PROMETRICS Finance : Companies Act 2013

Ultra Vires vs Doctrine of Constructive Notice Vs Doctrine of Indoor management( Royal British Bank Vs Turquand )

From 2017

PAPER – 2: CORPORATE AND OTHER LAWS

(One paper – Three hours – 100 Marks)

Level of Knowledge: Working knowledge

PART I – CORPORATE LAW (60 MARKS)

Objective: To test working knowledge of company law and their practical application in commercial situations.

Contents:

1. The Companies Act, 2013 – Sections 23 to 122

(a) Prospectus and Allotment of Securities

(b) Share Capital and Debentures

(d) Registration of Charges

(e) Management and Administration

(f) Company Law in a computerized Environment – E-filing.

Note: The provisions of the Companies Act, 1956 which are still in force would form part of the syllabus till the time their corresponding or new provisions of the Companies Act, 2013 are enforced.

Part II- OTHER LAWS (40 Marks)

Objective: To have an over-view of other Laws.

2. The Indian Contract Act, 1872 (Specific contracts covered from section 76 onwards): Contract of Indemnity and Guarantee, Bailment, Pledge, Agency

3. The Negotiable Instruments Act, 1881: Meaning of Negotiable Instruments, Characteristics, Classification of Instruments, Different provisions relating to Negotiation, Negotiability, Assignability, Right and Obligation of parties, presentment of Instruments, Rules of Compensation

4. The Payment of Bonus Act, 1965: Applicability, Definitions, Entitlement of payment of bonus, Minimum and Maximum bonus, Calculation of bonus, Miscellaneous provisions

5. The Employees’ Provident Fund and Miscellaneous Provisions Act, 1952: Introduction, Definition, Various Schemes and other provisions

6. The Payment of Gratuity Act, 1972: Extent & Applicability, Definitions, Payment of Gratuity, Calculation, Nominations & Miscellaneous provisions

7. Interpretation of statutes and Drafting of simple deeds and documents: Rules of Interpretation of statutes, Aids to interpretation, Rules of Interpretation/construction of Deeds and Documents, Drafting of simple deeds, Resolution, Minutes, Notices and Reports.

8. The Prevention of Money Laundering Act, 2002– Basic structure: Preliminary and Punishment for the Offence of Money laundering

9. The Consumer Protection Act, 1986: Definitions and Application of the Act, Consumer disputes redressal agencies and Miscellaneous provisions.

10. Tabular Format of major Labour Acts covering their name, preamble and basic comments

Contract Act

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

CA INTERMEDIATE ( IPC ) EXAMINATION, MAY, 2016

GROUP –I ; PAPER – 2 ; BUSINESS LAWS, ETHICS AND COMMUNICATION

SUGGESTED ANSWERS

QUESTION NO. 1 : ( a ) Mr. Bean is a promoter who has taken a loan on behalf of company but he is neither a director nor a person-in-charge of the company. He sent a cheque from the company`s account to discharge its legal liability. Subsequently, the cheque was dishonoured and a complaint was lodged against him. Can he be held liable for an offence under Section 138 of the Negotiable Instruments Act, 1881 ?

( b ) Rishi Pharmacy Ltd. decided to take up the business of food processing because of the downward trend in pharmacy business. There is no provision in the object clause of Memorandum of Association to enable the company to carry on such business. State whether its object clause can be amended ? Mention briefly the procedure to be adopted for change in the object clause.

( c ) “A nation or society should satisfy its requirements without jeopardizing the interest of future generations”. Comment with reference to Sustainable Development.

(d ) What is an indemnity bond ? Mr. Ajay Sinha has not received a dividend warrant of Rs. 1500 for 150 shares of XYZ Ltd. Draft an indemnity bond, to be given to the company, for seeking release of dividend.

ANSWER TO QUESTION NO. 1 ( a ) : DISHONOUR OF CHEQUE : LIABILITY OF PROMOTER ( SECTION 138 OF THE NEGOTIABLE INSTRUMENTS ACT, 1881 ) ( BUSINESS LAWS ) ( 5 MARKS ) : According to Section 138 of the Negotiable Instruments Act, 1881 where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from/out of that account for discharging any debt or liability, and if it is dishonoured by banker on sufficient grounds, such person shall be deemed to have committed an offence and shall be liable.

In the instant case, Mr. Bean, a promoter has taken a loan on behalf of company. He is neither a director nor a person in-charge of the Company. He sent a cheque from the company`s account which was subsequently dishonoured. In this case , Mr. Bean, the promoter is neither a director nor a person-in-charge of the company and is not connected with the day-to-day affaires of the company and had neither opened nor is operating the bank account of the company. Further, the cheque, which was dishonoured, was also not drawn on an account maintained by him but was drawn on an account maintained by the company. Therefore, Mr. Bean, has not committed an offence under section 138 of the Negotiable Instruments Act, 1881 and he can not be held liable for dishonor of the said cheque.

( NOTE : In the given question, it is said that the promoter is neither a director nor a person-in-charge of the company. As per section 2 ( 69 ) of the Companies Act, 2013, promoter includes a person having control over the affairs of the company directly/indirectly whether as a shareholder/director or otherwise. If a person is neither responsible for the affairs of the company nor having control over the management, in what capacity he can sent or issue a cheque from the company`s account to discharge its ( company`s ) legal liability ? In view of this if any candidate writes answer based on this presumption, due marks may be awarded )

5 MARKS : BREAK-UP : PROVISIONS – 3 MARKS ; CORRECT ANSWER – 2 MARKS. TO BE AWARDED TOGETHER. NOTE: MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE SECTION 138 OF THE NEGOTIABLE INSTRUMENTS ACT, 1881.

ANSWER TO QUESTION NO. 1 ( b ) : ALTERATION OF OBJECT CLAUSE IN THE MEMORANDUM ( SECTION 13 OF THE COMPANIES ACT, 2013 ) ( BUSINESS LAWS ) ( 5 MARKS ) : As per Section 13 ( 1 ) of the Companies Act, 2013 a company may, by a special resolution and after complying with the procedure specified in the said section, alter the provisions of its Memorandum. In the case of alteration to the objects clause, Sub-section ( 6 ) of Section 13 requires the filing of the Special Resolution by the company with the Registrar. Section 13 ( 9 ) states that the Registrar shall register any alteration to the Memorandum with respect to the objects of the company and certify the registration within a period of thirty days from the date of filing of the special resolution by the company. Section 13 ( 10 ) further states that no alteration in the Memorandum shall take effect unless it has been registered with the Registrar as above. Hence, the companies Act, 2013 now permits any alteration to the objects clause with ease. PROCEDURE : Companies are now under liberty to alter the object clause of the Memorandum of Association with just the approval of its members by a special resolution without obtaining further approval from the Central Government or any other authority. The procedure of alteration in the object clause of Memorandum is as under : ( i ) Holding a Board Meeting for the purpose of convening the meeting of members for approving the alteration in the objects clause by a special resolution ; ( ii ) Approving the alteration to the objects clause by passing a special resolution in general meeting of members ; ( iii ) Filing of special resolution with the Registrar of Companies ; ( iv ) Registration of the alteration to be done by the Registrar within one month from the date of filing of the special resolution along with a printed copy of the Memorandum as altered.

[ NOTE : PRESUMPTION : The question does not specify whether Rishi Pharmacy Ltd. is a listed company or unlisted company . The above answer is based on the presumption that Rishi Pharmacy Ltd. is an unlisted company. If any candidate assumes Rishi Pharmacy Ltd. as a listed company, which has raised money through prospectus and still has any unutilized amount out of money so raised, then answer should be based on Section 13 ( 8 ) of the Companies Act, 2013 .]

-----------------------------------------------------------------------------------------------------------------------------5 MARKS : BREAK-UP : PROVISIONS – 3 MARKS ; PROCEDURE – 2 MARKS. TO BE AWARDED TOGETHER. NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE SECTION 13 OF THE COMPANIES ACT, 2013.

ANSWER TO QUESTION NO. 1 ( c ) :

SUSTAINABLE DEVELOPMENT ( ETHICS ) ( 5 MARKS ) :

The concept of sustainable development was brought into focus by Brundtland Report, which stated that economic growth has to be environmentally sustainable. There is no economic growth without ecological costs. One must realize that increased development and higher GNP are related to environmental damage and resource depletion. Therefore, an element of resource regeneration and positive approach to environment have to be incorporated in developmental programmes. Literally sustainable development refers to maintaining development over time. Most widely cited definition of sustainable development is “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” A nation or society should satisfy its requirements – social, economic and others – without jeopardizing the interest of future generations.

High economic growth means high rate of extraction, transformation and utilization of non-renewable resources. There is no doubt that twenty first century markets shall be driven by the requirements of sustainable environments.

-----------------------------------------------------------------------------------------------------------------------------5 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE. NOTE : BRIEF AND GENERAL ANSWER BE AWARDED DUE CREDIT.

ANSWER TO QUESTION NO. 1 ( d ) :

INDEMNITY BOND ( SECTION 124 OF THE INDIAN CONTRACT ACT, 1872 ) ( BUSINESS LAWS ) ( COMMUNICATION ) ( 5 MARKS ) :

INDEMNITY BOND – A contract of indemnity as defined under Section 124 of the Indian Contract Act, 1872 is a contract by which one party promises to safe the other from loss cost to him by the contract of the promisor himself or by the contract of any other person. The bond which is given for such protection is called Indemnity Bond.

INDEMNITY BOND

I, Mr. Ajay Sinha, S/o …………………………………resident of …………………………………………………………..do hereby agree to indemnify the XYZ Ltd. for any loss that may occur for seeking release of dividend for 150 shares of Rs. 1500 /-.

I further declare that personally I have not received the dividend warrant in question.

Date : Signature

Place : Mr. Ajay Sinha

-----------------------------------------------------------------------------------------------------------------------------5 MARKS : BREAK-UP : PROVISION – 2 MARKS ; DRAFT OF BOND – 3 MARKS. TO BE AWARDED TOGETHER. NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE SECTION 124 OF THE INDIAN CONTRACT ACT, 1872.

QUESTION NO. 2 : ( a ) `X` agreed to become an assistant for 2 years to `Y` who was practicing chartered accountant at Jodhpur. It was also agreed that during the term of agreement `X` will not practice as a chartered accountant on his own account within 20 kms. Of the office of `Y` at Jodhpur. At the end of one year `X` left the assistantship of `Y` and started practice on his own account within the said area of 20 kms. Referring to the provisions of the Indian Contract Act, 1872, decide whether `X` could be restrained from doing so ?

( b ) Akshay is an employee in a company. The amount of bonus payable to him during the year 2014-15 is Rs. 1,25,000. The company deducted a sum of Rs. 25,000 against the “Diwali Bonus” already paid to him during the said year and paid the remaining amount. Akshay files a suit against the company for recovery of the deducted amount. Decide whether Akshay would be given relief by the Court on adjustment of already paid interim bonus on Diwali under the Payment of Bonus Act, 1965 ?

