FOUNDATION IPP – BUSINESS LAWS

Paper: Business Laws Marks: 100

Course: CA Foundation
Test ID: National Level Test Time Allowed: 3 Hours

Question No. 1 is compulsory.

Attempt any four questions from the remaining five questions.

Question 1.

a)
(i) Mr. Ayush, the employer induced his employee Mr. Bobby to sell his one room flat to him at less than the market
value to secure promotion. Mr. Bobby sold the flat to Mr. Ayush. Later on, Mr. Bobby changed his mind and decided
to sue Mr. Ayush. Examine the validity of the contract as per the provisions of the Indian Contract Act, 1872.
Marks 3
(ii) Mr. Sooraj promises Mr. Manoj to paint a family picture for Rs 20,000 and assures to complete his assignment
by 15th March, 2023. Unfortunately, Mr. Sooraj died in a road accident on 1 st March, 2023 and his assignment
remains undone. Can Mr. Manoj bind the legal representative of Mr. Sooraj for the promise made by Mr. Sooraj?
Suppose Mr. Sooraj had promised to deliver some photographs to Mr. Manoj on 15th March, 2023 against a
payment of Rs 10,000 but he dies before that day. Will his representative be bound to deliver the photographs in
this situation? Decide as per the provisions of the Indian Contract Act, 1872.
Marks 4

b) AK Private Limited has borrowed Rs 36 crore from BK Finance Limited. However, as per memorandum of AK
Private Limited, the maximum borrowing power of the company is Rs 30 crore. Examine whether AK Private Limited
is liable to pay this debt? State the remedy, if any available to BK Finance Limited. Marks 6

c) Mr. M, Mr. N and Mr. P were partners in a firm, which was dealing in refrigerators. On 1st October 2018, Mr. P
retired from the partnership but failed to give public notice of his retirement. After his retirement, Mr. M, Mr. N and
Mr. P visited a trade fair and enquired about some refrigerators with the latest techniques. Mr, X, who was exhibiting
his refrigerators with the new techniques was impressed with the interactions of Mr. P and requested for the visiting
card of the firm. The visiting card also included the name of Mr. P as a partner even though he had already retired.
Mr. X supplied some refrigerators to the firm and could not recover his dues from the firm. Now, Mr. X wants to
recover the dues not only from the firm, but also from Mr. P.
Analyse the above case in terms of the provisions of the Indian Partnership Act, 1932 and decide whether Mr. P is
liable in this situation. Marks 3

d) “Indian Partnership Act does not make the registration of firms compulsory nor does it impose any penalty for
non-registration.” In light of the given statement, discuss the consequences of non-registration of the partnership
firms in India? Marks 4

Question 2:
a) M/s Woodworth & Associates, a firm dealing with the wholesale and retail buying and selling of various kinds of
wooden logs, customized as per the requirement of the customers. They dealt with Rosewood; Mango wood;
Teakwood; Burma-wood, etc.
Mr. Das a customer came to the shop and asked for wooden logs measuring 4 inches broad and 8 feet long as
required by the carpenter. Mr. Das specifically mentioned that he required the wood which would be best suited
for the purpose of making wooden doors and window frames. The Shop owner agreed and arranged the wooden
pieces cut into as per the buyer’s requirements.
The carpenter visited Mr. Das’s house the next day, and he found that the seller has supplied Mango Tree wood
which would be most unsuitable for the purpose. The carpenter asked Mr. Das to return the wooden logs as they
would not meet his requirements. The Shop owner refused to return the wooden logs on the plea that logs were
cut to specific requirements of Mr. Das and hence could not be resold.
Explain the duty of the buyer as well as the seller according to the doctrine of “Caveat Emptor”.
Whether Mr. Das would be able to get the money back or the right kind of wood as required for serving his purpose?
Marks 7
b) Mr. X had purchased some goods from M/s. ABC Limited on credit. A credit period of one month was allowed to
Mr. X. Before the due date Mr. X went to the company and wanted to repay the amount due from him. He found
only Mr. Z there, who was the factory supervisor of the company, Mr. Z told Mr. X that the accountant and the
cashier were on leave, he is in¬charge of receiving money and he may pay the amount to him. Mr. Z issued a money
receipt under his signature.
After two months M/s. ABC Limited issued a notice to Mr. X for non-payment of the dues within the stipulated
period. Mr. X informed the company that he had already cleared the dues and he is no more responsible for the
same. He also contended that Mr. Z is an employee of the company to whom he had made the payment and
being an outsider, he trusted the words of Mr. Z as duty distribution is a job of the internal management of the
company. Analyze the situation and decide whether Mr. X is free from his liability.
Marks 3

