KEY ANSWER – CONTRACT LAW

June 2010 Annual Examination

Part A
1. Mrs Puri had bought a precious stone from South Africa during her recent visit.
The stone was a wedding gift for Mrs Puri’s daughter. Mrs Puri handed over the stone
to Mr Chopra, a master in the art of cutting and polishing precious stones, to cut and
polish the stone for her. It was agreed that Mr Chopra would do the job within two
months time and have it ready for Mrs Puri before her daughter’s wedding. Mr
Chopra did an excellent job and had the stone ready in time. However, before he
could deliver it to Mrs Puri, the stone was stolen from a well protected safe in the
basement of Mr Chopra’s workshop. Consequently, Mrs Puri could not give the stone
to her daughter at her wedding. The thief was caught red-handed two days after the
wedding while selling the stone to a stone trader. Mrs Puri demanded the stone back
from Mr Chopra and refused to pay for the services rendered by him with respect to
the cutting and polishing the stone as penalty/damages for Mr Chopra’s failure to
return the stone in time which caused embarrassment for Mrs Puri since she could not
give it to her daughter as planned. Mr Chopra has approached you to seek advice.

You should advise on the following issues:
(a) Does a valid contract of bailment exist between Mrs Puri and Mr Chopra under the
given circumstances?
(b) Explain the general responsibilities of a bailee, and discuss whether Mr Chopra
could be held responsible for the delay in the delivery of the stone to Mrs Puri.
(c) State whether Mr Chopra is required to return the stone to Mrs Puri without
receiving the remuneration for his work. 20


Sec 148
Essential: delivery of possession, of goods, specific purpose, on condition that it will
be returned.
Kaliapourmal Pillai v Visalakshmi
Sec. 150 Duties of bailor
Gratuitous bailor v/s bailor for reward
Maffat v Bateman
Reed v Dean
Duty of reasonable care
Union of India v Udho Ram and Sons
Remedies

2. Kaka Palay, a 17 year old footballer was playing for Everton Football Association.
He was a promising footballer and it was predicted that Kaka will play for his country
and for big football clubs in years to come. In J anuary 2000, WorldNet an Agency
service Company entered into a Exclusive Agency Contract with Kaka and took
responsibility of his advertisements and endorsements. The agreement was for 2
years.
In J une 2002, prior to the expiry of the 2 year contract with WorldNet, Kaka who had
turned 18 decided to enter into another Exclusive Agency contract with Prime Sports,
who were offering him better endorsement and financial gains. Kaka’s father Mr.
Samuel wrote to WorldNet about Kaka’s intention to terminate the agreement.
WorldNet approaches to the Court based on two issues:
1. They claim that the agreement with Kaka [who was a minor] was for his
necessaries of life and hence is valid and enforceable.
2. WorldNet also states that they must be permitted to claim damages from Prime
Sports in tort. WorldNet alleges that Prime sports had induced Kaka to commit
breach of contract with them and hence Prime sports must be held liable for
payment of damages to the extent of Rs 50 lakh.

Discuss the liability of Kaka in this case and also the liability of Prime Sports in case
of inducing breach of contract.
20

Contract entered in Jan 2000, effective dated of the contract was later in the same
year [effective date and expiration date]
Sec. 10
Latent and patent incapacity
Position of minors in contract
Mohoribibi v Dharmodas Ghose
Khan Gul v Lakha Singh
Minor liable of necessaries of life
Chappel v Cooper
Minor liable under various labour laws/service contract
Liability for inducing breach of contract: If proved
Sec. 27 Agreement in restraint of trade.
Gujarat Bottling case

3. Aavni wants to sell her house, which in the market is priced at 30 lakh. She sends
letters to two of her friends offering and expressing her willingness to sell the house
to them if they are interested. She makes a preferential bid to her two friends and
invites them on 3
rd
October 2009 at her house for an auction sale. Aavni prefers to sell
the house in the auction -‘without reserve’.
On 3
rd
October, Bharati and Chaitra come to Aavni’s house and start the bidding
process. The highest bid was claimed by ‘Bharati’ at Rs 20 lakh and the Auctioneer
puts down the hammer the third time at Rs 20 lakh. Aavni is unhappy with the price.
She suspects foul game by her two friends. She alleges that the two friends have
colluded to rig and lower down the price, deliberately to defeat competition. Aavni
refuses to accept the final bid amount and perform the contract.
Bharati sues Aavni for breach of contract and is seeking the remedy of specific
performance from the Court. Advise Aavni.
20
Essential of offer and acceptance
Mail box rule
Essential of auction sale
Customary practices in auction
With reserve and without reserve
Fair procedure in auction
Cartel, rigging, anti competitive bids: liable for rejection
Breach of contract and liability of parties