( c ) “Corporate governance is about stakeholders` satisfaction” Comment. ( d ) The Press Release should be written in a journalistic style. Comment on the statement highlighting guidelines for drafting a Press Release.

ANSWER TO QUESTION NO. 2 ( a ) :

AGREEMENT IN RESTRAINT OF TRADE ( SECTION 27 OF THE INDIAN CONTRACT ACT, 1872 ) ( BUSINESS LAWS ) ( 4 MARKS ) :

Section 27 of the Indian Contract Act, 1872 deals with agreements in restraint of trade. According to the said section, every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. However, in the case of the service agreements restraint of trade is valid. In an agreement of service by which a person binds himself during the term of agreement not to take service with anyone else directly or indirectly to promote any business in direct competition with that of his employer is not in restraint of trade , so it is a valid contract.

In the instant case, agreement entered by X with Y is reasonable, and do not amount to restraint of trade and hence enforceable.

Therefore, X can be restrained by an injunction from practicing on his own account in Jodhpur.

-----------------------------------------------------------------------------------------------------------------------------4 MARKS : BREAK-UP : PROVISIONS – 3 MARKS ; ANSWER – 1 MARK. TO BE AWARDEDE TOGETHER NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE SECTION 2 7 OF THE INDIAN CONTRACT ACT, 1872.

ANSWER TO QUESTION NO. 2 ( b ) :

ADJUSTMENT OF DIWALI BONUS ( SECT ION 17 OF THE PAYMENT OF BONUS ACT, 1965 ) ( BUSINESS LAWS ) ( 4 MARKS ) :

In accordance with the provisions of Section 17 of the Payment of Bonus Act, 1965 where, in an accounting year an employer has paid any puja bonus or other customary bonus to an employee, the employer shall be entitled to deduct ( adjust ) the amount of bonus so paid from the amount of bonus payable to the employee in respect of that accounting year and the employee shall be entitled to receive only the balance.

Therefore, in the instant case, the company is entitled to adjust the Diwali Bonus ( Rs. 25,000 ) already paid from the amount of bonus payable ( Rs. 1,25,000 ) to the employee and the employee shall be entitled to receive only the balance ( Rs. 1,00,000 ).

In the instant case, therefore, Akshay would not get any relief from the Court because the employer is empowered to deduct Rs. 25,000 /- from the total bonus ( Rs. 1,25,000 /- ) of Mr. Akshay

[ NOTE : Generally, the Payment of Bonus Act, 1965 covers the employees getting salary or wage not exceeding Rs. 10,000 and the maximum bonus and minimum bonus payable are 20% and 8.33% of salary or wage. In view of this the amount of bonus of Rs. 1,25,000 as shown in this question is very high taking into account the prescribed salary and bonus under the provisions of the Payment of Bonus Act, 1965. Though, the amount of bonus does not affect the answer but the facts and figures to be given un the question must be in compliance to the provisions of the said Act. ]

NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE SECTION 17 OF THE PAYMENT OF BONUS ACT, 1965.

ANSWER TO QUESTION NO. 2 ( c ) :

CORPORATE GOVERNANCE IS ABOUT STAKEHOLDERS` SATISFACTION ( ETHICS ) ( 4 MARKS ) :

The term “Corporate Governance” is not easy to define. The term governance relates to a process of decision making and implementing the decision in the interest of all stakeholders. It basically relates to enhancement of corporate performance and ensure proper accountability for management in the interest of all stakeholders. It is a system through which an organization is guided and directed. On the basis of this definition, the core of objectives of Corporate Governance are focus, predictability, transparency, participation, accountability, efficiency and effectiveness and satisfaction of stakeholders.

-----------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE. NOTE : GENERAL ANSWER COVERING RELEVANT POINTS BE GIVEN DUE CREDIT.

ANSWER TO QUESTION NO. 2 ( d ) :

PRESS RELEASE ( COMMUNICATION ) ( 4 MARKS ) :

The term “Press Release” in its narrower sense is used for release covering news. The press release contains worthwhile material which has some news value. It is not only unnecessary expenditure but also damages the reputation of the concerned publicity / information department if the release is on a very trivial matter.

THE PRESS RELEASE SHOULD BE WRITTEN IN A JOURNALISTIC STYLE :

It should provide facts or information of interest to the readers and should attempt to cover all aspects of a specific subject. There should not be any loose ends. It should be on a subject which is recent or in news. The release should not be generally lengthy. It should be concise and to the point. It has not much place for subsidiary or background material. The release is a piece of clear writing without any ambiguity, without any efforts towards colour or ornamentation.

The introduction or lead should be in a summary format as it is a news story. The relative value of the various ingredients of the subjects in the press release is weighted and evaluated and the most pertinent of them are included in the lead.

The release should have a consistent format. Generally, the name of the organization from where the release emanates is given on the top. The date and place are indicated on the top right side. The release should have a title and a sub-title also , if necessary. It should have a suitable introductory paragraph. In the case of releases from non-official organization, it is desirable also to mention the designation of the person issuing the release and his telephone number.

-----------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE .

NOTE : BRIEF AND GENERAL ANSWER COVERING RELEVANT POINTS BE GIVEN DUE CREDIT.

QUESTION NO. 3 : ( a ) Atul Ltd. has passed a resolution in its general meeting regarding accepting deposits from its members. Can this company accept deposits from its members under the Companies Act, 2013 ? If yes, state the conditions to be fulfilled regarding this.

( b ) Mr. A of Alwar engaged Mr. S as his agent to buy a house. Mr. S bought a house for Rs. 40 lakhs in the name of a nominee and then purchased it himself for Rs. 44 lakhs. He then sold the same house to Mr. A for Rs. 46 lakhs. Mr. A later comes to know about the mischief of Mr. S and tries to recover the excess amount paid to Mr. S. Is he entitled to recover any amount from Mr. S ? If so, how much ? Explain.

( c ) What do you mean by the “Iron Law Responsibility” ? Mention the resulting benefits which may be acquired by achieving the long term objectives through the business activities.

ANSWER TO QUESTION NO. 3 ( a ) :

ACCEPTANCE OF DEPOSITS FROM MEMBERS ( SECTION 73 OF THE COMPANIES ACT, 2013 )

( BUSINESS LAWS ) ( 8 MARKS ) :

According to Section 73 ( 2 ) of the Companies Act, 2013 a company may, subject to the passing of a resolution in general meeting and subject to such rules as may be prescribed in consultation with the Reserve Bank of India, accept deposits from its members on such terms and conditions, including the provision of security, if any, or for the repayment of such deposits with interest, as may be agreed upon between the company and its members, subject to the fulfillment of the following conditions, namely :-

( i ) issuance of a circular to its members including therein a statement showing the financial position of the company, the credit rating obtained, the total number of depositors and the amount due towards deposits in respect of any previous deposits accepted by the company and such other particulars in such form and in such manner as may be prescribed ;

( ii ) filing a copy of the circular along with such statement with the Registrar within thirty days before the date if issue of the circular ;

( iii ) depositing such sum which shall not be less than fifteen percent of the amount of its deposits maturing during a financial year and the financial year next following, and kept in a scheduled bank in a separate bank account to be called as deposit repayment reserve account ;

( iv ) providing such deposit insurance in such manner and to such extent as may be prescribed ;

( v ) certifying that the company has not committed any default in the repayment of deposits accepted either before or after the commencement of this Act or payment of interest on such deposits ; and

( vi ) providing security, if any for the due repayment of the amount of deposit or the interest thereon including the creation of such charge on the property or assets of the company.

Where a company does not secure the deposits or secures such deposits partially, then, the deposits shall be termed as “unsecured deposits” and shall be so quoted in every circular, form advertisement or in any document related to invitation or acceptance of deposits.

Hence Atul Ltd. can accept deposits from its members by following the above procedure.

-----------------------------------------------------------------------------------------------------------------------------8 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE. NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT REFER TO SECTION 73 OF THE COMPANIES ACT, 2013. NOTE : A BRIEF ANSWER COVERING ALL RELEVANT POINTS BE GIVEN FULL CREDIT.

ANSWER TO QUESTION NO. 3 ( b ) :

MISCHIEF BY THE AGENT – RIGHTS OF THE PRINCIPAL ( SECTIONS 215 AND 216 OF THE INDIAN CONTRACT ACT, 1872 ) ( BUSINESS LAWS ) ( 4 MARKS ) :

The problem in this case is based on the provisions of the Indian Contract Act, 1872 as contained in Section 215 read with Section 216. These two sections provide that where an agent without the knowledge of the principal, deals in the business of agency on his own account, the principal may :

( 1 ) repudiate the transaction, if the case shows, either that the agent has dishonestly concealed any material fact from him, or that the dealings of the agent have been disadvantageous to him.

( 2 ) claim from the agent any benefit, which may have resulted to him from the transaction.

Therefore, based on the above provisions, Mr. A is entitled to recover Rs. 6 lakhs from Mr. X being the amount of profit earned by Mr. S out of the said transaction.

-----------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE. NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUNG THAT THE CANDIDATE DID NOT CITE SECTIONS 215 AND 216 OF THE INDIAN CONTRACT ACT, 1872.

ANSWER TO QUESTION NO. 3 ( c ) :

THE IRON LAW OF RESPONSIBILITY ( ETHICS ) ( 4 MARKS ) :

The institution of business exists only because it performs invaluable services for society. Society gives business is license to exist and this can be amended or revoked at any time if fails to live up to society`s expectations. Therefore, if a business intends to retain its existing social role and power, it must respond to society`s needs constructively. This is known as the “Iron Law Responsibility. In the long term those who do not use power in a manner that society consider responsible, will tend to lose it.

Businesses have been delegated economic power and have access to productive resources of a community. They are obliged to use these resources for the common good of society so that more wealth for its betterment may be generated. Technical and creative resources are also helpful to it. A business organization sensitive to community needs would in its own self interest like to have a better community within which the business may be conducted. This way, the resulting benefits would be :

( a ) Decrease in crime;

( b ) Easier labour recruitment;

( c ) Reduced employee absenteeism;

( d ) Easier access to international capital, better conditions for loans on international money markets;

( e ) Dependable and preferred as supplier, exporter, importer and retailer of responsibility manufactured components and products.

This way a better society would produce a better environment in which the business may gain long term profit maximization.

----------------------------------------------------------------------------------------------------------------------------- 4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE .

NOTE : BRIEF ANSWER COVERING ALL RELEVANT POINTS BE GIVEN FULL CREDIT.

