Mock Test Paper - Series II: January,2025

Date of Paper: 2nd January, 2025

FOUNDATION COURSE
PAPER – 2: BUSINESS LAWS
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions should be made and disclosed
by way of note forming part of the answer.
Working Notes should form part of the answer.
(Time allowed: 3 Hours) (100 Marks)
1. (a) (i) Mr. A was running an orphanage. His friend Mr. S, a philanthropist
agreed to donate ` 2 lakh for treatment of a child, who was suffering
from cancer. On emergency, Mr. A incurred ` 1.5 lakh on treatment
of child. Now, Mr. S refused to pay. Whether Mr. A can claim ` 1.5
lakh from Mr. S with reference to provisions of the Indian Contract
Act, 1872? (3 Marks)
(ii) Mr. L let out his residential house to Mr. M for ` 50,000 p.m. for a
period of one year. According to the Rent agreement, electricity bill
will be paid by Mr. L. But Mr. L could not pay electricity dues up to
5 months, due to his financial hardships. The Electricity Board sent
the notice of disconnection, if it is not paid within a week's time. To
avoid all this, Mr. M paid the electricity bill of ` 50,000 with penalty.
Later on, L refused to reimburse ` 50,000 and argued that he has
paid bill voluntarily because of his own interest. Decide with
reference to provisions of the Indian Contract Act, 1872 whether
Mr. M is entitled to be reimbursed by Mr. L? (4 Marks)
(b) (i) XYZ Ltd. was incorporated to hold the patent for a new product.
The company is expecting to start its commercial production within
the next two years. In the meanwhile, for timely installation, the
company has placed the purchase order for plant and machinery
with a down payment of ` 1 crore. Referring to the provisions of the
Companies Act, 2013 examine, whether the company can go for
acquiring the status of a dormant company? (4 Marks)
(ii) Mike LLC incorporated in Singapore having an office in Pune, India.
Analyze whether Mike LLC would be called a foreign company as
per the provisions of the Companies Act, 2013? Also explain the
meaning of foreign company. (3 Marks)
(c) State the modes by which a partner may transfer his interest in the firm
in favour of another person under the Indian Partnership Act, 1932. What
are the rights of such a transferee? (6 Marks)

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2. (a) Sony, a friend of Priya wanted to buy her two-wheeler. Priya agreed to
sell her two-wheeler to Sony and it was decided that price of her two-
wheeler will be fixed by Priya's father, who is an auto dealer. Priya
immediately handed over the keys to Sony. However, Priya's father
refused to fix the price as he did not want Priya to sell her vehicle. Priya
expressed her inability to sell the two-wheeler to Sony and asked for
return, but Sony refused to return the same. Explain-
(i) Can Priya take-back the vehicle from Sony?
(ii) Will your answer be different, if Priya had not handed over the
vehicle to Sony? (7 Marks)
(b) Define OPC (One Person Company) and state the rules regarding its
membership. Can it be converted into a non-profit company under
Section 8 or a private company? (7 Marks)
(c) A LLP is a new form of legal business entity with limited liability. It's an
alternative corporate business vehicle that only gives the benefits of
limited liability at low compliance cost but allows its partners the flexibility
of organizing their internal structure as a traditional partnership. Keeping
in view of above, define the following characteristics of LLP.
(i) Body Corporate
(ii) Mutual Agency
(iii) Foreign LLPs
(iv) Artificial legal person (6 Marks)
3. (a) (i) P, Q and R formed a partnership agreement to operate motor buses
along specific routes for a duration of 12 years. After operating the
business for four years, it was observed that the business incurred
losses each year. Despite this, P is determined to continue the
business for the remaining Period. Examine with reference to the
Indian Partnership Act, 1932, can P insist to continue the business?
If so, what options are available to Q and R who are reluctant to
continue operating the business? (4 Marks)
(ii) A and B operate a textile merchant business in partnership. Mr. A
finances the business and is a sleeping partner. In the regular
course of business, B acquires certain fabric goods belonging to C.
However, B is aware that these goods are stolen property. Despite
this knowledge, B proceeds to purchase and sell some of these
stolen goods. Moreover, B records proceeds from these sales in
the firm’s books. Now, A wants to avoid the liability towards C, on
the grounds of misconduct by B. In the light of the provisions of the
Indian Partnership Act, 1932 discuss the liability of A and B towards
C. (3 Marks)
(b) (i) XYZ is a company incorporated under the Companies Act, 2013.
The paid up share capital of the company is held by others as on
31.03.2024 in as under:

