Intermediate Examination: Suggested Answers To Questions

SUGGESTED_ANSWERS TO QUESTIONS_SYL2016_DEC2019_PAPER-6
INTERMEDIATE EXAMINATION
GROUP - I
(SYLLABUS 2016)
SUGGESTED ANSWERS TO QUESTIONS
DECEMBER - 2019
Paper - 6 : LAWS & ETHICS
Time Allowed : 3 Hours Full Marks : 100
The figures in the margin on the right side indicate full marks.
This question paper has two Sections A and B.
Both the Sections are to be answered subject to instructions given against each.
Wherever necessary, candidates may make appropriate
assumptions and clearly state them.
Please : (1) Answer all bits of a question at one place.
(2) Open a new page for answer to a new question.
SECTION – A
Section - A contains Question No. 1. All parts of this question are compulsory.
1. Answer all the following questions:
(a) Choose the correct answer from the given alternatives (you may write only the
Roman numeral and the alphabet chosen for your answer): 1x10=10
(i) A person is said to be of sound mind for the purposes of making a contract if, at
the time when he makes it, he is capable of
(A) listening it
(B) hearing it
(C) understanding it
(D) interpreting it
(ii) Ankit agrees to pay Bina `1500 if it rains today, otherwise Bina pays Ankit ` 2000.
This is a
(A) Gambling
(B) Wagering agreement
(C) Valid agreement
(D) Speculation
(iii) Writing of a person's name on the face or back of an instrument or on a slip of

paper attached to it is known as
(A) Endorsement
(B) Transfer
(C) Negotiation
(D) Transmission
DoS, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 1
(iv) Anusua and Shrita formed a partnership to undertake a construction of a

shopping complex in New Delhi. This partnership is called
(A) Partnership at will
(B) Particular partnership
(C) Unlimited partnership
(D) Partnership with undefined mission
(v) As per the Minimum Wages Act 1948, Adolescent means a person who has
completed the age of 14 years but not completed the age of
(A) 15
(B) 14
(C) 21
(D) 18
(vi) Every employee shall be entitled to receive bonus from his employer in
(A) a financial year
(B) an accounting year
(C) a calendar year
(D) a manufacturing year
(vii)The annual return of an OPC shall be signed by

(A) the company secretary
(B) the director
(C) the chief accountant
(D) the auditor
(viii)The minimum age limit for appointment of managing director and the whole time
director is
(A) 18 years
(B) 21 years
(C) 25 years
(D) 30 years
(ix) A company cannot remove a director appointed

(A) at the annual general meeting
(B) at the extra ordinary general meeting
(C) by the promoter
(D) by the tribunal
(x) Moral management requires ethical

(A) producer
(B) leadership
(C) market
(D) customer
(b) Match and pair: 1x5=5
Column I Column II
1. Right of lien (A) Industrial Establishment
2. Certificate of Incorporation (B) Minimum rates of wages have been fixed
3. Lord Nolan (C) Keep the goods in his possession
4. Plantation (D) Seven principles of public life
5. Cost of living index number (E) Form No. INC-11
(c) State whether the following statements are True or False: 1x5=5
(i) A promise in return for promise means Cross promises.

(ii) Section 65 provides that the Central Government shall appoint one or more
Inspectors to investigate the affairs of a LLP.
(iii) The information Memorandum shall be deemed to be a Red herring prospectus.
(iv) A holder of depository receipts may become a member of the company.
(v) Value chain as a strategic framework for analysis of competitive advantage was
promoted by Peter Drucker.
(d) Fill in the blanks: 1x5=5
(i) Section 92 of the Companies Act provides that every company shall prepare an
Annual Return in Form No. _____________ .
(ii) No fine shall be imposed on any employed person who is under the age of _____.
(iii) The ESI Act, 1948 is the first major legislation on ________ security for the
employees in India.
(iv) A company whose principal business is the acquisition of shares, debentures or
other securities is termed as ___________ company.
(v) ____________ is the principles and standards that determine acceptable conduct
in business organizations.
Answer:
1. (a) (i) (C) understanding it

(ii) (B) Wagering agreement
(iii) (A) Endorsement
(iv) (B) Particular Partnership
(v) (D) 18
(vi) (B) an accounting year
(vii) (A) the company secretary
(viii) (B) 21 years
(ix) (D) by the tribunal
(x) (B) leadership
(b)
Column I Column II
1. Right of lien (C) Keep the goods in his possession
2. Certificate of Incorporation (E) Form No. INC-11
3. Lord Nolan (D) Seven principles of public life
4. Plantation (A) Industrial Establishment
5. Cost of living index number (B) Minimum rates of wages have been fixed
(c) (i) False

(ii) False
(iii) False
(iv) True
(v) False
(d) (i) MGT - 7

(ii) 15 years
(iii) Social
(iv) Investment
(v) Business Ethics
SECTION – B
Answer any five questions from question numbers 2 to 8

Each question carries 15 marks.
2. (a) Discuss the different modes of terminating contractual relationship between the
parties.
(b) Anita and Sonali are friends, Sonali treats Anita during Anita's illness.
Sonali does not accept payment from Anita for treatment and Anita promises Sonali's
daughter Tania to pay her ` 75,000. Anita being in poor circumstances is unable to
pay.
Tania sues Anita for the money. Can Tania recover?
Offer your views based on provisions of the Indian Contracts Act, 1872. 10+5=15.
Answer:
2. (a) When the rights and obligations created by a contract comes to an end, the
contract is said to be discharged or terminated. Discharge of contract means
termination of contractual relationship between the parties. The following are the
various modes or methods by which a contract is discharged:
1. Discharge by performance:
Performance is the usual mode of discharge of a contract. Performance may be
(a) actual performance (b) attempted performance. Actual performance is the
fulfillment of the obligations arising from a contract by the parties to it, in
accordance with the terms of the contract. Offer of performance is also known as
attempted performance or tender of performance. A valid tender of
performance is equivalent to performance.
2. Discharge by agreement:
The parties may agree to terminate the existence of the contract by any of the
following ways: (a) Novation, (b) Alteration (c) Rescission (d) Remission (e) Waiver
a. Novation: Substitution of a new contract in place of the existing contract is
known as "Novation of Contract". It discharges the original contract. The new
contract may be between the same parties or between different parties.
Novation can take place only with the consent of all the parties. Example: A
owes money to B under a contract. It is agreed between A, B and C that B
should accept C as his debtor, instead of A. The old debt of A and B is at an
end and a new debt from C to B has been contracted. There is novation
involving change of parties.
b. Alteration: Alteration means change in one or more of the terms of the
contract. In case of novation there may be a change of the parties, while in
the case of alteration, the parties remain the same. But there is a change in
the terms of the contract.
c. Rescission: Rescission means "cancellation". All or some of the terms of a
contract may be cancelled. Rescission results in the discharge of the contract.
Example: A promises to deliver certain goods to B at a certain date. Before
the date of performance A and B mutually agree that the contract need not
be performed. The contract stands discharged by rescission.
d. Remission: Remission means acceptance of a lesser performance that what is
actually due under the contract. There is no need of any consideration for
remission. Example: A has borrowed ` 500 from B. A agrees to accept ` 250
from B in satisfaction of the whole debt. The whole debt is discharged.
e. Waiver: Waiver means giving up or foregoing certain rights. When a party
agrees to give up its rights, the contract is discharged. Example: A promises to
paint a picture of B. B afterwards forbids him to do so. A is no longer bound to
perform the promise.
3. Discharge by lapse of time:

Every contract must be performed within a fixed or reasonable period. Lapse of
time discharges the contract. The Indian Limitation Act has prescribed the period
within which the existing rights can be enforced in courts of law. Example: If a
creditor does not file a suit within three years of debt, the debt becomes time-
barred. He is deprived of his legal remedy.
4. Discharge by operation of law:

A contract may be discharged by operation of law in the following cases, (a)
Death (b) Insolvency (c) Unauthorized material alteration, (d) Merger a. Death: In
contracts involving personal skill or ability, death terminates the contracts. In other
cases, the rights and liabilities of the deceased person will pass en to his legal
representatives, b. Insolvency: The insolvency of the promisor discharges the
contract. The promisor is discharged from all liabilities incurred prior to his
adjudication, c. Unauthorized material alteration: Material alteration in the terms

of the contract without the consent of the other party discharges the contract.
Change in the amount of money to be paid, date of payment, place of payment
etc. are examples of material alteration, d. Merger: When inferior rights of a
person under a contract merge with superior rights under a new contract, the
contract with inferior rights will come to an end. Example: Where a part-time
lecturer is made full-time lecturer, merger discharges the contract of part time
lectureship.
5. Discharge by impossibility of performance:

Impossibility of performance results in the discharge of the contract. An
agreement which is impossible is void, because law does not compel to do
impossible things.
6. Discharge by breach:
Breach means failure of a party to perform his obligations under a contract.
Breach brings an end to the obligations created by a contract. Example: A and B
wanted to marry each other. Before the time fixed for marriage, A goes mad. The
contract becomes void.
Termination of Contract:
The proper way, in which the agreement could have been terminated by issuing of a
notice to the plaintiff, calling upon to complete the transaction within a particular
time, failing which the contract will be treated as cancelled. That this is the proper
way of terminating the contract is cleared from what has been observed in
"Narayana Swami Pillai V. Dhanakodi Ammal' - (1971) 1 Mys. L.J., 245 that when the
contract is for the sale of immovable property the vendor must given reasonable
notice requiring the performance within a definite time.
(b) No, Tania cannot recover the money from Anita. The agreement between Tania and
Anita is not a contract in the absence of consideration. In this case, Tania's mother
Sonali, voluntarily treats Anita during her illness. Apparently it is not a valid
consideration because it is voluntary whereas consideration to be valid must be
given at the desire of the promisor-void Section 2(d).
The question now is whether this case is covered by the exception given in Section
25(2) which inter-alia provides.
"If it is a promise to compensate a person who has already voluntarily done

something for the promisor...."
Thus as per the exception the promise must be to compensate a person who has
himself done something for the promisor and not to a person who has done nothing
for the promisor.
As Sonali's daughter, Tania to whom the promise was made, did nothing for Anita, so
Anita's promise is not enforceable even under the exception.
3. (a) Discuss the procedure of conversion from private limited company into limited
liability partnership.
(b) Mr. S. K drew a cheque in favour of Mr. P. K who was seventeen years old. Mr. P. K
settled his rental due by endorsing the cheque in favour of Mrs. R. K the owner of the
house in which he stayed. The cheque was dishonoured when Mrs. R. K presented it
for payment on the grounds of inadequacy of funds. Advice to Mrs. R. K how she can
proceed to collect her dues. 9+6=15
Answer:
3. (a) The procedure of conversion from private limited company into Limited Liability
Partnership (LLP) is discussed as under:
Para 1(b) of the third schedule defines the term 'convert' in relation to a private
company converting into a LLP, as a transfer of the property, assets, interests, rights,
privileges, liabilities, obligations and the undertaking of the private company to the
LLP in accordance with the third schedule.
A company may apply to convert itself into a LLP if and only if -
 there is no security interest in its assets subsisting or in force at the time of
application; and
 the partners of the LLP to which it converts comprise all the shareholders of the
company and no one else.
Upon the conversion of a private company into an LLP, the company and its
shareholders, the LLP and the partners of the LLP shall be bound by the provisions of
this schedule that are applicable to them.
The company has to apply with the Registrar by filing the following documents:
 A statement by all its shareholders in Form No. 18 and fees containing the
following particulars
 The name and registration number of the company;
 The date on which the company was incorporated; and
 incorporation document and statement; On the receipt of the above said
documents, the Registrar shall register the documents subject to the provisions of
the Act and the rules made there under. The Registrar may require the
documents to be verified as he considers fit. The Registrar shall issue a certificate
of registration in Form No. 19 as the Registrar may determine stating that the LLP is,
on and from the date specified in the certificate.
The LLP shall inform the concerned Registrar of Companies within 15 days of the date
of registration about the conversion and of the particulars of LLP in Form along with
the fees.
If the Registrar is not satisfied with the particulars or other information furnished
the Registrar may refused to register. Against this order appeal may be made
before the Tribunal.
(b) Section 26 of Negotiable Instrument Act 1881,provides that every person capable of
contracting may bind himself and be bound by the making, drawing, acceptance,
indorsement, delivery and negotiation of a promissory note, bill of exchange or
cheque. However A minor may draw, indorse, deliver and negotiate such instrument
so as to bind all parties except himself.
As per the facts given in the question, Mr. S.K drew a cheque in favour of Mr P.K a
minor. Mr. P. K endorses the same in favour of Mrs. R. K. to settled his rental dues. The
cheque was dishonoured when it was presented by Mrs. R. K. to the bank on the
grounds of inadequacy of funds. Here in this case, Mr. P. K. being a minor may draw,
endorse, deliver and negotiate the instrument so as to bind all parties except himself.
Therefore, Mr. P. K is not liable. Mrs. R. K can thus, proceed against Mr. S. K to collect
her dues.
4. (a) Discuss the welfare measures to be taken in a factory for the workmen employed
therein as per the Factories Act, 1948.
(b) Mention any seven purposes for which the ESI fund may be expended. 8+7=15
Answer:
4. (a) The following are the welfare measures prescribed in the Factories Act, 1948 to be
provided by the factory to their workmen:
Washing facilities:
Section 42 provides that in every factory adequate and suitable facilities for washing
shall be provided and maintained for the use of the workers. Separate and
adequately screened facilities shall be provided for the use of male and female
workers. The washing facility shall be conveniently accessible and shall be kept clean.
Facilities for storing and drying clothing:

Section 43 provides that the State Government may, in respect of any factory or class
or description of factories, make rules requiring the provision therein of suitable places
for keeping clothing not worn during working hours and for the drying of wet clothing.
Facilities for sitting:

Section 44 provides that suitable arrangements for sitting shall be provided and
maintained for all workers obliged to work in a standing position, in order that they
make take advantage of any opportunities for rest which may occur in the course of
their work.
First aid appliances:

Section 45 provides that first aid appliances shall be provided and maintained so as
to be readily accessible during all working hours or cupboards equipped with the
prescribed contents and the number of such boxes or cupboards to be provided and
maintained shall not be less than for every 150 workers at any one time in the factory.
Each first aid box or cupboard shall be kept in charge of a separate reasonable
person who holds a certificate in the first aid treatment recognized by the State
Government and he should always be readily available during the working hours of
the factor. In a factory where more than 500 workers are employed an ambulance of
the prescribed size containing the prescribed equipment, nursing staff etc., shall be
provided and made readily available at all times.
Canteens:
Section 46 provides that if more than 250 workers are employed in a factory a
canteen or canteens shall be provided and maintained by the occupier for the user
of the workers. The items of expenditure in the running of the canteen which are not
to be taken into account in fixing the cost of foodstuffs shall be borne by the
employer.
Shelters, rest rooms and lunch rooms:

Section 47 provides that if more than 150 workers are employed adequate and
suitable shelters or rest rooms and a suitable lunch room with provision for drinking
water shall be provided and maintained for the use of the workers. The same shall be
sufficiently lighted and ventilated and shall be maintained in a cool and clean
condition.
Creches:
Section 48 provides that if more than 30 women workers are employed there shall be
provided and maintained a suitable room for the use of children under the age of 6
years of such women. The same shall be adequately ventilated and shall be
maintained in clear and sanitary conditions and under the charge of women trained
in the care of children and infants.
Welfare Officers:
Section 49 provides that if 500 or more than workers are employed in a factory,
the occupier shall employ in the factory such number of welfare officers as may
be prescribed. In 'Shyam Vinyals Limited V. T. Prasad' - (1993) 83 FJR 18 (SC) it
was held that an Assistant Personnel Officer cannot be held that he was in fact
appointed as a Labor Welfare Officer simply because as a Assistant and
Personnel Officer he was looking after the problems of the laborers and the
welfare of the laborers.
(b) Section 28 of the Employees State Insurance Act, 1948 provides the Central
Government may utilize the State Insurance Fund only for the following purposes:
 payment of benefits and provision of medical treatment and attendance to
insured persons and, where the medical benefit is extended to their families, the
provision of such medical benefit to their families in accordance with the
provisions of this Act and defraying the charges and costs in connection
therewith;
 payment of fees and allowances to members of the Corporation, the Standing
Committee and the Medical Benefit Council, the Regional Boards, Local
Committees and Regional and Local Medical Benefit Councils;
 payment of salaries, leave and joining time allowances, travelling and

compensatory allowances, gratuities and compassionate allowances, pensions,
contributions to provident or other benefit fund of officers and servants of the
Corporation and meeting the expenditure in respect of offices and other services
set up for the purpose of giving effect to the provisions of this Act;
 establishment and maintenance of hospitals, dispensaries and other institutions
and the provision of medical and other ancillary services for the benefit of
insured persons and, where the medical benefit is extended to their families;
 payment of contributions to any State Government, local authority or any private
body or individual, towards the cost of medical treatment and attendance
provided to insured persons and, where the medical benefit is extended to their
families, including the cost of any building and equipment, in accordance with
any agreement entered into by the Corporation;
 defraying the cost (including all expenses) of auditing the accounts of the
Corporation and of the valuation of its assets and liabilities;
 defraying the cost (including all expenses) of the Employees' Insurance Courts set
up under this Act;
 payment of any sums under any contract entered into for the purpose of this Act
by the Corporation or the Standing Committee or by any officer duly authorized
by the Corporation or the Standing Committee in that behalf;
 payment of sums under any decree, order or award of any Court or Tribunal
against the Corporation or any of its officers or servants for any act done in the
execution of his duty or under a compromise or settlement of any suit or other
legal proceeding or claim instituted or made against the Corporation;
 defraying the cost and other charges of instituting or defending any civil or
criminal proceedings arising out of any action taken under this Act;
 defraying expenditure, within the limits prescribed, on measures for the
improvement of the health, welfare of insured persons and for the rehabilitation
and re-employment of insured persons who have been disabled or injured; and
 such other purposes as may be authorized by the Corporation with the previous
approval of the Central Government.
5. (a) Sweat equity shares are issued to directors or employees at a discount or for
consideration other than cash. Discuss under the provisions of the Companies Act,
2013.
(b) XYZ Ltd. issued Notice for holding of its Annual General Meeting on 30th September
2019. The notice was posted to the members on 7th September 2019. Some members
of the company allege that the company had not complied with the provisions of the
Companies Act. Referring to the provisions of the Act, decide.
(i) Whether the meeting has been validly called?
(ii) If there is a shortfall, state and explain by how many days does the notice fall
short of the statutory requirement?
(iii) Can the delay in giving notice be condoned? 8+7=15
Answer:
5. (a) Section 2(88) defines the expression 'sweat equity shares' as such equity shares as are
issued by a company to its directors or employees at a discount or for consideration,
other than cash, for providing their know-how or making available rights in the nature
of intellectual property rights or value additions, by whatever name called.
For this purpose the term 'employee' means-

 a permanent employee of the company who has been working in India or
outside India; or
 a director of the company, whether a whole time director or not; or
 an employee or a director as defined above of a subsidiary, in India or outside
India, or of holding company of the company.
The expression 'value additions' means actual or anticipated economic benefits
derived or to be derived by the company from an expert or a professional for
providing know-how or making available rights in the nature of intellectual
property rights, by such person to whom sweat equity is being issued for which the
consideration is not paid or included in the normal remuneration payable under
the contract of employment, in the case of employee.
Section 54 provides that a company may issue sweat equity shares of a class of
shares already issued, if the following conditions are fulfilled:
 the issue is authorized by a special resolution passed by the company;
 the resolution specifies the number of shares, the current market price,
consideration, if any, and the class or classes of directors or employees to whom
such equity shares are to be issued;
 where the equity shares of the company are listed on a recognized stock
exchange, the sweat equity shares are issued in accordance with the regulations
made by SEBI in this behalf. If they are not so listed, the sweat equity shares are
issued in accordance with such rules as may be prescribed.
Rule 8(1) provides that a company other than a listed company shall not issue sweat
equity shares to its directors or employees at a discount or for consideration other
than cash, for their providing know-how or making available rights in the nature of
intellectual property rights or value additions unless the issue is authorized by a
special resolution passed by the company in general meeting.
(b) According to the Section 101(1) of the Companies Act, 2013, annual general Meeting
of a company may be called by giving not less than clear twenty-one days notice
either in writing or through electronic mode in such manner as may be prescribed.
Also, it is to be noted that clear 21 days notice mean that date of which notice is
served and the date of meeting are excluded for sending the notice. Further, Rule
35(6) of the Company (incorporation Rules,2014, provides that in case of delivery by
post, such service shall be deemed to have been effected - in the case of the
notice of meeting, at the expiration of forty eight hours after the letter containing the
same is posted. Hence, in the given question:
(i) A 21 days clear notice must be given. In the given question, only 20 days notice is
served (after excluding 48 hours from the time of its posting and day of sending
and date of meeting).Therefore, the meeting was not validly called.

(ii) As explained in (i) above, notice falls short by 1 day.
(iii) The Companies Act, 2013 does not provide anything specific regarding the
condonation of delay in giving of notice. Hence the delay in giving the notice
calling the meeting cannot be condoned.
6. (a) What are the different duties of a director in a company as per the Companies Act,
2013?
(b) What are the disqualifications of a person for the appointment as a director under the
Companies Act, 2013? 7+8=15
Answer:
6. (a) As per Section 166 of the Companies Act, 2013 a director of a company is bound to
perform the following duties as mentioned below:
 A director of a company shall act in accordance with the articles of the
company.
 A director of a company shall act in good faith in order to promote the objects of
the company for the benefit of its members as a whole, and in the best interests
of the company, its employees, the shareholders, the community and for the
protection of environment.
 A director of a company shall exercise his duties with due and reasonable care,
skill and diligence and shall exercise independent judgment,
 A director shall not involve in a situation in which he may have a direct or indirect
interest that conflicts, or possibly may conflict, with the interest of the company,
 A director of a company shall not achieve or attempt to achieve any undue gain
or advantages either to himself or to his relatives, partners or associates and if
such director is found guilty of making any undue gain, he shall be liable to pay
an amount equal to that gain to the company,
 A director of a company shall not assign his office and any assignment so made
shall be void,
If a director of a company contravenes the provisions of Section 166 such director
shall be punishable with fine which shall not be less than one lakh rupees but which
may extend to five lakh rupees.
(b) Section 164 of the Companies Act, 2013 details the disqualification of a person for
the appointment as a Director. A person shall not be eligible for appointment as a
Director of a company, if
(a) he is of unsound mind and stands so declared by a competent court;
(b) he is an undercharged insolvent;
(c) he has applied to be adjudicated as an insolvent and his application is pending;
(d) he has been convicted by a Court of any offence, whether involving moral
turpitude or otherwise and sentenced to imprisonment for not less than 6 months
and a period of 5 years has not elapsed from the date of expiry of the sentence;
If a person has been convicted of any offence and sentenced in respect thereof
to imprisonment for a period of 7 years or more, he shall not be eligible to be
appointed as a director in any company.

(e) an order disqualifying him for appointment as a director has been passed by
the Court or Tribunal and the order is in force;
(f) he has not paid any calls in respect of any shares of the company held by him,
whether alone or jointly with others and six months have elapsed from the last day
fixed for the payment of the call;
(g) he has been convicted of the offence dealing with related party transactions
under Section 188 at any time during the last preceding five years; or
(h) he has not obtain DIN.
A private company may by its articles provide for any disqualifications for
appointment as a director in addition to the above disqualifications. The
disqualifications in (d), (e), and (g) above shall continue to apply even if the appeal
or petition has been filed against the order of conviction or disqualification.
7. (a) What is Value Chain? What are the new themes and challenges that managers face
currently?
(b) Discuss the procedure for recovery of bonus in case the employer has not paid under
a settlement. 9+6=15
Answer:
7. (a) Value chain is a visualization of complete business as a sequence of activities in

which usefulness is added to the products or services produced and sold by an
organization. Management accountants provide decision support for managers in
each activity of value chain.
The design of management accounting system has to take into consideration the
decision needs of the managers. Also it has to take into consideration the new
themes and challenges that managers face currently.
 Customer focus: The challenge for managers it invest sufficient resources to
enhance customer satisfaction. But every action of the organization has to result
enhanced profitability or maintained profitability for the organization.
 Key Success Factors: These are nonfinancial factors which have an effect on the
economic viability of the organization. Cost, quality, time and innovation are
important key success factors. Management accounting systems need to have
provisions for tracking the performance of the organization and its divisions as well
as competitors on these success factors.
 Continuous improvement: Continuous improvement or kaizen is a popular theme.
Innovation related to this area in costing is kaizen costing.
 Value Chain and Supply Chain Analysis: Value chain as a strategic framework for
analysis of competitive advantage was promoted by Michael Porter.
Management accountants have to become familiar with the framework and
provide information to implement the framework by strategic planners.
(b) Section 21 of the Payment of Bonus Act, 1965 provides the procedure for the
recovery of bonus in case the employer has not paid under a settlement or an award
or agreement. In such cases-

 the employee himself; or
 any other person authorized by him in writing in this behalf; or
 in the case of death of the employee, his assignee or heirs
may make an application to the appropriate Government for the recovery of the
money due to him. If the appropriate Government or such authority authorized is
satisfied that any money is due, it shall issue a certificate to the Collector for that
amount to the Collector who shall proceed to recover the said amount in the same
manner as an arrear of land revenue.
It may be noted that every such application shall be made within one year from
the date on which the money become due to the employee from the employer.
As such application may be entertained after the expiry of the said period of one
years; if the Appropriate Government is satisfied that the applicant had sufficient
cause for not making the application within the said period.
8. Write short notes on any three of the following terms: 5×3=15

(a) Misrepresentation
(b) Director Identification Number
(c) Advantages of Business Ethics
(d) Dependent
Answer:
8. (a) MISREPRESENTATION: [Sec. 18]

A statement of fact which one party makes in the course of negotiation with a view
to induce the other party to enter into a contract is known as misrepresentation. It
must relate to some fact which is material to the contract. It may be expressed by
words spoken or written or implied from the acts and conduct of the parties.
A representation when wrongly made either innocently or unintentionally is a

misrepresentation. When it is made innocently or unintentionally, it is
misrepresentation and when made intentionally or willfully it is fraud.
Misrepresentation has been defined in section 18 of the Indian Contract Act 1872 as
under:
"Misrepresentation" means and includes—
1) The positive assertion, in a manner not warranted by the information of the person
making it, of that which is not true, though he believes it to be true;
2) Any breach of duty which, without an intent to deceive, gains an advantage to
the person committing it, or any one claiming under him, by misleading another
to his prejudice or to the prejudice of anyone claiming under him ;
3) Causing, however innocently, a party to an agreement to make a mistake as to
the substance of the thing which is the subject of the agreement.
(b) Director Identification Number (DIN)

Director Identification Number is allotted by the central government to every
individual who is to be appointed as director of a company after receiving the

application form in prescribed Form No. DIR-3 along with the fees for the same. The
form shall be attested by a chartered accountant in practice or a company
secretary in practice or a cost accountant in practice. The central government shall
process the application form within 30 days of receiving the same and allot the
Director Identification Number to the applicant after approving the application or
give intimation of rejection of the application. The DIN once allotted shall remain
valid for the life time of the director and it will not be allotted to any other person. The
director on allotment of DIN is to intimate the company in Form No. DIR-3C within 15
days from the intimation given to him. Every company shall within 15 days of the
receipt of intimation furnish the same with the Registrar. If company fails to furnish DIN
the company shall punishable with fine which shall not be less than ` 25,000 but which
may extend to ` 1 lakh. Every officer of the company who is default shall be
punishable with fine which shall not be less than ` 25,000 but which may extend to ` 1
lakh.
(c) Advantages of Business Ethics:

Business ethics deals with morality in the business. It is a system of moral principles and
values applied to business activities. This means the business activities should be
conducted according to ethics or moral standard. Business ethics is an art or science
of maintaining harmonious relationship with society, its various groups and institution
as well as reorganizing for right or wrong of business conduct. The following are the
advances for following the principles of business ethics
 It offers a company a competitive advantage;
 Goodwill of the firm hikes depending on its responds towards its ethical issues;
 Productivity through rigid, firm and sincere workers as well as other business chain
members;
 Through increasing morale and trust business can increase their market share;
 Publicity due to well and ethical performance;
 Acceptance of products of the company by the public;
(d) Section 2(6A) of The Employees' State Insurance Act, 1948, defines the term
'dependent' as any of the following of a deceased insured person:
 a widow, a legitimate or adopted son who has not attained the age of 25 years,
an unmarried legitimate or adopted daughter;
 a widowed mother;
 if wholly dependent on the earnings of the insured person at the time of his death,
a legitimate or adopted son or daughter who has attained the age of 25 years
and is infirm;
 if wholly or in part dependent on the earnings of the insured person at the time of
his death-
 a parent other a widowed mother;
 a minor illegitimate son, an unmarried illegitimate daughter or a daughter
legitimate or adopted or illegitimate if married and a minor or if widowed and a
minor;
 a minor brother or an unmarried sister or a widowed sister if a minor;
 a widowed daughter-in-law;
 a minor child of a pre-deceased son;

 a minor child of a pre-deceased daughter where no parent of the child is alive; or
 a paternal grand-parent if no parent of the insured person is alive.
SUGGESTED_ANSWERS TO QUESTIONS_SYL2016_JUNE 2019_PAPER-6
GROUP - I
(SYLLABUS 2016)
JUNE - 2019
This question paper has two Sections A and B.
Both the Sections are to be answered subject to instructions given against each.
Wherever necessary, candidates may make appropriate assumptions and clearly state them.
Please : (1)Answer all bits of a question at one place.
(2) Open a new page for answer to a new question.
SECTION – A
Section - A contains Question No. 1.
All parts of this question are compulsory.
(i) Anu threaten to kidnap Binu's daughter if she does not sell her house worth ` 90
Lakh to her for ` 20 Lakh. This Contract is void due to—
(A) inadequacy of Consideration
(B) absence of Free Consent
(C) incompetence of Parties
(D) None of the above
(ii) The Latin Maxim "Nemo Dat Quod non Habet" means
(A) no man can pass a better title than he has
(B) let the Buyer beware
(C) no consideration – No contract
(D) ignorance of law is no excuse
(iii) As per the RBI Act, which of the following negotiable Instruments can be payable
to the bearer on demand?
(A) Cheque
(B) Hundi
(C) Bank Draft
(D) Promissory Note
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 1
(iv) When a partnership firm is continued even after the expiry of fixed term, it is called
(A) Partnership at Will
(B) Perpetual Partnership
(C) Fixed Partnership
(D) Particular Partnership
(v) The amount of gratuity payable to an employee shall not exceed

(A) Ten months’ pay
(B) Twelve months’ pay
(C) Twenty months’ pay
(D) Twenty-five months’ pay
(vi) No female child shall be allowed to work in any factory except between
(A) 8 AM to 7 PM
(B) 6 AM to 6 PM
(C) 6 AM to 7 PM
(D) 10 AM to 5 PM
(vii)In case of a private company, mention the number of members personally

present to form the quorum of a meeting of the company.
(A) One member
(B) Two members
(C) Three members
(D) Four members
(viii)Which of the following is not a valid medium of sending notice to all

shareholders?
(A) By registered post or speed post
(B) Through public advertisement
(C) Through registered email-id
(D) Through courier service
(ix) If any default is made in filing refund of money, the company and every officer,
who is in default shall be liable to a penalty maximum up to
(A) ` 50,000
(B) ` 75,000
(C) ` 1,00,000
(D) ` 1,25,000
(x) Value chain as a strategic framework for analysis of competitive advantaged was
promoted by
(A) Peter Drucker
(B) F. W. Taylor
(C) Michael Porter
(D) Tom Peters
(b) Match and pair:

1x5=5
Column I Column II
1. Occupier (A) P purchases goods from S, he has no
intention of paying for it.
2. Section 92 of the Companies Act, (B) Annual Return.
2013
3. Meta ethics (C) Person having ultimate control
4. Fraud (D) Control of at least 20 per cent of total
share capital
5. Significant influence (E) Nature of moral judgement
(c) State whether the following statements are True or False: 1x5=5
(i) An agreement which is impossible is void.

(ii) In case of expulsion of a partner, the provisions of retired partners will be
applicable to such expelled partner.
(iii) Sickness benefit is paid up to a maximum day of 60 days in a year.
(iv) A director in the whole time employment of the Company is called Whole Time
Director.
(v) Contribution to pension scheme is recoverable when employee crosses 58 year of
age.
(d) Fill in the blanks: 1x5=5
(i) When the consent is caused by __________________, the agreement is voidable at

the option of the party whose consent was so caused.
(ii) All payments of wages shall be made on a _______________ day.
(iii) Whenever a company makes any allotment of securities, it shall file a return of
allotment with the Registrar within _________ days of allotment.
(iv) The application for the purpose of Alteration of Articles is to be filed in Form No.
________________.
(v) Business ethics must safeguard different rights of the _____________.
Answer:
1. (a) (i) (B) Absence of free consent

(ii) (A) No man can pass a better title than he has
(iii) (A) Cheque
(iv) (A) Partnership at will
(v) (C) Twenty months’ pay
(vi) (A) 8 AM to 7 PM
(vii) (B) Two members
(viii) (B) Through public advertisement
(ix) (C) ` 1,00,000
(x) (C) Michael Porter
(b)
Column I Column II
1. Occupier (C) Person having ultimate control
2. Section 92 of the Companies Act, (B) Annual Return
2013
3. Meta ethics (E) Nature of moral judgement
4. Fraud (A) P purchases goods from S, he has
no intention of paying for it.
5. Significant influence (D) Control of at least 20 per cent of
total share capital
(c) (i) True

(ii) True
(iii) False
(iv) True
(v) False
(d) (i) under influence

(ii) working
(iii) 30
(iv) INC - 27
(v) consumers
SECTION – B

2. (a) Sunil, aged 16 years, was studying in a Medical College. On 1st March, 2017 he took
a loan of ` 3 lakhs from Anil for the payment of his college fee and agreed to pay by
31st May, 2018. Sunil possesses assets worth ` 15 lakhs. On due date Sunil fails to pay
back the loan to Anil. Anil now wants to recover the loan from Sunil out of his assets.
Whether Anil would succeed? Decide, referring to the provisions of the Indian Contract
Act, 1872.
(b) State the essential elements of a contract of bailment. Distinguish between the
contract of bailment and contract of pledge. 6+9=15
Answer:
2. (a) According to Section 11 of the Indian Contract Act, 1872, a person who is of the age
of majority to the law to which he is subject is competent to enter into any contract.
A person who has completed the age of 18 years is a major and otherwise he will be
treated as minor. Thus Sunil who is a minor is incompetent to contract and any
agreement with him is void [Mohori Bibi Vs Dharmodas Ghose 1903, 30 Cal, 539 (PC)].
Section 68 of the Indian Contract Act, 1872 however, prescribes the liability of a minor
for the supply of the things which are the necessaries of life to him. It says that though
minor is not personally liable to pay the price of necessaries supplied to him or money
lent for the purpose, the supplier or lender will be entitled to claim the money/price of
goods or services which are necessaries suited to his condition of life provided that
the minor has a property. The liability of minor is only to the extent of the minor's
property. This type of contract is called a Quasi-contract and the right of the
supplier/lender is based on the principle of equity. Thus, according to the above
provision, Anil will be entitled to recover the amount of loan given to Sunil for
payment of the college fees from the property of the minor.
(b) Essential elements of a contract of bailment:

1. CONTRACT – The first condition is that there must be a contract between the
two parties for the delivery of goods. Such contract may be express or
implied written or oral.
2. DELIVERY OF GOODS – This contract is for the delivery of some movable
goods from one person (bailor) to another person (bailee) or to his
authorized agent. If the goods are immovable the contract will not be a
contract of bailment.
3. CHANGE OF POSSESSION – The possession of goods must be affected by such
contract. Mere custody without possession is not a contract of bailment.
4. PURPOSE OF DELIVERY – The delivery of the goods is for temporary purposes. It
may be for safe-custody, repair, carriage or for gratuitous use by the bailee.
5. NUMBER OF PARTIES – There is two parties tender such contract e.g., the
bailor and bailee. The person delivering the goods is called the bailor and
the person to whom the goods are bailed is called the bailee.
6. RIGHT OF OWNERSHIP – In a contract of bailment, the right of ownership
remains with an owner (bailor) and is not changed. If the ownership is
transferred, the contract will be a contract of sale and is not of bailment.
7. CHANGE OF FORM – If the goods bailed are altered in form by the bailee,
such as cloth is converted into a shirt still, the contract is one of bailment.
8. GOODS IN POSSESSION OF BAILEE – The delivery of the goods is not essential if
the goods are already in the possession of the person who enters into the
contract as bailee.
9. REDELIVERY OF GOODS – Under such contract, the goods are redelivered to
the bailor or according to his directions upon the fulfillment of the purpose by
the bailee.
10. RIGHT OF REWARD – In a contract of bailment, both the parties bailor and
the bailee can get a reward but it depends on the nature of the transaction.
(b) Difference between contract of bailment and contract of pledge:-

1. Right of sale - In case of pledge, the pawnee (pledgee) can sell the goods and
recover his debt, if pawnor (pledger) does not pay while in bailment the bailee
can retain the goods and sue for damages, but he has no authority to sell the
goods.
2. Purpose - Pledge is specifically for securing a debt, while bailment may be for
any purpose e.g. for repairs, safe custody etc.,
3. Right to use the goods - In case of pledge, pawnee cannot use the goods
pledged but bailee can use the bailed goods if contract so provides.
3. (a) Himadri sells 400 Kgs. of tea to Rahul and sends 200 Kgs. by lorry and 200 Kgs. By
Railway. Rahul receives delivery of 200 Kgs. sent by lorry, but before he receives the
delivery of the tea sent by railway, he becomes bankrupt. Himadri being still unpaid,
stops the goods in transit. The official receiver, on Rahul's insolvency claims the
goods. Decide the case with reference to the provisions of the Sale of Goods Act,
1930.
(b) Ajay draws a bill on Anoop. Anoop accepts the bill without any consideration. The bill
is transferred to Udit without consideration. Udit transferred it to Vicky for value.
Decide-
(i) Whether Vicky can sue the prior parties of the bill?
(ii) Whether the prior parties other than Vicky have any right of action intense? 7+8=15
Answer:
3. (a) Section 50, of Sale of Goods Act, states that, subject to the provisions of this Act, when the
buyer of goods becomes insolvent, the unpaid seller who has parted with the possession
of the goods has the right of stopping them in transit, that is to say, he may resume
possession of the goods as long as they are in course of transit and retain them until
payment of tender of the price.
Stoppage in transit (Sections 50-52)
The right of stoppage in transit is a right of stopping the goods while they are in transit,
resuming possession of them and retaining possession until payment or tender of the
price.
The right to stop goods is available to an unpaid seller
(i) when the buyer becomes insolvent; and
(ii) the goods are in transit.
The buyer is insolvent if he has ceased to pay his debts in the ordinary course of
business, or cannot pay his debts as they become due. It is not necessary that he has
actually been declared insolvent by the court.
The goods are in transit from the time they are delivered to a carrier or other bailee
like a wharfinger or warehouse keeper for the purpose of transmission to the buyer
and until the buyer takes delivery of them.
The transit comes to an end in the following cases:

(i) If the buyer obtains delivery before the arrival of the goods at their destination;
(ii) If, after the arrival of the goods at their destination, the carrier acknowledges to
the buyer that he holds the goods on his behalf, even if further destination of the
goods is indicated by the buyer;
(iii) If the carrier wrongfully refuses to deliver the goods to the buyer.
Applying the above provisions in the given case, we may conclude that Himadri being
unpaid, can stop the 200 Kgs. of tea sent by railway as these goods are still in transit and
Rahul has become insolvent.
(b) Section 43 of Negotiable Instrument Act,1881, provides that an instrument made, drawn,
accepted, indorsed or transferred without consideration, or for a consideration which fails,
creates no obligation of payment between the parties to the transaction. But if any such
party has transferred the instrument with or without endorsement to a holder for
consideration, such holder, and every subsequent holder deriving title from him, may
recover the amount due on such instrument from the transferor for consideration or any
prior party thereto.
(i) In the problem, as asked in the question, Ajay has drawn a bill on Anoop and Anoop
accepted the bill without consideration and transferred it to Udit without
consideration. Later on in the next transfer by Udit to Vicky is for value. According to
provisions of the aforesaid Section 43, the bill ultimately has been transferred to Vicky
with consideration. Therefore, Vicky can sue any of the parties i.e. Ajay, Anoop
or Udit, as Vicky arrived a good title on it being taken with consideration.
(ii) As regards to the second part of the problem, the prior parties before Vicky i.e. Ajay,
Anoop and Udit have no right of action inter se because first part of Section 43 has
clearly lays down that a negotiable instrument, made, drawn, accepted, indorsed or
transferred without consideration, or for a consideration which fails, creates no
obligation of payment between the parties to the transaction prior to the parties who
receive it on consideration.
4. (a) Describe the procedures for an employee to claim the short payment of wages or
non-payment of wages under Minimum Wages Act, 1948.
(b) What are the basic features of the national pension system as contained in the
Pension Fund Regulatory and Development Authority Act, 2013? 7+8=15
Answer:
4. (a) If there is any short payment of wages or wages at the over time etc., may be
claimed by the employee himself or through any legal practitioner or any official of a
registered trade union authorized by him or any Inspector or any person acting with
the permission of the Authority by applying to the concerned authority. For this
purpose the appropriate Government may appoint any commissioner for workmen’s
Compensation; or any Officer of the central Government exercising functions as a
Labour Commissioner for any region; or any Officer of the State Government not
below the rank of Labor Commissioner; or any other officer with experience as a
Judge of a Civil Court or as a stipendiary Magistrate to be the authority to hear and
decide for any specified area for all claims.
The claim shall be presented to the authority by the employee within six months
from the date on which the minimum wages or other amount became payable.
The Authority may a claim beyond the six months if he is satisfied that the
applicant had sufficient cause for not making the application within the
prescribed period. Rule 27 provides that a single application in respect of a
number of employees may be field before the authority. The application shall be
made in duplicate in Forms VI, VIA or VII, one copy of which shall bear the
prescribed court fee. The authorization shall be given in Form VIII.
The Authority shall serve the copy of the application to the employer by
registered post a notice in Form IX to appear before him on a specified date. He
shall hear the applicant and the employer and after such further inquiry, if any,
as it may consider necessary may, without prejudice of any other penalty to the
employer, direct the payment to the employee of the amount by which the
minimum wages payable to him exceed the amount actually paid, together with
compensation as the authority may think fit, not exceeding 10 times the amount
of such excess; in any other case, the payment of the amount together with the
payment of such compensation as the Authority may think fit, not exceeding
Rs.10.
If the employer fails to appear on the specified date the Authority may hear and
determine the application ex-parte. If the applicant fails to appear on the
specified date the application will be dismissed. Any such order may be set aside
on sufficient cause being shown by the defaulting party within one month of the
date of the said order and the application shall be re-heard.
If the Authority finds the application is a vexatious one he may impose penalty on
the employees not exceeding Rs.50/- to the employer.
The amount due may be recovered as if it were a fine imposed by the Authority as a
Magistrate. Every direction of the Authority shall be final.
(b) The National Pension System shall have the following basic features, namely:--
• every subscriber shall have an individual pension account under the National
Pension System;
• withdrawals, not exceeding twenty-five per cent of the contribution made by
the subscriber, may be permitted from the individual pension account subject to
the condition's, such as purpose, frequency and limits, as may be specified by the
regulations;
• the functions of record keeping, accounting and switching of options by the
subscriber shall be effected by the central recordkeeping agency;
• there shall be a choice of m u l t i p l e pension funds and multiple schemes:
Provided that—
(a) the subscriber shall have an option of investing up to hundred per cent of his
funds in Government Securities; and
(b) the subscriber, seeking minimum assured returns, shall have an option to invest
his funds in such schemes providing minimum assured returns as may be
notified by the Authority;
(c) there shall be portability of individual pension accounts in case of change of
employment;
(d) collection and transmission of contributions and instructions shall be through
points of presence to the central record keeping agency
(e) there shall not be any implicit or explicit assurance of benefits except market-
based guarantee mechanism to be purchased by the subscriber;
(f) a subscriber shall not exit from the National Pension System except as may be
specified by the regulations; and
(g) at exit, the subscriber shall purchase an annuity from a life insurance
company in accordance with the regulations.
5. (a) What is meant by Lifting of Corporate Veil? In which circumstances the corporate veil
can be lifted by court?
(b) State the procedure for shifting of a registered office of the company from one state
to another state under the provisions of the Companies Act, 2013. 8+7=15
Answer:
5. (a) The separate personality or a company is a statutory privilege and it must be used for
legitimate business purposes only. Where a fraudulent and dishonest use is made of
the legal entity, the individuals concerned will not be allowed to take shelter behind
the corporate personality. The Court will break through the corporate shell and apply
the principle/doctrine of what is called as "lifting of or piercing the corporate veil".
The Court will look behind the corporate entity and take action as though no entity
separate from the members existed and make the members or the controlling
persons liable for debts and obligations of the company.
In the following circumstances, different courts found it necessary to lift the corporate
veil and punish the actual persons who did wrong or unlawful acts under the name of
the company
Protection of Revenue: The Court may ignore the Separate Legal Entity status of a
Company, where it is used for tax invasion or circumventing tax obligation.
Determination of enemy character of the Company: Company being an artificial

person cannot be enemy or friend. But during war, it may become necessary to lift
the corporate veil and see the persons behind it to determine whether they are
friends or enemy. This is due to the reason that though a company enjoys Separate
Legal Entity but its affairs are run by individuals.
Prevention of fraud: Where a Company is used for committing frauds or improper

conduct, the Court may lift the corporate veil and look at the realities of the situation.
Protection of public policy: The Court shall lift the Corporate Veil without any
hesitation to protect the public policy and prevent transaction opposed to public
policy.
Company mere sham or cloak: Where the Company is a mere sham and was really a
ploy used for committing illegalities and to defraud people, the Court shall lift the
Corporate Veil.
Where a Company acts as an agent of its shareholders: If there is an arrangement

between the shareholders and a Company to the effect that the Company will act
as agent of shareholders for the purpose of carrying on the business, the business is
essentially of that of the shareholders and will have unlimited liability.
Avoidance of Welfare Legislation: Where a Company tries to avoid its legal

obligations, the corporate veil shall be lifted to look at the real picture.
To punish for contempt of Court: Company being an artificial person cannot disobey
the orders of the Court. Therefore, the persons at fault should be identified.
(b) The steps involved in changing the registered office from one state to another state:
1. Call for a board meeting to decide on the change in the domicile clause.
2. In the board meeting fix up the date, time, place of the general meeting
and approve the notices for this purpose, send the notices, hold the meeting
and pass special resolutions.
3. After taking the approval of the members, file a certified copy of the special
resolution along with the explanatory statement in Form 23 with ROC.
4. Publish a general notice in at least one regional language newspaper and
one English language newspaper circulated in the area in which registered
office of the company is situated clearly stating the substance of the
petition.
5. Send individual notices to all creditors/debenture holders of the company.
6. After a gap of one month from the date of sending notices as above, file
petition with the Company Law Board (CLB) pursuant to the CLB Regulations,
1991. The petition has to be filed with the Regional Bench of the CLB at which
the existing registered office is situated.
7. Serve a copy of the petition on the ROC.
8. Serve a copy of the notice along with a petition to the Chief Secretary to the
Government of the State where the registered office of the company is
situated or to the Administrator / Lt. Governor of the Union Territory where the
registered office is situated in the Union Territory.
9. A hearing may take place at the CLB office at which creditors, if any, and
the representatives of the company are heard before making any order.
10. After receiving the CLB order for shifting the registered office, the company is
required to file certified copy of the order with the ROC along with Form No.
21 within 3 months of receipt of certified copy along with the printed copy of
the memorandum of association.
11. A certified copy of the order from the ROC within one month of the date of
filing must be obtained.
12. The certified copy of the order should be filed with the ROC of the new state
within one month of the date of the filing along with the certified copy of the
memorandum of association.
13. The ROC of the new state i.e. at which registered office will be shifted will
issue a fresh certificate of incorporation which will be conclusive evidence of
the shift of registered office.
14. File Form No. 18 with the new ROC for the situation of the registered office.
15. Necessary changes are required to be made in the letter heads, books,
records etc. of the company.
16. Arrange to adopt new common seal of the company.
6. (a) Describe the procedure for the resignation of Director under the Companies Act, 2013.
(b) Discuss the rules of appointment of director elected by small shareholders in a

company. 10+5=15
Answer:
6. (a) Resignation of Director

Section 168 of the Companies Act 2013, provides the procedure for the resignation of
a director as detailed below:
• A director may resign from his office by giving a notice in writing to the company;
• He shall within 30 days from the date of resignation, forward to the Registrar a
copy of his resignation along with the reasons for the resignation, in Form No. DIR -
11 along with the fee;
• A foreign director may authorize in writing a practicing Chartered Accountant or
Cost Accountant in practice or Company Secretary in practice or any other
resident director of the company to sign the Form No. DIR - 11 and file the same
on his behalf intimating the reasons for the resignation;
• The Board shall on receipt of such notice take notice of the same;
• The company shall intimate the Registrar in Form No. DIR-12 within one month
from the date of receipt of such notice;
• The said information is to be posted on the website of the company;
• The fact of the resignation shall be included in the report of directors laid in
immediately following general meeting by the company;
• The resignation of a director shall take effect from the date on which the notice is
received by the company or the date, if any, specified by the director in the
notice, whichever is later;
• The director who has resigned shall be liable even after his resignation for the
offences which occurred during his tenure;
Where all directors of a company resign from their offices the promoter or, in his
absence, the Central Government shall appoint the required number of directors,
who shall hold the office till the directors are appointed by the company in
general meeting.
(b) Process of appointment of director elected by small shareholders:
'Small shareholder' means a shareholder holding shares of nominal value of not more
than ` 20,000 or such other sum as may be prescribed. A listed company may have
one director elected by small shareholders.
Rules 7 requires that a listed company, may upon notice of not less than 1000 small
shareholders or one tenth of the total number of such shareholders, whichever is
lower, have a small shareholders' director elected by small shareholders.
Such director shall not be liable to retire by rotation. The tenure shall not exceed a
period of three consecutive years and on the expiry of the tenure such director shall
not be eligible for reappointment. A disqualified person for the appointment of
director shall not be eligible for such appointment. No person shall hold the position of
small shareholder's director in more, than two companies at the same time. A small
shareholders' director shall not, for a period of 3 years from the date on which he
ceases to hold office as a small shareholders' director in a company, be appointed in
or be associated with such company in any other capacity either directly or
indirectly.
7. (a) "Ethics is the first line of defence against corruption, while law enforcement is
remedial and reactive. However, both fail to achieve the desired aim in the Indian
set-up." Do you agree? Give reasons in support of your answer.
(b) Deepak is employed in Assam Coffee Estate Ltd., a seasonal establishment. The
factory was in operation for four months only during the financial year 2018-19.
Deepak was not in continuous service during this period. However, he has worked
only 60 days. Referring to the provisions of The Payment of Gratuity Act, 1972,
decide whether Deepak is entitled to gratuity payable under the Act. Would your
answer be the same in case Deepak works for 100 days? 10+5=15
Answer:
7. (a) It is, absolutely correct to say that ethics is the first line of defense against corruption. What
prevents corruption in the first place is ethics. The enforcement of law is a reaction to the
occurrence of the corruption.
While the law can only lay down the do's and don'ts and the consequences of doing or
not doing something.
The compliance to law in letter and spirit can be achieved only through ethical practices
being followed.
An act may be perfectly legal but totally unethical. Therefore, the statement law
enforcement is remedial and reactive is also true.
However, ethics is not absolute and is open to the influence of time, place and situation.
Certain unethical practice on account of the fact that is widely prevalent is apparently
justified.
The following are some of the factors that have contributed to the prevalence of
corruption in India:
(i) Cultural ethos: Putting a premium on materialism, profiteering, power play and casual
attitude for ethical values …. Myopic concern overriding long-term considerations and
values.
(ii) Institutional failures: Procedural formalities in-built obstacles, bureaucratic red-tapism
etc.
(iii) Poor enforcement of law: delay injustice.
(iv) Erosion of values in politicians, entrepreneurs political lobbying etc.
(b) For entitlement of gratuity one must work for at least 75% of the days on which the
establishment was open and in operation. The factory was in operation for 120 days.
One must work for 75% of 120 i.e. 90 days to claim gratuity. Deepak is not entitled to
gratuity, since he has actually worked for less than 75% of the number of days on which the
establishment was in operation during such period.
If Deepak had worked for 100 days, then he would have been entitled to gratuity since
the number of days on which he would have worked, in that case, would have been 75%
or more of the number of days on which the establishment was in operation.

(a) Agreement without consideration
(b) Red herring prospectus
(c) Importance of ethics

(d) Annual Leave under the Factories Act, 1948
Answer:
8. (a) Agreement without consideration
Section 25 provides that an agreement made without consideration is void unless-

(1) it is in writing and registered - It is expressed in writing and registered under the law
for the time being in force for the registration of documents and is made on
account of natural love and affection between parties standing in a near relation
to each other; or unless
(2) if is a promise to compensate for something done - It is a promise to compensate,
wholly or in part, a person who has already voluntarily done something for the
promisor, or something which the promisor was legally compellable to do; or
unless
(3) it is a promise to pay a debt, barred by limitation law - It is a promise, made in
writing and signed by the person to be charged herewith, or by his agent
generally or specially authorized in that behalf, to pay wholly or in part a debt of
which the creditor might have enforced payment but for the law for the limitation
of suits.
In any of these cases, such an agreement is a contract.
(b) Red herring prospectus
The Explanation to Section 32 defines the term 'red herring prospectus' as a

prospectus which does not include complete particulars of the quantum or price of
the securities included therein,
Section 32 provides that a company proposing to make an offer of securities may

issue a red herring prospectus prior to the issue of a prospectus. The same shall be
filed with the Registrar at least three day prior to the opening of the subscription list
and the offer. It shall carry the same obligations as are applicable to a prospectus
and any variation between the red herring prospectus and a prospectus shall be
highlighted as variations in the prospectus.
At the time of closing of the offer, the prospectus stating the total capital raised,
whether by way of debt or share capital and the closing price of the securities and
any other detail as are not included in the red herring prospectus shall be filed with
the Registrar and the SEBI.
(c) Importance of Ethics
Ethics is a requirement for human life. It is our means of deciding a course of action. Without
it, our actions would be random and aimless. There would be no way to work towards a
goal because there would be no way to pick between a limitless numbers of goals. Even
with an ethical standard, we may be unable to pursue our goals with the possibility of
success. To the degree which a rational ethical standard is taken, we are able to correctly
organize our goals and actions to accomplish our most important values. Any flaw in our
ethics will reduce our ability to be successful in our endeavours.
A proper foundation of ethics requires a standard of value to which all goals and actions
can be compared to. This standard is our own lives, and the happiness which makes them
liveable. This is our ultimate standard of value, the goal in which an ethical man must
always aim. It is arrived at by an examination of man's nature, and recognizing his peculiar
needs. A system of ethics must further consist of not only emergency situations, but the
day to day choices we make constantly. It must include our relations to others, and
recognize their importance not only to our physical survival, but to our well - being and
happiness. It must recognize that our lives are an end in themselves, and that sacrifice is
not only not necessary, but destructive.
(d) Annual leave
Section 79 of The Factories Act, 1948 provides that every worker who has worked for a
period 240 days or more in a factory during a calendar year shall be allowed leave
with wages for a number lays calculated at the rate of-
if an adult, one day for every 20 days of work performed by him during the previous
calendar rear;
if a child, one day for every 15 days of work performed by him during the previous
calendar year.
The following shall be deemed to be days on which the worker has worked for the
purpose of computation of the period of 240 days or more-
any days of lay off, by agreement or contract or as permissible under the standing
orders;
in the case of a female worker, maternity leave for any number of days not
exceeding 12 weeks;
and the leave earned in the year prior to that in which the leave is enjoyed
But the above shall not be entitled for a worker to earn leave. The leave admissible
shall be exclusive of all holidays whether occurring during or at either end of the
period of leave.
In calculating the leave fraction of leave of half a day or more shall be treated as
one full day's leave and fraction of less than half a day shall be omitted.
Suggested Answer_Syl16_Dec2018_Paper_6
GROUP I
(SYLLABUS 2016)

DECEMBER 2018
Paper- 6: LAWS & ETHICS
Time Allowed: 3 Hours Full Marks :100
The figures in the margin on the right side indicate the full marks.
This question paper has two sections, A and B.
Both the sections are to be answered subject to instructions given against each.
SECTION – A
Section A contains Question No. 1. All parts of this questions are compulsory.