Part B
Answer Any 4 [4x10]
1. ‘Mere consent is not enough to constitute a valid contract; it should be free
and voluntary, so that the contracting persons can subject themselves to the
binding obligations that are created by the contract’. J ustify the above
statement with the help of case law.
Key: sec. 10, 15, 17, 17 and 18, 20 and 22.
Ranganayakamma v Alwar Chetty
Chikkam Ammiraju v Chikkam Seshamma
Allcard v Skinner
Fiduciary relations
Uberrimae fidei
Silence as a means of frau0d
Derry v Peek
Bell v Lever Brothers Ltd
Philips v Brooks

2. Explain the below para:
According to sec. 55, when there is a promise to do a certain thing or certain
things at or before a specified time, and the promisor fails to perform before
the specified time, the contract or so much of it as has not been performed
becomes voidable at the option of the promise, if the intention was that time
should be the essence of the contract. If such was not the intention, the
contract does not become voidable, but the promise is entitled to compensation
for any loss. If, in such a voidable contract the promisee accepts performance
at any time other than agreed, he cannot claim compensation for any loss
unless at the time he accepts performance he gives the promisor notice of his
intention to so claim.

Sec. 55
China Cotton Exporters v B R c Mills
Bhudra Chand Betts
Mahabir Prasad Rangta v Durga Datta
Hind Construction Contractors v State of Maharashtra

3. Under the contract of Guarantee, examine the rights of a Surety with the help
of case law
Sec. 126
Sec. 140 [Subrogation
Sec. 145 [Indemnity]
Sec. 147 [contribution]
Mamata Ghose v United Industrial Bank
Right of share reduction
Right of set-off
Right against co-sureties Sec. 138

4. Examine the various situations under which a Contract of Agency comes to an
end.
Revocation by Principal
Read v Anderson
Renunciation by Agent
Agreement
Performance by Agent

Termination by Operation of Law
By Efflux of time
Death of the parties
Insanity of the parties
Insolvency of the parties
Destruction of the subject matter
Agency business becoming unlawful
By termination of agent’s authority

5. Write a brief note on ‘Anticipatory Breach’.
Hoschster v De La Tour
Frost v Kinght
Sec. 39

6. Write a note on ‘counter offer’
Sec. 2 b: Acceptance
Conditional acceptance
General principles of offer and acceptance
McPherson v Appanna



1
NATIONAL LAW SCHOOL OF INDIA UNIVERSITY
BANGALORE
MASTERS IN BUSINESS LAW EXAMINATION – JUNE 2010
BANKING LAW AND PRACTICE-Key Answer
Total Marks –100
Time – 3 hrs.
INSTRUCTIONS –
i. Students are expected to rely entirely upon the question paper as it
is, and respond to it. Clarifications can be sought;
ii. No bare acts are allowed to be consulted during the examination;
iii. Mobile phones are strictly prohibited inside the examination hall.
Any one found in possession of same will be subject to disciplinary
proceedings;
iv. ANSWER ANY FIVE QUESTIONS;
v. All questions carry equal marks.
------------------
1. Answer the following in brief
a. Regulation of foreign banks (in addition to domestic banks);
i. ‘Standing’ and ‘stability’ of all the banks is extremely
critical for overall strength of financial sector hence,
banks are to be regulated; and more so the foreign
banks;
ii. Foreign banks are those which are incorporated outside
India and have their branches (or banking business in
India);
iii. Entry point barrier (through license U/s 22 of Banking
Regulation act) – whether carrying on of banking
business is in the public interest? – Whether the origin
country discriminates any banking company registered in
India – whether the company complies with the
provisions of the BR act as applicable to foreign
companies;
iv. Sec. 17 – Reserve Fund to be created – the foreign banks
shall deposit 20% of their deposits with RBI every year; -
the amount may be in cash or in unencumbered
approved securities

b. RBI’s power to regulate commercial banks.
i. At the point of entry – s.22 –
ii. At the time of expansion of branches (s. 23)
iii. Capital & Reserve [S. 12(1)] – subscribed capital shall
not be less than 50% of the its authorized capital; - paid
up capital shall not be less than 50% of its subscribed
2
capital – the capital structure is changed then these
proportions shall also be changed.
iv. Sec. 21 – directions regarding advances – the purposes
for which the advances may or may not be made –
margins to be maintained – the maxim guarantee – rate
of interest and other terms & conditions for making
advances
v. Sec. 35A – general power to issue directions, which are
binding upon the banks
vi. Sec. 36 the RBI may caution and advise the bank;
vii. Sec. 17 creation of reserve fund – not less than 20% of
the profit has to be transferred to its reserve fund.
viii. Sec. 42 – cash reserve to be maintained – 3% to 20% daily
balance of the total demand deposit and time deposits –
as specified by the RBI from time to time;
ix. RBI also provides for additional cash reserve (however
not exceeding the ceiling of 20%)
x. S. 24 – maintenance of liquid assets – not exceeding 40%
of the total demand and time liabilities in cash, gold or
unencumbered approved securities
xi. Sec. 29 – regulation regarding accounts and audit.

