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CA SACHIN GUPTA (1) CA SONU GUPTA CLASSES

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Solution 1(a) : As per Indian Contract Act, A contract with minor is Void ab initio. However a person who has supplied

the necessaries to a minor is entitled to recover the amount from the property of such minor.

In the present case, Ramesh, a minor has taken a loan of Rupees 1lakh from Suresh for his education.

Ramesh has property worth Rupees 10 lakh.

Since Ramesh has failed to pay back the amount, Suresh has the right to recover 1 lakh from the

property of Ramesh as education is treated as necessaries.

Solution 1(b) : As per Sec 79 of Companies Act,1956 , A company is Eligible to issue shares at a discount Issue of shares at a discount – conditions u/s 79

a. Nature of shares : The shares to be issued at a discount must belong to a class of shares already issued by the company. b. Nature of resolution : -Ordinary Resolution is required to be passed in General Meeting. -The Resolution shall specify the maximum rate of discount at which the shares shall be passed. c. Approval of Company Law Board(Company Law Board) : Approval of the Company Law Board shall be obtained. d. Time Limit for issue of shares : The shares shall be issued within 2 months of obtaining sanction of the Company Law Board. However, the Company Law Board may extend such time. e. Rate of discount : The maximum rate of discount shall not exceed 10%. However, Company Law Board may sanction issue of shares at a discount exceeding 10% considering the special circumstances of the case. f. Company must have completed 1 year : At the date of the issue, at least 1 year has elapsed since the date on which the company was entitled to commence business. g. Disclosures : The prospectus shall contain particulars of the discount allowed on the issue of the shares.

Solution 1(c) : (i) : The Statement is correct Economic development includes utilisation of natural resources which leads to pollution of Land, Water & Air. This damages the environment & therefore we can say there is no economic growth without ecological cost. But development should be sustainable. Sustainable Development means the development that meets the need of the present without compromising the ability of future generations to meet their own needs. It involves ensuring equitable use of resources for meeting the needs of present & future generations without causing damage to Environment.

(ii) The statement is correct As per Iron Law of Responsibility , Society provides its platform to business to Exist. If Business does not live up to Society Expectations, then such Platform/ Base can be amended/Revoked. Therefore Business to exist it must respond to society‘s needs


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Solution 1(d) : Types of Grapevine Chains

a) Single strand chain b) Cluster Chain c) Probability Chain d) Gossip Chain

a) Single stand chain :

One Person communicates to another & so on Chances of information getting distorted at each level.

b) Cluster Chain :

A Person Communicates with Selected Individuals and such Individuals communicate with few other select Individuals.

The selected Individuals are generally trusted by the person who had first communicated.

Information sent in generally Reliable & Credible. c) Probability Chain :

In this case Communication is done with any kind of Individuals. The sender is not interested with the kind of recipient.

d) Gossip Chain :

In this Communication, the information is told to everyone. Generally used for Non - Job Communication.

Solution 2(a)(i) 1. Apprentice of Newly formed company is Not Eligible for Bonus under the payment of Bonus act,1965 because Apprentice is not treated employee u/s Sec 2(13) of the same act. 2. A dismissed employee with back wages is Eligible for Bonus provided he has worked for 30 working days in the Accounting Year 3. A temporary worker is Eligible for bonus provided he has worked for 30 working days in the Accounting Year 4. An Employee employed through contractor is Eligible for Bonus as there is no such restriction u/s 32 of Bonus Act,1965 & provided he has worked for 30 working days in the Accounting Year

Solution 2(a)(ii) : As per Sec 4 of the Payment of Gratuity Act,1972, For the purpose of computing the gratuity payable to an employee who is employed, after his disablement, on reduced wages, his wages for the period preceding his disablement shall be taken to be the wages received by him during that period, and his wages for the period subsequent to his disablement shall be taken to be the wages as so reduced.


