceptance is complete as against the acceptor when it comes to
the knowledge of the proposer.
Whereas section 5 of the Indian Contract Act, 1872 says that an acceptance may be revoked at any
time before the communication of the acceptance is complete as against the acceptor, but not
afterwards.
Referring to the above provisions
i) Yes, the revocation of acceptance by Mr. X (the acceptor) is valid.
ii) If Mr. U opens the telegram first (and this would be normally so in case of a rational person) and
reads it, the acceptance stands revoked. If he opens the letter first and reads it, revocation of
acceptance is not possible as the contract has already been concluded.

Q.NO.2 State whether the following statements are correct or incorrect:

The agreement towards compounding of an, offence to avoid prosecution is void.

Incorrect

Q.NO.3 Under what circumstances the original contract need not be performed as stated under
section 62 to 67 of the Indian Contract Act, 1872?

Contracts which need not to be performed: A contract would not require performance under
circumstances spelt out in Sections 62 to 67 of the Indian Contract Act, 1872. These circumstances
are (i) novation, (ii) rescission, (iii) alteration and (iv) remission.
i) Novation: Novation means substitution. Where a given contract is substituted by a new contract, it is
novation. The old contract, on novation ceases. It need not be performed. Novation can take place
with mutual consent. However, novation can take place by substitution of new contract between the
same parties or between different parties. Novation results in discharge of old contract.
ii) Rescission: In case of rescission, the old contract is cancelled and no new contract comes in its
place. A contract is also discharged by rescission. Sometimes, parties may enter into an
agreement to rescind the previous contract. Sometimes, the contract is rescinded by implication
or by non- performance for a long time without each other complaining about it.
iii) Alteration: Where the contract is altered, the original contract is rescinded. Hence, the old one
need not be performed whereas the new one has to be performed. Alteration involves both
rescission and novation. The line of difference between alteration and novation is very thin. While
there can be very minor alterations, there cannot be unilateral material alteration to a contract. If it
is done it will be void.

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iv) Remission means waiver: Section 63 of the Act deals with remission. It provides that “every
promisee may dispense with or remit wholly or in part, the performance of the promise made to
him or may extend the time for such performance or mayaccept instead of it any satisfaction
which it thinks fit”. Thus the promisee canwaive either in full or in part the obligation of the
promisor or extend the time for performance.

Q.NO.4 ‘X’ entered into a contract with ‘Y’ to supply him 1,000 water bottles @ Rs. 5.00 per
water bottle, to be delivered at a specified time. Thereafter, ‘X’ contracts with ‘Z’ for the
purchase of 1,000 water bottles @ Rs. 4.50 per water bottle, and at the same time told ‘Z’ that
he did so for the purpose of performing his contract entered into with ‘Y’. ‘Z’ failed to perform
his contract in due course and market price of each water bottle on that day was Rs. 5.25 per
water bottle. Consequently, ‘X’ could not procure any water bottle and ‘Y’ rescinded the
contract. What would be the amount of damages which ‘X’ could claim from ‘Z’ in the
circumstances? What would be your answer if ‘Z’ had not informed about the ‘Y’s contract?
Explain with reference to the provisions of the Indian Contract Act, 1872.

Breach of Contract: Damages: Section 73 of the Indian Contract Act, 1872 lays down that when a
contract has been broken the party who suffers by such breach is entitled to receive from the party
who has broken the contract compensation for any loss or damage caused to him thereby which
naturally arose in the usual course of things from such breach or which the parties knew when they
made the contract to be likely to result from the breach of it.
The leading case on this point is “Hadley v. Baxendale” in which it was decided by the Court that the
special circumstances under which the contract was actually made were communicated by the
plaintiff to the defendant, and thus known to both the parties to the contract, the damages resulting
from the breach of such contract which they would reasonably contemplate, would be the amount of
injury which would ordinarily follow from the breach of contract under these special circumstances so
known and communicated.
The problem asked in this question is based on the provisions of Section 73 of the Indian Contract Act,
1872. In the instant case ‘X’ had intimated to ‘Z’ that he was purchasing water bottles from him for the
purpose of performing his contract with ‘Y’. Thus, ‘Z’ had the knowledge of the special circumstances.
Therefore, ‘X’ is entitled to claim from ‘Z’Rs. 500/- at the rate of 0.50 paise i.e. 1000 water bottles x 0.50
paise (difference between the procuring price of water bottles and contracted selling price to ‘Y’ ) being
the amount of profit ‘X’ would have made by the performance of his contract with ‘Y’.
If ‘X’ had not informed ‘Z’ of ‘Y’s contract then the amount of damages would have been the
difference between the contract price and the market price on the day of default. In other words, the
amount of damages would be Rs. 750/- (i.e. 1000 water bottles x 0.75 paise).

Q.NO.5 Explain the meaning of ‘Quasi-Contracts’. State the circumstances which are identified
as quasi contracts by the Indian Contract Act, 1872.

Quasi-Contracts: Meaning; Features; Identified Circumstances (Sections 68 to 72 of the Indian

Contract Act, 1872):
Meaning and Salient Features: Even in the absence of a contract, certain social relationships give
rise to certain specific obligations to be performed by certain persons. These are known as “quasi-
contracts” as they create some obligations as in the case of regular contracts. Quasi-contracts are
based on the principles of equity, justice and good conscience. The salient features of quasi-
contracts are: Firstly, such a right is always a right to money and generally, though not always, to a
liquidated sum of money; Secondly, it does not arise from any agreement between the parties
concerned but the obligation is imposed by law and; Thirdly, the rights available are not against all
the world but against a particular person or persons only, so in this respect it resembles to a
contractual right.
Circumstances Identified as Quasi-Contracts:
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i) Claim for necessaries supplied to persons incapable of contracting: Any person supplying
necessaries of life to persons who are incapable of contracting is entitled to claim the price from
the other person’s property. Similarly, where money is paid to such persons for purchase of
necessaries, reimbursement can be claimed.
ii) Right to recover money paid for another person: A person who has paid a sum of money
which another person is obliged to pay, is entitled to be reimbursed by that other person provided
that the payment has been made by him to protect his own interest.
iii) Obligation of person enjoying benefits of non-gratuitous act: Where a person lawfully does
anything for another person, or delivers anything to him not intending to do so gratuitously and
such other person enjoys the benefit thereof, the latter is bound to pay compensation to the
former in respect of, or to restore, the thing so done or delivered.
iv) Responsibility of finder of goods: A person who finds goods belonging to another person and
takes them into his custody is subject to same responsibility as if he were a bailee.
v) Liability for money paid or thing delivered by mistake or by coercion: A person to whom
money has been paid or anything delivered by mistake or under coercion, must repay or return it.
In all the above cases contractual liability arises without any agreement between the parties.