2. Explain the following
a. Paying and collecting banker; including the protection
envisaged under negotiable instruments act;
i. Paying banker is one who is expected to pay under the
‘cheque’, either to the payee directly, or to the
collecting banker;
ii. There is protection envisaged under Negotiable
Instruments Act, for paying banker under sec. 10, 85
and 89 – Where as S. 10 talks about the ‘payment in due
course’ S. 85 specifically deals with specific protection
available to the ‘paying banker’
iii. And it states that the banker is dischared from his duty
when he makes payment in due course either to the
holder in due course, if the cheque is order cheque or to
the bearer of the instrument, if the cheque is a bearer
cheque. Finally s. 89 deals with altered instruments and
payment made there under.
iv. Collecting banker is on who is causing the proceeds of
the cheque collected from – the paying banker on behalf
of his customer
v. If the cheque is crossed one then it is imperative that,
the cheque must be collected through the intervention
of the collecting banker;
vi. He is also protected under the NI act.
vii. Cases which may be cited in support of this answer
1. Bhatoria Trading Company v Allahabad Bank, AIR
1977 Cal. 363;
3
2. Madras Provincial Co-operative Bank Ltd., v
Official Liquidator, South Indian match Factory
Ltd., AIR 1945 Mad. 30;
3. Bank of Maharashtra v Automotive Engineering
Ltd., (1993) 2 SCC97;
4. Canara Bank v Canara Sales Corporation & Others
(1987) 2 SCC 666.
b. ‘Holder’ and ‘holder-in-due course’.
i. Holder’ is one who is (s. 8 of the Negotiable Instruments
Act)
1. –Entitled in his own name to the possession of the
instrument; and
2. –Have the right to receive or recover the amount
due thereon from the parties thereto.
ii. Otherwise a ‘holder’ means –
1. –The payee; or
2. –The bearer; or
3. –The endorsee of an instrument
iii. Holder in due course is a person – who takes an
instrument in “good-faith and for value” - And he
becomes the true owner of the instrument and is known
technically as ‘holder in due course’
iv. Holder must have taken the instrument for value
[consideration]
v. Must have obtained the instrument before its maturity
vi. Instrument must be complete and regular on its face;
and
vii. Must have taken the instrument in good faith and
without notice of any defect either in the instrument of
the title of the person negotiating it to him
viii. The development of English law on the point of good-
faith may be explained with the assistance of
1. Brooks v Mitchell (1841)
2. Miller v Race etc.,
ix. Finally the wordings of Indian Law – “However, under
the Act, the words used in sec. 9 are ‘without having
sufficient cause to believe’ therefore, the legislature
seems to have intended to make due care and caution
on the part of the holder, a test of his bona fides and
that mere good faith on his part would not suffice.
Accordingly, it seems negligence on the part of a holder
at the time of taking a negotiable instrument, would
disentitle him to the rights of a holder in due course.
There will be sufficient cause to believe in the existence
of defects if the holder was in fact negligent or
careless, though he was acting honestly and in good
faith….” – Khergamwala


4

3. Write short notes on the following
a. Banking Ombudsman Scheme;
i. The scheme prepared and implemented by the RBI
1. First with the active assistance of all banks
ii. –Now (in a sense) entirely by itself
1. Legislative power to introduce and implement the
scheme
2. Sec. 35A, Banking Regulation Act, 1949
iii. the present scheme came into force from January 1,
2006
iv. First introduced in 1995
v. Revamped in the year 2002
vi. Enlargement of the process in 2006
1. “being satisfied that, it is necessary in public
interest and in the interest of banking policy to
enlarge the extent and scope of the authority and
functions of Banking Ombudsman for redressal of
grievances against deficiency in banking services,
concerning loans and advances and other
specified matters…”
vii. Amendment in the year 2007 (May)
viii. The Scheme (as updated from time to time) provides
1. a forum to bank customers to seek redressal of
their most common complaints against banks,
including those relating to
2. credit cards,
3. services charges,
4. promises given by the sales agents of the banks,
but not kept by the banks,
5. delays in delivery of bank services.
ix. 15 Banking Ombudsmen have been appointed
1. offices located mostly in the State Capitals
x. Coverage of the Banks –
1. All Scheduled Commercial Banks,
2. Regional Rural Banks and
3. Scheduled Primary Cooperative Banks
xi. Appointment, qualifications of the ombudsman and
general procedure of resolving the complaint.
b. Banker’s Book Evidence law.
i. in certain respect modifies, and in few other respects
supplements, the provisions of the general law of
evidence
ii. Most notably, it permits certified copies of certain
books of bankers to be given in evidence without
summoning the original
iii. This is to facilitate Banker’s working generally
iv. “Bankers’ books” include
1. ledgers,
2. day-books,
5
3. cash-books,
4. account-books and
5. all other books used in the ordinary business of a
bank;
v. “Legal Proceeding” means
1. any proceeding before the court or
2. Inquiry being conducted by the authority
competent for that
3. in which evidence is or may be given and
4. Proceedings of arbitration.
vi. “Certified Copy” means a copy of any entry in the books
of a bank together with certificate written at the foot
of such copy that
1. it is a true copy of such entry,
2. that such entry is contained in one of the
ordinary books and was made in the usual and
ordinary course of business, and
3. that such book is still in the custody of the bank,
4. and if the copy was obtained by a mechanical or
other process that, in itself ensures the accuracy
of the copy, a further certificate to that effect.
5. If after taking out the copy from the books of the
bank, the original books are destroyed in usual
course of the bank’s business a further certificate
to that effect of having destroyed the book is
necessary.
6. Each of such certificates above should be dated
and subscribed by the principal accountant or
manager of the bank with his name and official
title.
vii. If the concerned record is maintained in electronic
form—
1. Consists of printouts of data stored in a floppy,
disc, tape or any other electromagnetic data
storage device; or
2. A copy of such printout;
3. And it should contain a certificate having all the
applicable contents detailed above.
4. If the record is maintained in mechanical form
5. A printout of any entry in the books of a bank
stored in a micro-film, magnetic tape; or
6. Any other form of mechanical or electronic data
retrieval mechanism obtained by a mechanical or
other process;
viii. And it should contain the certificate having all the
applicable contents detailed above.