Choose the correct answer from the given alternatives (you may write only the Roman
numeraland the alphabet chosen for your answer): 1×10=10
(a) Multiple Choice Questions:
(i) A proposal may be revoked at any time before
(A) the communication of acceptance
(B) the payment of consideration
(C) signing the agreement
(D) execution of the proposal
(ii) Which of the following is not to be taken care while admitting a new partner?
(A) Computation of new profit sharing ratio and sacrifice ratio
(B) Accounting treatment of goodwill
(C) Professional qualification of admitting partner
(D) Revaluation of assets and liabilities
(iii) Where goods are delivered to the buyer and he refuses to accept them, the buyer
is not bound to
(A) retain them with him.
(B) look-after the goods.
(C) return them to the seller.
(D) store them in his godown.
(iv) No child shall be allowed to work in a factory unless he has completed his
(A) 12th year
(B) 14th year
(C) 16th year
(D) 18th year
(v) Gratuity shall be payable to an employee on the termination of his employment
after he has rendered continuous service for not less than
(A) three years
(B) five years
(C) seven years
(D) ten years
(vi) The Employees' State Insurance Corporation is
(A) Hindu Undivided Family
(B) Local Authority
(C) Charitable Institution
(D) Body Corporate
(vii) The annual return of an OPC shall be signed by the company secretary or where there is
no company secretary, by the
(A) Senior executive of the company
(B) Auditor of the company
(C) Director of the company
(D) Advocate of the company
(viii)If there is any mis-statement in the prospectus then it would attract the liability on
(A) The printer
(B) The issuer
(C) The publisher
(D) The proof-reader
(ix) Every company limited by shares shall keep and maintain the Register of Members in Form
No.
(A) MGT-1
(B) MGT-3
(C) MGT-7
(D) MGT-12
(x) Ethics are the set of moral principles that guide a person's
(A) Behaviour
(B) Philosophy
(C) Religion
(D) Profession
(b) Match and Pair: 1×5=5
Column I Column II
(1) Wagering contract (A) Voting through electronics means
(2) Coercion (B) War,animal rights and capital
punishment
(3) Consensus ad-idem (C) Committing any act forbidden by
the Indian Penal Code
(4) Section 108 of Companies Act, 2013 (D) Identity of minds
(5) Applied ethics (E) Promise to pay `1,000 if it rains
today
(c) State whether the following statements are True or False: 1×5=5
(i) Goods to be manufactured or produced or acquired by the seller after making of
the contract of sale are called future goods.
(ii) The first endorsement of an instrument can be made by the Banker.
(iii) Payment of Gratuity Act, 1972 applies to every shop and establishment
employing seven or more persons.
(iv) In case of e-voting, notice shall be sent as attachment in word file.
(v) Ethics is a requirement for human life.
(d) Fill in the blanks: 1×5=5

(i) The dishonor of the instrument may be due to Non-acceptance and __________ .
(ii) The term of the office of the representative members of Medical Benefit Council
shall be ____________ years from the date on which the appointment is notified.
(iii) The company shall have the__________ to specify the lock-in-period for the shares
issued in pursuant to exercise such option.
(iv) A director may resign from his office by giving a notice in writing to the _______.
(v) The Seven Principles of Public Life were set out by________ for the first time in the
year 1995.
Answer: 1(a)
(i) (a) The communication of acceptance
(ii) (c) Professional qualification of admitting partner
(iii) (c) Return them to the seller
(iv) (b) 14th year
(v) (b) Five years
(vi) (d) Body Corporate
(vii) (c) Director of the company
(viii) (b) The issuer
(ix) (a)MGT – 1
(x) (a) Behaviour
Answer: 1(b)
Column I Column II
(1) Wagering contract (E) Promise to pay `1,000 if it rains today
(2) Coercion (C) Committing any act forbidden by the
Indian Penal Code
(3) Consensus ad-idem (D) Identity of minds
(4) Section 108 of Companies Act, 2013 (A) Voting through electronics means
(5) Applied ethics (B) War, animal rights and capital
punishment
Answer: 1(c)
(i) True
(ii) False
(iii) False
(iv) False
(v) True
Answer: 1(d)
(i) Non payment
(ii) Four
(iii) Freedom
(iv) Company
(v) Lord Nolan
SECTION - B
Answer any five questions from question numbers 2 to 8.
15×5=75
2. (a) Explain the meaning of 'Quasi-Contracts'. State the circumstances which are identified
as quasi-contracts by the Indian Contract Act, 1872.
(b) C is the wife of A. She purchased some sarees on credit from B. B demanded the amount
from A. A refused. B filed a suit against A for the said amount. Decide in the light of
provisions of the Indian Contract Act, 1872, whether B would succeed. 10+5=15
Answer: 2(a)
Even in the absence of a contract, certain social relationships give rise to certain specific
obligations to be performed by certain persons. These are known as – quasi contracts as
they create some obligations as in the case of regular contracts. Quasi-contracts are
based on the principles of equity, justice and good conscience. The salient features of
quasi-contracts are: Firstly, such a right is always a right to money and generally, though
not always, to a liquidated sum of money; Secondly, it does not arise from any agreement
between the parties concerned but the obligation is imposed by law and; Thirdly, the
rights available are not against all the world but against a particular person or persons
only, so in this respect it resembles to a contractual right.
Circumstances identified as quasi-contracts:
1. Sec-68--Claim for necessaries supplied to persons incapable of contracting: Any
person supplying necessaries of life to persons who are incapable of contracting is
entitled to claim the price from the other person’s property. Similarly, where money is paid
to such persons for purchase of necessaries, reimbursement can be claimed.
2. Sec-69-Right to recover money paid for another person: A person who has paid a sum
of money which another person is obliged to pay, is entitled to be reimbursed by that
other person provided that the payment has been made by him to protect his own
interest.
3. Sec-70-Obligation of person enjoying benefits of non-gratuitous act: Where a person
lawfully does anything for another person, or delivers anything to him not intending to do
so gratuitously and such other person enjoys the benefit thereof, the latter is bound to pay
compensation to the former in respect of, or to restore, the thing so done or delivered.
4. Sec-71-Responsibility of finder of goods: A person who finds goods belonging to
another person and takes them into his custody is subject to same responsibility as if he
were a bailee.
5. Sec-72- Liability for money paid or thing delivered by mistake or by coercion: A person
to whom money has been paid or anything delivered by mistake or under coercion, must
repay or return it.
In all the above cases contractual liability arises without any agreement between the
parties.
Answer: 2(b)
Problem as asked in the question is based on the provisions related with the modes of
creation of agency relationship under the Indian Contract Act, 1872. Agency may be
created by a legal presumption; in a case of cohabitation by a married woman (i.e. wife
is considered as an implied married agent, of her husband). If wife lives with her husband,
there is a legal presumption that a wife has authority to pledge her husband’s credit for
necessaries.
But the legal presumption can be rebutted in the following cases:
(i) Where the goods purchased on credit are not necessaries.
(ii) Where the wife is given sufficient money for purchasing necessaries.
(iii) Where the wife is forbidden from purchasing anything on credit or contracting
debts.
(iv) Where the trader has been expressly warned not to give credit to his wife.
If the wife lives apart for no fault on her part, wife has authority to pledge her husband’s
credit for necessaries. This legal presumption can be rebutted only in cases (iii) and (iv).
Applying the above conditions in the given case ‘B’ will succeed. He can recover the
said amount from ‘A’ if sarees purchased by ‘C’ are necessaries for her.
3. (a) A limited liability partnership wants to shift its registered office from Mumbai in the State
of Maharashtra to Kolkata in the State of West Bengal. What procedure the corporate
has to follow under Limited Liability Partnership Act, 2008?
(b) Rahul draws a cheque payable to 'sell or order'. Before he could encash the cheque,
one of his creditors, Samrat approaches him for payment. Rahul endorses the same
cheque in Samrat's favour. The banker refuses payment to Samrat on account of
insufficiency of funds in the account. Can Rahul be made liable to penalties for
dishonor of cheque due to insufficiency of funds in the account under section 138 of
Negotiable Instruments Act, 1881? 8+7=15
Answer: 3(a)
Sec 13 of the LLP Act states that a limited liability partnership may change the place of its
registered office and file the notice of such change With the Registrar in form 15 within 30
days. Registered office can be changed from one place to another place in the manner
provided in the Partnership Agreement, if the agreement is silent then consent of all
partners shall be required for changing the place of registered office of limited liability
partnership to another place, where the change in place of registered office is from one
State to another State, the limited liability partnership having secured creditors shall also
obtain consent of such secured creditors.
Where the change in place of registered office is from one state to another state, a
general notice, not less than 21 days before filing any notice with Registrar, is required to
be published in a daily newspaper published in English and in the principal language of
the district in which the registered office of the limited liability partnership is situated and
circulating in that district giving notice of change of registered office. However, there is
just change in the jurisdiction of one Registrar to the jurisdiction of another Registrar; the
limited liability Partnership shall file the notice in Form 15 with the Registrar from where the
Limited liability partnership proposes to shift its registered office with a copy thereof for the
information to the Registrar under whose Jurisdiction the registered office is proposed to
be shifted. Failure to comply with the provision of this section the limited liability
partnership and its every partner is liable to be punishable with fine which shall not be less
than two thousand rupees but which may extend to twenty five thousand rupees.
Alternate Answer:
Change of LLP Office from one State to another (in the given problem, it is from Mumbai,
Maharashtra to Kolkata, West Bengal)
Resolution for Change of Address: It should be done as per LLP Agreement. If where the
Limited LLP doesn’t provide for any such procedure, consent of all partners shall be
required for changing the place of Registered Office of Limited LLP to another place.
Secured Creditors: Consent of Secured Creditors required for such change of address.
Form to be filed: Form- 15 to be filed with Registrar from where (here it is Mumbai) the LLP
proposes to shift its registered office with a copy thereof for the information to the
Registrar under whose jurisdiction (Kolkata) the registered office is proposed to be shifted
within 30 days of such change.
Public Notice: Publish a general notice, not less than 21 days before filing any notice with
Registrar, in a daily newspaper published in English and in the principal language of the
district in which the registered office of the LLP is situated (Mumbai, Maharashtra )and
circulated in that district giving notice of change of registered office.
From when to be filed: Within 30 days of publishing of notice.
Failure to comply with these provisions, the LLP and its every partner is liable to
punishable with fine which shall not be less than two thousand rupees but which may
extend to twenty five thousand rupees.
Answer: 3(b)
Section 138 of Negotiable Instrument Act, 1881, creates statutory offence in the matter of
dishonour of cheques on the ground of insufficiency of funds in the account maintained
by a person with the banker.
Section 138 of the Act can be said to be falling either in the acts which are not criminal
offense in real sense, but are acts which in public interest are prohibited under the
penalty or those where although the proceeding may be in criminal form, they are really
only a summary mode of enforcing a civil right. Normally in criminal law existence of guilty
intent is an essential ingredient of a crime.
However the Legislature can always create an offence of absolute liability or strict where
‘mens rea’ is not at all necessary.
No, Rahul cannot be made liable to penalties for dishonour of cheque due to
insufficiency of funds in the account since the cheque was not originally drawn payable
to another person.
A cheque drawn payable to self and later endorsed in favour of another person does not
seem to fall within the purview of the provisions of Section 138 which lay down that the
cheque should have been drawn for payment to another person.
4. (a) Explain the procedure for fixing and revising minimum wages under Minimum Wages
Act, 1948.
(b) Mention the benefits that are entitled to the insured persons under the Employees'
StateInsurance Act, 1948. 9+6=15
Answer: 4(a)
Procedure for Fixing and revising Minimum Wages (Sec 5)
In fixing minimum rates of wages in respect of any scheduled employment for the first time
or in revising minimum rates of wages so fixed, the appropriate Government shall follow
either of the following 2 methods:
(a) Appointment of committees. The appropriate Government shall appoint as many

committees and sub-committees as it considers necessary to hold inquiries and advise it in
respect of fixation or revision of minimum rates of wages, as the case may be [Sec.
5(1)(a)] ; or
(b) Publication of proposals in the Official Gazette. The appropriate Government shall, by
notification in the Official Gazette, publish its proposals for the information of persons likely
to be affected by the fixation or revision of minimum rates of wages. It shall also specify a
date on which the proposals will be taken into consideration. The date so specified shall
not be less than 2 months from the date of the notification [Sec. 5(1) (b)].
After considering the advice of the committee or committees [under Sec. 5(1) (a)] or all
representations received by it before the date specified in the notification [under Sec 5(1)
(b)], the appropriate Government shall, by notification in the Official Gazette, fix or revise
the minimum rates of wages in respect of each scheduled employment. The fixation or
revision shall come into force on the expiry of 3 months from the date of the issue of
notification, unless the notification otherwise provides [Sec 5(2)]. The power of the
Government under Sec. 5(2) to issue notification revising minimum wages includes power
to give retrospective effect to notification.
Answer: 4(b)
Section 46 of the Employees State Insurance Act, 1948 provides that the insured persons,
their dependents shall be entitled to the following benefits
1. Periodical payments to any insured person in case of his sickness ;
2. Periodical payments to an insured woman in case of confinement or mis-carriage or
sickness arising out of the pregnancy, confinement, premature birth of child or
miscarriage;
3. Periodical payments to an insured person suffering from a disablement as a result of
an employment injury sustained as an employee;
4. Periodical payments to such dependents of an insured person who dies as a result of
an employment injury sustained as an employee ;
5. Medical treatment for and attendance on insured persons ;
6. Payment to the eldest surviving member of the family of an insured person, who has
died, towards the expenditure on the funeral of the deceased insured person; if the
injured person at the time of his death does not have a family, the funeral payment
will be paid to the person who actually incurs the expenditure.
The amount of such payment shall not exceed such amount as may be prescribed
by the Central Government. The claim for such payments shall be made within 3
months of the death of the insured person or within such extended period as the
Corporation allow in this behalf.
5. (a) What are the features of companies registered under section 8 of the Companies Act,
2013?
(b) Discuss the provisions of the Companies Act, 2013 regarding issue of bonus shares.
7+8=15
Answer: 5(a)
Section 8 of companies Act 2013 These companies intend to promote art, commerce,
sports, safety, science, research, healthcare, social welfare, religion, protection of the
environment etc.
The following are the features of companies registered under Section 8 of the Companies
Act, 2013;
1. has its objects the promotion of commerce, art, science, sports, education, research,
social welfare, religion, charity, protection of environment or any such other object;
2. intends to apply its profit, if any, or other income in promoting its objects; and
3. intends to prohibit the payment of any dividend to its members;
4. the company registered under this Section shall enjoy all the privileges and be subject
to all the obligations of the limited company;
5. a firm may be a member of the company registered under this section ;
6. a company registered under this Section shall not alter the provisions of its
memorandum and articles except with the previous approval of the Central
Government.
7. a company registered under this section may convert itself into a company of any
other kind only after complying with such conditions as may be prescribed.
Answer: 5(b)
Section 63 of the Companies Act, 2013 provides for the issue of bonus shares. Section
63(1) provides that a company issue fully paid up bonus shares to its members out of its
free reserves ;
the securities premium account ; or
the capital redemption reserve account
No bonus shares shall be made by capitalizing reserves created by revaluation of assets.

Section 63(2) provides that no company shall capitalize its profits or reserves for the
purpose of issuing fully paid up shares unless –
it is authorized by its articles ;
it has, on the recommendation of the Board, been authorized in the general
meeting of the company ;
it has no defaulted in payment of interest or principal in respect of fixed deposits or
debt securities issued by it ;
it has not defaulted in respect of the payment of statutory dues of the employees,
such as, contribution to provident fund, gratuity and bonus ;
the partly paid up shares, if any outstanding on the date of allotment are made fully
paid up ;
it complies with such conditions as may be prescribed ;
Section 63(3) provides that the bonus shares shall not be issued in lieu of dividend.
Rule 14 provides that the company which once announced the decision of the Board
recommending a Bonus issue shall not subsequently withdraw the same.
6. (a) Discuss the powers of the Board of Directors of a company as per the Companies Act,
2013.
(b) Enumerate the provisions of the Companies Act, 2013 relating to women director in a
company. 10+5=15
Answer: 6(a)
Section 179 of the Companies Act, 2013 deals with the powers of the board; all powers to
do such acts and things for which the company is authorised is vested with board of
directors. But the board can act or do the things for which powers are vested with them
and not with general meeting.
The following section 179(3) read with Rule 8 of Companies (Management &
Administration) Rules, 2014 powers of the Board of directors shall be exercised only by
means of resolutions passed at meetings of the Board, namely : -
(1) to make calls on shareholders in respect of money unpaid on their shares ;
(2) to authorise buy-back of securities under section 68 ;
(3) to issue securities, including debentures, whether in or outside India ;
(4) to borrow monies ;
(5) to invest the funds of the company ;
(6) to grant loans or give guarantee or provide security in respect of loans ;
(7) to approve financial statement and the Board’s report ;
(8) to diversify the business of the company ;
(9) to approve amalgamation, merger or reconstruction ;
(10) to take over a company or acquire a controlling or substantial stake in another
company;
(11) to make political contributions ;
(12) to appoint or remove key managerial personnel (KMP) ;
(13) to appoint internal auditors and secretarial auditor ;
The Board may, by a resolution passed at a meeting, delegate to any committee of

directors, the managing director, the manager or any other principal officer of the
company or in the case of a branch office of the company, the principal officer of the
branch office, the powers specified in (4) to (6) above on such conditions as it may
specify.
The banking company is not covered under the purview of this section. The company
may impose restriction and conditions on the powers of the Board.
However, unless specifically restricted under the act or Article of Association, Board has all
the powers to manage the affairs of the company
Answer: 6(b)
Second proviso to Section 149(1) of the Companies Act, 2013 read with Rule 3 of
Companies (Appointment and Qualification of Directors) Rules, 2014 provides that the
following classes of companies shall appoint at least one woman director
every listed company ;
every other public company having
o paid up share capital ` 100 crores or more; or
o turnover of ` 300 crores or more.
For this purpose the paid capital or turnover as on the last date of latest audited financial
statements shall be taken into account. A company incorporated under the Companies
Act shall comply with such appointment of woman director within a period of six months
from the date of its incorporation. Any intermittent vacancy of a woman director shall be
filed up by the Board at the earliest but not later than immediate next Board meeting or
three months from the date of such vacancy whichever is later.
7.(a) Discuss the nature and relevance of Ethics to the Business.
(b) Mr. Gill, an employee of M/s Sonabheel Tea Ltd., continued to occupy the quarter of
the company for eight months after superannuation, company decided to forfeit the
amount of gratuity of Mr. Gill. Examine the decision taken by the company to forfeit
the amount ofgratuity in the light of the Payment of Gratuity Act, 1972. 10+5=15
Answer: 7(a)
Ethics – Nature and relevance to the business
Several factors play a role in the success of a company that is beyond the scope of
financial statements alone. Organizational culture, management philosophy and ethics in
business each have an impact on how well a business performs in the long term. No
matter the size, industry or level or profitability of an organization, business ethics are one
of the most important aspects of long-term success
The management team sets the tone for how the entire company runs on a day-to-day
basis. When the prevailing management philosophy is based on ethical practices and
behaviour, leaders within an organization can direct employees by example and guide
them in making decisions that are not only beneficial to them as individuals, but also to
the organization as a whole. Building on a foundation of ethical behaviour helps create
long lasting positive effects for a company, including the ability to attract and retain
highly talented individuals and building and maintaining a positive reputation within the
community. Running a business in an ethical manner from the top down builds a stronger
bond between individuals on the management team, further creating stability within the
company.
When management is leading an organization in an ethical manner, employees follow in
those footsteps. Employees make better decisions in less time with business ethics as a
guiding principle; this increases productivity and overall employee morale. When
employees complete work in a way that is based on honesty and integrity, the whole
organization benefits. Employees who work for a corporation that demands a high
standard of business ethics in all facets of operations are more likely to perform their job
duties at a higher level and are also more inclined to stay loyal to that organization.
The importance of business ethics reaches far beyond employee loyalty and morale or
the strength of a management team bond. As with all business initiatives, the ethical
operation of a company is directly related to profitability in both the short and long term.
The reputation of a business from the surrounding community, other businesses and
individual investors is paramount in determining whether a company is a worthwhile
investment. If a company’s reputation is less than perfect based on the perception that it
does not operate ethically, investors are less inclined to buy stock or otherwise support its
operations. With consistent ethical behaviour comes increasingly positive public image,
and there are few other considerations as important to potential investors and current
shareholders. To retain a positive image, businesses must be committed to operating on
an ethical foundation as it relates to treatment of employees, respect to the surrounding
environment and fair market practices in terms of price and consumer treatment.
Answer: 7(b)
The gratuity of an employee, whose services have been terminated for any act, willful
omission or negligence causing any damage or loss to, or destruction of, property
belonging to the employer, can be forfeited to the extent of the damage or loss so
caused.
The gratuity payable to an employee may be wholly or partially forfeited:
(i) if the services of such employee have been terminated for his riotous or disorderly
conduct or any other act of violence on his part or
(ii) if the services of such employee have been terminated for any act which constitutes
an offence involving moral turpitude, provided that such offence is committed by
him in the course of his employment.
It is not a valid ground forfeiture of entire gratuity. In such a case, the company is entitled
to charge the quarter rent as per rules and after adjustment of such charges, Mr. Gill is
entitled to receive the balance gratuity.
(a) E-Contracts
(b) Small Companies
(c) Improving ethical behaviour in business
(d) 'Overtime' under Minimum Wages Act, 1948
Answer: 8(a)
E-Contracts: E-contracts are paperless contracts. It is in electronic form. They are
conceptually very similar to traditional contracts. E-contract also require basis of
contract. The following are ingredients of the e-contracts –
An offer is to be made;
Offer is to be accepted;
There shall be a lawful consideration;
There shall an intention to create legal relations;
The parties must be competent to contract;
There must be free and genuine consent;
The object of the contract must be lawful;
The main feature of this type of contract is speed, accuracy and reliability. The parties to
the contract have to obtain digital certificate from competent authority. The Information
Technology Act, 2000 regulates such contracts. Contract is signed through E-Mail is valid
& enforceable.
Answer: 8(b)
Small Companies:
Section 2(85) of the Companies Act, 2013 defines ‘small company’ as a company, other
than a public company –
(i) paid up share capital of which does not exceed ` 50 lakh or such higher amount as
may be prescribed which shall not be more than ` 10 crore; and
(ii) turnover which is as per its last profit and loss account does not exceed ` 2 crores or
such higher amount as may be prescribed which shall not be more than ` 100 crores.
This definition shall not apply to the following companies –
A holding company or subsidiary company;
A company registered under Section 8; or
A company or a body corporate governed by any special act.
Answer: 8(c)
Improving ethical behaviour in business
Understanding how people make ethical choices and what prompts a person to act
unethically may reverse the current trend toward unethical behaviour in business. Ethical
decisions in an organization are influenced by three key factors: individual moral
standards, the influence of managers and co-workers, and the opportunity to engage in
misconduct. It is difficult for employees to determine what conduct is acceptable within a
company if the firm does not have ethics policies and standards.
And without such policies and standards, employees may base decisions on how their
peers and superiors behave. Professional codes of ethics are formalized rules and
standards that describe what a company expects of its employees. Codes of ethics,
policies on ethics, and ethics training programs advance ethical behaviour because they
prescribe which activities are acceptable and which are not, and they limit the
opportunity for misconduct by providing punishments for violations of the rules and
standards. The enforcement of such codes and policies through rewards and
punishments increases the acceptance of ethical standards by employees.
Answer: 8(d)
Overtime
Section 14(1) provides that where an employee whose minimum rate of wages is fixed
under this Act by the hour, by the day or by such a longer wage-period as may be
prescribed, works on any day in excess of the number of hours constituting a normal
working day, the employer shall pay him for every hour or for part of an hour so worked in
excess at the overtime rate fixed under this Act or under any law of the appropriate
government for the time being in force whichever is higher.
Rule 25 provides that when a worker works more than 9 hours on any day or more than 48
hours in a week, he shall be entitled to overtime wages.
In case of employment in agriculture – one and a half times the ordinary rate of wages;
in case of any other scheduled employment – double the ordinary rate of wages.
A register in this regard shall be maintained. If no overtime wage is paid for a particular
month a NIL entry in register should be made.
Section 14(2) provides that this Act shall not prejudice the operation of the provisions of
Section 59 of the Factories Act in any case where those provisions are applicable.
Suggested Answers_Syl2016_June2018_Paper 6
GROUP - I
(SYLLABUS 2016)

JUNE - 2018
Paper - 6: Laws and Ethics
Time Allowed: 3 Hours Full Marks: 100
This question paper has two sections. A and B.
Section - A
Section A contains question No. 1. All parts of this question are compulsory.
(i) The main feature of e-contract is

(a) Cost and acceptability
(b) Purity and clarity
(c) Speed, accurate and reliable
(d) Perfection and attractive
(ii) Which of the following is not an unpaid seller's right against the goods?
(a) The right of retention
(b) The right of stoppage in transit
(c) The right of seeking claim for damage
(d) The right of resale
(iii) Where the endorser does not want that the endorsee or any other holder to incur
any expense on his account is called
(a) Restrictive endorsement
(b) Sans frais endorsement
(c) Conditional endorsement
(d) Unwanted endorsement
(iv) The liability of the partners will continue for the acts done before the dissolution,
even after the dissolution, until
(a) Public notice is given of the dissolution
(b) Partners are getting the final payment
(c) Claim is demanded by the creditors
(d) The death of partners
(v) Every employee shall be entitled to receive bonus from his employer in an
accounting year if he has worked for not less than
(a) Ten working days
(b) Twenty working days
(c) Thirty working days
(d) Forty working days
(vi) Under Employee's State Insurance Act, 1948, the term of the office of the members
of Medical Benefit Council shall be
(a) 2 Years
(b) 4 Years
(c) 5 Years
(d) 10 Years
(vii)Which one cannot be transacted through postal ballot?

(a) Appointment of auditor
(b) Election of a Director
(c) Buy back of shares by a company
(d) Change in place of registered office outside the local limits of any city, town
or village
(viii) The appointment of an independent director shall be approved by the

(a) Board meeting
(b) General meeting
(c) Registrar of Companies
(d) Central Government
(ix) The sweat equity shares shall be locked in for a period of __________ years from
the date of allotment.
(a) One
(b) Two
(c) Three
(d) Four
(x) The following is the disadvantage of business ethics:

(a) Through increasing morale and trust business can increase their market share
(b) Publicity due to well and ethical performance
(c) Acceptance of products of the company by the public
(d) Diversity in achievements
(b) Match the statement in column 1 with the most appropriate statement in Column II:
1x5=5
Column I Column II
1. Legal Representative of the (A) Welfare measures taken in a factory.
contractor
2. Where the seller makes a false (B) Certificate of incorporation.
representation and buyer relies on it.
3. Creches (C) Extract of the annual return of a
company.
4. MGT-9 (D) Exception to the Doctrine of Caveat
Emptor.
5. Form No. INC-11 (E) He who is not the Principal Employer.
(c) State whether the following statements are True or False (you may write only the
Roman numeral and whether True or False without copying the statements into the
answer books): 1x5=5
(i) Gratuitous bailment continues even after the death of either of the bailor or
bailee.
(ii) A holder is not having right to duplicate of lost bill, before it is overdue.
(iii) Fine may be recovered from the employed person by installments
(iv) Share certificate is a negotiable instrument.
(v) The businessmen who do not follow business ethics will have short term success,
but they will fail in the long run.
(d) Fill in the blanks suitably (you may write only the Roman numeral and the content
filling the blanks): 1x5=5
(i) The liability of surety arises only when the principal debtor fails to pay the debt to
the _______________.
(ii) Goods to be manufactured or produced or acquired by the seller after making of
the contract of sale is called _______________ good.
(iii) If there is a dispute as to the amount of gratuity payable to the employee, the
employer shall deposit the gratuity with the ____________.
(iv) The time limit for registration of charge is _____________ days from the date of
creation of charge.
(v) The ethical operation of a company is directly related to ____________ in both short
and long term.
Answer:
1. (a) (i) (c)

(ii) (c)
(iii) (b)
(iv) (a)
(v) (c)
(vi) (b)
(vii) (a)
(viii) (b)
(ix) (c)
(x) (d)
(b)
Column I Column II
1. Legal Representative of the (E) He who is not the Principal
contractor Employer.
2. Where the seller makes a false (D) Exception to the Doctrine of
representation and buyer relies on it. Caveat Emptor.
3. Creches (A) Welfare measures taken in a
factory.
4. MGT-9 (C) Extract of the annual return of a
company.
5. Form No. INC-11 (B) Certificate of incorporation.
(c) (i) False

(ii) False
(iii) False
(iv) False
(v) True
(d) (i) creditor

(ii) Future
(iii) Controlling Authority
(iv) 30
(v) Profitability
Section – B

15×5 = 75
2. (a) Mr. X, a businessman has been fighting a long drawn litigation with Mr. Y, another
businessman. To support his legal campaign Mr. X enlists the services of Mr. Z, a legal
expert, stating that an amount of ` 10 lakhs would be paid, if Mr. Z does not take up
the brief of Mr. Y. Mr. Z agrees, but at the end of the litigation Mr. X refuses to pay.
Decide whether Mr. Z can recover the amount promised by Mr. X under the provisions
of the Indian Contract Act, 1872.
(b) State the circumstances when an agent is personally liable for the contracts entered
into by him on behalf of the principal? 5+10=15
Answer:
2. (a) The problem as asked in the question is based on one of the essentials of a valid
contract. Accordingly, one of the essential elements of a valid contract is that the
agreement must not be one which the law declares to be either illegal or void.
Further Contract Act specifies that any agreements in restraint of trade, marriage,
legal proceedings etc. are void agreements.
Thus Mr, Z cannot recover the amount of ` 10 lakhs promised by Mr. X because
it is an illegal agreement and cannot be enforced by law.
(b) The general rule of the Indian Contracts Act, 1872 states that:
(i) Only the principal can enforce and can be held liable on a contract entered into
by an agent.
(ii) The agent is not personally liable on a contract entered into by him on behalf of
the principal.
The following are the exceptions to the above rule:

1. Foreign Principal: When agent acts for sale or purchase of goods for a principal
resident abroad i.e., foreign principal.
2. Personal liability by agreement: Where it is expressly provided in the contract
that the agent shall be personally liable.
3. Undisclosed principal: Where agent does not disclose the name/identity of
the principal.
4. Principal cannot be sued: Where the principal is disclosed but cannot be sued,
e.g., foreign sovereigns, ambassadors etc.
5. Non-existence of Principal: When the principal is not in existence at the time
when the act was done, i.e., the agent acted for a non-existent principal.
6. Agent’s liability: When the agent exceeds his authority or commits a breach of
warranty of authority.
7. Pretended Agent: When he acts as a pretended agent.
8. Mistake or Fraud: When he receives or pays money by mistake or fraud.
9. Agent sign an agreement without mentioning that he is an agent: Where an
agent signs a negotiable instrument without mentioning that he is signing as
an agent.
10. Trade or customs: Where the usage of trade or custom makes an agent
personally liable.
3. (a) M/s. Tea Enterprises agreed to supply 2,200 Kgs. of Tea to M/s. Gopal Enterprises at `
1,200/- per Kg. by 30th April, 2018. On 1st March, 2018 M/s. Tea Enterprises informs
Gopal Enterprises that they are not willing to supply the Tea as the price of Tea
increased to ` 1,400/- per Kg. Examine the right of M/s. Gopal Enterprises.
(b) Anil draws a bill of exchange payable to himself on Sushil, who accepts the bill
without consideration just to accommodate Anil. Anil transfers the bill to Ajay for good
consideration.
State the rights of Anil and Ajay. Would your answer be different if Anil transferred the
bill to Ajay after maturity? 8+7=15
Answer:
3. (a) In terms of the provisions of Section 32 and 33 of the Sale of Goods Act, 1930; unless
otherwise agreed, delivery of the goods and payment of the price are concurrent
conditions, that is to say, the seller shall be ready and willing to give possession of the
goods to the buyer in exchange for the price, and the buyer shall be ready and willing
to pay the price in exchange for possession of the goods.
Rights of the Buyer according to the Sale of Goods Act, 1930 include:
(1) To have delivery of the goods as per contract. (Sec. 31 & 32);
(2) To sue the seller for recovery of the price, if already paid, when the seller fails to
deliver the goods;
(3) To sue the seller for damages if the seller wrongfully neglects or refuses to deliver the
goods to the buyer (Sec 57);
(4) To sue the seller for specific performance;
(5) To sue the seller for damages for breach of a warranty or for breach of a condition
treated as breach of a warranty (Sec 59);
(6) To sue the seller the damages for anticipatory breach of contract (Sec 60)
In the instant case M/s. Gopal Enterprises can exercise any of his rights discussed
above.
(b) Section 43 of the Negotiable Instrument Act, 1881 states the following:-
(i) Liability of parties if there is no consideration - A negotiable instrument made,
drawn, accepted, endorsed or transferred without consideration, or for a
consideration which fails, creates no obligation of payment between the parties
to the transaction.
(ii) Rights of holder for consideration - but if any such party has transferred the
instrument to a holder for consideration, such holder, and every subsequent holder
deriving title from him, may recover the amount due on such instrument from the
transferor for consideration or any prior party thereto.
(iii) No right of accommodating party to recover from accommodating party - No
party for whose accommodation a negotiable instrument has been made,
drawn, accepted, endorsed can, if he has paid the amount thereof, recover
thereon such amount from any person who became a party to such instrument
for his accommodation.
In the given case, Anil is not entitled to sue Sushil, since there is no consideration
between Anil and Sushil and hence there is no obligation to pay.
Again Ajay is entitled to sue Anil and Sushil, since Ajay is a holder for consideration. Ajay
is entitled to sue the transferor for consideration and every other party prior to him.
According to Sec 59, in the case of accommodation bills, a defect in the title of the
transferor does not affect the title of the holder acquiring after maturity. Hence, even
if Ajay has acquired the bill for consideration after maturity, he is entitled to sue.
4. (a) Critically examine the duties of certified surgeon under the Factories Act, 1948.
(b) Enumerate the Central Record Keeping Agency under Pension Fund Regulatory and
Development Act 2013? 8+7=15
Answer:
4. (a) Section 10 under Factories Act, 1948 provides that the State Government may appoint
qualified medical practitioners to be certifying surgeons for the purposes of this Act
within such local limits or for such factory or class or description of factories as it may
assign to them respectively. The duties of certified surgeons are as follows-
 the examination and certification of young persons;
 the examination of person engaged in factories in such dangerous occupations or
processes as may be prescribed;
 the exercising of such medical supervision as may be prescribed for any factory or
class or description of factories, where -
 cases of illness have occurred which it is reasonable to believe are due to the
nature of the manufacturing process carried on, or other conditions of work
prevailing, therein;
 by reason of any change in the manufacturing process carried on or in the
substances used therein or by reason of the adoption of any new
manufacturing process or of any new substance for use in a manufacturing
process, there is a likelihood of injury to the health of workers employed in that
manufacturing process;
 young persons are, or are about to be, employed in any work which is likely to
cause injury to their health.
(b) Section 21 of Pension Fund Regulatory and Development Act, 2013 deals with Central
Record keeping Agency
(1) The Authority shall, by granting a certificate of registration under sub-section (3) of
Section 27, appoint a central record keeping agency:
Provided that the Authority may, in public interest, appoint more than one central
record keeping agency.
(2) The central record keeping agency shall be responsible for receiving instructions
from subscribers through the points of presence, transmitting such instructions to
pension funds, effecting switching instructions received from subscribers and
discharging such other duties and functions, as may be assigned to it under the
certificate of registration or as may be determined by regulations.
(3) All the assets and properties owned, leased or developed by the central record
keeping agency, shall constitute regulated assets and upon expiry of certificate of
registration or earlier revocation thereof, the Authority shall be entitled to
appropriate and take over the regulated assets, either by itself or through an
administrator or a person nominated by it in this behalf:
Provided that the central record keeping agency shall be entitled to be

compensated the fair value, to be ascertained by the Authority, of such regulated
assets as may be determined by regulations:
Provided further that where the earlier revocation of the certificate of registration
is based on violation of the conditions in the certificate of registration or the
provisions of this Act or regulations, unless otherwise determined by the Authority,
the central record keeping agency shall not be entitled to claim any
compensation in respect of such regulated assets.
5. (a) Discuss the procedure for conversion of private company into One Person Company.
(b) What are the procedures of sending notice through electronic mode under the
Companies Act, 2013? 7+8=15
Answer:
5. (a) Conversion of private company into a OPC

Rule 7 provides the procedure for conversion of private company into OPC. Rule 7(1)
provides that a private company other than Section 8 company, having paid up share
capital of ` 50 lakh or less and average annual turnover during the relevant period is `
2 crores or less may convert itself into OPC by passing a special resolution in the
general meeting. Before passing such resolution the company shall obtain 'No
Objection Certificate' in writing from the members and creditors. The OPC shall file
copy of the resolution with the Registrar of Companies within 30 days from the date of
passing such resolution in Form No. MGT-14.
The company shall file an application in Form No. INC-6 for its conversion into OPC
along with fees. The following documents are to be attached:
 the directors of the company shall give a declaration by way of affidavit duly
sworn in confirming that all members and creditors of the company have given
their consent for conversion, the paid up share capital of the company is ` 50 lakhs
or less or average annual turnover is less than ` 2 crores, as the case may be;
 the list of members and creditors;
 the latest Audited Balance sheet arid the Profit and Loss Account;
 the copy of No objection letter of secured creditors.
On being satisfied and complied with the requirements the Registrar shall issue the
certificate.
(b) The procedure of sending notice through electronic mode under the Companies Act,
2013 is discussed as detailed below:
 A notice may be sent through email as a text or as an attachment to email or as a
notification providing electronic link or Uniform Resource Locator for accessing
such notice;
 The email shall be addressed to the person entitled to receive such email as per the
records of the company or as provided by the depository;
 The subject shall state the name of the company, notice of the type of meeting,
place and date on which the meeting is scheduled;
 The attachment shall in a PDF or in a non editable format together with a link or
instructions for recipient for downloading relevant version of the software;
 The company should ensure that it uses a system which produces confirmation of
the total number of recipients emailed and a record of each recipient to whom
the notice has been sent and copy of such record and any notices of any failed
transmissions and subsequent re-sending shall be retained or on behalf of the
company as 'proof of sending';
 The company is not responsible for the failure in transmission beyond its control;
 If a member fails to provide or update relevant email address to the company or
to the depository participant, the company shall not be in default for not
delivering notice via email;
 The company may send email through in house facility or its registrar and transfer
agent or authorize any third party agency providing bulk email facility;
 The notice made through electronic mode shall be readable and the recipient
should be able to obtain and retain copies and the company shall give the
complete Uniform Resource Locator or address of the website and full details of
how to access the document or information;
 The notice of the general meeting of the company shall be simultaneously
placed on the website of the company, if any and on the website as may be
notified by the Government.
6. (a) Discuss the provisions of the Companies Act, 2013 regarding disqualifications for
appointment of director.
(b) "Directors are agents of the company." — Discuss. 10+5=15
Answer:
6. (a) Section 164 of the Companies Act, 2013 details the disqualification of a person for the
appointment as a Director. A person shall not be eligible for appointment as a
Director of a company, if -
(i) he is of unsound mind and stands so declared by a competent court;
(ii) he is an undischarged insolvent;
(iii) he has applied to be adjudicated as an insolvent and his application is
pending;
(iv) he has been convicted by a Court of any offence, whether involving moral
turpitude or otherwise and sentenced to imprisonment for not less than 6 months
and a period of 5 years has not elapsed from the date of expiry of the Sentence;
(v) if a person has been convicted of any offence and sentenced in respect
thereof to imprisonment for a period of 7 years or more, he shall not be
eligible to be appointed as a director in any company;
(vi) an order disqualifying him for appointment as a director has been passed by the
Court Or Tribunal and the Order is in force;
(vii) he has not paid any calls in respect of any shares of the company held by him,
whether alone or jointly with others and six months have elapsed from the last
day fixed for the payment of the call;
(viii) he has been convicted of the offence dealing with related party transactions
under Section 188 at any time during the last preceding five years; or
(ix) he has not obtain DIN.
A private company may by its articles provide for any disqualifications for
appointment as a director in addition to the above disqualifications.
The disqualifications in (iv), (v), (vi) and (viii) shall not take effect -
 for 30 days from the date of conviction or order of disqualification;
 where an appeal or petition is preferred within 30 days against the conviction
resulting in sentence or order, until expiry of 7 days from the date on which such
appeal or petition is disposed of;
 where any further appeal or petition is preferred against order or sentence within
7 days until such further appeal of petition is disposed of.
(b) The company can act only through Directors, and so the relationship between the
company and the Director is that of Principal and Agent. Contract entered into by a
person as a Director of a company, will be binding on the Company. However,
Directors are not Agents of Members of the company.
Directors have personal liability. They would be personally liable under the following
circumstances:
 Director acts in his own name,
 Director enters into an agreement/ contract which does not state clearly as to
whether the Director signing in his personal capacity or in his representative
capacity as an Agent of the Company.
Rights of the Company:

 Contract executed by the Director in excess of his authority, is binding on the
Company. However, the Company may claim damages from the Director for
breach of implied warranty of authority.
 When Directors act properly on behalf of the Company, they do not incur
personal liability; they do not exceed their powers.
7. (a) What are the areas in business ethics? Write a note of the same.
(b) Kelson Limited has two separate units at Delhi and Mumbai in India. Every unit of the
said company prepares and maintains separate Balance Sheet and Profit and Loss
Account. Delhi unit is incurring continuous losses and hence bonus is not paid to the
employees of this unit.
Decide, under the Payment of Bonus Act, 1965 whether the employees of the said unit
can claim bonus on the ground that the unit incurring loss is a part of one single
establishment? 10+5=15
Answer:
7. (a) Areas in business ethics

 Corporate Social Responsibility;
 Fiduciary responsibility to stake holders;
 Industrial espionage.
Ethical behavior and corporate social responsibility can bring significant benefits to a
business.
For example, they may:
 attract customers to the firm's products, which means boosting sales and profits
 make employees want to stay with the business, reduce labour turnover and
therefore increase productivity
 attract more employees wanting to work for the business, reduce recruitment
costs and enable the company to get the most talented employees
 attract investors and keep the company's share price high, thereby protecting
the business from takeover.
Knowing that the company, they deal with, has stated their morals and made a
promise to work in an ethical and responsible manner allows investors' peace of mind
that their money is being used in a way that arranges with their own moral standing.
When working for a company with strong business ethics, employees are comfortable
in the knowledge that they are not by their own action allowing unethical practices
to continue. Customers are at ease buying products or services from a company they
know to source their materials and labor in an ethical and responsible way.
A company which sets out to work within its own ethical guidelines is also less at
risk of being fined for poor behavior, and less likely to find themselves in breach
of one of a large number of laws concerning required behavior. Reputation is one
of a company's most important assets, and one of the most difficult to rebuild
should not be lost. Maintaining the promises it has made is crucial to maintaining
that reputation. Businesses not following any kind of ethical code or carrying out
their social responsibility leads to wider consequences. Unethical behavior may
damage a firm's reputation and make it less appealing to stakeholders. This
means that profits could fall as a result. The natural world can be affected by a
lack of business ethics. For example, a business which does not show care for
where it disposes its waste products, or fails to take a long-term view when
buying up land for development, is damaging the world in which every human
being lives, and damaging the future prospects of all companies.
(b) All the two units shall be treated as two separate establishments since all the two units
maintain separate B/S and P&L Account.
Employees of the unit which is incurring losses:

 are not entitled to claim bonus on the ground that the unit incurring loss is a
part of one single establishment;
 are entitled to minimum bonus as per the provisions of Sec. 10,12,13 and 14
of the Payment of Bonus Act,1965, since minimum bonus is payable whether
or not there is any allocable surplus (and whether the establishment has
made a profit or incurred a loss).
However, for the purpose of computation of bonus, the amount of allocable surplus
shall be taken for that particular unit only, and not of all the two units taken together.

(a) Undue Influence
(b) Alteration of Share Capital
(c) Consumer movement and Ethics
(d) Manufacturing process under the Factories Act, 1948.
Answer:
8. (a) Undue Influence
Under Section 16 of the Indian Contract Act defines undue influence as under:
(i) A contract is said to be induced by "undue influence" where the relations
subsisting between the parties are such that one of the parties is in a position to
dominate the will of the other and uses that position to obtain an unfair
advantage over the other.
(ii) In particular and without prejudice to the generality of the forgoing principle, a
person is deemed to be in a position to dominate the will of another—
(a) Where he holds a real or apparent authority over the other, or where he stands
in a fiduciary relation to the other; or
(b) Where he makes a contract with a person whose mental capacity is
temporarily or permanently affected by reason of age, illness, or mental or
bodily distress.
(iii) Where a person, who is in a position to dominate the will of another, enters into
a contract with him, and the transaction appears, on the face of it or on the
evidence adduced, to be unconscionable, the burden of proving that such
contract was not induced by undue influence shall lie upon the person in a
position to dominate the will of the other.
(b) Alteration of share capital
Section 61 provides that a limited company having a share capital may, if so

authorized by its articles alter its memorandum in its general meeting-
 increase its authorized share capital by such amount as it thinks expedient;
 consolidate and divide all or any of its share capital into shares of a larger amount
than its existing shares. No consolidation and division which results in change in the
voting percentage of the shareholders shall take effect unless it is approved by the
Tribunal on an application made in the prescribed manner;
 convert all or any of is fully paid up shares into stock and reconvert that stock into
fully paid up shares of any denomination;
 sub division of shares, or any of them, into shares of smaller amount than is fixed by
the memorandum, so, however that in the sub division the proportion between
the amount paid and the amount, if any, unpaid on each reduced share shall be
the same as it was in the case of the share from which the reduced share is
derived;
 cancel shares which, at the date of the passing of the resolution in that behalf,
have not been taken or agreed to be taken by any person, and diminish the
amount of its share capital by the amount of the shares so cancelled. The
cancellation shall not be deemed to reduction of share capital.
(c) Consumer movement
Business ethics is gaining importance because of the growth of the consumer

movement. Gone are the days when the consumer can be taken for ride by the
unscrupulous business by their false propaganda and false claims, unfair trade
practices. Today, the consumers are aware of their rights and well informed as well as
well organized. Now they are more organized and hence cannot be cheated easily.
They take actions against those businessmen who indulge in bad business practices.
They boycott poor quality, harmful, high priced and counterfeit goods. Therefore, the
only way to survive in business is to be honest and fair. Consumer forum and
consumer associations are more active and vocal now.
(d) Manufacturing process

Under Section 2(k) of Factories Act 1948 define 'manufacturing process' as under any
process for-
 making, altering, repairing, ornamenting, finishing, packing, oiling, washing,
cleaning, breaking up, demolishing, or otherwise treating or adapting any article
or substance with a view to its use, sale, transport, delivery or disposal, or
 pumping oil, water, sewage or any other substance; or
 generating, transforming or transmitting power; or
 composing types for printing, printing by letter press, lithography, photogravure or
other similar process or book binding; or
 constructing, reconstructing, repairing, refitting, finishing or breaking up ships or
vessels; or
 preserving or storing any article in cold storage.
In 'M/s Qazi Noorul Hasan Hamid Hussain Petrol Pump V. Deputy Director, Employees'
State Insurance Corporation' - 2003 LLR 476 it was held that the definition
'manufacturing process' does not depend upon and is not correlated with any end
product being manufactured out of a manufacturing process. It includes even repair,
finishing, oiling or cleaning process with view to its use, sale, transport, delivery or
disposal. It cannot be restricted an activity which may result into manufacturing
something or production of a commercially different article. The 'manufacturing
process' cannot be interpreted in a narrow sense in respect of an act which is meant
for the purpose connected with the social welfare.
Suggested Answers_Syl 2016_Dec 2017_Paper 6
GROUP - I
(SYLLABUS 2016)
DECEMBER - 2017
This question paper has two sections.
Section - A
1. Answer all questions: 25
(a) Multiple choice questions: 10
(i) Which one of the following is not the discharge by operation of law?
(A) By merger
(B) By insolvency
(C) By breach of contract
(D) By the unauthorized alteration of items of a written document
(ii) Which of the following is a method of discharge from liability?
(A) By endorsement
(B) By promising
(C) By cancellation
(D) By registration
(iii) A partner may contribute to the LLP
(A) tangible or intangible property.
(B) moveable or immoveable property.
(C) money, promissory note etc.
(D) Any of the above
(iv) Gratuity is payable to an employee after he has rendered continuous service for
not less than five years on his
(A) transfer
(B) daughter's marriage
(C) re-employment
(D) resignation
(v) Who will not be considered as an employee?
(A) Canteen workers
(B) Casual workers
(C) Partners
(D) Part time employee
(vi) "Individual pension account" means an account of subscriber, executed by a
contract setting out the terms and conditions under the
(A) Provident fund scheme
(B) National pension system
(C) Citizen welfare system
(D) Minimum wage payment scheme
(vii)Which of the following is not a category of company?
(A) Inactive company
(B) Assistant company
(C) Dormant company
(D) Producer company

(viii)Section 92 of the Companies Act, 2013 requires a company to prepare and file
annual return in form no.
(A) MGT-12
(B) INC-23
(C) MGT-7
(D) SH-10
(ix) An instrument of the proxy shall be deposited with the registered office of the
company within ________ before the conduct of the meeting.
(A) 7 hours
(B) 21 hours
(C) 48 hours
(D) 60 hours
(x) A proper foundation of ethics requires a standard of _______ to which all goals and
actions can be compared to.
(A) value
(B) living
(C) life
(D) speech
(b) Match and Pair: 5
Column I Column II
1. Hybrid between a company and a (A) Existence from the time of incorporation
partnership to winding up
2. Perpetual succession (B) Powers of the controlling authority
3. Red herring prospectus (C) Need for business ethics
4. Requiring the discovery and (D) A limited liability partnership
production of documents
5. Smooth functioning (E) Does not include complete particulars of
the quantum or price of securities
(c) True or False: 5
(i) The seller of the goods is not bound to deliver them until the buyer applies for the
delivery.
(ii) The partners of a LLP may remove an auditor from office at any time by following
the procedure as laid down in the LLP agreement.
(iii) The certificate of fitness granted by the certifying surgeon shall be valid for a
period of 24 months from the date thereof.
(iv) The e-voting shall remain open for not less than 3 days and shall close at 5.00 P.M.
on the date preceding the date of general meeting.
(v) The term 'ethics' derived from French word 'ethos' which means character.
(d) Match and Pair: 5
(i) Remission means ___________ of a lesser performance that what is actually due
under the contract.
(ii) A promissory note or bill of exchange, in which no time for payment is specified,
and a cheque, are payable on ________ .
(iii) Where a person provides labour or service to another for remuneration which is
less than the minimum wage, such labour is called ________ .
(iv) The monies received on application shall be kept in a separate bank account in
a ___________ bank.
(v) The seven principles of ___________ were set out by Lord Nolan in 1995.
Answer:
1. (a) (i) (C)

(ii) (C)
(iii) (D)
(iv) (D)
(v) (C)
(vi) (B)
(vii) (B)
(viii) (C)
(ix) (C)
(x) (A)
(b)
Column I Column II
1. Hybrid between a company (D) A limited liability partnership
and a partnership
2. Perpetual succession (A) Existence from the time of incorporation to
winding up
3. Red herring prospectus (E) Does not include complete particulars of
the quantum or price of securities
4. Requiring the discovery and (B) Powers of the controlling authority
production of documents
5. Smooth functioning (C) Need for business ethics
(c) (i) True

(ii) True
(iii) False
(iv) True
(v) False
(d) (i) Acceptance

(ii) Demand
(iii) Forced labour
(iv) Scheduled
(v) Public life
Section – B
Answer any five questions:
2. (a) What are the position of Minor's agreement and effect thereof?
(b) A agreed to become an assistant for five years to B who was a doctor practicing at
Chennai. It was also agreed that during the term of agreement A will not practice on
his own account in Chennai. At the end of one year, A left the assistantship of B and
began to practice on his own account. Referring to the provisions of the Indian
Contract Act, 1872, decide whether A could be restrained from doing so. 10+5=15
Answer:
2. (a) The position of Minor's agreement and effect thereof is under;

