Economic Legislation I 1004

Question Paper
Economic Legislation – I (161) : October 2004

• Answer all questions.
• Marks are indicated against each question.
1. The Companies (Acceptance of Deposits) Rules, 1975 are applicable to < Answer >
(a) Non –Banking Finance Companies (b) Non-Banking Non –Finance Companies
(c) Finance Companies (d) Banking Companies
(e) All kinds of companies.
(1 mark)
2. Which of the following is/are the advantages of Law? < Answer >
(a) Formalism, as more emphasis is put on the form of law than its substance
(b) Law is conservative in nature as the lawyers and judges favor continuation of the existing law
(c) Very often law is static
(d) It is more reliable than individual judgment
(e) It is unduly and needlessly complex.
(1 mark)
3. The doctrine of anticipatory breach is applicable to < Answer >
(a) Promissory note (b) Bill of exchanges

(c) Cheques (d) Bank drafts
(e) Agreements relating to immovable property.
(1 mark)
4. Under which of the following circumstances, the Registrar of Companies shall not register a < Answer >
prospectus?
(a) When the prospectus is dated
(b) When it sets out the matters required under Schedule-II, Section 56 of the Companies Act and
SEBI guidelines.
(c) When the expert is connected with the management of the company
(d) When it contains the consent of every person in writing as named as director therein
(e) When the prospectus is accompanied by the consent of auditor, solicitor, attorney, lead manager,
banker etc., as required under the Companies Act.
(1 mark)
5. The term ‘goods’ under Sale of Goods Act does not include < Answer >
(a) Stocks and shares (b) Actionable claims and money

(c) Growing crops (d) Grass
(e) Every kind of movable property.
(1 mark)
6. Who can become director of a company? < Answer >
(a) A company (b) A firm (c) A

corporation
(d) An individual (e) A Hindu undivided family.
(1 mark)
7. What is the upper age limit for a person not to be appointed as managing director? < Answer >
(a) Attaining the age of seventy years (b) Completing the age of seventy years
(c) Attaining the age of sixty nine years (d) Completing the age of sixty five years
(e) Attaining the age of sixty years.
(1 mark)
8. As per section 591 of the Companies Act, a foreign company means? < Answer >
(a) A company incorporated out side India and having place of business in India
(b) A company incorporated in India and having place of business out side India
(c) A company incorporated out side India and having place of business out side India
(d) A company incorporated in India and having place of business in India
(e) A company incorporated in India but not commenced its business.
(1 mark)
9. Presentment for acceptance is excused and the instrument treated dishonored when < Answer >
I. The drawee is a fictitious person.

II. The drawee cannot, after reasonable search, be found.
III. The drawee is incapable of contracting.
IV. The drawee becomes bankrupt.
(a) Only (I) above (b) (I) and (II) above
(c) (I), (III) above (d) (I), (II) and (III) above
(e) (I), (II), (III), (IV) above.
(1 mark)
10. Who among the following persons is ‘special agent’? < Answer >
(a) One who is appointed to perform a special act

(b) One who represent his principal in some particular transaction
(c) One whose authority to act for the principle is unlimited
(d) Either (a) or (b) above (e) Either (a) or (c) above.
(1 mark)
11. Nemo dat quad non habeat’ means- < Answer >
(a) No one can pass a better title than what he has

(b) For an immoral cause no cause of action arises
(c) Thing speaks for itself
(d) An act which cannot be done directly, also cannot be done indirectly
(e) What is done with the help of another is the act of the person himself.
(1 mark)
12. Which of the following companies shall constitute ‘Audit committee’? < Answer >
(a) Private companies having subscribed capital of not less than rupees 25 crore
(b) Government companies having paid up capital of not less than rupees one lakh
(c) Every public company having paid up capital of not less than five crore rupees
(d) Foreign companies only
(e) Every public company having minimum paid up capital of Rs.five lakh or less.
(1 mark)
13. No person shall be appointed as a debenture trustee if he < Answer >
(a) Beneficially holds shares in the company

(b) Is beneficially entitled to money which are to be paid by the company to the debenture trustee
(c) Has entered into any guarantee in respect of principal debts secured by the debentures or interest
thereon
(d) Both (a) and (b) above
(e) (a), (b)and (c) above.
(1 mark)
14. Section 197A of the Companies Act, 1956 provides for prohibition of simultaneous appointment of < Answer >
different categories of managerial personnel. Accordingly the category of persons are
(a) Manager and whole time director (b) Manager and managing director
(c) Manager and a director (d) Managing director and a whole time director
(e) Manager and a secretary.
(1 mark)
15. Under which of the following situations, accounts can be reopened after their adoption in the annual < Answer >
general meeting?
(a) Where personal expense is included in the company’s accounts
(b) Where revision arises out of a technical requirements of taxation laws
(c) Where the subsidiary company’s balance sheet is not attached in the holding company’s balance
sheet
(d) Where true and fair view is not revealed in the annual accounts but adopted in the AGM
(e) Where revision arises out of false figures entered in the accounts for the sake of declaration of
dividend.
(1 mark)
16. Issue of share certificate by a company is subject to the approval of < Answer >
(a) A resolution of the Board of directors
(b) A resolution of the members at general meeting
(c) The Central Government
(d) Securities Exchange Board of India
(e) National Company Law Tribunal.
(1 mark)
17. Which of the following is /are the mode(s) of crossing? < Answer >
(a) Special (b) Restrictive
(c) Not negotiable (d) Both (a) and (c) above
(e) (a), (b) and (c) above.
(1 mark)
18. Which of the following matters require confirmation by the Tribunal? < Answer >
(a) Reduction of share capital (b) Issue of shares at discount

(c) Buy-back of securities (d) Issue of share warrants
(e) Conversion of shares into stock.
(1 mark)
19. Under which of the following instances, does the offer automatically lapse? < Answer >
I. If it is revoked by the offeror at any time before its acceptance

II. If the offeror or offeree dies or becomes insane and the other party comes to know of it before
acceptance
III. If the offer is not accepted within the specified time or within a reasonable time
IV. Upon failure to fulfill a condition precedent to acceptance
(a) Only (I) above (b) (I) and (II) above
(c) (I) and (III) above (d) (II) and (III) above
(e) (I), (II), (III), (IV) above.
(1 mark)
20. An absolute contract for sale of future goods can be made by < Answer >
(a) The future sale of present goods

(b) Present sale of a chance of obtaining goods
(c) A sale of a mere expectation depend upon a chance
(d) The seller without having seen the goods
(e) Both (b) and (c) above.
(1 mark)
21. How much maximum sitting fees can be paid to a director for attending the general meeting? < Answer >
(a) Rupees three thousand (b) Ten percent of the profits

(c) Eleven percent of the current year net profits
(d) Rupees five thousand to each director (e) No sitting fees is paid.
(1 mark)
22. A company which alters its share capital must give notice of alteration to the Registrar within < Answer >
(a) 45 days of such alteration (b) 30 days of such alteration

(c) 60 days of such alteration (d) 10 days of such alteration
(e) 7 days of such alteration.
(1 mark)
23. The annual financial statements of a company should be signed on behalf of the Board of directors by < Answer >
(a) Manager or secretary of the company if any

(b) Not less than two directors of the company one of whom shall be managing director if the
company has
(c) Chairman of the company
(1 mark)
24. Which of the following is an example of restrictive crossing? < Answer >
(a) Not Negotiable (b) State Bank of India

(c) Not Negotiable & Co (d) A/C payee (e)
& Co.
(1 mark)
25. Which of the following provisions is/are not applicable to private companies? < Answer >
(a) Filing consent with Registrar to act as director

(b) Prohibition against loans to director
(c) Directors to hold qualification shares
(d) Registration of charges
(e) Both (a) and (b) above.
(1 mark)
26. Which of the following is false? < Answer >
(a) Compromise can be a consideration for a contract

(b) Forbearance can be a consideration for a contract
(c) Abstinence can be a consideration for a contract
(d) Consideration for a contract may be illusory
(e) Consideration should be real.
(1 mark)
27. Under which of the following grounds, the court may set an arbitral award aside? < Answer >
(a) Arbitral award deals with a dispute not contemplated by the terms which are beyond the scope of
the submission to arbitration
(b) Party was under some incapacity
(c) The arbitral award is in conflict with the public policy of India
(d) Both (b) and (c) above
(1 mark)
28. The provision of loans to directors is applicable where, any loan made, guarantee given or security < Answer >
provided by
(a) A private company which is not subsidiary of a public company
(b) Any banking company
(c) Any loan made by a holding company to its subsidiary company
(d) A private company which is subsidiary of a public company
(e) Any guarantee given by a holding company in respect of any loan made to its subsidiary
company.
(1 mark)
29. Agent has fiduciary relationship with the principal means < Answer >
(a) Agent should disclose all material facts to principal

(b) Agent should not make any secret profits by taking undue advantage of his agency
(c) Agent should not make use of information obtained in the course of agency for personal gains at
the cost of principal
(d) His interests should not conflict with those of principal
(e) (a), (b),(c), (d) above.
(1 mark)
30. Which of the following persons is /are held responsible for keeping proper books of accounts? < Answer >
(a) The bankers of the company

(b) The statutory auditors of the company
(c) The legal advisers of the company
(d) The managing director/manager of the company
(e) Members of the company.
(1 mark)
31. Under the Transfer of Property Act 1882, which of the following is/are the exceptions to the general < Answer >
rule that every kind of property can be transferred?
(a) Right to sue (b) Stipends and pensions
(c) Actionable claims (d) Interest in immovable property
(1 mark)
32. Under which of the following matters, joint holders of shares are treated as single member? < Answer >
(a) For making an application to NCLT for oppression and mismanagement

(b) For counting number of members of a private company
(c) For the purpose of quorum
(d) For making an application for right issue
(1 mark)
33. Which of the following methods amount to reduction of share capital? < Answer >
(a) When the company received ten rupees on each share and it accepts the liability only for five
rupees
(b) When the company received ten rupees on each share and it pays back five rupees to the investor
(c) When the company issued for rupees ten but received only five and remaining is waived
(1 mark)
34. Which of the following is the ordinary business mater at an annual general meeting of a private < Answer >
company which is not a subsidiary of a public company
(a) Increasing the authorized capital
(b) Sale of the part of the undertaking which is running into losses
(c) Borrow money in excess of paid up capital and free reserves
(d) Re-appointment of directors
(e) Alteration of articles of association.
(1 mark)
35. Which of the following matters do not require previous approval of the Central Government? < Answer >
(a) Payment of interest out of capital (b) Removal of auditor