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 (1) Government of India 20%
(2) Life Insurance Corporation of India (Public Institution) 8%
(3) Government of Tamil Nadu 10%
(4) Government of Rajasthan 10%
(5) ABC Limited (owned by Government Company) 15%
As per above shareholding, state whether XYZ limited be called a
Government Company under the provisions of the Companies Act,
2013. (4 Marks)
(ii) M and N holding 70% and 30% of the shares in the company. Both
died in an accident. Answer with reference to the provisions of the
Companies Act, 2013, what will be the legal effect on the company
as both the members have died? (3 Marks)
(c) Explain in brief with reference to the provisions of the Indian Contract
Act, 1872, what are the rights enjoyed by Surety against the Creditor,
the Principal Debtor and Co-Sureties? (6 Marks)
4. (a) (i) Mr. J entered into an agreement with Mr. S to purchase his house
for ` 20 lakh, within three months. He also paid ` 50,000/- as token
money. In the meanwhile, in an anti-encroachment drive of the local
administration, Mr. S's house was demolished. When Mr. J was
informed about the incident he asked for the refund of token money.
Referring to the relevant provisions of the Indian Contract Act, 1872
state whether Mr. J is entitled to the refund of the amount paid.
(4 Marks)
(ii) Rama directs Shyam to sell laptops for him and agrees to give
Shyam eleven percent (11%) commission on the sale price fixed by
Rama for each laptop. As Government of India put restrictions on
import of Laptops, Rama thought that the prices of laptops might
go up in near future and he revokes Shyam's authority for any
further sale. Shyam, before receiving the letter at his end sold 5
laptops at the price fixed by Rama. Shyam asked for 11%
commission on the sale of 5 Laptops for ` 1 lakh each. Explain
under the provisions of the Indian Contract Act, 1872:
(1) Whether sale of laptops after revoking Shyam's authority is
binding on Rama?
(2) Whether Shyam will be able to recover his commission from
Rama, if yes, what will be the amount of such commission?
(3 Marks)
(b) What are Inchoate and Ambiguous Instruments under the Negotiable
Instruments Act, 1881? (7 Marks)
(c) Describe in brief about the following Regulatory bodies of the
Government of India:

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 (i) Securities and Exchange Board of India
(ii) Reserve Bank of India
(iii) Insolvency and Bankruptcy Board of India (6 Marks)
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. (4 Marks)
(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. (3 Marks)
(b) State the circumstances, in which a Court may, at the suit of the partner,
dissolve a partnership firm under the provisions of the Indian Partnership
Act, 1932. (7 Marks)
(c) In accordance with the provisions of the Indian Contract Act, 1872,
answer the following:
(i) Rights of Bailor against any wrong doer (Third Party)
(ii) Duties of the Pawnee (6 Marks)
6. (a) Referring to the provisions of the Negotiable Instruments Act, 1881,
answer the following in the given scenario:
(i) Aman drew the bill of exchange (the bill) on Baban, who accepted
it, payable to Magan or order. Magan indorsed the bill to Gagan.
Gagan indorsed the bill to Akash to be delivered to him on the next
day. However, on the death of Gagan on the same day, his only
son Ankit delivered the bill to Akash on the next day as intended by
his deceased father. On presenting the bill on the due date, Baban
refused to pay. Explaining the importance of delivery in negotiation,
decide, whether Akash can enforce the payment of the bill against
Baban or the previous parties. (4 Marks)
(ii) Reliable Limited, an Indian company, is a global leader in
Petrochemical products. For payment of the sale price of machinery
imported from Alex Manufacturing Limited, a USA based company
(the exporter), the Indian company drew a bill of exchange on
Manish, a resident of Mumbai (India) who accepted the bill at
Mumbai payable to the exporter in Los Angeles, USA. Decide,
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 whether the bill of exchange is an inland instrument or a foreign
instrument. Assume that the bill of exchange was signed by the
authorised person for the drawer company. (3 Marks)
(b) Answer the following as per the provisions of the Indian Contract Act,
1872:
(i) 'Agent cannot personally enforce, nor be personally bound by,
contracts on behalf of the principal' however there are some
exceptions to this general rule, explain. (4 Marks)
(ii) State the rights of Indemnity-holder when sued. (2 Marks)
OR
(b) What is the meaning of contingent contract? Write briefly its essentials.
Also, explain any three rules relating to enforcement of a contingent
contract. (6 Marks)
(c) J, a wholesaler of premium Basmati rice delivered on approval 100 bags
of rice of 10 kg each to a local retailer, on sale or returnable basis within
a month of delivery. The next day the retailer sold 5 bags of rice to a
regular customer K. A week later K informed the retailer that the quality
of rice was not as per the price.
The retailer now wants to return all the rice bags to J, including the 4
bags not used by K. Can the retailer do so?
Also briefly describe the provisions underlying in this context of the Sale
of Goods Act, 1930, (7 Marks)

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 Mock Test Paper - Series II: January,2025
Date of Paper: 2 nd January, 2025
Time of Paper: 10.30 A.M. to 1.30 P.M.