c) Mr. Dhruv was appointed as an employee of Sunmoon Timber Private Limited on the condition that if he were to
leave his employment, he will not solicit customers of the company. After some time, he was fired from company.
He set up his own business under proprietorship and undercut Sunmoon Timber Private Limited’s prices. On the
legal advice from his legal consultant and to refrain from the provisions of breach of contract, he formed a new
company under the name Seven Stars Timbers Private Limited. In this company, his wife and a friend of Mr. Dhruv
were the sole shareholders and directors. They took over Dhruv’s business and continued it. Sunmoon Timber
Private Limited filed a suit against Seven Stars Timbers Private Limited for violation of contract. Seven Stars Timbers
Private Limited argued that the contract was entered into between Mr. Dhruv and Sunmoon Timber Private Limited
and as company has separate legal entity, Seven Stars Timbers Private Limited has not violated the terms of
agreement. Explain with reasons, whether separate legal entity between Mr. Dhruv and Seven Stars Timbers Private
Limited will be disregarded? Marks 3

d) State the grounds on which a firm may be dissolved by the Court under the Indian Partnership Act, 1932?
Marks 7

Question 3:
a) What do you mean by Designated Partner? Whether it is mandatory to appoint Designated partner in a LLP?
Marks 7

b)
(i) Powertech Limited was registered as a public company. There are 230 members in the company as noted below:
(a) Directors and their relatives 190
(b) Employees 15
(c) Ex-Employees (Shares were allotted when
they were employees) 10
(d) 5 couples holding shares jointly in the name of
husband and wife (5*2) 10
(e) Others 5
The Board of Directors of Powertech Limited proposes to convert it into a private company. Also advise whether a
reduction in the
number of members is necessary. Marks 4

(ii) Popular Products Ltd. is company incorporated in India, having a total Share Capital of ` 20 Crores. The Share
capital comprises of 20 Lakh equity shares of ` 100 each. Delight Products Ltd. and Happy Products Ltd. hold 2,50,000
and 3,50,000 shares respectively in Popular Products Ltd. Another company, Cheerful Products Ltd. holds 2,50,000
shares in Popular Products Ltd. Jovial Ltd. is the holding company for all the above three companies namely Delight
Products Ltd.; Happy Products Ltd. and Cheerful Products Ltd. Can Jovial Ltd. be termed as a subsidiary company of
Popular Products Ltd. State the related provision in favour of your answer, if Jovial Ltd. controls the composition of
directors of Popular Products Ltd. Marks 3

c) Who is considered as an agent under the Indian Contract Act, 1872, and what are the duties and obligations
associated with this role? Marks 6

Question 4
a)
(i) Rahul was a Disk Jockey at a five-star hotel. As per the contract, he is supposed to perform every weekend. (i.e.
twice a week). Rahul will be paid ` 2,500 per day. However, after a month, Rahul willfully absents himself from the
performance. Taking into account the provisions of the Indian Contract Act, 1872, answer the following:
(i) Does the hotel have the right to end the contract?