Q.NO.6 Amit stands surety for ‘Bikram' for any amount which ‘Chander’ may lend to 'Bikram'
from time to time during the next three months subject to a maximum amount of Rs.1,00,000 (one
Iakh only). One month later 'Amit' revokes the surety, when 'Chander’ had already lent to ‘Bikram'
Rs. 10,000 (ten thousand). Referring to the provisions of the Indian Contract Act, 1872. Decide:
i) Whether 'Amit' is discharged from all the liabilities to 'Chander' for any subsequent loan given
to 'Bikram'?
ii) What would be your answer in case 'Bikram' makes a default in paying back to 'Chander' the
already borrowed amount of Rs. 10,000?

Revocation of continuing guarantee: The problem as asked in the question is based on the
provisions of the Indian Contract Act 1872, as contained in Section 130 relating to the revocation of a
continuing guarantee as to future transactions which can be done mainly in the following two ways-
1. By Notice: A continuing guarantee may at any time be revoked by the surety as to future
transactions, by notice to the creditor.
2. By death of surety: The death of the surety operates, in the absence of any contract to the contrary,
as a revocation of a continuing guarantee, so far as regards future transactions. (Section 131).
So far as the transactions before revocation are concerned, the liability of the surety for previous
transactions (i.e. before revocation) remains.
i) Thus applying the above provisions in the given case, Amit is discharged from all the liabilities to
Chander for any subsequent loan.
ii) Answer in the second case would differ i.e. Amit is liable to Chander for Rs. 10,000 on default of
Bikram since the loan was taken before the notice of revocation was given to Chander.

Q.NO.7 State whether the following statements are correct or incorrect:

Bailee has no right to mix the goods bailed with his own goods without the consent of the
bailor.

Correct

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2. THE NEGOTIABLE INSTRUMENTS ACT, 1881

Q.NO.1
i) What is meant by ‘Sans Recours Endorsement’ of a bill of exchange? How does it differ from
‘Sans Frais Endorsement’?
ii) ‘P’, a major and ‘Q’, a minor executed a promissory note in favour of ‘R’, Examine with
reference to the provisions of the Negotiable Instruments Act, 1881, the validity of the
promissory note and whether it is binding on ‘P’ and ‘Q’.

i) Sans Recourse: Sans Frais (The Negotiable Instruments Act, 1881):

Sans Recourse: By adding the words ‘Sans Recourse’ after the endorsement the endorser
declines to accept any liability on the instrument of any subsequent party. Sometimes, when an
endorser who so excludes his liability as an endorser afterwards becomes the holder of the same
instrument. In such a case, all intermediate endorsers are liable to him.
Sans Frais: These words when added at the end of the endorsement, indicate that no expenses
should be incurred on account of the bill.
Difference: Any endorser can exclude personal liability by endorsing “sans recourse” i.e. without
recourse. However, “Sans Frais” endorsement, indicate that no expenses should be incurred on
account of the bill.
ii) Liability of a Minor: According to Section 26 of the Negotiable Instruments Act, 1881, every
person competent to contract (according to the law to which he is subject to) has capacity to bind
himself and be bound by making, drawing, accepting, endorsing delivering and negotiating an
instrument. A party having such capacity may himself put his signature or authorize some other
person to do so.

A minor may draw, endorse, deliver and negotiate an instrument so as to bind all the parties
except himself. A minor may be a drawer where the instrument is drawn or endorsed by him. In
that case he does not incur any liability himself although other parties to the instrument can be
made liable and the holder can receive payment from any other party thereto.
Therefore, in the instant case, the promissory note is valid and it is binding on ‘P’ but not on ‘Q’, a
minor.

Q.NO.2
i) Mr. A is the payee of an order cheque. Mr. B steals the cheque and forges Mr. A signatures
and endorses the cheque in his own favour. Mr. B then further endorses the cheque to Mr. C,
who takes the cheque in good faith and for valuable consideration. Examine the validity of the
cheque as per the provisions of the Negotiable Instruments Act, 1881 and also state whether
Mr. C can claim the privileges of a Holder-in-Due course?
ii) Explain the concept and different forms of Restrictive and Qualified endorsement.

i) Title to forged cheque under the Negotiable Instruments Act, 1881: Forgery confers no title and a
holder acquires no title to a forged instrument. A forged document is a nullity. The property in the
instrument remains vested in the person who is the holder at the time when the forged signatures
were put on it. Forgery is also not capable of being ratified. In the case of forged endorsement,
the person claiming under forged endorsement even if he is purchaser for value and in good faith,
cannot acquire the rights of a holder in due course. Therefore, Mr. C acquires no title on the
cheque (Mercantile Bank vs. D’Silva,30 Bom.L.R.1225). Such a holder is not a holder in due
course and hence no privilege is available.

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ii)
1. Restrictive Endorsement: Such an endorsement has the effect of restricting further negotiation
and transfer of the instrument.
Example: (1) Pay to A only S. Mukerjee
(2) For the account of A only N. Aiyar
2. Conditional or qualified endorsement: Such an endorsement combines an order to pay with
condition.
Example: Pay to A on safe receipt of goods. V. Chopra

Q.NO.2 State whether the following statements are correct or incorrect:

i) A cheque marked "Not negotiable" is not transferable.
ii) A promissory note duly executed in favour of a minor, is valid.

i) A cheque marked “Not Negotiable” is not transferable.

Incorrect. A cheque marked “not negotiable” is a transferable instrument. The inclusion of the words
‘not negotiable’ however makes a significant difference in the transferability of the cheques. The
holder of such a cheque cannot acquire title better than that of the transferor.

ii) A promissory note duly executed in favour of a minor, is valid.

Correct. As a minor’s agreement is void, he cannot bind himself by becoming a party to a negotiable
instrument. But he may draw, endorse, deliver and negotiate such instruments so as to bind all
parties except himself (Section 26 of the Negotiable Instruments Act, 1881).

3. THE PAYMENT OF BONUS ACT, 1965

Nil

4. THE EMPLOYEES’ PROVIDENT FUNDS AND MISCELLANEOUS PROVISIONS ACT,

1952
Q.NO.1 An Inspector appointed under the Employees’ Provident Funds and Miscellaneous
Provisions Act, 1952 makes an inspection at 8 a.m. (an hour before factory timings) and seeks to
take copies of the “Income Tax Returns”. How far under the Act is his action reasonable?