1. An agreement with a minor is void ab-initio.
2. The law of estoppels does not apply against a minor. It means a minor can always
plead his minority despite earlier misrepresenting to be a major. In other words he
cannot be held liable on an agreement on the ground that since earlier he had
asserted that he had attained majority.
3. Doctrine of Restitution does not apply against a minor. In India the rules of
restitution by minor are similar to those found in English laws. The scope of
restitution of contract by minor was examined by the Privy Council in Mohiri Bibi
case when it has held that the restitution of money under section 64 of the Indian
Contract Act cannot be granted under section 65 because a minor's agreement
is not voidable but absolutely void ab-initio. Similarly no relief can be granted
under section 65 as this section is applicable where the agreement is discovered
to be void or the contract becomes void.
4. No Ratification on Attaining Majority-Ratification means approval or confirmation.
A minor cannot confirm an agreement made by him during minority on attaining
majority. If he wants to ratify the agreement, a fresh agreement and fresh
consideration for the new agreement is required.
5. Contract beneficial to Minor - A minor is entitled to enforce a contract which is of
some benefit to him. Minority is a personal privilege and a minor can take
advantage of it and bind other parties.
6. Minor as an agent - A minor can be appointed an agent, but he is not personally
liable for any of his acts.
7. Minor's liability for necessities - If somebody has supplied a minor or his
dependents with necessities, minor's property is liable but a minor cannot be held
personally liable
8. A minor cannot be adjudged insolvent as he is incapable of entering into a
contract.
9. Where a minor and an adult jointly enter into an agreement with another person
the minor is not liable and the contract can be enforced against the major
person.
(b) According to the provisions of the Indian Contract Act, 1872, as contained - Section
27 any agreement through which a person is restrained from exercising a lawful
profession or trade/business is void.
But an agreement of service by which a person binds himself during the term of the
agreement not to take service with anyone else directly or indirectly to promote any
business in direct competition with that of his employer is not in restraint of trade.
Therefore, ‘A’ cannot be restrained by an injunction from doing so.
3. (a) What do you understand by "Caveat-Emptor" under the sale of Goods Act, 1930?
What are the exceptions to this rule?
(b) X, by inducing Y, obtains a Bill of Exchange from him fraudulently in his (X) favour.
Later, he enters into a commercial deal and endorses the bill to Z towards
consideration to him (Z) for the deal. Z takes the Bill as a holder in due course. Z
subsequently endorses the bill to X for value, as consideration to X for some other
deal. On maturity, the bill is dishonoured. X sues Y for recovery of money. With
reference to the provisions of Negotiable Instruments Act, decide whether X will
succeed in the case. 8+7=15
Answer:
3. (a) 'Caveat emptor' means "let the buyer beware", i.e. in sale of goods the seller is under
no duty to reveal unflattering truths about the goods sold. Therefore, when a person
buys some goods, he must examine them thoroughly. If the goods turn out to be
defective or do not suit his purpose, or if he depends upon his skill and judgment and
makes a bad selection, he cannot blame anybody excepting himself.
The rule is enunciated in the opening words of section 16 of the Sale of Goods Act,
1930 which runs thus: -Subject to the provisions of this Act and of any other law for the
time being in force, there is no implied warranty or condition as to the quality or
fitness for any particular purpose of goods supplied under a contract of sale".
The rule of caveat emptor does not apply in the following cases:
1. Fitness for buyer's purpose: Where the buyer, expressly or by implication, makes
know to the seller the particular purpose for which he requires the goods and
relies on the seller's skill or judgment and the goods are of a description which it is
in the course of the seller's business to supply, the seller must supply the goods
which shall be fit for the buyer's purpose. (Section 16(1)).
2. Sale under a patent or trade name: In the case of a contract for the sale of a
specified article under its patent or other trade name, there is no implied
condition that the goods shall be reasonably fit for any particular purpose
(Section 16(1)).
3. Merchantable quality: Where goods are bought by description from a seller who
deals in goods of that description (whether he is in the manufacturer or producer
or not), there is an implied condition that the goods shall be of merchantable
quality. But if the buyer has examined the goods, there is no implied condition as
regards defects which such examination ought to have revealed. (Section 16(2)).
4. Usage of trade: An implied warranty/or condition as to qualify or fitness for a

particular purpose may be annexed by the usage of trade. (Section 16(3)).
5. Consent by fraud: Where the consent of the buyer, in a contract of sale, is

obtained by the seller by fraud or where the seller knowingly conceals a defect
which could not be discovered on a reasonable examination, the doctrine of
caveat emptor does not apply.
(b) Section 58 of Negotiable Instruments Act provides that when an instrument is

obtained by fraud, offence or for unlawful consideration, possessor or endorsee
cannot receive the amount of Instrument. Hence, normally X would not be entitled to
sue Y as X has obtained instrument through fraud.
However, as per section 53, a holder who derives title from holder in due course has
all rights of a holder in due course. Since X derives his title from Z (who is a holder in
due course), X has all rights of Z.
Second part of section 58 also makes it clear that even if a negotiable instrument is
obtained by means of an offence or fraud or for unlawful consideration, the possessor
or endorsee is entitled to receive the amount from the maker, if he is a holder in due
course or claims through a person who was a holder in due course. Hence, X can sue
Y as he is deriving his right from Z, who is holder in due course. Hence, X will succeed.
4. (a) What are the different kinds of deduction that can be made from wages under the
Payment of Wages Act, 1936?
(b) When can a member withdraw from his National Pension Funds account? 10+5=15
Answer:
4. (a) Section 7 of the Payment of Wages Act, 1936 deals with the details of deduction from
wages. Section 7(2) provides that deductions from the wages of an employed person
shall be made only in accordance with the provisions of this Act and may be of the
following kinds only, viz.;
• fines;
• deductions for absence from duty;
• deductions for damage to or loss of goods expressly entrusted to the employed
person for custody or for loss of money for which he is required to account where
such damage or loss is directly attributable to his neglect or default;
• deductions for house-accommodation supplied by the employer or by
government or any housing board set up under any law for the time being in
force (whether the government or the board is the employer or not) or any other
authority engaged in the business of subsidizing house-accommodation which
may be specified in this behalf by the State Government by notification in the
Official Gazette;
• deductions for such amenities services supplied by the employer as the State
Government or any officer specified by it in this behalf may by general or special
order authorize;
• deductions for recovery of advances of whatever nature (including advances for
travelling allowance or conveyance allowance) and the interest due in respect
thereof or for adjustment of over-payments of wages;
• deductions for recovery of loans made from any fund constituted for the welfare
of labor in accordance with the rules approved by the appropriate Government
and the interest due in respect thereof;
• deductions for recovery of loans granted for house-building or other purposes
approved by the appropriate Government and the interest due in respect
thereof;
• deductions of income-tax payable by the employed person;
• deductions required to be made by order of a court or other authority competent
to make such order;
• deductions for subscriptions to and for repayment of advances from any
provident fund to which the Provident Funds Act 1952 applies or any recognized
provident funds as defined in section 2 (38) of the Indian Income Tax Act 1961 or
any provident fund approved in this behalf by the appropriate Government
during the continuance of such approval;
• deductions for payments to co-operative societies approved by the appropriate
Government or any officer specified by it in this behalf or to a scheme of
insurance maintained by the Indian Post Office and
• deductions made with the written authorization of the person employed for
payment of any premium on his life insurance policy to the Life Insurance
Corporation Act of India established under the Life Insurance Corporation 1956 or
for the purchase of securities of the Government of India or of any Stale
Government or for being deposited in any Post Office Saving Bank in furtherance
of any savings scheme of any such government.
• deductions made with the written authorization of the employed person for the
payment of his contribution to any fund constituted by the employer or a trade
union registered under the Trade Unions Act, 1926 for the welfare of the employed
persons or the members of their families or both and approved by the
appropriate Government or any officer specified by it in this behalf during the
continuance of such approval;
• deductions made with the written authorization of the employed person for
payment of the fees payable by him for the membership of any trade union
registered under the Trade Unions Act, 1926; '
• deductions for payment of insurance premium on Fidelity Guarantee Bonds;
• deductions for recovery of losses sustained by a railway administration on
account of acceptance by the employed person of counterfeit or base coins or
mutilated or forged currency notes;
• deductions for recovery of losses sustained by a railway administration on
account of the failure of the employed person to invoice to bill to collect or to
account for the appropriate charges due to that administration, whether in
respect of fares, freight, demurrage wharfage and cranage or in respect of sale
of food in catering establishments or in respect of sale of commodities in grain
shops or otherwise;
• deductions for recovery of losses sustained by a railway administration on account
of any rebates or refunds incorrectly granted by the employed person where such
loss is directly attributable to his neglect or default;

• deductions made with the written authorization of the employed person, for
contribution to the Prime Minister's National Relief Fund or to such other Fund as
the Central Government may, by notification in the Official Gazette specify;
• deductions for contributions to any insurance scheme framed by the Central
Government for the benefit of its employees.
[Note: Any ten points from above mentioned items or other as mentioned in the Act is
sufficient to attract the full marks]
(b) A Member of the National Pension Fund can withdraw following situation.
(1) At any point in time before 60 years of Age (min. contribution for 10 years)
Minimum 80% of the pension wealth to be utilised for purchasing a life annuity
from the empanelled ASP. Remaining 20% of the pension wealth can be
withdrawn as lump sum.
If pension wealth is equal or less than ` 1 lakh, entire amount will be paid as lump
sum.
(2) On attaining the Age of 60 years and up to 70 years of age

Purchasing a life annuity from the empanelled ASP, subject to maximum
deferment of 3 years. Remaining 60% of the pension wealth can be withdrawn as
lump sum or can be deferred and withdrawn anytime before 70 years. Subscriber
can also contribute till withdrawal or 70. If pension wealth is equal or less than ` 2
lakhs, entire amount will be paid as lump sum.
(3) Death due to any cause (all citizen)

In such an unfortunate event, option will be available to the nominee to receive
100% of the NPS pension wealth in lump sum. However, if the nominee wishes to
continue with the NPS, he/she shall have to subscribe to NPS individually after
following due KYC procedure.
5. (a) Discuss the procedure for conducting a poll in a meeting of a company.
(b) Elucidate the circumstances in which a company cannot buy-back its own shares as
per the provisions of the Companies Act, 2013. 9+6=15
Answer:
5. (a) As per the provisions of the Companies Act, 2013 where a poll is to be taken, the
Chairman of the meeting shall appoint such number of persons, as he deems
necessary, to scrutinize the poll process and votes given on the poll to report thereon
to him. The Chairman of the meeting shall have power to regulate the manner in
which the poll shall be taken.
Rule 21 provides that the Chairman of a meeting shall, in the poll process, ensure
that-
• The Scrutinizes are provided with the Register of Members, specimen signatures of
the members, Attendance Register and Register of Proxies;
• The Scrutinizers are provided with all the documents received by the Company
• The Scrutinizers shall arrange for Polling papers and distribute them to the
members and proxies present at the meeting;.
• In case of joint shareholders, the polling paper shall be given to the first named
holder or in his absence to the joint holder attending the meeting as appearing in
the chronological order in the folio;
• The Polling shall be in Form No. MGT-12;
• The Scrutinizers shall lock and seal an empty polling box in the presence of the
members and proxies:
• The Scrutinizers shall open the Polling box in the presence of two persons as
witnesses after the voting process is over;
• In case of ambiguity about the validity of a proxy, the Scrutinizers shall decide the
validity in consultation with the Chairman;
• The Scrutinizers shall ensure that if a member who has appointed a proxy has
voted in person, the proxy's vote shall be disregarded;
• The Scrutinizers shall count the votes cast on poll and prepare a report thereon
addressed to the Chairman;
• The Scrutinizers shall submit the Report to the Chairman who shall counter-sign the
same;
• The Chairman shall declare the result of Voting on poll. The result may either be
announced by him or a person authorized by him in writing.
The scrutinizers appointed for the poll, shall submit a report to the Chairman of the
meeting in form No. MGT-13. The report shall be signed by the scrutinizer(s) and the
same shall be submitted by them to the Chairman of the meeting within seven days
from the date the poll is taken.
(b) Circumstances in which a company cannot buy back its own shares As per Section
70 of the company act 2013, a company cannot buy back shares or other specified
securities directly or indirectly
(a) Through any subsidiary company including its own subsidiaries; or
(b) Through investment or group of investment companies; or
(c) When the company has defaulted in the repayment of deposit or interest
thereon, redemption of debentures or preference shares or payment of dividend
or repayment of any term loan or interest thereon to any financial institution or
bank. The problem does not apply if the default has been remedied and a period
of three years has elapsed after such default ceased to subsist.
(d) Company has defaulted in filing of Annual Return (section 92), declaration of
dividend (section 123) or punishment for failure to distributed dividend (section
127) and financial statement (section 129)
6. (a) What are the different duties of a director in a company as per the Companies Act,
2013?
(b) Enumerate the provisions relating to Restrictions on powers of Board. 8+7=15
Answer:
6. (a) As per Section 166 of the Companies Act, 2013 a director of a company is bound to
perform the following duties as mentioned below:
• A director of a company shall act in accordance with the articles of the
company.
• A director of a company shall act in good faith in order to promote the objects of
the company for the benefit of its members as a whole, and in the best interests
of the company, its employees, the shareholders, the community and for the
protection of environment.
• A director of a company shall exercise his duties with due and reasonable care,
skill and diligence and shall exercise independent judgment,
• A director shall not involve in a situation in which he may have a direct or indirect
interest that conflicts, or possibly may conflict, with the interest of the company,
• A director of a company shall not achieve or attempt to achieve any undue gain
or advantages either to himself or to his relatives, partners or associates and if
such director is found guilty of making any undue gain, he shall be liable to pay
an amount equal to that gain to the company,
• A director of a company shall not assign his office and any assignment so made
shall be void,
It a director of a company contravenes the provisions of Section 166 such director
shall be punishable with fine which shall not be less than one lakh rupees but which
may extend to five lakh rupees.
(b) Section 180 of the Companies Act 2013: Restrictions on powers of Board
The board can exercise the following powers only with the consent of the company
by special resolution, namely -
(a) to sell, lease or otherwise dispose of the whole or substantially the whole of the
undertaking of the company or where the company owns more than one
undertaking, of the whole or substantially the whole of any of such undertakings.
(b) to invest otherwise in trust securities the amount of compensation received by it

as a result of any merger or amalgamation;
(c) to borrow money, where the money to be borrowed, together with the money
already borrowed by the company will exceed aggregate of its paid-up share
capital and free reserves, apart from temporary loans obtained from the
company's bankers in the ordinary course of business;
(d) to remit, or give time for the repayment of, any debt due from a director.
The special resolution relating to borrowing money exceeding paid up capital and
free reserves specify the total amount up to which the money may be borrowed by
Board.
The title of buyer or the person 'who takes on lease any property, investment or
undertaking on good faith cannot be affected and also in case if such sale or lease
covered in the ordinary business of such company.
The resolution may also stipulate the conditions of such sale and lease, but this
doesn't authorise the company to reduce its capital except the provisions contained
in this Act.
The debt incurred by the company exceeding the paid capital and free reserves is
not. Valid and effectual, unless the lender proves that the loan was advanced on
good faith and also having no knowledge of limit imposed had been exceeded.
7. (a) Why business ethics is more important and immensely needed in the present business
environment? Discuss.
(b) Discuss the procedure for determination of the amount of gratuity as per section 7 of
the Payment of Gratuity Act, 1972. 10+5=15
Answer:
7. (a) The following points are considered as the needs and importance of business ethics in
present business environment:-
(i) To stop business malpractice
(ii) To improve customers' satisfaction
(iii) For the survival of the business
(iv) To safeguard consumers" right
(v) To protect employees and shareholders
(vi) To develop good relations
(vii) For smooth functioning
(viii) Consumer movement
(ix) Consumer satisfaction
(x) Importance of labour
(xi) Healthy competition
(xii) To create good image
(b) Section 7 of the Payment of Gratuity Act. 1972 prescribes the procedure for
determination of the amount of gratuity. As soon as the gratuity becomes payable
the employer shall whether the employee has made application or not, determine
the amount of gratuity Then he is to give notice to the person to whom the gratuity is
payable and also to the controlling authority, specifying the amount of gratuity so
determined.
The employer shall arrange to pay the amount of gratuity within 30 days from the
date of its becoming payable to the person to whom it is payable. If it is not paid
within stipulated period the employer is liable to pay interest at the rate of 10 % per
annum. If the delay in payment is due to the fault of the employee and the employer
has obtained permission in writing from the controlling authority for the delayed
payment, on this ground, no interest is payable.
If the claim for gratuity is not found admissible, issue a notice in form 'M' to the
applicant employee nominee or legal heir, as the case may be, specifying the
reasons why the claim for gratuity is not considered admissible. In either case a copy
of the notice shall be endorsed to the controlling authority.

(a) Contingent Contract
(b) Director Identification Number (DIN)
(c) Business Ethics
(d) Cleanliness of factory
Answer:
8. (a) Contingent contract

Section 31 under the Indian Contract Act, 1872 defines 'contingent contract' as a
contract to do or not to do something, if some event, collateral to such contract,
does or does not happen. The following are the essential of contingent contract-
a) Uncertainty and futurity of the event to which it is related
b) Uncertain future event must be collateral to the contract
A contingent contract need not necessarily be independent on any external event. It

may be conditional on the voluntary act or the future conduct of one of the parties
or a third person. Section 32 of the Act provides that contingent contract to do or not
to do anything if an uncertain future event happens cannot be enforced by law
unless and until that event has happened. If the event becomes impossible, such
contracts become void.
(b) Director Identification Number

Every individual, who is to be appointed as director of a company shall make an
application electronically in Form No. DIR-3 to the Central Government for allotment
of DIN along with the prescribed fees. The applicant can download the said from the
website of Ministry of Corporate Affairs (‘MCA’ for short) duly filled in all respects
along with photograph and signed digitally. The form shall be verified by a Chartered
Accountant in practice or a Company Secretary in practice or a Cost Accountant in
practice.
On application, the system shall generate an application number. The Central

Government shall process the application and decide the approval or rejection and
communicate the same to the applicant along with the DIN allotted in case of
approval by way of a letter by post or electronically or in any other mode within 30
days from the receipt of such application.
If any defect is found in the application the Central Government shall give intimation
of such defect or incompletion to the applicant by placing it on its web site and by
email to the applicant to rectify such defects within 15 days from the date of
intimation. If the same has not been rectified the Government shall reject the
application directing to file a fresh application. In case of rejection or invalidation of
application the fee so paid with the application shall neither be refunded nor
adjusted with any other application.
The DIN allotted to a director before the commencement of this Act shall be deemed
to be the DIN allotted under the present Act. The DIN allotted shall be valid up to the
life time of the Director. The said number shall not be allotted to any other person.
Similarly a person shall be allotted only one DIN. The director, on allotment of DIN, is to
intimate the company in Form No. DIR-3C within 15 days from the intimation, given to
him. Every company shall, within 15 days of the receipt of intimation, furnish the same
with the Registrar. If a company fails to furnish DIN the company shall be punishable
with fine which shall not be less than ` 25,000/- but which may extend to ` 1/- lakh.
Every officer of the company who is default shall be punishable with tine which shall
not be less than ` 25,000/- but which may extend to ` 1/- lakh.
(c) Business ethics

Business ethics is the study of what constitutes right and wrong or good and bad
human conduct in business context.
Thus, business ethics deals with morality in business environment. It involves moral
judgment based on understanding of the society. It extends beyond the legal
questions and involves goodness and badness of an act.
(1) Business ethics refers to the application of everyday moral or ethical norms to
business. It requires an awareness of how the products and services of an
organization and the action of its employees, can affect its stakeholders and
society as a whole, either positively or negatively.
(2) Ethics in business organization relates to a corporate culture of values, leadership,
programs and enforcement.
(3) It is that set of principles or reasons which governs the conduct of business at the
individual or collective level by the application of ethical reasoning to specific
business situations and activities.
(d) Cleanliness of factory:

As per Section I I of the Factories Act, 1948 every factory shall be kept clean and free
from effluvia arising from any drain, privy or other nuisance, and in particular -
• Removal of accumulated dirt and refuse on floors, benches of workroom, stair
cases and passages and effective disposal of the same,
• Cleaning of the floor of every workroom once in every week by washing with
disinfectant or by some other effective method,
• Providing effective drainage for removing water to the extent possible,
• All doors, windows and other framework which are of wooden or metallic shall be
kept painted or varnished at least once in every period of five years,
• To ensure that interior walls and roofs etc. are kept clean the following is to be
complied with -
White wash or color wash should be carried out at least once in every period
of 14 months,
Where surface has been painted or varnished, repair or re-varnished should
be carried out once in every 5 years, if washable then once in every period of
6 months,
Where they are painted or varnished or where they have smooth impervious
surface, it should be cleaned once in every period of 14 months by such
method as may be prescribed.
The dates on which such processes are carried out shall be entered in the prescribed
register.
Suggested Answer_ Syllabus 2016_Jun2017_Paper 6
GROUP - I
(SYLLABUS 2016)

JUNE - 2017
Paper - 6: LAWS & ETHICS
This question paper has two sections.
Section - A
1. Answer all questions: 25
(a) Multiple choice questions: 10
(i) The term 'sub-agent' in the business of agency is defined as a person employed by,
and acting under the control of the
(A) Principal
(B) Original agent
(C) Lawyer
(D) Third person
(ii) The first endorsement of an instrument can be made by the

(A) Banker
(B) Payee
(C) Holder in due course
(D) Agent
(iii) Which of the following is not the mode of dissolution of a firm under voluntary
dissolution?
(A) Dissolution by agreement
(B) Dissolution on the happenings of certain contingencies
(C) Dissolution on becoming a partner of unsound mind
(D) Compulsory dissolution
(iv) White wash or color wash should be carried out at least once in every period of
(A) 14 months
(B) 24 months
(C) 48 months
(D) 60 months
(v) The term 'family' as defined in ESI Act, 1948 does not include
(A) a spouse
(B) a minor adopted child
(C) a dependent unmarried daughter
(D) an independent married sister
(vi) Which one of the following amounts to safety measure?

(A) Artificial humidification
(B) Ventilation
(C) Fencing of factory
(D) First aid appliances
(vii) If a company does not have a common seal, the share certificate shall be signed by
(A) Two Directors
(B) One Director and Company Secretary
(C) Two Directors and Company Secretary
(D) Company Secretary
(viii) In case of e-voting, notice shall be sent as attachment in

(A) PDF file
(B) Word file
(C) Excel file
(D) Access file
(ix) A Director may be elected by small shareholders upon a notice by

(A) not less than 1000 small shareholders.
(B) one tenth of the total number of shareholders.
(C) not less than 1000 small shareholders or one tenth of such shareholders,
whichever is lower.
(D) one tenth of 1000 small shareholders.
(x) Meta ethics deal with the nature of ___________ .

(A) external influences
(B) moral judgement
(C) material facts
(D) animal rights
(b) Fill in the blanks: 5

(i) Misrepresentation must relate to some fact which is material to the _____________.
(ii) The LLP shall inform the concerned Registrar within ___________________ of the date
of registration about the conversion and the particulars of LLP.
(iii) The term of office of a member of the standing committee, constituted under ESI Act,
shall be two years from the date on which his election is ____________ .
(iv) The registered office shall be opened within 15 days from the date of ________ of the
company.
(v) A company shall send copy of each of the document such as memorandum etc., to
a member within ________ days of the request made by him.
(c) True or False: 5

(i) In an agreement to sale, the buyer is entitled to recover the same from the official
liquidator in case of insolvency of the seller.
(ii) The term 'employed person' includes the legal representatives of a deceased
employed person.
(iii) Payment of Gratuity Act, 1972 applies to every shop and establishment employing
seven or more persons.
(iv) Any misstatement in the prospectus would attract the liability on the issuer.
(v) Continuous improvement or kaizen is a popular theme.
(d) Match and Pair: 5

Column I Column II
1. Presentment (A) Determines acceptable conduct in business
organization
2. Form no. INC-23 (B) Issue of global depository receipt
3. Continuing guarantee (C) Bill of exchange
4. Business ethics (D) Shifting of registered office within the same state
5. Section 41 of the (E) Guarantee which extends to a series of
Companies Act transactions
Answer:
1. (a) (i) (b)

(ii) (b)
(iii) (c)
(iv) (a)
(v) (d)
(vi) Correct Answer would be “fencing of machinery”
(vii) (a) or (b)
(viii) (a)
(ix) (c)
(x) (b)
(b) (i) Contract

(ii) 15 days
(iii) Notified
(iv) Incorporation
(v) 7 days
(c) (i) False
(ii) True
(iii) False
(iv) True
(v) True
(d)
Column I Column II
1. Presentment (C) Bill of exchange
2. Form no. INC-23 (D) Shifting of registered office within the same state
3. Continuing guarantee (E) Guarantee which extends to a series of
transactions
4. Business ethics (A) Determines acceptable conduct in business
organization
5. Section 41 of the (B) Issue of global depository receipt
Companies Act
Section – B
2. Answer any five questions: 15×5 = 75
(a) Does silence amount to fraud? Explain with exceptions and types of silence amount
to fraud. 9
(b) Mr. P and Mr. Q bet as to whether there would be rain on a particular day of
December. Mr. P promises to pay ` 5,000 to Mr. Q if there is rain on that day and Mr. Q
promises an equal amount to Mr. P if there is no rain on the day. Suppose, there is no
rain on that specific day of December and Mr. Q filed a suit for recovery of ` 5,000
from Mr. P. Can Mr. Q recover the amount under Indian Contract Act, 1872? 6
Answer:
2. (a) Explanation to section 17 of the Indian Contract Act provides that mere silence as to
facts likely to affect the willingness of a person to enter into a contract is not fraud
unless the circumstances of case are such that having regard to them it is the duty of
the person keeping silence to speak or unless silence itself is equivalent to speech.
Thus we can say that there is exception to the rule that mere silence does not amount
to fraud. The two exception as provided in explanation to section 17 are as under:
(i) When there is a duty to speak.
(ii) Where silence is equivalent to speech.
However, in the following two types of cases, silence amounts to fraud, as held by the
courts in various cases:
(i) Where there is change in circumstances - A representation may be true when
made but with the passage of time or changed circumstances it may become
false. Accordingly this must be communicated to other party otherwise it amount
to fraud.
(ii) When there is half-truth- Thus even when a person is not bound to disclose a fact he
may be held guilty of fraud if he volunteers to disclose a state of fact partly. This is
so when the undisclosed part renders the disclosed part false.
(b) In this case Mr. P bet with Mr. Q on the possibility of having rain on a specific day of
December. Section 30 provides that agreement by way of wager are void and no
suit shall be brought for recovering anything alleged to be won on any wager or
entrusted to any person to abide the result of any game or other uncertain event on
which any wager is made. Therefore, the agreement between Mr. P and Mr. Q is of
wagering nature and hence void. Thus, despite of no rain on specific day of
December, Mr. Q cannot recover the amount of ` 5,000 from Mr. P for the reason of
entering into an agreement of a wagering nature.
3. (a) What are the rights of outgoing partners? 9

(b) A draws a bill on B. B accepts the bill without any consideration. The bill is transferred
to C without consideration. C transferred it to D for value, Decide - (i) Whether D can
sue the prior parties of the bill, (ii) Whether the prior parties other than D have any right
of action intense? Give your answer in reference to the Provisions of Negotiable
Instruments Act, 1881. 6
Answer:
3. (a) Rights of outgoing partners:

Section 36 provides that an outgoing partner may carry on a business competing with
that of the firm. He may advertise such business, but, subject to contract to the
contrary, he may not-
 use the firm name;.
 represent himself as carrying on the business of the firm; or
 solicit the custom of persons who were dealing with the firm before he ceased to
be a partner.
Section 37 provides that in case where a partner has died or ceased to be a partner,
the surviving and continuing partners may carry on the business of the firm with the
property of the firm without any final settlement of accounts as between them and
the outgoing partner or the estate of deceased partner. In the absence of a contract
to the contrary, the outgoing partner of the representative of the deceased partner is
entitled at the option-
 to such share of the profits made since he ceased to be a partner as may be
attributable to the use of his share of the property of the firm; or
 to interest at 6% per annum on the amount his share in the property of the firm.
Where an option is given to surviving or continuing partners to purchase the interest of
a deceased or outgoing partner and the same is duly exercised, the estate of the
deceased partner or the outgoing partner is not entitled to any further or other share
of profits. But if any partner, assuming to act in exercise of the option, does not, in all
material respects comply with the terms, he is liable to account under the provisions
of this section.
(b) Section 43 of the Negotiable Instruments Act. 1881 provides that an instrument made,
drawn, accepted, indorsed or transferred without consideration, or for a
consideration which fails, creates no obligation of payment between the parties to
the transaction. But if any such party has transferred the instrument with or without
endorsement to a holder for consideration, such holder, and every subsequent holder
deriving title from him, may recover the amount due on such instrument from the
transferor for consideration or any prior party thereto.
(i) In the problem, as asked in the question, A has drawn a bill on B and B accepted
the bill without consideration and transferred it to C without consideration. Later
on in the next transfer by C to D is for value. According to provisions of the
aforesaid section 43, the bill ultimately has been transferred to D with
consideration. Therefore, D can sue any of the parties i.e. A, B or C, as D arrived a
good title on it being taken with consideration.
(ii) As regards to the second part of the. problem, the prior parties before D i.e., A, B
and C have no right of action inter se because first part of Section 43 has clearly
lays down that a negotiable instrument, made, drawn, accepted, indorsed or
transferred without consideration, or for a consideration which fails, creates no
obligation of payment between the parties to the transaction prior to the parties
who receive it on consideration.
4. (a) What are the responsibilities of an occupier in a factory? 5

(b) What are the different purposes for which employees' state insurance fund may be
utilized by the central government? 10
Answer:
4. (a) Responsibility of the occupier The occupier has to follow the procedure-
 to lay down a detailed policy with respect to the health and safety of the workers;
 to disclose all the information regarding dangers including health hazards and the
measures to overcome such hazards arising from the exposure to or handling of
the materials or substances in the manufacture, transportation, storage and other
processes to the workers employed in the factory;
 to draw up an onsite emergency plan and detailed disaster control measures for
the factory and make known to the workers and to the general public living in the
vicinity of the factory, the safety measures required to be taken in the event of
accident taking place.
Section 41C provides that the occupier is having specific responsibilities in relation to
hazardous processes. He has to maintain the health records of the employees. He is
to appoint experienced persons who possess specified qualifications in handling
hazardous substances and competent to supervise such handling within the factor.
(b) The section 28 of the Employee's State Insurance Act, 1948 provides that the central
government may utilize the state insurance fund only for the following purposes:
(i) Payments of benefits and provision of medical treatment and attendance to
insured persons and where the medical benefit is extended to their families, the
provision of such medical benefit to their families in accordance with the
provision of this Act and defraying the charges and costs in connection
therewith
(ii) Payment of fees and allowances to members of the corporation, the standing
committee and the Medical Benefit Council, the Regional Board, Local
Committees and Regional Local Medical Councils,
(iii) Establishment and maintenance of hospitals, dispensaries and other institutions
and the provision of medical and other ancillary service for the benefit of insured
persons and where the medical benefit is extended to their families,
(iv) Defraying the cost of auditing the accounts of the corporation and of the
valuation of its assets and liabilities,
(v) Defraying the cost of the Employees' Insurance Courts set up under this Act,
(vi) Payment of any sums under any contract entered into for the purpose of this Act
by the, corporation or the standing committee or any officer duly authorized by
the corporation or the standing committee in that behalf,
(vii) Payment of any sums under any decree, order or award of any court or tribunal
against the corporation or any of its officers or servants for any act done in the
execution of his duty or under a compromise or settlement of any suit or other
legal proceedings or claim instituted or made against the corporation
(viii) Defraying the cost and other charges of instituting or defending any civil or
criminal proceedings arising out of any action taken under this Act,
(ix) Defraying expenditure, within the limits prescribed on measures for the
improvement of the health, welfare of insured persons and for the rehabilitation
and re-employment of insured person who have been disabled or injured, and
(x) Such other purposes as may be authorized by the corporation with the previous
approval of the central government.
(xi) payment of salaries, leave and joining time allowances, travelling and
compensatory allowances, gratuities and compassionate allowances, pensions,
contributions to provident fund and other benefit fund of officers and servants of
the Corporation and meeting the expenditure in respect of offices and other
services set up for the purpose of giving effect to the provisions of this Act.
(xii) Payment of contributions to any State Government, local authority or any private
body or individual, towards the cost of medical treatment and attendance
provided to the insured person and where the medical benefit is extended to
their families, including the cost of any building and equipment, in accordance
with any agreement entered into by the Corporation.
[Students may write any 10 of the above given points mentioned in the answer]
5. (a) What are the conditions stipulated in the Companies Act, 2013 in formation of One
Person Company? 5
(b) Discuss the procedure of alteration of memorandum of association as per the
companies Act, 2013. 10
Answer:
5. (a) The following are the conditions in formation of a OPC:

No person shall be eligible to incorporate more than a OPC or become nominee in
more than such company;
 Where a natural person, being a member of OPC in accordance with this rule
becomes a member in another such company by virtue of his being a nominee in
that OPC, such person shall meet the eligibility criteria within a period of 182 days;
 No minor shall become member or nominee of OPC or can hold share with
beneficial interest;
 Such company cannot be incorporated or converted into Section 8 company;
 Such company cannot carry out Non Banking Financial investment activities
including investment activities in securities of any body corporate;
 No such company can convert voluntarily into any kind of company unless two
years have expired from the date of incorporation of OPC, except threshold limit
of paid up share capital is increased beyond ` 50 lakh or its average annual
turnover during the relevant period exceeds ` 2 crore rupees.
(b) As per the provision of section 13 of the Companies Act, 2013 the alteration of the
memorandum may be taken place in the following manner:
(i) Alteration by special resolution: Company may alter the provisions of its
memorandum with the approval of the members by a special resolution
(ii) Name change of the company: Any change in the name of a company shall be
effected only with the approval of Central Government in writing. However no
such approval is necessary where the change in the name of the company is
only the deletion there from, or addition thereto of the word 'private', on the
conversion of any one class of companies to another class.
(iii) Entry in register of companies: On any change in the name of the company,
the Registrar shall enter the new name in the register of companies in place of
the old name and issue a fresh certificate of incorporation with the new name
and the change in the name shall be complete and effective only on the issue
of such a certificate.
(iv) Change in the registered office: The alteration of the memorandum relating to
the place of the registered office from one State to another shall not have any
effect unless it is approved by the Central Government on an application in
such form and manner as may be prescribed.
(v) Disposal of the application of change of place of the registered office: The
Central Government shall dispose of the application of change of place of the
registered office within a period of sixty days before passing of order. The
central government may satisfy itself that-
(a) The alteration has the consent of the creditors, debenture-holders and other
persons concerned with the company, or
(b) The sufficient provision has been made by the company either for the due
discharge of all its debt and obligations, or
(c) Adequate security has been provided for such discharge.
(vi) Filing with Registrar: A company shall in relation to any alteration of its
memorandum file with the Registrar -
(a) The special resolution passed by the company under sub-section (1),
(b) The approval of the central government under sub-section (2), if the
alteration involves any change in the name of the company.
(vii) Filing of the certified copy of the order with the registrar of the states: Where an
alteration of the memorandum results in the transfer of the registered office of a
company from one state to another, a certified copy of the order of the central
government approving the alteration shall be filed by the company with the
Registrar of each of the State within such time and in such manner as may be
prescribed, who shall register the same.
(viii) Issue of fresh certificate of incorporation: The Registrar of the State where the
registered office is being shifted to shall issue afresh certificate of incorporation
including the alteration.
(ix) Change in the object of the company: A company which has raised money from
public through prospectus and still has any unutilized amount out of the money
so raised, shall not change its objects for which it raised the money through
prospectus unless a special resolution through postal ballot is passed by the
company and -
(a) The details in respect of such resolution shall also be published in the
newspaper
(b) The dissenting shareholders shall be given an opportunity to exit by the
promoters and shareholders having control in accordance with regulations
to be specified by the SEBI
(x) Registrar to certify the registration on the alteration of the objects: The Registrar
shall register any alteration of the memorandum with respect to the objects of
the company and certify the registration within a period of thirty days from the
date of filing of the special resolution.
(xi) Alteration to be registered: No alteration made under this section shall have any
effect until it has been registered in accordance with the provisions of this
section.
(xii) Only member have a right to participate in the divisible profits of the company:
Any alteration of the memorandum in the case of a company limited by
guarantee and not having a share capital intending to give any person right to
participate in the divisible profits of the company otherwise than as a member
shall be void.
6. (a) Describe the Procedure for the resignation of Director. 9
(b) Describe the term 'independent director' as per the Companies Act, 2013. 6
Answer:
6. (a) Section 168 provides the procedure for the resignation of a director as detailed
below:
 A director may resign from his office by giving a notice in writing to the company;
 He shall within 30 days from the date of resignation, forward to the Registrar a
copy of his resignation along with the reasons for the resignation, in Form No. DIR -
11 along with the fee;
 A foreign director may authorize in writing a practicing Chartered Accountant or
Cost Accountant in practice or Company Secretary in practice or any other
resident director of the company to sign the Form No. DIR - 11 and file the same
on his behalf intimating the reasons for the resignation;
 The Board shall on receipt of such notice take notice of the same;
 The company shall intimate the Registrar in Form No. DIR-12 within one month
from the date of receipt of such notice;
 The said information is to be posted on the website of the company;
 The fact of the resignation shall be laid in the report of directors immediately
following the general meeting by the company;
 The resignation of a director shall take effect from the date on which the notice is
received by the company or the date, if any, specified by the director in the
notice, whichever is later;
 The director who has resigned shall be liable even after his resignation for the
offences which occurred during his tenure;
Where all directors of a company resign from their offices the promoter or, in his
absence, the Central Government shall appoint the required number of directors,
who shall hold the office till the directors are appointed by the company in general
meeting.
(b) 'Independent director' is defined under Section 149(6) of the Companies Act as a
other than a managing director or a whole time director or a nominee director -
a) Who in the opinion of the board is a person of integrity and possesses relevant
expertise and experience,
b) He shall not be a promoter of the company or its holding, subsidiary or associate
company,
c) He shall not relate to the promoters or directors in the company, its holding,
subsidiary or associate company,
d) He shall not any pecuniary relationship with the company or their promoters or
directors during two immediately preceding financial years or during the current
financial year,
e) His relative shall not have any pecuniary relationship with the company or their
promoters or directors amounting to 2 % or more or more of its gross turnover or
total income or ` 50 lakhs or such higher amounts as may be prescribed,
whichever is lower, during the two immediately preceding financial years or
during the current financial year,
f) he or his relatives-
 holds or has held the position of a key managerial personnel or is or has been
employee of the company or its holding, subsidiary or associate company, in
any of the three financial years immediately preceding the financial year;
 is or has been an employee or proprietor or partner, in any of the three
financial years immediately preceding the financial year in which he is
proposed to be appointed, of-
 a firm of auditors or company secretaries in practice or cost auditors of
the company; or
 any legal or a consulting firm that has or had any transaction with the
company, amounting to 10% or more of the gross turnover of such firm.
 holds together with his relatives 2% or more of the total voting power of the
company; or
 is a Chief Executive or Director of any nonprofit organization that receives 25%
or more of its receipts from the company, any of its promoters, directors or its
holding, subsidiary or associate company or that holds 2% or more of the total
voting power of the company; or
 who possess such other qualifications as may be prescribed.
7. (a) What are the standards of ethical conduct for practitioners fixed by the ICAI? 10
(b) Discuss the procedure for the recovery of bonus due from an employer. 5
Answer:
7. (a) The Institute has promulgated the following standards of ethical conduct for
practitioners-
 maintain at all times independence of thought and action;
 not to express an opinion on cost/financial reports or statements without first
assessing her or his relationship with her or his client to determine whether such
Member might expect her or his opinion to be considered independent, objective
and unbiased by one who has knowledge of all the facts; and
 when preparing cost / financial reports or statements or expressing an opinion on
cost / financial reports or statements, disclose all material facts known to such
Member in order not to make such cost / financial reports or statements
misleading, acquire sufficient information to warrant an expression of opinion and
report all material misstatements or departures from generally accepted
accounting principles.
 not to disclose or use any confidential information concerning the affairs of such
Member's employer or client unless acting in the course of his or her duties or
except when such information is required to be disclosed in the course of any
defense of himself or herself or any associate or employee in any lawsuit or other
legal proceeding or against alleged professional misconduct by order of lawful
authority or any committee of the Society in the proper exercise of their duties but
only to the extent necessary for such purpose;
 inform his or her employer or client of any business connections or interests of
which such Member's employer or client would reasonably expect to be informed;
 not, in the course of exercising his or her duties on behalf of such Member's
employer or client, hold, receive, bargain for or acquire any fee, remuneration or
benefit without such employer's or client's knowledge and consent; and
 take all reasonable steps, in arranging any engagement as a consultant, to
establish a clear understanding of the scope and objectives of the work before it
is commenced and will furnish the client with an estimate of cost, preferably
before the engagement is commenced, but in any event as soon as possible
thereafter.
 conduct himself or herself toward other Members with courtesy and good faith;
 not to accept any engagement to review the work of another Member for the
same employer except with the knowledge of that Member, or except where the
connection of that Member with the work has been terminated, unless the
Member reviews the work of others as a normal part of his or her responsibilities;
 not to attempt to gain an advantage over other Members by paying or
accepting a commission in securing management accounting work;
 not to act maliciously or in any other way which may adversely reflect on the
public or professional reputation or business of another Member;
 at all times maintain the standards of competence expressed by the Institute from
time to time;
 undertake only such work as he or she is competent to perform by virtue of his or
her training and experience and will, where it would be in the best interests of an
employer or client, engage, or advise the employer or client to engage, other
specialists;
(b) Section 21 of the Payment of Bonus Act, 1965 provides the procedure for the
recovery of bonus in case the employer has not paid under a settlement or an award
or agreement. In such cases either the employee himself or any other person
authorized by him in writing in this behalf or in the case of death of the employee, his
assignee or heirs may make an application to the appropriate government for the
recovery of the money due to him. If the appropriate government, or such authority
authorized is satisfied that any money is due, it shall issue a certificate to the Collector
for that amount to the collector who shall proceed to recover the said amount in the
same manner as an arrear of land revenue.
Application for the recovery of money shall be made within one year from the date
on which the money becomes due to the employee from the employer. After expiry of
such one year period, an application may be entertained by the appropriate
government only if it satisfied that the applicant had sufficient causes for not applying
within said period.
(a) E-Contracts
(b) Revocation of licence
(c) Seven principles of public life
(d) Limit of deductions from wages
Answer:
8. (a) E-Contracts: E-contracts are paperless contracts. It is in electronic form. They are
conceptually very similar to traditional contracts. E-contract also require basis of
contract.
The following are ingredients of the e-contracts-
 An offer is to be made;
 Offer is to be accepted;
 There shall be a lawful consideration;
 There shall an intention to create legal relations;
 The parties must be competent to contract;
 There must be free and genuine consent;
 The object of the contract must be lawful;
The main feature of this type of contract is speed, accuracy and reliability. The parties
to the contract have to obtain digital. The Information Technology Act, 2000
regulates such contracts.
(b) Revocation of licence: Section 8(6) of Companies Act, 2013 provides that the Central
Government, by order, revoke the licence granted to the company registered under
this section-
 if the company contravenes any of the requirements of this section; or
 any of the conditions subject to which a licence is issued; or
 the affairs of the company are conducted fraudulently or in a manner violative of
the objects of the company.
The Central Government shall direct the company to convert its status and change its
name to add the words 'limited' or 'private limited' to its name. No such order will not
be passed without giving opportunity to the company of being heard.
A copy of such order shall be given to the Registrar. The Registrar shall, without
prejudice to any action taken, on application, in the prescribed form register the
company accordingly.
(c) Principles of public life as amended up to and as on 2015 are as follows-

 Selflessness - Holders of public office should act solely in terms of the public
interest.
 Integrity - Holders of public office must avoid placing themselves under any
obligation to people or organizations that might try inappropriately to influence
them in their work. They should not act or take decisions in order to gain financial
or other material benefits for themselves, their family, or their friends. They must
declare and resolve any interests and relationships.
 Objectivity - Holders of public office must act and take decisions impartially, fairly
and on merit, using the best evidence and without discrimination or bias.
 Accountability - Holders of public office are accountable to the public for their
decisions and actions and must submit themselves to the scrutiny necessary to
ensure this
 Openness - Holders of public office should act and take decisions in an open and
transparent manner. Information should not be withheld from the public unless
there are clear and lawful reasons for so doing.
 Honesty - Holders of public office should be truthful.
 Leadership - Holders of public office should exhibit these principles in their own
behavior. They should actively promote and robustly support the principles and
be willing to challenge poor behavior wherever it occurs.
(d) Limit of deductions Section 7(3) provides up to which limit of the wage, the
deductions may be made from the wages of the employees. Notwithstanding
anything contained in this Act the total amount of deductions which may be made in
any wage-period from the wages of any employed person shall not exceed –
 in cases where such deductions are wholly or partly made for payments to co-
operative societies - 75% of such wages and
 in any other case - 50% of such wages.
Where the total deductions authorized under sub-section (2) exceed seventy five per
cent or as the case may be, fifty per cent of the wages the excess may be recovered
in such manner as may be prescribed.
GROUP I
(SYLLABUS 2012)

DECEMBER 2017
Paper- 6 : LAWS ETHICS AND GOVERNANCE
The figures in the margin on the right side indicate the full marks.
This paper contains four questions.
All questions are compulsory, subject to instruction provided against each questions.
All workings must form a part of your answer.
Assumptions, if any, must be clearly indicated.
SECTION - A
1. Answer all questions:

(a) Multiple Choice questions 1×10=10
(i) A invites B for his son’s wedding. B accepts the invitation. In this case, there is an
agreement but no contract since.
(A) There is no consideration.
(B) There is no intention to create legal relationship.
(C) There is no written document.
(D) There is no formal acceptance of the offer.
(ii) If P makes an agreement with Q, an artist, to paint a portrait of P for ? 2,000 and
Q use his own canvas & paint. Here it is
(A) Contract of Sale
(B) Contract of work and material.
(C) Sale on approval
(D) Hire Purchase agreement.
(iii) As per the payment of Wage Act, 1936, no fine can be imposed on a person
under the age of ___________________.
(A) 13 years
(B) 14 years
(C) 15 years
(D) 16 years
(iv) Who is an insurable employee under ESI Act, 1948?

(A) Workers in mines subject to Mines Act, 1952 [Sec 2(12)]
(B) Workers in a railway running shed [Sec 2(12)]
(C) Any member of [the Indian] naval, military or air forces [Sec 2(9)]
(D) All employees in factories or establishments to which this act applies
(v) Holder in due course means any person

(A) Drawing the instrument.
(B) Who for consideration become the possession of a promissory note.
(C) Named in the instrument to whom or to whom order the money is directed
to be paid.
(D) None of the above
(vi) Intimation of the reconstitution of change in a registered partnership is to be given

to the Registrar of firms:
(A) No time limit
(B) Within 30 days
(C) Within 60 days
(D) Within 90 days
(vii) Which one of the following is not correct?

(A) The articles of the company shall provide for the appointment of Chairman
in a meeting.
(B) The members personally present at the meeting shall elect one of
themselves to be Chairman on a show of hands, if the article does not
provide for the same.
(C) Managing Director is the Chairman of the meeting.
(D) The member selected as Chairman as a result of poll, continue the
Chairman, who is elected by show of hands.
(viii) Who was the Chairman of Turnbull Committee?

(A) Angel Turnbull
(B) Nigel Turnbull
(C) Michael Turnbull
(D) William Turnbull
(ix) Law is ______________ of ethics.

(A) No connection
(B) decertification
(C) codification
(D) visualization
(x) Which of the following threat may not affect the business environment and
influence finance and accounting professionals?
(A) Self actualization
(B) Self Interest
(C) Advocacy
(D) Self Review
(b) Fill in the Blanks: 1×5=5
(i) Agreement by wager is _______________________________________.

(ii) Wages should be paid before the expiry of___________________ of the wage
period in less than 1000 persons are employed.
(iii) The liabilities of LLP shall be met out of the properties of________________
partners.
(iv) The Right to Information Act also provides, in terms of Section 5, for
appointment of Public Information Officers and _____________to address
requests for information.
(v) The word ethics stems from the Greek word_______________.
(c) State whether the following statements are True or false: 1×5=5
(i) If the seller wrongfully neglects or refuses to deliver the goods to the buyer,
the buyer cannot sue to seller damages for non delivery.
(ii) Bill of Exchange is an undertaking to pay.
(iii) Employment in which the ESI is applicable are covered by the Employees
CompensationAct, 1923.
(iv) A one-person company means a company which has only one person as a
member.
(v) Ethics, in the practical sense, is also known as moral action and is an
applied discipline.
(d) Match the following: 1×5=5

Column 'A' Column 'B'
1. Quasi contract (A) An interest or lien created on the
property or assets of a company or any
of its undertakings or both as security
and including a mortgage.
2. Doctrine of Implied authority (B) Form No. INC-11
3. Charge (C) Accepted behaviour is promoted and
elevated.
4. Certificate of Incorporation (D) A fictitious contract created under legal
obligations, similar to a valid contract.
5. A social value (E) Acting on behalf of others who is
authorised the particular activity.
Answer:
1. (a)
(i) (B) there is no intention to create legal relationship
(ii) (B)Contract of work and material.
(iii) (C) 15 years
(iv) (D) all employees in factories or establishments to which this act applies
(v) (B)Who for consideration became the possession of a promissory note.
(vi) (A) No time limit
(vii) (C) Managing Director is the Chairman of the meeting
(viii) (B) Nigel Turnbull
(ix) (C) codification
(x) (A) Self actualization
(b) (i) void

(ii) 7th day
(iii) Designated partners
(iv) Assistant Public information officer
(v) Ethike
(c) (i) False

(ii) False
(iii) False
(iv) True
(v) True
(d)
1. Quasi contract A fictitious contract created under legal
(D)
obligations, similar to a valid contract.
Acting on behalf of others who is authorised
2. Doctrine of Implied authority (E)
the particular activity.
3. Charge An interest or lien created on the property or
assets of a company or any of its
(A)
undertakings or both as security and
including a mortgage.
4. Certificate of Incorporation (B) Form No. INC-11
5. A social value Accepted behaviour is promoted and
(C)
elevated.
SECTION - B
2. Answer any three questions: 15×3=45
(a) (i) P induced Q to buy his motorcycle saying that it was in a very good condition.
Aftertaking the motorcycle, Q complained that there were many defects in the
motorcycle. P proposed to get it repaired and promised to pay 40% cost of
repairs. After few days, the motorcycle did not work at all. Now Q wants to
rescind the contract. Decide giving reasons. 6
(ii) What are the consequences of "destruction of goods" under the Sale of Goods
Act,1930, where the goods have been destroyed after the agreement to sell but
before thesale is affected? 5
(iii) Discuss the Provision for Hours and Period of Work under the Child Labour
(Prohibition and Regulation) Act, 1986. 4
Answer:
(a) (i) According to Section 18 of the Indian Contract Act. 1872, misrepresentation is there:
1. Whena person positively asserts that a fact is true when his information does not
warrant it to be so, though he believes it to be true.
2. When there is any breach of duty by a person, which brings an advantage to the
person committing it by misleading another to his prejudice.
3. When a party causes, however, innocently, the other party to the agreement to
make a mistake as to the substance of the thing which is the subject of the
agreement.
Theaggrieved party, in case of misrepresentation by the other party, can avoid or

rescind the contract [Section19. Indian Contract Act, 1872]. The aggrieved party loses
the right to rescind the contract if he, after becoming aware of the misrepresentation,
takes a benefit under the contract or in some way affirms it. Accordingly in the given
case Q could not rescind the contract, as his acceptance to the offer of P to bear 40%
of the cost of repairs impliedly amount to final acceptance of the sale [Long v.
Lloyd,(1958)].
(ii) Destruction of Goods-Consequences:

(I) In accordance with the provisions of the Sale of Goods Act. 1930 as contained in
Section 7, a contract for the sale of specific goods is void if at the time when the
contract was made; the goods without the knowledge of the seller, perished or
become so damaged as no longer to answer to their description in the contract,
then the contract is void abinit io . This section is based on the rule that whether
both the parties to a contract are under a mistake as to a matter of fact essential
to a contract, the act is void.
(II) In a similar way Section 8 provides that an agreement to sell specific goods
becomes void if subsequently the goods, without any fault on the part of the seller
or buyer, perish or become so damaged as no longer to answer to their
description in agreement before the risk passes to the' buyer. This rule is also based
on the ground of impossibility of performance as stated above.
It may however, be noted that section 7 & 8 apply only to specific goods and not
to unascertained goods or generic goods. If the agreement is to sell a certain
quantity of unascertained goods, the perishing of even the whole quantity of such
goods in t h e possession of t h e seller will not relieve h i m of his obligation to deliver
the goods.
(iii)Hours and period of work (Sec.7)

(1) No child shall be required or permitted to work in any establishment in excess of
such number of hours, as may be prescribed for such establishment or class of
establishments.
(2) The period of work on each day shall be so fixed that no period shall exceed
three hours and that no child s h a l l work for more than three hours before he has
had an interval for rest for at least one hour.
(3) The period of work o! ac h il d shall be so arranged that inclusive of his interval for
rest, under sub- section (2), it shall not be spread over more than six hours,
including the time spent in waiting for work on any day.
(4) No child shall be permitted or required to work between 7 p.m. and 8 a.m.
(5) No child shall be required or permitted to work overtime.
(6) No child shall be required or permitted to work in, any establishment on any day
on which he has already been working in another establishment.
(b) (i) Define Misrepresentation under the Indian Contract Act,1872 3

(ii) Mr. A was shopping in a self-service super market. He picked up a bottle of cold
drinkfrom a shelf. While he was examining the bottle, it exploded in his hand and
injuredhim. He files a suit for damages against the owner of the market on the
groundofbreach of condition. Decide, under the Sale of Goods Act, 1930, whether
Mr. A wouldsucceed in his claim. 3
(iii) Who is Occupier under the Factories Act, 1948? 9
Answer:
(b) (i) Misrepresentation means and includes—

(1) The positive assertion, in a manner not warranted by the information of the person
making it, of that which is not true, though he believes it to be true;
(2) Any breach of duty which, without an intent to deceive, gains an advantage to
the person committing it, or any one claiming under him, by misleading another to
his prejudice or to the prejudice, of anyone claiming under him ;
(3) Causing, however innocently, a party to an agreement to make a mistake as to
the substance of the thing which is the subject of the agreement.
(ii) Essentials of Sale

The problem as given in the question is based on Section 16(2) of the Sale of 'Goods
Act, 1930, which states that where goods are bought by description from a seller who
deals in goods of that description (whether he is the manufacturer or producer or not),
there is an implied condition that the goods shall be of merchantable quality. Though
the term 'merchantable quality' is not defined in the Act, it means that in the present
case, the bottle must be properly sealed. In other words, if the goods are purchased
for self-use, they should be reasonably lit for the purpose for which it is being used, in
the instant case, on an examination of the bottle of cold drink, it exploded and injured
the buyer. Applying the provision of Section 16(2). Mr. A would succeed in claim for
damages from the-owner of the shop.
(iii) ―Occupier of a factory is the person who has ultimate control over the affairs of the
factory:
Provided that -
(i) in the case of a firm or other association of individuals, any one of the individual
partners or members thereof shall be deemed to be the occupier:
(ii) In the case of a company, any one of the directors s h a l l be deemed to be the
occupier;
(iii) In the case of a factory owned or controlled by the Central Government or an)
Stale Government, or any local authority, the person or persons appointed to
manage t h e affairs of the factory by the Central Government, the State
Government or the local authority, as the case may be. Shall be deemed to be
the occupier:
Provided further that in the case of a ship which is being repaired, or on which
maintenance work is being carried out, in a dry dock which is available for hire, -
(1) The owner of the dock shall be deemed to be the occupier for the purposes of
any matter provided for by or under—
(a) Section 6, section 7, section 7A, section 7B, section 11 or section 12;
(b) Section 17, in so far as it relates to the providing and maintenance of
sufficient and suitable lightingin or around the dock;
(c) Section 18, section 19, section 42. Section 46. Section 47 or section 49, in
relation to the workers employed on such repair or maintenance;
(2) The owner of the ship or his agent or master or other officer-in-charge of the ship
or any person who contracts with such owner, agent or master or other officer-in-
charge to carry out the repair or maintenance work shall be deemed to be the
occupier for the purposes of any matter provided for by or under section 13,
section 14, section 16 or section 17 (save as otherwise provided in this proviso) or
Chapter IV (except section 27) or section 43, section 44 or section 45. Chapter VI,
Chapter VII, Chapter VII] or Chapter IX or section 108, section 109 or section 110,
in relation to -
(a) The workers employed directly by him, or by or through any agency; and
(b) The machinery, plant or premises in use for the purpose of carrying out such
repair or maintenance work by such owner, agent, master or other officer-in-
charge or person;
(c) (i) ‘No consideration, no contract’. – state the exceptions to it. 5

(ii) In what way does the Negotiable Instruments Act, 1881 regulate the
determination of the "Date of maturity" of a Bill of Exchange. Ascertain the "Date of
maturity" of a bill payable 120 days after the date. The Bill of exchange was drawn on
1st June, 2017. 10
Answer:
(c) (i) There are exceptional cases where a contract is enforceable even through there is no
consideration. They are as follows:
1. Natural Love and affection: An agreement made without consideration is valid if,
―It is expressed in writing and registered and is made on account of nature love
and affection between parties standing in a near relation to each other‖ – [Sec.25
(1)]
2. Voluntary Compensation: A promise made without consideration is valid if it is a
promise to compensate wholly or in part, a person who has already voluntarily
done something for the promisor or something which the promisor was legally
compelled to do [Sec.25(2)]
3. Time Barred Debt: A promise to pay wholly or in part, a debt which is barred by the
law of limitation can be enforced if the promise is in writing and is signee by the
debtor or his authorized agent. [Sec.25(3)]
4. No consideration is required to create an agency(Sec.185).
5. Completed Gift:The rule "No consideration, no contract" does not apply to
Completed Gifts Thus if a person gives certain properties to another according to
the provisions of the Transfer of Property Act, he cannot subsequently demand the
property back on the ground that there was no consideration.
(ii) Calculation of maturity of a Bill of Exchange:

The maturity of a bill, not payable on demand, at sight or on presentment, is at
maturity on the third day after the day on which it is expressed to be payable (Section
22, Para 2 of Negotiable Instruments Act, 1881). Three days are allowed as days of
grace. No days of grace are allowed in the case of a bill payable on demand, at
sight, or presentment. When a bill is made payable as stated number of months after
date, the period slated terminates on the-day of the month, which corresponds with,
the day on which the instrument is dated.
When it is made payable after a stated number of' moths after sight the period
terminates on the day of the month which corresponds with the day on which it is
presented for acceptance or sight or noted for non-acceptance on protested for
non acceptance when it is payable a staled number of months after a certain event,
the period terminates on the day of the month which corresponds with the day on
which the event happens. (Section - 23).
When a bill Is made payable a stated number of months a f t e r sight and has been
accepted for honour, the period terminates winch the clay of the month which
corresponds with th e day on which it was so accepted.If the month in which the
period would terminate has no corresponding day, the period terminates on the last
day of such mouth (Section 2 3 )
In calculating the date a bill made payable a certain number of days after date or
after sight or after a certain event is at maturity, the day of the date, or the day of
protest for non-accordance, or the day on which the event happens shall be
excluded (Section 24).
Three days of grace are allowed to these instruments after the day on which they are
expressed to be payable. (Section 22). When the last day of grace falls on a day,
which is public holiday, the instrument is due and payable on the preceding business
day (Section 25).
Answer to Problem: In this case the day of Presentment for sight is to be excluded i. e.
1st June 2017. The period of 120 days ends on 29thSeptember, 2017 (June 29 days +
July 31 days + Aug. 31 days + September 29 days). Three days of grace are to be
added. It falls due on 2nd October 2017, which happens to be a public holiday. As
such it will fall due on 1st October, 2017 i. e., the preceding Business day.
(d) (i) An employee was drawing salary of `9,500 per month. He joined his service on
January 23rd, 2017 and remained absent from 11th February, 2017 to April 10th, 2017
due to temporary disablement caused by an accident arising out in due course of
employment. Examine with reference to the Payment of Bonus Act, 1965, whether
he is eligible for bonus for the year 2016-17? 5
(ii) Discuss, in brief, rules for winding up and dissolution of a LLP. 10
Answer
(d) (i) In accordance with the provisions of Payment of' Bonus Act. 1065, as contained in
Section 2(13), read with section 8 and section 14, every employee of an
establishment covered under the Act is entitled to bonus from hi s employer in an
accounting year provided he has worked in that establishment for not less than 30
working days in the year on salary less than ` 21,000/- per month. Under Section 14 of
the Act, the days when an employee has been absent due to temporary
disablement caused by an accident arising out of and in the course of his
employment will be included in calculating the total working days for the purpose of
payment of bonus. In the instant case, the salary is falling within the l i m i t as
prescribed under the Act. His accident-leave -period shall also be treated as working
days for the purpose.
Therefore, in the given Case since the salary is failing the limit (i.e. not exceeding
`21,000/-per month), the employee is eligible for bonus for the year 2016-17. The leave
period will be treated as working days (i. e. more than 30 working day)
(ii) Dissolution of LLP- Rules for winding up and dissolution

Central Government has power to make rules for dissolution and winding up of a LLP.
A perusal of the LLP Act 2008 shows that the provisions relating to dissolution of a LLP
are more or less the same as provided in the Partnership Act, 1932 for dissolution of a
Partnership firm. (Sec 65)
A partner may lend money to and transact other business with the limited liability
partnership and has the same rights and obligations with respect to the loan or other
transactions as a person who is not a partner (sec 66).
Application of the provisions of the Companies Act: As per section 67 the Central
Government has power to direct by notification in the official gazette specify the
provision of Companies Act,1956 which will be applicable to a LLP or applicable to a
LLP with such modification or adaption as may be specified in the notification. A copy
of such notification is required to be laid in draft before each house of Parliament,
and such notification shall be issued only in such form as may be agreed upon by
both the houses of Parliament.
By virtue of the power conferred upon the Central Government, the Central
Government has from time to time issued order for application of various provisions of
the Companies Act, 1956 as such of with some modification to the LLP.
Section 68 contains provisions regarding filing, recording or registered under this Act
to be so filed, recorded or registered in such manner and subject to such conditions
as may be prescribed.
A copy of or an extract from any document electronically filed with or submitted to

the Registrar which is supplied or issued by the Registrar and certified through affixing
digital signature as per the Information Technology Act, 2000 to be a true copy of or
extract from such document shall, in any proceeding, be admissible in evidence as of
equal validity with the original document.
As per sub section 3 of section 68 any information supplied by the Registrar that is
certified by the Registrar trough affixing digital signature to be true extract from any
document filed with or submitted to the Registrar shall, in any proceeding, be
admissible in evidence and be presumed, unless evidence to the contrary is
adduced to be a true extract from such document.
Section 69 allow a LLP to file any belated document or return not filed or registered to
be filed or registered within three hundred days from the date within which it should
have been filed on payment of additional fee of one hundred rupee for every day of
such delay in addition to any fee as is payable for filing of such documents or returns.
Such documents or return may without prejudice to any other action or liability under
this Act, also be filed after such period of three hundred days on payment of fee and
additional fee specified in this Act.
(e) (i) A is employed in XYZ Ltd., which is a seasonal establishment. The factory was in
operation for five months during the financial year of 2016-17. A was not in
continuous service during this period. However, he was worked for sixty days only.
Referring to the provisions of the Payment of Gratuity Act, 1972 decide whether A is
entitled to gratuity payable under the Act. Would your answer be the same in case
Aworks for 100 days? 4
(ii) Distinguish between Bill of Exchange and Promissory Note. 7
(iii) Define workman under Industrial Disputes Act. 4
Answer:
(e) (i) As per the provision given under the section 2A of the Payment of Gratuity Act, 1972,
where an employee is employed in an seasonal establishment and is not in
continuous service for any period of one year or six months, there such an employee
shall deemed to be in continuous service under t he employer for such period if he
has actually worked not less than seventy-five percent of the number of days on
which the establishment was in operation during such period.
In the given problem, as per the above provisions of the Act, A has worked has
worked only for 60 days which is less than 75% of the number of days on which the
establishment was in operation during such period, i.e. 150 days. Therefore A shall not
be eligible for getting any gratuity in the first case.
In the second case also A would not eligible for gratuity for the same reasons, though
he had worked for 100 days
(ii) Distinguish betweenBill of Exchange and Promissory Note.