QUESTION NO. 4 : ( a ) List out the points of differences between Fraud and Misrepresentation. ( b ) Mr. Y was working in ABC Limited for the last seven years as an Account Executive. He resigned from the services of the Company on 30^th April, 2015. His resignation was not accepted by the Company. However, after serving for the notice period, he stopped coming to the company. After some time he applied for his gratuity. The company refused on the ground that his resignation was not accepted. Discuss the legal position about this in the light of the Payment of Gratuity Act, 1972. ( c ) Explain the concept of “Dormant Company” as envisaged in the Companies Act, 2013. ( d ) What are the safeguards created by the profession, legislation or regulation about accounting and finance which may eliminate or reduce the threats relating to unethical behavior ?

ANSWER TO QUESTION NO. 4 ( a ) :

FRAUD AND MISREPRESENTATION : DIFFERENCES ( SECTIONS 17 AND 18 OF THE INDIAN CONTRACT ACT, 1872 ) ( BUSINESS LAWS ) ( 4 MARKS ) :

( 1 ) EXTENT OF TRUTH VARIES :

One of the important differences between fraud and misrepresentation is that in case of fraud the person making the representation knows it fully well that his statement is untrue and false. In case of misrepresentation, the person making the statement believes it to be true which might later out to be untrue. In spite of this difference, the end result is that the other party is misled.

( 2 ) RIGHT OF THE PERSON CONCERNED WHO SUFFERS :

Fraud not only enables the party to avoid the contract but the party is also entitled to bring action. Misrepresentation merely provides a ground for avoiding the contract and not for bringing an action in the court of law.

( 3 ) ACTION AGAINST THE PERSON MAKING THE STATEMENT :

In order to sustain an action for deceit, there must be proof of fraud. Fraud can be proved only by showing that a false statement was made knowing it to be false or without believing it to be true or recklessly without any care of truth. One is action against deceit and the other is action for recession of the contract. In the case of misrepresentation the person may be free from blame because of his innocence but still the contract can not stand.

( 4 ) DEFENCES AVAILABLE TO PERSONS :

In case of misrepresentation, the fact that the plaintiff had means of discovering the truth by exercising ordinary diligence can be a good defence against the repudiation of the contract, whereas a defence can not be set up in case of fraud other than fraudulent silence

-----------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE .

NOTE : BRIEF ANSWER COVERING ALL RELEVANT POINTS BE GIVEN FULL CREDIT.

NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE SECTIONS 17 AND 18 OF THE INDIAN CONTRACT ACT, 1872.

ANSWER TO QUESTION NO. 4 ( b ) :

PAYMENT OF GRATUITY TO EMPLOYEE WHO RESIGNED ( SECTION 4 OF THE PAYMENT OF GRATUITY ACT, 1972 ) ( BUSINESS LAWS ) ( 4 MARKS ) :

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.

1* On his superannuation, or

2* On his retirement or resignation, or

3* On his death or disablement due to accident or disease ;

The payability of gratuity to the employee is his right as well as the obligation of the employer.

In the present case, Mr. Y was working in ABC Limited for the last seven years as an Accounts Executive. He resigned from service but his resignation was not accepted by the company. The company refused to pay the gratuity amount on the ground that his resignation was not accepted.

The intention of the ABC Limited is not correct as an employee resigning from service is also entitled to gratuity ( Texmaco Ltd. v. Sri Ram Dhan, 1992 LLR 369 (Del ) ; and non-acceptance of resignation is no hurdle in the way of an employee to claim gratuity ( Mettur Spinning Mills v. Deputy Commissioner of Labour ( 1983 ) II LLJ 188 )

In view of the above Mr. X is entitled to gratuity.

-----------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE. NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE SECTION 4 OF THE PAYMENT OF GRATUITY ACT, 1972.

NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE THE CASE LAW.

ANSWER TO QUESTION NO. 4 ( c ) :

DORMANT COMPANY ( SECTION 455 OF THE COMPANIES ACT, 2013 ) ( BUSINESS LAWS ) ( 4 MARKS ):

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 dormant company.

“Inactive company” means a company which has not been carrying on any business or operation , or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years.

“Significant accounting transaction” means any transaction other than –

( i ) payment of fees by a company to the Registrar ;

( ii ) payments made by it to fulfil the requirements of this Act or any other law ;

( iii ) allotment of shares to fulfil the requirements of this Act ; and

( iv ) payments for maintenance of its office and records.

-----------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE. NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE SECTION 455 OF THE COMPANIES ACT, 2013.

ANSWER TO QUESTION NO. 4 ( d ) :

SAFEGUARDS TO ELIMINATE THREATS OF UNETHICAL BEHAVIOUR ( ETHICS ) ( 4 MARKS ) :

Safeguards created by the profession, legislation or regulation about accounting and finance which may eliminate or reduce the threats relating to unethical behavior are as follows :

( 1 ) Educational, training and experience requirements for entry into the profession.

( 2 ) Continuing professional development requirements.

( 3 ) Corporate governance regulations.

( 4 ) Professional standards.

( 5 ) Professional or regulatory monitoring and disciplinary procedures.

( 6 ) External review by a legally empowered third party of the reports, returns, communications or information produced by concerned professionals.

-----------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE.

NOTE : FULL CREDIT BE GIVEN WHERE A CANDIDATE STATES ANY FOUR POINTS CORRECTLY.

QUESTION NO. 5 : ( a ) State, giving reasons, whether the following statements are correct or incorrect : ( i ) In a Promissory Note, the promise to pay must be conditional. ( ii ) A Bill of Exchange may not be in writing. ( iii ) A Subsidiary Company can not hold shares of its Holding Company. ( iv ) Quorum for general meeting s for a public company, where members are not more than 1000, is 5 members personally present. (b ) State the documents and information for registration of One Person Company ( OPC ) required to be filed with the Registrar of Companies. ( c ) PQR Ltd. wants to hold its Annual General Meeting on 15 th September, 2016. Draft a notice for calling Annual General Meeting of its shareholders to discuss the matters relating to ordinary business.

ANSWER TO QUESTION NO. 5 ( a ) :

STATEMENTS CORRECT OR INCORRECT ( SECTIONS 4 AND 5 OF THE NEGOTIABLE INSTRUMENTS ACT, 1881 AND SECTIONS 19 AND 103 OF THE COMPANIES ACT, 2013 ) ( BUSINESS LAWS ) ( 6 MARKS ) :

( i ) IN A PROMISSORY NOTE, THE PROMISE TO PAY MUST BE CONDITIONAL :

The given statement is INCORRECT. Section 4 of the Negotiable Instruments Act, 1881 defines promissory note as an instrument in writing containing an unconditional undertaking, , signed by the maker to pay money only to, or to the order of, a certain person, or to the bearer of the Instrument.

( ii ) A BILL OF EXCHANGE MAY NOT BE IN WRITING :

The given statement is INCORRECT. Section 5 of the Negotiable Instruments Act, 1881 clearly defines that it is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay money only to, or to the order of, a certain person, or to the bearer of the Instrument.

( iii ) A SUBSIDIARY COMPANY CANNOT HOLD SHARES OF ITS HOLDING COMPANY :

The given statement is INCORRECT. Section 19 of the Companies Act, 2013 states exceptions under which subsidiary company can hold shares in its holding company. These are – (a) where the subsidiary company holds such shares as the legal representative of a deceased member of the holding company; or (b) where the subsidiary company holds such shares as a trustee, or (c) where the subsidiary company is a shareholder even before it became a subsidiary company of the holding company

( iv ) QUORUM FOR GENERAL MEETING FOR A PUBLIC COMPANY, WHERE MEMBERS ARE NOT MORE THAN 1000, IS 5 MEMBERS PERSONALLY PRESENT :

The given statement is CORRECT. Section 103 of the Companies Act, 2013 deals with the quorum for the meetings. According to the said section in case of public company, five members personally present shall form the quorum if the number of members as on date of meeting is not more than 1000.

----------------------------------------------------------------------------------------------------------------------------- 6 MARKS : 1 ½ MARKS FOR EACH ANSWER ( PART ) TO BE AWARDED TOGETHER. NOTE: FRACTION MARKING BE AVOIDED AS FAR AS POSSIBLE. NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE RELEVANT SECTIONS OF THE NEGOTIABLE INSTRUMENTS ACT, 1881 OR THE COMPANIES ACT, 2013.

ANSWER TO QUESTION NO. 5 ( b ) :

DOCUMENTS AND INFORMATION FOR REGISTRATION OF A ONE PERSON COMPANY ( OPC ) : ( THE COMPANIES ( INCORPORATION ) RULES, 2014 ) ; ( THE COMPANIES ( INCORPORATION ) AMENDMENT RULES, 2015 ) ( BUSINESS LAWS ) ( 6 MARKS ) :

For the registration of the one person company ( OPC ), following documents and information are required to be filed with the Registrar within whose jurisdiction the registered office of the company is proposed to be situated –

( i ) MEMORANDUM AND ARTICLES :

The Memorandum and Articles of the company duly signed by the subscriber to the Memorandum. ( 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.)

( ii ) DECLARATION OF COMPLIANCE :

A declaration by person who is engaged in the formation of the company ( an advocate, a chartered accountant, a cost accountant or a company secretary in practice ) and by a person named in the Articles ( director , manager or secretary of the company ), that all the requirements of this Act and the rules made thereunder in respect of registration and matters precedent or incidental thereto have been complied with.

( iii ) AFFIDAVIT :

An affidavit from the subscriber to the Memorandum and from person named as the first director, if any, in the Articles stating that - * he is not convicted of any offence in connection with the promotion, formation or management of any company, or ** he has not been found guilty of any fraud or misfeasance or of any breach of duty to any company under this Act or any previous company law during the last five years, *** and that all the documents filed with the Registrar for registration of the company contain information that is correct and complete and true to the best of his knowledge and belief.

( IV ) ADDRESS FOR CORRESPONDENCE :

The address for correspondence till its registered office is established.

( v ) PARTICULARS OF THE SUBSCRIBER :

The particulars ( names, including surnames or family names, residential address, nationality ) of every subscriber to the Memorandum along with the proof of identity, and in the case of a subscriber being a body corporate, such particulars as may be prescribed.

( vi ) PARTICULARS OF PERSONS MENTIONED IN THE ARTICLES :

The particulars ( names, including surnames or family names, the Director Identification Number, residential address, nationality ) of persons mentioned in the Articles as the first directors of the company and such other particulars including proof of identity as may be prescribed, and

( vii ) PARTICULARS OF INTEREST OF PERSONS :

The particulars of the interests of the persons mentioned in the Articles as the first directors of the company in other firms or bodies corporate along with their consent to act as directors of the company in such form and manner as may be prescribed.

Particulars provided in this provision shall be of the individual subscriber and not of the professional engaged in the incorporation of the company ( The Companies (Incorporation ) Rules, 2014 )

( NOTE : If any candidate writes his answer on the basis of the Integrated Process for Incorporation inserted by Companies ( Incorporation ) Amendment Rules, 2015 dated 1^st May, 2015 he may be awarded due credit of marks )

-----------------------------------------------------------------------------------------------------------------------------6 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PARFORMANCE.