(c) Appointment of cost auditor (d) Increase in numbers of directors beyond twelve
(e) Issue and effect of share warrants to bearer.
(1 mark)
36. Under the Sale of Goods Act, 1930,which of the following is/are the implied warranty(ies)? < Answer >
(a) Warranty of quiet possession (b) Warranty of freedom from encumbrances
(c) Warranty as to quality or fitness (d) Both (a) and (b) above
(1 mark)
37. The contract entered with a lunatic during the times of his sound mind is < Answer >
(a) Valid (b) Void (c)

Void abinitio
(d) Viodable (e) Not enforceable.
(1 mark)
38. Which of the following offences of directors shall result into imprisonment? < Answer >
(a) Grant of loan to directors without obtaining permission of the Central Government U/S295 of the
Companies Act
(b) False declaration of company’s solvency under section 488(3) of the Companies Act
(c) Contribution to political parties in contravention to sec.299 of the Companies Act
(d) Failure to lay balance sheet under section 210 of the Companies Act
(e) Failure to distribute dividends with in thirty days of its declaration.
(1 mark)
39. Every depository and participant is required to be registered with < Answer >
(a) A Stock Exchange

(b) The Company Law Board
(c) The Registrar of Companies
(d) The Securities and Exchange Board of India
(e) A State Government.
(1 mark)
40. Which of the following constitutes a promissory note? < Answer >
(a) I promise to pay Mr. Ram Rs.10,000 and all other sums which may become due to him
(b) I promise to pay Mr. Ram Rs.10,000 after deducting any amount which he may owe me
(c) I promise to pay Mr. Ram Rs.10,000 and all fines according to the rule
(d) I promise to deliver Mr. Ram 100 bags of wheat
(e) I do acknowledge myself to be indebted to Mr. Ram Rs.10,000 to be paid on demand for value
received.
(1 mark)
41. Lakshmi, aged 17 years, and her father Sekhar jointly executed a promissory note in favour of a money < Answer >
lender who lent Rs.1,00,000. Which of the following statements is correct?
(a) Lakshmi only can be held liable for Rs.1,00,000
(b) Both Lakshmi and Sekhar can be held liable for Rs.1,00,000
(c) Both Lakshmi and Sekhar cannot be held liable for Rs.1,00,000
(d) Sekhar only can be held liable for Rs.1,00,000
(e) Since one of the joint holders is minor the transaction is void-ab-initio.
(1 mark)
42. The shareholders of Konica Ltd. decided to remove the auditor and appoint Devi &Depak, a firm of < Answer >
chartered accountants. The company’s articles are silent in removal of the present auditors, before their
tenure and appointment of other auditors in the place of the outgoing auditors. With reference to the
present matter, which of the following is true as regards the removal of existing auditor and
appointment of another auditors of Konica Ltd.?
(a) The shareholders must wait up to the next annual general meeting for removing the present
auditor
(b) The shareholders cannot remove the present auditor and appoint other auditors
(c) Shareholders can remove before the expiry of the term of the present auditor subject to the
previous approval of the Central Government and can appoint Devi & Deepak firm of chartered
accountants
(d) The share holders have authority to remove the present auditor but cannot fill the casual vacancy
by appointing another auditor
(e) Only the Board of directors are empowered to remove the existing auditor before their tenure but
not the shareholders.
(1 mark)
43. ‘A’ the holder of a bill for Rs.1, 200 makes an endorsement stating that, ‘pay Rs.700 to B or order and < Answer >
pay Rs.500 to C or order’. With reference to the above negotiation, which of the following is true?
(a) The endorsement is invalid (b) The endorsement to B is not valid
(c) The endorsement to C is not valid (d) The endorsement is completely valid
(e) Endorsement in equal proportions will be valid.
(1 mark)
44. Vinay purchased a color TV set under hire purchase agreement. Vinay paid 75% of the amount by < Answer >
installments regularly. Due to certain pressing financial problems Vinay sold the color TV to Vinod
who bought in good faith and without the knowledge of the liability of Vinay to the seller. Does Vinod
get a good title?
(a) Vinod gets a good title as he has no knowledge of the liability of Vinay
(b) Vinod does not get a good title as the seller can seize the TV set for recovering his dues
(c) The seller cannot seize the TV set as Vinod purchased in good faith for adequate consideration
(d) Vinay has a right to sell as he is the owner of color TV set under hire purchase agreement
(e) Vinod can get a good title even if has knowledge of the fact that Vinay purchased under hire
purchase and has no authority to sell.
(1 mark)
45. ABC Ltd. was incorporated with a paid up capital of Rs.50 lakhs on 1-1-2002.On 1-1-2003,it entered < Answer >
into a contract in circumstances of urgent necessity for sale of goods with a private company by virtue
of a board resolution. One of the directors of ABC Ltd. is also a director-cum-member of that private
company, the interest of the director is not disclosed at such board meeting, but later on 25-3-2003, in
another board meeting this was disclosed and consent of the board is obtained. Later ABC Ltd
company raised its capital to five crore on 31-3-2003. What is the position of the contract?
(a) The contract is not valid unless Central Government’s permission is accorded
(b) The contract is viodable at the option of the interested director
(c) The contract is valid and will be binding on both the parties
(d) A public company cannot enter into a contract with a private company
(e) The ABC Ltd company shall rescind the contract and the director concerned shall vacate from the
office of director.
(2 marks)
46. ABC Ltd. Has a managing director, who draws a monthly remuneration of 80,000.His brother’s son is < Answer >
appointed as a retainer for a monthly remuneration of 40,000 in the company .The Registrar of
companies issued a notice saying that the company did not pass special resolution and also not obtained
the permission of Central Government U/S 314 (1B) of the Companies Act, hence stated that the
appointment is invalid. The company felt that the contention of the ROC is unreasonable, in this
context, which of the following is true?
(a) The company has to obtain the permission of Central Government after the appointment
(b) Company need not pass special resolution and also not required to obtain the permission of
Central Government
(c) Company has to pass special resolution in general meeting
(d) Company has to pass ordinary resolution in general meeting and obtain Central Governments
permission
(e) ABC Ltd. company has to obtain the approval of Central Government before the appointment
made.
(2 marks)
47. ABC Ltd. company has twelve directors, who are scattered all over the country. Every time when ever < Answer >
there is a Board meeting, all twelve directors attend thereby, the cost of sitting fees is high and the
directors are given trouble all the way to attend to all the board meetings. They sought the advise of the
company secretary on this matter, how they can meet and decide the matters which will not amount to
violation of the Companies Act. The company secretary advised the Board of directors to form
committees so that, they need not spend more money and waste time and energy of all directors.
Taking the above matter into account, Which of the following matters can be delegated to committee of
Board of directors:
I. Power to issue debentures
II. Power to invest funds of the company subject to sec. 293 and sec. 372A of the Companies Act
III. Power to make loans subject to sec. 295 and sec. 372A of the Companies Act
IV. Power to make calls on share holders in respect of money unpaid on their shares
V. Power to borrow money otherwise on debentures.
(a) Only (I) above (b) Both (I) and (II) above
(c) (I), (II) and (III) above (d) (II), (III) and (V) above
(e) (I), (II), (III), (IV) and (V) above.
(1 mark)
48. Rasi Ltd. has paid up capital of Rs. 1 crore and LIC holds 10% of the same. The company issued notice < Answer >
on 15th June 2004 by calling its annual general meeting on 26th July 2004 inter alia proposing the
appointment of an auditor. On 30th June 2004 the company issued and allotted 50,000 preference
shares of Rs. 100 each to LIC by private placement. Rasi Ltd. advertised closure of its register of
members in newspapers on 7th July 2004 stating that effective 15th July 2003 the register of members
shall remain closed until 26th July 2004. In the annual general meeting held on 26th July 2004, the
auditor was appointed by passing an ordinary resolution. The Registrar of Companies raised an
objection that since LIC holds more than 25% of the share capital on the day of the meeting, the
appointment of auditor will be invalid unless made by a special resolution. The chairman replied that
since at the time of issue of the notice, the LIC holding was only 10%, ordinary resolution is valid and
further stated that the shares allotted on 30th June, 2004 to LIC were preference shares only and not to
be counted for the purpose. In the context of the above situation which of the following statements is
true?
(a) Company cannot allot preference shares by private placement
(b) Preference shares by private placement cannot be allotted to LIC
(c) The register of members cannot be closed after dispatching the notice of the annual general
meeting
(d) The appointment of the auditor in this company must be made by a special resolution
(e) The objection of the ROC is not justified.
(2 marks)
49. Members present at the annual general meeting of Downturn (Pvt.) Ltd. did not adopt the accounts on < Answer >
the ground that the company has not shown true profits. They, however, declared the dividend as
recommended by the Board of directors. The board of directors were entrusted the responsibility to
correct the accounts, and find out the true profits for that year by the members attended in that general
meeting The Registrar of Companies issued a notice on the company stating that the members of the
company violated the provisions of Companies Act by declaring the dividend out of capital. In the
context of the above scenario, Which of the following statements is/are true?
(a) It amounts to declaration of dividend out of capital, hence void
(b) It is valid provided the provisions of the companies Act is complied
(c) Private Ltd. company can declare dividend out of capital
(d) Adoption of accounts and declaration of dividend is inter related, hence with out adopting the
accounts dividend cannot be declared
(e) The members of the company are bound to declare the amount of dividend what is recommended
by the Board of directors.
(2 marks)
50. On Jan 15, 2003 Amar issued a cheque for Rs.51,000 in favour of Anand drawn on Goodluck bank < Answer >
towards the settlement of a debt. Anand did not present the cheque for payment within reasonable time
though there was sufficient balance in the account of Amar. The bank went into liquidation and a
scheme for settlement of debts was approved. The bank paid 50 paise for a rupee when the cheque was
presented. Who is liable to pay the remaining amount?
(a) Amar is liable to pay Rs.25,500 with interest
(b) Bank is liable to pay Rs.51,000
(c) Amar is liable to pay Rs.25,500
(d) Amar is not liable to pay any amount
(e) Anand can sue the banker for the balance amount of Rs.25,500.
(1 mark)
51. Savoy Ltd. had eight members at the time of incorporation. Within two months, two of the members < Answer >
transferred their shares to one of the existing six members. After one year, the company went into
liquidation and the creditors sought to recover their dues from the members as the company incurred
debt during that time when the persons became members of the company. The members having paid
full value of the shares accepted no liability. Advise the legal position.
(a) The members are liable to creditors
(b) The member are not liable since their liability is limited
(c) Company is an artificial juristic person, hence it is separate from the members and the creditors
cannot recover from the members but only form the company
(d) Creditors cannot seek remedy from the members as there is no statutory minimum maintained U/s
45 of the Companies Act, 1956
(e) Creditors can recover from the directors of the company but not from the members.
(1 mark)
52. Antrew Textiles Ltd. with paid-up capital of Rs. 28 crore and free reserves of Rs. 7 crore as on March < Answer >
31, 2004 has investments of Rs. 10 crore in various firms. Since company’s memorandum and articles
permit for investments of its funds in other body corporates has made the following further
investments:
50,000 Equity shares of Rs. 10 each at Rs. 390 per share in PQR Co. Ltd., inclusive of 20,000
equity shares renounced by others.
Investment of Rs. 9 crore in 11% debentures of Albert Pharma Ltd.
50,000 Units of US-64 issued by the UTI at Rs. 14.50 each
25,000 Equity shares of Rs. 10 each @ Rs. 130 each in securities. Which of the following amounts
further the company apart from the existing investments can invest in other body corporates?
(a) 10,82,25,000 (b) 25,82,25,000
(c) 10,25,25,000
(d) 17,65,45,000 (e) 8,82,25,000.
(2 marks)
53. Board of directors of ABC Ltd. decided to conduct annual general meeting on 02-7-2004,for which the < Answer >
Board authorized the company secretary to issue notice of annual general meeting to all the members
who are entitled to receive the notice of the general meetings. But the company secretary did not send
the notice to all the directors including the managing director. Majority of the directors attended in such
meeting, objected the meeting and its proceedings. In fact, that the company’s articles do not provide a
provision of qualification shares, hence no director including the managing director do not hold shares
in ABC Ltd., and none of them are subscribers to memorandum of association .In the above context,
which of the following persons are not entitled to receive the notice of the general meetings of the
company?
(a) Present members of the company whose names are borne in the register of members
(b) Legal representatives of the deceased members
(c) Directors and managing director of the company
(d) Legal heirs of the deceased members of the company
(e) Official assignees of the insolvent members of the company.
(2 marks)
54. You are the consultant of the Novo Pharmaceutical (Pvt.) Ltd. Your company has approached IFCI < Answer >
Ltd., for a term loan of Rs. 7.5 crore. While IFCI Ltd. agreed to provide the term loan with a condition
of appointing a nominee director in the board, as this company is not a subsidiary of any public
company. On scrutiny of the articles of association of our company, it was found that there was no
provision for appointment of nominee director in your company. But after appointing this nominee
director the total number of directors will go up to thirteen. As a consultant what would be your advise
to the company in this regard?
(a) The company has to alter the articles of association for having a provision of appointing the
nominee director
(b) The nominee directors cannot be appointed in a company, even though the financial institution