Validity of Act of Inspector: According to Section 13(2)(b) of the Employees’ Provident Funds and
Miscellaneous Provisions Act, 1952, the inspector can at any reasonable time, enter and search any
establishment and require any one found in charge thereof to produce before him for examination any
accounts, books, registers and other documents relating to employment of persons or the payment of
wages in the establishment.
Further, under Section 13(2)(d) of the said Act, an inspector can inspect and make copies of, or take
extract from any book, register or other document maintained in relation to the establishment and,
when he has reason to believe that any offence under this Act has been committed by any employer,
seize with such assistance as he may think fit, such book, register or other document or portions
thereof as he may consider relevant in respect of that offence.
In the instant case, the inspector has sought to take copies of the “Income Tax Returns”, which are
not relevant documents for the purpose of the Employees’ Provident Funds and Miscellaneous
Provisions Act, 1952. Moreover, the inspector hasvisited the office of establishment before the normal
working hours of the office, which is not reasonable.
Hence, the action of the inspector is NOT reasonable.

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Q.NO.2 State the provisions of Employees' Provident Funds and Miscellaneous Provisions
Act, 1952 regulating the quantum of contribution to be made by the employer and employee to
the Provident Fund. Is it possible for an employee to increase the amount of his contribution
to the Provident Fund more than the minimum contribution as statutorily prescribed ?

Contribution to Provident Fund under the Employees’ Provident Funds and Miscellaneous
Provisions Act, 1952: Section 6 of the Employees’ Provident Funds and Miscellaneous Provisions
Act, 1952 regulates contribution to Provident Fund Scheme established under the Act.
The employer's contribution shall be 10% of the basic wages, dearness allowance and retaining allowance,
if any payable to each of the employees whether employed by him directly or by through a contractor.
The employee's contribution shall be equal to the contribution payable by the employer in respect of him.
In case the employee so desires, he may contribute an amount exceeding ten percent of his basic
wages, dearness allowance and retaining allowance if any, subject to the condition that the employer
shall not be under an obligation to pay any contribution over and above his contribution payable
under this section.
Dearness allowance includes cash value of any food concession allowed to the employees. Retaining
allowance means the sum paid for retaining the service, when the factory is not working.
The Central Government may by notification make the employer's contribution equal to 12% for
certain establishments class of establishments.

5. THE PAYMENT OF GRATUITY ACT, 1972

Q.NO.1 ‘N’ is employed in ABC Limited, a seasonal establishment. The factory was in operation
from 1st March to 30th June during the financial year 2014-15. Though, ‘N’ was not in continuous
service during this period, he had worked for 95 days. Referring to the provisions of the Payment
of Gratuity Act, 1972, decide whether ‘N’ is entitled to gratuity.

Payment of Gratuity to Seasonal Employee: Sub-section 3 of Section 2A of the Payment of

Gratuity Act, 1972 provides that where an employee, employed in a seasonal establishment, is not in
continuous service within the meaning of clause (1), for any period of one year or six months, he shall
be deemed to be in continuous service under the employer for such period if he has actually worked
for not less than seventy-five percent of the number of days on which the establishment was in
operation during such period.
In the given problem, “N” has worked for 95 days in ABC Limited, and as per the above provision, “N”
has worked for more than 75 % of number of days on which the establishment was in operation i.e.
75 % of 120 days (1st of March to 30th June ) = 90 days. Therefore, “N” shall be entitled for gratuity.

Q.NO.2 Mr. X was an employee of Green Sugars, Ltd. The whole of undertaking of Green
Sugars Ltd. was taken-over by a new company named Modern Sugars Ltd. The services of Mr.
X remained continuous in the new company. After serving for one year Mr. X met with an
accident and became permanently disabled. Mr. X applied to the new company for the
payment of gratuity. The new company refused to pay gratuity on the ground that Mr. X has
served only for a year in the new company.
Examine the validity of the refusal of the company in the light of the provisions of the Payment of
Gratuity Act, 1972.

Entitlement to Gratuity: According to Section 4 (1) of the Payment of Gratuity Act, 1972, gratuity shall
be payable to an employee on the termination of his employment after he has rendered continuous
service for not less than five years on his superannuation, or, on his retirement or resignation or on his
death or disablement due to accident or disease.The proviso to the said section states that the condition
of the completion of five years of continuous service is not essential in case of the termination of the
employment of any employee due to death or disablement for the purpose of this section.
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Disablement has been explained as such disablement which incapacitates an employee for the work
which he was capable of performing before the accident or disease resulting in such disablement.
Further, by the change of ownership, the relationship of employer and employees subsists and the
new employer cannot escape from the liability of payment of gratuity to the employees; it was held in
the case of Pattathurila K. Damodaran Vs M. Kassim Kanju (1993) I LLJ 1211 (Ker).
The given problem fulfils all the above requirements as stated. Therefore, Mr. X is entitled to recover
gratuity after becoming permanently disabled and continuous service of five years is not required in
this case. Hence, the company cannot refuse to pay gratuity on the ground that he has served only
for a year.
6. THE COMPANIES ACT, 2013
UNIT 1: PRELIMINARY

Q.NO.1 Define the term ‘Small Company’ as contained in the Companies Act, 2013.

Small Company: Under Section 2 (85) of the Companies Act, 2013, “small company” means a
company, other than a public company:-
i) having paid-up share capital not exceeding fifty lakh rupees or such higher amount as may be
prescribed which shall not be more than five crore rupees; and
ii) having turnover as per its last profit and loss account not exceeding two crore rupees or such
higher amount as may be prescribed which shall not be more thantwenty crore rupees.
Exceptions: This section shall not apply to:
 A holding company or a subsidiary company;
 A Company registered under section 8, or
 A Company or body corporate governed by any special Act.

Q.NO.2 What is the importance of registered office of a company? State the procedure for shifting
of a registered office of the company from one state to another state under the provisions of the
Companies Act, 2013.

Importance of registered office:

i) Section 12 (1) states that a company shall, on and from the fifteenth day of its incorporation and
at every time thereafter, have a registered office capable ofreceiving and acknowledging all
communications and notices addressed to it.
ii) Section 12 (3) further requires every company to:
iii) Paint or affix its name and address of its registered office, and keep the same painted and affixed,
on the outside of every office or place in which its business is carried on. Such display must be in
a conspicuous position, in legible letters in characters and letters of the local language in addition
to any other language (if chosen by the company);
iv) Get its name, address of its registered office and the corporate identity number and other details,
on all its business letters, bill heads, notices and other official publications;
v) From the above provisions of the Companies Act, 2013, the extremely high importance of the
registered office of a company can be well understood as it serves as the location where:
a) necessary documents may be served upon, or deposited; b) notices, letters, etc., may be
issued ; c) inspection may be done, and (d) communication may be made. The domicile and the
nationality of a company is determined by the place of its registered office. This is also important
for determining the jurisdiction of the Court governing it.