4. Write short notes on the following
a. Legal status of the passbook;
6
i. Pass book is issued to bank’s customer, who generally
keeps savings account
ii. In case of current accounts – it is issued only upon
demand by the customer
iii. Pass book is replica of the ledger at the bank branch
iv. In case of current accounts statement of their accounts
are given to them periodically (daily, weekly,
fortnightly etc.)
v. Entries made in the pass-book
1. Two prominent thoughts –Once the passbook
entry is made and passed on the customer – he
shall verify and raise objection if any – afterwards
the entries made in the passbook shall be treated
as final –Passbook entries are for general
convenience hence, the entries can be
questioned any time by the parties
vi. Entries favouring the customer
1. “the passbook … belongs the customer and the
entries made in it by the bank are statements on
which the customer is entitled to act…” – In
Atlantic Mines Ltd., v Economic Bank [(1904) 2 KB
471]
2. If the position of the customer has not been
adversely affected, by relying upon the
passbook, the banker may rectify it (within
reasonable time)
3. A fictitious entry made by a bank employee
cannot be relied upon by a customer
4. Example – State Bank of India v Shyma Devi, AIR
1978 SC 1263
vii. Entries favouring the bank
1. The proposition of law is extremely difficult to
make in this regard
2. Therefore the following few points in this regard
are to be taken into account (all these points
arise out of decisional law from time to time)
viii. Interesting point is when the customer has acted on the
basis of a wrong entry (favouring the customer) and
then shifted his position to his detriment – then what
would be the situation?
b. Banker’s duty to maintain secrecy (of customer’s account).
i. ‘banker is a privileged creditor’ – in some special sense
the customer is also privileged in some sense
ii. The banker is obligated to maintain the secrecy of the
customers accounts
iii. ‘…the duty to maintain secrecy is an added obligation or
an exception to the general rule that the relationship
between a banker and the customer is that of a debtor
and creditor…’
7
iv. May be it has woven in to the banking tradition from
time immemorial
v. All employees and officers of the bank have to sign and
submit a declaration of fidelity and secrecy at the time
of their joining service
vi. The Exceptions
1. Where the disclosure is under compulsion of law;
2. Where there is a duty to the public to disclose;
3. Where the interests of the bank require
disclosure; and
4. Where the disclosure is made with the express or
implied consent of the customer
vii. Some specific reference to the disclosure under the
Banking Regulation Act.

5. Write short notes on the following
a. Banker’s lien;
i. The general concept of lien;
ii. Categories of lien;
iii. The banker as a person enjoying special lien
iv. The extent of his exercise over his customers accounts,
goods etc.,
b. Consortium lending.
i. The challenge
1. Meeting the credit needs of borrowers (which are
ever increasing); and
2. Safeguarding the lender from (various risks)
ii. To meet the said challenge ‘consortium lending’ gained
prominence over the last century
iii. It is a mechanism by which single borrower is financed
by multiple lenders (generally who are related to each
other in many ways)
iv. The consortium lending has grown immensely in all over
the world (including India)
v. But.. There are some challenges
1. Improper (or no) regulations
2. Lack of guidelines by the regulatory agencies
vi. Indian system has no dedicated legal framework to
regulate consortium lending
1. Hence we have to have piecemeal approach
vii. The main law is ‘law of contracts’
viii. There is very little ‘decisional law’ on the point
1. As consortium lending in India has not faced much
of litigation as of now
ix. But… there is some amount of ‘soft law’ on the point
x. In 1973 RBI set up a study group to develop a policy
xi. The study groups strongly supported the development
and accepted this as a foundational aspect of banking
xii. Based on the report of the study group the RBI
developed certain guidelines
8
xiii. RBI Guidelines
1. Large credit amounts to any borrower in the
public or private sector, in excess of 1.5% of
bank’s deposits, should be extended as
consortium loan
2. Where multiple lenders exist, with no consortium
arrangement, a procedure for the coordination
between different lenders and an exchange of
information should be evolved
3. All consortium lending should try to fulfill all the
credit needs of the borrower so as to prevent
multiple consortium being formed
4. The bank with the maximum credit limit should
act as the agent bank
xiv. Reinforcement of the guidelines by the RBI
1. The share of each bank in the consortium should
not be less than 10%
2. The lead bank must be given the responsibility for
appraising the borrowers credit requirements
3. The terms and conditions under the consortium
should be the same for all members
4. The formation of the consortium was obligatory
where the credit limit sanctioned by many banks
to a single borrower exceeded Rs.5 crores
5. The total drawing from each of the banks in the
consortium must be proportional to the ratio of
sharing
6. Finally in 2007 – the role of RRBs was also
highlighted by RBI in consortium lending