FOUNDATION COURSE
PAPER – 2: BUSINESS LAWS
ANSWERS
1. (a) (i) The general rule is that an agreement made without consideration
is void (Section 25 of the Indian Contract Act, 1872).
However, in the following case, the agreement though made
without consideration, will be valid and enforceable.
Charity: If a promisee undertakes the liability on the promise of the
person to contribute to charity, there the contract shall be valid.
In the instant case, Mr. A can claim 1.5 lakh from Mr. S.
(ii) According to Section 69 of the Indian Contract Act, 1872, a person
who is interested in the payment of money which another is bound
by law to pay, and who therefore pays it, is entitled to be reimbursed
by the other.
In the instant case, Mr. M paid the electricity bill to avoid the
disconnection that was pending due to Mr. L's failure to fulfil his
contractual obligation. Hence, Mr. M is entitled to be reimbursed
₹ 50,000 from Mr. L.
(b) (i) According to Section 455 of the Companies Act, 2013, where a
company is formed and registered under this Act for a future project
or to hold an asset or intellectual property and has no significant
accounting transaction, such a company or an inactive company
may make an application to the Registrar in such manner as may
be prescribed for obtaining the status of a dormant company.
In the instant case, XYZ Ltd. has made a significant accounting
transaction (down payment of ₹ 1 crore for plant and machinery), it
does not meet the criteria of a dormant company under Section 455
of the Companies Act, 2013.
Therefore, XYZ Ltd. cannot acquire the status of dormant company.
(ii) Foreign Company [Section 2(42) of the Companies Act, 2013]:
It means any company or body corporate incorporated outside India
which—
(i) has a place of business in India whether by itself or through
an agent, physically or through electronic mode; and
(ii) conducts any business activity in India in any other manner.

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 As Mike LLC is incorporated in Singapore and having a place of
business in Pune, India, it is a foreign Company.
(c) Section 29 of the Indian Partnership Act, 1932 provides that a share in
a partnership is transferable like any other property, but as the
partnership relationship is based on mutual confidence, the assignee of
a partner’s interest by sale, mortgage or otherwise cannot enjoy the
same rights and privileges as the original partner.
The rights of such a transferee are as follows:
(1) During the continuance of partnership, such transferee is not
entitled
(a) to interfere with the conduct of the business,
(b) to require accounts, or
(c) to inspect books of the firm.
He is only entitled to receive the share of the profits of the
transferring partner, and he is bound to accept the profits as agreed
to by the partners, i.e., he cannot challenge the accounts.
(2) On the dissolution of the firm or on the retirement of the transferring
partner, the transferee will be entitled, against the remaining
partners:
(a) to receive the share of the assets of the firm to which the
transferring partner was entitled, and
(b) for the purpose of ascertaining the share,
he is entitled to an account as from the date of the dissolution.
By virtue of Section 31, no person can be introduced as a partner in a
firm without the consent of all the partners. A partner cannot by
transferring his own interest, make anybody else a partner in his place,
unless the other partners agree to accept that person as a partner. At
the same time, a partner is not debarred from transferring his interest. A
partner’s interest in the partnership can be regarded as an existing
interest and tangible property which can be assigned.
2. (a) Ascertainment of price (Section 9 of the Sale of Goods Act, 1930):
By virtue of Section 9, the price in a contract of sale may be-
(1) fixed by the contract, or
(2) agreed to be fixed in a manner provided by the contract, e.g., by a
valuer, or
(3) determined by the course of dealing between the parties.
Agreement to sell at valuation (Section 10):
Section 10 provides for the determination of price by a third party.
1. Where there is an agreement to sell goods on the terms that price
is to be fixed by the valuation of a third party and that third party
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 either does not or cannot make such valuation, the agreement is
thereby avoided.
However, a buyer who has received and appropriated the goods,
must pay a reasonable price for them.
2. In case the third party is prevented from making the valuation by
the default of either party, the party not at fault may maintain a suit
for damages against the party in fault.
(i) In the instant case, Priya handed over the keys of her two-
wheeler to Sony and it was decided between them that price
of the vehicle will be fixed by Priya’s father. However, Priya’s
father refused to fix the price as he did not want Priya to sell
her vehicle. As the keys have already been handed over to
Sony, Priya cannot take back the keys from Sony and Sony
shall pay reasonable price to Priya for the two-wheeler.
(ii) If Priya had not handed over the vehicle to Sony, the contract
could have been avoided as Priya’s father refused to fix the
price of the vehicle.
(b) One Person Company (OPC) [Section 2(62) of the Companies Act,
2013]: The Act defines one person company (OPC) as a company which
has only one person as a member.
Rules regarding its membership:
 Only one person as member.
 The memorandum of OPC shall indicate the name of the other
person, who shall, in the event of the subscriber’s death or his
incapacity to contract, become the member of the company.
 The other person whose name is given in the memorandum
shall give his prior written consent in prescribed form and the
same shall be filed with Registrar of companies at the time of
incorporation of the company along with its e-memorandum and e-
articles.
 Such other person may be given the right to withdraw his consent.
 The member of OPC may at any time change the name of such
other person by giving notice to the company and the company
shall intimate the same to the Registrar.
 Any such change in the name of the person shall not be deemed to
be an alteration of the memorandum.
 Only a natural person who is an Indian citizen whether resident in
India or otherwise and has stayed in India for a period of not less
than 120 days during the immediately preceding financial year-
➢ shall be eligible to incorporate a OPC;
➢ shall be a nominee for the sole member of a OPC.