The following are the points of differences between a Bill of Exchange and
Promissory note:
1. Number of Parties: In a Bill of Exchange there are three parties - the drawer, the
drawer and the payee. In a promissory note, there are 2 parties - the maker and
the payee.
2. Promise and Order: in a Bill of Exchange, there is an order to pay. in a

Promissorynote there is a promise to pay.
3. Acceptance: A bin needs acceptance but a promissory note does not require
acceptance.
4. Liability: The drawer of a bill is liable only when the drawer does not accept the
bill or pay the money due. But the make of a Promissory note is primarily liable
on the instrument.
5. Relationship: In a Bill of Exchange, a drawer stands in an immediate relationship

with the acceptor; But the maker of the Promissory note stands in an immediate
relationship to the payee
6. Notice: In case of non-acceptance or non-payment of a bill of notice must be

given to all persons liable to pay. This is called 'Notice of Dishonor', in the case of
a Promissory note, no 'Notice of Dishonor' is necessary.
7. In case of dishonor, foreign bill must not be protested; in case of promissory

note, protest is not necessary.
(iii) Workman under the Industrial Disputes Act.
―Workman‖ means any person (including an apprentice employed in any industry to

do any manual, unskilled, skilled, technical, operational, clerical or supervisory work
for hire or reward, whether the terms of employment be express or implied, and for
the purposes of any proceeding under this Act in relation to an industrial dispute,
includes any such person who has been dismissed, discharged or retrenched in
connection with, or as a consequence of, that dispute, or whose dismissal, discharge
or retrenchment has led to that dispute, but does not include any such person-
(i) who is subject to the Air Force Act, 1950 (45 of 1950), or the Army Act, 1950 (46 of
1950), or the Navy Act, 1957 (62 of 1957); or
(ii) who is employed in the police service or as an officer or other employee of a
prison; or
(iii) who is employed mainly in a managerial or administrative capacity; or
(iv) who, being employed in a supervisory capacity, draws wages exceeding ten
thousand rupees per mensem or exercises, either by the nature of the duties
attached to the office or by reason of the powers vested in him, function mainly
of a managerial nature.
SECTION – C
3. Answer any one questions: 15×1=15
(a) (i) Discuss the shifting of registered office within the same state. 5
(ii) What information’s are exempted from disclosure under Right to Information Act,2005?
10
Answer:
(a) (i) The Shifting of registered office within the same State.
A. An application seeking confirmation from the Regional Director for shifting the
registered office within the same State from the jurisdiction of one Registrar of
Companies to the jurisdiction of another Registrar of Companies, shall be filed by
the company with the Regional Director in Form no.INC.23 along with the fee.
B. The company shall, not less than one month before filing any application with the
Regional Director for the change of registered office.-
(a) publish a notice, at least once in a daily newspaper published in English and
in the principal language of that district in which the registered office of the
company is situated and circulating in that district; and
(b) serve individual notice on each debenture holder, depositor and creditor of
the company, clearly indicating the matter of application and stating that
any person whose interest is likely to be affected by the proposed alteration
of the memorandum may intimate his nature of interest and grounds of
opposition to the Regional Director with a copy to the company within
twenty one days of the date of publication of that notice:
Provided that in case no objection is received by the Regional Director within

twenty one days from the date of service or publication of the notice, the
person concerned shall be deemed to have given his consent to the
change of registered office proposed in the application.
Provided further that the shifting of registered office shall not be allowed if
any inquiry, inspection or investigation has been initiated against the
company or any prosecution is pending against the company under the Act.
C. The confirmation referred to in sub-section (5) of section 12 shall be

communicated within a period of thirty days from the date of receipt of
application by the Regional Director to the company and the company shall file
the confirmation with the Registrar within a period of sixty days of the date of
confirmation who shall register the same and certify the registration within a
period of thirty days from the date of filing of such confirmation.
(ii) The following are exempt from disclosure under Section 8 of Right to Information
Act,2005
 information, disclosure of which would prejudicially affect the sovereignty and
integrity of India, the security, strategic, scientific or economic interests of the Slate,
relation with foreign State or lead to incitement of an offence
 information which has been expressly forbidden to be published by any court of
law or tribunal or the disclosure of which may constitute contempt of court;
 information, the disclosure of which would cause a breach of privilege of

Parliament or the Slate Legislature;
 information including commercial confidence, trade secrets or intellectual

property, the disclosure of which would harm the competitive position of a t h i r d
party, unless the competent authority is satisfied that larger public interest
warrants the disclosure of such information:
 information available to a person in h i s fiduciary relationship, unless the

competent authority is satisfied that the larger public interest warrants t h e
disclosure of such information:
 information received in confidence from foreign Government;
 information, the disclosure of which would endanger the life or physical safety of
any person or identify the source of information or assistance given confidence
for law enforcement or security purposes;
 information which would impede the process of investigation or apprehension or

prosecution of offenders;
 cabinet papers including records of deliberations of the Council of Ministers,

Secretaries and other officers;
 information which relates to personal information the disclosure of which has no

relationship to any public activity or interest or which would cause unwarranted
invasion of the privacy of the individual;
 Notwithstanding any of the exemptions listed above, a public authority may

allow access to information, if public interest in disclosure outweighs the harm to
the protected interests.
(b) (i) Write notes on the maintenance of register of Members under the Companies Act, 2013.
9
(ii) What is the role of the Audit Committee under corporate Governance in India? 6
Answer:
(b) (i) Maintenance of Register of members etc.,
As per section 88 of Companies Act, 2013
(1) Every company shall keep and maintain the following registers in such form and in
such manner as may be prescribed, namely:—
(a) register of members indicating separately for each class of equity and
preference shares held by each member residing in or outside India;
(b) register of debenture-holders; and
(c) register of any other security holders.
(2) Every register maintained under sub-section (1) shall include an index of the names
included therein.
(3) The register and index of beneficial owners maintained by a depository under
section 11 of the Depositories Act, 1996, shall be deemed to be the corresponding
register and index for the purposes of this Act.
(4) A company may, if so authorised by its articles, keep in any country outside India,
in such manner as may be prescribed, a part of the register referred to in sub-
section (1), called ―foreign register‖ containing the names and particulars of the
members, debenture holders, other security holders or beneficial owners residing
outside India.
(5) If a company does not maintain a register of members or debenture-holders or

other security holders or fails to maintain them in accordance with the provisions of
sub-section (1) or sub-section (2), the company and every officer of the company
who is in default shall be punishable with fine which shall not be less than fifty
thousand rupees but which may extend to three lakh rupees and where the failure
is a continuing one, with a further fine which may extend to one thousand rupees
for every day, after the first during which the failure continues.
(b) (ii) The role of the Audit committee shall include the following:
1. Oversight of the company‘s financial reporting process and the disclosure of its
financial information to ensure to ensure that the financial statement is correct,
sufficient and credible;
2. Recommendation for appointment, remuneration and terms of appointment of
auditors of the company;
3. Approval of payment to statutory auditors for any other services rendered by the
statutory auditors:
4. Reviewing, with the management, the annual financial statements and auditor's
report there on before submission to the board for approval, with particular
reference to:
(a) Matters required tobe included in the Director's Responsibility Statement to
be included in the Board's report in terms of clause (c) of sub-section 3 of
section 134 of the Companies Act. 2013
(b) Changes, if any in accounting p o l i c i e s and practices and reasons for the
same
(c) Major accounting entries involving estimates based on the exercise of
judgment by management
(d) Significant adjustments made in the financial statements arising out of audit
findings
(e) Compliance with l i st ing and other legal requirements relating to financial
statements
(f) Disclosure of any related party transactions
(g) Qualifications in the draft audit report
5. Reviewing, with the management, the quarterly financial statements before
submission to the board for approval;
6. Reviewing, with the management, the statement of uses /application of funds
raised through an issue (public issue, rights issue, preferential issue, etc.). the
statement of funds u t i l i z e d for purposes other than those stated in the offer
document / prospectus / notice and the report submitted by the monitoring"
agency monitoring the utilisation of proceeds of a public or rights, issue, and
making appropriate recommendations to the Board to take up steps in t his
matter;
SECTION - D
4. Answer any one questions: 15×1=15
(a) (i) Why a good understanding of business ethics is important? 10

(ii) What are the various ethical threats faced by a finance and accounting professional?
5
Answer:
(a) (i) Some of the major reasons why a good understanding of business ethics is important
can be stated as follows:-
Stop business malpractices: Some unscrupulous businessmen do business

malpractices by indulging in unfair trade practices like black-marketing, artificial high
pricing, adulteration. cheating in weights and measures, sellin g of duplicate and
harmful products, hoarding, false claims or representations about their products etc.
These business malpractices arc harmful to the consumers. Business ethics h e i r , to
stop these business malpractices.
Improve customers' confidence: Business e t h i c s are needed to improve the

customers" confidence about the quality, quantity, price. – etc, of the products. The
customers have more trust and' confidence in the businessmen who follow ethical
rules, they feel that such businessmen will not cheat them.
Survival of business: Business ethics are mandatory for the survival of business. The
businessmen who do not follow it will have short-term success, but they will fail in the
long run. This is because they can cheat a consumer only once. After that, the
consumer will not buy goods from that businessman, lie will also tell others not to buy
from that businessman. So this will defame his image and provoke a negative
publicity. This will result in failure of the business. Therefore, if the businessmen do not
follow ethical rules, he w i l l fail in the market. So, it is always better to follow
appropriate code of conduct to survive in t h e market.
Safeguarding consumer’s rights: Consumer sovereignty cannot be either ruled out or

denied.Business can survive so long il enjoys the patronage of consumer. The
consumer has many rights such as right to h e a l t h and safety, right to be informed,
right to choose, right to be heard right to redress, etc. But many businessmen do not
respect and protect these rights. Business ethics are must to safeguard these rights of
the consumers.
Protecting employees and shareholders: Business ethics are required to protect the
interest of aid image for t h e business and businessmen. If the businessmen follow all
ethical rules, t h e n he will be fully accepted and not critic sides by die society. The
society will always support in the businessmen who follow tins necessary cede of
conduct.
Develops good relations: Business ethics are important to develop good and friendly
relations between business and society. This will result in a result in a supply of good
quality goods and service at low prices to the society. It will also result in profits for the
businesses there by resulting in growth of economy.
Creates good image: Business ethics create a good image for the business and
businessmen. If the businessman follows all ethical rules, then they will be fully
accepted and not criticized by the society. The society will always support those
businessmen who follow this necessary code of conduct.
Smooth functioning: If the business follows a l l the business ethics, then the employees.
shareholders, consumers, dealers and suppliers will all be happy. So they will give full
cooperation to the business. This will r e s u l t in smooth functioning of the business. So,
the business will grow, expand and diversify easily) and quickly. It will have more
sales and more profits.
Consumer movement: Business ethics arc gaining importance because of the growth
of the consumer movement. Gone are the days when the consumer can be taken for
ride by the unscrupulous business by their false propoganda and false claims, unfair
trade practices. Today, The consumers are aware of their rights and well informed as
well as well organised. Now they are more organised and hence cannot be cheated
easily. They take actions against those businessmen who indulge in bad business
practices. They boycott poor quality, harmful, high-priced and counterfeit (duplicate)
goods. Therefore, t h e only way to survive in business is to be honest and fair.
Consumer forums and Consumer Associations are more active and vocal now.
Consumer satisfaction: Today, the consumer is the king of the market. Any business
simply cannot survive-without the consumers. Therefore, the main aim or objective of
business is consumer satisfaction. If the consumer is not satisfied, then there will be no
sales and thus no profits too. Consumer will be satisfied only if t h e business follows a l l
the business et h i cs, and hence are highly needed.
Importance of labour: Labour, i.e. employees or workers play a very crucial role in the
success of a business. Therefore, business must use business ethics while dealing with
the employees. The business must give them proper wages and salaries and provide
them with better working conditions. There must be good relations between employer
and employees. The employees must also be given proper welfare facilities.
Healthy competition: The business must use business ethics while dealing with the
competitors. They must have healthy competition with the competitors. Healthy
competition brings about efficiency, break compliancy and leads to optimal
utilization of scare resources, hence is always welcome. They must not do cut-throat
competition. Similarly, they must give equal opportunities to small- scale business. They
must avoid monopoly. This is because a monopoly is harmful to the consumers.
(ii) The following types of threats may affect the business environment and influence
finance and Accounting professionals.
(a) Self – Interest Threats: Occur as a result of the financial or other interest of Finance and
Accounting professional or personal interest of key personnel.
(b) Self- review Threats: When a previous judgment of the Finance and accounting
Professional is to be re-evaluated.
(c) Advocacy Threats: When a professional promotes a position o r opinion to such
extern that some objectivity may have to be compromised.
(d) Familiarity Threats: When a professional has close relationships with the work
environment which may impair r his selfless attitude towards work.
(e) Intimidation Threats: when a professional may be prohibited from acting
objectively by actual or perceived threat
(b) (i) Discuss the fundamental principles of Ethical Behaviour. 7

(ii) What are the reasons for which unethical behavior might arise in the organization? 8
Answer:
(b) (i) FUNDAMENTAL PRINCIPLES OF ETHICAL BEHAVIOUR
1. Integrity: The principle calls upon all accounting and finance professional adhere to
honesty and firmness while discharging their respective professional duties:
a. Avoid being involved in activities which would impair the goodwill of the
organization.
b. Communicate adverse as well as favorable information with those concerned
c. Refuse any favour which could influence his actions in a negative way.
d. Refuse to get involved in any activity which would adversely affect objectivity.
e. Avoid conflicts and advise related parties on imminent conflicts.
2. Objectivity: Communicate information fairly and objectively in a transparent manner.
3. Confidentiality: Accounting and financial management should refrain from disclosing

confidential information acquired during their work. When such information are to be
disclosed to their subordinates in course of their normal work, care should be taken that
ultimate confidentiality is maintained. However, an organization must to submit
information required under a legal obligation or statutory ruling.
4. Professional competence: Finance and accounting professionals need to update their

professional skills from time to time. it has to be ensured that the client or employer
receives competent professional services based upon current and contemporary
developments in the related areas.
5. Obedience to Rules: Accounting and finance professionals should comply with

relevant laws and regulations and avoid such actions which may result into discrediting
the profession.
(ii) The reasons for which unethical behavior might arise in the organization are:
A. Over Emphasis on Short Term Profitability: Manipulating accounting entries to show

belter profitability (window dressing) to raise further capital from the market.
B. Ignoring small unethical issues: Companies need to develop an environment where

small ethical lapses are taken seriously so that they do not recur in the future.
C. Economic cycles: when the company is doing well, no one is bothered to

understand ‗its actual financial position, However, when the economy lakes a
downward turn, finance and accounting managers may take decisions by
compromising over the established principles. To prevent disclosure of unethical
problems in limes of depression, companies need to be careful and vigilant also
during prosperous time periods.
D. Market complexity: In the era of globalization and massive cross border flow of
capital, accounting rules have become more complex. The complexity of principles
and rules and the difficulty associated with identifying abuse are reasons which may
promote unethical behavior.
E. Money - Mindedness: Most business organizations try to display better financial

condition by window dressing. Following such, a principle towards ''showing profits"'
rather than "earning profits'" leads to unethical accounting and financial practices.
Suggested Answer_Syllabus 2012_Jun 2017_Paper 6
GROUP I
(SYLLABUS 2012)

JUNE 2017
Paper- 6: LAWS, ETHICS & GOVERNANCE
All workings must form part of your answer.
SECTION - A
(a) Multiple choice questions: 1×10 = 10
(i) Which of the following is an invitation for offer?

(A) A tender to supply goods at a certain time
(B) A request for a loan
(C) Bids in an auction sale
(D) A catalogue of goods for sale
(ii) Where seller delivers to the buyer a quantity of goods less than the contracted to sell,
the buyer
(A) May reject them
(B) Should not reject them as more quantity might be supplied.
(C) May resell them.
(D) Give less price for them.
(iii) A person who has ultimate control over the affairs of the factory under factories Act,
1948 is called as
(A) Occupier
(B) Manager
(C) Chairman
(D) Managing Director
(iv) A bearer instrument is negotiated by

(A) Delivery
(B) Delivery and endorsement
(C) Endorsement
(D) Stamping and attestation
(v) X, Y AND Z are partners in a firm. X, without the authority of Y and Z buys certain
shares in his name out of partnership money. These shares will constitute.
(A) Partnership liability
(B) Partnership property
(C) Partnership net worth
(D) Partnership capital
(vi) Under PML Act, 2002, Every Scheduled of offence is a

(A) Predict Offence
(B) Predicate Offence
(C) Preventive Offence
(D) Impredicate Offence
(vii) The Chief Information Commissioner shall hold office for a term of
(A) 3 years
(B) 5 years
(C) 6 years
(D) 7 years
(viii) Which of the following is suggesting that one person should not occupy the role of
Chairman and Chief Executive of a public listed company?
(A) The Hampel Committee Report, 1998
(B) The Cadbury Committee Report, 1992
(C) The Greenbury Committee Report, 1995
(D) The Smith report on Audit Committees, 2003
(ix) Business ethics calls for avoidance of

(A) Competition
(B) Publicity
(C) Monopoly
(D) Self-interest
(x) Business ethics has a ________ application.

(A) Universal
(B) Natural
(C) Practical
(D) Physical
Answer:
(i) (D) (iii) (A) (v) (B) (vii) (B) (ix) (C)
(ii) (A) (iv) (A) (vi) (B) (viii) * (x) (A)
• Correct Answer is Higgs Report (2003)
(b) Fill in the blanks: 1×5 = 5
(i) "Sale" is an _____________contract.

(ii) No child shall be permitted or required to work between___________.
(iii) Any individual or ____________may be a partner in a limited liability partnership.
(iv) Every public authority shall, within ___________of the enactment of RTI Act, 2005
designate as many officers as the Central Public Information Officers or State Public
Information Officers, as the case may be.
(v) A ____________arise where the professional have to decide between compliance
with principles and actions which are beneficial to the business organization at large.
Answer:
(i) Executed
(ii) 7 p. m. to 8 a. m.
(iii) Body corporate
(iv) One hundred days
(v) Conflict of interest
(c) State whether the following statements are True (or) False: 1×5 = 5
(i) A promissory note must be conditional.

(ii) Two persons agreed to produce a film and share the profits of hiring it out; it is not
held to be sufficient to constitute a partnership.
(iii) Any contract or agreement between the employer and employee whereby an
employee either relinquishes or reduces his right to minimum wages or any privileges
or concession is allowed under Minimum Wages Act, 1948.
(iv) Under the Companies Act, 2013, a Red Herring prospectus shall carry the same
obligations as are applicable to a prospectus and any variation between the Red
Herring prospectus and a prospectus shall be highlighted as variations in the
prospectus.
(v) Ethics, also known as moral philosophy, is not a branch of Philosophy.
Answer:
(i) False (ii) False (iii) False (iv) True (v) False
(d) Match the following 1×5 = 5

1. Order of Performance of Reciprocal (A) Not completed 15 years of age
Promise
2. Waiver (B) Seven Principles of Public Life
3. Child (C) Laws of Contract
4. Permanent Disablement Benefit (D) Forgoing or giving up certain Rights
5. Leadership (E) 90% of wages
Answer:

1. Order of Performance of Reciprocal (C) Laws of Contract
Promise
2. Waiver (D) Forgoing or giving up certain Rights
3. Child (A) Not completed 15 years of age
4. Permanent Disablement Benefit (E) 90% of wages
5. Leadership (B) Seven Principles of Public Life
SECTION - B
2. Answer any three questions: 15×3 = 45
(a) (i) A stands surety for B for any amount which C may lend to B from time to time during
the next three months subject to a maximum of `50,000. One month later A revokes
the guarantee, when C had lent to B `5,000. Referring to the provisions of the Indian
Contract Act, 1872, decide whether A is discharged from all the liabilities to C for any
subsequent loan. What would be your answer in case B makes a default in paying
back to C the money already borrowed i.e. `5,000? 4
(ii) Mr. S agreed to purchase 100 bales of cotton from V, out of his large stock and sent
his men to take delivery of the goods. They could pack only 60 bales. Later on, there
was an accidental fire and the entire stock was destroyed including 60 bales that
were already packed. Referring to the provisions of the Sale of Goods Act, 1930,
explain as to who will bear the loss and to what extent? 8
(iii) Define 'Hazardous Process' under The Factories Act, 1948. 3
Answer:
(i) The problem as asked in the question is based on the provisions of the Indian Contract
Act 1872,as contained in Section 130 relating to the revocation of a continuing
guarantee as to future transactions which can be done mainly in the following two
ways:
1. By Notice: A continuing guarantee may at any time be revoked by the surety as to
future transactions, by notice to the creditor.
2. By death of surety: The death of the surety operates, in the absence of any contract
to the contrary, as a revocation of a continuing guarantee, so far as regards future
transactions. (Section 131). The liability of the surety for previous transactions
however remains.
Thus applying the above provisions in the given case, A is discharged from all the
liabilities to C for any subsequent loan.
Answer in the second case would differ i.e. A is liable to C for ` 5,000 on default of B
since the loan was taken before the notice of revocation was given to C.
(ii) Section 26 of the Sale of Goods Act,1930 provides that unless otherwise agreed, the
goods remain at the seller’s risk until the property there in is transferred to the buyer, but
when the property therein is transferred to the buyer, the goods are at buyer’s risk
whether delivery has been made or not. Further Section 18 read with Section 23 of the
Act provide that in a contract for the sale of unascertained goods, no property in the
goods is transferred to the buyer, unless and until the goods are ascertained and where
there is contract for the sale of unascertained or future goods by description, and
goods are of that description, in a deliverable state and are unconditionally
appropriated to the contract, either by the seller with the assent of the buyer or by the
buyer with the assent of the seller, the property in the goods thereupon passes to the
buyer. Such assent may be express or implied. Applying the aforesaid law to the facts
of the case in hand, it is clear that Mr. S has the right to select the good out of the bulk
and he has sent his men for same purpose.
Hence the problem can be answered based on the following assumption and the
answer would be:
Where the bales have been selected with the consent of the buyer's representatives: In
this case the property in the 60 bales has been transferred to the buyer and goods
have been appropriated to the contract. Thus loss arising due to fire in case of 60 bales
would be borne by Mr. S. As regards 40 bales, the loss would be borne by Mr. V, since
the goods have not been identified and appropriated.
(iii) "Hazardous process" means any process or activity in relation to an industry specified to
the First Schedule where, unless special care is taken, raw materials used therein or the
intermediate or finished products, bye-products, wastes or effluents thereof would—
(i) Cause material impairment to the health of the persons engaged in or connected
therewith, or
(ii) Result in the pollution of the general environment
Provided that the State Government may, by notification in the Official Gazette,
amend the First Schedule by way of addition, omission or variation of any industry
specified in the said Schedule;
(b) (i) P Ltd., contracts with SK Traders to make and deliver certain machinery to them by
30.04.2017 for `11.50 lakhs. Due to labour strike, P Ltd. could not manufacture and
deliver the machinery to SK Traders. Later, SK Traders procured the machinery from
another manufacturer for `12.75 lakhs. SK Traders was also prevented from
performing a contract which it had made with MK Traders at the time of their
contract with P Ltd. and were compelled to pay compensation for breach of
contract. Advise SK Traders the amount of compensation which it can claim from P
Ltd., referring to the legal provisions of the Indian Contract Act, 1872? 7
(ii) What are the conditions precedents to retrenchment of workmen under Industrial
Dispute Act? 4
(iii) Who is an insurable employee under ESI Act, 1948? 4
Answer:
(i) Section 73 of the Indian Contract Act, 1872 provides for consequences of breach of
contract. According to it, when a contract has been broken, the 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 given
for any remote and indirect loss or damage sustained by reason of the breach. It is
further provided in the explanation to the section that in estimating the loss or damage
from a breach of contract, the means which existed of remedying the inconvenience
caused by the non-performance of the contract must be taken into account.
Applying the above principle of law to the given case, P Ltd is obliged to compensate
for the loss of `1.25 lakhs (i.e. `12.75 minus `11.50 = ` 1.25 lakhs) which had naturally
arisen due to default in performing the contract by the specified date.
Regarding the amount of compensation which SK Traders were compelled to make to

MK Traders, it depends upon the fact whether P Ltd knew about the contract of SK
Traders for supply of the contracted machinery to MK Traders on the specified date. If
so, P Ltd is also obliged to reimburse the compensation which SK Traders had to pay to
MK Traders for breach of contract. Otherwise P Ltd is not liable.
(ii) Under ID Act the conditions precedents to retrenchment of workmen are:
No workmen employed in any industry that has been in continuous service for not less
than one year under an employer can be retrenched by that employer until: The
workman has to be given one month's notice in writing indicating the reasons for
retrenchment or the workman has to be paid in lieu of such notice, wages for the
period of the notice. The workman has to be paid at compensation which is equivalent
to fifteen days' average pay (for every completed year of continuous service) or any
part thereof in excess of six months; and Notice in the prescribed manner is to be
served on the Appropriate Government (or such authority as may be specified by the
Appropriate Government by notification in the Official Gazette).
(iii) Every employee of a factory or establishment to which the Act applies is an insurable
person. Section 38 states that subject to provisions of the Act, all employees in factories
or establishments to which this Act applies shall be insured in manner as provided in
Act. However the following persons are not insurable and Act does not provide any
benefit to them:
(a) Workers in mines subject to Mines Act, 1952[Sec 2(12)]
(b) Workers in a railway running shed[Sec 2(12)]
(c) Any member of [the Indian] naval, military or air forces [Sec2(9)]
(d) Any person so employed whose wages (excluding remuneration for overtime work)
exceed [such wages as may be prescribed by the Central Government]:
(c) (i) "It would be safer for the drawer to cross a cheque 'not negotiable' with the words
'account payee' added to it". Explain, how it is safer for the drawer in such case. 8
(ii) Explain provisions relating to unlimited liability in case of fraud under LLP Act. 7
Answer:
(i) As per the instructions issued by Reserve Bank of India on 09.09.1992, it would be safer
for the drawer to cross a cheque 'not negotiable' with the words 'account payee'
added to it. The effect of the words "not negotiable' on a crossed cheque is that the
title of the transferee of such a cheque cannot be better than that of its transferor
(Section 130 of Negotiable Instrument Act). The addition of the words 'not negotiable'
does not restrict the further transferability of the cheque; it only takes away the main
feature of negotiability, which is, that a holder with a defective title can give a good
title to subsequent holder, in due course. Anyone who takes a cheque marked 'not
negotiable' takes it at his own risk. The object of crossing a cheque 'not negotiable' is to
award protection to the drawee or holder of the cheque against miscarriage or
dishonesty in the course of transit by making it difficult to get the cheque so crossed
cashed, until it reaches its destination.
The words 'Account Payee' on a cheque are a direction to the collecting banker that
the amount collected on the cheque is to be credited to the account of the payee. If
he credits the proceeds to a different account, he is prima facie guilty of negligence
and will be liable to the true owner for the amount of the cheque. But such a crossing
does not affect the paying banker who is under no duty to ascertain that the cheque
in fact has been collected for the account of the person named as the payee.
Thus the cheque crossed 'not negotiable' with the words 'account payee' added to it
protects the drawer of the cheque in two ways. (1) The main feature of negotiability is
lost i.e. the holder in due course cannot get a better title than that of the transferor. (2)
The collecting banker must take utmost care to inquire into the title of its customer and
satisfy itself that there is no defect in the title of the customer presenting such cheque
of collection.
(ii) Unlimited liability in case of fraud (Sec 30)
In order to check the misuse of corporate veil by a LLP for the purpose of defrauding
the creditors or any other person or for any fraudulent purpose the liability of the limited
liability partnership and partners who acted with intent to defraud creditors or for any
fraudulent purpose shall be unlimited for all or any of the debts or other liabilities of the
limited liability partnership;
If any such act is carried out by a partner, the limited liability partnership is liable to the
same extent as the partner unless it is established by the limited liability partnership that
such act was without the knowledge or the authority of the limited liability partnership.
Where the business of a LLP is carried out for fraudulent purpose every person who was
knowingly been a party to the carrying on of the business in the manner aforesaid shall
be punishable with imprisonment for a term which may extend to two years and with
fine which shall not be less than fifty thousand rupees but which may extend to five lakh
rupees. Moreover, the limited liability partnership and any such partner or designated
partner or employee shall be liable to pay compensation to any person who has
suffered any loss or damage by reason of such conduct:
However, the limited liability partnership shall not be liable if any such partner or
designated partner or employee has acted fraudulently without knowledge of the
limited liability partnership.
(d) (i) Under which circumstances can an unpaid seller exercise his right of lien?
Distinguish between right of lien and right of stoppage of goods in transit, under the
Sale of Goods Act, 1930. 6
(ii) An employee working in an establishment covered by the E.P.F. and M.P. Act, 1952,
leaves his employment and takes up employment in another establishment. State
in this connection:
(I) How shall the amount accumulated to his P.F. account be transferred?
(II) What steps shall be taken if the establishment in which he has joined is not
covered by the Act?
(III) What would be your answer if the establishment in which he was previously
working is not covered by the Act? 6
(iii) What is the time limit for retention of record impounded during the proceedings
conducted under the PMLA, 2002? 3
Answer:
(i) Section 47 of the Sale of Goods Act, 1930 lays down cases in which an unpaid seller is
entitled to lien. They are as follows:
(ii) Where goods have been sold without any stipulation as to credit.
(iii) Where goods have been sold on credit but the term of credit expired, or
(iv) Where the buyer becomes insolvent.
Distinction between right of lien and right of stoppage of goods in transit

(1) The essence of a right of lien is to retain possession whereas the right of stoppage in
transit is right to regain possession.
(2) Seller should be in possession of goods under lien while in stoppage in transit (i)
Seller should have parted with the possession (ii) possession should be with a .carrier
and (iii) buyer has not acquired the possession.
(3) Right of lien can be exercised even when the buyer is not insolvent but it is not the
case with right of stoppage in transit.
(4) Right of stoppage in transit begins when the right of lien ends. Thus the end of the
right of lien is the starting point of the stoppage in transit.
(ii) Section 17-A of EPF & MP Act. 1952 provides for the transfer of accounts of an
employee in case of his leaving the employment and taking up employment in another
establishment and to deal with the case of an establishment to which the Act applies
and also to which it does not apply. The option to get the amount transferred is that of
the employee.
Where an employee of an establishment to which the Act applies leaves his

employment and obtains re-employment in another establishment to which the Act
does not apply, the amount of accumulations to the credit of such employee in
establishment left by him shall be transferred, within such time as may be specified by
the Central Government in this behalf, to the credit of his account in the provident fund
of the establishment in which he is reemployed, if the employee so desires and the rules
in relation to that provident fund permit such transfer [Sub-Section (1)].
Conversely, when an employee of an establishment to which the Act does not apply
leaves his employment and obtains re-employment in another establishment to which
the Act applies, the amount of accumulations to the credit of such employee in the
provident fund permit, may be transferred to the credit of his account in the fund or as
the case may be, in the provident fund of the establishment in which he is employed
[Sub-Section (2)].
(iii) Authorities empowered to issue summons may impound and retain in his custody for
such period, as he thinks fit, any records produced before him in any proceedings
under this Act:
Provided that an Assistant Director or a Deputy Director cannot —

(a) impound any records without recording his reasons for so doing; or
(b) retain in his custody any such records for a period exceeding three months, without
obtaining the previous approval of the Director.
(e) (i) E was an employee of T E Ltd. The whole of the undertaking of T E Ltd. was taken
over by a new company, ATE Ltd. The services of E remained continuous in new
company. After serving for one year E met with an accident and became
permanently disabled. E applied to the new company for the payment of gratuity.
The company refused to pay gratuity on the ground that E has served only for a
year in the company. Examine the validity of the refusal of the directors in the light
of the provisions of the Payment of Gratuity Act, 1972. 5
(ii) State the modes by which a partner may transfer his interest in the firm in favour of
another person under the Indian Partnership Act. What are the rights of such a
transferee? 5
(iii) Describe the objectives of the Child Labour (Prohibition & Regulation) Act, 1986. 5
Answer:
(i) According to Section 4(1) of the Payment of Gratuity Act, 1972, gratuity shall be
payable to an employee on the termination of his employment after he has rendered
continuous service for not less than five years on his super annulations, or, on his
retirement or resignation or on his death or disablement due to accident or disease.
The condition of the completion of five years of continuous service is not essential in
case of the termination of the employment of any employee due to death or
disablement for the purpose of this section. Disablement means such disablement as
incapacitates an employee for the work which he was capable of performing before
the accident or disease resulting in such disablement.
The given problem fulfils all the above requirements as stated. Therefore, E is entitled to
recover gratuity after becoming permanently disabled, and continuous service of five
years is not required in this case. Hence, the company cannot refuse to pay gratuity on
the ground that he has served only for a year.
(ii) Modes by which a partner may transfer his interest in the firm:
According to Section 29 of the Indian Partnership Act, 1932 a partner may transfer his
interest in the firm by sale, mortgage or charge. The transfer may be absolute or partial.
The transfer does not entitle the transferee, during the continuance of the firm:
(i) to interfere in the conduct of the business of the firm, or
(ii) to require accounts of the firm, or
(iii) to inspect the books of the firm
On transfer of interest by a partner, the transferee only becomes entitled to receive

share of profit of the transferring partner. But in this case also the transferee has to
accept the account of profits agreed to by the partners [Section 29(1)].
If the firm is dissolved or if the transferring partner ceases to be a partner, the transferee
is entitled to receive the transferring partner's share in the assets of the firm. For the
purpose of ascertaining that share, he is entitled to an account as from the date of the
dissolution (Section 29(2)).
(iii) The basic objective of the Child Labor (Prohibition & Regulation) Act, 1986 is to prohibit
the engagement of children in certain employments and to regulate the conditions of
work or children in certain other employments. The objective of the Act can be
summarized as under:
(i) To ban the employment of children in specified occupations and processes
(ii) To lay down a procedure to decide modification to the schedule of banned
occupations and processes.
(iii) To regulate the conditions of work of children in employments where they are not
prohibited from working
(iv) To lay down enhanced penalties for employment of children in violation of the
provisions of this Act and other Acts which forbid the employment of children.
SECTION - C
3. Answer any one question: 15×1 = 15
(a) (i) What is Shelf Prospectus? Explain it with relevant provisions. 9

(ii) Who are the Appellate Authorities under RTI Act, 2005? 6
Answer:
(i) Shelf Prospectus [Section 31]
(1) Any class or classes of companies, as the Securities and Exchange Board may
provide by regulations in this behalf, may file a shelf prospectus with the Registrar at
the stage of the first offer of securities included therein which shall indicate a period
not exceeding one year as the period of validity of such prospectus which shall
commence from the date of opening of the first offer of securities under that
prospectus, and in respect of a second or subsequent offer of such securities issued
during the period of validity of that prospectus, no further prospectus is required.
(2) A company filing a shelf prospectus shall be required to file an information

memorandum containing all material facts relating to new charges created,
changes in the financial position of the company as have occurred between the first
offer of securities or the previous offer of securities and the succeeding offer of
securities and such other changes as may be prescribed, with the Registrar within
the prescribed time, prior to the issue of a second or subsequent offer of securities
under the shelf prospectus.
Provided that where a company or any other person has received applications for
the allotment of securities along with advance payments of subscription before the
making of any such change, the company or other person shall intimate the
changes to such applicants and if they express a desire to withdraw their
application, the company or other person shall refund all the monies received as
subscription within fifteen days thereof.
(3) Where an information memorandum is filed, every time an offer of securities is made
under sub - section (2), such memorandum together with the shelf prospectus shall
be deemed to be a prospectus.
Explanation: — For the purposes of this section, the expression "shelf prospectus"
means a prospectus in respect of which the securities or class of securities included
therein are issued for subscription in one or more issues over a certain period without
the issue of a further prospectus.
(ii) The Appellate Authorities under RTI Act 2005
First Appeal: First appeal to the officer senior in rank to the PIO in the concerned Public
Authority within 30 days from the expiry of the prescribed time limit or from the receipt
of the decision (delay may be condoned by the Appellate Authority if sufficient cause
is shown).
Second Appeal: Second appeal to the Central Information Commission or the State
Information Commission as the case may be; within 90 days of the date on which the
decision was given or should have been made by the First Appellate Authority, (delay
may be condoned by the Commission if sufficient cause is shown).
Third Party appeal against PIO decision must be filed within 30 days before first
Appellate Authority; and, within 90 days of the decision on the first appeal, before the
appropriate Information Commission which is the second appellate authority.
- Burden of proving that denial of Information was justified lies with the PIO.
- First Appeal shall be disposed of within 30 days from the date of its receipt. Period
extendable by 15 days if necessary. (S.19)
(b) (i) Explain the provisions relating to Removal and Resignation of an Auditor. 6
(ii) What is the time limit to get the information under RTI Act, 2005? 4
(iii) Enumerate the range of activities as outlined in the Statement of Responsibilities of
Internal Auditors. 5
Answer:
(i) Removal, resignation of Auditor [Section 140]
(1) The auditor appointed under section 139 may be removed from his office before the
expiry of his term only by a special resolution of the company, after obtaining the
previous approval of the Central Government in that behalf in the prescribed
manner.
Provided that before taking any action under this sub-section, the auditor
concerned shall be given a reasonable opportunity of being heard.
(2) The auditor who has resigned from the company shall file within a period of thirty
days from the date of resignation, a statement in the prescribed form with the
company and the Registrar, and in case of companies referred to in sub-section (5)
of section 139, the auditor shall also file' such statement with the Comptroller and
Auditor-General of India, indicating the reasons and other facts as may be relevant
with regard to his resignation.
(3) If the auditor does not comply with sub-section (2), he or it shall be punishable with
fine which shall not be less than fifty thousand rupees but which may extend to five
lakh rupees
(ii) Under RTI Act 2005 the time limit to get the information is:
- 30 days from the date of application
- 48 hours for information concerning the life and liberty of a person
- 5 days shall be added to the above response time, in case the application for
information is given to Assistant Public Information Officer.
- If the interests of a third party are involved then time limit will be 40 days (maximum
period + time given to the party to make representation).
- Failure to provide information within the specified period is a deemed refusal
(iii) The range of activities as outlined in the Statement of responsibilities of Internal Auditors is
as follows:
(i) Reviewing and appraising the soundness, adequacy and application of accounting,
financial, and other operating controls, and promoting effective control at
reasonable cost.
(ii) Ascertaining the extent of compliance with established policies, plans and
procedures.
(iii) Ascertaining the extent to which company's assets are accounted for and
safeguarded from losses of all kinds.
(iv) Ascertaining the reliability of management data developed within the organisation.
(v) Appraising the quality of performance in carrying out assigned responsibilities.
(vi) Recommending operating improvements.
SECTION – D
(a) (i) Explain Evolution ethics? 8

(ii) What are the difference between Ethical Code and Ethical Contract? 7
Answer:
(i) Evolution of Ethics
Social conduct has evolved along with the evolution of society. When your elders tell
you 'Do not cheat', they are referring to a social code of conduct. Social conduct has
developed in society over hundreds of years. The codes of conduct have been passed
down from generation to generation, and there is a pattern to the evolution of such
codes. Acceptable behaviour is promoted and elevated as a social value, and
unacceptable behaviour is rejected and condemned. In ancient India, there was no
moral problem with the custom of sati-immolating the wife on the funeral pyre or the
deceased husband. But society has evolved humanely and has condemned the act as
unacceptable and morally reprehensible. The laws of a country are based on the
customs or moral codes of its society. Penalties are prescribed for bad actions, actions
that contradict the established laws. The laws are a measure against those people who
cross the limits of the code of social conduct, and ensure that good citizens are
protected from the negative consequences of the law-breakers.
The object of the social codes of conduct is to maintain, promote, and elevate
harmonious relationships.
'Honour your parents' is one such code. It maintains a peaceful relationship between
parents and children and promotes respect for each other in the family. It is because of
its salutary effects, it is considered as one of the fundamental values to be cultivated.
(ii) Ethical Code & Contract – Differences
Ethical codes or code of ethics are guidelines intended to serve the interests of a
profession; its members and communities that are served, and hereby commit oneself
to the highest ethical and professional conduct. Ethical codes are adopted by
organizations lo assist the members in understanding the difference between 'right and
wrong', and applying that understanding in decision making. An ethical code generally
implies documents at three levels: code of business ethics, codes of conduct for
employees, and codes of professional practice. Thus, code of ethics focuses on the
social issue of the organization emphasizing on development of business, plan of
business development that plans to conduct business at the highest level.
Code of ethics decides the code of conduct for employees, and set out the
procedures to be used in specific ethical situations such as conflict of interests and
prescribes procedures to determine whether a violation of the code of ethics occurred,
and if so what remedies need to be imposed. Ethical contract is an agreement
between two or more parties; whereby parties of the contract are legally bound and
committed to its promises. It also takes into consideration reasons for breaches in
contract, and the way in which these ethical considerations may impact upon them.
(b) (i) Discuss Ethics as a Principal 7

(ii) What steps are suggested for a finance and accounting professional to resolve ethical
conflicts? 8
Answer:
(i) Ethics as a Principle
We have established that social evolution has developed definite principles of civic
behaviour, which have attained the status of principles. By principle, we understand
that something proceeds and depends on it for its cause. For instance, when one kicks
a football, force is the principle that propels it into motion and the ball remains in
motion till the force lasts. In other words, the physical world functions strictly according
to the laws of physics. It is expected that people also submit their behavior, both in
thoughts and in actions, to these principles. An action is valid as long as it reflects the
principle, just, as the speed of the moving ball depends on the force it receives.
All moral actions are directed towards their object, the good, which is the principle of
all happiness is not only the sole purpose of our existence but our' co-existence with
others as well. We cannot be happy alone; we can only be happy together. The
universal idea of the good is applied to individual instances. Individuals are good in
their own particular way, and are good in so far as they share the essence of goodness.
The universal good is a pure or general idea. It is formed through a process of
abstraction of the essence from individuals or particulars
(ii) Conflict resolution Process
A finance and accounting professional should determine:

(a) The appropriate course of action,
(b) Weigh the consequences of each possible course of action:
(i) If the matter remains unresolved, the professional should consult with other
appropriate persons within the firm and if required, with persons responsible for
governance of the organisation (e.g. Board of Directors).
(ii) The following steps are suggested to resolve the issues:
(a) Documentation: He should document the substance of the issue and
details of any discussions held or decisions taken, concerning t h at issue.
(b) Legal Advice: If a significant conflict cannot be resolved, a professional
may obtain advice from the relevant professional body or legal advisors
without breach of confidentiality.
(c) Withdrawal: If after exhausting all relevant possibilities, the ethical conflict
remains unresolved, a professional should, where possible, refuse to remain
associated with the matter creating the conflict, withdraw from the
engagement team or specific assignment or resign from the employing
organization.
Suggested Answer_Syl 2012_Dec2016_Paper-6
GROUP I
(SYLLABUS 2012)

DECEMBER 2016
Paper-6: LAWS, ETHICS & GOVERNANCE

All workings must form part of your answer.
SECTION A
(a) Multiple choice questions: 1x10=10
(i) A contract creates

(a) jus in personam.
(b) jus in rem.
(c) only rights and no obligations.
(d) only obligations and no rights.
(ii) Provisions of EPF & misc Prov Act 1952 are applicable to Cinema/Theatre employing
(a) 10 or more persons.
(b) 20 or more persons.
(c) 5 or more persons.
(d) 15 or more persons.
(iii) In the absence of Partnership agreement, the Partner has

(a) right to avail interest on advances paid to partnership firm.
(b) right to avail interest on advances paid to partnership firm provided there is profit.
(c) has no right to avail interest on advances.
(d) has right to avail interest on advances even after dissolution of the firm.
(iv) A person who is employed by the seller to raise the price by fictitious bids. Such
person is known as
(a) Puffer
(b) By bidder
(c) Decoy Ducks
(d) All of the above
(v) In case of banker's refusal to honour the cheque inspite of sufficient funds in
customer's account, the banker is
(a) liable to compensate the drawer.
(b) not liable to compensate the drawer .
(c) criminally liable under section 138.
(d) liable to be delisted.
(vi) Dependants benefit is paid at the rate of

(a) 60% of wages in the form of monthly payment.
(b) 75% of wages in the form of monthly payment.
(c) 80% of wages in the form of monthly payment.
(d) 90% of wages in the form of monthly payment.
(vii)Board of Directors of every listed Company shall constitute an Audit Committee which
shall consists of a minimum of
(a) 2 Directors
(b) 3 Directors
(c) 4 Directors
(d) 5 Directors
(viii)The maximum limit of bonus payable to an employee is fixed by way of percentage

of salary or wages earned by the employee during the accounting year, the
percentage is:
(a) 10%
(b) 15%
(c) 20%
(d) 25%
(ix) Who is the head of Central Information Commission?

(a) The State Information Commissioner
(b) The Chief Information Commissioner
(c) The Chief Information Officer
(d) The Chairman of Information Commission
(x) Business Ethics also called as Corporate Ethics is a form of

(a) Positive Ethics
(b) Applied Ethics
(c) Physical Ethics
(d) Practical Ethics
Answer:
1. (a) (i) (a) Jus in personam

(ii) (c) 5 or more persons.
(iii) (a) Right to avail interest on Advances paid to Partnership Firm.
(iv) (d) All of the above.
(v) (a) Liable to compensate the drawer.
(vi) (d) 90% of wages in the form of monthly payment.
(vii) (b) 3 Directors.
(viii) (c) 20%
(ix) (b) The chief information commissioner.
(x) (b) Applied ethics.
1. (b) Fill in the blanks: 1×5=5
(i) All wages payable under Payment of Wages Act, 1936 is required to be paid in
current coins or in ____________ or both.
(ii) No adult worker can be allowed to work more than _________ hours in a day.
(iii) A Meeting of Board of Directors must be held at least once in every _________ months.
(iv) Only designated partners are liable to obtain unique identification number called
as_______________________ .
(v) Where the paid up share capital of an One Person Company exceeds ________ or its
average annual turnover during the relevant period exceeds ________________, it shall
cease to be entitled to continue as a One Person Company.
Answer:
1. (b) (i) Currency notes.