6. Write short notes on the following
a. Debt recovery tribunals;
i. The banks experienced considerable difficulties in
1. Recovering loans; and
2. Enforcement of securities charge with them
ii. Significant portion of bank funds were blocked
iii. Successful implementation of financial sector reforms
1. Speedy recovery of advances
2. Rapid adjudication of such matters
iv. The Narishmam Committee on Financial Systems and
v. There were few committees recommended for
1. Setting up of a Special Tribunal for the purpose
vi. Keeping in view of the recommendations – Bank and
Financial Institutions Bill, 1993 was introduced in the
Parliament
vii. There are two layers
1. The Debt Recovery Tribunal
2. The Debt Recovery Appellate Tribunal
9
viii. The Central Government is authorized to establish both
these tribunals
1. They can go for establishing multiple tribunals as
the case deserves
ix. The tribunal’s composition;
x. The jurisdiction of the tribunal;
xi. Procedure of the tribunal; and
xii. Few reference to the constitutionality of these
tribunals.
b. Letters of credit & banker.
i. The concept of letters of credit;
ii. The issueance of letters of credit;
iii. General banking practice with regard to same;
iv. And some decisional law on the point.

7. Solve the following problems
a. ‘A’ is the Chief Accountant at NAL Ltd., a software company,
which banks with Axis Bank. ‘A’ is generally responsible for
almost all banking transactions of NAL Ltd. During the date of
his retirement, he withdraw Rs.50,000 by forging the signature
of his CEO. The NAL Ltd., wants to hold the bank responsible
for this loss – Decide.
i. Here the NAL Ltd., would be able to recover the loss as
the cheque was forged one.
ii. The authority on the point is Canara Bank v Canara Sales
Corporation – where the SC has held that, if the cheque
is forged there is no mandate on the banker to make the
payment and the said situation is different from the
protection which is envisaged under the statute for his
favour.
b. ‘A’ makes a promissory note in a stamp paper sufficient for
Rs.1,00,000 – but without stipulating the amount and the date
of making the note. However, ‘A’ actually owes only
Rs.75,000 under the instrument. The holder of the said note
fill the promissory note for Rs.1,00,000 and endorsed the same
to another person Mr. ‘X’. Does Mr. ‘A’ obligated to pay
Rs.1,00,000 to Mr. ‘X’.
i. Here Mr. A is obligated to pay the entire amount of
Rs.1,00,000 to Mr. X.
ii. When there are blanks left un filled they can be filled
later on etc.,
-0-0-0-0-0-0-0-0-0-0-0-

1
KEY ANSWER – CORPORATE LAW-
June 2010 Annual Examination


PART – A

1. a) Steps to be taken

(1) Name & approval of the name by ROC (See S. 20)
(2) Preparation of the Constitutional documents(MOA & AOA) printed and duly
stamped complying with requirements of Sections 13 to 15 (MOA), Sections
26 & 27 (AOA)
(3) Signing these documents by the Subscribers (Minimum 7) and Compliance of
S. 33(2). Attestation of the signatures of Subscribers
(4) Presentation of the documents to ROC, after payment of the registration fee
stipulated in schedule X
Articles to contain a provision empowering the Board of Directors to enter
into a contract for the purchase of the property from the promoters.

1. b) Further Steps

(1) Since the Promoters and associates can provide only part of the amount
required for the Commencement of business, a public issue is necessary. For
this a Prospectus satisfying the requirements of section 56 etc and Schedule
II is to be registered with the ROC. The Prospectus should contain full
disclosure with respect to the purchase of property from promoters.
(2) If Minimum Subscription requirement is satisfied, allotment may be made.
(S. 69 and 73 requirements to be complied).
S. 75- Return on allotment to be filed with ROC.
75 (1) (b) to be satisfied
Section 149 (2) requirement to be complied with. (Trading certificate)

1. c) Purchase of property

- AOA to contain the provision that the Company may enter into the
contract for the purchase of the property identical with the agreement but
A & B on One part and other promoters on the other.
- Board Resolution adopting the contract and intimating the Vendors in
Writing about this.
- Refer S. 15 & 19 of the Special Relief Act, 1963.