NOTE : FULL CREDIT BE GIVEN WHERE A CANDIDATE CORRECTLY STATES ANY SIX POINTS.

NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE THE COMPANIES ( INCORPORATION ) RULES, 2014 OR AMENDMENT RULES, 2015.

ANSWER TO QUESTION NO. 5 ( c ) :

NOTICE FOR CALLING ANNUAL GENERAL MEETING ( COMMUNICATION ) ( 4 MARKS ) :

Notice is hereby given that the 15^th Annual General Meeting of the members of PQR Limited will be held on Thursday the 15^th day of September, 2016 at the registered office of the company……………………………at 10 a.m. to present the following business:

ORDINARY BUSINESS :

1* To receive , consider and adopt the Audited Balance Sheet of the company as on 31^st March, 2016 and statement of Profit and Loss account for the year ended on that date and Auditor`s and Director`s Report thereon.

2* To declare dividend for the year ended 31^st March, 2016.

3* To appoint a director in place of ……………………………who retires by rotation.

4* To appoint Statutory Auditors of the company and fix their remuneration.

NOTE : A member entitled to attend and vote is entitled to appoint a proxy to attend and vote instead of himself and proxy need not be a member of the company.

For and on behalf of the Board of Directors……………………………

Registered office…………………………………………………………………

-----------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE .

NOTE : A GENERAL FORMAT OF THE AGM COVERING ALL THE RELEVANT ASPECTS MAY BE AWARDED DUE CREDIT OF MARKS.

QUESTION NO. 6 : ( a ) State in brief the guidelines for managing ethics and to prevent the need for whistle-blowing in the work place. ( b ) Swad Papad Udyog is a cooperative society registered under the Co-operative Societies Act, 1912, employing 40 persons and working without the aid of power. With reference to the provisions of the Employees` Provident Funds and Miscellaneous Provisions Act, 1952, state whether the provisions of this Act are applicable on it ? ( c ) Briefly explain the law relating to “Resolution requiring Special Notice” under the Companies Act, 2013. Mention the resolutions that require “Special Notice” under the Act. ( d ) Explain the term `Paralanguage` relating to non-verbal communication.

ANSWER TO QUESTION NO. 6 ( a ) :

MANAGING ETHICS AND PREVENTING WHISTLE-BLOWING ( ETHICS ) ( 4 MARKS ) :

The focus on core values and sound ethics, the hallmark of ethical management, is being recognized as an important way to ensure the long term effectiveness of governance structures and procedures, and avoid the need for whistle-blowing.

Employers who understand the importance of workplace ethics, provide their workforce with an effective framework and guiding principle to identify and address ethical issues as they arise. These guidelines for managing ethics and to avoid the need for whistle-blowing in the work place may be summarized as follows :

( i ) CODE OF CONDUCT AND ETHICS :

A code of ethics specifies the ethical rules of operation in an organization. Codes of conduct specify actions in the workplace and codes of ethics are general guides to decisions about those actions. Examples of topics typically addressed by codes of conduct include : preferred style of dress, avoiding illegal drugs, following instructions of superiors, being reliable and ptompt, maintaining confidentiality, not accepting personal gifts and so on.

( ii ) ESTABLISH OPEN COMMUNICATION :

Instead of just creating and distributing an ethics policy, it is important that take the time to explain the reasons for the policy and review the guidelines and conduct formal or informal training to further sensitise employees to potential ethical issues. Many of the ethical problems arising in a business are not clear-out, but involve “grey areas”, where the proper course of action may be ambiguous and uncertain.

( iii ) ETHICAL DECISIONS :

Make ethical decisions in groups, and make these decisions public. This usually produces better quality decisions by including diverse interests and perspective and increases the credibility of the decision process and outcome by reducing suspicion of unfair bias.

( iv ) INTEGRATE ETHICS MANAGEMENT WITH OTHER MANAGEMENT PRACTICES :

When developing the values statement during strategic planning , include ethical values preferred in the workplace.

( v ) USE OF CROSS-FUNCTIONAL TEAMS:

When developing and implementing ethics management program use cross-functional teams. It`s vital that the organization`s employees feel a sense of participation and ownership in the program if they are to adhere its ethical values.

( vi ) APPOINTING AN OMBUDSPERSON :

The ombudsperson is responsible to help coordinate development of the policies and procedures to institutionalize moral value in the workplace. This establishes a point of contact where employees can go to ask questions in confidence about the work situations they confront and seek advice.

( vii ) ATMOSPHERE OF TRUST :

Creating an atmosphere of trust is also critical in encouraging employees to report ethical violations they observe. The function might best be provided by an outside consultant, e.g. , lawyer, clergyperson, counselor etc. Or, provide a “tip” box in which personnel can report suspected unethical activities, and do so safely on an anonymous basis.

( viii) UPDATING POLICIES AND PROCEDURE :

Regularly update policies and procedure to produce behaviours preferred from the code of conduct, job descriptions, performance appraisal forms, management-by-objectives expectations, standardforms, checklists, budget report formats, and other relevant control instruments to ensure conformance to the code of conduct.

( ix ) INCLUSION OF GRIEVANCE POLICY :

Include a grievance policy for employees to use to resolve disagreements with supervisors and staff.

( x ) SET AN EXAMPLE FROM THE TOP :

Executives and managers not only need to endorse strict standards of conduct, but should also ensure that they follow it themselves. They must stress to employees that dishonest or unethical conduct will not be tolerated.

-----------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE.

NOTE : ANY 4 POINTS OUT OF 10 CORRECTLY WRITTEN BY THE CANDIDATE BE GIVEN FULL CREDIT.

NOTE : A BRIEF ANSWER COVERING ALL RELEVANT ASPECTS BE AWARDED DUE CREDIT OF MARKS.

ANSWER TO QUESTION NO. 6 ( b ) :

APPLICATION OF EPF & MP ACT, 1952 TO COOPERATIVE SOCIETY ( SECTION 16 OF THE EMPLOYEES` PROVIDENT FUNDS AND MISCELLANEOUS PROVISIONS ACT, 1952 ) ( BUSINESS LAWS ) ( 4 MARKS ) :

According to Section 16 ( 1 ) ( a ) of the Employees` Provident Funds and Miscellaneous Act, 1952 this Act does not apply to an establishment under the Co-operative Societies Act, 1912 or under any other law relating to co-operative societies in any State, employing less than 50 persons and working without the aid of power.

In the present case, Swad Papad Udyog is a co-operative society registered under the Co-operative Societies Act, 1912, employing 40 persons and working without the aid of power.

Hence, the Employees` Provident Funds and Miscellaneous Provisions Act, 1952 shall not apply to Swad Papad Udyog as it is a co-operative society registered under the Co-operative Societies Act, 1912, employing 40 persons and working without the aid of power.

NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE SECTION 16 OF THE EPF & MP ACT, 1952.

ANSWER TO QUESTION NO. 6 ( c ) :

SPECIAL NOTICE ( SECTION 115 OF THE COMPANIES ACT, 2013 ) ( BUSINESS LAWS ) ( 4 MARKS ) :

Under Section 115 of the Companies Act, 2013 where, by any provision contained in this Act or in the Articles of a company, special notice is required of any resolution, notice of the intention to move such resolution shall be given to the company by such number of members holding not less than one per cent. Of total voting power or holding shares on which such aggregate sum not less then five lakh rupees, as may be prescribed, has been paid-up and the company shall give its members notice of the resolution in such manner as may be prescribed.

Special notice is required to move, the following resolutions and any such further resolutions as may be prescribed by the Articles :

( i ) Section 140 : a resolution appointing an auditor other than the retiring one.

( ii ) Section 140 : a resolution providing expressly that the retiring auditor shall not be reappointed.

( iii ) Section 169 : a resolution purporting to remove a director before the expiry of his period of office.

( iv ) Section 169 : a resolution to appoint another director in place of the removed director.

[ NOTE : The Central Government by Notification G.S.R. 669 ( E ), dated 28^th August, 2015 enforced the Companies ( Management and Administration ) Amendment Rules, 2015 further to amend the Companies ( Management and Administration ) Rules, 2014. Through this amendment, in Rule 23, in sub-rule ( 1 ) for the words “not more than five lakh rupees”, the words “not less than five lakh rupees” shall be substituted. If any candidate writes “ sum not more than five lakh rupees” inspite of “sum not less than five lakh rupees”, he may also be awarded due credit of marks.]

-----------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE.

NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE THE RELEVANT SECTIONS OF THE COMPANIES ACT, 2013.

ANSWER TO QUESTION NO. 6 ( d ) :

PARALANGUAGE ( COMMUNICATION ) ( 4 MARKS ) :

The term “Paralanguage” is used to describe a wide range of vocal characteristics like tone, pitch and speed etc.- vocal cues that accompany spoken language which help to express and reflect the speaker`s attitude. Paralanguage describes a wide range of vocal characteristics, which help to express and reflect the speaker`s attitude. On careful observation, we find that a speaker use a vast range of vocal cues like :

( 1 ) PITCH VARIATION :

Most of us introduce wide variations in pitch while speaking. These variations are necessary to catch the listener`s attention and to keep him interested in us.

( 2 ) SPEAKING SPEED :

One should not always speak at a high speed. Speaking fast or at a high speed is not fluency. We speak at different speeds on different occasions and while conveying different parts of a message.

( 3 ) PAUSE :

The speaking speed is also accompanied by pauses, at the right moments. Incorrect use of pauses can creat problems. A pause can be highly effective in emphasizing the upcoming subject and in gaining the listener`s attention. Too frequent pauses will, however, spoil the speech.

( 4 ) VOLUME VARIATION :

Our speech should be loud enough to be audible to the audience, not too loud to put them off. The larger the audience, the higher the volume. But depending upon the different parts of the message we should monitor the volume of our speech so as to bring about a sense of contrast to generate interest of the audience.

( 5 ) NON-FLUENCIES :

Utterances like `oh`, `ah`, `um`, `you know`, `ok, etc. are known as non-fluencies. Frequent non-fluencies irritate the listener.

( 6 ) WORD STRESS :

Proper word stress is of crucial importance in communication. By putting stress or emphasis on a word here or a word there in the same sentence we can change the meaning.

-----------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE.

NOTE : AN ANSWER CORRECTLY COVERING ANY FOUR POINTS BE GIVEN FULL CREDIT.

NOTE : A BRIEF ANSWER BE GIVEN DUE CREDIT.

QUESTION NO. 7 : ANSWER ANY FOUR OF THE FOLLOWING : ( a ) Distinguish between a Wagering Contract and a Contingent Contract. ( b ) P Ltd. issued and published its prospectus to invite the investors to purchase its shares. The said prospectus contained a false statement. Mr. X purchased some partly paid shares of the company in good faith from the stock exchange. Subsequently, the company was wound up and the name of Mr. X was included in the list of contributories. Decide :

( i ) Whether Mr. X is liable to pay the unpaid amount ? ( ii ) Can Mr. X sue the directors of the company to recover damages ?