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vi) Notice of the situation of the registered office and of every change therein must be sent to the
Registrar (otherwise than through a statement as to the address of the registered office in the
annual report) within 30 days of the date of incorporation and the date of change. This provision is
designed to locate the spot where the records of the company could be inspected and where the
letters should be addressed and notices served upon the company.
Procedure for shifting the registered office from one state to another state (Section 13, of the
Companies Act, 2013):
In order to shift the registered office from one state to another the following procedure will have to
be followed:
1. Hold a Board Meeting for the purpose of calling a general meeting of the members of the
company in which the shifting of the registered office from one state to another will have to be
approved;
2. The general meeting of the members will have to pass a special resolution approving the
change of address of the registered office from one state to another as required by section 13
(1) of the Companies Act 2013.
3. Make an application to the Central Government/Regional Directors in such form and manner
as may be prescribed, for getting its approval under section 13 (4) of the Companies Act
2013.
4. Under section 13 (7) of the Companies Act 2013, where an alteration of the Memorandum
results in the transfer of the registered office of the company from one state to another, a
certified copy of the order of the Central Government approving the alteration shall be filed by
the company with the registrar of each of the states, within such time and in such manner as
may be prescribed, and the registrars shall register the same. The registrar of the state where
the registered office is being shifted to, shall issue a fresh certificate of incorporation indicating
the alteration.
5. The change in name will be effective only after the issue of the fresh certificate of
incorporation by the Registrar of the state where the registered office is being shifted to.

UNIT – 2: PROSPECTUS

Q.NO.3 MNO Private Limited, a subsidiary of PQR Limited, decides to give a loan of Rs. 4,00,000 to
the HR (Human Resource) Manager, who is not a Key Managerial Personnel (KMP) of MNO Private
Limited, drawing salary of Rs. 30,000 per month, to buy 500 partly paid-up Equity Shares of Rs.
1000 each in MNO Private Limited. Examine the validity of company's decision under the
provisions of the Companies Act, 2013.

Restrictions on purchase by company or giving of loans by it for purchase of its share: As per
section 67 (3)8 of the Companies Act, 2013 a company is allowed to give a loan to its employees
subject to the following limitations:
a) The employee must not be a Key Managerial Personnel;
b) The amount of such loan shall not exceed an amount equal to six months’ salary of the employee.
c) The shares to be subscribed must be fully paid shares
Section 2 (51) of the Companies Act, 2013 defines the “Key Managerial Personnel” (KMP)
whereby a KMP includes the Chief Executive, Company Secretary, Whole Time Director, Chief
Financial Officer or any other officer who may be prescribed.
In the given instance, HR Manager is not a KMP of the MNO Private Ltd. He is drawing salary of
Rs. 30, 000 per month and loan taken to buy 500 partly paid up equity shares of Rs. 1000 each in
MNO Private Ltd. Keeping the above provisions of law in mind, the company’s (MNO Private Ltd.)
decision is invalid due to two reasons:

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i) The amount of loan being more than 6 months’ salary of the HR Manager, which should have
restricted the loan to Rs. 1.8 Lakhs.
ii) The shares subscribed are partly paid shares where as the benefit is available only for
subscribing fully paid shares.

Q.NO. 4 Define the term "Free Reserves" as contained in the Companies Act, 2013.

Free reserve- As per section 2(43) of the Companies act, 2013, “Free Reserves” means such
reserves which as per the latest audited balance sheet of a company are available for distribution as
dividend provided that :
i) Any amount representing unrealized gains, notional gains or revaluation of assets, whether
shown as a reserve or otherwise or
ii) Any change in carrying amount of an asset or of a liability recognized in equity, including surplus
in profit and loss account on measurement of the asset or the liability at fair value shall not be
treated as free reserves.

Q.NO. 5 Examine the validity of the following referring to the provisions of the Companies Act,
2013 and/or Rules:
“The Articles of Association of X Ltd. contained a provision that upto 4% of issue price of' the
shares may be paid as underwriting commission to the underwriters. The Board of Directors of X
Ltd. decided to pay 5% underwriting commission.

Under the Companies (Prospectus and Allotment of Securities) Rules, 2014 the rate of commission
paid or agreed to be paid shall not exceed, in case of shares, five percent (5%) of the price at which
the shares are issued or a rate authorised by the articles, whichever is less.
In the given problem, the articles of X Ltd. have prescribed 4% underwriting commission but the
directors decided to pay 5% underwriting commission. Therefore, the decision of the Board of
Directors to pay 5% commission to the underwriters is invalid.

Q.NO. 6 When is an allotment of shares treated as an irregular allotment? Briefly state the effects
of an irregular allotment.

Irregular allotment: The Companies Act, 2013 does not separately provide for the term “Irregular
Allotment” of securities. Hence, one will have to examine the requirements of a proper issue of
securities and consider the consequences of non fulfilment of those requirements.
In broad terms, an allotment of shares is deemed to be irregular when it has been made by a
company in violation of Sections 23, 26, 39 and 40. Irregular allotment therefore arises in the
following instances:
1. Where a company does not issue a prospectus in a public issue as required by section 23; or
2. Where the prospectus issued by the company does not include any of the matters required to be
included therein under section 26 (1), or the information given is misleading, faulty and incorrect;
or
3. Where the prospectus has not been filed with the Registrar for registration under section 26 (4);
4. The minimum subscription as specified in the prospectus has not been received in terms of
section 39; or
5. The minimum amount receivable on application is less than 5% of the nominal value of the
securities offered or lower than the amount prescribed by SEBI in this behalf; or

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6. In case of a public issue, approval for listing has not been obtained from one or more of the
recognized stock exchanges under section 40 of the Companies Act, 2013 Effects of irregular
allotment: The consequences of an irregular allotment depend on the nature of irregularity.
However, the Companies Act, 2013 does not mention (unlike the previous Companies Act) that in
case of an irregular allotment the contract is voidable at the option of the allottee.
Under section 26 (9) of the Companies Act, 2013 if a prospectus is issued in contravention of the
provisions of section 26, the company shall be punishable with fine which shall not be less than fifty
thousand rupees but which may extend to three lakh rupees and every person who is knowingly a
party to the issue of such prospectus shall be punishable with imprisonment for a term which may
extend to three years or with fine which shall not be less than fifty thousand rupees but which may
extend to three lakh rupees, or with both.
Similarly, in case the company has not received the minimum subscription amount within 30 days of
the date of issue of the prospectus, it must refund the application money received by it within the
stipulated time. Any allotment made in violation of this will be void and the defaulting company and
officers will be liable to further punishment as provided in section 39 (5).
Under section 40 (5) any default made in respect of getting the approval to listing of securities in one
or more recognized stock exchange in case of a public issue, will render the company punishable
with a fine which shall not be less than five lakh rupees but which may extend to fifty lakh rupees and
every officer of the company who is in default shall be punishable with imprisonment for a term which
may extend to one year or with fine which shall not be less than fifty thousand rupees but which may
extend to three lakh rupees, or with both.
Hence, under various provisions of the Companies Act, 2013 stringent punishment has been
provided for against irregular allotment of securities but the option of going ahead with such allotment
even if desired by the allottee is not specifically permitted.