2. a) Two Situations

(i) The Object clause in the MOA Contain a provision for carrying on the
hotel Business (other Object)
If so, S. 149 (2A) or (2B) as the case may be is to be satisfied,
2
(ii) The Object clause does not at present contain the hotel business. Then
the object clause has to be altered complying with requisites of Sections
17 and 18.

2. b)
If the Object clause is not amended the proposed transaction is ultravires the
company. A member has the locus standi to seek an injunction remedy
preventing the parties from proceeding with the transactions.
Even if the contract is executed the court may declare the contract null & Void.
In such a case equitable remedies would be available to the parties.
If the Company enters into an ultravires contract, the directors will be liable to
the company and third party to pay damages. As regards the claim by the other
contracting party, the directors may plead constructive notice of the MOA which
would reveal that the transaction is ultra vires.

3.
Relevant Statutory Provisions- Companies Act, 1956- Section 64,
Whether the Company can be made liable for the prospectus published by ‘S’
Liability in respect of the ‘expert opinion’.
Sections 57, 58, 59- Whether expert liable
Criminal Liability. Section 63- Who can be fastened Liability?
Defences – Burden of Proof

4. a)
See Section 45
A public Company with 12 Members. After the accident, membership of the
Company reduced to 6. Still the company continued to carry on business with
membership less than the statutory minimum of 7 & 45 is attracted.
In respect of the debts incurred by the company 6 Months after the date on which
the membership is reduced below the statutory minimum (April) all the members
who are aware of the fact will be personally liable to the creditors
Examination of whether the two transactions viz
(1) Loan from canara Bank and
(2) Amount due to the construction Contractor fall within the ambit of S. 45.

4. b)
Here also the issue is whether the doctrine of lifting the veil applies to fasten
liability
(1) On the holding Co. X & Y Ltd. On the ground that both the Companies are
one and the same economic entity and also on the principles laid down in
Smithstone & Knight v. Bermingham Corporation
(2) Vivekanandan as the shadow director of the Company and the person actually
carrying on the business as the subsidiary Co. and the holding Co. are mere his
instrumentality and that it was he who really carried on the business.
(3) Other Directors for the loss caused to the plaintiffs on account of their failure
to discharge their duties of due care and skill and exercise of unfettered
discretion.



3




PART - B

1. a)
Examine the ambit of Section 36. The Provisions of AOA as such are not
contractual terms between
(a) Company and outsiders
(b) Company and members in respect of matters which do not affect the rights or
liabilities members as members.
In other words S. 36 does not cover outsider rights. But they may be the basis of
an implied Contract between Company and outsider. In such cases the parties (i.e.
the company and the other contracting party) may refer to them. But the company
can alter these provisions (See S.31) without the consent of the other party. Such
alteration would not be treated as a breach of contract by the company. The reason
is that the parties have presumed to have consented that the implied contract is
liable to be altered by the company without the consent of the other contracting
party. The only gloss on this that by such alteration the accrued rights of the other
party cannot be affected.

1. b )
(1) No alteration having the effect of increasing the liability of the existing
members without their consent (exception S. 38).
(2) ‘Class Rights’ cannot be varied without the consent of the affected class as
provided in S. 106.In certain cases class rights cannot be varied at all.
(3) No alteration which is a “fraud on the Minority”. (For the meaning of the term
and the scope of the exception see the leading cases- Allen v. Gold Reef,
Greenhalgh v. Arderone Cinemas Ltd, Peter American, and Gambatto).

2. a)
Chairman responsible for the orderly conduct of company meeting. He has duties
derived from common law, Statute (Companies Act) and AOA.
He is responsible for the orderly conduct of the meeting. He must be impartial.
His duties are of a quasi fiduciary nature. He has suo moto powers in regard to the
orderly conduct of the business of the meeting including adjournment.

2. b)
EGM on requisition- Sec 169
(1) Within 21 days of a valid requisition being made by these members who
satisfy the requirements of s. 169(4) the Board shall take steps for the calling
of the EGM which is to be held within 45 days of the receipt of the notice.
Failure to do so is an offence by virtue of s. 629 A. The Board has no
discretion in this matter.
(2) If the Board fails to call the EGM within the time specified in S.169 (6) , the
requisitionists themselves , or such of them who satisfy s. 169 (6) (b) or (c)
may call the EGM. Such meeting shall be held within 90 days of the date of
requisition being received by the company.

4
3. a)
See Gover: 6
th
ed., P. 610-623
The three divisions made therein
(1) Transaction with the company
(2) Use of Corporate Opportunity
(3) Competition with the Company
The Relevant case law is to be examined:
(a) Aberdeen Railway Co. and other cases
(b) Regal Hastings, Industrial Development Consultants Ltd v. Cooley, Canadian
Aerospace, Boardman v. Phipps etc.