(ii) Nine.
(iii) Three / Four
(iv) Designated Partner Identification Number (DPIN)
(v) Fifty lakh rupees, two crore rupees.
1. (c) State whether the following statements are True (or) False: 1×5=5
(i) Broader definitions of Corporate Governance stress a broader level of accountability

to shareholders and other stakeholders.
(ii) According to the Payment of Wages Act, 1936 other deduction cannot be more than
50% of wages.
(iii) Limited liability Partnership should have a minimum paid up capital of INR 1,00,000.
(iv) Two thirds of total directors can be given permanent appointment in the company.
(v) There is a prescribed Performa for RTI application.
Answer:
1. (c) (i) True

(ii) True
(iii) False
(iv) False
(v) False
1. (d) Match the following (any five): 1×5=5

1. Allocable Surplus (A) Indian Contract Act
2. Cost Audit Methodology (B) Payment of Bonus Act
3. Doctrine of Implied authority (C) Sale of Goods Act
4. Doctrine of Frustration (D) Business Ethics
5. Damping (E) Corporate Governance
6. Consumer Movement (F) Indian Partnership Act
Answer:
1. (d)
1. Allocable Surplus (B) Payment of Bonus Act
2. Cost Audit Methodology (E) Corporate Governance
3. Doctrine of Implied authority (F) Indian Partnership Act
4. Doctrine of Frustration (A) Indian Contract Act
5. Damping (C) Sale of Goods Act
6. Consumer Movement (D) Business Ethics
SECTION - B
2. Answer any three questions: 15×3 = 45
(a) (i) What are the rights of a finder of goods under the Indian Contract Act, 1872? 4
(ii) Which are the essential elements of a valid acceptance of a Bill of Exchange? An
acceptor accepts a 'Bill of Exchange' but write on it 'Accepted but payment will be
made when goods delivered to me is sold.' Decide the validity. 7
(iii) What are the consequences of 'destruction of goods' under the Sale of Goods Act,
1930, where the goods have been destroyed after the agreement to sell but before
the sale is affected. 4
Answer:
2. (a) (i) A finder of goods has the following rights under the Indian Contract Act, 1872
(1) Right of lien: The finder of goods has a right of lien over the goods for his
expenses. As such he can retain the goods against the owner until he receives
compensation for trouble and expenses incurred in preserving the goods and
finding out the owner. But he has no right to sue the owner for any such
compensation (Section 168).
(2) Right to sue for reward: The finder can sue for any specific reward which the
owner has offered for the return of the goods. He may also retain the goods until
he receives the reward. (Section 168)
(3) Right of resale: The finder has a right to sell the goods in the following cases:
(a) where the goods found is in danger of perishing;
(b) where the owner cannot, with reasonable diligence, be found out;
(c) where the owner is found out, but he refuses to pay the lawful charges of the
finder; and
(d) where the lawful charges of the finder, in respect of the goods found,
amount to 2/3 rd of its value.
(ii) Essentials of a Valid Acceptance of a Bill of Exchange:
The essentials of a valid acceptance are as follows: ---—

1. Acceptance must be written: The drawee may use any appropriate word to
convey his assent. It may be sufficient acceptance even if just signatures are put
without additional words. An oral acceptance is not valid in law.
2. Acceptance must be signed: A mere signature would be sufficient for the
purpose. Alternatively, the words 'accepted' may be written across the face of
the bill with a signature underneath; if it is not so signed, it would not be an
acceptance.
3. Acceptance must be on the bill: The acceptance should be on the face of the
bill normally but it is not necessary. An acceptance written on the back of a bill
has been held to be sufficient in-law. What is essential is that must be written on
the bill; else it creates no liability as acceptor on the part of the person who signs
it.
4. Acceptance must be completed by delivery: Acceptance would not be
complete and the drawee would not be bound until the drawee has either
actually delivered the accepted bill to the holder or tendered notice of such
acceptance to the holder of the bill or some person on his behalf.
5. Where a bill is drawn in sets, the acceptance should be put on one part only:
Where the drawee signs his acceptance on two or more parts, he may become
liable on each of them separately.
6. Acceptance may be either general or qualified: An acceptance is said to be
general when the drawee assents without qualification order of the drawer. The
qualification may relate to an event, amount, place, time etc. (Explanation to
Section 86 of the Negotiable Instruments Act 1881).
In the given case, the acceptance is a qualified acceptance since a condition

has been attached declaring the payment to be dependent on the happening
of an event therein stated. As a rule, acceptance must be general acceptance
and therefore, the holder is at liberty to refuse to take a qualified acceptance.
Where, he refuse to take it, the bill shall be dishonoured by non-acceptance. But,
if he accepts the qualified acceptance, even then it binds only him and the
acceptor and not the other parties who do not consent thereto. (Section 86).
(iii) Destruction of Goods-Consequences:

(i) In accordance with the provisions of the Sale of Goods Act, 1930 as contained in
Section 7, a contract for the sale of specific goods is void if at the time when
the contract was made; the goods without the knowledge of the seller, perished
or become so damaged as no longer to answer to their description in the
contract. The rule is based on ground of mutual mistake or impossibility of
performance, which is one of the essentials of a valid contract.
(ii) In a similar way Section 8 provides that an agreement to sell specific goods
becomes void if subsequently the goods, without any fault on the part of the
seller or buyer, perish or become so damaged as no longer to answer to their
description in agreement before the risk passes to the buyer. This rule is also
based on the ground of impossibility of performance as stated above.
It may, however, be noted that section 7 & 8 apply only to specific goods and
not to unascertained goods. If the agreement is to sell a certain quantity of
unascertained goods, the perishing of even the whole quantity of such goods" in
the possession of the seller will not relieve him of his obligation to deliver the
goods.
2. (b) (i) Explain the 'time limit for payment of bonus' to the employees in different
circumstances under the provisions of the Payment of Bonus Act, 1965. 5
(ii) Explain the manner in which the gratuity payable to employees in a seasonal
establishments is calculated under the Payment of Gratuity Act, 1972. State also the
maximum amount of gratuity payable under the Act. 5
(iii) Explain the meaning of the term 'Money Laundering'. Z, a known smuggler was
caught in transfer of funds illegally exporting narcotic drugs from India to some
countries in Africa. State the maximum punishment that can be awarded to him
under Prevention of Money Laundering Act, 2002. 5
Answer:
2. (b) (i) Time limit for payment of bonus: Section 19 of the Payment of Bonus Act, 1965
prescribes the time limit for the payment of bonus under the following conditions:
(1) Under Section 19 (1) (a) of the said Act, where the dispute is between the
employer and the employees regarding the payment of bonus and such dispute
is under reference to the prescribed authority, the employer is bound to pay his
employee bonus in cash within one month from the date on which the award
becomes enforceable or the settlement comes into operation, in respect of such
dispute.
(2) Under Section 19 (1) (b) of the said Act, in all other cases, the payment of bonus
is to be made within a period of 8 months from closing of the accounting year.
But this period of 8 months may be extended up to a maximum of 2 years by the
Appropriate Government or by any authority prescribed by the Appropriate
Government only on an application to it by the employer and is satisfied that
sufficient reasons exist for granting extension. Moreover, the extension can be
made only by an order.
(ii) Seasonal Establishments - In the case of seasonal establishment the employees can
be classified into 2 groups.
(a) Those who work throughout the year and
(b) Those who work only during the season.
The former are entitled to get the gratuity at the rate of 15 days wages for every
completed year of service or part thereof in excess of 6 months. The latter are
entitled to receive gratuity at the rate of 7 days for each season.
Under section 4(3) of the Payment of Gratuity Act, 1972, the amount of gratuity
payable to an employee shall not exceed ` Ten lakhs.
(iii) Money Laundering: Whosoever directly or indirectly attempts to indulge or knowingly

assists or knowingly is a party or is actually involved in any process or activity
connected with the proceeds of crime and projecting it as untainted property shall
be guilty of offence of money laundering. [Section 3 of the Prevention of Money
Laundering Act, 2002]
Paragraph 2 of Part A of the Schedule to the Prevention of Money Laundering Act,
2002, covers Offences under the Narcotic Drugs and Psychotropic Substances Act,
1985. Whereby, Illegal import into India, export from India or transshipment of
narcotic drugs and psychotropic substances (Section 23) is covered under
paragraph 2 of Part A.
Punishment: Section 4 of the said Act provides for the punishment for Money-
Laundering. Whoever commits the offence of money-laundering shall be punishable
with rigorous imprisonment for a term which shall not be less than 3 years but which
may extend to 7 years and shall also be liable to fine. But where the proceeds of
crime involved in money-laundering relate to any offence specified under
paragraph 2 of Part A of the Schedule, the maximum punishment may extend to 10
years instead of 7 years.
2. (c) (i) A, aged 16 years, was studying in an engineering college. On 1 June, 2015 he took a
loan of ` 2 Lakhs from B for the payment of his college fee and agreed to pay by 31 st
July 2016. A possesses assets worth ` 20 Lakhs. On due date, A fails to pay back the
loan to B. B now wants to recover the loan from A out of his assets. Whether B would
succeed? Decide, referring to the provisions of the Indian Contract Act, 1872. 5
(ii) A delivered some diamonds to B on sale or return basis. B delivered the diamonds to
C and C to D on similar terms. The diamonds were stolen while in the custody of D.
Who shall suffer the loss? 5
(iii) X and Y were partners carrying on a banking business. X had committed adultery on
several women in the city and his wife had left on this ground. Y applied to the court
for dissolution of the firm on this ground. Will he succeed? 5
Answer:
2. (c) (i) The problem in question is covered under the exceptions. As per Section 68 of the
Indian Contract Act. 1872 though a minor is not personally liable to pay the price of
necessaries supplied to him or money lent for the purpose, this supplier or lender
will be entitled to claim the money/price of goods or services which are
necessaries suited to his condition of life provided that the minor has a property. The
liability of minor is only to the extent of the minor's property. This type of
contract is called a Quasi-contract and the right of the supplier/tender is based on
the principle of equity. Thus, according to the above provision, B will be entitled to
recover the amount of loan given to A for payment of college fees from the property
of A, the minor.
(ii) In this case, B has adopted the transaction by delivering the diamonds to C and thus
is liable to pay the price to A. Similarly C has adopted the transaction by further
delivery to D and thus is liable to pay the price to B. As between C and D, the
transaction was still of sale or return which was not adopted by D, either expressly or
impliedly, and thus the ownership had not passed to D at the time of loss. Hence C
shall suffer the loss of diamonds.
(iii) As per section 44(c) of Indian Partnership Act, 1932 sometimes, a partner is guilty of
misconduct. When the court is satisfied that the misconduct adversely affect the
partnership business the court may allow the dissolution of the firm. B will not
succeed. In this case, though A is guilty of misconduct but his misconduct does not
have any adverse affect on their business as bankers [Snow v. Milform (1868) 18 LT
142]. In this case, the court observed that how can it be said that a man's
money is less safe because one of the partner commits adultery. It was further
observed that in those cases where the moral conduct of a partner would affect
the firm business, it can be a ground for dissolution of the firm. e.g. where a
medical man had entered into partnership with another and it was found that his
conduct was very immoral towards some of his patients, the firm can be dissolved on
the ground of misconduct by the partner.
2. (d) (i) Employees of an electricity generation station claimed that their unit is covered
under the definition of 'factory' considering the process of transforming and
transmission of electricity generated at the power station as a 'manufacturing
process'. Will their claim succeed under Factories Act, 1948. 6
(ii) List the circumstances under which a LLP formed under the Limited Liability
Partnership Act, 2008 may be wound up by tribunal. 6
(iii) X buys synthetic pearls for a high price thinking that they are natural pearls. The seller
though understood X's intention, kept silent. Examine the remedies X has against the
seller as per the Sale of Goods Act, 1930. 3
Answer:
2. (d) (i) As per section 2(k) of The Factories Act, 1948, manufacturing process means any
process for-
(i) Making, altering, repairing, ornamenting, finishing, packing, oiling, washing,
cleaning, breaking up, demolishing, or otherwise treating or adapting any article
or substance with a view to its use, sale, transport, delivery or disposal, or
(ii) Pumping oil, water, sewage or any other substance; or;
(iii) Generating, transforming or transmitting power; or
(iv) Composing types for printing, printing by letter press, lithography, photogravure
or other similar process or book binding;
(v) Constructing, reconstructing, repairing, refitting, finishing or breaking up ships or
vessels;
(vi) Preserving or storing any article in cold storage;
Process undertaken at electricity generating station, sub-station is transferring and
transmitting electricity is not a manufacturing process and are not thus factory- [Delhi
Electricity Supply Undertaking vs. Management of DESU, AIR(1973)SCC 365].
(ii) A limited liability partnership may be wound up by the Tribunal,if:

(i) The limited liability partnership decides that limited liability partnership be wound
up by the Tribunal;
(ii) If, for a period of more than six month, the number of partners of the limited
liability partnership is reduced below two;
(iii) If the limited liability partnership is unable to pay its debts;
(iv) If the limited liability partnership has acted against the interests of the
sovereignty and integrity of India, the security of the State or public order;
(v) If the limited liability partnership has mode a default in filing with the Registrar
the Statement of Account and Solvency or annual return for any five
consecutive financial years; or
(vi) If the Tribunal is of the opinion that it is just and equitable that the limited liability
partnership be wound up.
(iii) X has no remedy against the seller as the doctrine of Caveat Emptor will apply.
―Caveat emptor‖ means ―let the buyer beware‖, i.e. in sale of goods the seller is
under no duty to reveal unflattering truths about the goods sold. Therefore, when a
person buys some goods, he must examine them thoroughly. If the goods turn out to
be defective or do not suit his purpose, or if he depends upon his skill and judgment
and makes a bad selection, he cannot blame anybody excepting himself.
The rule is enunciated in the opening words of section 16 of the Sale of Goods Act,
1930 which runs thus: ―Subject to the provisions of this Act and of any other law for
the time being in force, there is no implied warranty or condition as to the quality or
fitness for any particular purpose of goods supplied under a contract of sale‖
2. (e) (i) What are the regulations of hours and period of the work of children under the
provisions of the Child Labour (Prohibition and Regulation) Act, 1986. 7
(ii) Employees provident funds and Miscellaneous Provisions Act, 1952 is not applicable
to certain establishments. List out those establishments. 5
(iii) A workmen employed in an industrial establishment can be retrenched any time
under the provisions of the Industrial Dispute Act, 1947. Comment. 3
Answer:
2. (e) (i) REGULATION OF CONDITIONS OF WORK OF CHILDREN
(A) Hours and period of work (Sec7)
(1) No child shall be required or permitted to work in any establishment in of such
number of hours, as may be prescribed for such establishment or class of
establishments.
(2) The period of work on each day shall be so fixed that no period shall
exceed three hours and that no child shall work for more than three
hours before he has had an interval for rest for at least one hour.
(3) The period of work of a child shall be so arranged that inclusive of his interval
for rest, under subsection (2), it shall not be spread over more than six hours,
(4) No child shall be permitted or required to work between 7 p.m. and 8 a.m.
(5) No child shall be required or permitted to work overtime.
(6) No child shall be required-or permitted to work in, any establishment on any
day on which he has already been working in another establishment.
(B) Weekly holidays (Sec 8)

Every child employed in an establishment shall be allowed in each week, a
holiday of one whole day, which day shall be specified by the occupier in a
notice permanently exhibited in a conspicuous place in the establishment and
the day so specified shall not be altered by the occupier more than once in three
months.
(ii) The Employees Provident Fund and Miscellaneous Provisions Act, 1952 does not apply
to certain establishments as specified under Section 16 of the said Act. They are as
follows:
(a) Any establishment registered Under the Co-operative Societies Act 1912 or under
any other law for the time being in force in any state relating to co-operative
societies employing less than 50 persons and working Without the aid of power or
(b) To any establishment belonging to or under the Control of the Central
Government or a State Government and whose employees are entitled to the
benefit of Contributory Provident Fund or old age pension. Or
(c) Any other establishment set up under any Central Provincial or State Act and
whose employees are entitled to any Contributory provident fund or old age
pension.
(d) Any newly setup establishment (less than 3 years).
Central Government having regard to the financial position of any class of

establishment or other circumstances of the case may exempt that class of
establishment from the operation of this Act for such period as specified in the
notification Issued for this purpose.
(iii) Retrenchment:
An workman employed in an industrial establishment and rendered not less than one
year service cannot be retrenched without 3 (three) months notice in writing
indicating the reasons for retrenchment and prior permission of the Appropriate
Government is obtained.
Any retrenchment without permission of the Appropriate Government is punishable
with the imprisonment for a term which may extend to one month or with fine which
may extend to INR 1000 or both.
SECTION - C
(a) (i) Enumerate the provision relating to ACT NOT TO APPLY TO CERTAIN ORGANIZATIONS
under the Right to Information Act, 2005? 5
(ii) What are the areas of operations by an Internal Audit involved? 5
(iii) Explain Red Herring Prospectus under the Companies Act, 2013. 5
Answer:
3. (a) (i) According to the Section 24 of the Right to Information Act 2005, ACT NOT TO APPLY
TO CERTAIN ORGANIZATIONS as follows:
(1) Nothing contained in this Act shall apply to the intelligence and security
organisations specified in the Second Schedule, being organisations established
by the Central Government or any information furnished by such organisations to
that Government:
Provided that the information pertaining to the allegations of corruption and

human rights violations shall not be excluded under this sub-section:
Provided further that in the case of information sought for is in respect of

allegations of violation of human rights, the information shall only be provided
after the approval of the Central Information Commission, and notwithstanding
anything contained in section 7; such information shall be provided within forty-
five days from the date of the receipt of request.
(2) The Central Government may, by notification in the Official Gazette, amend the
Schedule by including therein any other intelligence or security organisation
established by that Government or omitting therefrom any organisation already
specified therein and on the publication of such notification, such organisation
shall be deemed to be included in or, as the case may be, omitted from the
Schedule.
(3) Every notification issued under sub-section (2) shall be laid before each House of
Parliament.
(4) Nothing contained in this Act shall apply to such intelligence and security
organisation being organisations established by the State Government, as that
Government may, from time to time, by notification in the Official Gazette,
specify:
Provided that the information pertaining to the allegations of corruption and

human rights violations shall not be excluded under this sub-section:
Provided further that in the case of information sought for is in respect of

allegations of violation of human rights, the information shall only be provided
after the approval of the State Information Commission and, notwithstanding
anything contained in section 7, such information shall be provided within forty-
five days from the date of the receipt of request.
(5) Every notification issued under sub-section (4) shall be laid before the State
Legislature.
(ii) According to The Institute of Internal Auditors, internal audit involves five areas of
operations, which may be discussed as follows:-
(a) Reliability and Integrity of Financial and operating Information: Internal
Auditors should review the reliability and integrity of financial and operating
information and the means used to identify, measure, classify and report such
information.
(b) Economical and Efficient Use of Resources: Internal auditor should ensure the
economic and efficient use of resources available.
(c) Compliance with Laws, Policies, Plans, Procedures, Regulations: Internal
auditor should review the systems established to ensure compliance with those
policies, plans and procedures, law and regulations which could have a
significant impact on operations and should determine whether the
organization is in compliance thereof.
(d) Accomplishment of established Goals for operations: Internal auditor should
review operations, programmes to ascertain whether results are consistent with
established objectives and goals and whether the operations or programmes
are being carried out as planned.
(e) Safeguarding of assets: Internal auditor should verify the existence of assets
and should review means of safeguarding assets.
(iii) Red Herring Prospectus [Section 32 of the Companies Act, 2013]

(1) A company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus.
(2) A company proposing to issue a red herring prospectus under sub-section (1)
shall file it with the Registrar at least three days prior to the opening of the
subscription list and the offer.
(3) A red herring prospectus shall carry the same obligations as are applicable to a
prospectus and any variation between the red herring prospectus and a
prospectus shall be highlighted as variations in the prospectus.
(4) Upon the closing of the offer of securities under this section, the prospectus
stating therein the total capital raised, whether by way of debt or share capital,
and the closing price of the securities and any other details as are not included in
the red herring prospectus shall be filed with the Registrar and the Securities and
Exchange Board.
Explanation - For the purposes of this section, the expression ―red herring
prospectus" means a prospectus which does not include complete particulars of
the quantum or price of the securities included therein.
3. (b) (i) How many Independent Directors have to be appointed in a company under the
Companies Act, 2013? 5
(ii) State the procedure for shifting of a registered office of the company from one state
to another state under the provisions of the Companies Act, 2013. 5
(iii) AB Ltd. has advanced a loan of ` 2,00,000 to one of its directors in Contravention of
the provision of Section 185 of the Companies Act, 2013. State the consequences of
such contravention. 5
Answer:
3. (b) (i) Number of Independent Directors

The following class or classes of companies shall have at least two directors as
independent directors –
(i) the Public Companies having paid up share capital of ten crore rupees or more;
or
(ii) the Public Companies having turnover of one hundred crore rupees or more; or
(iii) the Public Companies which have, in aggregate, outstanding loans, debentures
and deposits, exceeding fifty crore rupees.
Provided that in case a company covered under this rule is required to appoint a
higher number of independent directors due to composition of its audit committee,
such higher number of independent directors shall be applicable to it.
Provided further that any intermittent vacancy of an independent director shall be

filled-up by the Board at the earliest but not later than immediate next Board
meeting or three months from the date of such vacancy, whichever is later.
Provided also that where a company ceases to fulfill any of three conditions laid
down in sub-rule (1) for three consecutive years, it shall not be required to comply
with these provisions until such time as it meets any of such conditions.
Explanation - For the purposes of this rule, it is here by clarified that, the paid up share
capital or turnover or outstanding loans, debentures and deposits, as the case may
be, as existing on the last date of latest audited financial statements shall be taken
into account.
Provided that a company belonging to any class of companies for which a higher
number of independent directors has been specified in the law for the time being in
force shall comply with the requirements specified in such law.
(ii) Procedure for shifting the registered office from one state to another state (Section
13, of the Companies Act, 2013):
In order to shift the registered office from one state to another the following
procedure will have to be followed:
(i) Hold a Board Meeting for the purpose of calling a general meeting of the
members of the company in which the shifting of the registered office from one
state to another will have to be approved;
(ii) The general meeting of the members will have to pass a special resolution
approving the change of address of the registered office from one state to
another as required by section 13 (1) of the Companies Act 2013.
(iii) Make an application to the Central Government in such form and manner as
may be prescribed, for getting its approval under section 13 (4) of the
Companies Act 2013.
(iv) Under section 13 (7) of the Companies Act 2013, where an alteration of the
Memorandum results in the transfer of the registered office of the company from
one state to another, a certified copy of the order of the Central Government
approving the alteration shall be filed by the company with the registrar of each
of the states, within such time and in such manner as may be prescribed, and the
registrars shall register the same. The registrar of the state where the registered
office is being shifted to shall issue a fresh certificate of incorporation indicating
the alteration.
(v) The change in name will be effective only after the issue of the fresh certificate of
incorporation by the Registrar of the state where the registered office is being
shifted to.
(iii) Loans to Directors (Sec. 185 of Companies Act 2013)

According to Sec. 185 (1) no company shall, directly or indirectly, advance any loan,
including any loan represented by a book debt, to any of its directors or to any other
person in whom the director is interested or give any guarantee or provide any
security in connection with any loan taken by him or such other person.
Contravention: If any loan is advanced or a guarantee or security is given or
provided in contravention of the provisions of sub-section (1), the company shall be
punishable with fine which shall not be less than five lakh rupees but which may
extend to twenty five lakh rupees, and the directors or the other person to whom any
loan is advanced or guarantee or security is given or provided in connection with
any loan taken by him or the other person, shall be punishable with imprisonment
which may extend to six months or with fine which shall not be less than five lakh
rupees but which may extend to twenty-five lakh rupees, or with both.
SECTION - D
4. Answer any one questions: 15×1 = 15
(a) (i) What is the difference between morals and ethics? 7

(ii) Explain the safeguards which may be created by business enterprise to overcome
various threats faced by accounting & finance professionals. 8
Answer:
4. (a) (i) First of all analysis of the key terms 'ethics' and 'morals' is to be done. The linguistic use
of the terms, they seem as if they are in the plural form, just as 'economies' or 'polities',
but we treat them as singular. Generally, ethics and morals are used as synonyms.
There is nothing wrong in such a usage, for after all, the meanings of all words
depend on their common usage. However, in formal study, we need to understand
the meaning of the terms in a qualified way so as to make our subject of study
precise and well defined.
Meaning: The terms 'ethics' and 'morals' are etymologically, that is, from their very
roots or terms, different. The word moral(s) is derived from the Latin root moralis,
which implies custom. In other words, it refers to a behavior that is accepted or
rejected due to an accepted social custom. The word ethics stems from the Greek
word ethike, which attributes to a social environment, referred to as ethos or social
milieu. This latter meaning embraces much more than mere custom. It refers to
everything that is part and parcel of society and not just what is allowed or
forbidden. Morality is more concerned with the norms, values and beliefs embedded
in social processes which define what is right or wrong for an individual or
community.
Another point of difference between the two refers to their usage in ordinary
language. For instance, a lawyer defending an alleged rapist would accuse the
victim as 'morally fallen' and not as 'ethically fallen'. On the other hand, a committee
that is formed to probe the behavior of the members of Parliament would be called
'ethics committee' not 'moral committee'. The meaning of the word is in its usage.
Thus, both these terms have their unique characteristics and applications.
Usage: However, the terms are intrinsically not different. Both of them refer to the
same reality of human actions, which may be characterized as morally or ethically
positive or negative as the case may be. It may be true that the terms (ethics and
morals) sound different but they refer to the same social reality wherein a certain
body of accepted norms forms a code of conduct in society. The actions of the
members are described as 'moral' or 'ethical' depending on the linguistic nuances of
the meaning in a particular case as well as on the conventional use of the terms. It is
in the use of the words in a given context, that the meaning becomes clear.
In academic usage, however, moral behavior refers to a concrete behavior such as

showing respect to elders. Ethics, on the other hand, is used to mean a discipline or a
systematic study of moral behavior such as justice. People's behavior in a society can
be morally characterized in their day to day actions. It is in the classroom that we
analyse the ethical significance of these actions.
These terms are generally interchanged with one and the same meaning, that is, to
determine whether some human action is right or wrong. They deal with the
application of a socially accepted code of conduct. This conduct may be termed
as either moral conduct or ethical conduct.
(ii) It is important to have safeguards created by the Finance and Accounting

Profession, to entify or deter unethical behavior. Such safeguards to eliminate or
reduce threats may classified in two broad categories:
 Safeguards created by the Finance and Accounting profession, Legislation or
Regulation;
 Safeguards in the work environment.
(a) Safeguards created by the Finance and Accounting profession, Legislation or

Regulation
 Educational, training and experience requirements for entry into the
profession.
 Continuing professional development requirements.
 Corporate Governance Regulations.
 Professional standards.
 Professional or regulatory monitoring and disciplinary procedures.
 External review of reports by a legally empowered third party.
(b) Safeguards in the work environment

 The employing organization's ethics and conduct programs.
 Employing competent staff.
 Strong internal controls.
 Appropriate disciplinary processes.
 Leadership for cultivating ethical behavior to encourage employees to act in
ethical manner.
 Policies and procedures to implement and monitor the quality of employee
performance.
 Timely communication of organization's policies and procedures.
 Employee training and education on policies and procedures.
 Encourage employees to communicate ethical issues without fear of
retribution.
 Organization's system of corporate overview.
4. (b) (i) Explain in brief the measures to ensure ethics in the work place. 8
(ii) Explain the need of ethics for a finance and accounting professionals. 7
Answer:
4. (b) (i) An ethical company may develop certain basic principles which will guide its
employees in dealing with ethical issues at the workplace. A set of such principles is
given below:
1. Codes of Ethics and Conduct: A code of ethics specifies the company's rules
regarding ethical behaviour in the workplace. For e.g., company's code may
prohibit employees from accepting gifts from suppliers and clients. Code
becomes more effective when the top management actively supports and
applies it.
2. Establish open communication: Most ethical issues in business are ambiguous and
uncertain. Therefore, there is need to create work environment in which
employees feel free to discuss ethical dilemmas. Management should explain the
purpose and contents of ethical policy. Training is required to sensitize employees
to potential ethical issues. Necessary resources and support need to be provided
to help employees to resolve ethical dilemmas.
3. Appoint an ombudsman: Ombudsman serves as a point of reference. Employees

can go to him and discuss ethical issues in confidence.
4. Leadership by example: Ethical behavior is best taught by example. A father who

insults his parents cannot expect respect from his children. Top management
should themselves follow ethical practices and also create an impression that
unethical behavior will not be tolerated.
5. Integrate ethics management with other management practices: When
developing the values statement during strategic planning, ethical value should
be preferred in the workplace. When developing personnel policies, reflect on
what ethical value, you'd like to be most prominent in the organization's culture
and then design policies to produce these behaviours.
6. Group decision making: If ethical issues are decided in groups, diverse interests
and perspectives can be considered. The decision process becomes more
acceptable.
7. Suggestion system: A suggestion box may be installed so that employees may

report suspended unethical activities in an anonymous manner. This will
encourage employees to report ethical violations.
8. Grievance Procedure: An appropriate grievance redressal system may be

created. This will help to resolve disagreements between employees and their
supervisors on ethical issues.
9. Regularly update policies and procedure: Policies and procedures concerning

ethics at the workplace need to be reviewed and updated on regular basis.
(ii) Need for Professional Values and Attitudes of Accountants
Finance and accounts are primary business functions with responsibility to function in
public interest.
Finance and accounting professionals are regarded very high in terms of professional
ethics. However, various accounting scams witnessed during the past few years have
cast clouds on the role of finance and accounting professionals in providing right
information both within and outside their respective organizations.
Importance of Ethics for a Finance and Accounting Professionals are:
A. Need: Finance and accounting professionals are responsible to act in public

interest, not restricted to satisfy the needs of any particular individual or
organization. They have to follow ethical principles to achieve their objective of
"service in public interest".
B. Role: Accounting scandals, use of false and misappropriated accounting

information, direct involvement in detrimental activities, refusing to identify
frauds and embezzlements reported by employees etc. have led to failure of
high-profile organizations. These failures may lead to the negligence of finance
and accounting professionals and their ethical conduct may be subjected to
sharp criticism.
The International Accounting Educations Standards Board has released for public
exposure a proposed revision of values and attitudes of professional accountants. It
prescribes the attitudes that professional accountants should acquire during the
education programme leading to qualification. The regular review and updating of
professional values, ethics and attitudes is essential to the development and
maintenance of competence. Moreover, increasing competence, improves the
quality of financial information - a key component of business decision making. The
coverage of values and attitudes in education programs for professional
accountants should lead to commitment towards:-
(a) Public interest and sensitivity to social responsibilities.
(b) Continual improvement and lifelong learning.
Professional accountants need to operate in dynamic world of change. Good

governance, both corporate and public, depends greatly on adherence to a strict
code of professional values and attitudes. In such circumstances understanding of
ethical principles is essential to enable them to operate effectively with integrity and
discernment in an ever changing business environment. The purpose of professional
standard bodies is to assist members in such tasks.
Suggested Answer_Syl12_June2016_Paper_6
GROUP I
(SYLLABUS 2012)

JUNE 2016
Paper- 6 : LAWS, ETHICS AND GOVERNANCE

Section – A
1. Answer all questions: 110=10
(a) Multiple choice questions:
(i) A contract is a combination of

(a) Agreement and free consent
(b) agreement and consideration
(c) agreement and enforceability
(d) agreement and competence of parties
(ii) The provisions regarding maximum number of members in a partnership are given in
(a) The Partnership Act
(b) The Companies Act
(c) The Societies Registration Act
(d) The Co-operative Societies Act
(iii) X and Y agree to divide the profits of a business in equal shares but the loss if any is
to be borne by X only. The partnership agreement is
(a) void
(b) voidable
(c) lawful
(d) illegal
(iv) First aid boxes or cupboard equipped with prescribed contents and not less than
one in number must be provided and maintained in every factory so as to be
accessible during all working hours for every
(a) 200 workers for any time
(b) 150 workers for any time
(c) 500 workers for any time
(d) 30 workers for any time
(v) XYZ Ltd. do which the payment of Wages Act, 1936 is applicable, fixes the wages
period of 36 days. You as a Cost and Management Accountant of the Company,
how would advice the company.
(a) There is no problem in the above act of the Company
(b) As per Section 4(2) of the Act, no wage period can exceed 30 days. So the
company would be advised accordingly.
(c) The wages period can be more than 30 days subject to approval of appropriate
Government
(d) The company should take permission of Inspector of the factory.
(vi) Under Section 14 of The Prevention of Money Laundering Act, 2002 gives immunity to
___________ against civil proceedings for furnishing information
(a) an individual
(b) a HUF
(c) an agency
(d) a Banking Company
(vii) One of the following is not an objective of the RTI Act.

(a) Accountability
(b) Eliminate corruption (responsibility)
(c) Freedom to speech
(d) Transparency
(viii) When the day on which a promissory note or bill of exchange is at maturity is a
public holiday, the instrument shall be deemed to be due on the
(a) Preceding day
(b) Next preceding business day
(c) Same day of next week
(d) 3rd day following the day holiday
(ix) In case of an employee who has not completed 15 years of age at the beginning of
the Accounting year, the minimum bonus will be
(a) ` 100 or 8.33% of salary or wages whichever is higher.
(b) ` 60 or 8.33% of salary or wages whichever is higher.
(c) ` 60 or 8.33% of salary or wages whichever is lower.
(d) 8.33% of salary or wages.
(x) Every LLP firm shall have at least _____________ designated partners who are
individuals.
(a) two
(b) three
(c) four
(d) Five
(b) Fill in the blanks 1×5=5

(i) The maximum number of parties in a contract may be _______________.
(ii) The Primary role of _______________ committee is to assist the board in identifying
prospective directors.
(iii) If gratuity is not paid within 30 days from the date it becomes payable simple
interest @ ______________ p.a. is payable on the expiry of the said period.
(iv) The appropriate Government may direct that the provision of Minimum Wages
Act 1948 will not be applicable in case of wages payable to a ___________
person.
(v) In the case of banking business, the maximum number of legal partners is
__________.
(c) State whether the following statements are True (or) False.
(i) All agreements are contracts but all contracts are not agreements.
(ii) In a contract of guarantee two parties are necessary.
(iii) Delivery means voluntary transfer of possession of goods from one person to
another.
(iv) Share holders and Stake holders are synonyms.
(v) Ethics and Law have the same purpose.
(d) Match the following (any five): 1×5=5
Column ‘A’ Column ‘B’

1. Doctrine of Privity of Contract (A) Factory Act
2. Quantum Merruit (B) Minimum Wages Act
3. Relay (C) Solomon vs Solomon & Co. Ltd.
4. Schedule Employment (D) Corporate Governance
5. Lifting of Corporate Veil (E) Ethical Conflict
6. Financial Reporting Council (F) Contract Act
7. Economic cycles (G) Sale of goods Act
Answer:
(a)
(i) (c)Agreement and enforceability.
(ii) (b)The Companies Act
(iii) (c) Lawful
(iv) (b) 150 workers for any time.
(v) (b)As per section 4(2) of the Act, no wage period can exceed 30 days. So the
company would be advised accordingly.
(vi) (d) A Banking company.
(vii) (c) Freedom to speech.
(viii) (b) Next preceding business day.
(ix) (b) ` 60 or 8.33% of Salary or Wages whichever is higher.
(x) (a) Two designated partner.
(b)
(i) Infinite.
(ii) Nomination
(iii) 10%
(iv) Disabled
(v) 10
(c)
(i) False
(ii) False
(iii) True
(iv) False
(v) True
(d)
1 F
2 G
3 A
4 B
5 C
6 D
7 E
Section – B
2. Answer any three questions: 15x3=45
(a)(i) What are essential elements of a valid acceptance? 8

(ii) What are the different categories of Industrial Disputes? 7
(b) (i) Limited Liability Partnerships are body corporate. Do you agree? Justify. 5
(ii) The Minimum Wages Act, 1948 prescribes payment of wages in cash only. Comment.
4
(iii) State your views on the following: 2×3=6
(a) Consideration for sale of goods must be in terms of money.
(b) In an auction sale, a bid once made cannot be withdrawn by the bidder.
(c) A partner is not an agent of other partners in a partnership firm.
(c) (i) What procedure shall an employee adopt for the recovery of the amount of bonus
due to him from his employer under the Payment of Bonus Act 1965? 7
(ii) Under what circumstances the gratuity payable to an employee be forfeited? 8
(d) (i) State the circumstances under which a banker is bound to refuse the payment of a
cheque. 8
(ii) Is the amount standing to the credit of a member of the Provident Fund attachable in
the execution of decree or order of the Court? Examine the law, on this point, laid
down in the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. 7
(e) (i) X Father promised to pay his son Y a sum of ` One lakh if Y (son of X) passed CMA
examination in the first attempt. Y passed the CMA examination in his first attempt,
but X failed to pay the amount as promised. Y files a suit for recovery of the said
amount. State along with reasons whether Y can recover the amount under the
Indian Contract Act, 1872. 5
(ii) ABC & Co., a firm consists of three partners A, B and C having one-third share each
in the firm. According to A and B, the activities of C are not in the interest of the
partnership and thus want to expel C from the firm. Advise A and B whether they can
do so quoting the relevant provisions of the Indian Partnership Act. 5
(iii) Ram sells 200 bales of cloth to Shyam and sends 100 bales by lorry and 100 bales by
Railway. Shyam receives delivery of 100 bales sent by lorry, but before he receives
the delivery of the bales sent by railway, he becomes bankrupt. Ram being still
unpaid, stops the goods in transit. The official receiver, on Shyam's insolvency
claims the goods. Decide the case with reference to the provisions of the Sale of
Goods Act, 1930. 5
Answer:
2.(a)(i)
(a)Acceptance must be absolute and unqualified; it must conform to the offer:

As per section 7 in order to convert a proposal into a promise, the acceptance must-
(1) Be absolute and unqualified: if the parties are not ad idem on all matters concerning
the offer and acceptance, there is no contract. An invitation with variation is no
acceptance, it is simply a counter proposal which must be accepted by the original
proposer before any contract is made. A counter offer puts an end to the original
offer and cannot be revived by subsequent acceptance unless it is renewed. In Hyde
v Wrench 1840 3 Bear 334 an offer to sell a car for $1000 was turned down by the
plaintiff who offered $950 for it. This was rejected by the offeror and then the plaintiff
agreed to pay $1000. It was held that there would undoubtedly have been perfect
contract, instead of that the plaintiff made an offer of his own to purchase the
property for $950 and rejected the offer previously made by the defendant. He was
not afterwards competent to revive the proposal of the defendant, by tendering an
acceptance for it. Thus the suit of the plaintiff was dismissed.
(2) Be expressed in some usual and reasonable manner, unless the proposal prescribes
the manner in which it is to be accepted. If the proposal prescribes a manner in
which it is to be accepted, and the acceptance is not made in such a manner, the
proposer may, within a reasonable time after the acceptance is communicated to
him, insist that his proposal shall be accepted in the prescribed manner, and not
otherwise; but if he fails to do so, he accepts the acceptance. In Surender Nath v
Kedar Nath AIR 1936 Cal 87 the Calcutta High Court held that where an offeror
requires that t h e acceptance should be sent to a p a r t i c u l a r person in writing,
section 7 was not vi o l at e d when t h e offeree i nst ead of writing to t h e particular
person, sent his agent in person to communicate the acceptance.
(b) Specific offer can be accepted by the person to whom it is made, whereas general offer
can be accepted by anyone competent to contract and meeting the conditions of
offer. It was held in BoultonV Jones (1857)27 LJ ex 117 case that a specific offer can be
accepted only by the person to whom it is made. A general offer can be accepted by
any one as held in case of Carlill v Carbolic Smoke ball co, HarbansLal V Harbanslal,
(c) Acceptance may be express or implied:As per section 9 in so far as the proposal or
acceptance of any promise is made in words, the promise is said to be express. In so far
as such proposal or acceptance is made otherwise than in words, the promise is said to
be implied. It can be inferred from the conduct of the parties. When a person boards in
Metro Ra i l it is an implied acceptance.
(d) Acceptance should be of the whole proposal and not in part; Acceptor should accept
the whole proposal in total and not in parts. Part acceptance is no acceptance binding
upon the proposer.
(e) Acceptance should be according to the mode prescribed or usual and reasonable
mode; acceptor cannot accept the proposal in a manner different from the manner
prescribed in the offer. If no such mode is prescribed it should be usual and reasonable
mode. Silence cannot be a mode of acceptance. In SurernderNath VKedarNath, AIR
1936 cal 87, the Calcutta High court held that where an offeror requires that the
acceptance should be sent in writing to a particular person, section 7 of the Contract
Act is not violated when the offeree instead of writing to particular person, sent his
agent in person to communicate the acceptance.
(f) Communication of acceptance is must; a mental determination to accept

unaccompanied by any external indication will not be sufficient acceptance. To
constitute an acceptance such acceptance must be communicated to the offeror or
his authorized agent.Example: A makes an offer to B to supply certain goods at a
certain price. B writes the letter of acceptance and puts the letter in the drawer of his
table and forgets all about it. Hence putting the letter of acceptance in the drawer
does not amount to communication of acceptance without any external manifestation
of the intention to accept the offer (Brogden v Metropolitan Railway co, 1877 AC 666).A
mere mental assent is not a sufficient acceptance of an offer.To constitute an
acceptance such assent must be communicated to the offeror or his authorised agent.
(g) Acceptance must be given before its lapse; Acceptance must be given before the offer
lapses by expiry of time fixed or by expiry of reasonable time if no time is so fixed or
before it is withdrawn or revoked by the offeror. In Ramasgate Victoria Hotel co V
Montefoire (1866)LR 1 Exch 109 it was held that a person who applied for shares in a
company in June was not bound by any allotment made in November.
2. (a)(ii)
(A) The Second Schedule of the Industrial Disputes Act deals with matters within the
jurisdiction of Labour Courts which fall under the category of Rights Disputes. Such
disputes are as follows: (1) The propriety or legality of an order passed by an employer
under the standing orders; (2) The application and interpretation of standing orders
which regulate conditions of employment. (3) Discharge or dismissal of workmen
including reinstatement of, or grant of relief to, workmen wrongfully dismissed; (4)
Withdrawal of any customary concession or privilege; (5) Illegality or otherwise of a strike
or lock-out; and (6) All matters other than those specified in the Third Schedule.
(B) The Third Schedule of the Industrial DisputesAct deals with matters within the jurisdiction
of Industrial Tribunals which could be classified as Interest Disputes. These are as follows:-
(1) Wages, including the period and mode of payment; (2) Compensatory and other
allowances; (3)Hours of work and rest intervals; (4)Leave with wages and holidays;
(5 ) Bonus, profit sharing, provident fund and gratuity; (6)Shift working otherwise than in
accordance with standing orders; (7)Classification by grades; (8) Rules of discipline;
(9)Rationalization; (10)Retrenchment of workmen and closure of establishment; and
(11)Any other matter that may be prescribed.
2. (b)(i)
Limited Liability Partnerships formed and registered under Limited Liability Partnership Act,
2008 are body corporate. All LLPs have the following features:
(i) A Limited Liability Partnership is a body corporate formed and incorporated under this
Act and is legal entity separate from that of its partners.
(ii) A limited liability partnership shall have perpetual succession.
(iii) Any change in the partners of a limited liability partnership shall not affect the existence,
rights or liabilities of the limited liability partnership.
(iv) Save as otherwise provided, the provisions of the Indian Partnership Act, 1932 shall not
apply to a limited liability partnership.
(v) Any individual or body corporate may be a partner in a limited liability partnership.
2. (b)(ii)
(1) Minimum wages payable under this Act shall be paid in cash.
(2) Where it has been the custom to pay wages wholly or partly in kind, the Appropriate
Government being of the opinion that it is necessary in the circumstances of the case
may by notification in theOfficial Gazette authorise the payment of minimum wages
either wholly or partly in kind
(3) If Appropriate Government is of the opinion that provision should be made for the supply
at essential commodities at concession rat es the Appropriate Government may by
notification in the Official Gazette authorise the provision of such supplies at
concessional rates.
(4) The cash value of wages in kind and of concessions in respect of supplies of essential
commodities at concessional rates authorised under sub-sections (2) and (3) shall be
estimated in the prescribed manner.
2. (b)(iii)
(a) Correct: It is one of the essentials of the contract of sale, that price must be paid in terms
of money.
(b) Incorrect: The bidder can withdraw his bid any time before the fall of the hammer i.e.,
completion of sale.
(c) Incorrect: The basis of the partnership is mutual agency, hence a partner is an agent of
all other partners.
2. (c)(i)
Recovery of bonus due from an employer

In those cases where any money by way of bonus is due to an employee from his employer
under a settlement or an award or agreement, the employee is entitled to recover the same
by following the procedure prescribed in section 21 of the act. It is important to note here
that the mode of recovery of bonus prescribed under this section shall be available only if
the bonus sought to be recovered is due under a settlement or an award or an agreement.
It will not apply to recovery of bonus which is payable under the act.
The provisions relating to the recovery of bonus, as contained in section 21, are as under:
(1) The bonus due to an employee from his employer under a settlement or an award or
agreement, can be recovered by him by making an application to the Appropriate
Government for the recovery of the same.
(2) The application may be made by the employee himself or by any person authorised by
him in writing. In case of death of the employee, such an application may be made by
his assignee or heirs.
(3) On receipt of the application, if the Appropriate Government is satisfied that any money
is so due to the employee, it shall issue the certificate for that amount to the collector,
and the collector shall proceed to recover the same in the same manner as an arrear of
land revenue.
(4) The application to the Appropriate Government should be made within one .year' from
the date on which the money became due to the employee from the employer.
However, the Government may entertain such application even after the expiry of said
period of one year, if it is satisfied that the applicant had sufficient cause for not making
the application within the prescribed period of one year.
2. (c)(ii)
Forfeiture of gratuity
The legal provisions relating to the forfeiture of gratuity are contained in section4(6) of the
Payment of Gratuity Act, 1972 and may be summed up as under:
1. The gratuity payable to an employee shall be forfeited where the services of
anemployee have been terminated due to any act, willful omission or negligence on
the part of the employee and employee's such act etc. has caused:
(a)damage or loss to the property belonging to the employer, or
(b)destruction of the property belonging to the employer.
In this case, the gratuity payable to the employee shall be forfeited to the extent of the
damage or loss caused to employer's property due to employees act, omission or
negligence |Section 4(6)(a)]
2. The gratuity payable to an employee may be forfeited:

(a) If the services of such employee have been terminated for his riotous or disorderly
conduct or any other act of violence on his part, or
(b) If the services of such employee have been terminated for any act which
constitutes an offence involving moral turpitude, provided that such offence is
committed by him in the course of his employment.
In the above stated cases, the gratuity payable to an employee may be forfeited
wholly or partially. [Section 4(6)(b)]
Following judicial decisions are important to note in connection with the forfeiture of gratuity
by the employer:
(i) The right of the employer to forfeit the amount of gratuity of an employee whose services
were terminated due to any act, willful omission or negligence causing any damage to
the employer's property is limited to the extent of damage and the proof of such
damage.
[Permali Wallance Ltd. V. state of M.P. (1996) IILLJ 515 (MP)].
(ii) The right of the employer to forfeit the gratuity is available only in the circumstances
enumerated in section 4(6), as stated in points (1) and (2) above, and is not available in
any other circumstances as employee's right to gratuity is the statutory right.
[K.C. Mathew v. Plantation Corpn. Of Kerala Ltd. (2001) LLR 123 (ker.)].
(iii) The refusal by the employees to surrender land belonging to the employer is
not a ground for forfeiture of gratuity.
[Travancore Plywood Industries Ltd. V. Regional Join labour Co.mmr, (1996) II LLJ 85
(Ker.)].
(iv) In case of termination of services on account of offence involving moral
turpitude the gratuity may be wholly or partially forfeited. In this regard, the
Karnataka High Court has held that when an offence of theft under law involvesmoral
turpitude, gratuity stands wholly forfeited in view of section 4 (6) of the Act.
[Bharat Gas Mines Ltd. V. Regional Labour Commr. (Central) (1987) 70 FJR 11 (Karn)].
2. (d)(i)
Circumstances when the banker must refuse the payment
Following are the circumstances in which the banker is bound to refuse the payment of a
cheque:
(1) When the customer has countermanded payment. The term 'countermand' means the
issue of instruction to the banker not to pay a particular cheque. Thus, where a customer
issues instructions to the banker not to make the payment of a particular cheque, the
banker must not make the payment. A cheque, the payment of which is stopped by the
customer is known as a 'stopped cheque'. And a stopped cheque is a piece of waste
paper in the hands of payee. It is, however, necessary that a countermand to be
effective must reach the banker before he had paid the cheque in the ordinary course.
It may also be noted that the countermand notice must be duly signed by the customer
and give correct particulars of the cheque.
(2) When the customer has died. Sometimes, the banker receives notice of customer's
death. In such cases, he must refuse the payment of the cheque presented after the
notice of death. However, if the payment is made before the banker receives the notice
of death, the payment is valid and banker is justified in making such payment.
(3) When the customer has become insolvent. Sometimes, the banker receive; the notice of
customer's insolvency. In such cases also he must refuse the payment of the cheques
presented after the notice.
(4) When the customer has become a person of unsound mind (i.e. insane). Sometimes, the
banker receives the notice that his customer has become insane. In such cases also, he
must refuse payment of the cheque presented after the notice.
(5) When a garnishee order has been received by the banker. The term Garnishee order
may be defined as a court order attaching the balance in customer's account. When
the banker receives such order then he is bound to refuse the payment of the customer's
cheque.
(6) When the cheque is lost. Sometimes, the drawer informs the banker that a particular
cheque is lost. In such cases, banker must refuse the payment of that cheque.
(7) When the account is closed. Sometimes the customer closes his account and gives
notice to the banker. In such cases the banker must not pay any cheque of the
customer after the closure of the account.
(8) When holder's title is defective. Sometimes, the banker comes to know of any defect in
the title of the person presenting the cheque. In such cases, he must refuse the payment
of the cheque.
(9) When a customer gives notice of assignment of credit balance in his account, the banker
must refuse the payment of cheque.
2. (d)(ii)
Attachment of Provident Fund:

According to Section 10 of E.P.F. & M.P. Act, 1952 the amount standing to the credit of any
member in the fund or of any exempted employee in a provident fund shall not In any way
be capable of being assigned or charged and shall not be liable to attachment under any
decree or order of any court in respect of any debt or liability Incurred by the member or the
exempted employee, and neither the official assignee appointed under the Presidency
Towns Insolvency Act nor any receiver appointed under the Provincial Insolvency Act shall
be entitled to or have any claim on, any such amount.
The amounts standing to the credit of aforesaid categories of persons at the time of their
death and payable to their nominees under the scheme or the rules, and the amount shall
be free from any debt or other liability incurred by the deceased or the nominee before the
death of the member or of the exempted employee and shall also not be liable to
attachment under any decree or order of any court.
2. (e)(i)
Problem asked in the question is based on the provisions of the Indian Contract Act, 1872 as
containedin section 10. According to the provisions there should be an intention to create
legal relationship between the parties. Agreement of a social nature or domestic nature do
not contemplate legal relationship and as such are not contracts, which can be enforced.
This principle has been laid down in the case of Balfour vs.Balfour. Accordingly, applying the
provisions and the ease decision, in the case Y cannot recover the amount of Rupees One
lakh from X for the reasons explained above.
2. (e)(ii)
Normally it is not possible for the majority of partners to expel a partner from the
firmwithoutsatisfying the conditions as laid down in Section 33 of the Indian Partnership Act,
1932. The essential conditions before expulsion can be done are:
(i) power of expulsion should exist in the partnership deed (contract between the partners).
(ii) power has been exercised by the majority of the partners in good faith.
The test of good faith includes:

(a) that the expulsion must be in the interest of the partnership;
(b) that the partner to be expelled is served with a notice; and
(c) that the partner has been given an opportunity of being heard.
Thus, in the given case A and B the majority partners can expel the partner only if the above
conditions are satisfied and procedure as stated above has been followed. Further the
invalid expulsion of a partner does not put an end to the partnership and it will be deemed
to continue as before.
2. (e)(iii)
Right of stoppage of goods in transit

The problem is based on section 50 of the Sale of Goods Act, 1930 dealing with the right of
stoppage of the goods in transit available to an unpaid seller. The section states that the
right is exercisable by the seller only if the following conditions are fulfilled.
(i) The seller must be unpaid
(ii) He must have parted with the possession of goods
(iii) The goods must be in transit
(iv) The buyer must have become insolvent
(v) The right is subject to the provisions of the Act.
Applying the provisions to the given case, Ram being still unpaid, can stop the 100 bales of
cloth sent by railway as these goods are still in transit.
SECTION - C
3. Answer any one question: 15x1=15
(a) (i) Can a non-profit organisation be registered as a company under the companies
Act, 2013? If so, what procedure does it have to adopt? 7
(ii) ABC Limited decides to buy-back its own shares. Advise the Company's Board of
Directors about the sources of which the company can buy-back its own shares. 4
(iii) Briefly explain the provisions relating to submission of Cost Audit Report to the Board
ofDirectors as per the Companies Act, 2013. 4
(b) (i) What is meant by Corporate Governance? State the measures of Corporate
Governance' with reference to Indian Companies. 6
(ii) Define the term 'Small Company' as contained in the Companies Act, 2013. 5
(iii) MB Pvt. Ltd. Company having outstanding loans or borrowing from banks exceeding
one hundred crore rupees wants to appoint Internal Auditor. Please guide him who
can be appointed as Internal Auditor. 4
Answer:
3.(a)(i)
Registration of a non-profit organisation as a company:

According to section 8 (1) of the Companies Act,2013, the Central Government may allow a
person or an association of persons to be registered as a Company under the Companies
Act if it has been set up for promoting commerce, arts, science, sports, education, research,
social welfare, religion, charity, protection of environment or any such other useful object
and intends to apply its profits or other income in promotion of its objects. However, such
company has to prohibit payment of any dividend to its members.
Procedure: An association of persons intending to carry any or all or some of the activities
mentioned in section 8(1) as mentioned above, has to apply to the Central Government
seeking its permission forbeing set up as a company under the Act. The Central Government
if satisfied on the above may by the issue of a licence in such manner as may be prescribed
and on such conditions as it may deem fit, allow such association to be registered as a
limited company under section 8(1) without the addition of word “Limited” or words "Private
Limited" as the case may be, to its name.
After the issue of the licence by the Central Government, an application must be made to
the Registrar in the prescribe form after which the Registrar will register the association of
persons as a company under section 8(1). Under section 8(2) a company registered under
section 8(1) as above, shall enjoy all the privileges and be subject to all the obligations of a
limited company.
This licence issued by the Central Government is revocable, and on revocation the Registrar
shall put the words 'Limited' or 'Private Limited' against the company's name in the Register.
But before such revocation, the Central Government must give the company a written
notice of its intention to revoke the licence and provide an opportunity lo it to be
represented and heard in the matter.
3.(a)(ii)
Sources of funds for buy-back of shares:

Under section 68 (1) of the Companies Act,2013 a company can purchase its own shares or
other specified securities. The purchase should be out of:
(i) its free reserves: or
(ii) the securities premium account: or
(iii) the proceeds of the issue of any shares or other specified securities.
However, buy-back of any kind of shares or other specified securities cannot be made out of
the proceeds of an earlier issue of the same kind of shares or same kind of other specified
securities.
'Specified securities' includes employees' stock option or other securities as may be notified
by the Central Government from time to time. [Explanation (1) under Section, 68].
3. (a)(iii)
Manner of Submission of Cost Audit Report to the Board

The cost auditor shallsubmit the cost audit report along with his or its reservations or
qualifications or observations or suggestions, if any, in Form CRA-3. He shall forward his report
to the Board of Directors of the company within a period of 180 days from the closure of the
financial year to which the report relates and the Board of Directors shall consider and
examine such report particularly any reservation or qualification contained therein.
3.(b)(i)
MEANING: Corporate governance is about promoting corporate fairness, transparency and

accountability. It is concerned with the structures and processes for decision-making
accountability, control and behavior at the top level of organizations. It influences how the
objectives of an organization are set and achieved, how risk is monitored and assessed and
how performance is optimized.
MEASURES: In general, corporate governance measures include appointing non-executive

directors, placing constraints on management power and ownership concentration, as well
as ensuring proper disclosure of financial information and executive compensation. Many
companies have established ethical and/or social responsibility committees on their Boards
to review strategic plans, assess progress and offer guidance on social responsibilities of their
business. In addition to having committees and Boards, some companies have adopted
guidelines governing their own policies around such issues like board diversity,
independence, and compensation, Indian companies are also required to comply with
Clause 49 of the listing agreement.
3. (b)(ii)
SMALL COMPANY:
Under Section 2(85) of the Companies Act, 2013, "small company means a company, other
than a public company:-
(i) having PAID-UP SHARE CAPITAL not exceeding fifty lakh rupees or such higher amount as
may be prescribed which shall not be more than five crore rupees; or
(ii) having TURNOVER as per its last profit and loss account not exceeding two crorerupees
or such higher amount as may be prescribed which shall not be more than twenty crore
rupees.
EXCEPTIONS: This section shall not apply to:

(A) a holding company or a subsidiary company;
(B) a company registered under section 8, or
(C) a company or body corporate governed by any special Act.
3. (b)(iii)
Applicability of Internal Audit:

Section 138 of the Companies Act, 2013 states that every private limited company is
required to conduct internal audit if its'outstanding loans or borrowings from banks or public
financial institutions exceeding one hundred crore rupees or more at any point of time
during the preceding financial year.
In view of above provisions,M. B. Pvt. Ltd. is under compulsion to conduct internal audit as its
loans or borrowings are falling under the prescribed limit.
Who can be appointed as Internal Auditor- The internal auditor shall either be a chartered
accountant, whether engaged in practice or not, or a cost accountant, or such other
professional as may be decided by the Board to conduct internal audit of the functions
andactivities of the companies.
The internal auditor may or may not be an employee of the company.
SECTION –D
4. Answer any one questions: 15x1=15
(a) (i) What is 'Business Ethics'? 7

(ii) What are circumstances leading to actual happening of threats for an Accounting
professionals working as Consultants or Auditors? 8
(b) (i) What are the fundamental principles of ethical behaviour? 7

(ii) Explain the reasons for unethical behaviour among finance and accounting
professionals. 8
Answer:
4.(a)(i)
According to Andrew Crane “Business ethics is the study of business situations, activities and
decisions where issues of right and wrong are addressed.
Raymond C. Baumhart contend – “The ethics of business is the ethics of responsibility. The
businessman must promise that he will not harm knowingly”.
Business ethics concerns itself with adhering to the social principles of the situations in which
business takes place. The analysis of this definition leads us to the following discussion.
Thus, Business Ethics (also called Corporate Ethics) is a form of applied ethics or professional
ethics that examines ethical principles and moral or ethical problems that arise in a business
environment. It applies to all aspects of business conduct, and is relevant to the conduct of
individuals and the entire organizations. It deals with morality in business environment. It
involves moral judgment based on understanding of the society. It extends beyond the legal
questions and involves moral judgment based on understanding of the society. It extends
beyond the legal questions and involves goodness and badness of an act.
(1) Business ethics refers to the application of everyday moral or ethical norms to business. It
requires an awareness of how the products and services of an organizations and the
action of its employees, can affect its stakeholders and society as a whole, either
positively or negatively.
(2) Ethics in business organization relates to a corporate culture of values, leadership
program and enforcement.
(3) It is that set of principles or reasons which governs the conduct of business at the
individual or collective level by the application of ethical reasoning to specific business
situations and activities.
4.(a)(ii)
Sl.
Types of threats Accounting professional working as Consultants or Auditors
No.
1. Self interest threat (i) A financial interest in a client.
(ii) Undue dependence on fees from a client.
(iii) Close business relationship with a client.
(iv) Fear of losing a client.
(v) Potential employment with a client.
(vi) Contingent fees relating to an assurance engagement.
2. Self review threat (i) Discovery of a significant error of the work of the professional.
(ii) Reporting on the operation of the designed financial systems.
(iii) Being a Director or Officer of the client.
(iv) Being employed by the client in a position to exert influence
over the subject-matter of the engagement.
3. Advocacy threat (i) Promoting shares in a Listed Entity of a client.
(ii) Acting as an advocate on behalf of client in litigation or
disputes with third parties
4. Familiarity threat (i) Close relationship with a Director or Officer of the client
(ii) Accepting gifts or preferential treatment from a client
5. Intimidation threat (i) Being threatened with litigation.
(ii) Fear of losing work from client.
(iii) Being threatened with replacement.
4.(b)(i)
Certain fundamental principles need to be followed so that ethical environment prevails.