( c ) Objectives of the Central Consumer Protection Council are to promote and protect the rights of consumers. Elucidate the rights of consumers in relation to Competition Law in India. ( d ) What are the functions of inter-personal communication ? ( e ) Explain the factors that influence Ethical Communication.

ANSWER TO QUESTION NO. 7 ( a ) :

WAGERING AGREEMENT AND CONTINGENT CONTRACT : DIFFERENCES ( SECTION 30 AND 31 OF THE INDIAN CONTRACT ACT, 1872 ) ( BUSINESS LAWS ) ( 4 MARKS ) :

DIFFERENCES :

( 1 ) A wagering agreement is a promise to give money or money`s worth, depending on future uncertain event whereas a contingent contract is to do or not to do something if some event does or does not happen.

( 2 ) In a wager, the future event is the only event. It is the sole determining factor of agreement in wager whereas in contingent contract, the future uncertain event is collateral to the contract.

( 3 ) In a wagering agreement, parties have no pecuniary or financial interest in subject matter except the winning or losing amount of wager whereas in contingent contract, the party has pecuniary or financial interest in the event.

( 4 ) Wagering agreement is a game of chance whereas a contingent event is uncertain but not a game of chance.

( 5 ) Wagering agreement consists of reciprocal promises. It is a set of mutual promises, each of them conditional on the happening or not happening of a future uncertain event whereas a contingent contract may or may not contain reciprocal promises.

( 6 ) In a wager, the uncertain event is beyond the power of both parties whereas in contigent contract, the event may be within the power of one of the parties.

( 7 ) A wagering agreement is void whereas a contingent contract is valid.

[NOTE : In the question “wagering contract” is written. It should have been “ wagering agreement” ]

-----------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE .

NOTE : FULL CREDIT BE GIVEN WHERE A CANDIDATE STATES CORRECTLY ANY FOUR POINTS.

NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE THE RELEVANT SECTIONS OF THE INDIAN CONTRACT ACT, 1872.

ANSWER TO QUESTION NO. 7 ( b ) :

FALSE STATEMENT IN THE PROSPECTUS : LIABILITY ( SECTION 35 OF THE COMPANIES ACT, 2013 )

( BUSINESS LAWS ) ( 4 MARKS ) :

( i )*** Yes, X is liable to pay the unpaid amount on the shares. As X has purchased partly paid shares, so he is liable for the remaining value of the shares. At the time of winding up he is liable to contribute as a contributory. The related case law in this subject matter is Peak v. Gurney.

( ii )*** No, X can not sue the directors to recover damages for the misstatement in the prospectus. The shareholder must have relied on the statement in the prospectus in applying for shares offered by it to hold the responsible person liable. If a person purchases shares in the open market, the prospectus is non operative as far as he is concerned. In the present case, Mr. X purchased shares on the stock exchange even if he did so in good faith he had not relied on the statement in the prospectus.

In view of the above, he can not sue the directors of the company to recover damages.

-----------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE.

NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE THE RELEVANT SECTION/S O OF THE COMPANIES ACT, 2013.

NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE THE CASE LAW.

ANSWER TO QUESTION NO. 7 ( c )

OBJECTIVES OF THE CENTRAL CONSUMER PROTECTION COUNCIL ( THE COMPETITION ACT, 2002 )

( ETHICS ) ( 4 MARKS ) :

The objectives of the Central Consumer Protection Council in India are to promote and protect the rights of the consumers.

The Competition Act, 2002 intends to provide , keeping in view of the economic development of the country, for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto. The renewed efforts of the Government in implementing the Competition Act, 2002 is a laudable step in the right direction and a new beginning in the frontiers of India`s Competition Policy towards harmonizing international trade and policy.

[NOTE : Initially the question talks about statement that ”the objectives of the Central Consumer Protection Council in India are to promote and protect the rights of the consumers” and later on it asks about the rights of the consumers in relation to Competition Law in India. These two statements are completely different from each other and they are not interrelated. So, this might confuse the candidates while answering the question.

-----------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE.

NOTE : BRIEF AND GENERAL ANSWER DISCLOSING BASIC IDEA BE GIVEN DUE CREDIT.

ANSWER TO QUESTION NO. 7 ( d ) :

INTERPERSONAL COMMUNICATION ( COMMUNICATION ) ( 4 MARKS ) :

Interpersonal communication is important because of the following functions it achieves :

( 1 ) GAINING INFORMATION :

One reason we engage in interpersonal communication is to gain knowledge about another individual. We attempt to gain information about others so that we can interact with them more effectively.

( 2 ) BUILDING UNDERSTANDING :

Interpersonal communication helps us to understand better what someone says in a given context. Words can mean very different things depending on how they are said or in what context. CONTENT MESSAGE refer to the surface level meaning of a message. RELATIONSHIP MESSAGES refer to how a message is said. The two are sent simultaneously, but each affects the meaning assigned to the communication and helps us understand each other better.

( 3 ) ESTABLISHING IDENTITY :

We also engage in interpersonal communication to establish an identity based on our relationship and the image we present to others.

( 4 ) INTERPERSONAL NEEDS :

We also engage in interpersonal communication to express interpersonal needs. William Schutz has identified three such needs : inclusion, control and affection.

“Inclusion” is the need to establish identity with others.

“control” is the need to exercise leadership and prove one`s abilities.

“Affection is the need to develop relationships with people.

-----------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE.

NOTE : A GENERAL AND BRIEF ANSWER BE GIVEN DUE CREDIT.

ANSWER TO QUESTION NO. 7 ( e ) :

FACTORS THAT INFLUENCE ETHICAL COMMUNICATION ( ETHICS ) ( 4 MARKS ) :

( i ) EVERY COMMUNICATION DECISION HAS SOME ETHICAL ASPECT TO IT, ACKNOWLEDGED OR NOT.

There are countless complexities involved in the communication process , but communications initially face three simple choices : to speak, to listen, or to remain silent. Each choice implies an ethical decision.

In a message the sender chooses to disclose information, motives, or feelings to others. That choice inevitably involves an ethical element. Clearly, some messages should not be sent, such as those involving “ insider information”. To do so gives certain people an unfair advantage in the marketplace. But should one share a rumour about an organizational change with a colleague ? Such actions are common-place and appear to be less objectionable than insider trading.

The timing and mode of communication add another layer of complexity to the ethical dimension.

Remaining silent might seem like the safest way to avoid ethical dilemmas. But even here is no safe haven. Remaining silent in the face of unlawful behavior or a potentially harmful situation presents a serious ethical decision. Silence signals consent or perhaps tacit agreement.

( ii ) THE ETHICAL NATURE OF COMUNICATION MUST BE CONSIDERED WITHIN THE CONTEXT OF WHO, WHAT, WHEN AND WHERE .

Suppose fellow employees discussed a project they were working on. This may seem perfectly ethical on the surface. After all, such discussions actually foster effective interdepartmental relationship ; a worthy goal indeed. The problem may be that the discussion took place in a crowded restaurant and a competitor overheard the conversation. When the employees are confronted, they may reply, What did we say that was wrong ? We were not talking to a competitor”. But this is , of course, the wrong question. The issue does not concern what was said or even who they were talking to. The ethical issue revolves around where the conversation took place. Herein lies the complexity of ethical issues-evaluations must be made on more than one dimension. Ethical communications are not concerned with just who or what or where or when, but with all four dimensions simultaneously.

-----------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE.

NOTE : BRIEF ANSWER CORRECTLY COVERING ALL POINTS BE GIVEN FULL CREDIT.

NOTE : A BRIEF AND GENERAL ANSWER COVERING ALL RELEVANT ASPECTS BE AWARDED DUE CREDIT.

T HE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
CA INTERMEDIATE ( IPC ) EXAMINATION, NOVEMBER, 2015
GROUP – I ; PAPER – 2 ; BUSINESS LAWS, ETHICS AND COMMUNICATION
SUGGESTED ANSWERS AND GUIDELINES

QUESTION NO. 1 :
( a ) `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 lakh 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 subsequesnt 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 ?

( b ) MNO Private Limited, a subsidiary of PQR Limited decides to give a loan of Rs. 4,00,000 to the HR ( Human Resourse ) 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.

( c ) State with reason whether the following statements are correct or incorrect: ( i ) Business ethics helps to promote public reputation.
( ii ) In the long run, those business entities which responds to society needs favorably will survive.

( d ) State reasons for selecting oral mode of communication instead of written mode of communication .

ANSWER TO QUESTION NO. 1 ( a ) :
REVOCATION OF CONTINUING GUARANTEE ( SECTION 130 AND 131 OF THE INDIAN CONTRACT ACT, 1872.) ( BUSINESS LAWS ) ( 5 MARKS ) :

The problem as asked in this question is based on the provisions of the Indian Contract Act, 1872, as contained in Section 130 relating to 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 THE SURETY : The death of the surety operates , in the absence of any contract to the contrary, as a revocation of continuing guarantee so far as regards future transactions ( Section 131 ) .
So far as the transactions before revocation are concerned, the liability of the surety remains.

Thus, applying the above provisions of the said Act to the instant case: ( i ) Amit is discharged from all the liabilities to Chander for any subsequent loan. ( ii ) In the second case, the answer 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.
---------------------------------------------------------------------------------------------------------------------------------------5 MARKS : BREAK-UP : PROVISIONS – 3 MARKS; FIRST ANSWER – 1 MARK ; SECOND ANSWER – 1 MARK. TO BE AWARDED TOGETHER. NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE THE RELEVANT SECTION/S OF THE INDIAN CONTRACT ACT, 1872.

ANSWER TO QUESTION NO. 1 ( b ) : RESTRICTIONS ON PURCHASE BY COMPANY OR GIVING LOANS FOR PURCHASE OF ITS SHARES ( SECTIONS 2 ( 51 ) AND 67 ( 3 ) OF THE COMPANIES ACT, 2013 ) ( BUSINESS LAWS ) ( 5 MARKS )
: According to Section 67 ( 3 ) 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 instant case the HR Manager is not a Key Managerial Personnel of the MNO Private Limited. He is drawing salary of Rs. 30,000 per month and the loan taken to buy 500 partly paid up equity shares of Rs. 1000 each in MNO Private Limited.
Keeping in mind the above mentioned provisions of the Companies Act, 2013 the decision of the company ( MNO Private Limited ) is not valid due to two reasons :

1. The amount of loan being more than six months` salary of the HR Manager, which should have restricted the loan to 1.8 Lakh ; 2. The shares subscribed are partly paid shares whereas the benefit is available only for subscribing fully paid shares.
---------------------------------------------------------------------------------------------------------------------------------------5 MARKS : BREAK-UP : PROVISIONS – 3 MARKS ; ANSWER – 2 MARKS. TO BE AWARDED TOGETHER. NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE THE RELEVANT SECTIONS OF THE COMPANIES ACT, 2013. IMPORTANT NOTE : THIS QUESTION, IN TERMS OF SECTION 67 ( 3 ) ( C ) CONTAINS SEVERAL ISSUES TO BE EXAMINED UNDER VARIOUS PROVISIONS OF THE COMPANIES ACT, 2013 AND HENCE TOO COMLICATED AND CRITICAL FOR THE CANDIDATES , KEEPING IN MIND THE LEVEL OF KNOWLEDGE. THE QUESTION MIGHT HAVE CONFUSED THE CANDIDATES. IN VIEW OF THIS, GENERAL ANSWER GIVEN BY THE CANDIDATES MAY BE GIVE DUE WEIGHTAGE. NOTE : DEFINITION OF “KMP” NEED NOT BE GIVEN BY THE CANDIDATES.