demands
(c) The company has to obtain the permission of Tribunal for increasing the directors more than
twelve
(d) Company can appoint nominee director of IFCI even in the absence of a provision in the articles
of association
(e) Nominee directors cannot be appointed in a private company, but can be appointed in a public
company.
(2 marks)
55. Mr. A wished to open a fire works shop for Divali and entered into a contract with Omar Crackers Ltd. < Answer >
for the supply of certain crackers on or before 15th October, 2003(i.e. before Divali). He paid some
advance to the company and agreed to pay the balance amount on receipt of the crackers. But Omar
crackers Ltd. sent the consignment on 30th October after Divali. Mr. A rejected the crackers, which led
to filing of a suit by the company for breach of contract, claiming compensation and damages. In the
context of the present situation, which of the following statements is/are true?
(a) The contract is enforceable, hence Mr. A must accept the goods
(b) Mr. A breached the contract, hence suit lies against him
(c) Failure to adhere to the time schedule, renders the contract void
(d) The company can claim compensation and damages from Mr. A
(e) Omar crakers can file for specific performance of the contract.
(1 mark)
56. Madhurika Ltd., which is formed for promoting ‘art’, decided to conduct its annual general meeting < Answer >
on 18th September 2004 and accordingly issued notice of the meeting to 20,000 members, who are
scattered all over the world . Later on it is noticed that 18th September 2004 is a public holiday and
according to Section 166 of the Companies Act, AGM cannot be held on a public holiday. The
company sought the advise of you in the above situation, which of the following is true?
(a) The company is not allowed to conduct the annual general meeting on 18th September 2004
(b) The company can conduct the annual general meeting on 18th September 2004
(c) The permission of the National Company Law Tribunal is to be obtained for conduct of annual
general meeting on 18th September 2004
(d) The permission of the Central Government is to be obtained for conduct of annual general
meeting on 18th September 2004
(e) The company has to give newspaper advertisement for cancellation of the meeting on
18th September 2004 and shall conduct at a later date which is not a public holiday.
(1 mark)
57. Vimal wants to purchase a flat owned by Vinod. Vimal requested Vinod to quote the lowest price of < Answer >
the flat. Vinod replied that the lowest price of the flat is Rs.10 lacs. Next day Vimal informed Vinod
that he agrees to buy the flat for Rs.10 lacs and asked for registration of the flat in his name. Which of
the following is true regarding the effect of the conversation between the two?
(a) Vinod’s reply quoting the lowest price is an invitation to offer
(b) Vimal’s consent to buy the flat for Rs.10 lacs amounts to acceptance of the offer
(c) Valid contract between the parties, Vinod and Vimal, is created
(d) Vinod’s reply quoting the lowest price of Rs.10 lacs amounts to acceptance
(e) No offer either by Vimal or Vinod.
(1 mark)
58. The Board of directors of Janak Industries Ltd. met three times in the previous year. The fourth < Answer >
meeting could not be held for want of quorum (though the company convened the fourth meeting
within the stipulated time, it could not be held for want of quorum successively on two occasions i.e.
both in original and adjourned meeting). Which of the following is correct according to the provisions
of the Companies Act, 1956?
(a) Board of directors violated the provisions of section 285
(b) Board of directors did not violate the provisions of section 285
(c) Permission of the Central Govt. is required for not having quorum
(d) Board of directors are liable for irregularity
(e) Permission of the Registrar of Companies should be obtained for not having quorum.
(1 mark)
59. A agreed to sell 200 kg. Rice to B @ of Rs.25 per Kg, on a certain date. B contracted with C to sell 100 < Answer >
kg rice @ Rs.30 per kg. Thinking that he will buy the rice from A and sell it to C.A does not deliver the
rice .B suffers a loss of Rs.5 per Kg. Can he recover this loss from A?
(a) No, B cannot recover, as this loss amounts to special damages
(b) No, B cannot recover as this loss amounts to general damages
(c) Yes, B can recover the actual loss suffered
(d) Yes, B can recover the loss, as this amounts to compensatory damages
(e) Yes, B can recover the loss, as this amounts to vindictive damages.
(1 mark)
60. Harischandra is a director in 20 companies as on 1st October 2004. The composition of his < Answer >
directorships is as detailed below:
I. Alternative director in 3 public limited companies;
II. Director in 10 public limited companies;
III. Director in 6 private companies which are subsidiaries to holding of other public
companies; and
IV. Director in company registered as an association not carrying on business for profit.
Wise Ltd., a public limited company, wants to induct Harischandra as a director in its company.
Whether Harischandra can be appointed as director in Wise Ltd. in terms of Sections 275 of the
Companies Act, 1956?
(a) Harischandra is qualified to be appointed as directors of Wise limited as he is director in three
companies as alternative director
(b) Harischandra can be appointed as director in Wise limited, since he is with in the limits prescribed
under section 275 of the Companies Act
(c) Even though Harischandra is director in 20 companies he can be appointed in Wise limited if all
the directors of Wise Ltd. approve his appointment
(d) Harischandra is already director for more than 15 companies hence, he cannot be appointed
further in Wise limited
(e) Harischandra can be appointed in Wise limited.
(2 marks)
61. ‘A’ employs ‘B’ on a monthly salary of Rs.5,000 for one year. After six months, he removes B from < Answer >
the job without his fault. B goes in search of job and meets with an accident. He spends Rs.20,000 on
medicines. Now, he claims damages from A for breach of contract and also for medical expenses of
Rs.20,000. Will he succeed on both the counts?
(a) B has no remedy against A
(b) B can file for compensation for the breach of contract
(c) B can file for reimbursement of medical expenses incurred by him in the accident
(d) This is a direct loss caused or damage sustained because for breach of contract, hence B can claim
for re-instatement of employment
(e) B will not succeed in getting damages from A.
(1 mark)
62. Mahesh, a SEBI authorized official reaches the registered office of your company at 10.00 A.M. for < Answer >
inspection of the books of accounts of your company. Since the managing director is not available, he
was led to Smart, the finance director of the company who was present at that time. As Mahesh has
come without any prior notice or appointment, Smart is not sure whether to allow the inspection or not.
Which of the following is true as regards the inspection of books of accounts with out notice on the
company?
(a) Mahesh shall be assisted to inspect the books of accounts, by the officers/employees of the
company
(b) Mahesh cannot inspect with out previous notice on the company
(c) Mahesh cannot inspect the books of the company without prior appointment with the managing
director
(d) In the presence of all the board of directors of the company inspection can be conducted that too
during office hours only
(e) Only Registrar of Companies can inspect the books but not the officials of SEBI.
(1 mark)
63. Auditor of a company verified the accounts and submitted his report by signing on 31-7-2004. Later the < Answer >
Board of directors authenticated the accounts on 12-8-2004. When the accounts placed before the
members for their adoption, they refused to adopt the accounts .In the above situation, which of the
following statements is true?
(a) The members are bound to adopt once the accounts are placed before them
(b) The Board must authenticate the accounts before the auditor verifies the accounts
(c) The Board should sign on the accounts with in seven days form the date of auditors verification
(d) The Board should sign on the same day of auditors verification
(e) The Board should sign on the accounts with in ten days form the date of auditor’s verification.
(1 mark)
64. The general rule is that the wife is not the agent of her husband and the husband is not the agent of his < Answer >
wife. It is presumed that, one of them may be the agent of the other either by express or implied or by
holding out or by ratification or because of necessary. Under which of the following circumstance, the
above presumption cannot be rebutted?
(a) Where the purchases are not necessaries (e.g., T.V set for a peon)
(b) Where the trader has been expressly told by husband not to give credit to his wife
(c) Where the wife was already provided with the sufficiency of articles in question
(d) Where the purchages are necessasaries for the family
(e) Where the trader has been expressly told by the wife not to give credit to her husband.
(1 mark)
65. A asks B to beat C and promises to indemnify him against the consequences thereof. B beats C and is < Answer >
fined Rs.500.Can B recover the money from A?
(a) B can recover the money from A as he was indemnified for the loss
(b) B cannot recover the money from A because the fine amount is very small i.e.Rs.500 only
(c) B cannot recover the money from A because the object of agreement is unlawful
(d) B cannot recover from A but can recover from C
(e) B can recover the money from A as he performed his part of duty, otherwise it amount to breach
of contract.
(1 mark)
66. A company created a charge on its assets in favor of Lika Bank Ltd. On 1st August 2004. This charge < Answer >
was filed with the Registrar of Companies on 10th August 2004. The Registrar of Companies issued
certificate of registration of charge on 15th August 2004. The same company also created charge on the
same assets in favor of Sahara Bank Ltd. On 9th August 2004 and filed the charge with the Registrar of
Companies on 10th August 2004. The Registrar of Companies registered that charge and issued
certificate on 12th August 2004. Which of the following will be your answer to have priority in
recovering its dues by disposing of the assets?
(a) Creation of charge is important than registration of charge hence Lika Bank will get priority
(b) Registration of charge took place before the other bank, hence Sahara Bank will get priority over
the other
(c) Date of filing is important, hence both will get equal priority over the assets
(d) Even though both filed on the same day who ever filed first will get priority over the other
(e) Latest filed charge holder will get priority over the other.
(2 marks)
67. Arjun, a resident of Delhi, sent a letter of offer to Krishna of Hyderabad on March 01, 2004 relating to < Answer >
sale of his house property in Hyderabad for Rs.500, 000. In that letter of offer Arjun mentioned that he
must inform his acceptance on or before March 31, 2004. Krishna accepted the proposal and posted
the letter of acceptance properly addressed and duly stamped on March 29, 2004. The letter of
acceptance sent by Krishna was lost in transit. On April 30, 2004 Arjun sold his house for Rs.600, 000
to another party in Hyderabad. Krishna wants to sue Arjun for breach of contract. Which of the
following statements is/are correct?
(a) Krishna cannot succeed, as there is no contract between him and Arjun
(b) Krishna will succeed in his move as there is a valid contract between him and Arjun
(c) The offer made by Arjun to Krishna will be considered as revoked on loss of letter of acceptance
in transit
(d) Arjun has the right to sell his house even before March 31, 2004
(e) For an offer made by Arjun, no acceptance is received. Hence no promise between Arjun and
Krishna.
(2 marks)
68. 40 out of 100 members holding 20% of the paid-up capital of ABC Ltd. Company submitted a < Answer >
requisition for holding an extraordinary general meeting in order to remove the managing director from
the office. On the failure of the company to call the extraordinary general meeting within the time fixed
by law, one of the requisitionist called the meeting at the registered office of the company on a day
falling within the specified period. This requisitionist held 60% of the total paid-up capital of all the
requisitionists on the day the requisition was originally made. On the appointed day, the requisitionists
could not hold the extraordinary general meeting at the registered office as the managing director kept
it under lock. The members held the extraordinary general meeting outside the registered office
premises and passed a resolution for removing the managing director from the office. Is the meeting
and such resolution valid?
(a) The extra-ordinary General meeting must be held at the registered office only, other wise the
meeting is invalid and also the resolution
(b) If the requisitionist themselves conduct the meeting, they must give an opportunity to managing
director to represent himself then only they can pass resolution other wise the resolution is invalid
(c) The meeting is valid and resolutions are also valid
(d) Managing director cannot be removed at an extra-ordinary meeting
(e) Managing Director cannot be removed by members.
(1 mark)
69. Rajesh issued a cheque for Rs.11,116 to a voluntary organization as donation. But the cheque was < Answer >
unpaid and returned with reason -‘Insufficient funds’. The remedy available to the payee is
(a) The payee can recover the amount from Rajesh by filing a criminal case
(b) The payee should issue a notice within 15 days of dishonour of cheque demanding the payment
from the drawer
(c) The payee should file a compliant with a First Class Judicial Magistrate within one month from
the date of issuing notice to the drawer
(d) The payee cannot recover the amount as the cheque was given as donation
(e) The payee can file a complaint in consumer forum.
(2 marks)
70. Directors of ABC Limited are not holding any shares in MDJ Company Limited. Similarly directors of < Answer >
MDJ Company Limited are not holding any shares in ABC Limited. But wife of director ‘A’ of ABC
Limited holds 40% of the paid up share capital of MDJ Company Limited. Board of directors of ABC
Limited entered into contract (for purchase of land )with MDJ Company Limited and director ‘A’ did
not disclose his indirect interest in MDJ company limited. What is the legal position of the director A
and the contract?
(a) Director ‘A’ has not violated, hence contract is valid
(b) Director ‘A’ has to disclose his nature of interest in the board meeting, other wise the contract
become invalid
(c) Director ‘A’ has violated the provisions of the Companies Act hence he has to vacate the office
and the contract is viodable
(d) Director need not vacate but contract is invalid
(e) Contract is void and the director concerned has to pay penalty.
(2 marks)
71. Rahul, who is very fond of cricket, purchases two tickets for his friend and himself for watching a < Answer >
cricket match. As per the seating arrangement in the chronological order of numbering, they were
placed at the last in the auditorium. When the match was going on, Rahul was hit by a ball (when the