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  No person shall be eligible to incorporate more than one OPC or
become nominee in more than one such company.
 No minor shall become member or nominee of the OPC or can hold
share with beneficial interest.
OPC cannot be incorporated or converted into a company under
section 8 of the Act. Though it may be converted to private or public
companies in certain cases.
(c) Body corporate: Section 2(1)(d) of the LLP Act, 2008 provides that a
LLP is a body corporate formed and incorporated under this Act and is a
legal entity separate from that of its partners and shall have perpetual
succession. Therefore, any change in the partners of a LLP shall not
affect the existence, rights or liabilities of the LLP.
Section 3 of LLP Act, 2008, provides that a LLP is a body corporate
formed and incorporated under this Act and is a legal entity separate
from that of its partners.
Mutual Agency: No partner is liable on account of the independent or
un-authorized actions of other partners, thus individual partners are
shielded from joint liability created by another partner’s wrongful
business decisions or misconduct. In other words, all partners will be the
agents of the LLP alone. No one partner can bind the other partner by
his acts.
Foreign LLPs: Section 2(1)(m) defines foreign limited liability
partnership “as a limited liability partnership formed, incorporated, or
registered outside India which established as place of business within
India”. Foreign LLP can become a partner in an Indian LLP.
Artificial Legal Person: A LLP is an artificial legal person because it is
created by a legal process and is clothed with all rights of an individual.
It can do everything which any natural person can do, except of course
that, it cannot be sent to jail, cannot take an oath, cannot marry or get
divorce nor can it practice a learned profession like CA or Medicine. A
LLP is invisible, intangible, immortal (it can be dissolved by law alone)
but not fictitious because it really exists.
3. (a) (i) Section 40 of the Indian Partnership Act, 1932, gives right to the
partners to dissolve the partnership by agreement with the consent
of all the partners or in accordance with a contract between the
partners. ‘Contract between the partners’ means a contract already
made.
Also, according to section 44, the Court may, at the suit of a
partner, may dissolve a firm on various grounds including where
the business of the firm cannot be carried on except at a loss (in
future also).
In the instant case, P wants to continue the partnership business
despite the losses incurred over the past four years and Q and R

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 are reluctant to continue operating the business due to continuous
losses.
Here, P can insist on continuing the business if the partnership
agreement does not specifically provide such a right to one or more
partner / partners since Section 40 specifies that with the consent
of all the partners or in accordance with a contract between the
partners the firm can be dissolved.
Options available to Q and R
Mutual Agreement to Dissolve the Partnership: Q and R can
propose to P that the partnership be dissolved by mutual
agreement. If P agrees, the partnership can be dissolved amicably.
Dissolution by the Court: If P does not agree to dissolve the
partnership mutually, Q and R can approach the court for an order
under Section 44.
(ii) According to Section 25 of the Indian Partnership Act, 1932, every
partner is jointly and severally liable for all acts of the firm done
while he is a partner.
As per section 26, the firm is liable to the same extent as the partner
for any wrongful act or omission of a partner while acting:
(a) in the ordinary course of the business of the firm, or
(b) with the authority of the partners.
Section 27 provides that the firm is liable if a partner, acting within
the scope of his apparent authority, receives money or property
from a third party and misapplies it, or if the firm in the course of its
business receives money or property and the same is misapplied
while it is in the custody of the firm.
In the instant case, both A and B are liable to C for the wrongful
acts committed by B. A cannot avoid liability merely on the grounds
of being a sleeping partner.
(b) (i) Under the Companies Act, 2013, a Government company is defined
in Section 2(45) as a company in which not less than 51% of the
paid-up share capital is held by:
• The Central Government, or
• Any State Government or Governments, or
• Partly by the Central Government and partly by one or more
State Governments,
And includes a company which is a subsidiary company of such a
Government company.
In the instant case, total Government Shareholding is 40% [i.e. 20%
(Government of India) + 10% (Government of Tamil Nadu) + 10%
(Government of Rajasthan)] = 40%