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Solution 2(b) : Critical Thinking is a System of carefully using information, experience and reasoning to guide decision making.It means questioning every step of thinking process.It also known as Socratic questioning as it was founded by Socrates. Critical thinking involves the following questions : → Have I Considered all facts → Have I tested my assumptions → Is my reasoning sound. → Is my thinking process logical/sound → Is my in judgment unbiased

Solution 2(c) : Stakeholders are all those Parties which are influenced by or can influence the organisation. Business is accountable to all the stakeholders & not only shareholder & take such decisions which are acceptable to all the stakeholders. List of stakeholders : (1) Shareholders/Investors : (2) Customer (3) Supplier (4) Lenders (5) Employees (6) Competitors (7) Press/Mass Media (8) Local community (9) Govt/Enforcement/Regularity Authorities

Solution 3(a) : As per Indian contract Act, Bailment is Delivery of goods by one person to another for some purpose upon

the condition that they shall be returned or disposed of according to the directions of person delivering them

Essentials of valid Bailment Contract

1. Contract: May be either express or implied. 2. Delivery of Goods: The essence of bailment is delivery of goods by one person to another for some temporary purpose. Such Delivery can either be actual , symbolic or constructive. 3. Purpose: Goods are delivered for some purpose. Purpose for which the goods are delivered is usually in the contemplation of both the bailor and the bailee the same can either be express or implied 4. Return of the goods: Goods which form the subject matter of the bailment should be returned to the bailor or disposed of according to the directions of bailor, after the accomplishment of purpose or after the expiry of period of bailment.


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Distinction between Contact of Bailment & Contract of Pledge

Bailment Pledge 1. Meaning Bailment is Delivery of goods by one

person to another for some purpose upon the condition that they shall be returned or disposed of according to the directions of person delivering them

Pledge is Bailment of goods as

security for payment of a debt or

performance of a promise

2. Scope Bailment is wider in scope Pledge is a type of bailment & hence narrower

3. Purpose Bailment can be for many reasons ranging for Reward to Gratuitous.

A pledge is done for a specific type of purpose, which is to secure a loan or performance of a promise

4. Right of sale The bailee does not get a right to sell the goods.

A pawnee has a right to sell the goods in case of default.

5. Use of goods The bailee can use the goods bailed for the purpose specified.

The pawnee has no right to use the goods.

6. Duty to bear risk The bailee is not responsible for loss, destruction, or deterioration if he uses goods with reasonable care.

The pawnee is absolutely liable for the upkeep of the goods.

7. Right of lien The bailee only get a right of lien over the goods.

A pawnee gets a right of retainer and a special interest in the goods, which is more that just the lien

Solution 3(b) :

Reasons for Acceptance of change Personal Gain Other Benefits

Increased income Providing a new challenge

Greater Authority Reduces Boredom

Higher status Opportunity for future

Improvement in working conditions Interest in change

Self satisfaction Perception that change is necessary Improvement of skills

Solution 3(c) : Difference between Consumer Interest & Public Interest

Consumer Interest Public Interest

1. Meaning Area which benefit the ―Consumer‖ as a whole.

Area by which society as a whole has some Interest.

2. Scope Consumer interest is Restricted in Scope (Small scale)

Public Interest is wider in scope.

3. Factors Consumers are effected by Pricing ,Quality of Goods, Trade Practices etc

Public Interest reflects Morals of society.

4. Focus Govt. Policy benefiting consumer are said to be in consumer Interest

Govt. Policy benefiting public are said to be in public Interest.

5. Example Competition Act, Consumer Protection Act.

Law / Order/ Defence of country Maintenance of monuments. etc


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Solution 4(a) :

Legal requirements for Alteration in object clause of memorandum : Sec 17 of Companies Act,1956

1. Resolution : The company shall pass Special resolution effecting alteration of object clause of memorandum. 2. Purpose : An alteration of objects shall be valid only if it is made for any of the ‗specified purposes‘ given u/s 17 3. Approval : The approval of Central government or Company or any other authority is not required for alteration of object clause. 4. Filing : Within 1 month of passing Special Resolution, the company shall file with the Registrar –

(a) A copy of Special Resolution; and (b) A copy of memorandum as altered

4. Registration by Registrar : The Registrar shall register the alteration within 1 month. He shall also issue a certificate of registration of alteration, which shall be conclusive evidence that all the requirements of the Act with respect to alteration of object clause have been complied with 5. Effective date : The alteration shall not be effective until it has been duly registered by the Registrar ‗Specified purposes‘ given u/s 17 A company may alter the provisions of its memorandum so as to change the place of its registered office from one state to another, or with respect to the objects of the company so far as may be required to enable it to –

(a) Carry on its business more economically or efficiently; (b) Attain its main purpose by new or improved means; (c) Enlarge or change the local area of its operations; (d) Carry on some business which under existing circumstances may conveniently or advantageously

be combined with the business of the company. (e) Restrict or abandon any of the objects specified in the memorandum. (f) Sell or dispose of the whole, or any part, of the undertaking of the company; or (g) Amalgamate with any other company or body of persons.