batsman hit a sixer) and sustained serious injuries. He files a suit for injuries caused to him against the
cricked board, batsman and the auditorium. The defendants opposed the suit and denied to pay
damages to Rahul. With reference to the present situation, which of the following statements is/are
true?
(a) Rahul impliedly accepted for all the risks involved in watching the cricket, hence not entitled to
any damages
(b) The cricket board is liable to pay damages to Rahul
(c) The batsman is liable to pay the damages to Rahul
(d) The management of the auditorium is liable to pay compensation and damages to Rahul
(e) The cricket Board is liable to pay compensation and damages to Rahul.
(1 mark)
72. ‘A’, ‘B’ and ‘C’ brothers are the joint owners of certain cattle. One cow is left in the possession of ‘A’ < Answer >
by the other two brothers, i.e. ‘B’ and ‘C’. ‘A’ later sells the cow to ‘D’ who purchases in good faith.
With regard to the title of ‘D’, which of the following statements is/are true?
(a) ‘D’ will not acquire a valid title to the cow
(b) ‘D’ acquires a valid title to the cow
(c) If the other joint owners of the cow also agree for the sale, ‘D’ gets a valid title
(d) Sale by a person in possession of cattle is by misrepresentation, hence voidable
(e) A person if he is not an absolute owner cannot pass title to the other person. Hence, D will not get
valid title.
(1 mark)
73. ABC Ltd purchased shares to the extent of 51.5% of XYZ Ltd on 1-4-2004.On 30-9-2004 ABC Ltd. < Answer >
company issued prospectus to the public and XYZ Ltd. intends to purchase to the extents of 10% of
that issued capital. Which of the following is the correct statement?
(a) A subsidiary company can be a member of its holding company without any restriction
(b) A subsidiary company cannot be a member of its holding company
(c) Permission to hold the shares must be obtained from the Registrar of Companies.
(d) A subsidiary company can hold shares in holding company only to the extent of 25% of the paid
up capital, not 10% of the issued capital
(e) Subsidiary company cannot purchase shares more than 5% of the issued capital of that holding
company.
(1 mark)
74. Anita, a minor aged 15 years, purchased 100 fully paid equity shares of a company and submitted a < Answer >
transfer deed to the company for registration in her name, duly executed by her father and natural
guardian. The company refused to transfer, as Anita is a minor. In this context which of the following
statements is/are true?
(a) Shares cannot be transferred to a minor
(b) Fully paid up shares can be transferred to the minor
(c) Through a natural guardian, shares can be transferred
(d) Shares can be transferred on the name of the natural guardian of the minor
(1 mark)
75. The company before the expiry of his period of office has removed Viswanath a whole-time director of < Answer >
Excel Industries Ltd., a public company, by passing an ordinary resolution in the general meeting under
section 284 of the Companies Act, 1956.He is not given any alternate employment in the company or
in its subsidiaries. Which of the following statements is correct?
(a) Viswanath is eligible to claim compensation for loss of office
(b) Viswanath is not eligible to claim compensation for loss of office
(c) For removing the whole time director members should obtain the permission of National
Company Law Tribunal
(d) For removing the whole time director, members should take the permission of the Appellate
Tribunal
(e) Whole time director cannot be removed in general meeting u/s 284 of the Act.
(1 mark)
76. Anand had sold his car to Vijay on the false representation that it was in excellent condition. Even after < Answer >
discovering that the car was not in good condition, Vijay did not rescind the contract but instead
accepted the offer of Anand to bear half the cost of repairs of Rs.30, 000. After a month when Vijay
found that the condition of the car was still bad, he requested Anand to refund his money by taking
back the car. Which of the following is correct?
(a) Anand has to refund the amount without taking the car back
(b) Vijay cannot get the money or cannot rescind the contract
(c) Vijay can claim for full amount of repairs
(d) Vijay can claim damages, but not cost of repairs
(e) Vijay can get back his money by returning the car.
(1 mark)
77. The Board of Directors of Swastik Industries Ltd., a Government company received a request from a < Answer >
political party for a contribution of Rs.10 lakhs. The company was established in 2000 and its profits in
the years 2001, 2002 and 2003 were Rs.50 lakhs, Rs.100 lakhs and Rs.150 lakhs respectively. State
whether the company can pay the contribution to the political party.
(a) The company can contribute Rs.2.50 lakhs only
(b) The company can contribute Rs.5.00 lakhs only
(c) The company can contribute Rs.7.50 lakhs only
(d) The company can contribute Rs.10.00 lakhs
(e) The company cannot contribute to the political party.
(2 marks)
78. The articles of association of a company state that a director-cum-member shall not vote in a general < Answer >
meeting, in respect of contract in which he is interested .In a resolution put up for the approval of the
shareholders, can a director-cum- member exercise his voting right in general meeting in favor of a
contract in which he is interested?
(a) No, he cannot vote since it is against the rule mentioned in the articles
(b) No he cannot vote under section 297 of the Companies Act
(c) No, he cannot vote under section 299 of the Companies Act
(d) Yes, he can participate in the voting because a statutory right cannot be curtailed by articles
(e) No he cannot speak in the general meeting under section 300 of the Companies Act.
(2 marks)
79. A, B and C hold jointly 100 shares in a listed company. They want the order of names changed in the < Answer >
share certificate as B, A and C and make an application for change and lodge the original share
certificate. The company directed them to execute a proper instrument of transfer to effect the change,
In this context, which of the following statements is true?
(a) The company cannot reject for changing the names
(b) The joint shareholders have no authority to request for change of order of names
(c) The order of names once allotted cannot be changed
(d) The company has to reject changing the order of names
(e) Joint share holding is not permitted in a listed company.
(1 mark)
80. Dr. Kumar a heart specialist joined Universal Hospital Ltd., Hyderabad as a consultant for a period of 3 < Answer >
years on a salary of Rs.50,000 per month. The agreement between Kumar and the hospital provided
that after the termination of the employment Kumar should not practice as a doctor in Hyderabad for a
period of one year and if he did so he should pay Rs.2,00,000 to the Universal Hospital Ltd. as
liquidated damages
Immediately after termination of the term of his employment with the hospital, Dr. Kumar began to
practice as a doctor adjacent to the hospital premises.
The Universal Hospital sued Dr. Kumar for the recovery of Rs.2,00,000.
Which of the following statements is correct?
(a) Dr. Kumar has to pay the compensation for breach of contract
(b) The agreement between the hospital and Dr. Kumar is valid
(c) The hospital has no right to restrain its employees from practicing their profession during the
employment
(d) The hospital cannot recover damages because an agreement in restraint of trade is void
(e) Hospital has power to recover the amount of 2,00,000.
(1 mark)
81. A timber merchant agreed to supply best quality teak at a certain agreed price to a builder. Later the < Answer >
merchant supplied timber, which was identified as ordinary class of timber and demanded the payment
from the builder. Which of the following statements is true?
(a) Builder can reject the goods and can claim damages
(b) Builder has to accept the goods
(c) Builder has to pay the price by taking delivery of teak wood
(d) Timber merchant can plead the doctrine of caveat emptor
(e) Timber merchant can claim damages if timber is rejected by the builder.
(1 mark)
82. Laxman appointed Jayaraj as his agent to sell his house situated in Chennai. Jayaraj conducted the < Answer >
auction by giving wide publicity in the newspaper. The auction was not successful and he was not able
to find a purchaser. Govind, who participated in the auction, took the address of Laxman from Jayaraj.
Later, Govind approached Laxman and settled the sale for Rs.25 lakhs without the intervention of
Jayaraj. Which of the following is true?
(a) Jayaraj has a right to claim his remuneration from Laxman
(b) Jayaraj has no right to claim his remuneration
(c) Jayaraj has not performed any service as agent
(d) Laxman can refuse to pay any remuneration
(e) Govind has to pay remuneration to Jayaraj.
(1 mark)
83 Chidambaram, one of the directors of XYZ Company Ltd., did not attend the Board of directors’ < Answer >
meetings, from October 1st to December 31st, 2003, without obtaining leave of absence from the Board,
though the company had sent him notice for those meetings. Three meetings were held between
October 1st and 31st December 2003, and Chidambaram did not attend to any of the three meetings
during that period. After the commencement of the new financial year 2004, the company convened a
meeting of the Board of directors on 1-2-2004, for which no notice was sent to Chidambaram, on the
ground that he had ceased to be a director under the Companies Act. The meeting was held as
scheduled, and certain important decisions were taken thereat. Chidambaram, on coming to know of
the meeting of 1-2-2004, challenges the company’s convening of the Board of directors’ meeting and
decisions taken thereat, on the ground of omission of sending notice to him. In the above context,
which of the following statements is true?
(a) Meeting is invalid, and the resolutions passed at such meeting are inoperative
(b) Meeting is valid, and also the resolutions passed are valid
(c) Meeting is valid but the resolutions passed are invalid
(d) Chidambaram has no right to allege on the resolutions passed at the Board meeting
(e) Directors cannot question on the omission of notice of the board meetings.
(2 marks)
84. The Registered office of the Ankur Ltd is presently situated at Coimbatore in Tamilnadu state. But the < Answer >
company intends to conduct its annual general meeting at Chennai (since most of the share holders and
directors are residing at Chennai). The company sought the advise of the company secretary and who
gave advise ‘to shift its registered office from Coimbatore to Chennai and then conduct the AGM at
Chennai’. But the change implies, change of registered office of the company from one city, town,
village to another city, town, village but from the jurisdiction of one ROC to another ROC within the
same state, which requires-
(a) Special resolution and permission of the court
(b) Ordinary resolution and permission of the court
(c) Special resolution and permission of Central Government
(d) Special resolution and confirmation of Regional Director
(e) Special resolution and confirmation of National Company Law Tribunal.
(1 mark)
85. Venkat purchased a T.V. from Ankit Electronics Ltd. for Rs.25,000 and requested the shopkeeper to < Answer >
keep the T.V. in the very shop, since he is moving out of station and while returning he will take
delivery of the T.V. The shopkeeper accepted the request and immediately packed the T.V. in front of
Venkat and kept aside. Two days later, the shop caught with fire and all the goods including the T.V. of
Venkat were burnt in the fire. Venkat demanded the shopkeeper for another T.V. or return the money
paid by him. But the shopkeeper denied the demand of Venkat. Decide which of the following
statements is true?
(a) The shopkeeper is not responsible for the T.V. or returning the money to Venkat
(b) The shopkeeper is liable to give another T.V. in the place of the one, which is burnt
(c) The shopkeeper is liable to give back the money what is paid by Venkat
(d) The shopkeeper in addition to a new T.V. should pay the damages for the mental agony caused to
Venkat
(e) Since the T.V. is burnt in the very shop where it is purchased, the shopkeeper is liable to pay
compensation, damages etc. in addition to the new T.V. to Venkat.
(1 mark)
Suggested Answers
Economic Legislation – I (161) : October 2004
1. Answer : (b) < TOP >
Reason : The Companies (Acceptance of deposits) Rules, 1975 are applicable to Non-Banking Non –Finance
Companies.
2. Answer : (d) < TOP >
Reason : Advantages of law
The principles of law provide uniformity and certainty to the administration of justice.
The existence of fixed principles of law avoids he dangers of arbitrary, biased and dishonest decisions.
The fixed principles of law protect the administration of justice from the errors of individual judgment.
It is more reliable than individual judgment.
Disadvantages of law
The lack of flexibility in law results in hardship and injustice to people as the needs of the people keep
on changing.
Law is conservative in nature as the lawyers and judges favor continuation of the existing law as a result
very often law is static.
Another disadvantage of law is formalism, as more emphasis is put on the form of law than its substance.
Lastly law is unduly and needlessly complex. Hence, the answer is (d).
3. Answer : (e) < TOP >
Reason : The doctrine of anticipatory breach is not applicable in case of negotiable instruments. But it is
applicable to agreements relating to immovable property.
4. Answer : (c) < TOP >
Reason : The registrar must refuse to register the prospectus when the expert is connected person to the
company.
Section 60 of the Companies Act requires that before a company publishes a prospectus, inviting
offers from the public to subscribe to its shares, a copy thereof duly signed by all the directors
named therein should be delivered to the Registrar for registration. Sub-section (3) of Section 60,
however, provides that the Registrar shall refuse registration of a prospectus in the following
circumstances:
When the prospectus is not dated.
When it does not set out the matter or reports as required under Section 56.
When it contains statements of reports of experts-engaged or interested in the formation of the
company (Section 57).
When it includes statement proposed to be made by an expert without a statement that he has given
and has not withdrawn his consent to the issue of prospectus.
When it does not contain consent in writing of every person named therein as director.
When the prospectus is not accompanied by the consent in writing of the auditor, attorney,
solicitor, lead manager, bankers, manager to the issue, broker, underwriters named in the prospectus
to act in that capacity.
Reason : The term ‘goods’ under Sale of Goods Act does not include Actionable claims and money.
Reason : Only an individual can become director of a company according to the provisions of section 253 of
the Companies Act.
7. Answer : (a) < TOP >
Reason : As per schedule XIII of the Companies Act, for a person to be appointed as managing
director /whole time director/manager, he shall not attain the age of seventy years.