ANSWER TO QUESTION NO. 1 ( C ) ( i ) : STATEMENT ; CORRECT / INCORRECT ( ETHICS ) ( 3 MARKS ) : CORRECT : Ethics helps to promote a strong public image. An organization that pays attention to its ethics can portray a strong and positive image to the public. People see such organizations as valuing people more than profit and striving to operate with the integrity and honour.
---------------------------------------------------------------------------------------------------------------------------------------3 MARKS : BREAK-UP : CORRECT ANSWER – 1 MARK ; REASON – 2 MARKS. TO BE AWARDED TOGETHER.

ANSWER TO QUESTION NO. 1 ( c ) ( ii ) :
STATEMENT : CORRECT / INCORRECT ( ETHICS ) ( 2 MARKS ) : CORRECT : Society gives business its license to exist and this can be amended or revoked at any time if it fails to live up to society`s expectations. Therefore, if a business intends to retain its existing role and power, it must respond to society`s needs constructively.
---------------------------------------------------------------------------------------------------------------------------------------2 MARKS : BREAK-UP : CORRECT ANSWER – 1 MARK ; REASON – 1 MARK. TO BE AWARDED TOGETHER. NOTE : TOTAL OF MARKS AWARDED IN PART ( c ) ( i ) AND IN PART ( c ) ( ii ) BE GIVEN AT THE END AND BE POSTED ON THE COVER PAGE OF THE ANSWER-BOOK. NOTE : ANSWER GIVEN IN GENERAL MAY ALSO BE GIVEN DUE CREDIT WHILE AWARDING MARKS.

ANSWER TO QUESTION NO. 1 ( d ) : REASONS FOR SELECTING ORAL MODE OF COMMUNICATION ( COMMUNICATION ) ( 5 MARKS ) : Oral communication is a face to face communication with others. Oral communication is characterized by seven Cs – Candidness, Clarity, Completeness, Conciseness, Concreteness, Correctness and Courtesy. These act as principles for selecting the mode of communication. In addition to the above seven principle, oral communication has its own benefits as under : * More personal and informal; * Make immediate impact ; * Provides opportunity for interaction and feed back ; * Helps us to correct ourselves ; * Better for conveying feelings and emotions ; * More effective because one can understand the message better by observing facial expressions, eye contact, tone of voice , gestures, postures etc. of the sender.

It is said that it does not matter what you say, what matters is how you say it. Your way of saying includes your choice of words, your confidence and sincerity.
---------------------------------------------------------------------------------------------------------------------------------------5 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE .

QUESTION NO. 2 : ( a ) ( i ) State with reasons whether the following persons are entitled to receive bonus under the Payment of Bonus Act, 1965: ( I ) A retrenched employee. ( II ) A dismissed employee reinstated with back wages.
( ii ) 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 had 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.
( b ) Explain the pragmatic reasons for maintaining ethical behavior in marketing through marketing executives.
( c ) Write short notes on the following : ( I ) Proxemics ( II ) Haptics .