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 The holding of the Life Insurance Corporation of India i.e. 8% and
ABC Limited i.e. 15%, total amounting to 23% cannot be taken into
account while counting the prescribed limit of 51%.
Since the total shareholding held by the Central Government and
State Governments combined is 40%, which is less than 51%, XYZ
Limited does not qualify to be a Government company under the
provisions of the Companies Act, 2013.
(ii) One of the features of a company is that it has perpetual
succession. As per this feature, members may die or change, but
the company goes on till it is wound up on the grounds specified by
the Companies Act, 2013. The shares of the company may change
hands infinitely but that does not affect the existence of the
company. Since a company is an artificial person created by law,
law alone can bring an end to its life. Its existence is not affected
by the death or insolvency of its members.
In the instant case, on the death of M and N, who are holding 70%
and 30% shares in the Company, the existence of the company is
not affected, since the shares held by M and N will be legally
transmitted to their legal heirs.
(c) In terms of the provisions of the Indian Contract Act, 1872, the surety
enjoys the following rights:
(a) Rights against the creditor;
(b) Rights against the principal debtor;
(c) Rights against co-sureties.
Right against the Creditor
(a) Surety’s right to benefit of creditor’s securities [Section 141]:
A surety is entitled to the benefit of every security which the creditor
has against the principal debtor at the time when the contract of
suretyship is entered into, whether the surety knows of the
existence of such security or not; and, if the creditor loses, or,
without the consent of the surety, parts with such security, the
surety is discharged to the extent of the value of the security.
(b) Right to set off: If the creditor sues the surety, for payment of
principal debtor’s liability, the surety may have the benefit of the set
off, if any, that the principal debtor had against the creditor.
(c) Right to share reduction: The surety has right to claim
proportionate reduction in his liability if the principal debtor
becomes insolvent.
Right against the principal debtor
(a) Rights of subrogation [Section 140 of the Indian Contract Act,
1872]: Where, a guaranteed debt has become due, or default of
the principal debtor to perform a guaranteed duty has taken place,
the surety, upon payment or performance of all that he is liable for,
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 is invested with all the rights which the creditor had against the
principal debtor.
This right is known as right of subrogation. It means that on
payment of the guaranteed debt, or performance of the guaranteed
duty, the surety steps into the shoes of the creditor.
(b) Implied promise to indemnify surety [Section 145]: In every
contract of guarantee there is an implied promise by the principal
debtor to indemnify the surety. The surety is entitled to recover from
the principal debtor whatever sum he has rightfully paid under the
guarantee, but not sums which he paid wrongfully.
Rights against co-sureties
“Co-sureties (meaning)- When the same debt or duty is guaranteed by
two or more persons, such persons are called co-sureties”.
(a) Co-sureties liable to contribute equally (Section 146): Unless
otherwise agreed, each surety is liable to contribute equally for
discharge of whole debt or part of the debt remains unpaid by
debtor.
(b) Liability of co-sureties bound in different sums (Section 147):
The principal of equal contribution is, however, subject to the
maximum limit fixed by a surety to his liability. Co-sureties who are
bound in different sums are liable to pay equally as far as the limits
of their respective obligations permit.
4. (a) (i) According to section 56 of the Indian Contract Act, 1872, an
agreement to do an act impossible in itself is void.
Contract to do act afterwards becoming impossible or
unlawful: A contract to do an act which, after the contract is made,
becomes impossible, or, by reason of some event which the
promisor could not prevent, unlawful, becomes void when the act
becomes impossible or unlawful.
According to section 65 of the Indian Contract Act, 1872, when an
agreement is discovered to be void, or when a contract becomes
void, any person who has received any advantage under such
agreement or contract is bound to restore it, or to make
compensation for it to the person from whom he received it.
In the instant case, Mr. J entered into a contract with Mr. S to
purchase his house for ` 20 lakh, with a token payment of ` 50,000.
The agreement included a condition that the sale would be
completed within three months. Before the completion of the sale,
the house was demolished by the local administration. This event
made it impossible for Mr. S to sell the house to Mr. J as agreed.
In this situation, Mr. J is required to refund ` 50,000 token money
paid to Mr. S, as the contract to sell the house has become void
due to the demolition of the house by the local administration, as a