3. b)
Floating Charge- Distinction from fixed charge- Impact of S. 534.
Two theories:
(1) Licence theory and
(2) Mortgage of future assets theory
Distinction between the two
Negative Covenant
Meaning
- Priority list earlier floating charge and subsequent legal mortgage.
- What is the effect of Subsequent mortgagee’s Knowledge of earlier floating
charge.
- Whether Constructive notice will operate to impute Knowledge. ( S. 125)

4. a)
Allotment – One of the two devices which a person becomes a shareholder.
Allotment- Original Transfer
Company creating new shares and issuing the same to those persons either
Apply for them or accept the offer made by the company.
See the scope of sections 69 and 70.
Effect of irregular allotment- The allotment voidable at the option of the allottee
Allotment- Original title
Transfer and transmission- derivative title.
Sections 69 & 70 apply to a public company only.

4. b)
Section 299 to be read with S. 300
Extension of the principle of fiduciary duties of the directors.
- Envisages that the directors should disclose their personal interest in any
transaction- Contract or other arrangement to the Board
- Not to participate in the discussion of the matter by the Board: not to Vote
etc.
- Exception: see section 300 (2)
- The concerned director’s presence will not be considered for quorum
requirement.
- Failure to comply with the requirement (see S. 299(4) & (5)
- Companies to which S. 299 applies
See S. 299 (4) & 299(6)


5
5. SHORT NOTES

a) Declaration of Solvency
See S. 488
Consequences of not filing the declaration of solvency- The voluntary winding
up can be only creditor’s Voluntary winding up.
Declaration of solvency to be accompanied by a copy of auditor’s report.
Declaration of solvency shall not be earlier than 5 weeks before the special
Resolution to wind up the company voluntarily.

b) Preference shares
Where any of the principal rights attached to a share different from those of
another legally they belong to two different classes- The Principal rights are:-
(1) Voting rights
(2) Right to dividend
(3) Return of Capital either on reduction of capital (S. 100 etc) or in the
winding up.
(4) Right to the surplus assets in winding up as regards public Companies
and subsidiary private Companies .Sections 85 to 90 apply.

c) ‘ Squeezing out’ of the minority
The right of an offeror Company to compulsorily acquire the shares of the
minority shareholders satisfying the requirements of S. 395. The dissenting
minority have also been given certain legal rights and remedies by the section.

d) Illegal association
See S. 11: The Principle of compulsory incorporation. The maximum strength
permitted for an unincorporated business association is 10 (Banking) or 20
(Non Banking association).
Consequences of violation of S. 11 request
(1) Penal liability fastened on members
(2) Personal liability on them for the debts and liabilities incurred by the
unincorporated body.
(3) Neither the association nor members can sue the third parties.



********
National Law School of India University
Bangalore
M.B.L. Part I Annual Examination (June) 2010
INDUSTRIAL RELATION LAW
I. Answer any six of the following:
Ql. Define 'Industry'. Explain in brief with the help of decided Cases.
Ans. Section 20) of ID Act, 1947 - Analysis-Supreme Court cases delineating the
definition.
Important cases - D.R.Baneerjea vis P.R.Mukherjea.
Corporation of City of Nag pur Case.
Hospital Mazdoor Sabha Case.
Safdarjung Hospital Case.
Solicitors Case.
University of Delhi vis Ramnath.
Harinagar Cane Sugar Farm vis State of Bihar.
Madras Gymkhana Club Case.
Bangalore Water Supply and Sewage Board vis A.Rajappa.
Coirboard vis Indiradevi.
Jalbir Singh Case.
Reference to Amended definition of 1982.
Q2. What is collective bargaining? Explain different methods of collective bargaining
recognised by law.
Ans. Defir,ition of Collective Bargaining by different scholars - Analysis-Methods of
collective bargaining provided by ID Act, like Works Committee, Conciliation -
reference to tools of collective bargaining like strike and lockout - Joint Working
Committee, etc.
Q3. Examine the scope and the extent of immunities of registered trade unions with the
help of decided cases.
Ans. Reference to Ss. 17 & 18 - detailed analysis - requirements to avail immunity -
reference to decided cases.
Important cases - Law of Trilogy
Moghai Steam ship company case, Allan vis Flood, Quin vis Leathem.
Rotas Indutries vis Staff Union, any other Indian cases.
i
!
I'
Q4. Explain in brief different methods of resolution ofIndustrial disputes as provided
under the Industrial Disputes Act, 1947.
Ans. Trace the method adopted to resolve the Industrial disputes - show the movement
from voluntary settlement to compulsory adjudication of Industrial disputes.
Make reference to authorities provided under the ID Act, 1947. viz, Works
Committee, Conciliation (Conciliation Officer and Board of Conciliation) Court of
Inquiry, Grievance Settlement Authority, Arbitration and Compulsory Adjudication
(Labour Court, Industrial Tribunal and National Tribunal).
Critical assesment and analysis of working of the system.
Q5. Critically examine the regulation of managerial prerogatives in an industry.
Ans. Audit of provisions relating to regulation of managerial prerogatives like
a. Notice of change under Section 9A.
b. Provisions regulating employer's right to layoff, retrenchment and closer of
Industry.
c. Works Committee.
d. Ss. 33, 33A & 33C.
and other provisions.
Q6. Define' Appropriate Government'. Critically evaluate the role of' Appropriate
Government' in maintenance of industrial peace.
Ans. Definition of 'Appropriate Government' uls 2(a)-Analyze with the help of decided
cases - Critically evaluate the role of 'Appropriate Government' in maintaining Industrial
peace with reference to power of reference of ID, publication of award, regulation of
strikes and lock outs and so on.
Q7. Define 'Industrial Dispute' and explain its scope with the help of decided cases.
Ans. Definition of Industrial dispute uls 2(k) - Analysis - Individual Dispute vis
Industrial dispute - requirements for Individual Dispute to become Industrial Dispute
with the help of decided cases - reference to section 2A and its analysis - Interpretation of
'any person' .
Q8. Critically evaluate the vanishing role of Trade Unions in the era of globalization.
Ans. Trade unions and globalization - Trace the origin and growth of trade unions with
reference to the objects of trade unions - return of lesseize faire era and the changed
scenario with reference to trade union movement - individualized contract contributing to
, I
I
I
I I
the weakened social security and term security as the evils of the globalized era and the
like aspects may be discussed.
II. Write short notes on the following.
A. Kinds of Strikes.
a. Tooldown, stay in strike.
b. Go slow
c. Hunger strike
d. Sympethic strike.
e. Lighing strike - Analyse the nature of these strikes with reference to decided
cases, if any.
Test the validity of these strike u/s 2(q).
B. Funds of registered Trade Union - general fund & political fund - nature of
contribution towards these funds - objects for which these funds may be spent -
effect upon rights of the members not contributing to the political funds.
C. Industrial Employment Standing Orders - meaning, definition and objects of
Standing Orders -
Certification of Standing Orders - notice to workers about Standing Orders, etc.
D. Unfair labour practices - meaning & definition - prohibition & penalty for unfair
labour practices
u/Ss. 25T & 25U r/w V schedule to ID Act, 1947.
I
, I
KEY ANSWER- ENVIRONMENTAL LAW
June 2010 Annual Examination