ANSWER TO QUESTION NO, 2 ( a ) ( i ) : ENTITLEMENT TO BONUS ( SECTIONS 2 ( 13 ) AND SECTION 9 OF THE PAYMENT OF BONUS ACT, 1965 ) ( BUSINESS LAWS ) ( 4 MARKS ) : ( I ) RETRENCHED EMPLOYEE : A retrenched employee is eligible to get bonus provided that he has worked for minimum qualifying period of 30 days in the accounting year and who has drawn a salary of less than Rs. 10,000 per month in the year. ( East Asiatic Company (P) Ltd. v. Industrial Tribunal ). ( II ) DISMISSED EMPLOYEE RE-INSTATED WITH BACK WAGES : According to Section 9 of the Payment of Bonus Act, 1965 an employee who is dismissed from service for fraud or riotous or violent behavior on the premises of the establishment or who is guilty of theft, misappropriation or sabotage of the property of any establishment , is disqualified from receiving bonus for the accounting year. A dismissed employee who has been reinstated with back wages is clearly not guilty of the above crimes nor has been dismissed. Hence, he is entitled to bonus. ( Gammon India Ltd. v. Niranjan Das )
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS : BREAK-UP : PART (I) – 2 MARKS ; PART (II) – 2 MARKS. TO BE AWARDED TOGETHER. NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT REFER TO CASE LAWS OR DID NOT CITE THE RELEVANT SECTION/S OF THE PAYMENT OF BONUS ACT, 1965.
ANSWER TO QUESTION NO. 2 ( a ) ( ii ) : ENTITLEMENT TO GRATUITY ( SECTION – 4 OF THE PAYMENT OF GRATUITY ACT, 1972 ) ( BUSINESS LAWS ) ( 4 MARKS ) : 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 sub-section ( 1 ) of the said section states that the condition of completion of five years of continuous service is not essential in case of the termination of employment of any employee due to death or disablement for the purpose of this section. 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 employee subsists and the new employer can not escape from the liability of payment of gratuity to the employee; it was held in the case of Pattathurila K. Damodaran v. M. Kassim Kanju. 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 can not refuse to pay gratuity on the ground that he has served only for one year.
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS : BREAK-UP : PROVISIONS – 3 MARKS ; ANSWER – 1 MARK. TO BE AWARDED TOGETHER. NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT REFER TO CASE LAW OR DID NOT CITE THE RELEVANT SECTION OF THE PAYMENT OF GRATUITY ACT, 1972. NOTE : TOTAL OF MARKS AWARDED IN QUESTION NO. 2 ( a ) ( i ) AND 2 ( a ) ( ii ) BE GIVEN AT THE END AND BE POSTED ON THE COVER PAGE OF THE ANSWER-BOOK.
ANSWER TO QUESTION NO. 2 ( b ) : PRAGMATIC REASONS FOR MAINTAINING ETHICAL BEHAVIOUR ( ETHICS ) ( 4 MARKS ) : Marketing executives should practice ethical behavior because it is morally correct. To maintain ethical behavior in marketing , the following positive reasons may be useful to the marketing executives : 1. TO REVERSE DECLINING PUBLIC CONFIDENCE IN MARKETING : Sometimes misleading package labels, false claim in advertisement, phony list prices, infringement of trademarks pervert the market trends and such behavior damages the marketers` reputation. To reverse this situation, business leaders must demonstrate convincingly that they are aware of their ethical responsibility and will fulfil it. Companies must set high ethical standards and enforce them. Moreover, it is in management`s interest to be concerned with the well being of consumers, since they are the lifeblood of a business. 2. TO AVOID INCREASE IN GOVERNMENT REGULATION : Business apathy, resistance or token responses to unethical behavior increase the probability of more governmental regulation. The governmental limitations may also result from management`s failure to live up to its ethical responsibilities. Moreover, once the government control is introduced , it is rarely removed. 3. TO RETAIN POWER GRANTED BY SOCIETY : marketing executives wield a great deal of social power as they influence market and speak out on economic issues. However, there is a responsibility tied to that power. If marketers do not use their power in a socially acceptable manner, that power will be lost in the long run. 4. TO PROTECT THE IMAGE OF THE ORGANISATION : Buyers often form an impression of an entire organization based on their contact with one person. That person represents the marketing function. Sometimes a single sales clerk may pervert the market opinion in relation to that company which he represents. Therefore, ethical behavior in marketing may be strengthened only through the behavior of the marketing executives.
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE. NOTE : BRIEF BUT CORRECT ANSWER BE GIVEN FULL CREDIT. GENERAL ANSWER GIVEN BY THE CANDIDATES BE GIVEN CREDIT WHILE AWARDING MARKS.
ANSWER TO QUESTION NO. 2 ( c ) : SHORT NOTES ( COMMUNICATION ) ( 4 MARKS ) :
( I ) PROXEMICS : It is a form of 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 a 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 atleast in part culturally conditioned.
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS : BREAK-UP : PART ( I ) – 2 MARKS ; PART ( II ) – 2 MARKS. TO BE AWARDED TOGETHER.
QUESTION NO. 3 : ( a ) ( i ) Under what circumstances the original contract need not be performed as stated under section 62 to 67 of the Indian Contract Act, 1872 ?
( ii ) 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 later 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 ?
( b ) ( i ) Explain any four sources of ethical standard. ( ii ) List out the characteristics of group personality under Group Dynamics.
ANSWER TO QUESTION NO. 3 ( a ) ( i ) : CONTRACTS WHICH NEED NOT BE PERFORMED ( SECTIONS 62 TO 67 OF THE INDIAN CONTRACT ACT, 1872 ) ( BUSINESS LAWS ) ( 4 MARKS ) : A contract would not require performance under circumstances spelt out in Sections 62 to 67 of the Indian Contract Act, 1872. Section 62 of the said Act provides for “novation”, “rescission” and “ alteration” and Section 63 of the said Act provides for “remission”. Thus, the circumstances are as follows : ( 1 ) 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. ( 2 ) 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. ( 3 ) 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 can not be unilateral material alteration to a contract. If it is done , it will be void. ( 4 ) REMISSION : Section 63 of the Indian Contract Act, 1872 provides for remission which means waiver. The said section lays down that “every promisee may dispense with or remit wholly or in part, the performance of the promise made to him or extend the time for such performance or may accept instead of it any satisfaction which it thinks fit”. Thus the promisee can waive either in full or in part the obligation of the promisor or extend the time for performance.
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE. NOTE : BRIEF ANSWER CORRECTLY COVERING ALL POINTS BE GIVEN FULL CREDIT. NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATED DID NOT CITE THE RELEVANT SECTIONS OF THE INDIAN CONTRACT ACT, 1872.
ANSWER TO QUESTION NO. 3 ( a ) ( ii ) : COMMUNICATION AND REVOCATION OF ACCEPTANCE WHEN COMPLETE (SECTIONS 4 AND 5 OF THE INDIAN CONTRACT ACT, 1872 ) ( BUSINESS LAWS ) ( 4 MARKS ) : 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 said Act lays down 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.
ALTERNATE ANSWER : As per Section 4 of the Indian Contract Act, 1872 which deals with the communication of revocation, the communication of revocation is complete as against the person who makes it , when it is put into a course of transmission to the person to whom it is made, so as to be put out of the power of the person who makes it. Accordingly, an acceptance is complete as against the offeror ( U ) as soon as the letter of acceptance is posted.
Revocation of acceptance given by X by telegram, a day after the letter of acceptance is posted , is not valid against U.
With respect to the second part of the question, where both the letter of acceptance and telegram of revocation of acceptance reach Mr. U at the same time , is not appropriate since an acceptance is complete as against the offeror as soon as the letter of acceptance is posted, no question of revocation of acceptance arises.
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS : BREAK-UP : PROVISIONS – 2 MARKS ; ANSWER – 2 MARKS . TO BE AWARDED TOGETHER . NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE THE RELEVANT SECTION/S OF THE IDIAN CONTRACT ACT, 1872. NOTE : TOTAL OF MARKS AWARDED IN 3 ( a ) ( i ) AND IN 3 ( a ) ( ii ) BE GIVEN AT THE END AND BE POSTED ON THE COVER-PAGE OF THE ANSWER-BOOK.
ANSWER TO QUESTION NO. 3 ( b ) ( i ) : FOUR SOURCES OF ETHICAL STANDARDS ( ETHICS ) ( 4 MARKS ) : 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.
2* THE RIGHTS APPROACH ( THE DENTOLOGICAL 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 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 time 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 action 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 others – especially 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 I become if I do this ?” or “Is this action consistent with my acting at my best.
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE. NOTE : THE CANDIDATES ARE REQUIRED TO STATE ANY FOUR SOURCES. GENERAL AND BRIEF ANSWER BE CONSIDERED FOR AWARDING MARKS.
ANSWER TO QUESTION NO. 3 ( b ) ( ii ) : CHARACTERISTICS OF GROUP PERSONALITY ( COMMUNICATION ) ( 4 MARKS ) : Following are the characteristics of group personality :
1* 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.
2* 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 value which will guide us in foreseeing its programmes and actions. 3* RESISTENCE TO CHANGE : It has been observed that a group generally does not take kindly to social change. 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.
4* 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.
5* 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.
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE. NOTE : THE CANDIDATES ARE REQUIRED TO STATE ANY FOUR CHARACTERSTICS. GENERAL AND BRIEF ANSWER BE CONSIDERED FOR AWARDING MARKS. NOTE: TOTAL OF MARKS AWARDED IN QUESTION NO. 3 ( b ) ( i ) AND 3 ( b ) ( ii ) BE GIVEN AT THE END AND BE POSTED ON THE COVER-PAGE OF THE ANSWER-BOOK.
QUESTION NO. 4 : ( a ) ( i ) Explain the concept of Deemed Prospectus under the Companies Act, 2013. Under what circumstances such prospectus need not be issued ?
( ii ) Diminution of share capital does not constitute a reduction within the meaning of Companies Act, 2013. State in what respects they differ from each other.
( b ) What is meant by ‘Critical thinking’ ? Suggest the measures to develop critical thinking.
( c ) Prepare a check list for organizing the messages in a business firm as a job of composing business messages being assigned to you.
ANSWER TO QUESTION NO. 4 ( a ) ( i ) : DEEMED PROSPECTUS ( SECTIONS 23 AND 25 OF THE COMPANIES ACT, 2013 ( BUSINESS LAWS ) ( 4 MARKS ) : Under Section 25 ( 1 ) of the Companies Act, 2013any document by which an offer for sale of any securities is made to the public and the company allots or agrees to allot securities in terms thereof, then such document shall for all purposes, be deemed to be a prospectus and all enactments and rules of law as to be the contents in a prospectus and as to liability in respect of mis-statement and omissions therein shall apply and shall have effect as they apply to a prospectus. From the above provision it is quite clear that the deemed prospectus is not intended to be a document with any exceptions or concessions vis a vis a prospectus. It only broadens the scope of a prospectus to include not only the formal document issued as a prospectus but also all nature of communication made by the company with the intention of selling an issue. It is designed to prevent companies from making misleading statements through various documents, notices or circulars while keeping the formal prospectus document clean. WHEN PROSPECTUS NEED NOT BE ISSUED : Under Section 23 of the Companies Act, 2013 the issue of prospectus is not necessary in the following circumstances : 1. Where a person is a bonafide invitee into an underwriting agreement with regard to any securities. 2. Where securities are offered through private placement by complying with the provisions related thereto in the Companies Act, 2013. 3. Where securities are issued through a rights issue or a bonus issue in accordance with the applicable provisions of the said Act and in case of listed companies also in accordance with the provisions of the rules and regulations made by SEBI in this behalf.
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS : BREAK-UP : CONCEPT – 2 MARKS ; NEED NOT BE ISSUED – 2 MARKS. TO BE AWARDED TOGETHER. NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE THE RELEVANT SECTIONS OF THE COMPANIES ACT, 2013. NOTE : THE STUDY MATERIAL ( PRACTICE MANUAL , PAGE 6.58 ) PROVIDES FOR NON-ISSUING OF “PROSPECTUS” AND NO EXPRESS OR SEPARATE PROVISION IN RELATION TO “DEEMED PROSPECTUS”.
ANSWER TO QUESTION NO. 4 ( a ) ( ii ) : DIMINITION OF SHARE CAPITAL AND REDUCTION OF SHARE CAPITAL ( SECTIONS 61,64,OF THE COMPANIES ACT, 2013 AND SECTIONS 101, 102 AND 103 OF THE COMPANIES ACT, 1956 ) ( BUSINESS LAWS ) ( 4 MARKS ) : The term “diminution” denotes a cancellation of that portion of issued capital which has not been subscribed for. Section 61 of the Companies Act, 2013 states the cancellation of “shares which at the date of passing of the resolution in that behalf have not been taken or agreed to be taken by any person”. Section 61 of the Companies Act, 2013 specifically states that the diminution does not constitute a reduction within the meaning of the Companies Act. The expression “diminution of share capital” and “reduction of share capital” differ from each other in the following respects:
( 1 ) Reduction may involve reduction inter alia of issued capital, whereas diminution may be in respect of authorized capital but not of issued capital. ( 2 ) If the Articles provides the procedure, diminution can be effected by an ordinary resolution, while reduction ( which also need authorization by Articles ), can be effected only by special resolution. ( 3 ) Diminution needs no confirmation by the Court ( Section 61 of the Companies Act, 2013 ), but reduction needs such confirmation ( Section 101 of the Companies Act, 1956 ). ( 4 ) Where a company is ordered to add to its name the words “and reduced” these words shall , until the expiry of the period specified in the order, be deemed to be part of the company`s name ( Section 102(3) of the Companies Act, 1956 ) but such a provision does not exist in the case of diminution of the share capital as envisaged in Section 61 of the Act of 2013. ( 5 ) In the case of diminution, notice is to be given to the Registrar within 30 days from the date of cancellation whereupon the Registrar shall record the notice and make the necessary alteration in the Memorandum or Articles or both ( Section 64 of the Companies Act, 2013 ), whereas in the case of reduction more detailed procedure regarding notice to the Registrar has been prescribed by Section 103 of the Companies Act, 1956, though there is no such time limit as aforesaid ( i.e.30 days ).
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE. NOTE : ANY FOUR POINTS OF DIFFERENCE BE TREATED AS COMPLETE ANSWER. NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE THE RELEVENT SECTIONS OF THE COMPANIES ACT, 1956 OR THE COMPANIES ACT, 2013. NOTE : TOTAL OF MARKS AWARDED IN QUESTION NO. 4 (a) (i) AND 4 (a) (ii) BE GIVEN AT THE END AND BE POSTED ON THE COVER PAGE OF THE ANSWER-BOOK.
ANSWER TO QUESTION NO. 4 ( b ) : CRITICAL THINKING ( COMMUNICATION )( 4 MARKS ) : Critical thinking is the is the discipline of rigorously and skillfully using information, experience, observation and reasoning to guide one`s decision, 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 that 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 MIND : 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 scenario 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 analysis. Apply factors of analysis 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 supporting decisions.
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS : BREAK-UP : MEANING – 2 MARKS ; MEASURES TO DEVELOP – 2 MARKS. TO BE AWARDED TOGETHER. NOTE : CANDIDATES REQUIRED TO STATE ANY TWO MEASURES TO DEVELOP CRITICAL THINKING.
ANSWER TO QUESTION NO. 4 ( c ) : CHECK-LIST FOR ORGANISING THE MESSAGE ( COMMUNICATION ) ( 4 MARKS ):
1. RECOGNISE GOOD ORGANISATION : ( a ) Subject and purpose are clear. ( b ) Information is directly related to subject and purpose. ( c ) Ideas are grouped and presented logically. ( d ) All necessary information is included.
2. ACHIEVE GOOD ORGANIZATION THROUGH OUTLINING : ( a ) Decide what to say – i. Main idea , ii. Major points, iii. Evidence. ( b ) Organize the message to respond the audience is probable reaction – i. use the direct approach when audience will be neutral pleased, interested or eager. ii. Use the indecent approach when audience will be displeased, interested or unwilling.
3. CHOOSE THE APPROPRIATE ORGANIZATION PLAN : ( a ) Short messages - i. Direct request, ii. Routine, good news and good message, iii. Bad news message, iv. Persuasive message. ( b ) Longer message - i. Information pattern, ii. Analytical pattern.
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE. NOTE : BRIEF AND GENERAL ANSWER BE CONSIDERED WHILE AWARDING MARKS.

QUESTION NO. 5 : ( a ) ( 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.
( b ) 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 provision that up to 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.”
( c ) Discuss different environmental phenomena of ethical concern ?
---------------------------------------------------------------------------------------------------------------------------------------ANSWER TO QUESTION NO. 5 ( a ) ( i ) : TITLE TO FORGED CHEQUE (THE NEGOTIABLE INSTRUMENTS ACT, 1881 ) ( BUSINESS LAWS ) ( 4 MARKS ) : 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 signature were put on it. Forgery is also not capable of being ratified. In case of forged endorsement , the person claiming under forged endorsement even if he is purchaser for value and in good faith, can not acquire the rights of a holder in due course. Therefore, Mr. C acquires no title on the cheque . ( Mercantile Bank v. D`Silva ). Such holder is not a holder in due course and hence no privilege is available.
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE. NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE THE RELEVANT CASE LAW.