These principles include:
1. The principle of integrity:The principle of integrity calls upon all accountingand finance
professionals to adhere to honesty and straight forwardness while discharging their
respective professional duties.
Besides, practice of the following guidelines may help:

(a) do not get involved in activities which are likely to adversely affect the goodwillof
the company.
(b) communicate adverse information to the concerned persons
(c) refuse any gift or favour which could influence decision.
(d) Do not get involved in any activity which may adversely affect the achievementof
organizational objective.
(e) Avoid conflicts of interest.
2. The Principle of objectivity: This principle requires accounting and finance professionals
to stick to their professional and financial judgement. They should not allow bias,
conflicting interests or undue influence of others to override their judgements. They
should communicate all the information in an objective and fair manner to the end user.
3. The principle of confidentiality: Accounting and finance professional do get to know

strategic information with respect to the company they world with. Bartering such
information is highly unethical and may prove detrimental to the interest of the
company. They should, therefore, practice completeconfidentiality except where
legally obliged to disclose.
4. The principle of professional competence and duecare: Present dayenvironment has

become extremely volatile. Changes are coming very fast. Professional in the area of
accounting and finance need to remain updated with respect to these developments.
Accounting standards, or example, in India and changing and being enlarged to meet
the situations created through globalization. Indian Accounting Standards are being
bought at far with International Accounting Standards. Professional who do not keep
pace with these developments will not be able to serve their companies and the society
in an appropriate manner.
5. The principle of Professional Behavior: This principle requires accounting and

finance professionals to comply with relevant laws and regulations and avoid such
actions which may result into discrediting and professional.
4.(b)(ii)
In order to create an ethical environment, it is necessary to know the reasons for unethical
behavior. Finance and accounting professionals may indulge in unethical practices
because of the following reasons:
(1) Emphasis on short term results: This is one of the reasons that have led to the downfall of
many companies. Enron, WordCom and Satyam manipulated accounting entries to
depict good profitability with a view to raise further capital from the market.
(2) Overlooking small ethical lapses: Most of the major scandals have their genesis in small
lapses. Companies and managers overlook minor lapses which later assume serious
proportions. Companies, therefore, ought to develop an environment where small
ethical lapses are taken note of and not allowed to be repeated.
(3) Economic cycles: When Enron was doing well, no one had bothered to understand its
actual financial position. There were no question marks on its financial statements.
However, when the economy took a downward turn, finance and accounting
managers took decisions which were compromises over the established code of
conduct. This was done to reflect a financial position which would keep the investors in
the market satisfied. All this resulted in a huge crisis and ultimate fall of this US Giant. Thus,
special care is needed to check unethical practices during depression.
(4) Complex accounting rule: In the era of globalization and massive cross border flow of
capital, accounting rules are changing faster than ever before. The rules have become
more complex and it is difficult to identify deviations from these complex set of
requirements resulting in unethical practices. The complexity of these principles and rules
and the difficulty associated with identifying abuse are reasons which may promote
unethical behavior.
Suggested Answer_Syl12_Dec2015_Paper 6
GROUP I
(SYLLABUS 2012)

DECEMBER 2015
Paper-6: LAWS, ETHICS AND GOVERNANCE
1. Answer all questions (Choose the correct answer from the given four alternatives.):
2×10=20
(i) Anchal purchased a motor car from Kamal who had no title to it. Anchal used the
motor car for several months. True owner spotted the motor car and demanded it from
Anchal. In such case
(a) Anchal is bound to hand-over the motor car to true owner.
(b) Anchal is not bound to return the motor car to true owner as he has paid in full
settlement to Kamal.
(c) Anchal shall advise true owner to approach Kamal.
(d) True owner has no right to claim either from Anchal or from Kamal.
(ii) Which of the following agreement is wagering agreement under the Indian Contract
Act, 1872?
(a) Crossword competition involving application of skill and knowledge.
(b) Contract of Insurance.
(c) A promise to pay B ` 1,000 if it rains on Monday.
(d) A agrees to pay B ` 1,000 if two straight lines should enclose a space.
(iii) Under Sale of Goods Act, which of the delivery of goods is called as delivery by
attornment?
(a) Actual
(b) Symbolic
(c) Constructive
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
Page 1
(d) Physical
(iv) Where the price of the goods under a contract of sale is to be fixed by the valuation of
a third party who fails to fix the valuation, but goods are supplied to the buyer, under
section 10 of the Sale of Goods Act, 1930, the buyer is
(a) liable to pay the reasonable price of the goods.
(b) liable to pay the minimum price of the goods.
(c) not liable to pay any price until fixed by the valuer.
(d) liable to pay the maximum retail price.
(v) Under Factories Act, 1948, where work of the same kind is carried out by two or more
sets of workers during different period of the day, each of such period is called a
(a) Relay
(b) Shift
(c) Recess
(d) Overtime
(vi) Under Payment of Wages Act, 1936, deduction on account of payment to cooperative
societies shall not be more than
(a) 50% of wages
(b) 75% of wages
(c) 90% of wages
(d) 60% of wages
(vii) Under Employee‟s State Insurance Act, in order to qualify for sickness benefit, the
insured worker is required to contribute for
(a) 70 days in a contribution period of 6 months.
(b) 78 days in a contribution period of 3 months.
(c) 91 days in a contribution period of 3 months.
(d) 78 days in a contribution period of 6 months.
(viii) Ankit purchased goods worth ` 20,000 from Anuj. In lieu of cash payment, Ankit
accept a bill of exchange of ` 20,000 to be payable after three months. This is an
example of
(a) Accomodation Bill
(b) Fictitious Bill
(c) Genuine Bill
(d) Documentary Bill
(ix) Under the Negotiable Instruments Act, 1881, whether acceptance of a bill of
exchange in the following situation shall be treated as „qualified‟ acceptance where
the acceptor
(a) undertakes to pay only ` 10,000 for a bill drawn for ` 15,000.
(b) declares the payment to be independent of any other event.
(c) writes, „Accepted, payable at ABC Bank‟.
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(d) writes, „Accepted, payable at Delhi‟.
(x) When a partnership firm is continued even after the expiry of fixed term is called
(a) Perpetual partnership
(b) Fixed partnership
(c) Contract partnership
(d) Partnership at will
(xi) A person who is not a partner of a Partnership Firm, but he may liable for firm‟s debt as
if he was a Partner. Such a person is called
(a) Nominal Partner
(b) Sleeping Partner
(c) Partner by estoppels
(d) Partner for profit only
(xii) Any person aggrieved by an order made by the Adjudicating Authority under PMLA
2002, may prefer an appeal to
(a) Civil Court
(b) Appellate Tribunal
(c) Special Court
(d) High Court
(xiii) Under Companies (Registration Offices and Fees) Rules, 2014, every foreign company
shall file with the Registrar of Companies along with the financial statement in form
—————— which belong to the list of all the places of business established by the
foreign company in India.
(a) FC 4
(b) FC 2
(c) FC 1
(d) FC 3
(xiv) The supervisory board under the German Model is known as

(a) Aufsichtsrat
(b) Kiertsu
(c) Vorstand
(d) Kyosei
(xv) An audit committee has four fold relationship and therefore has to interact with
management, internal auditor, public and
(a) Cost auditor
(b) Statutory auditor
(c) Tax auditor
(d) Management auditor
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(xvi) Which one of the following categories of person have the right to information under
section 3 of Right to Information Act, 2005?
(a) Only aggrieved persons
(b) All the Indian Resident and Foreign National staying in India
(c) All the citizens of India
(d) Non Resident Indians
(xvii) Business ethics are needed to create a faith about the quality, quantity, price etc. of
products. The customers have more trust and faith in the businessmen who follow
ethical rules. They feel that such businessmen would not cheat them. Which one of the
following is appropriate for it?
(a) Sefeguarding consumers‟ right
(b) Improve customers‟ confidence
(c) Survival of business
(d) Consumer movement
(xviii) Holders of public office should not place themselves under any financial or other
obligation to outside individuals or organizations that might influence them in the
performance or their official duties. This principle of public life is called
(a) Selflessness
(b) Honesty
(c) Objectivity
(d) Integrity
(xix) There are many types of ethical conflicts in the

(a) Business place
(b) Office place
(c) Work place
(d) Public place
(xx) Which one of the following is said to be “unethical behavior”?

(a) Encouraging communication
(b) Economic cycles
(c) Employees awareness
(d) Objectivity
Answer:
1. (i) (a) Anchal is bound to hand-over the car to true owner.

(ii) (c) A promise to pay B ` 1000 if it rains on Monday.
(iii) (c) Constructive
(iv) (a) Liable to pay the reasonable price of the goods
(v) (b) Shift
(vi) (b) 75% of wages
(vii) (d) 78 days in a contribution period of 6 months.
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(viii) (c) Genuine Bill
(ix) (a) Undertakes to pay only ` 10,000 for a bill drawn for ` 15,000;
(x) (d) Partnership at will
(xi) (c) Partner by estoppels
(xii) (b) Appellate Tribunal
(xiii) (d) FC3
(xiv) (a) Aufsichtsrat
(xv) (b) Statutory auditor
(xvi) (c) All the citizens of India.
(xvii) (b) Improve customers confidence.
(xviii) (d) Integrity
(xix) (c) Work place
(xx) (b) Economic cycles
2. Answer any four questions: 12×4=48
(a) (i) Kavita falsely representing herself as the wife of a millionaire, takes a necklace
from a jeweller‟s shop for the approval of her husband. She pledges it with a
pawn broker who in good faith and without notice of the fraud pays her `1,00,000.
Can the jeweller recover the necklace from the pawn broker? 3
(ii) For the purpose of making uniform for the employees, Amit bought dark blue
coloured cloth from Bhagat, but did not disclose to the seller the purpose of said
purchase. When uniforms were prepared and used by the employees, the cloth
was found unfit. However, there was evidence that the cloth was fit for caps,
boots and carriage lining. Advise Amit whether he is entitled to have any remedy
under the Sale of Goods Act, 1930? 3
(iii) Akash, Ashish and Anil were partners in a firm. By his willful neglect and
misconduct Anil caused serious loss to the business of the firm. After several
warnings to Anil, Akash and Ashish passed a resolution expelling Anil from the
firm. By another resolution they admitted Abhishek as a partner in place of Anil.
Anil objects to his expulsion as also to the admission of Abhishek. Is he justified in
his objections? 3
(iv) “A cheque is a specie of a bill of exchange with two additional qualifications.”

Explain. 3
Answer:
2. (a) (i) The necklace cannot be recovered from the pawn broker. The jeweller intended
to contract with the person present before him. He was not mistaken about his
identity but only about his attributes. His intention was to sell to the person present
i.e., there was consent, but it was vitiated by fraud. Hence the contract is
voidable and not void. In case of a voidable contract, before it is repudiated,
Page 5
one can pass a good title to the pledgee or purchaser in good faith. Thus, in the
instant case, the pledge is valid.
It may be noted that in the given case if Kavita would have falsely represented
herself as the wife of a certain well known millionaire, it would have been a case
of mistake as to the identity of person contracted with, rendering the agreement
void ab-initio, thereby enabling the jeweller to recover the necklace from the
pawn broker.
(ii) As per the provision of Section 16(1) of the Sale of Goods Act, 1930,an implied
condition in a contract of sale is that an article is fit for a particular purpose only
arises when the purpose for which the goods are supplied is known to the seller,
the buyer relied on the seller‟s skills or judgement and seller deals in the goods in
his usual course of business. In this case, the cloth supplied is capable of being
applied to a variety of purposes, the buyer should have told the seller the specific
purpose for which he required the goods. But he did not do so. Therefore, the
implied condition as to the fitness for the purpose does not apply. Hence, the
buyer will not succeed in getting any remedy from the seller under the Sale of
Goods Act [Jones v. Padgett. 14 Q.B.D. 650].
(iii) A partner may be expelled from a firm by majority of the partners only if, (a) the
power to expel has been conferred by contract between the partners, and (b)
such a power has been exercised in good faith for the benefit of the firm. The
partner who is being expelled must be given reasonable notice and opportunity
to explain his position and to remove the cause of his expulsion Yes, Anil is justified
in his objections. In the absence of an express agreement authorizing expulsion,
the expulsion of a partner is not proper and is without any legal effect. [Section
33(1)] Anil‟s objection to the admission of Abhishek is also justified as a new
partner can be admitted only with the consent of all the partners.[Section31(l)]
(iv) According to Sec 6 of Negotiable Instrument Act, “A cheque is a bill of exchange

drawn on a specified banker and not expressed to be payable otherwise than
on demand.”
A cheque is a bill of exchange with the following two distinctive features which
are additional qualifications viz. :
(i) A cheque is always on a specified banker.
(ii) A cheque is always payable on demand.
Thus, a cheque is a bill of exchange drawn on a bank payable on demand.
All cheques are bills of exchange, but all bills of exchange are not cheques. A
cheque must have all the essential requisites of a bills of exchange.
(b) (i) Bimal at Durgapur under instruction from Amal of Kolkata contracts with Kamal to
deliver electric oven to him. Amal does not send the oven to Bimal and Kamal
sues Bimal for breach of contract. Bimal informs Amal of the suit and as per
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Amal‟s advise Bimal defend the suit. Bimal compelled to pay damages, costs
and incurs expenses Amal refuse. Advise Bimal. 3
(ii) Mahendra made a hire-purchase agreement with Narendra for a car of which
Narendra was described as the owner. Mahendra paid four of the twelve monthly
instalments and then learnt that Jitendra claimed to be the owner of the car. He
nevertheless paid the balance of instalment and exercised his option to
purchase. Jitendra then demanded the car and Mahendra gave it up to him.
Mahendra then sued Nerendra to recover the full price and Narendra counter
claimed for a reasonable sum as hiring charges for the car during the period it
was with Mahendra. Decide. 3
(iii) ABC Ltd. carrying manufacturing activities with aid of power and with eight
workers for last two years ending on 31.03.2014. Three more workers were
appointed on 01.04.2014, two workmen left the company on 30.04.2014.
Thereafter no workman was employed nor any workmen left. Mr. Basant, one of
the workman demanded that Factories Act, 1948 shall be applicable to this
company but the management denied. Give your opinion. 3
(iv) Explain the powers of director to impose fine under section 13 of PMLA. 3
Answer:
(b) (i) As per Section 222 of the Indian Contract Act 1872, the principal is bound to
indemnify an Agent against the consequences of all Lawful acts done by the
agent in exercise of authority conferred upon him. Sec 223 further provides where
one person employs another to do an act, and the agent does the act in good
faith, the employer is liable to indemnify the agent against the consequences of
that act, though it causes an injury to the rights of third persons. In view of above,
Amal is liable to Bimal for such damage, cost & expenses.
(ii) The “Nemo dat quod non habet” rule protects the true owner (Jitendra) and the
buyer (Mahendra) who was aware of Narendra‟s defective rights after paying the
fourth installments, would not get any right or title out of his ineffective hire
purchase agreement with Narendra. Because Narendra was neither owner nor
an authorized person to put the car on hire-purchase and for the same reason, he
is not entitled to receive any money under the agreement. However, Mahendra
may be asked by Jitendra to pay a reasonable rent for the use of the car and
Mahendra can recover the amount paid by him to Narendra.
(iii) According to Sec 2 (m) of the Factories Act, 1948, „factory‟ means any premises
including the precincts thereof –
(i) Wherein 10 or more workers are working or were working on any day of the
preceding 12 months, and in any part of which a manufacturing process is
being carried on with the aid of power, or is ordinarily so carried on, or
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(ii) Wherein 20 or more workers are working or were working on any day of the
preceding 12 months, and in any part of which a manufacturing process is
being carried on without the aid of power, or is ordinarily so carried on.
In the given case, during the period 01.04.2014 to 30.04.2014, there were 11
workers carrying manufacturing activities with aid of power. So, the Factories Act,
1948 is applicable on ABC Ltd. Mr. Basant is correct.
(iv) Powers of Directors to impose fine (Sec 13)

1. The Director may, either of his own motion or on an application made by any
authority, officer or person, call for records referred to in sub-sction (1) of
section 12 and may make such inquiry or cause such inquiry to be made, as
he thinks fit.
2. If the Director, in the course of any inquiry, finds that a banking company,
financial institution or an intermediary or any of its officers has failed to comply
with the provisions contained in section 12, then, without prejudice to any
other action that may be taken under any other provisions of this Act, he may,
by an order, levy a fine on such banking company or financial institution or
intermediary which shall not be less than ten thousand rupees but may extend
to one lakh rupees for each failure.
The Director shall forward a copy of the order passed under sub-section (2) to
every banking company, financial institution or intermediary or person who is a
party to the proceedings under that sub-section.
(c) (i) Parag issues an open „bearer‟ cheque for `10,000 in favour of Qadir who strikes
out the word „bearer‟ and crosses the cheque. The cheque is thereafter
negotiated to Raman and Suman. When it is finally presented by Suman‟s banker,
it is returned with remarks „payment countermanded‟ by drawer. In response to a
legal notice from Suman, Parag pleads that the cheque was altered after it had
been issued and therefore he is not bound to pay the cheque. Referring to the
provisions of the Negotiable Instruments Act, 1881, decide, whether Parag‟s
argument is valid or not? 3
(ii) Mayur and Nupur purchased a taxi to ply it in partnership. They had done
business for about a year when Mayur, without the consent of Nupur, disposed of
the taxi. Nupur brought an action to recover his share in the sale proceeds.
Mayur‟s only defence was that the firm was not registered. Will Nupur succeed in
her suit? 3
(iii) Sushil retired from the services of ABC Limited, on 31st March, 2014. He had a sum
of ` 10 lakhs in his Provident Fund Account. It has become due for payment to
Sushil on 30th April, 2014, but the company made the payment of the said
amount after one year. Sushil claimed for the payment of interest on due amount
at the rate of 15 per cent per-annum for one year. Decide, whether the claim of
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Sushil is tenable under the provisions of the Employees‟ Provident Funds and
Miscellaneous Provisions Act, 1952. 3
(iv) Explain the procedure for fixing and revising minimum wages under Minimum
Wages Act 1948. 3
Answer:
(c) (i) The cheque bears two alterations when it is presented to the paying banker. One,
the word „bearer‟ has been struck off and two, the cheque has been crossed.
Although both the alterations amount to material alterations but such alterations
are authorized by the Act. So, it can be said that, both of these alterations do not
amount to material alteration under the provisions of the Act and hence the
liability of any including the drawer is not at all affected. Parag is liable to pay the
amount of the cheque to the holder.
(ii) As per Section 69(3) of Indian Partnership Act, the term set off may be defined as
the adjustment of debts by one party due to him from the other party who files a
suit against him. It is another disability of the partners and of an unregistered firm
that it cannot claim a set-off when a suit is filed against it.
Yes, Nupur will succeed in her suit. As the business had been closed on the sale of
the taxi, the suit in the question is for claiming share of the assets of a dissolved
firm.
Section 69(3) specially protects the right of a partner of an unregistered firm to sue
for the realization of the property of a dissolved firm.
(iii) According to Section 7Q of the Employees‟ Provident Funds and Miscellaneous

Provisions Act, 1952, the employer shall be liable to pay simple interest @ of 12%
per annum or at such higher rate as may be specified in the Scheme on any
amount due from him under this Act from the date on which the amount has
become so due till the date of its actual payment.
However, the higher rate of interest specified in the Scheme cannot exceed the
lending rate of interest charged by any scheduled bank. As per above provision,
Sushil can claim for the payment of interest on due amount @ 12 percent per
annum or at the rate specified in the Scheme, whichever is higher, for one year.
Here in the absence of specified rate Sushil can claim only 12 percent per annum
interest on the due amount. Hence claim of Sushil for interest rate 15% is not
tenable.
(iv) Procedure for Fixing and revising Minimum Wages (Sec 5)

In fixing minimum rates of wages in respect of any scheduled employment for the
first time or in revising minimum rates of wages so fixed, the appropriate
Government shall follow either of the following 2 methods:
(a) Appointment of committees. The appropriate Government shall appoint as
Page 9
many committees and sub-committees as it considers necessary to hold
inquiries and advise it in respect of fixation or revision of minimum rates of
wages, as the case may be [Sec. 5(1)(a)] ; or
(b) Publication of proposals in the Official Gazette. The appropriate Government

shall, by notification in the Official Gazette, publish its proposals for the
information of persons likely to be affected by the fixation or revision of
minimum rates of wages. It shall also specify a date on which the proposals
will be taken into consideration. The date so specified shall not be less than 2
months from the date of the notification [Sec. 5(1)(b)].
After considering the advice of the committee or committees [under Sec.
5(1)(a)] or all representations received by it before the date specified in the
notification [under Sec. 5(1)(b)], the appropriate Government shall, by
notification in the Official Gazette, fix or revise the minimum rates of wages in
respect of each scheduled employment. The fixation or revision shall come
into force on the expiry of 3 months from the date of the issue of notification,
unless the notification otherwise provides [Sec. 5(2)]. The power of the
Government under Sec. 5 (2) to issue notification revising minimum wages
includes power to give retrospective effect to notification
(d) (i) Abir agreed to sell his cow to Bashir for `50,000 on 1st December, 2014. But before
this date, Abir repudiated the contract by informing Bashir that he would not sell
his cow at all. However, Bashir did not accept the refusal and kept the contract
alive till 1st December, 2014. The cow died before this date, but on 1st December,
2014, Bashir filed a suit against Abir for damages for breach of contract. Will he
succeed? Give reasons. Would your answer change had the cow died on 5th
December, 2014? 3
(ii) After serving 15 years, Mr. Anand died on 30.09.2015 when his last twelve months
average monthly wages was ` 5,000. Calculate the amount of Employees Linked
Deposit Insurance (ELDI) which can be paid to nominee of Anand. 3
(iii) A workshop is employing 50 workmen. A shop-supervisor is drawing a monthly

wages of ` 9,000. HRD paid bonus to all employees except the supervisor. The
supervisor contends that he is also entitled to bonus. Referring to the provisions of
Payment of Bonus Act, 1965, decide whether HRD‟s action is correct? 2
(iv) Explain the procedure for fixing and revising minimum wages under Minimum
Wages Act 1948. 4
Answer:
(d) (i) No, Bashir will not succeed in his action. In this case, since Bashir kept the contract
alive, the contract would be treated as discharged by death of cow on the
ground of impossibility of performance. However, in case, the cow dying on 5th
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December, 2014, Bashir would be entitled to recover from Abir, the damages for
breach of contract. In that event, Abir would be guilty of breach and the plea of
impossibility of performance would not be available to him as the cow had died
after the due date of performance.
(ii) As per current amendment [The Employees Deposit Linked Insurance Scheme,
1976 as amended by the Employees Deposit Linked Insurance (Amendment)
Scheme, 2011], higher of the below mentioned would be paid to the nominee of
the deceased.
(A) Average monthly wages drawn (upto ` 6500) during the twelve months
preceding the month of death, multiplied by twenty. (Maximum amount
payable is ` 1,30,000)
Or
(B) An amount equal to average balance in the accounts o the deceased in the
fund where average balance exceeds ` 50,000, the amount payable shall be
` 50,000 plus 40% of the amount in excess of ` 50,000 (subject to maximum
benefit of ` 1,00,000). [In this case it is assumed that the average Fund
balance ` 1,00,000]
Hence,
Option A = 5000 x 20= ` 1,00,000
Option B = 50000 + 40% of 50000= ` 70,000
Therefore, amount to be paid to the nominee of Mr. Anand (Higher of A and B) is

` 1,00,000
(iii) No, HRD‟s action is not correct. The upper limit of salary fixed in section 2 (13) has
been increased from ` 3500 to ` 10,000 p.m. by the Payment of Bonus
(Amendment) Act, 2007. Every employee whose gross salary is less than ` 10,000
shall be entitled to be paid bonus by his employer provided he has worked in the
establishment for not less than thirty working days. In view of this, the supervisor
drawing monthly salary of ` 9000 is entitled to receive bonus from the company.
(iv) Procedure for Fixing and revising Minimum Wages (Sec 5)

In fixing minimum rates of wages in respect of any scheduled employment for the
first time or in revising minimum rates of wages so fixed, the appropriate
Government shall follow either of the following 2 methods:
(a) Appointment of committees. The appropriate Government shall appoint as

many committees and sub-committees as it considers necessary to hold
inquiries and advise it in respect of fixation or revision of minimum rates of
wages, as the case may be [Sec. 5(1)(a)] ; or
Page 11
(b) Publication of proposals in the Official Gazette. The appropriate Government
shall, by notification in the Official Gazette, publish its proposals for the
information of persons likely to be affected by the fixation or revision of
minimum rates of wages. It shall also specify a date on which the proposals
will be taken into consideration. The date so specified shall not be less than 2
months from the date of the notification [Sec. 5(1)(b)].
After considering the advice of the committee or committees [under Sec.
5(1)(a)] or all representations received by it before the date specified in the
notification [under Sec. 5(1)(b)], the appropriate Government shall, by
notification in the Official Gazette, fix or revise the minimum rates of wages in
respect of each scheduled employment. The fixation or revision shall come
into force on the expiry of 3 months from the date of the issue of notification,
unless the notification otherwise provides [Sec. 5(2)]. The power of the
Government under Sec. 5 (2) to issue notification revising minimum wages
includes power to give retrospective effect to notification
(e) (i) The father of a minor girl, Anu, entered into an agreement for her marriage with
Vishal. Afterwards, Vishal refused to marry Anu. On attaining majority, Anu filed a
suit against Vishal for damages for breach of promises to marry. Vishal
contended that Anu cannot enforce the contract as she was not a party to the
agreement between him and Anu‟s father. Is Vishal‟s contention valid? 3
(ii) A cheque payable to bearer is crossed generally and is marked „not negotiable‟.
The cheque is lost and comes into the possession of Baldev, who takes it in good
faith and for value. Baldev deposits the cheque into his own account and his
banker collects the same. Discuss the liability of collecting banker and paying
banker. Can Baldev be compelled to refund the money to the true owner of the
cheque? 3
(iii) For any contravention of provisions of the LLP Act or LLP agreement, all the
partners of LLP are liable for all penalties. Offer your views based on Limited
Liability Partnership Act, 2008. 3
(iv) Ajit an employee of Supertech Copper Ltd., continued to occupy the quarter of
the company for eight months after superannuation, company decided to forfeit
the amount of gratuity of Ajit. Examine the decision taken by the company to
forfeit the amount of gratuity in the light of the Payment of Gratuity Act, 1972. 3
Answer:
(e) (i) An agreement is made in connection with marriage, partition or other family
arrangements, and a provision is made for the benefit of some person. In such
cases, a person, for whose benefit the provision is made in such family
arrangements, can enforce the agreement even if he is not a party to it. It may,
however, be noted that provision must be made for the benefit of the person who
Page 12
wants to enforce such marriage arrangements. No, Vishal‟s consent is not valid.
The marriage agreement or other family arrangements where a provision is made
for the benefit of some person can be enforced by the beneficiary even if he is
not a party to the same.
(ii) Neither the collecting banker nor the paying banker incurs any liability to anyone
because of special protection granted to the bankers under the Act. Yes, the true
owner can compel Baldev to refund the money because the cheque bears „not
negotiable‟ crossing as a result of which the transferee cannot get a better title
than that of the transferor.
(iii) False, it is the designated partner who is responsible for doing all acts matters and
things as are required to be done by LLP as per the Act or as specified in the LLP
agreement, Unless expressly provided otherwise in this Act, a designated partner
shall be responsible for doing of all acts, matters and things as are required to be
done by the limited liability partnership in respect of compliance of the provisions
of this Act including filing of any document, return, statement and the like report
pursuant to the provisions of this Act and as may be specified in the limited liability
partnership agreement; and liable to all penalties imposed on the limited liability
partnership for any contravention of those provisions.
(iv) The gratuity of an employee, whose services have been terminated for any act,
willful omission or negligence causing any damage or loss to, or destruction of,
property belonging to the employer, can be forfeited to the extent of the
damage or loss so caused. The gratuity payable to an employee may be wholly
or partially forfeited:- (i) if the services of such employee have been terminated
for his riotous or disorderly conduct or any other act of violence on his part or (ii) if
the services of such employee have been terminated for any act which
constitutes an offence involving moral turpitude, provided that such offence is
committed by him in the course of his employment.
It is not a valid ground for forfeiture of entire gratuity. In such a case, the
company is entitled to charge the quarter rent as per rules and after adjustment
of such charges, Ajit is entitled to receive the balance gratuity.
3. Answer any two questions: 8×2=16
(a) (i) The management of Ambika Properties Ltd., has decided to take up the business
of chemical processing activity because of the downward trend in real estate
business. There is no provision in the object clause of the Memorandum of
Association to enable the company to carry on such business. State with reasons
whether its object clause can be amended. State briefly the procedure to be
adopted for change in the object clause in the light of Companies Act, 2013. 5
(ii) What do you mean by „Public authority‟ as per RTI Act, 2005? 3
Page 13
Answer:
3. (a) (i) According to Section 13(8) of the Companies Act, 2013, a company, which has
raised money from public through prospectus and still has any unutilized amount
out of the money so raised, shall not change its objects for which it raised the
money through prospectus unless a special resolution is passed by the company
and-
(i) The prescribed details in respect of such resolution are published in the
newspapers (one in English and one in vernacular language) which is in
circulation at the place where the registered office of the company is
situated and are also placed on the website of the company, if any,
indicating herein the justification for such change;
(ii) The dissenting shareholders shall be given a opportunity to exit by the
promoters and shareholders having control in accordance with regulations
to be specified by the Securities and Exchange Board.
The Registrar shall register the alteration of the memorandum with respect to
the objects of the company and certify the registration within a period of
thirty days from the date of filing of the special resolution.
It may be noted that no alteration with respect to objects shall have any
effect until it has been registered as aforesaid [Section 13(10)].
(ii) “Public authority” means any authority or body or institution of self-government

established or constituted-
(a) By or under the Constitution;
(b) By any other law made by Parliament;
(c) By any other law made by State Legislature;
(d) By notification issued or order made by the appropriate Government, and
includes any-
(i) body owned, controlled or substantially financed;
(ii) non-government organization substantially financed, directly or
indirectly by funds provided by the appropriate Government;
(b) (i) Atul was appointed director of the company in its Annual General Meeting. He
took over the office and started acting on behalf of the company as its director.
Subsequently, it was found that the appointment of the director was not valid
because in the meeting where he was appointed, certain members who had
voted were not qualified to vote and certain members had voted twice by
mistake. There were also certain mistakes in the counting of votes. As such, the
appointment of the director was held to be invalid. Would the acts of Atul, done
by him as director, be valid and binding upon the company? 3
(ii) According to the Institute of Internal auditors, „Internal audit involves five areas of
operation‟. Explain this statement. 5
Page 14
Answer:
(b) (ii) According to Sec. 176 of Companies Act 2013, all acts of the director are valid
notwithstanding the fact that his appointment is afterwards discovered to be
invalid, the reason of any defect in his appointment. This is to protect outsiders as
well as members dealing with the company. In this case the defects in the
appointment of the director were found out subsequent to his appointment. The
director had no knowledge of the defects until he had started acting as a
director. The validity of the acts of the director cannot be questioned just on the
basis of irregularities subsequently discovered in the appointment of the director.
(ii) According to the Institute of Internal Auditors, internal audit involves five areas of
operations, which can be discussed as follows-
(a) Reliability and Integrity of Financial and operating Information: Internal

Auditors should review the reliability and integrity of financial and operating
information and the means used to identify, measure, classify and report
such information.
(b) Economical and Efficient Use of Resources: Internal auditor should ensure
the economic and efficient use of resources available.
(c) Compliance with Laws, Policies, Plans, Procedures, regulations: Internal
auditor should review the systems established to ensure compliance with
those policies, plans and procedures, law and regulations which could have
a significant impact on operations and should determine whether the
organization is in compliance thereof.
(d) Accomplishment of established goals for operations: Internal auditor should
review operations, programmes to ascertain whether results are consistent
with established objectives and goals and whether the operations or
programmes are being carried out as planned.
(e) Safeguarding of assets: Internal auditor should verify the existence of assets
and should review means of safeguarding assets.
(c) (i) Manish, a textiles dealer, supplied certain bales of cloth to the company which is
duly incorporated has obtained a certificate of incorporation. However, the
company went into liquidation before it could obtain certificate to commence
business. Can Manish claim the price of bales of cloth in liquidation
proceedings? 2
(ii) Describe Cost Audit Methodology in Corporate Governance. 3
(iii) Under what conditions complaints can be made under RTI Act? 3
Answer:
Page 15
(c) (i) No, as all contracts, after incorporation but before obtaining certificate to
commence business are provisional and not binding on the company till such
certificate is obtained.
[Note: The answer is given as per Section 149(4) of Companies Act, 1956, which is
replaced by section 11 of Companies Act, 2013. As per Companies (Amended) Act,
2015 section 11 stands omitted]
(ii) The cost audit methodology as structured originally under section 233B of the bill
has the following two perspectives:
 The attestation of cost structure
 The efficiency review perspective, which is more methodology driven.
In a period of price control and administered interventions attested cost
structure had a major role to play and hence the attestation perspective got the
emphasis. The profession had to play a major role of verifying and validating the
cost figures in the selected industries before they were submitted to the
government. The efficiency review was relatively less emphasized and therefore,
did not receive much impetus in the form of new auditing techniques and
methodology . We now need to develop a new vision and strategy for cost audit
mechanism.
With the economy moving away from being a centrally controlled model to
competitive, relatively free market model, the role of cost quality and timely
delivery have become the basis for survival. The role of efficiency review from
angles of quality, cost and delivery has assumed utmost importance today.
(iii) lf any person is unable to submit a request to a Public Information Officer either
by reason that such an officer has not been appointed by the concerned public
authority; or the Assistant Public Information Officer has refused to accept his or
her application or appeal for forwarding the same to the Public Information
Officer or the appellate authority, as the case may be; or he has been refused
access to any information requested by him under the RTI Act; or he has not
been given a response to a request for information within the time limit specified
in the Act; or he has been required to pay an amount of fee which he considers
unreasonable; or he believes that he has been given incomplete, misleading or
false information, he can make a complaint to the Information Commission.
(a) (i) „The terms ethics and morals are etymologically different‟. Explain. 3
(ii) Explain the potential conflicts faced by a finance and accounting professional in
the role of independent consultant and employee. 5
Answer:
Page 16
4. (a) (i) The terms „ethics‟ and morals are etymologically, that is, from their very roots or
terms, different. The word moral(s) is derived from the Latin root moralis, which
implies custom. In other words, it refers to a behavior that is accepted or rejected
due to an accepted social custom. The word ethics stems from the Greek word
ethikos, which attributes to a social environment, referred to as ethos or social
milieu. This latter meaning embraces much more than mere custom. It refers to
everything that is part and parcel of society and not just what is allowed or
forbidden. Morality is more concerned with the norms, values and beliefs
embedded in social processes which define what is right or wrong for an
individual or community.
language. For instance, a lawyer defending an alleged rapist would accuse the
victim as „morally fallen‟ and not as „ethically fallen‟. On the other hand, a
committee that is formed to probe the behavior of the members of Parliament
would be called „ethics committee‟, not „moral committee‟. The meaning of the
word is in its usage. Thus, both these terms have their unique characteristics and
applications.
(ii) A finance and accounting professional has a professional obligation to comply

with certain fundamental principles. A „conflict of interest‟ arise where the
professional have to decide between compliance with principles and actions
which are beneficial to the business organization at large.
A. In the role of an Independent Consultant:
A finance and accounting professional in public practice should take
reasonable steps to identify circumstances that could pose a conflict of
interest. Such circumstances may sometimes even give rise to threats to
compliance with the fundamental principles.
B. In the role of an employee
A finance and accounting professional working as employee, should support
the legitimate and ethical objectives established by the organization and the
rules and procedure drawn up in support of those objectives. He may be
pressurized to act or behave in ways which directly or indirectly threaten the
fundamental principles. Such pressure may be:
(A) Explicit or implicit,
(B) From a Manager, director or any other concerned person.
A finance and accounting professional may face pressure to:

(i) Act contrary to law or regulation
(ii) Act contrary to technical or professional standards.
(iii) Facilitate unethical or illegal earnings management strategies
(iv) Lie to, or otherwise intentionally mislead
(v) Issue, or otherwise be associated with, a financial or non-fictional report,
that materially misrepresents the facts.
(b) (i) State the evolution of ethics. 3
Page 17
(ii) Explain two broad categories of safeguards created by business enterprise to

eliminate threats. 5
Answer:
(b) (i) Social conduct has evolved along with the evolution of society. When our elders
tell us „Do not cheat‟, they are referring to a social code of conduct. Social
conduct has developed in society over hundreds of years. The codes of conduct
have been passed down from generation to generation, and there is a pattern to
the evolution of such codes. Acceptable behaviour is promoted and elevated as
a social value, and unacceptable behaviour is rejected and condemned. The
laws of country are based on the customs or moral codes of its society. Penalties
are prescribed for bad actions, actions that contradict the established laws. The
laws are a measure against those people who cross the limits of the code of
social conduct, and ensure that good citizens are protected from the negative
consequences of the law-breakers. The object of the social codes of conduct is
to maintain, promote and elevate harmonious relationships.
(ii) It is important to have safeguards created by the Finance and Accounting

profession, to identify or deter unethical behavior. Such safeguards to eliminate or
reduce threats may classified in two broad categories:
 Safeguards created by the Finance and Accounting profession, Legislation or
Regulation.
 Safeguards in the work environment.
(A) Safeguards created by the Finance and Accounting profession, Legislation or

Regulation:
 Educational, training and experience requirements for entry into the
profession.
 Continuing professional development requirements.
 Corporate Governance Regulations.
 Professional standards.
 Professional or regulatory monitoring and disciplinary procedures.
 External review of reports by a legally empowered third party.
(B) Safeguards in the work environment:

 The employing organization‟s ethics and conduct programs.
 Employing competent staff.
 Strong internal controls.
 Appropriate disciplinary processes.
 Leadership or cultivating ethical behavior to encourage employees to act
in ethical manner.
Page 18
 Policies and procedures to implement and monitor the quality of
employee performance.
 Timely communication of organisation‟s policies and procedures.
 Employee training and education on policies and procedures.
 Encourage employees to communicate ethical issues without fear of
retribution, organisation‟s system of corporate overview.
(c) (i) „Fairness and honesty are the pillars of success in business‟. Comment. 4
(ii) What is meant by Conflicts Resolution Process? What steps should be taken to
resolve the conflict issues? 4
Answer:
(c) (i) The success of the business depends very much on fairness and honesty in the
business. Fairness and honesty are at the heart of the business ethics and relate to
the general values of decision makers. At a minimum, business professionals and
persons are expected to follow all applicable laws and regulation. Even then,
they are expected not to harm customers, employees, clients or competitors
knowingly through deception, misrepresentation, coercion or discrimination. One
aspect of fairness and honesty is related to disclosure of potential harm caused
by product use. Another aspect of fairness relates to competition. Although
numerous laws have been passed to foster competition and make monopolistic
practices illegal, companies sometimes gain control over markets by using
questionable practices that harm competition.
Rivals of Microsoft, for example, accused the software giants of using unfair and
monopolistic practices to maintain market dominance with its Internet explorer
browser.
These aforesaid examples show that fairness and honesty pay in the long run; they
secure the stability of the business and overall reputation in the business world.
Therefore we may say that fairness and honesty are the pillars of success in the
business.
(ii) A finance and accounting professional should determine the appropriate course
of action and weigh the consequences of each possible course of action. If the
matter remains unresolved, the professional should consult with other appropriate
persons within the firm and if required, with persons responsible for governance of
the organisation (e.g. Board of Directors).
The following steps are suggested to resolve the issues:
(a) Documentation: He should document the substance of the issue and details
of any discussions held or decisions taken, concerning that issue.
Page 19
(b) Legal Advice: If a significant conflict cannot be resolved, a professional may
obtain advice from the relevant professional body or legal advisors without
breach of confidentiality.
(c) Withdrawal: If, after exhausting all relevant possibilities, the ethical conflict
remains unresolved, a professional should, where possible, refuse to remain
associated with the matter creating the conflict, withdraw from the
engagement team or specific assignment or resign from the employing
organization.
Page 20
GROUP I
(SYLLABUS 2012)

DECEMBER 2015
Paper-6: LAWS, ETHICS AND GOVERNANCE
1. Answer all questions (choose the correct answer from the given four alternatives.):
1×20=20
(i) Which of these are sources of Indian Contract Act?

(a) Law framed by East India Company
(b) American Mercantile Law
(c) Vedas and Purans
(d) English Mercantile Laws
(ii) If the Act has been done before any promise is made, it is called
(a) present consideration
(b) past consideration
(c) future consideration
(d) executory consideration
(iii) Which of the followings are not Goods as per Sale of Goods Act?
(a) Actionable claims
(b) Stock and shares
(c) Growing crops
(d) Grass of things attached to earth
(iv) In a Breach of Condition in a contract of sale, the buyer
(a) can not refuse to accept the goods
(b) has to pay the price
(c) can claim any damages
(d) can refuse to accept the goods
(v) Occupier of every factory shall provide and maintain suitable room or rooms for the
use of the children under the age of six years of women workers where the number of
such women workers exceed
(a) 20
(b) 50
(b) 30
(c) 150
(vi) Examine as to which of the following payments form part of “salary” under the
provisions of the Payment of Bonus Act, 1965.
(a) Travelling allowance
(b) Commission of sales
(c) Dearness allowance
(d) Overtime allowance
(vii) Under payment of wages Act, 1963, in any factory, in which 1200 persons are
employed, wages must be paid
(a) any time
(b) before the expiry of 10th day of the following month
(c) before the close of the month
(d) before the expiry of 7th day of the following month
(viii) Ethics is a set of ____ of human conduct that govern the behaviour of individuals or
organizations.
(a) principles
(b) standards
(c) principles or standards
(d) None of the above
(ix) Which of these is not a negotiable instrument as per the Negotiable Instrument Act,
1881?
(a) Bill of exchange
(b) Delivery note
(c) Bearer cheque
(d) Share certificate
(x) A factory in Himachal has painted its walls, partitions, ceilings, staircases etc. with
washable water paint, they need to be repainted in every period of _________ and
washed at least once in every period of________.
(a) three years; one month
(b) three years; three months
(c) three years; six months
(d) three years; nine months
(xi) Workers will be entitled to overtime wages if they have worked for more than ________.
(a) fourty-eight hours in any four week
(b) forty-eight hours in any three week
(c) forty-eight hours in any two week
(d) forty-eight hours in any week
(xii) The term factory used in the payment of Wages Act, 1936 has the same meaning as in
_____________.
(a) Industrial Dispute Act
(b) The Companies Act
(c) Equal Remuneration Act
(d) Section 2(m) of the Factories Act, 1948
(xiii) European business schools adopted business ethics after ______ commencing with the
European Business Ethics Network (EBEN) in _______ when the first single authored
books in the field appeared.
(a) 1987, 1982
(b) 1980. 1982
(c) 1982,1980
(d) 1977, 1984
(xiv) Goods displayed in a shop with a price tag is an ______________.
(a) offer
(b) invitation to offer
(c) counter offer
(xv) _______ is a set of principles and expectations that are considered binding on any
person who is member of a particular group.
(a) Code of conduct
(b) Code of ethics
(c) Code of practice
(xvi) The Right to Information Act, 2005 confers on all citizens a right to receive information.
This is now a ________ .
(a) Legal right
(b) Constitutional right
(c) Fundamental right
(d) Human right
(xvii) How many employment are contained in part 1 to Schedule 1 of the Minimum Wages
Act, 1948?
(a) 10
(b) 15
(c) 18
(d) 21
(xviii) Which of the following statements about business ethics is true?
(a) It concerns the impact of a business’s activities on society.
(b) It refers to principles and standards that determine acceptable behaviour in
business organizations.
(c) It relates to an individual’s values and moral standards and the resulting
business decisions he or she makes.
(d) What is ethical is determined by the public, government regulators, interest
groups, competitors, and each individual’s personal moral values.
(xix) Pick the odd one. It is UNCOMMON for business to behave ethically because
(a) it has to meet stockholder expectations.
(b) it has to ignore their employees relations.
(c) to build trust with shareholders.
(xx) Permanent disablement benefit is paid at the rate of ______ of wages.
(a) 120%
(b) 100%
(c) 79%
(d) 90%
Answer:
1. (i) (d)
(ii) (b)
(iii) (a)
(iv) (d)
(v) (c)
(vi) (c)
(vii) (b)
(viii) (c)
(ix) (d)
(x) (c)
(xi) (d)
(xii) (d)
(xiii) (a)
(xiv) (b)
(xv) (a)
(xvi) (a)
(xvii) (d)
(xviii) (b)
(xix) (b)
(xx) (d)
2. Answer any four questions: 12×4=48

(a) (i) Y holds agricultural land in Assam on a lease granted by X, the owner. The land
revenue payable by X to the Government being in arrear, his land is advertised
for sale by the Government. Under the Revenue law, the consequence of such
sale will be termination of Y’s lease. Y, in order to prevent the sale and the
consequent termination of his own lease, pays the Government, the sum due
from X. Referring to the provisions of the Indian Contract Act, 1872 decide
whether X is liable to make good to Y, the amount so paid? 3
(ii) ‘P’ draws a cheque for ` 50,000. When the cheque ought to be presented to the
drawee bank, the drawer has sufficient funds to make payment of the cheque.
The bank fails before the cheque is presented. The payee demands payment
from the drawer. What is the liability of the drawer? 3
(iii) Peter is working as a salesman in a company on salary basis. The following
payments were made to him by the company during the previous financial year:
(I) overtime allowance
(II) dearness allowance
(III) commission on sales
(IV) employer’s contribution towards pension fund
(V) value of food
Examine as to which of the above payments form part of ‘salary’ of Peter under
the provisions of the Payment of Bonus Act, 1965. 3
(iv) “Implied Authority of a partner can be extended or restricted.”—Discuss the

above statement in the light of the provisions of the Indian Partnership Act, 1932.
3
Answer:
2. (a) As per Section 69, if
(i) One person is legally bound to make a payment.
(ii) Some other person makes such payment.
(iii) The person making such payment is not legally bound to make such
payment.
(iv) The person making such payment is interested in paying such amount.
The person who is interested in paying such amount shall be entitled to recover
the payment made by him.
So, in the given case, Y is entitled to recover the payment from X.
(ii) Section 84 of the Negotiable Instruments Act, 1881 provides that where a cheque
is not presented for payment within a reasonable time of its issue and the drawer
or person on whose account it is drawn had the right at the time when
presentation ought to have been made, as between himself and the banker, to
have the cheque paid and suffers actual damage through the delay, he is
discharged from the liability, that is to say, to the extent to which such drawer or
person is a creditor of the banker to a larger amount than would have been if
such cheque had been paid. In determining what is a reasonable time, regard
shall be had to the nature of the instrument, the usage of trade and of banker,
and the facts of the particular case.
Applying the above provisions to the given problem since the payee has not
presented the cheque to the drawer’s bank within a reasonable time when the
drawer had funds to pay the cheque, and the drawer has suffered actual
damage, the drawer is discharged from the liability.
(iii) Computation of Salary I Wages: According to Section 2(21) of the Payment of

Bonus Act, 1965 salary and wages means all remuneration other than
remuneration In respect of overtime work, capable of being expressed in terms of
money, which would if the terms of employment, express or implied, were fulfilled,
be payable to an employee in respect of his employment, or of work done in

such employment and includes dearness allowance, i.e. all cash payment by
whatever name called, paid to an employee on account of a rise in the cost of
living, But the term excludes:
(i) Any other allowance which the employee is for the lime being entitled to;
(ii) The value of any house accommodation or of supply of light, water, medical
attendance or other amenities of any service ‘or of any concessional supply
of food grains or other articles;
(iii) Any traveling concession
(iv) Any bonus including incentive, production or attendance bonus,
(v) Any contribution paid or payable by the employer to any pension fund or for
benefit of the employee under any law for the time being in force.
(vi) Any retrenchment compensation or any gratuity or other retirement benefit
payable to the employee or any ex-gratia payment made to him; and
(vii) Any commission payable to the employee
It has been clarified in the explanation to the section that where an employee is
given, in lieu of the whole or part of the salary. or wage payable to him, free food
allowance or free food by his employer, such food allowance or the value of such
food shall be deemed to form part of the salary or wage for such employee.
In view of the provisions of Section 2(21) explained above, the payment of
dearness allowance and value of free food by the employer forms part of salary
of Peter while remaining three payments i.e. payment for overtime, commission
on sales and employer’s contribution towards pension funds shall not form part of
his salary.
(iv) Section 19 (1) of the Indian Partnership Act 1932. provides that the act of a
partner which is done to carry on the usual way, business of the kind carried on by
the firm bind the firm, provided the act is done in the film’s name or in any
manner expressing or implying an intention to bind the firm. The implied authority
of a partner extends only to such acts which are common in the type of business
carried on by the firm and are done by him in usual way of carrying on the firm’s
business. Thus, if it is usual to give credit to customers, in a particular business, the
giving of credit by a partner to a customer will bind the firm. However, if a usual
act is done in an unusual manner, this must raise a suspicion as to the authority of
a partner and the protection on the ground of implied authority may not be
available.
(b) (i) Examine the following cases in light of laws relating to employees:
Employees of an electricity generation station claimed that their unit is covered
under the definition of ‘factory’ considering the process of transforming and
transmission of electricity generated at the power station as a ‘manufacturing
process’. Will their claim succeed? 3
(ii) X buys synthetic pearls for a high price thinking that they are natural pearls. The
seller though understood X’s intention, kept silent. Examine the remedies X has
against the seller as per the Sale of Goods Act, 1930. 3
(iii) Minu Limited Company earned super profits during financial year. It intends to
give maximum bonus to its employees. In this regard you are asked to advice
the company on permissible maximum bonus under the Payment of Bonus Act,
1965. 3
(iv) State the provisions of the Employees’ Provident Funds and Miscellaneous
Provisions Act, 1952 regulating the quantum of contribution to be made by the
employer and employee to the provident fund. Is it possible for an employee to
increase the amount of his contribution to the provident fund more than the
minimum contribution as statutorily prescribed? 3
Answer:
(b) (i) As per section 2(k) of The Factories Act, 1948, manufacturing process means any
process for-
(i) Making, altering, repairing, ornamenting, finishing, packing, oiling, washing,
cleaning, breaking up, demolishing, or otherwise treating or adapting any
article or substance with a view to its use, sale, transport, delivery or disposal,
or
(ii) Pumping oil, water, sewage or any other substance; or;
(iii) Generating, transforming or transmitting power; or
(iv) Composing types for printing, printing by letter press, lithography,
photogravure or other similar process or book binding;
(v) Constructing, reconstructing, repairing, refitting, finishing or breaking up ships
or vessels; (Inserted by the Factories (Amendment) Act. 1976, w.e.f. 26-10-
1976.)
(vi) Preserving or storing any article in cold storage;
Process undertaken at electricity generating station, substation transferring and
transmitting electricity is not a manufacturing process and are not thus factory-
[Delhi Electricity Supply Undertaking vs. Management of DESU. AIR (1973)SCC 365]
(ii) X has no remedy against the seller as the doctrine of Caveat Emptor will apply.
‘Caveat emptor’ means “let the buyer beware”. i.e. in sale of goods the seller is
under no duty to reveal unflattering truths about the goods sold. Therefore, when
a person buys some goods, he must examine them thoroughly. If the goods turn
out to be defective or do not suit his purpose, or if he depends upon his skill and
judgment and makes a bad selection, he cannot blame anybody excepting
himself.
The rule is enunciated in the opening words of section 16 of the Sole of Good:
Act. 1930 which runs thus: “Subject to the provisions of this Act and of any other
law for the time being in force, there is no implied warranty or condition on to the
quality or fitness for any particular purpose of goods supplied under a contract of
sale”
(iii) Where, in respect at any accounting year referred to in Section 10 of the

Payment of Bonus Act,1965, the allocable surplus exceeds the amount of
minimum bonus payable to the employees under that section, the employer shall,
in lieu of such minimum bonus, be bound to pay to every employee in respect of
that accounting year-bonus which shall be an amount in proportion to the salary
or wage earned by the employee during the accounting year subject to a
maximum 20% of such salary or wage.
In the given case therefore, the company will be free to give bonus at any rate
exceeding 8.33% upto a maximum of 20% of the salary or wage earned by the
employees during the accounting year. From the facts given, it may be presumed
that the bonus at 20% may be payable.
(iv) Contribution to Provident Fund under the EPF and Miscellaneous Provisions Act,
1952: Section 6 of the EPF and MP Act, 1952 regulates contribution to Provident
Fund Scheme established under the Act.
The employer’s contribution shall be 10% of the basic wages, dearness allowance
and retaining allowance, if any payable to each of the employees whether
employed by him directly or by or through a contractor.
The employee’s contribution shall be equal to the contribution payable by the
employer in respect of him.
In case the employee so desires, he may contribute an amount exceeding ten
percent of his basic wages, dearness allowance and retaining allowance if any,
subject to the condition that the employer shall not be under an obligation to pay
any contribution over and above his contribution payable under this section.
The Central Government may by notification make the employer’s contribution
equal to 12% for certain establishments class of establishments.
(c) (i) A, B and C were partners in ABC & Co. During the course of partnership, the firm
ordered SS Ltd. to supply a machine to the firm. Before the machine was
delivered, A expired. The machine, however, was later delivered to the firm.
Thereafter, the remaining partners become insolvent and the firm failed to pay
the price of machine to SS Ltd.
Explain with reasons:
(I) Whether A’s private estate is liable for the price of the machine purchased
by the firm?
(II) Against whom can the creditor obtain a decree for the recovery of the
price? 3
(ii) Explain “Hours and Period of Work” u/s 7 of the Child Labour (Prohibition and
Regulation) Act, 1986. 3
(iii) What are the conditions to deduct for recovery of advances made under the
Payment of Wages Act, 1936? 3
(iv) What is the objective of Know Your Customer (KYC) guidelines? 3
Answer:
(c) (i) The problem in question is based on the provisions of the Indian Partnership Act,
1932 contained in Section 35. The Section provides that where under a contract
between the partners the firm is not dissolved by the death of a partner, the
estate of a deceased partner is not liable for any act of the firm done after his
death. Therefore, considering the above provisions, the problem may be
answered as follows:
(I) A’s estate in this case will not be liable for the price of Machinery purchased.
[Bagel Vs. Willer]
(b) The creditors in this case can have only a personal decree against the
surviving partners and decree against the partnership assets in the hands of
those partners. However, since the surviving partners are already insolvent, no
suit for recovery of the debt would lie against them. A suit for goods sold and
delivered would not lie against the representative of the deceased partner.
This is because there was no debt due in respect of the goods in A’s life time.
[Bagel Vs. Willer].
(ii) Hours and period of work U/S 7 of the Child Labour (Prohibition and Regulation)
Act1986 is as follows;
(a) No child shall be required or permitted to work in any establishment in excess
of such number of hours as may be prescribed for such establishment or class
of establishments.
(b) The period of work on each day shall be so fixed that no period shall exceed
three hours and that no child shall work for more than three hours before he
has had an interval for rest for at least one hour.
(c) The period of work of a child shall be so arranged that inclusive of his interval
for rest, under sub section (2), it shall not be spread over more than six hours
(d) No child shall be required or permitted to work between 7 p.m. and 8 a.m.
(e) No child shall be required or permitted to work overtime.
(f) No child shall be required or permitted to work in any establishment on any
day on which he has already been working in another establishment.
(iii) Deductions under clause (f) of sub-section (2) of section 7 (the Payment of Wages
Act 1936) shall be subject to the following conditions namely:
(a) recovery of advance of money given before employment began shall be
made from the first payment of wages in respect of a complete wage
period, but no recovery shall be made of such advances given for travelling
expenses;
(b) recovery of an advances of money given after employment began shall be
subject to such conditions as the Appropriate Government may impose;
(c) recovery of advances of wages not already earned shall be subject to any
rules made by the Appropriate Government regulating the extent to which
such advances may be given and the installments by which it may be
recovered.
(iv) Know your customer (KYC) refers to due diligence activities that financial
institutions and other regulated companies must perform to ascertain relevant
information from their clients for the purpose of doing business with them.
The objective of KYC guidelines is to prevent banks from being used, intentionally
or unintentionally, by criminal elements for money laundering activities. Related
procedures also enable banks to know or understand their customers and their
financial dealings better. This helps them manage their risks prudently. Banks
usually frame their KYC policies incorporating the following four key elements:
• Customer Acceptance Policy;
• Customer Identification Procedures;
• Monitoring of Transactions; and
• Risk Management.
(d) (i) Satish retired from the services of Life Management Limited on 31st March, 2014.
He had a sum of ` 5 lac in his Provident Fund Account. It has become due for
payment to Satish on 30th April, 2014 but the company made the payment of the
said amount after one year. Satish claimed for the payment of interest on due
amount at the rate of 15 per cent per annum for one year. Decide, whether the
claim of Satish is tenable under the provisions of the Employees’ Provident Funds
and Miscellaneous Provisions Act, 1952. 3
(ii) When an employee becomes disabled due to any accident or disease and is
unable to do the same work and re-employed on the reduced wages, how the
gratuity of such employees shall be computed under the provisions of the
Payment of Gratuity Act, 1972? 3
(iii) Mr. Big, a major and Small, a minor, executed a promissory note in favour of Ms.
Purva. Examine with reference to the Provisions of the Negotiable Instrument Act,
the validity of the promissory note and whether it is binding on Mr. Big and Small.
3
(iv) List the circumstances under which an LLP formed under the Limited Liability
Partnership Act, 2008 may be wound up by tribunal? 3
Answer:
(d) (i) According to Section 7Q of the Employees’ Provident Funds and Miscellaneous
Provisions Act, 1952 the employer shall be liable to pay simple interest @ of 12%
per annum or at such higher rate as may be specified in the Scheme on any
amount due from him under this Act from the date on which the amount has
become so due till the date of its actual payment.
Provided that higher rate of interest specified in the Scheme shall not exceed the
lending rate of interest charged by any scheduled bank.
As per above provision, Satish can claim for the payment of interest on due
amount @ of 12 percent per annum or at the rate specified in the Scheme,
whichever is higher, for one year. Here in the absence of specified rate he (Satish)
can claim only 12 percent per annum interest on the due amount.
Hence claim of Satish for interest rate of 15% is not tenable.
(ii) Computation of Gratuity of a disabled employee: According to Section 4 (4) of
the Payment of Gratuity Act, 1972, when an employee becomes disabled due to
any accident or disease and is not in a position to do the same work and re-
employed on reduced wages on some other job, the gratuity will be calculated
in two parts :
• For the period preceding the disablement: on the basis of wages last drawn by
the employee at the time of his disablement.
• For the period subsequent to the disablement: On the basis of the reduced
wages as drawn by him at the time of the termination of services.
In the case of Bharat Commerce and Industries Vs. Ram Prasad, it was decided
that if for the purposes of computation of quantum of the amount of gratuity the
terms of agreement or settlement are better than the Act, the employee is
entitled for that benefit.
However, the maximum statutory ceiling limit as providing under Sub-Section 3 of
Section 4 of the Act (the maximum amount of gratuity payable to an employee
shall not exceed `10 lakh), cannot be reduced by mutual settlement or
agreement.
(iii) Minor being a party to negotiable instrument: According to section 26 of the
Negotiable Instruments Act, 1881, every person competent to contract has
capacity to incur liability by making, drawing, accepting, endorsing, delivering
and negotiating a promissory note, bill of exchange or cheque.
As a minor’s agreement is void, he cannot bind himself by becoming a party to

a negotiable instrument. But he may draw, endorse, deliver and negotiate such
instruments so as to bind all parties except himself.
In view of the provisions of Section 26 explained above, the promissory note
executed by Mr. Big and Small is valid even though a minor is a party to it. Small
being a minor is not liable; but his immunity from liability does not absolve the
other joint promisor, namely Mr. Big from liability [Sulochana v. Pandiyan Bank
Ltd., AIR (1975) Mad. 70].
(iv) A Limited liability partnership may be wound up by the Tribunal,—