UNIT – 3: SHARE CAPITAL

Q.NO. 7 Board of Directors of PQR Limited wants to create a ‘Debenture Redemption Reserve
(DRR)’ for the redemption of debentures issued by the company under the provisions of the
Companies Act, 2013. Explain the provisions of the Companies (Share Capital and Debenture)
Rules, 2014 in this regard.

Debenture Redemption Reserve Account [Section 71 of the Companies Act, 2013: Companies
(Share Capital and Debentures) Rules, 2014]: Where debentures are issued by a company under
Section 71 of the Companies Act, 2013, the company shall create a debenture redemption reserve
account out of the profits of the company available for payment of dividend and the amount credited
to such account shall not be utilised by the company except for the redemption of debentures.
As per the Companies (Share Capital and Debentures) Rules, 2014, the company shall create a
Debenture Redemption Reserve for the purpose of redemption of debentures, in accordance with the
conditions given below:
a) The Debenture Redemption Reserve shall be created out of the profits of the company available
for payment of dividend;
b) The company shall create Debenture Redemption Reserve (DRR) in accordance with the
following conditions:
i) No DRR is required for debentures issued by All India Financial Institutions (AIFIs ) regulated
by Reserve Bank of India and Banking Companies for both public as well as privately placed
debentures. For other Financial Institutions (FIs) within the meaning of clause (72) of Section
2 of the Companies Act, 2013, DRR will be as applicable to NBFCs registered with RBI.

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ii) For NBFCs registered with RBI under Section 45-1A of the RBI (Amendment) Act, 1997 for
Housing Finance Companies registered with the National Housing Bank, the adequacy of
DDR will be 25% of the value of debentures issued through public issue as per present SEBI
(issue and Listing of Debt Securities) Regulations, 2008, and no DRR is required in the case
of privately placed debentures.
iii) For other companies including manufacturing and infrastructure companies the adequacy of
DRR will be 25% of the value of debentures issued through public issue as per present SEBI
(Issue and Listing of Debt Securities) Regulations, 2008 and also 25% DRR is required in the
case of privately placed debentures by listed companies. For unlisted companies issuing
debentures on private placement basis, the DRR will be 25% of the value of debentures.
c) Every company required to create Debenture Redemption Reserve shall on or before 30th day of
April in each year, as the case may be, a sum which shall be not less than 15%, of the amount of
its debentures, maturing during the year ending on 31st day of March of the next year, in any one
or more of the following methods, namely:
i) in deposits with any scheduled bank, free from any charge or lien;
ii) in unencumbered securities of the Central Government or any State Government;
iii) in unencumbered securities mentioned in sub-clauses (a) to (d) and (ee) of Section 20 of the
Indian Trust Act, 1882;
iv) in unencumbered bonds issued by any other company which is notified under sub-clause (f) of
Section 20 of the Indian Trust Act, 1882;
v) The amount invested or deposited as above shall not be used for any purpose other than for
redemption of debentures maturing during the year referred above: Provided that the amount
remaining invested or deposited, as the case may be, shall not at any time fall below 15% of
the amount of the debentures maturing during the year ending on the 31st day of March of
that year.
d) In case of partly convertible debentures, Debenture Redemption Reserve shall be created in
respect of non-convertible portion of debenture issue in accordance with this sub-rule.
e) The amount credited to the Debenture Redemption Reserve shall not be utilised by the company
except for the purpose of redemption of debentures.

Q.NO. 8 A company refuses to register transfer of shares made by Mr. X to Mr. Y. The company
does not even send a notice of refusal to Mr. X. or Mr. Y respectively within the prescribed period.
Has the aggrieved party any right(s) against the company for such refusal? Advise as per the
provisions of the Companies Act, 2013.

Refusal of registration and appeal against refusal: The problem as asked in the question is
governed by Section 58 of the Companies Act, 2013 dealing with the refusal to register transfer and
appeal against refusal.
In the present case the company has committed the wrongful act of not sending the notice of refusal
of registering the transfer of shares.
Under section 58 (4), if a public company without sufficient cause refuses to register the transfer of
securities within a period of thirty days from the date on which the instrument of transfer is delivered
to the company, the transferee may, within a period of sixty days of such refusal or where no
intimation has been received from the company, within ninety days of the delivery of the instrument of
transfer, appeal to the Tribunal.
Section 58 (5) further provides that the Tribunal, while dealing with an appeal made under sub-
section (4), may, after hearing the parties, either dismiss the appeal, or by order—

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a) Direct that the transfer or transmission shall be registered by the company and the company shall
comply with such order within a period of ten days of the receipt of the order; or
b) Direct rectification of the register and also direct the company to pay damages, if any, sustained
by any party aggrieved;.
In the present case Mr. X can make an appeal before the tribunal and claim damages.

UNIT – 4: MEETINGS AND PROCEEDINGS

Q.NO. 9 Explain the concept of ‘electronic voting system’ as provided by the Companies Act,
2013.

Voting through Electronic Means: According to Section 108 of the Companies Act, 2013, the
Central Government may prescribe the class or classes of companies and manner in which a
member may exercise his right to vote by the electronic means. According to the rules provided on
voting through electronic means:
1. Every listed company or a company having not less than one thousand shareholders, shall
provide to its members facility to exercise their right to vote at general meeting by electronic
means.
2. A member may exercise his right to vote at a general meeting by electronic means and the
company may pass any resolution by electronic voting system in accordance with the provisions
of this rule. The expression “voting by electronic means” or “electronic voting system” means a
secured system based process of display of electronic ballots, recording of votes of the members
and the number of votes polled in favour or against, such that the entire voting exercised by way
of electronic means gets registered and counted in an electronic registry in a centralized server
with adequate cyber security.
The expression “secured system” computer hardware, software and procedure that:
 Are reasonably secure from unauthorized access and misuse;
 Provide a reasonable level of reliability and correct operation;
 Are reasonably suited to performing the intended functions; and
 Adhere to generally accepted security procedures.