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 result of which it becomes impossible to sell the house on the part
of S.
(ii) When termination of agent’s authority takes effect as to agent,
and as to third persons [Section 208 of the Indian Contract Act,
1872]: The termination of the authority of an agent does not, so far
as regards the agent, take effect before it becomes known to him,
or, so far as regards third persons, before it becomes known to
them.
In the instant case,
(1) The revocation of Shyam's authority becomes effective only
when it is communicated to and received by Shyam. Since
Shyam had not received the revocation letter at the time of
selling the laptops, his authority to sell on behalf of Rama was
still valid. Hence, the sale of laptops conducted by Shyam is
binding on Rama.
(2) Shyam is entitled to receive his commission for the sales
made while he still had the authority to sell. Since he sold the
laptops before receiving the revocation, he is entitled to his
commission as per the initial agreement with Rama.
Amount of Commission: Shyam sold 5 laptops at the price fixed
by Rama, which is `1 lakh each. The total sales amount to ` 5 lakh.
The agreed commission rate is 11% i.e. ` 55,000.
(b) Inchoate Instrument: It means an instrument that is incomplete in
certain respects. The drawer/ maker/ acceptor/ indorser of a negotiable
instrument may sign and deliver the instrument to another person in his
capacity leaving the instrument, either wholly blank or having written on
it the word incomplete. Such an instrument is called an inchoate
instrument and this gives the power to its holder to make it complete by
writing any amount either within limits specified therein or within the
limits specified by the stamp’s affixed on it. The principle of this rule of
an inchoate instrument is based on the principle of estoppel.
Ambiguous Instrument: According to Section 17 of the Negotiable
Instruments Act, 1881, where an instrument may be construed either as
a promissory note or bill of exchange, the holder may at his election treat
it as either, and the instrument shall be thenceforward treated
accordingly.
Thus, an instrument which is vague and cannot be clearly identified
either as a bill of exchange, or as a promissory note, is an ambiguous
instrument. In other words, such an instrument may be construed either
as a promissory note, or as a bill of exchange. Section 17 provides that
the holder may, at his discretion, treat it as either and the instrument
shall thereafter be treated accordingly.
(c) (i) The Securities and Exchange Board of India (SEBI):
• It is the regulatory body
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 • for securities and commodity market in India
• under the ownership of Ministry of Finance within the
Government of India.
• It was established on 12 April, 1988 as an executive body and
was given statutory powers on 30 January, 1992 through the
SEBI Act, 1992.
(ii) Reserve Bank of India (RBI):
• It is India's Central Bank and regulatory body responsible for
regulation of the Indian banking system.
• It is under the ownership of Ministry of Finance, Government
of India.
• It is responsible for the control, issue and maintaining supply
of the Indian rupee.
• It also manages the country's main payment systems and
works to promote its economic development.
• Bharatiya Reserve Bank Note Mudran (BRBNM) is a
specialised division of RBI through which it prints and mints
Indian currency notes (INR) in two of its currency printing
presses located in Nashik (Western India) and Dewas
(Central India).
• RBI established the National Payments Corporation of India
as one of its specialised division to regulate the payment and
settlement systems in India.
• Deposit Insurance and Credit Guarantee Corporation was
established by RBI as one of its specialised division for the
purpose of providing insurance of deposits and guaranteeing
of credit facilities to all Indian banks.
(iii) Insolvency and Bankruptcy Board of India (IBBI)-
• It is the regulator for overseeing insolvency proceedings and
entities like Insolvency Professional Agencies (IPA),
Insolvency Professionals (IP) and Information Utilities (IU) in
India.
• It was established on 1 October 2016 and given statutory
powers through the Insolvency and Bankruptcy Code, which
was passed by Lok Sabha on 5th May 2016.
• It covers Individuals, Companies, Limited Liability,
Partnerships and Partnership firms. The new code will speed
up the resolution process for stressed assets in the country.
• It attempts to simplify the process of insolvency and
bankruptcy proceedings.

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 • It handles the cases using two tribunals like NCLT (National
Company Law Tribunal) and Debt Recovery Tribunal.
5. (a) (i) Right of stoppage of goods in transit: The problem is based on
section 50 of the Sale of Goods Act, 1930 dealing with the right of
stoppage of the goods in transit available to an unpaid seller. The
section states that the right is exercisable by the seller only if the
following conditions are fulfilled.
(A) The seller must be unpaid
(B) He must have parted with the possession of goods
(C) The goods must be in transit
(D) The buyer must have become insolvent
(E) The right is subject to the provisions of the Act.
Applying the provisions to the given case, Ram being still unpaid,
can stop the 100 bales of cloth sent by railway as these goods are
still in transit.
(ii) (A) A wholesaler of cotton has 100 bales in his godown. So, the
goods are existing goods. He agrees to sell 50 bales and
these bales were selected and set aside. On selection, the
goods become ascertained. In this case, the contract is for the
sale of ascertained goods, as the cotton bales to be sold are
identified and agreed after the formation of the contract.
(B) If A agrees to sell to B one packet of sugar out of the lot of
one hundred packets lying in his shop, it is a sale of existing
but unascertained goods because it is not known which
packet is to be delivered.
(C) T agrees to sell to S all the apples which will be produced in
his garden this year. It is a contract of sale of future goods,
amounting to 'an agreement to sell.'
(b) DISSOLUTION BY THE COURT (SECTION 44 of the Indian
Partnership Act, 1932):
Court may, at the suit of the partner, dissolve a firm on any of the
following ground:
(a) Insanity/unsound mind: Where a partner (not a sleeping partner)
has become of unsound mind, the court may dissolve the firm on a
suit of the other partners or by the next friend of the insane partner.
Temporary sickness is no ground for dissolution of firm.
(b) Permanent incapacity: When a partner, other than the partner
suing, has become in any way permanently incapable of performing
his duties as partner, then the court may dissolve the firm. Such
permanent incapacity may result from physical disability or illness
etc.