(a) if the limited liability partnership decides that limited liability partnership be
wound up by the Tribunal;
(b) If, for a period of more than six months, the number of partners of the limited
liability partnership is reduced below two;
(c) if the limited liability partnership is unable to pay its debts;
(d) if the limited liability partnership has acted against the interests of the
sovereignty and integrity of India, the security of the State or public-order;
(e) if the limited liability partnership has made a default in filing with the Registrar
the Statement of Account and Solvency or annual return for any five
consecutive financial years; or
(f) if the Tribunal is of the opinion that it is just and equitable that the limited
liability partnership be wound up.
(e) (i) X is employed in ABC Ltd., a seasonal establishment. The factory was in operation
for four months during the financial year 2010-11. X was not in continuous service
during this period. However, he has worked for sixty days. Referring to the
provisions of the Payment of Gratuity Act, 1972 decide whether X is entitled to
gratuity payable under the Act. Would your answer be the same in case X works
for 100 days? 3
(ii) (I) A offers to buy B’s House on certain terms. An answer to be given within six
weeks. B within this time writes to A a letter purporting to accept but in fact
containing a material alteration of the terms. A then withdraws his offer. B
writes again still within six weeks correcting the error in his first letter and
accepting the terms originally proposed by A. Is there a contract between A
and B? State reasons for your answer.
(II) A contract of Bailment becomes void, if the bailee does any act with
regards to the goods bailed, which is inconsistent with the conditions of
Bailment. Decide.
(Ill) A hirer, who obtains possession of a Refrigerator from its owner under hire
purchase agreement sells the refrigerator to a buyer in good faith and
without notice of the right of the owner. Does this buyer get a good title to
the Refrigerator? State reasons for your answer. 2×3=6
(iii) (I) Money Laundering can provide short term benefits to economy. Comment.
2
(II) On whom does the burden of proof vest under the PMLA, 2002? 1
Answer:
(e) (i) As per the provision given under section 2A of the Payment of Gratuity Act, 1972,
where an employee is employed in a seasonal establishment and is not in
continuous service for any period of one year or six months, there such an
employee shall be deemed to be in continuous service under the employer for

such period if he has actually worked for not less than seventy-five percent of the
number of days on which the establishment was in operation during such period.
In the given problem, as per the above provision of the Act, X has worked only for
‘sixty days that are less than 90 days( 75% of 4 months) therefore, X shall “hoi be
‘eligible for getting any gratuity in first case.
In the second case, since X has worked for 100 days that is more than 75% of
number of days therefore, he is entitled for gratuity.
(ii) (I) Acceptance must be absolute and unqualified. A counter proposal or offer,
offering different terms, amounts to counter proposal. Further if B
subsequently changes his mind and wants to accept the terms originally
offered by A, no contract would come into existence, since the original offer
of A will be deemed to have lapsed. Further there is no binding on the part of
A to keep his offer open for six weeks; that itself would require a contract for
which there will have to be separate consideration moving from B to A.
(II) According to Sec 153 of the Indian Contract Act, 1872, a contract of
Bailment is voidable at the option of the bailor, if the bailee does any act
with regard to the goods bailed inconsistent with the conditions of the
bailment. Therefore, when an option is available to the bailer, the contract of
bailment cannot be said to be void. It is voidable.
(III) Since the hirer under hire-purchase agreement referred to in the instant case
has no title to the refrigerator, the buyer in question does not give a good
title to the refrigerator. This is because the transferee of goods does not get a
better title than the transferor had.
(iii) (I) The statement is not true. The genesis of money laundering is the practice of
concealing identity, source, or destination of illegally gained money. Money
laundering from illegal activities directly affect the freedom of access to
investment, affecting the labor market laws, marketing, consumption and
production itself, Money launder is conversion of ‘dirty’ money to ‘clean’
money and therefore illegal.
(II) When a person is accused of having committed the offence under section 3,
the burden of proving that proceeds of crime are untainted property shall be
on the accused. [Sec 24, The PMLA, 2002]

(a) (i) Define the term “Body Corporate” as per Section 2(ii) of the Companies Act,
2013. 2
(ii) What is the effect of the registration of the Memorandum of Association of a
Company on (1) the subscribers of the memorandum and (2) such other persons
as may from time to time become members of the company. 4
(iii) Who can file an application for allotment of DIN? 2
Answer:
3. (a) (i) “Body corporate” or ‘corporation’ includes a company incorporated outside
India, but does not include —
(a) a co-operative society registered under any law relating to co-operative
societies; and
(b) any other body corporate (not being a company as defined in this Act),
which the Central Government may, by notification, specify in this behalf.
[Section 2(11)]
(ii) When the Memorandum of Association of a Company has been registered, it
has the following effect:-
(1) The signatories become members of the company, the entry of their names
in the register of members not being legally necessary, and they are bound
to observe all the provisions of the Memorandum.
(2) Such other persons as may from time to time become members of the
company are bound by the Memorandum, as if it had been signed by
them, to observe all the provisions thereof.
(iii) Any individual who is an existing director of a company or intends to be
appointed as a director of the company can file an application for allotment of
DIN.
(b) (i) With reference to provisions laid down under the Companies Act, 2013, state
briefly which company is required to constitute CSR (Corporate Social
Responsibility) Committee? 4
(ii) Who shall be considered as “Key Managerial Personnel”, in relation to a
Company according to the definition given in the Companies Act, 2013. 2
(iii) Explain “Information” under RTI Act, 2005. 2
Answer:
(b) (i) Which Company is required to constitute CSR committee:
(A) Every company including its holding or subsidiary and a foreign company
defined under section 2(42) of the Companies Act, 2013 having its branch
office or project office in India having
(1) net worth of rupees 500 crore or more, or
(2) turnover of rupees 1000 crore or more or
(3) a net profit of rupees 5 crore or more
during any financial year shall constitute a Corporate Social Responsibility
Committee of the Board.
(ii) “Key managerial personnel”, in relation to a company means —
(a) the Chief Executive Officer or the managing director or the manager;
(b) the Company Secretary;
(c) the Whole-time Director;
(d) the Chief Financial Officer;
(e) such other officer as may be prescribed. [Section 2(51)]
(iii) “Information” means any material in any form, including records, documents,
memos, emails, opinions, advices, press releases, circulars, orders, log-books,
contracts, reports, papers, samples, models, data, material held in any electronic
form and any information relating to a private body which can be accessed by
a Public Authority under any law for the time being in force.
(c) (i) The Articles of a Public Company clearly stated that Mr. X will be the Solicitor of
the Company. The Company in its general meeting of the shareholders resolved
unanimously to appoint Y in place of X as the solicitor of the company by altering
the Articles of Association. Examine whether the company can do so? Give
reasons. 4
(ii) Define the term ‘Financial Statement’ as contained in the Companies Act, 2013. 2
(iii) Who is Internal Auditor to conduct internal audit of the functions and activities of
the company under the Companies Act, 2013? 2
Answer:
(c) (i) According to Section 10(1) of the Companies Act, 2013, the memorandum and
articles shall, when registered, bind the company and the members thereof to
the same extent as if they respectively Had been signed by the company and
by each member and contained covenants on its and his part to observe all the
provisions of the memorandum and articles.
Further, under Section 14(1) subject to the provisions of this Act and to the
conditions contained in the Memorandum, a company may by a special
resolution, alter its Articles.
Moreover, under section 14(2) the company will be required to file within fifteen
days the altered Articles with the Registrar along with necessary documents,
such as the copy of the special resolution etc, and in such manner as may be
prescribed. On receipt of all documents the Registrar shall register the same.
Section 14(3) further provides that any alterations in the Articles will be valid as if
they were in the original Articles.
In the present case, the company has altered the Articles by a unanimous
resolution of the members passed at a general meeting. Hence, the alteration is
valid and after registration of the altered Articles the appointment of Y will stand
and X will be terminated.
(ii) “Financial statement” in relation to a company, includes —

(i) a balance sheet as at the end of the financial year;
(ii) a profit and loss account or in the case of a company carrying on any
activity not for profit an income and expenditure account for the financial
year;
(iii) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and
(v) any explanatory note annexed to or forming part of any document referred
to in sub clause (i) to sub-clause (iv);
Provided that the financial statement with respect to One Person Company, small
company and dormant company, may not include the cash flow statement.
[Section 2(40)]
(iii) Who is Internal Auditor

(a) Internal Auditor shall either be a chartered accountant or a cost
accountant, or such other professional as may be decided by the Board to
conduct internal audit of the functions and activities of the company.
Here, the term “Chartered Accountant” shall mean a Chartered
Accountant whether engaged in practice or not.
(b) The internal auditor may or may not be an employee of the company.

(a) (i) What is the difference between business ethics and an ethical business? 3
(ii) Is it possible to have single right answer to all ethical issues? 5
Answer:
4. (a) (i) Business ethics refers to how any organisation conducts its business in order to
make profit or achieve other goals. Any organisation can seek to do business in a
way that is guided by ethical values; whether an organisation is judged to be an
ethical business however, may involve a subjective assessment of any of the
following: the products and services it offers, its founding priorities, goals and
values, its philanthropy, its reputation amounts stakeholders, the way it treats
customers and staff etc.
(ii) Ethics doesn’t always show the right answer to moral problems.
Indeed more and more people think that for many ethical issues there isn’t a
single right answer – just a set of principles that can be applied to particular cases
to give those involved some clear choices.
Some philosophers go further and say that all ethics can do is eliminate confusion
and clarify the issues. After that it’s up to each individual to come to their own
conclusions.
Ethics can give several answers.
Many people want there to be a single right answer to ethical questions. They find
moral ambiguity hard to live with because they genuinely want to do the ‘right’
thing, and even if they can’t work out what that right thing is, they like the idea
that ‘somewhere’ there is one right answer.
But often there isn’t one right answer – there may be several right answers, or just
some least worst answers and the individual must choose between them.
For others moral ambiguity is difficult because it forces them to take responsibility
for their own choices and actions, rather than falling back on convenient rules
and customs.
(b) (i) Enumerate briefly five sources of Ethical Standards. 4

(ii) List out some of the examples of ethical issues faced by the employees in the
workeplace. 4
Answer:
(b) (i) Five Sources of Ethical Standards
The Utilitarian Approach: The ethical corporate action is the one that produces
the greatest good and does the least harm for all who are affected. The utilitarian
approach deals with consequences; it tries both to increase the good done and
to reduce the harm done.
The Rights Approach (The Deontological Approach): This approach suggest the
ethical action that best protects and respects the moral rights of those affected.
This approach starts from the belief that humans have a dignity based on their
human nature per se or on their ability to choose freely what they do with their
lives.
The Fairness or Justice Approach: This approach contributed the idea that all
equals should be treated equally. Today we use this idea to say that ethical
actions treat all human beings equally-or if unequally, then fairly based on some
standard that is defensible.
The Common Good Approach: This approach calls attention to the common
conditions that are important to the welfare of everyone. This may be a system of
Laws, effective police and fire departments, health care, a public educational
system, or even public recreational areas.
The Virtue Approach: A very ancient approach to ethics is that ethical actions
ought to be consistent with certain Ideal virtues that provide for the full
development of our humanity. Honesty, courage, compassion, generosity,
tolerance, love, fidelity, integrity, fairness, self-control, and prudence are all
examples of virtues.
(ii) The following are some of the examples of ethical issues faced by the employees
in the workplace:
1. Relationship with suppliers and business partners
a. Bribery and immoral entertainment
b. Discrimination between suppliers
c. Dishonesty in making and keeping contracts
2. Relationship with customers
a. Unfair pricing
b. Cheating customers
c. Dishonest advertising
3. Relationship with employees
a. Discrimination In hiring and treatment of employees
4. Management of resources
a. Misuse of organizational funds
b. Tax evasion
(c) (i) Fairness and honesty are the pillars of success in business. Comment. 4
(ii) State briefly the safeguard which may be created by the profession, legislation or
regulations to reduce the threats to an acceptable level to ensure an ethical
environment in an organization. 4
Answer:
(c) (i) Correct. The success of the business depends very much on fairness and honesty
in the business. Fairness and honesty are at the heart of the business ethics and
relate to the general values of decision makers. At a minimum, business
professionals and persons are expected to follow all applicable laws and
regulation. Even then, they are expected not to harm customers, employees,
clients or competitors knowingly through deception, misrepresentation, coercion
or discrimination.
One aspect of fairness and honesty is related to disclosure of potential harm

caused by product use. For example, Mitsubishi Motors, a Japanese automaker,
faced criminal charges and negative publicity after executives admitted that the
company had systematically covered up customer complaints about tens of
thousands of defective automobiles over a 20 year period In order to avoid
expensive and embarrassing product recalls.
Another aspect of fairness relate to competition. Although numerous laws have
been passed to foster competition and make monopolistic practices illegal,
companies sometimes gain control over markets by using questionable practices
that harm competition.
Rivals of Microsoft, for example, accused the software giant of using unfair and
monopolistic practices to maintain market dominance with its Internet Explore
browser.
These aforesaid examples show that fairness and honesty pay in the long run; they
secure the stability of the business and overall reputation in the business world.
Therefore we may say that fairness and honesty are the pillars of success in the
business.
(ii) Safeguards created by the profession, legislation or regulation are as follows:

(a) Educational, training and experience requirements for entry into the
profession.
(b) Continuing professional development requirements
(c) Corporate governance regulations
(d) Professional standards
(e) Professional or regulatory monitoring and disciplinary procedures
(f) External review by a legally empowered third party of the reports, returns,
communications or Information produced by concerned professionals.
GROUP I
(SYLLABUS 2012)
JUNE 2015

1. Answer all questions: (Choose the correct answer from the given four alternatives). 210=20
(i) An agreement which is enforceable at the option of one or more parties thereto but
not at the option of other or others is called
(a) Void contract.
(b) Voidable contract.
(c) Void agreement.
(d) Unenforceable contract.
(ii) Which of the following agency is irrevocable under The Indian Contract Act, 1872?
(a) Agency for fixed period
(b) Agency for single transaction
(c) Agency coupled with interest
(d) Continuing agency
(iii) A sort of tacit understanding/agreement among the intending bidders to stifle

competition by not bidding against each other in an auction sale is called as
(a) Damping
(b) Knock-out agreement
(c) Puffers
(d) By-bidders
(iv) When an instrument is drawn conditionally or for a special purpose as a collateral

security and not for the purpose of transferring property therein, it is called
(a) Ambiguous
(b) Inchoate
(c) Escrow
(d) Inland
(v) Which Committee is constituted by the occupier to promote cooperation between

the workers and management in maintaining proper safety and health at workplace?
(a) Safety Committee
(b) Health Committee
(c) Management Workers Consultative Committee
(d) Maintenance Committee
(vi) Under Payment of Bonus Act, 1965, in disputed cases, bonus most be paid
(a) Within 8 months from the close of the accounting year.
(b) Within 1 month from the date on which the award becomes enforceable.
(c) Within 2 months from the date on which the award becomes enforceable.
(d) Within 6 months from the date of closing of the accounting year.
(vii) Businessmen or industrialists take initiative to form new companies. Their main
function is to manage the company after its promotion, they are known as
(a) Particular Promoters
(b) Occasional Promoters
(c) Professional Promoters
(d) General Promoters
(viii) Which of the following persons are exempted from fees under Right to Information
(RTI) Act, 2005?
(a) Foreigners
(b) Young persons
(c) People living below the poverty line
(d) Association of persons
(ix) The study of ethics can be divided into four operational areas namely meta ethics,
normative ethics, descriptive ethics and
(a) Positive ethics
(b) Physical ethics
(c) Applied ethics
(d) Natural ethics
(x) When a professional promotes a position or opinion to such extent that some
objectivity may have to be compromised, this threat is known as
(a) Familiarity threat
(b) Objectivity threat
(c) Advocacy threat
(d) Intimidation threat
Answer:
1. (i) (b) Voidable contract.

(ii) (c) Agency coupled with interest
(iii) (b) Knockout agreement
(iv) (c) Escrow
(v) (a) Safety Committee
(vi) (b) Within one month from the date on which the award becomes enforceable
(vii) (d) General promoters
(viii) (c) People living below the poverty line
(ix) (c) Applied ethics
(x) (c) Advocacy threat
2. Answer any four questions: 12x4=48
(a) (i) Nishant lends a sum of ` 8,000 to Prashant on the security of ten shares of XYZ Ltd.
on 1st January, 2015. On 25th March 2015, XYZ Ltd. has issued one Bonus share.
Prashant return the loan amount of ` 8,000 with interest to Nishant. But Nishant
returns only ten shares which were pledged and refuse to give one bonus share.
Advise, Prashant in the light of the provisions of the Indian Contract Act, 1872. 3
(ii) With a view to boost the sales, M/s ABC Ltd. sells a new machine to Mr. B on trial
basis for a period of three days with a condition that if Mr. B is not satisfied with the
performance of the new machine, he can return back the new machine.
However, the machine was destroyed in a fire accident at the place of Mr. B
before the expiry of three days. Decide whether Mr. B is liable for the loss suffered
under Sale of Goods Act, 1930. 3
(iii) Rohit and Anurag are partners in a firm. They borrowed a sum of ` 10,000 from
Parul. Later on, Rohit becomes insolvent but his assets are sufficient to payback
the loan. Parul compels Anurag for the payment of entire loan. Referring to the
provisions of the Indian Partnership Act, 1932, examine the validity of Parul’s claim
and decide as to who may be held liable for the above loan. 3
(iv) ‘A partial endorsement does not operate as a negotiation of the instrument’.

Explain. 3
Answer:
2. (a) (i) As per the provisions of Section 163(4) of the Indian Contract Act, 1872 “in the
absence of any contract to the contrary, the bailee is bound to deliver to the
bailor, or according to his directions any increase or profit which may have
accrued from the goods bailed”. Applying the provisions to the instant case, the
bonus share is an increase on the shares pledged by Prashant to Nishant. So
Nishant is liable to return the shares along with bonus share and hence Prashant
the bailor, is entitled to receive the bonus share also from Nishant (Motilal VS Bai
Mani).
(ii) The problem as asked in the question is based on the provisions of the Sale of
Goods Act, 1930 as contained in Section 8. Where there is an agreement to sell
specific goods and subsequently the goods without any fault on the part of the
seller or buyer perish or become so damaged as no longer to answer to their
description in the agreement before the risk passes to the buyer, the agreement
is thereby avoided. In the given case that the subject matter of the contract i.e.,
new machine was destroyed before the transfer of property from the seller to the
buyer. Thus the risk passes only when the ownership is transferred to the buyer.
Therefore, in the present case Mr. B is not liable for the loss suffered due to the fire
accident over which B has no control. Thus M/s. ABC Ltd will have to bear
whatever loss that has taken place due to the fire accident.
(iii) The present problem is concerned with the contractual liability of the Partners. As
stated in the section 25 of the Indian Partnership Act, 1932, in partnership the
liability of the partners is unlimited. The share of each partner in the partnership
property along with his private property is liable for the discharge of partnership
liabilities. The liability of the partners is not only unlimited but is also stated that a
partner is both jointly and severally liable to third parties. However, every partner
is liable jointly with other partner and also severally for the acts of the firm done
while he is a partner. On the basis of above provisions, Parul can compel Anurag
for the payment of entire loan. Anurag must pay the said loan and then he can
recover the share of Rohit‟s loan from his property.
(iv) Section 56 provides that a negotiable instrument cannot be endorsed for a part
of the amount appearing to be due on the instrument. In other words, a partial
endorsement which transfers the right to receive only a part payment of the
amount due on the instrument is invalid. Such an endorsement has been
declared invalid because it would subject the prior parties to plurality of actions
(one action by holder for part value and another action by endorsee for part
value) and will thus cause inconvenience to them. Moreover, it would also
interfere with the free circulation of negotiable instruments. It may be noted that
an endorsement which purports to transfer the instrument to two or more
endorsees separately and not jointly as also treated as partial endorsement and
hence would be invalid. Thus, where A holds a bill for ` 2,000 and endorses it in
favour of B for ` 1,000 and in favour of C for the remaining ` 1,000, the
endorsement is partial and invalid.
Section 56, however further provides that where an instrument has been paid in
part, a note to that effect may be endorsed on the instrument and it may then
be negotiated for the balance. Thus, if in the above illustration the acceptor has
already paid ` 1,000 to A, the holder of the bill, A can then make an
endorsement saying “pay B or order ` 1,000 being the unpaid residue of the bill”.
Such an endorsement would be valid.
(b) (i) Abhay, UG degree student was induced by his lecturer to sell his brand new car
to the later at less the purchase price to secure more marks in the University
examination. Accordingly the car was sold. However, the father of Abhay
persuaded him to sue his lecturer. State whether Abhay can sue against the
lecturer? 3
(ii) Angel agrees to sell to Peter his two Mercedes cars on the terms that the price
was to be fixed by David. Peter takes the delivery of one car immediately. David
refuses to oblige Angel and Peter and fixes no price. Angel asks for the return of
the car already delivered whereas Peter insisted on the delivery of the second
car to him for a reasonable price of both the cars. Decide the case. 3
(iii) Amrut draws a cheque payable to ‘self or order’. Before he could encash the
cheque, one of his creditors, Bihari approaches him for payment. Amrut endorses
the same cheque in Bihari’s favour. The banker refuses payment to Bihari on
account of insufficiency of funds in the account. Can Amrut be made liable to
penalties for dishonor of cheque due to insufficiency of funds in the account
under section 138? 3
(iv) What tests would apply for determining the existence of partnership? Discuss. 3
Answer:
(b) (i) Yes, Abhay can sue against his lecturer on the ground of influence under the
provisions of the Indian Contract Act, 1872. A contract brought as a result of
coercion, undue influence, fraud, misrepresentation would be voidable at the
option of the person whose consent was caused. As per Sec. 19-A when consent
to an agreement is caused by undue influence, the agreement is a contract
voidable at the option of the party whose consent was so caused. Any such
contract may be set aside either absolutely or, if the party who was entitled to
avoid it has received any benefit there-under, upon such terms and conditions as
the court may seem just.
(ii) As per section 10 of the Sale of Goods Act, the parties to the contract of sales
may agree to the valuation done by the third party which have no interest in the
contract except making a fair valuation of the subject matter of sales. It is quite
possible that the third party may not do the valuation due to his own inability or
due to fault of either of the parties to the contract. If the third party did not make
any valuation for the reasons not attributable to any party, the contract is void. If
non valuation of the goods by the third party is attributed to any fault on the part
of any party to the contract, the aggrieved party i.e., party not at fault may sue
the party at fault for breach of contract and even demand damages from him.
This case is governed by Section 10 which provides that if the third party refuses
to fix the price, the contract becomes void except as to part of goods delivered
and accepted pay as regards which the buyer must pay a reasonable price.
Thus as regards the car already delivered, Angel cannot ask for its return and
must accept a reasonable price for that. As regards the second car, Peter
cannot insist on its delivery to him since the contract has become void.
(iii) Section 138 of Negotiable Instrument Act 1881, creates statutory offence in the
matter of dishonor of cheques on the ground of insufficiency of funds in the
account maintained by a person with the banker. Section 138 of the Act can be
said to be falling either in the acts which are not criminal offense in real sense,
but are acts which in public interest are prohibited under the penalty or those
where although the proceeding may be in criminal form, they are really only a
summary mode of enforcing a civil right. Normally in criminal law existence of
guilty intent is an essential ingredient of a crime. However the Legislature can
always create an offence of absolute liability or strict liability where „mens rea‟ is
not at all necessary.
No, Amrut cannot be made liable to penalties for dishonor of cheque due to
insufficiency of funds in the account since the cheque was not originally drawn
payable to another person. A cheque drawn payable to self and later endorsed
in favor of another person dies not seem to fall within the purview of the
provisions of Section 138 which lay down that the cheque should have been
drawn for payment to another person.
(iv) As must be clear from the discussion of various elements of partnership, there is
no single test of partnership. For example, in one case there may be sharing of
profits but may not be any business, in the other case there may be business but
there may not be sharing of profits, in yet another case there may be both
business and sharing of profits but the relationship between persons sharing the
profits may not be that of principal and agent. And in either case, therefore,
there is no partnership. Thus, all the essential elements of partnership must coexist
in order to constitute a partnership. To emphasize this fact, Section 6 expressly
provides that “in determining whether a group of persons is or is not a firm or
whether a person is or is not a partner in a firm, regard shall be given to the real
relation between the parties, as shown by all relevant facts taken together.” Thus,
the existence of partnership has to be determined with reference to the real
intention of the parties, which must be gathered from all the facts of the case
and the surrounding circumstances.
(c) (i) ‘The responsibility for payment of wages is that of employer’. Explain. 3
(ii) Mr. Jatin found a wrist watch in shopping mall. He made all efforts to trace the
true owner of the wrist watch but could not find him. He sold the same to Nitin,
who buys without any knowledge that Jatin is merely a finder. Is sale by Jatin to
Nitin valid? Decide. 3
(iii) Arun, Varun and Tarun started a Kirana business in Chennai on 1 st January, 2012
for a period of five years. The business resulted in a loss of ` 20,000 in the first year,
` 25,000 in the second year and ` 35,000 in the third year, Varun and Tarun wish to
dissolve the firm while Arun wants to continue the business. Advise Varun and
Tarun. 2
(iv) Amit signs, as maker, a blank stamped paper and gives it to Sumit and authorizes
him to fill it as a note for ` 500, to secure an advance which Namit is to make to
Sumit. Sumit fraudulently fills it up as a note for ` 2,000, payable to Namit who has
in good faith advanced ` 2,000. Decide, with reasons, whether Namit is entitled to
recover the amount, and if so, upto what extent? 4
Answer:
(c) (i) Sec. 3 of Payment of Wages Act 1936, lays down that every employer shall be
responsible for the payment to persons employed by him of all wages required to
be paid under this Act. In addition to the employer, the following persons shall
also be responsible for the payment of wages.
(a) In factories, the person named as manager,
(b) In industrial or other establishments, the person, if any, who is responsible to
the employer for the supervision and control of the industrial or other
establishments;
(c) Upon railways otherwise than in factories, the person nominated by the
railway administration in this behalf for the local area concerned;
(d) In case of a contractor, a person designated by such contractor;
(e) In any other case, a person designated as responsible for complying with the
provisions of the Act.
(ii) When thing which is commonly the subject of sale is lost, if the owner cannot with
reasonable diligence be found, or if he refuses upon demand, to pay the lawful
charges of the finder, the finder may sell it:
The finder of goods can sell the goods only in the circumstances permitted under
section 169 of the Indian Contract Act, 1872 which are as under:
(a) If the goods are in danger of perishing or losing the greater part of their value,
the finder can sell the goods.
(b) If the lawful charges of the finder in respect of the goods amount to a
minimum of two-third of the value then the finder can sell the goods.
In the present case, the sale by the finder will not be valid as it does not seem to
fall in any of the above stated circumstances. Hence, the sale by Jatin to Nitin is
invalid.
(iii) As per provisions of Sec 44(f) of Indian Patnership Act, 1932, Varun and Tarun are
advised to make a petition to the court for the dissolution of the firm on the
ground that the firm cannot be carried on except at a loss. Since the firm was
constituted for fixed term of five years it cannot be dissolved without the consent
of all the partners and as such Varun and Tarun cannot compel Arun to dissolve
the firm.
(iv) A duly signed blank stamped instrument is called an inchoate instrument.

According to Section 20 of the Negotiable Instruments Act, an Inchoate
instrument is an incomplete Instrument in some respect. When a person signs and
delivers blank or incomplete stamped paper to another, such other is authorized
to complete it for any amount not exceeding the amount covered by the stamp.
The person so signing is liable upon such instrument, to any holder in due course
for nay amount. But any other person can‟t claim more than the amount
intended by the drawer of the instrument.
Thus, for Namit‟s claim to be valid and enforceable, two things are important:
(a) That Namit is a holder in due course, i.e., there should be valid consideration
and he would have obtained it in good faith and before maturity.
(b) The amount filled in i.e., ` 2,000 is covered by stamp amount.
In Negotiable Instruments Act every holder is deemed to be a holder in due

course. Thus, the other party has to establish that Namit is not a holder in due
course.
(d) (i) Anita and Binita are friends, Binita treats Anita during Anita’s illness. Binita does
not accept payment from Anita for treatment and Anita promises Binita’s son Sunit
to pay him ` 12,000. Anita being in poor circumstances is unable to pay. Sunit
sues Anita for the money. Can Sunit recover? 3
(ii) A worker was caught red handed for theft and was suspended for four days after
proper enquiry. Is he entitled to bonus payable to an employee under The
Payment of Bonus Act, 1965? 2
(iii) Explain the right of workers to warn about imminent danger under the Factories
Act, 1948. 3
(iv) State the salient features of ‘The Child Labour Technical Advisory Committee’
formed to assist Central Government for the purpose of addition of any
occupation or processes. 4
Answer:
(d) (i) No, Sunit cannot recover the money from Anita. The agreement between Sunit
and Anita is not a contract in the absence of consideration. In this case, Sunit‟s
mother, Binita, voluntarily treats Anita during her illness. Apparently it is not a valid
consideration because it is voluntary whereas consideration to be valid must be
given at the desire of the promisor-void Section 2(d). The question now is whether
this case is covered by the exception given in Section 25(2) which inter-alia
provides: “If it is a promise to compensate a person who has already voluntarily
done something for the promisor …..” Thus as per the exception the promise must
be to compensate a person who has himself done something for the promisor
and not to a person who has done nothing for the promisor. As Binita‟s son, Sunit
to whom the promise was made, did nothing for Anita, So Anita‟s promise is not
enforceable even under the exception.
(ii) As per section 9 of Payment of Bonus Act, not withstanding anything contained in
this Act, an employee shall be disqualified from receiving bonus under this Act, if
he is dismissed from service for-
(a) Fraud; or
(b) Riotous/violent behavior while o the premises of the establishment; or
(c) Theft, misappropriation or sabotage of any property of the establishment.
In the given case, though the employee was proved guilty, was not dismissed
from the service and hence he is entitled to get bonus.
(iii) As per section 41H of The Factories Act, 1948, it is the right of workers to warn
about imminent danger
(1) Where the workers employed in any factory engaged in a hazardous process
have reasonable apprehension that there is a likelihood of imminent danger
to their lives or health due to any accident, they may bring the same to the
notice of the occupier, agent, manager or any other person who is in-charge
of the factory or the process concerned directly or through their
representatives in the safety Committee and simultaneously bring the same
to the notice of the Inspector.
(2) It shall be the duty of such occupier, agent, manager or the person incharge
of the factory or process to take immediate remedial action if he is satisfied
about the existence of such imminent danger and send a report forthwith the
action taken to the nearest Inspector.
(3) If the occupier, agent manager or the person incharge referred to in sub-
section (2) is not satisfied about the existence of any imminent danger as
apprehended by the workers, he shall, nevertheless, refer the matter forthwith
to the nearest Inspector whose decision on the question of the existence of
such imminent danger shall be final.
(iv) In the exercise of the power so conferred upon the Central Government, the
Central Government is assisted by an advisory committee called “The Child
Labour Technical Advisory Committee” to advice for the purpose of addition of
any occupation or processes to the schedule (Sec. 5).
 The Committee shall consist of a Chairman and such other members not
exceeding ten, as may be appointed by the Central Government.
 The Committee shall meet as often as it may consider necessary and shall
have power to regulate its own procedure.
 The Committee may, if it deems it necessary so to do, constitute one or more
sub-committees and may appoint to any such sub-committee, whether
generally or for the consideration of any particular matter, any person who is
not a member of the committee.
 The term of office of, the manner of filling casual vacancies in the office of,
and the allowance, if any, payable to the Chairman and other members of
the committee, and the conditions and restrictions subject to which the
committee may appoint any person who is not a member of the committee
as a member of any of its sub-committees shall be such as may be
prescribed.
(e) (i) Arvinda took a bet of ` 20,000 with Bannerjee that a certain horse would win the
race. Arvinda and Bannerjee both residents of Kolkata. Arvinda borrowed `
20,000 from his friend Chatterjee for this purpose. Arvinda lost the bet and paid `
20,000 to Bannerjee. Can Chatterjee recover the loan amount from Arvinda? Give
reasons. What would have been the difference had the transaction took place in
Ahemdabad between the parties residing there? 3
(ii) Explain the extent of liability of limited liability partnership under section 26 of LLP
Act. 3
(iii) A person was declared insolvent and the Court ordered attachment of all his
properties. State whether he accumulations in the Provident Fund Account of the
person is attachable. 3
(iv) Mr. F has been arrested for a cognizable and non-bailable offence punishable for
a term of imprisonment for more than three years under PMLA, 2002. Advice, as
how can he be released on bail in this case? 3
Answer:
(e) (i) Yes, Chatterjee can recover the loan amount from Arvinda. The transaction
between Arvinda and Chatterjee is a collateral transaction which is valid, though
the main transaction between Arvinda and Bannerjee is void, being a wager.
Had the transaction took place in Ahemdabad, Chatterjee could not have
recovered the loan as in Ahmedabad the wager transactions are illegal and a
transaction collateral to it is also void on the ground of illegality.
(ii) Section 27 of LLP Act, provides

(1) A LLP is not bound by anything done, a partner in a dealing with a particular
person if –
(a) the partner in fact has no authority to act for the LLP in doing a particular
act; and
(b) the person knows that he has no authority or does not know or believe
him to be a partner of the LLP
(2) The LLP is liable if a partner of a LLP is liable to any person as a result of
wrongful act or omission on his part in the course of the business of the LLP or
with its authority
(3) An obligation of LLP whether arising in contract or otherwise, shall be solely
the obligation of the LLP
(4) The liabilities of LLP shall be met out of the property of the LLP.
(iii) According to Sec. 10 of E.P.F. & M.P. Act, 1952 the amount standing to the credit
of any member in the fund or of any exempted employee in a fund shall not in
any way be capable of being assigned or charged and shall not be liable to
attachment under any decree or order of any court in respect of any debt or
liability incurred by the member or order of any court in respect of any debt or
liability incurred by the member or exempted employee and neither the Official
Assignee or any Receiver appointed under respective Acts shall be entitled to or
have any claim on any such amount. The said treatment will also hold good in
case of the death of the person and accumulated amount is payable to his
nominee.
(iv) As per Section 45 of PMLA, 2002,

1. Notwithstanding anything contained in the Code of Criminal Procedure, 1973
(2 of 1974),-
a. every offence punishable under this Act shall be cognizable;
b. no person accused of an offence punishable for a term of imprisonment

of more than three years under Part A of the Schedule shall be released
on bail or on his own bond unless-
i. the Public Prosecutor has been given an opportunity to oppose the

application for such release; and
ii. where the Public Prosecutor opposes the application, the court is
satisfied that there are reasonable grounds for believing that he is not
guilty of such offence and that he is not likely to commit any offence
while on bail: Provided that a person, who, is under the age of sixteen
years, or is a woman or is sick or infirm, may be released on bail, if the
Special Court so directs: Provided further that the Special Court shall
not take cognizance of any offence punishable under section 4
except upon a complaint in writing made by-
a. the Director; or
b. any officer of the Central Government or a State Government
authorised in writing in this behalf by the Central Government
by a general or special order made in this behalf by that
Government.
2. The limitation on granting of bail specified in clause (b) of sub-section (1) is in

addition to the limitations under the Code of Criminal Procedure, 1973 (2 of
1974) or any other law for the time being in force on granting of bail.
(a) (i) A company wants to buy back its own shares in the current financial year. State
the defaults which make the company ineligible to buy back its own shares as
outlined in the companies Act, 2013. 4
(ii) What do you mean by ‘Third Party Information’ as per RTI Act, 2005? 4
Answer:
3. (a) (i) As per Sec. 70 of the Companies Act, 2013, no company shall directly or
indirectly purchase its own shares or other specified securities –
(a) Through any subsidiary company including its own subsidiary companies;
(b) Through any investment company or group of investment companies; or
(c) If a default, is made by the company, in the repayment of deposits
accepted either before or after the commencement of this Act, interest
payment thereon, redemption of debentures of preference shares or
payment of dividend to any shareholder, or repayment of any term loan or
interest payable thereon to any financial institution or banking company:
(1) Provided that the buy-back is not prohibited, if the default is remedied
and a period of three years has lapsed after such default ceased to
subsist.
(2) No company shall, directly or indirectly, purchase its own shares or other
specified securities in case such company has not complied with the
provisions of section 92 (submit annual return), section 123 (declare
dividend), section 127 (failure to distribute dividend) and section 129
(contravention of provisions of financial statement).
(ii) Third Party Information [Section 11 of Right to information Act, 2005]

(1) Where a Central Public Information Officer or a State Public Information
Officer, as the case may be intends to disclose any information or record, or
part thereof on a request made under this Act, which relates to or has been
supplied by a third party and has been treated as confidential by that third
party, the Central Public Information Officer or State Public Information
Officer, as the case may be, shall, within five days from the receipt of the
request, give a written notice to such third party of the request and of the
fact that the Central Public Information Officer or State Public Information
Officer, as the case may be, intends to disclose the information or record, or
part thereof, and invite the third party to make a submission in writing or
orally, regarding whether the information should be disclosed, and such
submission of the third party shall be kept in view while taking a decision
about disclosure of information.
(2) Where a notice is served by the Central Public Information Officer or State
Public Information Officer, as the case may be, under sub-section (1) to a
third party in respect of any information or record or part thereof, the third
party shall, within ten days from the date of receipt of such notice, be given
the opportunity to make representation against the proposed disclosure.
(3) Notwithstanding anything contained in section 7, the Central Public
Information Officer or State Public Information Officer, as the case may be,
shall within forty days after receipt of the request under section 6, if the third
party has been given an opportunity to make representation under sub-
section (2) make a decision as to whether or not to disclose the information or
record or part thereof and give in writing the notice of his decision to the third
party.
(4) A notice given under sub-section (3) shall include a statement that the third
party to whom the notice is given is entitled to prefer an appeal under section
19 against the decision.
(b) (i) Mr. Joseph is the director of a Public Limited Company. He has been removed by
the company before the expiry of his term, by passing an ordinary resolution in
general meeting. Is the company justified in its action? Is Mr. Joseph entitled to
claim compensation for loss of his office? 3
(ii) ‘Financial Reporting Council (FRC) is responsible for promoting high standards of
Corporate Governance’. Explain his statement alongwith the aims of FRC. 5
Answer:
(b) (i) (a) Yes, the company is justified in this action;

(b) As per section 169 of Companies Act, 2013, a company has the power to
remove a director by ordinary resolution before the expire of his office. Mr.
Joseph is not entitled to claim any compensation for loss of his office. As per
Section 202, a director is not entitled to any compensation for loss of office. In
the present case Mr. Joseph is removed by passing an ordinary resolution,
and such removal is valid being authorized under Section 169. There is no
entitlement of a director to claim compensation for such removal in view of
section 202. Only a managing director, or a director holding office of
manager, or a director in whole time employment are entitled to
compensation for loss of office [Section 202].
(ii) The Financial Reporting Council (FRC) has six operating bodies; the Accounting
Standards Board (ASB), the Auditing Practices Board (APB), the Board for
Actuarial Standards (BAS), the Professional oversight Board, the Financial
Reporting Review Panel (FRRP), and the Accountancy and Actuarial Discipline
Board (AADB). The importance placed on corporate governance is evidenced
by the fact that, in March 2004, the FRC set up a new committee to lead its work
on corporate governance.
Overall, the FRC is responsible for promoting high standards of corporate
governance. It aims to do so by:
 Maintaining an effective Combined Code on Corporate Governance and

promoting its widespread application;
 Ensuring that related guidance, such as that on internal control, is current and
relevant,
 Influencing EU and Global Corporate Governance developments;
 Helping to promote boardroom professionalism and diversity;
 Encouraging constructive interaction between company boards and
institutional shareholders.
(c) (i) What are the aspects to be taken into account with regard to the follow-up of the
Audit Report? 4
(ii) Explain ‘Right to information’ under RTI Act, 2005? 2
(iii) What is the time limit within which the Board has to appoint an Independent
director and at which meeting the Independent director is appointed under the
Companies Act, 2013? 2
Answer:
(c) (i) Following are the aspects to be taken into account with regard to the follow-up
of the Audit Report –
(a) Action taken on report-implementation of recommendations;
(b) Difficulties faced by auditee in implementing audit recommendations;
(c) Importance of follow-up.
The importance and necessity of follow-up arises due to the fact that human
tendencies is “resistance to change” and to delay the adoption of audit
recommendations. That is why, to reap the full benefits of audit,
recommendations are to be implemented without any loss of time. The sooner
the recommendations are put to action the better for all in the organization.
Unless the observations and recommendations are considered, the objective of
appraisal is dissipated. To avoid such unhealthy tendencies, the auditor will have
a close and constant follow-up so that:
(1) Challenging the validity of recommendations may receive due and timely
attention by the auditor.
(2) If the auditee finds practical difficulties in implementing audit suggestions
may come out with his facts and figures for discussion with his superiors and
the internal auditor.
(3) Deficiencies and lack of control measures may be rectified without putting
the organization into loss monetarily or otherwise.
To ensure that the recommendations being actually put into action, the internal
auditor may have to pay a visit to the department/location, which is known as
“follow-up visit” if the circumstances warrant.
It must be remembered in this connection, that the auditor does not have line
authority to enforce the recommendations. Hence, the auditor in the case
adhered of follow up has to act in an advisory capacity, i.e., auditor is to pursue
that the recommendations are to if the management so desired.
(ii) “Right to Information” means the right to information accessible under this Act
which is held by or under the control of any public authority and includes the
right to -
(i) Inspection of works, documents, records;
(ii) Taking notes, extracts or certified copies of documents or records;
(iii) Taking certified samples of material;
(iv) Obtaining information in the form of diskettes, floppies, tapes, video cassettes
or in any other electronic mode or through printouts where such information is
stored in a computer or in any other device;
(iii) Section 149(5) of the Companies Act, 2013 inter alia provides that company
existing on before the commencement of this Act, which are falling within the
ambit of section 149(4), shall have to appoint Independent Directors within one
year from the commencement of Companies Act, 2013 or rules made in this
behalf, as may be applicable.
Further, as per section 152(2) read with Schedule IV to the Companies Act, 2013,
inter alia provides that, the appointment of the Independent Director shall be
approved by the Company in its meeting of shareholders.
4. Answer any two questions: 8x2=16
(a) (i) ‘The ethics of business is the ethics of responsibility. The businessman must promise
that he will not harm knowingly’. Explain. 4
(ii) What is ethical dilemma? List the guidelines one could follow to address an
ethical dilemma. 4
Answer:
4. (a) (i) Over a period of time, business has developed a code of conduct that creates
greatest good and least harm to its pillars of support viz. customers, employees,
shareholders and community. Apparently, there is a contradiction between
ethics and motive of profit. It is now well accepted a fact that ethical behavior
creates a positive reputation that expands the opportunities for profit. A business
is not restricted to its various assets viz. Building, Machine, Working Capital only
but is having a vision and a role, present or prospective to play in the society. To
achieve such goal it needs to make a number of sacrifices and take
responsibilities such as:
(a) Creation of awareness within the organization how its products and services
are accepted to the consumer, the industry and the society at large.
(b) Sacrifice a part of profit to satisfy legal or other commitment for corporate
social responsibility.
(c) An organizational culture most likely to encourage high ethical standard of
risk tolerance, control and conflict tolerance.
(d) Spend on research and other innovations for protecting environmental needs
to carry out business / industrial operations.
(ii) Many business issues may seem straight forward and easy to resolve by choosing
the one option which appears to be the clear choice but in reality one is faced
with having to make a choice from various alternatives resulting in an ethical
dilemma. Some guidelines which one can address to ease ethical dilemmas are:-
(i) Define the problem clearly.

(ii) How it is related to other parties?
(iii) To situation arise over which issue?
(iv) To whom are you bound to be loyal as person & as a member of
organization.
(v) What will you look at while making decisions?
(vi) What are the expected results & how they are comparable with actual
results?
(vii) Whom could your decisions or main results of actions injure?
(viii) Can you save the problem by discussing it with other affected parties?
(ix) Are you confident that your position will be as valid over long period of time
as it seems or means?
(x) Can you ask your boss, CEO, your family, society as a whole to look upon
your decisions?
(xi) What are the various potentials of your actions?
(xii) Under what conditions would you allow exceptions to your stand?
(b) (i) Explain Ethics as principle. 4
(ii) What are the consequences of unethical behavior? 4
Answer:
(b) (i) We have established that social evolution has developed definite principles of
civic behavior, which have attained the status of principles. By principle, we
understand that something proceeds and depends on it for its cause. For
instance, when one kicks a football, force is the principle that propels it into
motion and the ball remains in motion till the force lasts. In other words, the
physical world functions strictly according to the laws of physics. It is expected
that people also submit their behavior, both in thoughts and in actions, to these
principles. An action is valid as long as it reflects the principle, just as the speed
of the moving ball depends on the force it receives.
All moral actions are directed towards their object, the good, which is the
principle of all happiness. This is not only the sole purpose of our existence but our
co-existence with others as well. We cannot be happy alone; we can only be
happy together. The universal idea of the good is applied to individual instances.
Individuals are good in their own particular way, and are good in so far as they
share the essence of goodness. The universal good is a pure or general idea. It is
formed through a process of abstraction of the essence from individuals or
particulars.
(ii) Unethical behavior has adverse effects on business. Moreover, working for an
unethical, deceptive, unfair or dishonest organization requires one to take
unethical or compromised decisions which also takes a toll on physical, mental
and emotional health of individuals. Firstly, if a company is unethical, the word
spreads fast, and the reputation and goodwill of the company is at stake. Such
impact can be of a permanent nature destroying the company‟s reputation
possibly forever. Secondly, unethical behavior can also have a detrimental
impact on the productivity of a company due to mistrust and lack of faith
among the employees. Thirdly, unethical behavior can, not only cause a
company to lose good and valuable employees, but also it can be quite difficult
to find new employees. Moreover, indulgence in unethical behavior shall not only
be instrumental in expediting the cost of training of new employees in terms of
money, but also loss of valuable time which could be spent in production. Such
disruptions or slowing down of production will result in unethical behavior of
authorities across the states. An Accountant is often compelled to do injustice to
his professional ethics. Such compulsion include
(1) Acts contrary to law and regulation.
(2) Acts contrary to ethics or professional standards.
(3) To facilitate unethical or illegal management strategies.
(4) Give wrong information or mislead statutory authorities like Auditor or
Regulators.
(5) Issue or report misleading information to the Regulators, Government, Tax and
various revenue collecting authorities.
(c) (i) What are the seven principles of Public life? Explain. 4
(ii) A Cost and Management Accountant has certain professional ethics to follow
while working in the company. Briefly state the obligations performed and threats
faced by the Accountant. 4
Answer:
(c) (i) The Seven Principles of Public Life are as follows:
Holders of public office should take decisions solely in tells of

the public interest. They should not do so in order to gain
Selflessness
financial or other material benefits for themselves, their family,
or their friends.
Holders of public office should not place themselves under
Integrity
any financial or other obligation to outside individuals or
organizations that might influence them in the performance or
their official duties.
In carrying out public business including making public
appointments, awarding contracts, or recommending
Objectivity
individuals for rewards and benefits, holders of public office
should make choices on merit.
Holders of public office are accountable for their decisions
Accountability and actions to the public and must submit themselves to
whatever scrutiny is appropriate to their office.
Holders of public office should be as open as possible about
all the decisions and actions that they take. They should give
Openness
reasons for their decisions and restrict information only when
the wider public interest clearly demands.
Holders of public office have a duty to declare any private
interests relating to their public duties and to take steps to
Honesty
resolve any conflicts arising in a way that protects the public
interest.
Holders of public office should promote and support these
Leadership principles by sound leadership and prove to be an example in
whatever they perform.
(ii) The obligation performed by a CMA may be enumerated as follows:
1. Investor Protection – The finance and accounting professionals are entrusted

with the duty to provide an assurance to the investors regarding the credibility
of the financial information of the business enterprise.
If these professionals do not behave ethically the investors are at the risk of
being cheated.
2. Stock Markets – Every fraud has a negative impact on investors and stock
markets. If accounting professionals do not conform to the ethical behavior, it
would result in more accounting frauds and scams resulting in negative market
sentiments, downfall of stock markets and ultimately hampering the growth of
the economy.
3. Prevention of scams - Scams has always shaken the confidence of public in

finance and accounting professionals. Ethical behavior is required on the part
of the professionals so as to restore public confidence.
4. Public interest – The working of finance and accounting professionals affects,

not just one individual, department or organization, but all the stake-holders,
the public at large and the confidence of the general public in the
corporations.
The professionals are expected to serve in public interest. They must carry out
their duties diligently ignoring their personal interests.
The threats faced in carrying out their obligations are:
1. Self-interest threats – These threats arise where a professional‟s financial interest
conflicts with his professional duties.
E.g.: Incentive based remuneration.
2. Self-review threats – These threats occur when the same professional is required
to review any work who actually carried out that work. Such threats attack the
objectivity of the professional.
E.g.: Detection of error after submission of work.
3. Advocacy threats – These are when a professional is required to give his

submission with respect to his client‟s position such that the professional‟s
objectivity may be compromised.
E.g.: A professional working as an employee, also promotes its shares.
4. Familiarity threats – Familiarity threats occur where a professional too readily

accepts his client‟s view-point even though he has not gathered sufficient
appropriate audit evidence, because of the reason of his close relationship or
trust on the client.
5. Intimidation threats – These arise when a professional is threatened not to

perform his duties or to reduce the scope of his work.
GROUP I
(SYLLABUS 2012)

DECEMBER 2014
Paper- 6 : LAWS, ETHICS AND GOVERNANCE

1. Answer all questions: (Choose the correct answer from the given four alternatives). 210=20
(i) In social agreements usual presumption is
(a) that parties do not intend to create social relations.
(b) that parties intend to perform them.
(c) that parties do not intend to make legal and social relations.
(d) that the parties do not intend to create legal relations between them.
(ii) In a sale of goods, the doctrine of caveat emptor will not apply when there is
(a) usage of trade
(b) consent by fraud
(c) buyer‟s error of judgment
(d) Merchantable Quality
(iii) A bill of exchange, that is drawn accepted or endorsed without consideration is

called
(a) Accommodation bill
(b) Promissory note
(c) Trade bill
(d) Bearer instrument
(iv) Under Industrial Disputes Act, Appropriate Government may require to constitute a
workman committee on any day in the preceding 12 months, where an industrial
establishment employees
(a) 250 or more workers
(b) 100 or more workers
(c) 500 or more workers
(d) 200 or more workers
(v) Employee‟s State Insurance Act, 1948 is applicable to all
(a) factories including factories belonging to Government and seasonal factories.
(b) factories excluding seasonal factories.
(c) factories including factories belonging to Government and seasonal but
excluding Silk factory.
(d) factories including factories belonging to Government but excluding seasonal
factories.
(vi) A partner must give a public notice of his retirement from the firm in order absolve
himself from the liability for the acts of the other partners done after his retirement is
known as
(a) Dormant partner
(b) Ostensible partner
(c) Nominal partner
(d) Partner by estoppel
(vii)A prospectus which does not have complete particulars on the price of securities
offered and the quantum of securities offered by the company is known as
(a) Statement in lieu of prospectus
(b) Red-herring prospectus
(c) Deemed prospectus
(d) Shelf prospectus
(viii) Which of the following is often considered as one of the “four pillars” of corporate
governance?
(a) Shareholders
(b) Stake holders
(c) Internal Auditor
(d) Tax Auditor
(ix) The crucial step in understanding business ethics is
(a) Establishing codes of ethics
(b) Learning to recognize ethical issues
(c) Having efficient operations
(d) Implementing s strategic plan
(x) Which of the following reason is applicable for unethical business practices?
(a) Workplace Surveillance
(b) Profit making by some of the big companies
(c) Success of the company
(d) Administrative corruption
Answer:
1. (i) (d) That the parties do not intend to create legal relations between them.
(ii) (d) Merchantable Quality
(iii) (a) Accommodation bill
(iv) (b) 100 or more workers
(v) (d) Factories including factories belonging to Government but excluding seasonal
factories
(vi) (b) Ostensible partner
(vii) (b) Red-herring prospectus
(viii) (c) Internal Auditor
(ix) (b) Learning to recognize ethical issues
(x) (d) Administrative corruption
2. Answer any four questions: 12x4=48

(a) (i) Makhan, seeing a mobile phone in a showcase of a shop which was marked for
sale for ` 2,000, enters the shop, places ` 2,000 on cash counter and told to give
him displayed mobile. Shop owner refused. Can the shop owner refuse to sale the
displayed mobile? 3
(ii) A, B, C are partners in a firm. As per terms of the partnership deed, A is entitled to
20% of the partnership property and profits. A retires from firm and dies after 15
days. B, C continues business of the firm without settling accounts. What are the
rights of A‟s legal representatives against the firm under the Indian Partnership
Act, 1932? 3
(iii) Mr. Punit obtains fraudulently from Rohan a crossed cheque “Not Negotiable”. He
transfers the cheque to Sunit, who gets the cheque encashed from ABC bank
limited which is not the drawee bank. Rohan on coming to know about the
fraudulent act of Mr. Punit sues ABC Bank for the recovery of the money. Examine
with reference to the relevant provisions of the Negotiable Instruments Act, 1881,
whether Rohan will succeed in his claim. Would your answer be still the same in
case Mr. Punit does not transfer the cheque and gets the cheque encashed from
ABC Bank himself? 4
(iv) What is Average Pay as per Industrial Disputes Act, 1947? 2
(b) (i) W, the wife of H, who is lunatic, purchases a diamond set of ` 10 lacs from a
jeweller on credit. Referring to the provisions of the Indian Contract Act, 1872,
decide whether the jeweller is entitled to claim the above amount from the
property of H. 4
(ii) A limited liability partnership wants to shift its registered office from Udaipur in the
State of Rajasthan to Gurgaon in the State of Haryana. What procedure the
corporate has to follow? 4
(iii) Lalit delivered sarees valuing ` 50,000 to Rohit on „Sale or Return Basis‟. Rohit
further delivered these sarees to Sumit and Sumit to Mohit on the same terms and
conditions. Subsequently, these sarees were burnt by fire while in the custody of
Mohit. Lalit filed a suit against Mohit for the recovery of the price, with reference to
provisions of the Sale of Goods Act, 1930, examine whether Lalit‟s suit for the price
shall be maintainable. 4
(c) (i) Anil Pvt. Ltd. imposed in a fine on Anurag, one of its employees for regularly
reporting late for work. The fine was imposed on 4th June 2014. The management
wanted to recover the amount in November 2014 during half yearly increment.
Can the Company recover this amount of fine, state your views as per Payment of
Wages Act, 1936. 2
(ii) A is engaged in two types of job in a factory, that of mechanic and watchman.
The wage rates are different for two different jobs. The employer calculates his
minimum wage on an average rate. State whether this is correct, and explain
your views as per Payment of Minimum Wages Act, 1948. 2
(iii) State the Salient features of Employees Deposit Linked Insurance as outlined in
Employee‟s Provident Fund & Miscl. Provisions Act, 1952. 4
(iv) How does Money Laundering take place under Prevention of Money Laundering
Act, 2011? 4
(d) (i) RK sells 200 bales of clothes to SK and sends 100 bales by lorry and 100 bales by
Railway. SK receives delivery of 100 bales sent by lorry, but before he receives the
delivery of the bales sent by railway, he becomes bankrupt. RK being still unpaid,
stops the goods in transit. The official receiver, on SK‟s insolvency claims the
goods. Decide the case with reference to the provisions of the Sale of Goods Act,
1930. 4
(ii) State the circumstances under which the drawer of a cheque will be liable for an
offence relating to dishonor of the cheque under the Negotiable Instrument Act,
1881. Examine, whether there is an offence under the Negotiable Instrument Act,
1881, if a Drawer of a cheque after having issued the cheque, informs the Drawee
not to present the cheque as well as informs the Bank to stop the payment. 5
(iii) The workers of a factory were paid a lump sum Bonus during Id festival, which was
not in a fixed time of the year. When the statutory bonus becomes due, can the
employer adjust the festival bonus from it? What other dues, if any, may be
deducted from the statutory bonus? 3
(e) (i) State the circumstances in which surety is not discharged. 3