Q.NO. 10The Annual General Meeting of KMP Limited was held on 30th April, 2015. The Articles of
Association of the company is silent regarding the quorum of the General Meeting. Only 10
members were personally present in the above meeting, out of the total 2,750 members of the
company. The Chairman adjourned the meeting for want of quorum. Referring to the provisions of
the Companies Act, 2013, examine the validity of Chairman’s decision.

Quorum; Consequences of no Quorum: Quorum means the minimum number of members who must
be present in order to constitute a meeting and transact business thereat. Thus, quorum represents
the number of members on whose presence the meeting of a company can commence its
deliberations. Section 103 of the Companies Act, 2013 provides the law with respect to the quorum
for the meetings. The said section provides that where the Articles of the company do not provide for
a larger number, there the quorum shall depend on number of members as on date of a meeting.
In case of a public company:
i) Five members personally present if the number of members as on the date of meeting is not
more than one hundred;
ii) Fifteen members personally present if the number of members as on the date of meeting is
more than one thousand but up to five thousand;

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iii) Thirty members personally present if the number of members as on the date of the meeting
exceeds five thousand; shall be the quorum for a meeting of the company.
Consequences of no Quorum: If the quorum is not present within half-an-hour from the time
appointed for holding a meeting of the company –
a) The meeting shall stand adjourned to the same day in the next week at the same time and
place, or
b) to such other date and such other time and place as the Board may determine; or
c) the meeting, if called by requisitions (under section 100 ), shall stand cancelled.
In the instant case, KMP Limited is a public company with total number of 2750 members, hence
atleast 15 members should have been personally present in order to constitute a valid quorum for
the Annual General Meeting.
Thus, the meeting shall automatically stand adjourned to the same day in the next week at the
same time and place, if the quorum is not present within half –an-hour from the time appointed for
holding a meeting of the company. Further, the Board of Directors may decide for such other date
and such other time and place, which they may deem fit. Section 103 of the said Act itself
provides for automatic adjournment of the meeting to the same day in the next week at the same
time and place, rather the Chairman obviating to take a decision on the matter of the meeting.
The question of validity of Chairman’s decision does not arise.

7. PRINCIPLES OF BUSINESS ETHICS

Q.NO.1State with reasons whether the following statements are correct or incorrect:
i)‘Fairness and Justice’ are two different approaches as a source of ethical standards.
ii) Inclusion of environmental consideration as a part of corporate strategy improves corporate
performance.

i) Incorrect: The given statement “Fairness and Justice” are two different approaches as a source
of ethical standards is incorrect. Aristotle and other Greek philosophers have contributed the idea
that all equals should be treated equally. Today we use this idea to say that ethical actions treat
all human beings equally or if unequally, then fairly based on some standard that is defensible.
We pay people more based on their harder work or the greater amount that they contribute to an
organization, and say that is fair. But there is a debate over CEO salaries that are hundreds of
times larger than the pay of others; may ask whether the huge disparity is based on a defensible
standard or whether it is the result of an imbalance of power and hence is unfair.
ii) Correct: Inclusion of environmental consideration as a part of corporate strategy improves
corporate performance is a correct statement. Environmental consideration is a part of corporate
strategy, which means incorporating environmental issues in the process of developing a product,
in new investments and in the organizational set up. A good environmental practice improves
corporate performance. In many industries it has been found that environmental friendly practices
have resulted in more saving; for example the process of recycling the waste. Thus,
environmental considerations play a key role in corporate strategy. Markets of new millennium will
be able to create wealth if they respond to the challenges of sustainable development, as
unsustainable products will become obsolete.

Q.NO. 2 Explain any four sources of ethical standard.

Sources of Ethical Standards:

1. The Utilitarian Approach: Some ethicists emphasize that the ethical action is the one that
provides the most good or does the least harm, or, to put it another way, produces the greatest
balance of good over harm. The ethical corporate action, then, is the one that produces the
greatest good and does the least harm for all who are affected - customers, employees,
shareholders, the community, and the environment. The utilitarian approach deals with
consequences; it tries both to increase the good done and to reduce the harm done.

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2. The Rights Approach (The Deontological Approach): Other philosophers and ethicists suggest
that the ethical action is the one that best protects and respects the moral rights of those affected.
This approach starts from the belief that humans have a dignity based on their human nature per se
or on their ability to choose freely what they do with their lives. On the basis of such dignity, they have
a right to be treated as ends and not merely as means to other ends. The list of moral rights -including
the rights to make one's own choices about what kind of life to lead, to be told the truth, not to be
injured, to a degree of privacy, and so on-is widely debated; some now argue that non-humans have
rights, too. Also, it is often said that rights imply duties-in particular, the duty to respect others' rights.
3. The Fairness or Justice Approach: Aristotle and other Greek philosophers have contributed the
idea that all equals should be treated equally. Today we use this idea to say that ethical actions
treat all human beings equally-or if unequally, then fairly based on some standard that is
defensible. We pay people more based on their harder work or the greater amount that they
contribute to an organization, and say that is fair. But there is a debate over CEO salaries that are
hundreds of times larger than the pay of others; many ask whether the huge disparity is based on
a defensible standard or whether it is the result of an imbalance of power and hence is unfair.
4. The Common Good Approach: The Greek philosophers have also contributed the notion that life
in community is a good in itself and our actions should contribute to that life. This approach
suggests that the interlocking relationships of society are the basis of ethical reasoning and that
respect and compassion for all other sespecially the vulnerable-are requirements of such
reasoning. This approach also calls attention to the common conditions that are important to the
welfare of everyone. This may be a system of Laws, effective police and fire departments, health
care, a public educational system, or even public recreational areas.
5. The Virtue Approach: A very ancient approach to ethics is that ethical actions ought to be
consistent with certain ideal virtues that provide for the full development of our humanity. These
virtues are dispositions and habits that enable us to act according to the highest potential of our
character and on behalf of values like truth and beauty. Honesty, courage, compassion,
generosity, tolerance, love, fidelity, integrity, fairness, self-control, and prudence are all examples
of virtues. Virtue ethics asks of any action, "What kind of person will become if I do this?" or "Is
this action consistent with my acting at my best?"

8. CORPORATE GOVERNANCE AND CORPORATE SOCIAL RESPONSIBILITY

Q.NO.1 State with reason whether the following statement is correct or incorrect:
Inclusion of environmental consideration as a part of corporate strategy improves corporate
performance.

Correct: Inclusion of environmental consideration as a part of corporate strategy improves corporate

performance is a correct statement. Environmental consideration is a part of corporate strategy, which
means incorporating environmental issues in the process of developing a product, in new investments
and in the organizational set up. A good environmental practice improves corporate performance. In many
industries it has been found that environmental friendly practices have resulted in more saving; for
example the process of recycling the waste. Thus, environmental considerations play a key role in
corporate strategy. Markets of new millennium will be able to create wealth if they respond to the
challenges of sustainable development, as unsustainable products will become obsolete.