ANSWER TO QUESTION NO. 5 ( a ) ( ii ) : RESTRICTIVE / QUALIFIED ENDORSEMENT ( THE NEGOTIABLE INSTRUMENTS ACT, 1881 ( BUSINESS LAWS ) ( 4 MARKS ) : 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
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS : BREAK-UP : 2 MARKS FOR EACH FORM OF ENDORSEMENT. TO BE AWARDED TOGETHER. NOTE : TOTAL OF MARKS AWARDED IN QUESTION NO. 5 (a) (i) AND ( a ) ( ii ) BE GIVEN AT THE END AND BE POSTED ON THE COVER PAGE OF THE ANSWER-BOOK.
---------------------------------------------------------------------------------------------------------------------------------------ANSWER TO QUESTION NO. 5 ( b ) :
UNDERWRITING COMMISSION ( THE COMPANIES ( PROSPECTUS AND ALLOTMENT OF SECURITIES ) RULES, 2014 ) ( BUSINESS LAWS ) ( 4 MARKS ) :
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 at a rate authorized by 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.
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE .

ANSWER TO QUESTION NO. 5 ( c ) :
ENVIRONMENTAL PHENOMENA OF ETHICAL CONCERN ( ETHICS ) ( 4 MARKS ) :
An ecological system is an interrelated and interdependent set of organism and environments, such as a lake, in which a fish depend on small aquatic organism, 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 explosive 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 behavior, 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 have also become more stringent. This translates into providing safety for the workers at work place, concern for their health, reducing pollution and incorporating environmental values in governance.
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS : TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE.
NOTE : GENERAL AND BRIEF ANSWER BE CONSIDERED WHILE AWARDING MARKS.

QUESTION NO. 6 :
( a ) 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.
( b ) Draft a notice for convening the Board of Directors Meeting of M/s Growmore Limited where the agenda is to consider buy-back of company`s equity share capital to an extent of 5 % of its issued share capital and also where Mr. Anand is to be co-opted as an additional director.
( c ) State whether the following statements are correct or incorrect :
( i ) A limited company can become a partner in a partnership firm.
( ii ) A special resolution is one, to pass, requires the votes cast in favour be twice the votes cast against it.
( iii ) A cheque marked “Not negotiable” is not transferable.
( iv ) A promissory note duly executed in favour of a minor , is valid.

ANSWER TO QUESTION NO. 6 ( a ) :
IMPORTANCE AND SHIFTING OF REGISTERED OFFICE OF A COMPANY ( SECTIONS 11, 12 AND 13 OF THE COMPANIES ACT, 2013 ) ( BUSINESS LAWS ) ( 8 MARKS ) :
IMPORTANCE OF REGISTERED OFFICE :
The importance of the registered office of a company is clearly established in two sections of the Companies Act, 2013. Section 11 ( 1 ) ( b ) states that a company having share capital shall not commence business unless it has filed with the Registrar a verification of its registered office as required by Section 12 ( 2 ) which requires every company to furnish to the Registrar a verification of its registered office within a period of 30 days of its incorporation in such manner as may be prescribed.
Further, Section 12 ( 1 ) states that a company shall, on and from the fifteenth day of its incorporation and every time thereafter, having a registered office capable of receiving and acknowledging all communications and notices addressed to it.
Section 12 ( 3 ) of the said Act further requires every company to
· Paint or affix its name and address of its registered office, and keep the same painted and affixed, on the out side 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 ( if chosen by the company ) ;
· 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 publications.
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 the company is determined by the place of its registered office. This is also important for determining the jurisdiction of the Court governing it.
Notice of the situation of the registered office and of every change therein must be sent to the Registrar ( otherwise than through 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 OF SHIFTING THE REGISTERED OFFICE :
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 companyin 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 ahange 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 toe the Central Government in such form and manner as may be prescribed, for getting its approval under Section 13 ( 4 ) of the said Act.
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 such manner as may be prescribed, and the Registrar 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.
---------------------------------------------------------------------------------------------------------------------------------------8 MARKS : BREAK-UP : IMPORTANCE – 4 MARKS ; PROCEDURE OF SHIFTING – 4 MARKS. TO BE AWARDED TOGETHER.
NOTE : A BRIEF ANSWER COVERING BASIC POINTS BE GIVEN FULL CREDIT.
NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE THE RELEVANT SECTIONS OF THE COMPANIES ACT, 2013.

ANSWER TO QUESTION NO. 6 ( b ) :
NOTICE OF MEETING OF BOARD OF DIRECTORS ( COMMUNICATION ) ( 4 MARKS ) :
Notice is hereby given that meeting of the Board of Directors of M/s Growmore Limited will be held at the registered office on ………………at ………….a.m. /p.m. to transact the following :
AGENDA :
1. Confirmation of the minutes of the previous Board Meeting held on …………. To ……………. .
2. Discussion of the progress in business.
3. Co-option of Mr. Anand as Additional Director of the company
4. Buy back of 5 % of the equity shares of the company.
5. Any other matter with the permission of the chair.

Place ………………………….
Date ………………………….. By Order of the Board of Directors
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS. TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE.
NOTE : GENERAL DRAFTING OF THE NOTICE MAY BE CONSIDERED WHILE AWARDING MARKS.

ANSWER TO QUESTION NO. 6 ( c ) :
STATEMENTS : CORRECT OR INCORRECT ( THE COMPANIES ACT, 2013 / THE NEGITIABLE INSTRUMENTS ACT, 1881 ) ( BUSINESS LAWS ) ( 4 MARKS ) :
( i ) CORRECT. ( A limited company can become a partner in the partnership firm )
( ii ) INCORRECT. ( A special resolution is one, to pass, requires the votes cast in favour be twice the votes cast against it )
( iii ) INCORRECT. ( A cheque marked “ Not negotiable “ is not transferable )
( iv ) CORRECT. ( A promissory note duly executed in favour of a minor is valid )
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS : BREAK-UP : 1 MARK EACH FOR CORRECT ANSWER.
NOTE : THE LANGUAGE OF THE QUESTION IS VERY CLEAR. THE CANDIDATES ARE REQUIRED TO STATE WHETHER THE STATEMENT IS CORRECT OR INCORRECT. GIVING REASONS IS NOT REQUIRED. HENCE, MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT GIVE REASON.

QUESTION NO. 7 :
ANSWER ANY FOUR OF THE FOLLOWING :
( a ) State the provisions of the Employees` Provident Funds and Miscellaneous Provisions Act, 1952 regulating the quantum of contribution to be made by the employer and the employee in 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 ?
( b ) 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 part any right(s) against the company for such refusal ? Advise as per the provisions of the Companies Act, 2013.
( c ) When is an allotment of shares treated as an irregular allotment ? Briefly state the effects of an irregular allotment.
( d ) Explain the practices widely recognized as discriminatory in employment.
( e ) What are the basic principles of inter-personal communication ?
---------------------------------------------------------------------------------------------------------------------------------------ANSWER TO QUESTION NO. 7 ( a ) :
( CONTRIBUTION TO PROVIDENT FUND ) ( SECTION 6 OF THE EMPLOYEES PROVIDENT FUNDS AND MISCELLANEOUS PROVISIONS ACT, 1952 ) ( BUSINESS LAWS ) ( 4 MARKS ) :
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 employee 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 or class of establishments.
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS. TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE.
NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE THE RELEVANT SECTION OF THE RELEVANT ACT.

ANSWER TO QUESTION NO. 7 ( b ) :
REFUSAL OF REGISTRATION OF TRANSFER OF SECURITIES : REMEDIES AGAINST ( SECTION 58 OF THE COMPANIES ACT, 2013 ) ( BUSINESS LAWS ) ( 4 MARKS ) :
The problem as asked in the question is governed by Section 58 of the Companies Act, 2013 dealing with the refusal to register transfer of securities and appeal against such refusal.
In the present case the company has committed a wrongful act of not sending the notice of refusal of registering the transfer of shares.
Under Section 58 ( 3 ) , 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 of transfer , appeal to the Tribunal ( CLB ).
Section 58 ( 4 ) of the said Act further provides that the Tribunal ( CLB ) , while dealing with an appeal made under sub-section ( 3 ), may, after hearing the parties , either dismiss the appeal , or by order –
( 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.
Thus, in the instant case Mr. X can appeal to the Tribunal ( CLB ) and claim damages.
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS : BREAK-UP : PROVISIONS – 3 MARKS ; ANSWER – 1 MARK. TO BE AWARDED TOGETHER.
NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE THE RELEVANT SECTION OF THE COMPANIES ACT, 2013.

ANSWER TO QUESTION NO. 7 ( c ) :
IRREGULAR ALLOTMENT / EFFECT OF ( SECTIONS 23, 26, 39 AND 40 OF THE COMPANIES ACT, 2013 ) ( BUSINESS LAWS ) ( 4 MARKS ) :
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 of the Companies Act, 2013. 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 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 ); or
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 offered or lower than the amount prescribed by SEBI in this behalf ; or
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 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 ) of the said Act.
Under Section 40 ( 5 ) of the said Act 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.
Thus, 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 desires by the allottee is not specifically permitted.
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS : BREAK-UP : IRREGULAR ALLOTMENT – 2 MARKS ; EFFECTS – 2 MARKS. TO BE AWARDED TOGETHER.
NOTE : MARKS NOT TO BE DEDUCTED ON THE GROUND THAT THE CANDIDATE DID NOT CITE THE RELEVANT SECTIONS OF THE COMPANIES ACT, 2013. NOTE : BRIEF ANSWER COVERING THE BASIC POINTS BE GIVEN FULL CREDIT OF MARKS.

ANSWER TO QUESTION NO. 7 ( d ) :
DISCRIMINATORY PRACTICES IN EMPLOYMENT ( ETHICS ) ( 4 MARKS ) :
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 :
*RERUITMENT PRACTICE :
Firms that rely solely on the world-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 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 force. Such facilities have been termed “sweatshops”.
*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 minorities have the lowest seniority because of past discrimination.
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS . TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE.
NOTE : ANY FOUR POINTS WRITTEN BY THE CANDIDATE BE GIVEN FULL CREDIT.
NOTE : A BRIEF AND GENERAL ANSWER BE CONSIDERED WHILE AWARDING MARKS.

ANSWER TO QUESTION NO. 7 ( e ) :
PRINCIPLE OF INTER-PERSONAL COMMUNICATION ( COMMUNICATION ) ( 4 MARKS ) :
The following principles are key to interpersonal communication :-
*INTERPERSONAL COMMUNICATION IS INESCAPABLE :
We can not 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 can not be taken back. *INTERPERSONAL COMMUNICATION IS COMPLICATED :
No form of communication is simple due to the number of variables involved; even simle request 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.
---------------------------------------------------------------------------------------------------------------------------------------4 MARKS. TO BE AWARDED ON THE BASIS OF OVERALL PERFORMANCE.
NOTE : ANY FOUR POINTS CORRECTLY WRITTEN BY THE CANDIDATES BE GIVEN FULL CREDIT.
NOTE : GENERAL AND BRIEF ANSWER GIVEN BY THE CANDIDATE BE CONSIDERED WHILE AWARDING MARKS.
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Companies Act 2013 - concepts