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 (c) Misconduct: Where a partner, other than the partner suing, is
guilty of conduct which is likely to affect prejudicially the carrying
on of business, the court may order for dissolution of the firm, by
giving regard to the nature of business.
(d) Persistent breach of agreement: Where a partner other than the
partner suing, wilfully or persistently commits breach of agreements
relating to the management of the affairs of the firm or the conduct
of its business, or otherwise so conduct himself in matters relating
to the business that it is not reasonably practicable for other
partners to carry on the business in partnership with him, then the
court may dissolve the firm at the instance of any of the partners.
Following comes in to category of breach of contract:
➢ Embezzlement,
➢ Keeping erroneous accounts
➢ Holding more cash than allowed
➢ Refusal to show accounts despite repeated request etc.
(e) Transfer of interest: Where a partner other than the partner suing,
has transferred the whole of his interest in the firm to a third party
or has allowed his share to be charged or sold by the court, in the
recovery of arrears of land revenue due by the partner, the court
may dissolve the firm at the instance of any other partner.
(f) Continuous/Perpetual losses: Where the business of the firm
cannot be carried on except at a loss in future also, the court may
order for its dissolution.
(g) Just and equitable grounds: Where the court considers any other
ground to be just and equitable for the dissolution of the firm, it may
dissolve a firm. The following are the cases for the just and
equitable grounds-
(i) Deadlock in the management.
(ii) Where the partners are not in talking terms between them.
(iii) Loss of substratum.
(iv) Gambling by a partner on a stock exchange.
(c) (i) Suit by bailor & bailee against wrong doers [Section 180 of the
Indian Contract Act, 1872]: If a third person wrongfully deprives
the bailee of the use or possession of the goods bailed, or does
them any injury, the bailee is entitled to use such remedies as the
owner might have used in the like case if no bailment had been
made; and either the bailor or the bailee may bring a suit against a
third person for such deprivation or injury.
(ii) Duties of the Pawnee
Pawnee has the following duties:
a. Duty to take reasonable care of the pledged goods.
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 b. Duty not to make unauthorized use of pledged goods.
c. Duty to return the goods when the debt has been repaid or the
promise has been performed.
d. Duty not to mix his own goods with goods pledged.
e. Duty not to do any act which is inconsistent with the terms of
the pledge.
f. Duty to return accretion to the goods, if any.
6. (a) (i) Importance of Delivery in Negotiation [Section 46 of the
Negotiable Instruments Act, 1881]
Delivery of an instrument is essential whether the instrument is
payable to bearer or order for effecting the negotiation. The delivery
must be voluntary, and the object of delivery should be to pass the
property in the instrument to the person to whom it is delivered. The
delivery can be, actual or constructive. Actual delivery takes place
when the instrument changes hand physically. Constructive
delivery takes place when the instrument is delivered to the agent,
clerk or servant of the indorsee on his behalf or when the indorser,
after indorsement, holds the instrument as an agent of the
indorsee.
Section 46 also lays down that when an instrument is conditionally
or for a special purpose only, the property in it does not pass to the
transferee, even though it is indorsed to him, unless the instrument
is negotiated to a holder in due course.
The contract on a negotiable instrument until delivery remains
incomplete and revocable. Delivery is essential not only at the time
of negotiation but also at the time of making or drawing of
negotiable instrument. The rights in the instrument are not
transferred to the indorsee unless after the indorsement the same
has been delivered. If a person makes the indorsement of
instrument but before the same could be delivered to the indorsee,
the indorser dies, the legal representatives of the deceased person
cannot negotiate the same by mere delivery thereof. (Section 57).
In the instant case, Ankit the only son of Gagan delivered the bill to
Akash on the next day as intended by his deceased father (Gagan)
which is not valid.
Hence, Akash cannot enforce the payment of the bill against Baban
or the previous parties.
(ii) As per section 11 of the Negotiable Instruments Act, 1881, a
promissory note, bill of exchange or cheque drawn or made in India
and made payable in, or drawn upon any person resident in India
shall be deemed to be an inland instrument.
In the instant case, the bill of exchange was:
• Drawn in India (since it was drawn by Reliable Limited, an
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 Indian company).
• Accepted in India (Manish, a resident of Mumbai, accepted
the bill in Mumbai).
• Payable outside India, in Los Angeles, USA.
The bill of exchange in this case is an inland instrument because it
was drawn in India and accepted by a person resident in India, even
though it is payable outside India (Los Angeles, USA).
(b) (i) Agent cannot personally enforce, nor be bound by, contracts
on behalf of principal.
EXCEPTIONS: In the following exceptional cases, the agent is
presumed to have agreed to be personally bound:
(1) Where the contract is made by an agent for the sale or
purchase of goods for a merchant resident
abroad/foreign principal: – When an agent has entered into
a contract for the sale or purchase of goods on behalf of a
principal resident abroad, the presumption is that the agent
undertakes to be personally liable for the performances of
such contract.
(2) Where the agent does not disclose the name of his
principal or undisclosed principal; (Principal unnamed):
when the agent does not disclose the name of the principal
then there arises a presumption that he himself undertakes to
be personally liable.
(3) Non-existent or incompetent principal: Where the
principal, though disclosed, cannot be sued, the agent is
presumed to be personally liable.
(4) Pretended agent – if the agent pretends but is not an actual
agent, and the principal does not rectify the act but disowns
it, the pretended agent will be himself liable.
(5) When agent exceeds authority- When the agent exceeds
his authority, misleads the third person in believing that the
agent he has the requisite authority in doing the act, then the
agent can be made liable personally for the breach of warranty
of authority.
(ii) Rights of Indemnity-holder when sued (Section 125 of the
Indian Contract Act, 1872): The promisee in a contract of
indemnity, acting within the scope of his authority, is entitled to
recover from the promisor/indemnifier—
(a) all damages which he may be compelled to pay in any suit
(b) all costs which he may have been compelled to pay in
bringing/ defending the suit and