Reason : As per section 591 of the Companies Act, a foreign company means a company incorporated out
side India and having place of business in India.
Reason : Presentment for acceptance is excused and the instrument treated dishonored when:
The drawee is a fictitious person
The drawee cannot, after reasonable search, be found
The drawee is incapable of contracting
The drawee becomes bankrupt
Reason : Is special agent is the one who is appointed to perform a special act or one who represent his
principal in some particular transaction.
Reason : ‘Nemo dat quad non habeat ‘means No one can pass a better title than what he has.
Reason : Under section 292A of the Companies Act, every public company having paid up capital of not less
than five crore rupees shall constitute an audit committee.
Reason : According to the proviso of section 117B of the Companies Act, no person shall be appointed as a
debenture trustee if he
a. Beneficially holds shares in the company
b. Is beneficially entitled to moneys which are to be paid by the company to the debenture trustee
c. Has entrusted into any guarantee in respect of principal debts secured by the debentures or
interest thereon.
Reason : Under section 197A of the Companies Act, 1956, a company shall not appoint a manager u/s 2(24)
and a managing director u/s2 (26) simultaneously. But company can appoint a managing director
and a whole time director, a managing director and a director, manager and a whole time director.
Hence option (b) is the correct answer and all other options are not correct
Reason : No company can reopen accounts after their adoption in the AGM, except for the situation where
revision arises out of technical requirements of taxation laws and such revision may be approved in
the next AGM.
Reason : Issue of share certificate by a company is subject to the approval of a resolution of the Board of
directors
Reason : According to section 123 of the negotiable Instrument Act, 1881 a cheque can be crossed by
‘special’, ‘restrictive’, and also by ‘not negotiable’.
Reason : Reduction of share capital requires approval of the Tribunal and all other matters like- issue of
shares at discount, buy-back of securities issues of share warrants and conversion of shares into
stock to not require approval of tribond.
Reason : In the following occasions, offer automatically lapses
a. If it is revoked by the offeror at any time before its acceptance
b. If the offeror or offeree dies or become insane and the other party comes to know before
acceptance,
c. If the offer is not accepted with in the specified time or within a reasonable time
d. Upon failure to fulfill a condition precedent to acceptance
Reason : When the contract is absolute, the seller undertakes to unconditionally sell the goods to be acquired
at a later stage. Where the contract is conditional, he contracts to sell goods conditionally on their
acquisition.
An absolute contract for sale of future goods can be categorized into:
(a) Present sale of future goods
(b) Present sale of a chance of obtaining goods, or a sale of a mere expectation dependent upon a
chance.
Hence answer is (e).
Reason : Director are paid setting fee for attending Board meetings, but not for attending general meetings.
Hence option (e) is correct.
< TOP >
22. Answer : (b)
Reason : A company which alters its share capital must give notice of alteration to the Registrar within 30
days of such alteration in form no.5.
< TOP >
23. Answer : (d)
Reason: Under section 215 of the Companies Act, 1956, the annual financial statements (i.e. every
Balance sheet and profit and loss account of a company, other than banking company) shall be
signed on behalf of the Board of Directors by its -
a. Manager or secretary of the company if any
b. Not less than two directors of the company, one of who shall be managing director if any.
In the case of a banking company by the person specified in clause (a) and (b), as the case may be
of sub-section (2) of section 29 of the Banking Companies Act 1949.
The chairman of the company in that capacity is not entitled under section 215 of the Act. Hence option
(d) is correct
Reason : Option (d) is an example of restrictive crossing. Options in (a), (c) and (e) are examples of general
crossing. Option b is an example of special crossing.
Reason : Under section 264(3) Filing consent to act as director with Registrar and under section 295(2)(a)(i)
Prohibition against loans to director are applicable to public companies whereas directors to hold
qualification shares if articles of the company so provides for registration of charges and are
applicable to both private and public companies. Hence, option (e) is correct.
Reason : Consideration for a contract should be real but not illusory.
Reason : An arbitral award may be set a side by the court Arbitral award deals with a dispute not
contemplated by the terms which are beyond the scope of the submission to arbitration
Party was under some incapacity The arbitral award is in conflict with the public policy of India
Reason : The provision of loans to directors is applicable to all companies except
a. Any loan made, guarantee given or security provided by a private company unless it is a
subsidiary of a public company
b. Any banking company
c. Any loan made by holding company to its subsidiary company
Hence in the present question a private company which is subsidiary of a public company is
subject Sec. 295 of the companies Act, 1956. Hence, option (d) is correct answer.
Reason : Agent has fiduciary relationship with principal means –
Agent should disclose all material facts to principal
Agent should not make any secret profits by taking undue advantage of his agency.
Agent should not make use of information obtained in the course of agency for personal gains at the
cost of principal
Agent’s interest should not conflict with those of principal
Reason : The managing director/manager of the company is held responsible for the failure to take all
reasonable steps for keeping books of accounts
Reason : Under the transfer of Property Act, 1882 certain kinds of property cannot be transferred of which
two of them are right to sue and stipends and pensions.
The term property is not defined in the Act. However, Section 9 of the Act says that property of
any kind may be transferred, Exception to the general rule that ‘every kind of property can be
transferred’ is provided under Section 6.
1. Chance of an heir apparent or spes succession is: This means an interest which has not arisen
but which may arise in future. Such a chance is not property and as such cannot be transferred.
2. Right of re-entry of the lessor on breach of an express condition of the lease.
3. Transfer of easement: Easement means an interest in land owned by another that entitles its
holder to a specific limited use or enjoyment. The right of easement alone cannot be
transferred.
4. Interest restricted in its enjoyment: Rights of purely personal nature like the right of a pujari
in a temple to receive offerings, the office of a mahunt of a mutt etc. cannot be transferred.
5. Right to future maintenance.
6. Public offices and salaries.
7. Mere right to sue.
8. Stipends and pensions; and
9. Occupancy rights of a tenant cannot be transferred under Section
6.
Hence, as per the exceptions under section 6 of the TP Act, right to sue and stipends and pensions
can not be transferred.
Reason : For making an application to NCLT for opression and mismanagement and For counting number of
members of a private joint holders of shares are treated as single member. But for the matters like –
counting the members for the purpose of quorum and for making an application for right issue all
the joint holders are treated separately.
Reason : a. When the company received ten rupees and it accepts the liability only for five rupees
b. When the company received ten rupees and it pays back five rupees to the investor
c. When the company issued for rupees ten and received five, remaining is waived
d. Both (a) and (b) above
e. Either of the above.
Hence option (e) is correct
Reason : Ordinary business matters at an annual general meeting of a company are adoption of accounts,
appointment t or re appointment of directors ,appointment or re appointment of auditors and fixation
of the remuneration and declaration of dividend. All other matters are special business matters only.
Hence, option (d) is correct and all other are wrong.
< TOP >
35. Answer : (d)
Reason : The matters, which require previous provisions approval of the Central Government, are Payment
of interest out of capital, Increase in numbers of directors beyond twelve, Removal of auditor and
Appointment of cost auditor. But do not require previous approval of Central Govt. for increase
the number of directors beyond twelve post approval is allowed. But for other three i.e. payment
of interest out of capital, removal of auditor, and appointment of cost auditor requires previous
approval of the Central Government.
Reason : Warranty of quiet possession
According to section 14(b), in a contract of sale unless the circumstances of the contract are such
as to show a different intention there is an implied warranty that the buyer shall have and enjoy
quiet possession of the goods.
In fact, what this section means is that nobody can interfere with the possession of goods by the
buyer, because of a defective title of the seller. If the buyer is in any way prevented from the quiet
enjoyment of the goods, he can claim damages from the seller.
Warranty of freedom from encumbrances
According to section 14(c), in a contract of sale unless the circumstances of the contract are such
as to show a different intention there is an implied warranty that the goods shall be free from any
charge or encumbrance in favor of any third party not declared or known to the buyer before or at
the time when the contract is made.
This section deals with the cases where the buyer’s title to the goods is disturbed by the existence
of encumbrances not known or disclosed at the time of the contract. The implied warranty relates
not to the existence of undisclosed encumbrances, but only that the goods should be free of them.
The warranty is not broken by the mere fact that encumbrances exist. What is necessary is that the
buyer should be affected by them. It is the responsibility of the seller to ensure that the
encumbrances do not affect the buyer.
Warranty as to quality or fitness by usage of trade: [Section 16(3)]
According to this section, an implied warranty as to quality or fitness for a particular purpose may be
annexed by the usage of trade.
Reason : The contract is valid because at the time of making the contract the lunatic is able to understand the
terms of the contract.
Reason :- Failure to distribute dividends within 30 days of its declaration u/s 207 of the companies Act will
result into imprisonment of directors.
Reason : Every depository and participant is required to be registered with SEBI.
Reason : I do acknowledge myself to be indebted to Mr. Ram Rs.100,000 to be paid on demand for value
received is a valid promissory note.
Reason : A minor cannot bind himself by accepting a bill or making a note. However, all the other competent
parties to the instrument are liable. Hence, Lakshmi is not liable, her father Sekhar only is liable.
Reason : In the given case as Roam & Roam, chartered accountants have to be appointed as the auditors of
Star Ltd. in place of the present auditors, the provisions and procedure given in Section 225 and
sec224 (7)have to be complied with. According to Section 225 of the Companies Act, 1956 if an
auditor to be removed before his tenure, and appoint another in the place of the removing auditor, a
special notice shall be required for passing a resolution at an Annual General Meeting. On receipt of
notice of such resolution, the company shall send a copy to the removing auditor who may make
representation in writing with a request to notify to members of the company. The company shall
send the representation to the members in accordance with Sub-section (3) of Section 225 (unless
the representations are received too late, whereupon they may be read out at the meeting).
Thereafter, a general meeting has to be convened to pass the ordinary resolution by simple majority,
and take the consent of the Central Government. A written certificate from the proposed auditor to
the effect that appointment if made, will be in accordance with the limits specified in Section 224
(1B) shall also be obtained. If the company is listed, the requirements of the listing agreement also
have to be complied with and the stock exchanges have to be informed accordingly.
Reason : Even though the total amount of the bill has been negotiated B and C are endorsees for only a part
of the amount and hence the endorsement is invalid.
According to sec.56 of the NI Act, no writing on a negotiable instrument is valid for the purpose of
negotiation if such writing purports to transfer only a part of the amount appearing to be due on the
instrument; but where such amount has been partly paid, a note to that
effect may be endorsed on the instrument, which may then be negotiated for the balance.
According to the later part of sec.56, A bill which has been endorsed ‘pay ‘A’ or order Rs.500 being
unpaid residue of the bill’ is a valid endorsement.
Hence option (d) is correct.
Reason : Vinod does not get a good title as Vinay cannot claim ownership under hire purchase agreement.
Reason : Under Section 297 (3) of the companies Act, the contract is valid and will be binding on both the
parties because at the time when the company entered into the contract, the company’s paid up
capital is only 50,00,000 and the board of directors gave their consent for the contract later even
though it is not disclosed by one of the director. Hence, the contract is valid and must be performed
by both the parties
Reason : Company need not obtain the permission of Central Government and need not pass special
resolution, the reason the relationship of brother’s son is not added in the Schedule VI of the
Companies Act. U/s 314 (1B) of the companies Act, if a relative of a directors holds office of place
of profit, then the company should pass S/R and obtain permission of Central Government.
Reason : The matters that can be delegated to Committee of directors is power to invest funds, power to
make loans and power to borrow money otherwise on debentures. But the BOD cannot delegate
their powers like: - power to make calls and issue debentures.
Reason : Section 224A of the Companies Act, 1956 requires a company to appoint an auditor by passing
special resolution where 25% or more of the subscribed capital of the company is held by public
financial institution, government companies’ etc. or a combination of them. However, said Section
does not specify the date on which 25% of the subscribed share capital must be held by the specified
bodies/institutions i.e. whether the date of notice of meeting or date of passing the special resolution
shall be effective date. The Department of company Affairs has clarified that the material date is the
date of annual general meeting at which the special resolution is required to be passed.
In the instant case the holding of LIC has increased beyond the specified limit of 25% on the date
of annual general meeting of RASI Ltd. Therefore the contention of chairman is not right. The right
course of action will be to adjourn the meeting to another date and later issue the required notice in
accordance with the provisions of the Act and thereafter pass the special resolution in the adjourned
annual general meeting. If the company fails to pass special resolution as aforesaid then it shall be
deemed that no auditor has been appointed. In such case the provision of Section 224(3) shall
become applicable in relation to RASI Ltd.
Reason : Adoption of Accounts and declaration of dividend are not interdependent and therefore there is no
illegality in the declaration of dividend even though the meeting of Downturn Ltd. did not adopt the
Annual Accounts. Section 210(1) of the Companies Act, 1956 requires the Board of Directors to lay
before the company, the Balance Sheet and Profit & Loss A/c/ The consequences of non adoption is
that in terms of Section 220(2) a statement of the fact non-adoption and of the reasons therefore
shall be annexed to the Balance Sheet and to the copies thereof required to be filed with ROC. The
Institute of Chartered Accountant of India in the compendium of opinion (Vol.1) has held the same
view. It has also provided an alternative approach of adjourning the meeting with specific direction
on the Board of the company to suitably modify the accounts and place the modified accounts in the
adjourned meeting. If it is so done, the apparent (though not legal) inconsistency of not adopting the
accounts but declaring dividend will not be there.
When the shareholders did not accept the figure of the Profit shown in the profit and loss account,
they cannot take the risk of declaring dividend without correctly knowing the source from which the
profit will come to pay the dividend. It may even become a case of payment of dividend out of
capital which is illegal. Therefore in the instant case, whole decision will rest on the nature and
quantum of distortion in the profit shown by the Profit and Loss Account. If distortion is not
significant, then the decision to declare dividend may be taken.