(ii) If the hotel sends out a mail to Rahul that they are interested to continue the contract and Rahul accepts,
can the hotel rescind the contract after a month on this ground subsequently?
(iii) In which of the case – (termination of contract or continuance of contract) can the hotel claim damages that
it had suffered as a result of this breach?
Marks 4

(ii) Due to urgent need of money amounting to ` 3,00,000, Pawan approached Raman and asked him for the money.
Raman lent the money on the guarantee of Suraj and Tarun. Pawan makes default in payment and Suraj pays full
amount to Raman. Suraj, afterwards, claimed contribution from Tarun but Tarun refused to contribute on the basis
that there is no contract between Suraj and him. Examine referring to the provisions of the Indian Contract Act,
1872, whether Tarun can escape from his liability Marks 3

b)
(i) Sachin bought 1000 Kg rice from Saurabh for Rs 1,50,000 on three months credit. For this purpose, Sachin issued
a promissory note to Saurabh on the same date payable after 3 months. On the date of maturity, the promissory
note was dishonoured. Saurabh filed suit for the recovery of the amount plus fees of advocate paid by him for
defending the suit. Referring to the provisions of the Negotiable Instruments Act, 1881, what amount could be
recovered by Saurabh from Sachin? Marks 4
(ii) Shiva gave a gift of ` 21,000 to his sister through a cheque issued in her favour on the occasion of Raksha Bandhan.
Afterwards, Shiva informed his sister not to present the cheque for payment and also informed the bank to stop the
payment. Examining the provisions of the Negotiable Instruments Act, 1881, decide whether Shiva’s acts constitute
an offence under section 138 of the Act? Marks 3

c) What is the significance of the Supreme Court and High Court in the Indian judiciary? Marks 6

Question 5:
a)
(i) Ram sells 200 bales of cloth to Shyam and sends 100 bales by lorry and 100 bales by Railway. Shyam receives
delivery of 100 bales sent by lorry, but before he receives the delivery of the bales sent by railway, he becomes
bankrupt. Ram being still unpaid, stops the goods in transit. The official receiver, on Shyam’s insolvency claims the
goods. Decide the case with reference to the provisions of the Sale of Goods Act, 1930. Marks 4

(ii) Classify the following transactions according to the types of goods they are:
(A) A wholesaler of cotton has 100 bales in his godown. He agrees to sell 50 bales and these bales were selected
and set aside.
(B) A agrees to sell to B one packet of sugar out of the lot of one hundred packets lying in his shop.
(C) T agrees to sell to S all the apples which will be produced in his garden this year. Marks 3

b) “Partner indeed virtually embraces the character of both a principal and an agent”. Describe the said statement
keeping in view of the provisions of the Indian Partnership Act, 1932. Marks 7
c) Differentiate between Contingent Contracts and Wagering Agreements. Marks 6

Question 6

(a) Priyansh purchased some goods from Sumit. He issued a cheque to Sumit for the sale price on 14th June, 2023.
Sumit presented the cheque in his bank and his bank informed him on 19th June, 2023 that cheque was returned
unpaid due to insufficiency of funds in the account of Priyansh. Sumit sued against Priyansh under section 138 of
the Negotiable Instruments Act, 1881. State with reasons, whether this suit is maintainable? Marks 7

(b) Mr. G sold some goods to Mr. H for a certain price by the issue of an invoice, but payment in respect of the same
was not received on that day. The goods were packed and lying in the godown of Mr. G. The goods were inspected
by H’s agent and were found to be in order. Later on, the dues of the goods were settled in cash. Just after receiving
cash, Mr. G asked Mr. H that goods should be taken away from his godown to enable him to store other goods
purchased by him. After one day, since Mr. H did not take delivery of the goods, Mr. G kept the goods out of the
godown in an open space. Due to rain, some goods were damaged.
Referring to the provisions of the Sale of Goods Act, 1930, analyze the above situation and decide who will be held
responsible for the above damage. Will your answer be different, if the dues were not settled in cash and are still
pending? Marks 7

c) State the essential elements of a contract of bailment. Marks 6