Q.NO.2. What is meant by ‘Corporate Governance’? State the ‘measures of Corporate

Governance’ with reference to Indian companies.

Meaning and Measures of Corporate Governance:

Meaning: “Corporate governance is about promoting corporate fairness, transparency and accountability.
It is concerned with the structures and processes for decision making, accountability, control and behavior
at the top level of organizations. It influences how the objectives of an organization are set and achieved,
how risk is monitored and assessed and how performance is optimized.

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Measures: In general, corporate governance measures include appointing non executive directors,
placing constraints on management power and ownership concentration, as well as ensuring proper
disclosure of financial information and executive compensation. Many companies have established
ethical and/or social Responsibility committees on their Boards to review strategic plans, assess
progress and offer guidance on social responsibilities of their business. In addition to having
committees and Boards, some companies have adopted guidelines governing their own policies
around such issues like board diversity, dependence, and compensation. Indian companies are also
required to comply with Clause 49 of the listing agreement.

9. WORKPLACE ETHICS
Q.NO.1 Explain the various socio-psychological factors responsible for developing negative
attitude by an individual at workplace.

Socio-Psychological Factors Responsible for Developing Negative Attitude by an Individual at

Work Place: An ethical issue is an identifiable problem, situation or opportunity that requires a
person to choose from several actions which could be evaluated as right or wrong. Values reflect
enduring beliefs that one holds that influences attitude, action and the choices one make. As
individuals, our values are shaped by our personal beliefs. Values developed in childhood and youth
are constantly tested and on-the-job decisions reflect the employee’s understanding of ethical
responsibility. Various socio- psychological factors that could be responsible why individuals could
develop negative attitudes or lose personal motivation are:
i) Negative work or life experiences.
ii) Employees failing to respect each others unique personalities.
iii) Overly aggressive financial or business targets.
iv) Pressures to perform and take quick decisions.

Q.NO.2 Explain the practices widely recognized as discriminatory in employment.

Discriminatory Practices in Employment: Discrimination in employment is wrong because it

violates the basic principle of justice by differentiating between people on the basis of characteristics
(race or sex) that are not relevant to the tasks they must perform. It is consequently understandable
that the law has gradually been changed to conform to these moral requirements, and that there has
been a growing recognition of the various ways in which discrimination in employment occurs. Among
the practices now widely recognized as discriminatory are the following:
Recruitment Practices: Firms that rely solely on the word-of-mouth referrals of present employees
to recruit new workers tend to recruit only from those racial and sexual groups that are already
represented in their labor force. Also, when desirable job positions are only advertised in media that
are not used by minorities or women or are classified as for men only, recruitment would also tend to
be discriminatory.
Screening Practices: Job qualifications are discriminatory when they are not relevant to the job to
be performed (e.g., requiring a high school diploma or a credential for an essentially manual task.).
Job interviews are discriminatory if the interviewer routinely disqualifies certain class of people - for
example assumptions about occupations “suitable for women” or the propriety of putting women in
"male "environments.
Promotion Practices: Promotion, job progression, and transfer practices are discriminatory when
employers place males on job tracks separate from those open to women and minorities. When
promotions rely on the subjective recommendations of immediate supervisors.
Conditions of Employment: Many times wages and salaries are discriminatory to the extent that
equal wages and salaries are not given to people who are doing essentially the same work. Another
issue is related to fair wages and treatment to workers. Companies subcontracting manufacturing
operations abroad are now aware of the ethical issues associated with supporting facilities like child
labour that abuse and/or underpay their work forces. Such facilities have been termed “sweatshops.”

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Dismissal: Firing an employee on the basis of his or her race or sex is a clear form of discrimination.
Less blatant but still discriminatory are layoff policies that rely on a seniority system, in which women
and inorities have the lowest seniority because of past discrimination.
10. ENVIRONMENT AND ETHICS

Q.NO.1 Discuss different environmental phenomena of ethical concern?

Different environmental phenomena of ethical concern: An ecological system is an interrelated

and interdependent set of organisms and environments, such as a lake, in which the fish depend on
small aquatic organisms, which in turn live off decaying plant and fish waste products. Since the
various parts of an ecological system are interrelated, the activities of one of its parts will affect all the
other parts. Business firms (and all other social institutions) are parts of a larger ecological system.
Business firms depend on the natural environment for their energy, material resources, and waste
disposal, and that environment in turn is affected by the commercial activities of business firms. The
issue of environmental ethics goes beyond the problems relating to protection of environment or
nature in terms of pollution, resource utilization or waste disposal. It is the issues of exploitive human
nature and attitudes that should be addressed in a rational way. Problems like Global warming,
Ozone depletion and disposal of hazardous wastes that concern the entire world. They require
International cooperation and have to be tackled at the global level.
Few decades ago, the corporate world, the industry or others engaged in the use of natural resources
or environmental services were mainly concerned with good business in economic sense. There is
now a growing concern for Social responsibility and ethical norms in all spheres of human activities;
be it public behaviour, business or environment and there are ethical concerns to look after not only
the interest of stakeholders but also that of community; as the regulatory / mandatory requirements
have also become more stringent. This translates into providing safety for the workers at workplace,
concern for their health, reducing pollution and incorporating environmental values in governance.

11. ETHICS IN MARKETING AND CONSUMER PROTECTION

Nil

12. ETHICS IN ACCOUNTING AND FINANCE

Nil

13.ESSENTIALS OF COMMUNICATION

Q.NO.1 Write short notes on the following:

i) Proxemics ii) Haptics

i) Proxemics: It is form of a non-verbal communication which refers to the space that exists
between us when we talk or relate to each other as well the way we organize space around us.
We can also call it ‘space language” as the following four space zones indicate the type of
communication and the relationship of the source and receiver:
Intimate – Physical contact to 18 inches.
Personal – 18 inches to 4 feet.
Social – 4 to 12 feet
Public-12 feet to as far as we can see or hear.
ii) Haptics: It is communication through touch. How we use touch sends important messages about
us. It reveals our perceptions of status, our attitudes and even our needs. The amount of touching
we do or find acceptable is at least in part culturally conditioned.

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14. INTERPERSONAL COMMUNICATION SKILLS

Q.NO.1 What is meant by 'Critical thinking'? Suggest the measures to develop critical thinking.