Reason : According to Section 84 of the Negotiable Instrument Act, if a heques is not presented by the payee
within a reasonable time of its issue and the drawer suffers damage due to the delay because of the
failure of the bank, then the drawer is discharged from liability to the extent of damage. In the given
case Anand failed to present the heques, though there was sufficient balance in the account of Amar. Anand
received Rs.25,500 from the bank. Amar is discharged from liability.
Options in (a), (b), (c) and (e) are not correct. Option in (d) is correct.
Reason : Members are liable to contribute to the assets of the company upto the unpaid amount on the shares
held by them.
However, according to the provisions of Section 45 of the Act, if at any time the number of
members of a company is reduced, in the case of a public company, below seven, or in the case of a
private company below two, and the company carries on business for more than six months while
the number is so reduced, every person who is a member of the company during the time it so
carries on business after those six months and is cognizant of the fact that it is carrying on business
with fewer than seven members or two members, as the case may be, shall be severally liable for the
payment of the whole debts of the company contracted during that time, and may be severally sued
therefore.
In the given case the number of members have fallen below the statutory minimum. It is not clear
from the facts. Whether a period of more than six months has elapsed after registration of transfer.
If that period has elapsed after registration of transfer the shareholders are personally liable as the
registration would have been with the approval of the Board. If it is other wise the shareholders are
not liable.
Reason : According to Section 372A(1), no company shall directly or indirectly make any loan to or give
guarantee or provide security or make investment in other body corporate exceeding 60% of its paid
up share capital and free reserves, or one hundred percent of its free reserves, whichever is more,
except by a special resolution passed at a general meeting.
In the instant case, the Antrew Textiles Ltd. has paid-up capital of Rs.28 crore and free reserves of
Rs.7 crores as on 31st March, 2004, the 60% of which comes out to be Rs.21 crores. But the
companies made investments of Rs.10 crore in various firms but not in other body corporates (Since
372A deals with the investments, loans, security etc in other body corporates not in firms). Hence,
the 10 crore investment in various firms is not taken in the calculation, only the below investments
are considered. Therefore, the Board can make investment upto 21 crores without any approval of
the shareholders.
The statement of investments
(in Rupees)
Further investments:
(i) 20,000 Equity shares of Rs. 10 each at Rs. 390 per share in PQR Co. Ltd. 78,00,000
which were renounced by others (excluded 30,000 shares issued in rights
issue as the same are exempted under Section 372A(8)(b)]
(ii) 11% Debentures of Albert Pharma Ltd. [The debentures are specifically 9,00,00,000
included in explanation for ‘Loan’ under Section 372A(10)].
(iii) 50,000 units of US-64 @ Rs. 14.50 each. 7,25,000
(iv) 25,000 equity shares of Rs. 10 each @ Rs. 130 each in concord securities 32,50,000
whose principal business is acquisition of bonds.
Total Investment 10,17,75,000
21,00,00,000
(-) 10,17,75,000
10,82,25,000
The aggregate of the existing investments is below the limits specified above. Therefore the Board
is competent to make all the investments listed in the question. It is presumed that 30,000 shares in
PQR Co. Ltd. are rights issue shares and hence exempt.
The company further can make another 10,82,25,000 investments in other body corporates.
Reason : The persons who are entitled to receive the notice of the general meeting is Present members of the
company whose names are borne in the register of members ,Legal representatives/heirs of the
deceased members and Official assignees of the insolvent members and the auditor(s) since as
rightly told by the company secretary since the BOD and MD are not members of the company they
are not entitled to receive under the provisions of the companies Act but it is a custom to give notice of the
general meetings to the BOD and MD also. Hence option (c) is correct.