Solution 4(b) : Ethical issue can be defined as a Problem or Situation that requires a person to choose from

alternative course of actions.

Categories of Ethical Issues 1. Business Relationships : a) Relationship with Supplier

- Bribery - Discrimination between Supplier - Delaying or not making Payment to Suppliers.

b) Relationship with Customer

- Unfair Pricing - Cheating Customer - Deceitful Advertising - False Assurance of after sales service - Non disclosure of information on packaging - Sale of Defective/spurious products


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c) Relationship with Employees

- Discrimination hiring & treatment of employees - Harassment in work place - Not providing safe & hygienic working conditions to the employees.

d) Relationship with Resources

- Use of funds/resources for personal purpose. - Falsifying business records

- Using business secrets for personal gains (eg .insider trading) - Accepting/Giving Bribes

2. Fairness & Honesty : Business Enterprise are expected (a) To follow all applicable laws & regulations (b) Avoid Harming customers, employees, clients or competitors knowingly through deception, mis representation or discrimination. Areas of ethics (a) Disclosure of harmful effect of product use. (b) Avoiding illegal& Monopolistic practices. 3. Communication : Communication of Product Safety, Quality, Expiry date (eg medicines) Product labeling (e.g.Cigarette Packing) 4. Conflicts of Interest : A conflict of Interest exists when a person has to make choice between his personal Interest & Interest of the organisation. Such conflict can benefit

(a) Financial Interest : It Benefits the individually financially at cost of organisation. (b) Non – Financial Interest : It Benefits the individual non financially.

Solution 4(c) : Types of Formal Groups

a) Self Directed Teams : Group of employees constituted for specific purpose & empowered to take

decisions. b) Quality Circles :

-Small Group of employees belonging to a work unit -Head of group is known as Quality circle leader. -Meet to discuss work related Problem -Discuss with Superior & try to improve Productivity by mutual discussions.


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c) Committee : Committee is a group constituted for some specific purpose. The following are types of Committees

-Standing Committee : Permanent in nature & highly empowered e.g. Audit Committees, Quality control Committees. -Advisory Committee :Consists of Experts in a particular field e.g. Legal Advisory Committee -Adhoc committee : Formed temporary for a particular purpose & dissolved after the purpose is over e.g. Machine breakdown Investigation Committee.

d) Task Force : Temporary committee having wide powers of action & decision. Generally

for Important situation & has power to fix responsibility.E.g. Task Force to tackle downfall in turnover.

Solution 5(a) : Meaning of ‘Holder in Due course : Sec 9 of Negotiable Instrument Act,1881 "Holder in due course" means : Any person who for Consideration became Holder of a Negotiable Instrument before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in title of person from whom he derived his title.

In the present case ,E is a holder in due cource hence he can recover the amount form any prior party i.e. A or B or C or D

PRIVILEGES OF A HOLDER IN DUE COUSRE 1. Liability of Prior Parties : Sec 36

Every Prior party to a negotiable instrument is liable thereon to a holder in due course until the instrument is duly satisfied.

2. Conditional Delivery : Sec 46

If instrument is delivered conditionally or for special purpose,the property is transferred to transferee upon fulfillment of certain conditions. If transferred to Holder in due cource, before satisfying the conditions the holder in due cource can recover amount from any prior party

3. Holder deriving Title from Holder in due cource : Sec 53

A holder of a negotiable instrument who derives title from a holder in due course has the rights thereon of that holder in due course

4. Instrument obtained by unlawful means or for unlawful consideration : Sec 58

No prior party can set up a defence that the negotiable instrument was lost or was obtained from him by an offence or fraud for an unlawful consideration. Thus, HDC gets a valid title to the negotiable instrument even though the title of the transferor was defective

5. Inchoate stamped instruments : Sec 20

HDC cam claim, full amount of the negotiable instrument (but not exceeding the amount covered by the stamp) even though such amount is in excess of the amount authorised by the person delivering an inchoate negotiable instrument


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Solution 5(b) :

Distinction between Share certificate and Share warrant

Basis of Distinction Share Certificate Share Warrant

1.Whether issue is compulsory

Issue of a share certificate is compulsory for every company having share capital.