Critical Thinking: Critical thinking is the discipline of rigorously and skillfully using information,
experience, observation and reasoning to guide one's decisions, actions and beliefs. Critical thinking
refers to the act of question of every step of the thinking process e.g. Have you considered all the
facts? Have you tested your assumptions? Is your reasoning sound? Can you be sure your judgment
is unbiased? Is your thinking process logical, rational and complete?
Developing Critical thinking: To develop as a critical thinker, one must be motivated to develop the
following attributes:
1. Open-minded: Readiness to accept and explore alternative approaches and ideas.
2. Well informed: Knowledge of the facts and what is happening on all fronts.
3. Experimental: Thinking through 'what if scenarios to create probable options and then test the
theories to determine what will work and what will not be acceptable.
4. Contextual: Keeping in mind the appropriate context in the course of analyses. Apply factors of
analysis is that are relevant or appropriate.
5. Reserved in making conclusion: Knowledge of when, a conclusion is a 'fact' and when it is not
only true conclusions support decisions.

Q.NO.2 What are the basic principles of inter-personal communication?

Principle of Interpersonal Communication: The following principles are key to interpersonal

communication -
Interpersonal communication is inescapable: We cannot keep ourselves away from
communication. The very attempt not to communicate, communicates something. Not only through
words but also through the tone of voice and gestures, postures, facial expressions etc, we constantly
communicate to others.
Interpersonal communication is irreversible: It is rightly said that a word uttered once cannot be
taken back.
Interpersonal communication is complicated: No form of communication is simple due to the
number of variables involved; even simple requests can be extremely complex.
Interpersonal communication is contextual: Communication does not take place in isolation. They
are context specific:
Psychological context: It refers to who the communicators are and what they bring to the
interaction? Their needs, desires, values, personality etc all form the psychological context.
Relational context: This is concerning the nature of interaction and reactions and the way it all
affects the communication process.
Situational context: Refers to social concept of communication viz. an interaction that takes place in
a classroom will be very different from one that takes place in a board room.
Environmental context: It is all about the surroundings in which communication takes place e.g.
Furniture location, noise level, temperature, season, time of day etc. are all examples of elements in
the environmental context.
Cultural context: Includes all the learned behaviours and rules that affect the interaction. If one
comes from a culture where it is considered rude to establish long, direct eye contact, one will out of
politeness avoid eye contact. If the other person comes from a culture where long direct eye contact
signals trustworthiness, then we have a basis for misunderstanding.

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15. GROUP DYNAMICS

Q.NO.1 List out the characteristics of group personality under Group Dynamics.

Characteristics of Group Personality: Following are the characteristics of group personality:

i) Spirit of Conformity: Individual members soon come to realize that in order to gain recognition,
admiration and respect from others they have to achieve a spirit of conformity. Our beliefs,
opinions, and actions are influenced more by group opinion than by an individual’s opinion, even if
it is an expert’s opinion.
ii) Respect for group values: Any working group is likely to maintain certain values and ideals
which make it different from others. In order to deal effectively with a group we must understand
its values which will guide us in foreseeing its programmes and actions.
iii) Resistance to change: It has been observed that a group generally does not take kindly to social
changes. On the other hand the group may bring about its own changes, whether by dictation of
its leader or by consensus. The degree to which a group resists change serves as an important
index of its personality. It helps us in dealing with it efficiently.
iv) Group prejudice: Just as hardly any individual is free from prejudice, groups have their own
clearly evident prejudices. It is a different matter that the individual members may not admit their
prejudiced attitude to other’s race, religion, nationality etc. But the fact is that the individual’s
prejudices get further intensified while coming in contact with other members of the group holding
similar prejudices.
v) Collective power: It need not be said that groups are always more powerful than individuals, how
so ever influential the individual may be. That is why individuals may find it difficult to speak out
their minds in groups. There is always the risk of the one-against-many situation cropping up.

16. COMMUNICATION ETHICS

Q.NO.1State with reasons whether following statements are correct or incorrect.
i) Rumours and gossips are synonymous.
ii) Lying breaks down the trust between individuals.

i) The given statement “Rumour and gossip are synonymous” is INCORRECT.

Rumours and gossip seem to be an inevitable part of everyday corporate life. Even though
rumours and gossip often travel through the same network, there is a distinction between the
terms. Rumours tend to focus on events and information, whereas gossip focuses on people.
Even though managers usually treat the information as “yet to be confirmed”, it may cloud
judgments about the employee.
The information has a way of creeping into performance evaluations and promotion decisions,
even if unintended.
ii) The given statement “Lying breaks down the trust between individuals” is CORRECT.
A lie is a false statement intended to deceive. Of all the ethical dilemmas, lying would appear to
be the least morally perplexing. Most would agree that “one ought not to lie”. Yet lies in business
are more common that many would care to admit. Lying break down the trust between individuals,
shaking the foundation of ethical communication.

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17. COMMUNICATION CORPORATE CULTURE, CHANGE AND INNOVATIVE SPIRITS

Q.NO.1 State the reasons for ‘resistance to change’ in an organization.

Resistance to Change: No matter whether a change is of major proportions or is objectively rather

small, the change manager must anticipate that people in the organization are going to find reasons
to resist changes. It is a basic tenet of human behavior that any belief or value that has been
previously successful in meeting needs will resist change.
Reasons why people resent or resist change:
1. One major reason why people resist change is the potential for loss on a personal level.
Objectively, there may be little threat, but people may act as if there is one. Some of the things
people feel are at risk during change processes are:
i) Security
ii) Friends and contacts
iii) Money
iv) Freedom
v) Pride and satisfaction
vi) Responsibility
vii) Authority
viii) Good working conditions
ix) Status
2. While a feeling of threat is a primary reason why people resist change, there are other factors that
can mobilize people into resisting any change from a status quo. These include:
i) Change not needed – status quo is working fine
ii) Proposed change does more harm than good
iii) Lack of respect for person responsible for the change
iv) Objectionable way of implementing the change
v) Negative attitude towards the organization before change
vi) No opportunity to have input into change
vii) Change perceived as implying personal criticism
viii) Change simply adds more work and confusion
ix) Change requires more effort to keep status quo
x) Bad timing of the change
xi) A desire to challenge authority
xii) Hearing about the change secondhand
3. The uncertainty principle: This states that when people are faced with ambiguous or uncertain
situations, where they feel they do not know what to expect, they will resist moving into those
situations.

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18. COMMUNICATION IN BUSINESS ENVIRONMENT

Q.NO. Write Short notes on:

The Press Notes

The Press Note: The press notes are less formal in character. They are issued on important matters,
e.g. raising or lowering of tariff rates etc. The press note also carries the name of the ministry or
department concerned and the place and date at the bottom left-hand corner. Heading or sub-
heading are given in the press notes.

19. BASIC UNDERSTANDING OF LEGAL DEEDS AND DOCUMENTS

Nil

THE END

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