Reason : Financial Institutions like IDBI, SFCs, IFCI, UTI, LIC and also State Bank of India have been
given powers to appoint nominee directors in companies assisted by them in their respective Acts.
Of course, such appointment is not mandatory.
A nominee director can be appointed by financial institutions under statutory powers even if there
is no provision in the Articles of Association of the company and even if number of directors
increase beyond the limit prescribed in Articles.
Reason : For certain contracts, time is very much essence, the performance of the contract is subject to
fulfillment in a specified time, if the time is elapsed the contract becomes void. In the present case
also time is essence for the performance of the contract i.e. crackers must be dispatched before the
Deewalli since the crackers are send after the deewali, what can be done by the trader with them,
thereby he is not under obligation to accept the contract when it is attempted to perform. That will
not amount to breach of contract. The other party does not fulfill the movement subject to condition,
automatically the agreement becomes void, and the advance amount what ever is paid will be
refundable.
Reason : As per section 166 of the Companies Act, 1956 every annual general meeting shall be called during
business hours and on a day that is not a public holiday. But subsequent declaration of holiday by
the government does not affect the notices of the meeting already issued. So the company can
conduct the annual general meeting on 18th September 2004. But in the instant case the company is
Sec.25 company and it can conduct AGM even an public holiday. Hence company can conduct
annual general meeting on 18th September 2004.
Reason : (a) Vinod’s reply to sell flat for Rs.10 lacs amounts to an invitation to offer. The case of
Harvey vs Facey is an example where it was held that a quotation of price is not an offer.
Options in (b), (c), (d) and (e) are not correct.
(b) Vimals consent to buy flat does not amount to acceptance. Infact Vinod has to convey
consent or acceptance for the offer made by Vimal.
(c) There is no contract between Vimal and Vinod since all the elements of a contract are not
fulfilled in the above case.
(d) Vinod’s reply to quote the lowest price does not amount to acceptance
(e) There is offer by Vimal.
Correct answer is (a).
Reason : A company must hold a meeting of its Board of Directors once in every three calendar months and
there should be at least four meetings of the Board every year. This is as per section 285. But
section 288(2) provides that where a meeting is called, but could not be held for want of quorum,
there is no contravention of section 285. Therefore the Board did not violate the provisions of
section 285.
Reason : No, B cannot recover, as this loss amounts to special damages since, A was not aware of the B’s
plan of resale, he is not liable for compensating this loss.
Reason : Harischandra cannot be appointed as director in Wise Lted.as he is director for 10 public companies
and 6 private companies which are subsidiaries of public companies (aggregate of 16 ) .
After the commencement of this Act, no person shall, save as otherwise provided in section 276,
hold office at the same time as director in more than fifteen companies.
Exclusion of certain directorships for the purposes of sections 275, 276 and 277.
278. (1)In calculating, for the purposes of sections 275, 276, and 277, the number of companies of
which a person may be a director, the following companies shall be excluded, namely:-
a. a private company which is neither a subsidiary nor a holding company of a public company;
b. an unlimited company;
c. an association not carrying on business for profit or which prohibits the payment of a
dividend;
d. a company in which such person is only an alternate director, that is to say, a director who is
only qualified to act as such during the absence or incapacity of some other director.
Reason : Under Section 73 of the Indian Contract Act, when a contract has been broken, a party who suffers
by such breach is entitled to receive, from the party who has broken the contract compensation for
any loss or damage, caused to him thereby, which naturally arose in the usual course of things from
such breach or which the parties knew, when they made the contract to be likely to result from the
breach of it. Such compensation is not to be given for any remote and indirect loss or damage
sustained by reason of the breach. (Hadley v. Baxendale).
In view of this B can at the most claim compensation for breach of contract i.e. his removal from
the job and not for medical expenses incurred by him.
Reason : In terms of the provisions of Section 209A(1)(iii) of the Companies Act, 1956 the books of account
and other books and papers of every company shall be open to inspection during business hours by
such officers of the Securities and Exchange Board of India as may be authorized by it in respect of
matters covered under the sections referred to in Section 55A of the Companies Act. It is further
provided under Section 209A that such inspection may be made without giving any previous notice
to the company or any officer thereof. Therefore, if Mahesh, the authorized official of SEBI wishes
to examine the books of account and other books and papers in relation to the sections referred to in
Section 55A, his request has to be complied with. Otherwise every officer of the company who is in
default for non-compliance shall be punishable with fine which shall not be less than Rupees fifty
thousand and also with imprisonment for a term not exceeding one year.
Reason : The Board must authenticate the accounts before the auditor verifies the accounts.
Reason : The general rule is that the wife is not the agent of her husband and the husband is not the agent of
his wife. But one of them may be the agent of the other either by express or implied or by holding
out or by ratification or because of necessary. But the above presumption can not be rebutted if the
purchases are necessatories to the family
But the presumption can be rebutted
Where the purchases are not necessaries (e.g., T.V set for a peon)
Where the trader has been expressly told by husband not to give credit to his wife
Where the wife was already provided with the sufficiency of articles in question
Reason : B cannot recover the money from A because the object of agreement is unlawful
Reason : It appears that both the charges are of the same type. A registered charge takes priority over an
unregistered one. Registered charges take priority from the date of creation though constructive
notice arises from the date of registration. Consequently in the instant case between 12.10.2001 to
15.10.2001, the charge in favor of Sahara Bank Ltd. will get priority. But on and from 15.10.2001,
the one created in favor of Lika Bank Ltd. will not get priority.
Reason : Krishna can succeed in his move as his acceptance will be completed on posting of letter properly
addressed and duly stamped. Lost of letter of acceptance will not invalidate his acceptance
Reason : Section 169 of the Companies Act, 1956 requires the Board of directors of a company to call an
extraordinary general meeting of the company on the requisition of members to call an
extraordinary general meeting of the company on the requisition of members holding at least 10%
of the paid-up capital of the company having share capital. It further provides that if the Board does
not within twenty-one days from the date of the deposit of valid requisition proceed duly to call a meeting
within forty-five days from the date of deposits of requisition, the meeting may be called by such of
the requisitionists as represent either a majority in value of paid-up share capital held by all of them
or not less than 10% of the paid-up share capital, referred to above, whichever is less.
In the given case, since the member who convened the meeting on the failure of the Board, being
one of the requisitionists held majority of the paid up capital of all the requisitionists and the
registered office is not made available to them, the meeting may be held anywhere else as held in R
Chattier v.M. Chettiar (Madras). Hence option (c) is correct.
Reason : The cheque should have been issued in partial or full discharge of a legally enforceable debt, but not
issued as a gift or to discharge a moral obligation. According to Section 138 of the negotiable
Instruments Act 1881, the payee or the holder in due course should make a demand for payment
within fifteen days of receipt of information of the dishonoured cheque. If the drawer fails to make
payment within fifteen days of receipt of the notice, the payee has to lodge a written complaint with
a first class judicial magistrate. The payee or holder in due course in the given case can not recover
the amount as the cheque was given for a moral obligation.
(a) The payee or holder in due course cannot demand payment from the banker.
Options in (b) and (c) can be complied with if the cheque was issued in partial or full discharge of
a debt.
The payee cannot recover the amount of the cheque as cheque was given as a donation. Correct
answer is (d).
Reason : Disclosure of interest in contract or arrangement — A director must disclose his interest or concern
in any contract or arrangement or any proposed contract or arrangement by or on behalf of the
company. Such interest should be disclosed to Board of Directors. [section 299(1)]. If the contract
or arrangement is between companies, i.e., the company in which the person is director and the
other company, the director is deemed to be interested in the contract only if he singly, or along
with other directors, hold 2% or more shares in other company. [section 299(6)]. While calculating
the 2% shares in other company, only investment of directors is considered. Investment of his
relatives is not to be considered. [This seems to be a loophole]. Hence, director ‘A’ in the instant
case did not violate any of the provisions of the Companies Act and the contract is valid.
Reason : In certain agreements, there are certain risks, which are impliedly accepted. In the present case also
Rahul though not agreed particularly, the purchase of ticket to watch the match implies that he is
ready for the risk attached to it. Hence the cricket board or the bats man or the management of the
auditorium are not liable for the loss caused to Mr. Rahul
Reason : ‘D’ acquires valid title to the cow. In the instant case sec.28 of the sale by one of the joint owners is
applicable. If one of the several joint owners of goods has the sole possession of them by permission
of the co-owners, the property in goods is transferred to the person who purchases them in good
faith, and has not at the time of entering into the contract of sale notice that the seller has no
authority to sell them. Hence, in the present case D, gets valid tile to the cow.
Reason : A subsidiary company cannot be a member of a holding company except that a subsidiary may.
1. Hold the shares in the capacity of a personal representative of a deceased member.
2. As trustee or continues to be a member of its holding company, either since the inception of
the Act or before it became its subsidiary.
Reason : Under Indian Contract Act, a minor is not competent to contract. Hence, a minor cannot become a
member of a company as one of the pre-requisities for such acquisition is an ‘agreement in writing’.
However, the Company Law Board in Nandita Jain v. Bennet Coleman Co. Ltd. Held that a minor
applying through his natural guardian for being registered as a member was entitled to be registered
as a member, if the shares are fully paid and the application is signed by the natural guardian. The
Punjab High Court has also held the same view for transfer of fully paid shares to minor. Therefore,
Anita can appeal against the refusal to the Company Law Board under Section 111 of the
Companies Act, if the company concerned is a private company or under Section 111A when the
company is a public company.
Reason : Viswanath is eligible to claim compensation for loss of office as he is a whole time director. He
is not eligible to claim compensation if he is a director.
Reason : A person at whose option the contract is violable may either rescind the contract or affirm it. In
case, he affirms it, the contract will be valid and binding on both the parties. In the given case Vijay
did not rescind the contract, but instead the offer of Anand to bear half the cost of repairs of
Rs.30,000. As such Vijay cannot cancel the contract or cannot get the money.
Reason : Under section 293 A of the Companies Act, Government company or a company which is in
existence for less than 5 years can not contribute to the political party.
Reason : Yes, the director in the present question can vote, it is general meeting and a director if he is
member of the company ,can vote at general meeting even if he is interested .The restrictions
u/297and 299 and 300 are applicable in connection with contracts in which he is interested are
applicable only in case of board meetings .In case of general meeting, the director can attend as a
member ,speak and also vote at the meeting .his attendance will be counted as quorum .The only
requirement is that his interest should be disclosed in the explanatory statement attached to the
notice of the general meeting.
Reason : In case of joint shareholdings one or more of them may require the company to alter or rearrange
the serial order of their names in the register of members of the company. In this process, there will
be need for effecting consequential changes in the share certificates issued to them. Since no
transfer of any interest in the shares takes place on such transposition, the question of insisting on
filling transfer deed with the company, may not arise. The Stock Exchange Division of the
Department of Economic Affairs has clarified that there is no need of execution of transfer deed for
transposition of names if the request for change in the order of names was made in writing, by all
the joint-holders.
In the given case, no transfer of any interest in the shares is involved. Therefore the question of
executing proper instrument of transfer to effect the change does not arise. A request signed by all
the holders (in the existing order and also proposed order) is sufficient which the Board of directors
can consider and effect transposition of names. Therefore the company’s demand for execution of
transfer deed is injustified.
Reason : The hospital cannot recover damages because an agreement in restraint of trade is void, after the
termination of his service.
Reason : Caveat exemptor means ‘let the buyer beware’. The doctrine is not applicable in cases where the
buyer ordered for a specific type or quality of goods. It is the duty of seller to supply only those
goods ordered by the buyer. In the given case the builder can reject the goods and claim damages as
the timber merchant supplied inferior quality of wood instead of best teak. Timber merchant cannot
plead the doctrine of Caveat emptor
(b) Builder need not accept the goods
(c) Builder need not take delivery of teak wood and pay the price.
Hence correct answer is (a).
Reason : When a transaction is settled because of the direct/indirect services of the agent, he will be entitled
to remuneration. In the given case Jayaraj has a right to claim his remuneration options (b), (c), (d)
and (e) are not correct.