It is not compulsory for any company to issue share warrants.

2. Amount paid on Share

Share certificate is to be issued whether shares are fully paid /partly paid

A share warrant can be issued only if the shares are fully paid up

3. Type of company Every company having share capital whether public or private, is required to issue a share certificate.

Only a public company is entitled to issue a share warrant.

4. Who is the owner of shares

A share certificate entitles the person named in it to the shares specified in the share certificate Thus, a share certificate is a prima facie evidence of the title of a member to shares contained in it.

It entitles the bearer of the share warrant to the shares specified in the share warrant.

5.Negotiable instrument

A share certificate is not a negotiable instrument

A share warrant is a negotiable instrument.

6. Mode of transfer of shares

The shares can be transferred by executing a proper transfer deed.

The shares can be transferred by mere delivery of the share warrant.

7. Holder — whether a member

The holder of a share certificate is a member of the company.

The bearer of a share warrant is not a member of the company unless the articles otherwise provide.

8. Power in articles No power in the articles is required issue a share certificate

The articles of the company must authorise to issue share warrants.

9. Approval of CG No approval of CG is required to issue a share certificate

The issue of a share warrant requires approval of CG

10. Payment of stamp Duty on transfer

The transfer of shares attracts stamp duty

No stamp duty is payable where the shares are transferred by means of delivery of share warrant

11. Time limit for issue

A share certificate must be issued within 3 months of allotment of shares or 2 months of submission of a valid transfer deed to the company

The issue of share warrant is not compulsory .Therefore, there is no time limit for issue of share warrant.

12. Original issue A share certificate can be issued originally. i.e., at the first instance.

A share warrant cannot be issued originally.


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Solution 5(c) :

Power of Attorney to Sell & Sign Transfer Deed We, M/s. Assure Investments, having partners Mr. A and Mr. B, and office at -----------------------------------------------------------------------, do hereby appoint and authorize – Mr. X, having office at---------------------------------------------, to sell and sign Transfer Deeds for transfer of Shares and Debentures on our behalf. The records and submissions furnished by my Attorney will be binding on us.

For M/s. Assure Investments

Place: …………… Sign A & B Date : …………… Witness………………………. I, Mr X hereby declare that I am qualified to represent the above-mentioned person. Place: …………. Sign X Date : …………. Witness……………………….

Solution 6(a) : Meaning of Expert : ‗Expert‘ includes an engineer, a valuer, an accountant and any other person whose profession gives authority to him to make a statement.

CIVIL LIABILITY FOR MIS-STATEMENT IN PROSPECTUS Expert and every other person who authorised the issue of the prospectus shall be liable to the

investor for damages, i.e., to compensate the loss caused to the investor.

CRIMINAL LIABILITY FOR MIS-STATEMENT IN PROSPECTUS Every person who authorised the issue of a prospectus containing an untrue statement shall be punishable with imprisonment upto 2 years, or fine upto Rs. 50,000 or both.

Defences available to an expert

a) Belief in truthfulness of the statement

The expert may take a defence that :-

- He was competent to make the statement;

- He had reasonable ground to believe that the statement was true:

- He continued to believe upto the time of allotment of shares, that the statement was true.

b) Withdrawal of consent before registration of prospectus

The expert may take a defence that He had consented to issue of prospectus;

- Afterwards he withdrew his consent (before delivery of a copy of the prospectus for

registration); and Therefore, the prospectus was issued without his consent.


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c) Withdrawal of consent on becoming aware of untrue statement

The expert may take a defence that :-

- He had consented to the issue of prospectus;

- Afterwards, on becoming aware of the untrue statement, he –

(i) Withdrew his consent (after delivery of a copy of the prospectus for registration, but before

allotment); and

(ii) Gave reasonable public notice.

Solution 6(b) : Check list of Partnership Formation Deed

1. Name and permanent address of partners 2. Name of firm 3. Nature of business to be undertaken 4. Duration of partnership 5. Capital contribution by partners 6. Shares of partners in the profit and loss 7. Who will be working partners and remuneration payable thereto 8. Fact of agreement between the partners to form a partnership 9. Who will be authorized to sign cheques etc. 10. Provisions regarding powers and duties of the partners 11. Clause regarding maintenance of books of accounts and preparing final accounts 12. Provisions relating to retirement and expulsion 13. Dissolution in case of death or insolvency etc.