13
 (c) all sums which he may have paid under the terms of any
compromise of suit.
OR
(b) Essentials of a Contingent Contract
(a) The performance of a contingent contract would depend upon
the happening or non-happening of some event or condition.
The condition may be precedent or subsequent.
(b) The event referred to as collateral to the contract. The event is
not part of the contract. The event should be neither performance
promised nor a consideration for a promise.
(c) The contingent event should not be a mere ‘will’ of the
promisor. The event should be contingent in addition to being the
will of the promisor.
(d) The event must be uncertain. Where the event is certain or bound
to happen, the contract is due to be performed, then it is a not
contingent contract.
Definition of ‘Contingent Contract’ (Section 31 of the Indian
Contract Act, 1872)
“A contract to do or not to do something, if some event, collateral to such
contract, does or does not happen”.
Rules Relating to Enforcement of a contingent contract:
The rules relating to enforcement of a contingent contract are laid down
in sections 32, 33, 34, 35 and 36 of the Act.
(a) Enforcement of contracts contingent on an event happening:
Section 32 says that “where a contingent contract is made to do or
not to do anything if an uncertain future event happens, it cannot
be enforced by law unless and until that event has happened. If the
event becomes impossible, such contracts become void”.
(b) Enforcement of contracts contingent on an event not
happening: Section 33 says that “Where a contingent contract is
made to do or not do anything if an uncertain future event does not
happen, it can be enforced only when the happening of that event
becomes impossible and not before”.
(c) A contract would cease to be enforceable if it is contingent
upon the conduct of a living person when that living person
does something to make the ‘event’ or ‘conduct’ as impossible
of happening.
Section 34 says that “if a contract is contingent upon as to how a
person will act at an unspecified time, the event shall be considered
to have become impossible when such person does anything which
renders it impossible that he should so act within any definite time
or otherwise than under further contingencies”.

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 (d) Contingent on happening of specified event within the fixed
time: Section 35 says that Contingent contracts to do or not to do
anything, if a specified uncertain event happens within a fixed time,
becomes void if, at the expiration of time fixed, such event has not
happened, or if, before the time fixed, such event becomes
impossible.
(e) Contingent on specified event not happening within fixed time:
Section 35 also says that - “Contingent contracts to do or not to do
anything, if a specified uncertain event does not happen within a
fixed time, may be enforced by law when the time fixed has expired,
and such event has not happened or before the time fixed has
expired, if it becomes certain that such event will not happen”.
(f) Contingent on an impossible event (Section 36): Contingent
agreements to do or not to do anything, if an impossible event
happens are void, whether the impossibility of the event is known
or not to the parties to the agreement at the time when it is made.
(c) According to Section 24 of the Sales of Goods Act, 1930, in case of
delivery of goods on approval basis, the property in goods passes from
seller to the buyer:-
(i) When the person to whom the goods are given either accepts them
or does an act which implies adopting the transaction.
(ii) When the person to whom the goods are given retains the goods
without giving his approval or giving notice of rejection beyond the
time fixed for the return of goods and in case no time is fixed after
the lapse of reasonable time.
In the given case, J (seller) has delivered on approval 100 bags of rice
of 10 kg each to local retailer (buyer) on sale or returnable basis within
a month of delivery. Out of these 100 bags, the local retailer sold 5 bags
to K (customer). It implies that the local retailer has accepted 5 bags out
of 100.
A week later, local retailer received the complaint of some defect in the
rice bags, so, he wanted to return all the bags to the J (seller).
According to the above provisions, the local retailer is entitled to return
only 95 bags to the J (seller) and not those 4 bags which are not used
by K. Because, as per clause (i) above, the local retailer has already sold
5 bags, signifying that he has done an act which implies adopting the
transaction relating to those 5 bags.

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