Reason : U/s 283 of the companies Act if a directors absents himself from 3 consecutive meetings of BOD or
such number of meetings conducted during a quarter i.e. three months which ever is higher, then the
director concerned will vacate his office of directors automatically. In the present matter
Chidambaram did not attend from 1st October to 31 December 2003 and three meetings were conducted during
the period. Hence, Chidambaram deemed to have been vacated the office as director and company
need not send notice of Board meetings to Mr. Chidambaram. Hence meeting and resolutions are
valid.
Reason : U/s 17(A) of the Companies Act, 1956 shifting of the Registered office of the company with in the
same state but from the jurisdiction of on ROC to another ROC requires – passing of special
resolution in general meeting and confirmation of Regional Director
Reason : Once the sale is complete and the right on the goods is transferred from the seller to the buyer, no
longer the seller is responsible for the loss or destruction, or damage of the goods. The buyer has to
suffer the loss. In the instant case, Venkat purchased the T.V and kept the same in the very shop for
his own convenience. For the occurrence of the fire, the shopkeeper is not responsible in fact his
own goods are also burnt in the fire. Hence Venkat cannot compel the shopkeeper to give another or
pay the money what he has paid.
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Economic Legislation I 1004

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Economic Legislation I 1004

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Question Paper

Economic Legislation – I (161) : October 2004

(a) Promissory note (b) Bill of exchanges

(a) Stocks and shares (b) Actionable claims and money

(a) A company (b) A firm (c) A

I. The drawee is a fictitious person.

(a) One who is appointed to perform a special act

(a) No one can pass a better title than what he has

(a) Beneficially holds shares in the company

(a) Reduction of share capital (b) Issue of shares at discount

I. If it is revoked by the offeror at any time before its acceptance

(a) The future sale of present goods

(a) Rupees three thousand (b) Ten percent of the profits

(a) 45 days of such alteration (b) 30 days of such alteration

(a) Manager or secretary of the company if any

(a) Not Negotiable (b) State Bank of India

(a) Filing consent with Registrar to act as director

(a) Compromise can be a consideration for a contract

(a) Agent should disclose all material facts to principal

(a) The bankers of the company

(a) For making an application to NCLT for oppression and mismanagement

(a) Payment of interest out of capital (b) Removal of auditor

(a) Valid (b) Void (c)

(a) A Stock Exchange

8. Answer : (a) < TOP >

50. Answer : (d) < TOP >

54. Answer : (d) < TOP >

83. Answer : (b) < TOP >

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