Solution 6(c) : i) The statement is correct A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. Communication of an Acceptance is Complete as against the Proposer when it is put in a course of transmission to him, so as to be out of the power of acceptor

ii) The statement is incorrect As per Sec 165 of Companies Act,1956, every Public company having share capital is required to hold statutory meeting iii) The Statement is correct Cheques/drafts/pay orders/banker‘s cheques issued on or after 1/4/2012 will be valid only if presented within a period of 3 months. iv) The statement is correct Every company has members i.e minimum 2 in case of private company & minimum 7 in case of Public company. But if a company has shares, members are known as shareholder otherwise only members. Therefore every shareholder is a member but every member is not a shareholder.


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Solution 7(a) : As per Sec 10 of Employees Provident und & Missl Provisions act,1952 :The amount

standing to the credit of any member in the funds - a) Shall not in anyway be capable of being assigned or charged b) Shall not be liable to attachment under any decree or order of any court in respect of any court in respect of

any debt or liability c) Shall not be capable of being claimed by the official assignee or the official receiver d) Shall be free from any debt or other liability (in the hands of the nominee) incurred by the deceased member

Solution 7(b) : Notice of a GM given by a secretary is invalid if it is given without the sanction of the Board. However, the notice may be ratified by the Board. Therefore in the present case, The Notice sent by Mr.DP ,the Secretary without the authority of The Company M/s City handicraft ltd is invalid provided it is not ratified by board later on.

Solution 7(c) : Service of documents on a company : Sec 51 of Companies Act,56 1. Place of delivery : Registered office of the company. 2. Mode of delivery : Sending, by post by registered post; or Hand delivery. 3. Effect of inconsistent articles : The articles are invalid if the articles contain the provisions contrary to Sec 51 or the articles limit the mode of service to only one of the modes given u/s 51. Service of documents on the registrar : Sec. 52 of Companies Act,56 1. Place of delivery : At the office address of the Registrar. 2. Mode of delivery : Sending by post under certificate of posting or by registered post; or Hand delivery. Service of documents on members by the company : Sec 53 of Companies Act,56 1. Mode of delivery : Sending by post or Hand delivery or by Email 2. PIace of delivery of documents : At the registered address in India If the member has no registered address in India — At such address in India which has been supplied by the member for the purpose of giving of notices of GM. If a member has no registered address in India, and he has not supplied to the company an address in India for service of notices to him, a document may be served on him by advertising it in a vernacular newspaper. 3. Time consumed in service of documents : Mode of giving Notice Time when document is presumed to be delivered

(i) In Case of Notice of GM At the expiration of 48 hours (ii) If Notice is given by advertisement The day on which advertisement appears vernacular newspaper. (iii) In any other case At such time when letter would be delivered in ordinary course

of post. 4. Delivery in case of joint share holders : Document shall be served on the joint-holder named first in the Register of members.


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Solution 7(d) : Advantages of Formal communication :

1. Hierarchy is maintained in the organisation. 2. Helps in fixation of Responsibility. 3. Helps in proper Coordination 4. As majority of formal communication is written, therefore Records are maintained.

Solution 7(e) : Objectives of Consumer Protection Councils in India There are 3 councils prevailing in India for Consumer Protection. Their main objectives are to protect the rights of consumers.

3 Councils are as follows :

- The Central Consumer Protection Council

- The State Consumer Protection Council

- The District Consumer Protection council

The Objective recognized by Council shall be to promote and protect the rights of the consumers such as: 1. Right to be Protected : Right of consumer to be protected against marketing which are hazardous to

Life & Property. Govt. should frame adequate policies to ensure that goods manufactured are safe.E.g: Toys for children containing toxic chemicals.

2. Right to be Informed : Right of consumer to be informed about Quality, Quantity, Purity of Goods to

protect him from Unfair Trade Practices. E.g. Packaging must disclose the above details, hallmarking of Gold jewellery etc.

3. Right to Choose : Right of consumer to be assured / guaranteed that he will have access to variety of

goods at competitive prices. 4. Right to Consumer Education : Right of consumer to have knowledge of his rights and be informed

of latest consumer policies. 5. Right of Redressal : Right to Seek remedy against unfair trade practices by seeking

compensation/damages etc. 6. Right to be Heard : Right of Redressal is effective if right to be heard is also provided i.e. Grievance of

consumer will be given due consideration & action will be taken.

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