PART-A

1.
 Powers
1. Powers of Entry;
2. Inspection;
3. Taking samples;
4. Consent;
5. Launching Prosecution;
6. Instructing the other agencies of state (Water supply, electricity, etc.);
7. acting on complaints;
8. requiring Information disclosure;
9. Enforcement of standards and
 Functions
1. Creating awareness
2. Education
3. Building capacity and
4. Extending technical assistance & Expertise.


2.
 Significance of Biological Diversity:
1. Ecological Balance;
2. Source of food;
3. Source of medicine;
4. source of livelihood ;
5. article of commerce;
6. Life-support and carbon sink
 International Legal Developments:
Convention on Biological Diversity, 1992 & Biosafety Protocol 2000-Salient features
and Evaluation.

3.
 Umbrella Law: Analyse S.24 & S.26 of EPA, 1986- Status of Rules,
Notifications & Authorities- same as that of EPA (Aqua culture Case).
 Background: Stockholm Conference 1972 & Bhopal Gas Tragedy 1984. Need
for a law to deal with environmental problems.

4.
Waste Management Laws in India:-
Rules for different types of wastes( Municipal wastes; Hazardous Substances;
Hazardous Microorganisms; Hazardous Chemicals; Chemical Accidents; Bio-medical
wastes; Lead Acid Batteries etc)
- Obligations of waste Generator, Transporter and Disposer
- Waste Segregation, Labelling and handling
- Application of principles of Polluter Pays and Precaution.




5.
Common Law & Pollution Control:
- Nuisance- Public and Private;
- Sic utere tuo ut alienum non loedas
- Negligence
- Strict Liability- No fault Liability- Absolute Liability- Public Liability
Insurance Act, 1991.

6.
Environmental Summits
- Stockholm, 1972: Human Environment – Idea of UNEP- reflections on
Environmental Crisis- Environment Day-Commitment to enact and enforce
national Environment Protection Laws.
- Rio de J aneiro, 1992:Environment & Development: Rio declaration;
CBD;UNFCCC; Forestry Principles: Agenda 21; Commission on Sustainable
Development
- J ohannesburg, 2002: Sustainable Development- Participation of Industry and
Civil Society Organizations- Review and Revision of environment Protection
goals- Continuation of the good work of the II summit.



PART- B
7. a)
Analyse Sections 16 &17 of EPA, 1986.
7. b)
Individual right to initiate legal proceedings: Analyse S. 49 of water Act, 1974.

8. a)
Public Trust: Analyse M.C Mehta v. Union of India (Kamalnath, 1997) - Article
48A of the Constitution.
8. b)
Precaution: Concept & Analysis- Analyse Vellore Citizens Welfare Forum v.
U.O.I (1996)

9. a)
Wildlife Protection Act: Analyse the basis; classification; Authorities & their
functions- 2002 Amendment and impacts of the law.
9. b)
Trail smelter Arbitration- Case of Transborder Pollution and fixing liability- case
between Canada &U.S- Analyse.