(ii) Abhishek contracts to sell Bhusan, by showing sample, certain quantity of tea
described as „Best quality Darjeeling tea.‟ The tea when delivered matches with
the sample, but it is not Darjeeling tea. Referring to the provisions of Sale of Goods
Act, 1930 advise the remedy, if any, available to Bhusan. 3
(iii) When is an employer liable and not liable to pay compensation to a workman for
personal injury under Employees Compensation Act, 1923? 3
(iv) A Bill of exchange dated 1st February, 2014 payable two months after date was
presented to the maker for payment 10 days after maturity. What is the date of
maturity? Explain with reference to the relevant provisions of the Negotiable
Instruments Act, 1881 whether the endorser and the maker will be discharged by
reasons of such delay. 3
Answer:
2. (a) (i) Price quotations and price tags do not amount to an offer but are only an
invitation to an offer. Therefore, Makhan‟s picking up the mobile with price tag of
` 2000/- amounts to an offer by Makhan to purchase the same at that price. It
remains to be accepted by the seller- the salesman at the cash counter of the
mobile store, to result in a concluded contract. The salesman has every right to
accept or refuse the offer. Thus Makhan shall have no remedies.
(ii) Section 37 of the Indian Partnership Act, 1932 provides that where a partner dies
or otherwise ceases to be a partner and there is no final settlement of account
between the legal representatives of the deceased partner or the firms with the
property of the firm, then, in the absence of a contract to the contrary, the legal
representatives of the deceased partner or the retired partner entitled to claim
either.
(a) such shares of the profits earned after the death or retirement of the partner
which is attribute to the use of his share in the property of the firm; or
(b) interest at the rate of 6 per cent per annum on the amount of his share in the
property.
Based on the aforesaid provisions of the Section 37 of the Indian Partnership Act,
1932 in the given problem, A‟s representative, at his option, can claim:
(i) the 20% shares of profits (as per the partnership deed); or
(ii) Interest at the rate of 6 per cent per annum on the amount of A‟s share in the
property.
(iii) According to Section 130 of the Negotiable Instruments Act 1881, a person taking
a cheque crossed generally or specially bearing in either case the words, not
negotiable shall not have or shall not be able to give a better title to the cheque
than the title the person from whom he had. In consequence, if the title of the
transferor is defective, the title of the transferee would be vitiated by the defect.
Thus, based on the above provisions, it can be concluded that if the holder has a
good title, he can still transfer it with a good title but if the transferor has a
defective title, the transferee is affected by such defects and he cannot claim
the right of a holder in due course by proving that he purchased the instrument in
good faith and for value. As Mr. Punit in the given case had obtained the cheque
fraudulently, he had no title to it and could not give to the bank any title to the
cheque or money and the bank would be liable for the amount of the cheque
for encashment. (Great Western Railway Co. Ltd. vs. Londan and County Banking
Co.) The answer in the second case would not change and shall remain the
same for the reasons given above. Thus Rohan in both the cases shall succeed in
his clam from ABC Bank.
(iv) “Average Pay” as per Industrial Dispute Act means the average of the wages
payable to a workman
(a) In the case of monthly paid workman in the three complete calendar months.
(b) In the case of weekly paid workman in the four complete weeks.
(c) In the case of daily paid workman, in the twelve full working days preceding
the date on which the average pay becomes payable if the workman had
worked for three complete calendar months or four complete weeks or
twelve full working days as the case may be and where such calculation
cannot be made the average pay shall be calculated as the average of the
wages payable to a workman during the period he actually worked.
(b) (i) The problem relates to the provisions of quasi-contract.
It is to be noted that minors, persons of unsound mind or lunatics and other

disqualified persons are incompetent to contract. But, under the provisions of
section 68 of Indian Contract Act, 1872 “if necessaries are supplied to a person,
who is incompetent to contract, the supplier is entitled to claim the
reimbursement from the estate of such person”. A supplier would also be entitled
to recover the price of necessaries supplied to wives or minor child of the
incompetent person, as he is legally bound to support them. Also necessaries
would mean „goods suitable to the condition in the life of such person‟ and not
luxuries. Again person liability is not accrued for minors and lunatics; it is only their
estate that would be liable. If there is no property nothing would be realizable.
To establish his claim the supplier must prove not only that the goods were
supplied to the person who was a minor or a lunatic, but also that they were
suitable to his requirement at the time of sale and delivery. It is also to be noted
that a person of unsound mind, who has intervals of sound mind can enter into a
contract during such period. Thus the burden to prove that H is lunatic and he
was of unsound mind when entered into the contract lies on the seller.
In the given problem, the jeweler would not be entitled for the claim, as a
diamond set worth `10 lakhs for the wife of H, is not a necessity and is surely a
luxury.
(ii) Sec 13 of the LLP Act states that a limited liability partnership may change the
place of its registered office and file the notice of such change With the Registrar
in form 15 within 30 days. Registered office can be changed from one place to
another place in the manner provided in the Partnership Agreement, if the
agreement is silent then consent of all partners shall be required for changing the
place of registered office of limited liability partnership to another place, where
the change in place of registered office is from one State to another State, the
limited liability partnership having secured creditors shall also obtain consent of
such secured creditors.
Where the change in place of registered office is from one state to another state,
a general notice, not less than 21 days before filing any notice with Registrar, is
required to be published in a daily newspaper published in English and in the
principal language of the district in which the registered office of the limited
liability partnership is situated and circulating in that district giving notice of
change of registered office. However, there is just change in the jurisdiction of
one Registrar to the jurisdiction of another Registrar; the limited liability
Partnership shall file the notice in Form 15 with the Registrar from where the
Limited liability partnership proposes to shift its registered office with a copy
thereof for the information to the Registrar under whose Jurisdiction the
registered office is proposed to be shifted. Failure to comply with the provision of
this section the limited liability partnership and its every partner is liable to be
punishable with fine which shall not be less than two thousand rupees but which
may extend to twenty five thousand rupees.
(iii) In case of sale of goods on 'sale or return' basis the property in goods passes from
the seller to the buyer in any of the following circumstances as per provisions
given under section 24 of the Sale of Goods Act, 1930:
(a) When he (buyer) signifies his approval or acceptances to the seller;
(b) Where he does any act adopting the transaction, i.e., sells or pledges the
goods to a third party and,
(c) Where he retains the goods, without giving notice of rejection, beyond the
time fixed for the return of goods or beyond a reasonable time (where no
time is fixed).
Thus in the given problem, Rohit is deemed to have accepted the sarees by
further transaction to Sumit. And Sumit is deemed to have accepted the sarees
by further transaction to Mohit. The ownership is thus vests on Sumit till Mohit
approves or does any act adopting the transaction. In the meantime the sarees
are burnt from the custody of Mohit, and it is assumed that Mohit has handled the
sarees with due care. Hence the loss should fall on Sumit, because at present he
is the owner and risk being associated with ownership unless otherwise agreed
between the parties.
(c) (i) As per Section 8 (6) of the Payment of Wages Act 1936 no fines can be
recovered after expiry of 90 days from the date on which it is imposed. So ABC
Pvt. Ltd. will not be able to recover the fine in November 2014 as the gap
exceeded 90 days.
(ii) Where an employee does two or more classes of work, to each of which a
different minimum rate of wages is applicable, the employer shall pay to such
employee in respect of the time respectively occupied in each such class of
work, wages at not less than the minimum rate in force in respect of each such
class. Thus employer just cannot pay him at simple average rate of both wages
of both classes of job.
(iii) As per Sec 6C of Employees' Provident Fund & Misc. Provisions Act 1952, the
Central Government may, by notification in the Official Gazette, frame a scheme
to be called the Employees' Deposit-linked Insurance Scheme for the purpose of
providing life insurance benefits to the employees of any establishment or class of
establishments to which this Act applies.
There shall be established, as soon as may be after the framing of the Insurance
Scheme, a Deposit linked Insurance fund into which shall be paid by the
employer from time to time in respect of every such employee in relation to
whom he is the employer, such amount, not being more than one percent of the
aggregate of the basic wages dearness allowance and retaining allowance (if
any) for the time being payable in relation to such employee as the Central
Government may, by notification in the Official Gazette, specify. The employer
shall pay into the Insurance Fund such further sums of money, not exceeding one
fourth of the contribution which he is required to make under subsection (2), as
the Central Government may, from time to time, determine to meet all the
expenses in connection with the administration of the Insurance scheme other
than that expenses towards the cost of any benefits provided by or under that
scheme.
The Insurance Fund shall vest in the Central Board and be administered by it in
such manner as may be specified in the Insurance Scheme. The Insurance
Scheme may provide for all or any of the matters specified in Schedule IV.
The insurance scheme may provide that any of its provisions shall take effect
either prospectively or retrospectively on such date as may be specified in this
behalf in that scheme.
(iv) Usually, the process of Money Laundering goes through the following three
stages:
(a) Placement- The Money Launderer, who is holding the money generated
from criminal activities, introduces the illegal funds into the
financial system. This might be done by breaking up large
amount of cash into less conspicuous smaller sums which are
deposited directly into a Bank Account or by purchasing a series
of instruments such as Cheques, Bank Drafts etc., which are then
collected and deposited into one or more accounts at another
location.
(b) Layering- The second stage of Money Laundering is layering. In this stage,
the Money Launderer typically engages in a series of continuous
conversions or movements of funds, within the financial or
banking system by way of numerous accounts, so as to hide
their true origin and to distance them from their criminal source.
The Money Launderer may use various channels for movement
of funds, like a series of Bank Accounts, sometimes spread across
the globe, especially in those jurisdictions which do not co-
operate in anti-Money Laundering investigations.
(c) Integration- Having successfully processed his criminal profits through the first
two stages of Money Laundering, the Launderer then moves to
this third stage in which the funds reach the legitimate
economy, after getting inseparably mixed with the legitimate
money earned through legal sources of income. The Money
Launder might then choose to invest the funds into real estate,
business ventures and luxury assets, etc. so that he can enjoy the
laundered money, without any fear of law enforcement
agencies.
The above three steps may not always follow each other. At
times, illegal money may be mixed with legitimate money, even
prior to placement in the financial system. In certain cash rich
businesses, like Casinos (Gambling) and Real Estate, the
proceeds of crime may be invested without entering the
mainstream financial system at all.
(d) (i) Section 50, of Sale of Goods Act, states that, subject to the provisions of this Act,
when the buyer of goods becomes insolvent, the unpaid seller who has parted
with the possession of the goods has the right of stopping them in transit, that is to
say, he may resume possession of the goods as long as they are in course of
transit and retain them until payment of tender of the price.
Hence the major rules applicable would be:

(a) The seller must be unpaid
(b) He must have parted with the possession of goods
(c) The goods must be in transit
(d) The buyer must have become insolvent
Applying the above provisions in the given case, we may conclude that RK being
unpaid, can stop the 100 bales of cloth sent by railway as these goods are still in
transit and SK has become insolvent.
(ii) On dishonour of a cheque the drawer is punishable with imprisonment for a term
not exceeding two years or with a fine not exceeding twice the amount of a
cheque or with both of the following conditions are fulfilled:
(a) if the cheque is returned by the bank unpaid due to insufficiency of funds in
the account of drawer.
(b) If the cheque was drawn to discharge a legally enforceable debt or other
liability in whole or part of it.
(c) If the cheque has been presented to the bank within a period of three
months from the date on which it is drawn on or within the period of its
validity, whichever is earlier.
(d) If the payee or the holder in due course of the cheque has given a written
notice demanding payment within 30 days from the drawer on receipt of
information of dishonour of cheque from the bank.
(e) If the drawer has failed to make payment within 15 days of the receipt of the
said notice. (Section 13S)
(f) If the payee or a holder in due course has made a complaint within one
month of cause of action arising under Section 138 (Section 142)
Case Laws: The Supreme Court held in Modi Cements ltd. Vs. Kuchil Kumar Nandi
held that once a cheque is issued by the drawer, a presumption under Section
139 follows (i.e. the cheque has been issued for the discharge of any debt or
other liability) and merely because the drawer issued a notice thereafter to the
drawee as to the bank for stoppage of payment, it will not preclude an action
under Section 138. Hence, the drawer of the cheque will be liable for the offence
under Section 138 for dishonour of cheque.
(iii) It is very customary these days to pay interim bonus in the form of puja bonus or
other customary bonus, then the employer is entitled to deduct the amount of
bonus so paid from the amount of bonus payable by him to the employee under
this Act in respect of that accounting year and the employee will be entitled to
receive only the balance.
Moreover, if an employee is found guilty of misconduct causing financial loss to
the employer, then, the employer can deduct the amount of loss from the
amount of bonus payable by him to the employee under this Act in respect of
that accounting year only.
Again, if an employee has not worked for all the working days in an accounting
year, the minimum bonus of one hundred rupees or, as the case may be, of sixty
rupees, if such bonus is higher than 8.33 per cent of his salary or wage for the
days he has worked in that accounting year, is proportionately reduced.
(e) (i) As per provisions of Indian Contract Act, 1872 Surety is not discharged in following
circumstances
(a) When Agreements made with third person to give time to principal debtor
(Section 136) Where a contract to give time to the principal debtor is made
by the creditor with a third person and not with the principal debtor, the
surety is not discharged.
(b) Creditor's Forbearance to Sue (Section 137)
Mere forbearance on the part of the creditor to sue the principal debtor or to
enforce any other remedy against him does not, in the absence of any
provision in the guarantee to the contrary, discharge the surety.
(c) Release of One Co-Surety (Section 138)
Where there are co-sureties, a release by the creditor of one of them does
not discharge the others: neither does it free the surety so released from his
responsibility to the other sureties.
(ii) Sale by sample is described in Sec 17 of the Sale of Goods Act, 1930.
A contract of sale is a contract for sale by sample where there is a term in the
contract, express or implied, to that effect. In the case of a contract for sale by
sample there is an implied condition-
 That the bulk shall correspond with the sample in quality.
 That they shall have a reasonable opportunity of comparing the bulk with the
sample.
 That the goods shall be free from any defect, rendering them un-
merchantable, which would not be apparent on reasonable examination of
the goods.
In a contract for sale of brand by sample, Bhusan is entitled to return the tea and
claim refund of money as there is breach of condition.
(iii) Employer to pay compensation:

In case a personal injury is caused to a workman by accident arising out of and
in the course of his employment, his employer is liable to pay compensation in
accordance with the provision of the Act within 30 days from the date when it fell
due otherwise he would also be liable to pay interest and penalty.
When employer is not liable:
An employer is not liable to pay compensation for personal injury caused to an
employee by accident arising out of and in the course of employment –
(a) If the injury does not result in total or partial disablement of the employee for
a period exceeding 3 days;
(b) If the injury, not resulting in death, or permanent total disablement, is caused
by an accident which is directly attributable to –
1. The employee having been at the time of the accident under the
influence of drink or drugs; or
2. The willful disobedience of the employee to an order expressly given, or
to a rule expressly framed for the purpose of securing the safety of the
employees; or
3. The willful removal or disregard by the employee of any safety guard or
other device (which is an offence under the factories Act, 1948) which
he knew to have been provided for the purpose of securing the safety of
the employees.
If these defences were not available to an employer, an employee may be

induced to cause to himself an injury by his own acts and to claim compensation
from the employer.
(iv) The due date of maturity is 4th April (i.e., 3rd day after two months)
Promissory notes, bills of exchange and cheques must be presented for payment
at the due date of maturity to the maker, acceptor or drawee thereof
respectively, by or on behalf of the holder. In default of such presentment, the
other parties to the instrument (i. e., parties other than the parties primarily
liable) are not liable thereon to such holder. If authorized by agreement or
usage, a presentation through the post office by means of a registered letter is
sufficient (section 64). So, the Endorser is discharged due to delayed presentment
for payment, and the primary party (i.e., Maker of the instrument) continues to be
liable.
3. Answer any two questions: 8 x 2 = 16

(a) (i) The Board of Directors of Tribhuvan Ltd. have allotted shares to the investors of the
company without issuing a prospectus or filing a statement in lieu of prospectus
with the Registrar of Companies, Chennai. Explain the remedies available to the
investors in this regard. 3
(ii) Explain amended Gromme Code 2005 under „Transparency‟ in Germany
Corporate Governance. 3
(iii) Is there any provision for exemption from Disclosure of Information under RTI Act,
2005? 2
(b) (i) Explain provisions of the Companies Act, 2013 regarding document containing
offer of securities for sale to be deemed prospectus. 5
(ii) Mr. Ghosh made an application with requisite fees to a Public Authority of A Ltd.
for an information which is held by another Public Authority of B Ltd. Whether the
Public authority of A ltd. will reject the application or take any action. If so, is
there any time limit to be complied with by Public Authority of A Ltd? 3
(c) (i) A textile mill appoints M/s Niren Shah & Co., Cost Accountants to get its cost
records audited as per sec. 233B of the Companies Act, 1956. State the role of the
Audit Committee of the company for such appointment. 3
(ii) What are the benefits of XBRL Web Services deployment? 5
Answer:
3. (a) (i) According to the provisions of Section 70 and 71 of the Companies Act, 1956 any
allotment of shares by a company without filling of prospectus or filling a
statement in lieu of prospectus will become irregular allotment. The effect of it is
that the allotment made by Tribhuvan Ltd. will become voidable at the instance
of the allotee i.e. the applicant for the shares, within two months after holding of
the statutory meeting of the company, and not later or, in case where the
company is not required to hold a statutory meeting or where allotment is made
after holding of the statutory meeting or, within a period of two months from the
date of allotment and not later. The allotment is voidable at the option of the
investor applicant even if the company is in course of winding up. Further, the
directors liable for the default are also liable to compensate the company and
the allottee respectively for any loss damages or cost which the company or the
allottee may have sustained or incurred thereby. There is a time limit of two years
for claiming damages for loss etc. by the investors.
(ii) The code provides that the management board should disclose immediately any
facts that might affect the enterprise's activities and which are not publicly
known. The report emphasizes that all shareholders should be treated equally in
respect of information disclosure and that the company may use appropriate
media, such as the internet, to inform the shareholders and investors in an
efficient and timely manner, there is disclosure required in terms of the
shareholdings, including options and derivatives, that are held by individual
management board and supervisory board members. These must be reported if
they directly or indirectly exceed 1 percent of the share issued by the company.
The code also states:" if the entire holdings of all of the management board and
supervisory board exceed 1 percent of the shares issued by the company, these
shall be reported separately according to the management board and
supervisory board'. These disclosures should all be included in the Corporate
Governance report.
(iii) Sub-section (1) of section 8 and section 9 of the Act enumerate the types of
information which is exempt from disclosure. Sub-section (2) of section 8,
however, provides that information exempted under sub-section (1) or exempted
under the Official Secrets Act, 1923 can be disclosed if public interest in
disclosure overweighs the harm to the protected interest.
(b) (i) Document containing offer of securities for sale to be deemed prospectus-
The section 25 of the Companies Act, 2013 seeks to provide that any document
by which the offer or sale of shares or debentures to the public is made shall for
all purpose be treated as prospectus issued by the company.
Act lays down the following provisions-
(a) Document by which offer for sale to the public is made: According to the
given provision where a company allots or agrees to allot any securities of the
company to all or any of those securities being offered for sale to the public,
then any document by which the offer for sale to the public is made-shall be
deemed to be a prospectus issued by the company.
(b) Contents of prospectus and the liability: All enactments and rules of law as to
the contents of prospectus and as to liability in respect of mis-statements, in
and omissions from prospectus, or otherwise relating to prospectus, shall
apply with the modifications [as specified in sub-sections (3) and (4) and shall
have effect as if the securities had been offered to the public for subscription
and as if persons accepting the offer in respect of any securities were
subscribers for those securities. The liability, if any, of the persons by whom the
offer is made in respect of misstatements contained in the document or
otherwise in respect thereof, remains same as that in the case of a
prospectus.
(c) Securities must be offered for sale to the public: For the purpose of this Act, it
shall be evident that an allotment of, or an agreement to allot, securities was
made with a view to the securities being offered for sale to the public if it is
shown-
1. that an offer of the securities or of any of them for sale to the public was
made within six months after the allotment or agreement to allot; or
2. that at the date when the offer was made, the whole consideration to be
received by the company in respect of the securities had not been
received by it.
(d) Person making an offer is a company or firm: Where a person making an offer
to which this section relates is a company or a firm, it shall be sufficient if the
document, that is deemed to be prospectus, is signed on behalf of the
company or firm (i) by two directors of the company or (ii) by not less than
one-half of the partners in the firm, as the case may be.
(ii) As per provisions of section 6(3) of Right to Information Act, 2005, where an
application is made to a public authority requesting for an information which is
held by another authority.
The subject matter of which is more closely connected with the functions of
another public authority, the public authority to which such application is made
shall transfer the application or such part of it as may be appropriate to that
other public authority and inform the applicant immediately about such transfer.
Such transfer shall be made as soon as possible but in not later than five days
from the date of receipt of application.
(c) (i) The company required to get its cost records audited under section 233B (1) of
the Companies Act, 1956 shall appoint a cost auditor who is a Cost Accountant
as defined in clauses (b) of sub-section (1) of section 2 of the Cost and Works
Accountants Act, 1959 (23 of 1959) and who holds a valid certificate of practice
under sub-section (1) of section 6 of that Act and includes a firm of Cost
Accountants.
The audit Committee of the Board shall be the first point of reference regarding
the appointment of cost auditors.
The Audit Committee shall ensure that the cost auditor is free from any
disqualifications as specified under section 233B (5) read with section 224 and
sub section (3) or sub-section (4) of section 226 of the Companies Act 1956.
While a cost auditor shall have prime responsibility to ensure that he does not
violate the limits specified under section 224 (1-B) of the Companies Act 1956, the
Audit Committee shall also be responsible for such compliance by the cost
auditor.
The Audit Committee shall obtain a certificate from the cost auditor certifying
his/its independence and arm's length relationship with the company.
(ii) Implementing XBRL Web services offers regulators and other government entities
the following benefits:
 Automated and more reliable exchange of regulatory and financial
information across all software formats and technologies, including the
internet.
 Reduced or eliminated manual data re-entry, lowering risks associated with
transcription errors.
 Lowered costs of preparing and distributing regulatory reports and related
information, such as instructions, definitions etc.
 Improved access to financial information reported by regulated entities
through a format which enhances information re-usability.
 Lowered production costs, greater reliability and faster processing speed for
more timely, accurate and informed regulatory assessments.
 Increased efficiency of regulatory assessments and analytics.
 Accelerated changes to and adoption of reporting standards and

requirements through an extensible, flexible platform that facilitates and
thereby accelerates changes in and adoption of reporting standards.
 Collaborative nature of XBRL process provides regulators with input on the

standards via enhanced communication and cooperation between
regulators and respective industry organizations.
 Reduced cost of regulation by spreading development and maintenance
among collaborating organizations.
XBRL Web services are currently being used in the US, Europe and Asia for several
different types of regulatory reporting, including
 Bank position reports consisting of thousands of individual data points
collected by regulatory authorities.
 Company financial reports consisting not only of individual data points, but
also text disclosures of policies, tabular schedules of assets, consolidations
and a myriad of notes under a variety of accounting standards.
 Business statistical information.
4. Answer any two questions: 8x2=16

(a) (i) “Ethics are desirable for every business.” Comment. 5
(a) Explain the concept of value free ethics. 3
(b) (i) Explain Business ethics as professional ethics. 4
(ii) Discuss the ways of creating an ethical accounting environment. 4
(c) (i) What is the concept of ethical dilemma in context of finance and accounting
professionals? 4
(ii) Differentiate between ethical code and contract. 4
Answer:
4. (a) (i) Need for Business Ethics
Business ethics is currently a very prominent business topic, and the debates and
dilemmas surrounding business ethics have attracted enormous amount of
attention from different quarters of organizations and society. Hence, it has
emerged as an increasingly important area of study. Some of the major reasons
why a good understanding of business ethics is important can be stated as
follows:-
 Stop business malpractices: Business malpractices are harmful to the
consumers. Business ethics help to stop these business malpractices.
 Improve customers' confidence: Business ethics are needed to improve the
customers' confidence about the quality, quantity, price etc. of the products.
 Survival of business: Business ethics are mandatory for the survival of business.
The businessmen who do not follow it will have short-term success, but they
will fail in the long run. This is because they can cheat a consumer only once.
After that, the consumer will not buy goods from that businessman.
 Safeguarding consumers' rights: Consumer sovereignty cannot be either ruled
out or denied. Business can survive so long it enjoys the patronage of
consumer. Business ethics are must to safeguard the rights of the consumers.
 Protecting employees and shareholders: Business ethics protects employees
and shareholders from exploitation through unfair trade practices.
 Develops good relations: Business ethics are important to develop good and
friendly relations between business and society.
 Creates good image: Business ethics create a good image for the business
and businessmen.
 Smooth functioning: If the business follows all the business ethics, then the
employees, shareholders, consumers, dealers and suppliers will be all happy.
 Consumer movement: Business ethics are gaining importance because of the
growth of the consumer movement. Gone are the days when the consumer
can be taken for ride by the unscrupulous businessmen by their false
propaganda and false claims, unfair trade practices.
 Consumer satisfaction: Today the consumer is the king of the market. Any
business simply cannot survive without the consumers. Therefore, the main
aim or objective of business is consumer satisfaction.
 Importance of labor: Labour i.e. employees or workers play a very crucial role
in the success of a business. Therefore, business must use business ethics while
dealing with the employees.
 Healthy competition: The business must use business ethics while dealing with
the competitors. They must have healthy competition with the competitors.
They must avoid monopoly. This is because a monopoly is harmful to the
consumers.
(ii) The concept of Value-free' business ethics appears to be quite appealing to

businessmen. It is as though it may be pursued devoid of all rules within a social
vacuum. The concept of value free ethics found application in economics in a
rather ironical fashion. Ludwig von Mises known as the father of the Austrian
School of Economics, proposed the pure theory of economics, stating that
economic concepts are a priori, that is, they are not dependent on experience,
but are purely virtual concepts. The concept of choice, for instance, is a pure
concept. It is immaterial whether one chooses water or wine, but the concept in
itself is free of such particular elements. Hence, choice is value-free (wertfrei).
Applied to ethics, it would mean that we should be able to study the principles of
this discipline, such as goodness, truth, justice, honour, etc. in their pure form.
It is obvious that such value-free ethics, when understood in the right sense, leads
us to study meta- ethics or the fundamental principles of ethics as a pure
science. However, if we are to apply an ethical standard to such a study, it
would be called a pure study of values not value free ethics.
(b) (i) Just as a society functions on the social codes of conduct and a country is
governed by its constitution, a business is run on corporate codes. In other words,
there is a professional code of conduct for any business. These codes keep
evolving as other things around evolve and develop. Therefore, not only should
business be defined within the confines of ethics, but it should be practiced
strictly under its own professional code of conduct. This distinction helps to orient
the general principles of ethics and business to a particular activity. The principles,
however, do not change.
Ethical behaviour is particularly important to professions and to business:
It matters to the professions because the complexity of what they do mean that
there has to be trust by the user in what they do, or they have no purpose.
It matters to business because investors will not back a company that will not
report fairly and customers, increasingly, will not buy from a business that is not
acting in the wider interests of society.
Deciding what is the right thing to do can be challenging. We all face numerous
personal, social and organisational pressures which influence our decisions and
actions. Sometimes it is easy to assume that compliance with legislation,
regulations and policies and procedures equates to doing the right thing. By its
nature, a compliance approach to decision-making cannot cover all types of
situations and eventualities. Even when a specific circumstance is addressed by a
rule, compliance is often with the letter of the rule, not its spirit. What is needed is
a principles based approach to decision-making, which encourages
deliberation, judgment and responsibility.
The character of a true professional remains undivided, whether at work or at

home. Our roles may change from time to time and from place to place but the
integrity of our character should be maintained.
Business ethics, thus, professionally adheres to a code of conduct that is in

accordance with the normative principles. Further, it may be concretely stated
that professionals bear the following marked characteristics: (i) competency of
educational qualification, (ii) professional skills, and (iii) compensation
(salary/remuneration, etc.).
Figure
(ii) Creating an ethical accounting environment:

The following three points need to be addressed for creating a sound ethical
environment in any company
(a) Employee awareness: It should be noted and ensured that employees are
aware of their legal and ethical responsibilities. Organisation should train and
motivate employees toward ethical behavior. Top management should
initiate steps in developing such an ethical environment.
(b) Encouraging communication: Ethical organization need to provide channels
through which employees can communicate with concerned Managers, for
reporting frauds, mismanagement or any other form of detrimental behavior.
In India Wipro has introduced a helpline comprising of senior members of the
company who are available for guidance on any moral, legal or ethical
issues that an employee of the company may face.
(c) Ensuring fair treatment to Whistle Blowers: A person or an employee who
reports fraud, mismanagement or any other detrimental practices to the
concerned managers is called Whistle Blower. Organisation should ensure
protection and fair treatment to Whistle Blowers to reduce fraud. However,
needless to say that appreciation is much more needed from within
company rather than outside.
(c) (i) The term ethics, refers to moral principles, which guide the conduct of individuals.
Ethical behavior implies actions ought to have taken after considering the
impact on society and other stakeholders. Accounting and finance professionals
have onerous duty and obligation to report the wrongs, even if they are done at
the top. This often brings them into a situation of ethical dilemmas, which arise
when finance and accounting professionals need to choose from amongst
alternatives involving-
(a) significant value conflicts among differing interest
(b) actual alternatives which can all be justified and
(c) significant consequences to all stakeholders for example in preparing a profit
forecast for launching a new product to be financed by external debt. A
finance and accounting professional should decide between
1. Projecting unrealistic high revenue and mislead the lunching institution in
order to get the loan, or
2. Projecting realistic but insufficient revenue, which is not satisfactory to the
lender and consequently the project is closed. Both the above
mentioned actions have got their own risks. There is no right and to such a
situation.
(ii) Differences between ethical code and contract
Ethical codes or code of ethics are guidelines intended to serve the interests of a
profession; its members and communities that are served, and hereby commit
oneself to the highest ethical and professional conduct. Ethical codes are
adopted by organizations to assist the members in understanding the difference
between „right and wrong' and applying that understanding in decision making.
An ethical code generally implies documents at three levels: code of business
ethics, codes of conduct for employees, and codes of professional practice.
Thus, code of ethics focuses on the social issue of the organization emphasizing
on development of business, plan of business development that plans to
conduct business at the highest level.
Code of ethics decides the code of conduct for employees, and set out the
procedures to be used in specific ethical situations such as conflict of interests
and prescribes procedures to determine whether a violation of the code of
ethics occurred, and if so what remedies need to be imposed.
Ethical contract is an agreement between two or more parties; whereby parties
of the contract are legally bound and committed to its promises. It also takes into
consideration reasons for breaches in contract and the way in which these
ethical considerations may impact upon them.
Suggested Answer_Syl12_Jun2014_Paper_6
GROUP I
(SYLLABUS 2012)

JUNE 2014

Please: (i) Answer all bits of a question at one place.
(ii) Open a new page for answer to a new question.
(iii) Attempt the required number of questions only
Question No. 1 is compulsory.
1. Choose the correct answer from the given four alternatives: 120 =20
(i) A party who does not suffer any loss in case of breach of contract is entitled to
(a) Statutory damages
(b) Liquidated damages
(c) Exemplary damages
(d) Nominal damages
(ii) If part of contract is illegal, then the whole contract will be

(a) Voidable
(b) Void
(c) Legal
(d) Illegal
(iii) In which of the following cases, the claim of Quantum Meruit arise
(a) When there is no breach of contract
(b) When a contract is discovered to be valid
(c) Where something has been done non gratuitously
(d) Where the contract is divisible
(iv) Amit tells Bharat in the presence of Chetan that Amit is agent of Chetan. Chetan
maintain silence instead of denying it. Later, if Amit sells Chetan's goods to Bharat,
Chetan cannot dispute Bharat's title to the goods. This is example of
(a) Sale by official receiver
(b) Sale by a finder of goods
(c) Sale by estoppel
(d) execution of Sale
(v) An act to dissuade the intending buyer from bidding or from raising the price by
pointing out defects in the goods or by doing some other acts which prevent persons
from forming a fair estimate of the price of the goods is known as
(a) Knock out agreement
(b) Damping
(c) Puffers
(vi) If a minor draws, endorses, delivers or negotiates an instrument, such instrument binds
(a) all parties to the instrument including the minor
(b) only the minor and no other parties to the instrument
(c) all parties to the instrument except the minor
(vii) In a partnership firm, the decision can be made by rule of majority when decisions
relate to
(a) policy matters
(b) ordinary routine matters
(c) financial matters
(d) buying and selling of property
(viii) Power to exempt any LLP or class of LLP for audits of accounts is with
(a) Inspector
(b) Central Government
(c) Any other regulatory authority
(ix) Every inspector appointed under the Factories Act or Payment of Wages Act is
deemed to be a
(a) Controlling Officer
(b) Labour Welfare Officer
(c) Honorary Magistrate
(d) A Public Servant
(x) No fine can be imposed on any employed person who is under the age of
(a) 10
(b) 12
(c) 15
(d) 18
(xi) In case of employee covered under the ESI, the accident report shall be sent
in…………..to local office of the ESI to which the company is attached.
(a) Form No. 18
(b) Form No. 18A
(c) Form No. 25
(d) Form No. 16
(xii) Which of the following statement is correct under the Child Labour (Prohibition and
Regulation) Act, 1968?
(a) No child shall be permitted to work between 8 P.M. and 7 A.M.
(b) No child shall be permitted to work between 6 P.M. and 8 A.M.
(c) No child shall be permitted to work in any establishment on any day which he has
already been working in another establishment.
(d) No child shall work for more than three and half hour before he has had an interval
for rest for at least one hour.
(xiii) The first case 'doctrine of frustration' as decided by the Supreme Court of India is
(a) Basanti Bastralaya Vs. River Steam Navigation Co. Ltd.
(b) Raju Dhruv Dev Chand Vs. Raja Harmohinder Singh
(c) Sushila Devi Vs. Hard Singh
(d) Satyabrata Ghosh Vs. Mugneeram
(xiv) Application for Director Identification Number (DIN) is to be made to Central Govt. in
Form
(a) DIN-1
(b) DIN-2
(c) DIN-3
(xv) Where an appeal is being preferred against an order made by the Public Information
Officer under Section 11 to disclose third party information, the appeal by the
concerned third party must be made within
(a) 5 days of the order
(b) 15 days of the order
(c) 30 days of the order
(d) 45 days of the order
(xvi) The development of Corporate Governance in the UK was initially the findings of a
trilogy of codes. Which of the report is not included in it?
(a) Cadbury Report 1992
(b) Greenburry Report 1995
(c) Trecking Report 1997
(d) Hampel Report 1998
(xvii) Business ethics is based on well accepted
(a) Moral and Social Values
(b) Social Values only
(c) Moral Values only
(xviii) Out of seven principles of public life, the principle of objectivity means
(a) holders of public office should take decisions solely in terms of the public interest.
(b) in carrying out public business including making public appointments, holders of
public office should make choices on merit.
(c) holders of public office are accountable for their decision and actions to the
public.
(d) holders of public office should be as open as possible about all the decisions and
actions that they take.
(xix) Who is responsible for ethical behavior?
(a) Lecturers and Supervisors
(b) The Psychologist
(c) The Participants
(d) The psychological Community
(xx) The three C’s of business ethics are
(a) Commitment, Contribution and Consequences
(b) Compliance, Contribution and Consequences
(c) Compliance, Customs and Contribution
(d) Codes, Compliance and Contributions
Answer:
1. (i) (d) Nominal damages
(ii) (b) Void
(iii) (d) Where the contract is divisible
(iv) (c) Sale by estoppel
(v) (b) Damping
(vi) (c) all parties to the instrument except the minor
(vii) (b) Ordinary routine matters
(viii) (b) Central Government
(ix) (d) A public servant
(x) (c) 15
(xi) (d) Form No. 16
(xii) (c) No child shall be permitted to work in any establishment on any day which he has
already been working in another establishment
(xiii) (d) Satyabrata Ghosh Vs. Mugneeram
(xiv) (a) DIN-1
(xv) (c) 30 days of the order
(xvi) (c) Trecking Report 1997
(xvii) (a) Moral and Social Values
(xviii) (b) In carrying out public business including making public appointments, holders of
public office should make choices on merit.
(xix) (b) The Psychologist
(xx) (b) Compliance, Contribution and Consequences
Section A
Attempt any four questions.
2. (a) (i) 'A' contracts with 'B' for a fixed price to construct a house for 'B' with stipulated time.
'B' would supply the necessary material to be used in the construction. 'C guarantees
A's performance of the contract. 'B' does not supply the material as per the
agreement. Is 'C discharged from his liability? 2
(ii) W offered to sell his house to M for `40 lakhs. M replied purporting to accept the
offer and enclosed a cheque for `20 lakhs. He also promised to pay the balance
amount in twenty equal installments. Examine the validity of the contract. 2
(b) Mr. Sharma is a supervisor in a factory drawing salary of `3500 pm. In a particular
accounting year he was on one month leave with salary. His employer declared
minimum bonus payable as per the Payment of Bonus Act, 1965, to all eligible
employees. State in this connection:
(i) What shall be the salary that shall be taken into account for the purpose of
calculating bonus payable to him?
(ii) What shall be the total bonus payable to him in that accounting year?
(iii) What would be your answer if the company suffer losses in that accounting year?
(iv) Is bonus payable to him if he was illegally terminated? 1×4=4
(c) Briefly explain the difference between Partnership and Co-ownership. 4
Answer:
2.(a) (i) According to the Section 134 of the Indian Contract Act, 1872, the surety is
discharged by any contract between the creditor and the principal debtor, by
which the principal debtor is released or by any act or omission of the creditor, the
legal consequence of which is the discharge of the principal debtor. In the given
case, B omits to supply the necessary material. Hence C is discharged from his
liability.
(ii) Acceptance of an offer must be absolute and unqualified i.e., it must conform to
the offer. An acceptance, in order to be binding, must be absolute and unqualified
[Sec 7(1)] in respect of all terms of the offer, whether material or immaterial, major
or minor. If the parties are not ad item on all matters concerning the offer and
acceptance, there is no contract.
In the case provided, the acceptance is a qualified acceptance; hence it would
not result in a valid contract.
2.(b) (i) Where the salary or wage of an employee exceeds ` 3500 per mensem, the bonus
payable to such employee under section 10 or, as the case may be under Section
11, shall be calculated as if his salary and wage were ` 3500 per mensem (Section
12). This means employees getting salary or wage upto ` 10,000 will be covered by
the Act, but for payment of bonus their salary will be taken as ` 3500.
(ii) The total bonus payable to him in that accounting year should be ` (3500 × 12 ×
8.33%) = ` 3498.60. For the purpose of calculating the total working days, leave with
salary or wages shall be deemed to be working days for the employee. Therefore,
Mr. Sharma would be eligible for 12 months bonus.
(iii) The bonus shall have to be paid by the employer notwithstanding anything
contained in section 10(1), but this payment is subject to the other provisions of the
Act. And even if the employer suffers loss during the accounting year, he is bound
to pay the minimum bonus as prescribed in Sec 10 [State vs Sardar Dalip Singh
Majhithia, 1979]
(iv) Disqualifications for payment of Bonus: (Sec 9) Notwithstanding anything contained

in the Act, an employee shall be disqualified from receiving bonus under the Act, if
he is dismissed from services for –
a. Fraud
b. Riotous or violent behavior while on the premises of the establishment or
c. Theft, misappropriation or sabotage of any property of the establishment.
Where an employee was prevented from working by reason of an illegal order, he
would be eligible for bonus.
(c) Difference between Partnership and Co-ownership.
Basis of Distinction Partnership Co-ownership

1 Agreement It arises from an agreement It may or may not arise from
an agreement
2 Business It is formed to carry on a business It may or may not involve
carrying on a business
3 Profit or Loss It involves profit or loss. It may or may not involve
profit or loss.
4 Mutual agency Partners have a mutual agency Co-owners do not have a
relationship. mutual agency relationship.
5 Name of persons The persons who form partnership The persons who own some
involved are called partners. property jointly are called
owners.
6 Maximum limit The Maximum limit of partners is There is no maximum limit of
10 for a banking business and 20 owners.
for any other business
7 Transfer of Interest A partner cannot transfer his A co-owner can transfer his
share to a stranger without the share to a stranger without
consent of other partners. the consent of other co-
owners
8 Right to claim A partner has no right to claim A co-owner has the right to
partition partition of property but he can claim partition of property.
sue the other partners for the
dissolution of the firm and
accounts.
9 Lien on property A partner has a lien on the A co-owner has no such
partnership property for expenses lien.
incurred by him on behalf of the
firm.
3. (a) (i) Explain the concept of 'whistle blowing' with respect to the Limited Liability
Partnership Act, 2008. 3
(ii) X buys from Y a painting which both believe to be work of an old masterpiece and
for which X pays a high price. The painting turns out to be only a modern copy.
Discuss the validity of the contract. 2
(b) 'A' issue an open 'bearer' cheque for `10,000 in favour of 'B' who strikes out the word
'bearer' and puts crossing across the cheque. The cheque is thereafter negotiated to 'C
and 'D'. When it is finally presented by D's banker, it is returned with remarks 'payment
countermanded' by drawer. In response to this legal notice from 'D', A pleads that
cheque was altered after it had been issued and therefore he is not bound to pay the
cheque. Referring to the provisions of the Negotiable Instruments Act, 1881, discuss
whether A's argument is valid or not. 3
(c) Under what circumstances breach of condition is treated as breach of warranty under
the provisions of The Sale of Goods Act, 1930? 4
Answer:
3.(a)(i) The concept has been discussed in sec.31 of the Limited Liability Partnership Act,2008.
As per the sec-
(1) The Court or Tribunal may reduce or waive any penalty leviable against any partner
or employee of a limited liability partnership, if it is satisfied that-
a) such partner or employee of a limited liability partnership has provided useful
information during investigation of such limited liability partnership; or
b) when any information given by any partner or employee (whether or not
during investigation) leads to limited liability partnership or any partner or
employee of such limited liability partnership being convicted under this Act or
any other Act.
(2) No partner or employee of any limited liability partnership may be discharged,
demoted, suspended, threatened, harassed or in any other manner discriminated
against the terms and conditions of his limited liability partnership or employment
merely because of his providing information or causing information to be provided
pursuant to sub-section(1)
(ii) The Contract is absolutely void as there is a mutual mistake of both the parties as to
the substance or quality of the subject-matter going to be the very root of the
contract. In case of bilateral mistake of essential fact, the agreement is void ab-initio,
as per section 20 of the Indian Contract Act,1872,
(b)
Effects of striking off the word bearer  It amounts to a material alteration.
 However, such material alteration is
authorized by the Act.
 Therefore, the cheque is not discharged; it
remains valid
Effects of crossing the cheque  It amounts to a material alteration.
 However, such material alteration is
authorized by the Act. Therefore, the
cheque is not discharged; it remains valid.
A's argument is not valid  Since the reason for dishonor of cheque is
not 'material alteration' but 'payment
countermanded by drawer.'
 Therefore, A is liable for the payment of
the cheque and he shall also be liable for
dishonor of cheque in accordance with
the provisions of Sec. 138.
(c) According to section 13 of the sale of the Goods Act,1930 a breach of condition may
be treated as breach of warranty in the following circumstances:
(i) Where a contract of sale is subject to any condition to be fulfilled by the seller,
the buyer may waive the condition.
(ii) Where the buyer elects to treat the breach of condition as breach of a
warranty
(iii) Where the contract of sale is non-severable and the buyer has accepted the
whole goods of any part thereof.
(iv) Where the fulfillment of any condition or warranty is excused by law, by reason
of impossibility or otherwise.
4. (a) (i) 'Money laundering can provide short term benefits to economy'. Comment. 3
(ii) Ram is employed in Sweet Sugar factory, a seasonal establishment. The factory was
in operation for four months only during the financial years 2011-12. Ram was not in
continuous service during this period. However, he has worked only 60 days.
Referring to the provisions of The Payment of Gratuity Act, 1972, decide whether Ram
is entitled to gratuity payable under the Act. Would your answer be the same in case
Ram works for 100 days? 2
(b) Mr. Z bought a refrigerator from a dealer's shop. But he did not mention the required
purpose i.e., whether it is fit to make ice. After using the same, Mr. Z came to know that
the refrigerator was unfit for the purpose. State giving reasons as per the provisions of
The Sale of Goods Act, 1930, is the dealer liable to refund the price? 4
(c) D joined Be Engineering Works (P) Ltd. on 05.03.2012. On 8th he was laid off as the
management wanted to slow down due to shortage of power. 'X' was not allowed lay-
off compensation on the ground that his period of service was less than one year. Is the
claim of management valid under the Industrial Disputes Act, 1947? 3
Answer:
4.(a)(i)The statement is not true. The genesis of money laundering is the practice of
concealing identity, source or destination of illegally gained money. Money
laundering from illegal activities directly affects the freedom of access to investment,
affecting the labor market laws, marketing, consumption and production itself. Money
laundering is conversion of 'dirty' money to 'clean' money and therefore illegal.
(ii) Ram is not entitled to gratuity, since he has actually worked for less than 75% of the
number of days on which the establishment was in operation during such period. If
Ram had worked for 100 days, then he would have been entitled to gratuity since the
number of days on which he would have worked, in that case, would have been 75%
or more of the number of days on which the establishment was in operation.
(b) As per the Rule of Implied Condition, [Sec. 16 (1)]: There is no implied condition as to
the quality or fitness for any particular purpose of goods supplied under a contract of
sale. In other words, the buyer must satisfy himself about the quality as well as the
suitability of the goods. This is expressed by the maxim caveat emptor (let the buyer
beware). But there is exception to this rule of Condition as to Quality or Fitness: There is
an implied Condition that the good shall be reasonably fit for a particular purpose
described if the three conditions are satisfied-
(i) The particular purpose for which goods are required must have been disclosed
(expressly or impliedly) by the buyer to the seller.
(ii) The buyer must have relied upon the seller's skill or judgment.
(iii)The seller's business must be to sell such goods.
Note: This condition cannot be invoked against a casual seller.
In the given case, Mr. ‘Z' bought a refrigerator from a dealer's shop. But he did not
mention the required purpose i.e. whether it is fit to make ice. After using the same Mr.
‘Z' came to know that the refrigerator was unfit for the purpose. The dealer is liable to
refund the price because refrigerator was unfit for the purpose for which it was meant
for and the buyer was not required to disclose this particular purpose. [Evens v. Stelle
Benjamin].
(c) Under Sec. 25-B of Industrial Disputes Act, 1947, an employee shall deemed to be in
continuous service of one year if has worked for at least 240 days during the period of
12 months preceding the reference date of calculation.
'D' has worked for 3 days before he was laid off. So he is not entitled to lay-off
compensation and can claim the same.
5. (a) (i) Explain Cost of living Index Number under The Minimum Wages Act, 1948. 2
(ii) State the nature of dispute as to gratuity that may be decided by the Controlling
Authority. 3
(b) On a Bill of Exchange for Rupees one lakh, X's acceptance to the Bill is forged. 'A’ takes
the Bill from customer for value and in good faith before the bill becomes payable.
State with reasons whether 'A' can be considered as a "Holder in due course" and
whether he can receive the amount of the Bill from 'X'? 4
(c) A, B and C were partner in a firm of drapers. The partnership deed authorized the
expulsion of a partner when he was found guilty of flagrant breach of duty. A was
convicted of travelling without ticket. On this ground, he was expelled by the other
partners B and C. Is the expulsion justified? 3
Answer:
5. (a)
(i) "Cost of living Index Number" in relation to employees in any scheduled employment in
respect of which minimum rates of wages have been fixed, means the Index Number
ascertained and declared by the Competent Authority by notification in the official
gazette to be the cost of living index number applicable to employee in such
employment.
(ii) The Controlling Authority may decide the following disputes:-
a) Dispute as to amount of gratuity payable to an employee under the
Payment of Gratuity Act.
b) Dispute as to the admissibility of any claim of, or in relation to an employer for
payment of gratuity.
c) Dispute as to the person entitled to receive gratuity (Sec. 7(4)(a)]
(b) According to the section 9 of the Negotiable Instruments Act, 1881 "holder in due
course' means any person who for consideration becomes the possessor of a
promissory note, bill of exchange or cheque if payable to bearer or the payee or
endorsee thereof, if payable to order, before the amount in it became payable and
without having sufficient cause to believe that any defect existed in the title of the
person from whom he derived his title.
As ‘A' in this case prima facie became a possessor of the bill for value and in good faith
before the bill became payable, he can be considered as a holder in due course.
But where a signature on the Negotiable Instruments is forged, it becomes a nullity. The
holder of a forged instrument cannot enforce payment thereon. In the event of the
holder being able to obtain payment inspite of forgery, he cannot retain the money.
The true owner may sue on tort the person who had received. The principle is universal
in character; by reason where of even a holder in due course is not exempt from it. A
holder in due course is protected when there is defect in the title. But he derives no title
when there is entire absence of title as in the case of forgery. Hence "A' cannot receive
the amount on the bill.
(c) Yes, the expulsion is justified. In this case, the partnership deed authorized expulsion on
the ground of flagrant breach of duty. Doing an act which brings a partner within the
penalties of criminal law is flagrant breach of duty. Also, the expulsion decision was
taken by majority of partners (Carmichel Vs. Evans (1904) 90 LT573).
6. (a) Explain basic wages under The Employees Providend Fund Act, 1952. Enumerate the
items which are not included in it. 3
(b) (i) Deposit of money in a bank does not constitute bailment. Justify. 2
(ii) Does a laundry attached to the hospital (main Institution) used for washing linen
used in the hospital is factory within the meaning of the Factories Act, 1948? 3
(c) (i) A Limited Liability Partnership is not bound by any act of its member. Justify. 2
(ii) In a contract of Guarantee, A surety is discharged from his liability where there is a
failure of consideration between the creditor and the principal debtors. Comment.
2
Answer:
6. (a) Basic wages: As per Section 2(b) of the Employees Provident Funds and Miscellaneous
Provision Act, 1952, the "Basic Wages" means all emoluments which are earned by an
employee while on duty or on leave or on holidays with wages in either case in
accordance with the terms of the contract of employment and which are paid or
payable in cash to him, but does not include:
(i) the cash value of any food concessions,
(ii) any dearness allowance (that is to say all cash payments, by whatever name
called, paid to an employee on account of rise in the cost of living), house rent
allowance, overtime allowance, bonus, commission or pay and other similar
allowance payable to the employee in respect of his employment or of work
done in such employment,
or
(iii) any presents made by the employer.
(b) (i) Bailment is concerned with only moveable goods. Money is not included in the
category in moveable goods. As such deposit of money is not bailment.
(ii) In Dr. PSS Sundar Rao, GS v Inspector of Factories Vellore 1984 II LLJ 237 Mad, the
question was whether a laundry attached to the Christian Medical College &
Hospital, Vellore is Factory within the meaning of this Act. The Madras High Court
held that the laundry run by the hospital cannot be separated from the main
Institution. In order to ensure high degree of hygienic standard the Hospital is having
its own laundry for washing the linen used in the hospital. Therefore, laundry is only
subsidiary, minor or incidental establishment of the hospital which is not a factory.
One department of the Hospital established for the efficient functioning of the
Hospital cannot be therefore be disjoined from the main institution and termed to
be a factory. The paramount or the primary character of the main institution alone
has to be taken into consideration and when the main institution is not a factory; a
department thereof cannot become so, even though a manufacturing process is
carried on there.
(c) (i)A limited liability partnership is not bound by any act of a member in dealing with
persons if-
(a) The member in fact has no authority to act for the limited liability partnership by
doing that thing.
(b) The person knows that the members has no authority or does not know or
believe him to be a member of limited partnership.
(ii) According to the provisions of the Indian Contract Act, presence of consideration is
an essential element for a valid contract. Therefore, where in a contract of
guarantee, there is a failure of consideration between the creditor and the
Principal Debtor, the surety is discharged.
Section B
Attempt any two questions.
7. (a) In a public company the total number of Directors are 9 and 2 offices of the Directors
have fallen vacant. Referring to the relevant provisions of the Companies Act, 1956:
(i) What would be the quorum for the Board Meeting?
(ii) Can the articles of a company fix the quorum (higher or lower) for the Board
Meeting? 2
(b) Explain briefly the need for Corporate Governance in India. 3
(c) Explain the objectives of Right to Information Act, 2005. 3
Answer:
7.(a) Where the total number of Directors are 9 and 2 offices of the Directors have fallen
vacant, the number of directors remaining is 7. Therefore, quorum is to be calculated
with reference to 7.
(i) As per section 287, quorum shall be 1/3rd of total strength of the directors and any
fraction shall be rounded off to next full figure. In the given case 1/3rd is 2.33.
Therefore, where the total strength is 7, the quorum shall be 3.
(ii) The articles of the company may fix a quorum higher than 1/3rd of total strength
but not lower than that. If it is fixed on lower side, it will be void.
(b) Need for Corporate Governance
Corporate Governance is integral to the existence of the company. It is needed to
create a corporate culture of transparency, accountability and disclosure.
 Corporate Performance: Improved governance structures and processes help
ensure quality decision making, encourage effective succession planning for senior
management.
 Enhanced Investor trust: Investors consider Corporate Governance as important as
financial performance when evaluating companies for investment.
 Combating Corruption: Companies that are transparent, and have sound system
that provide full disclosure of accounting and auditing procedures, allow
transparency in all business transactions.
 Better Access to Global Market: Good Corporate Governance system attracts
investment from global investors, which subsequently leads to greater efficiencies
in the financial sector.
 Enhancing Enterprise Valuation: Improved management accountability and
operational transparency fulfill investors' expectations and confidence on
management.
 Accountability: Investors' relations are essential part of good Corporate
Governance.
 Easy Finance form Institutions: Evidence indicates that well governed companies
receive higher market valuations.
 Reduced Risk of Corporate Crisis and Scandals: Effective Corporate Governance
ensures efficient risk mitigation system in place.
(c) The objectives of the Act are to-

(i) Give effect to the Fundamental Right to Information, which will contribute to
strengthening democracy, improving governance, increasing public
participation, promoting transparency and accountability and reducing
corruption
(ii) Establish voluntary and mandatory mechanisms or procedures to give effect to
right to information in a manner which enables persons to obtain access to
records of public authorities in a swift, effective, inexpensive and reasonable
manner,
(iii) Promote transparency, accountability and effective governance of all public
authorities by, including but not limited to, empowering and educating all persons
to:
- Understand their rights in terms of this Act in order to exercise their rights in
relation to public authorities;
- Understand the functions and operation of public authorities; and effectively
participating in decision making by public authorities that affects their rights.
8. (a) Mr. Lalit, a Director of XY Limited proceeding on a long foreign tour, appointed Mr.
Mohan as an alternate director to act for him during his absence. The articles of the
company provide for appointment of alternate directors. Mr. Lalit claims that he has a
right to appoint alternate director. State whether Mr. Lalit is correct based on legal
provision? 3
(b) How far effective legal framework is necessary for e-Governance? 5
Answer:
8.(a) Section 313 of the Companies Act, 1956 provides that the Board of Directors of a
company may, if authorized by its Articles or by resolution passed by the company in
general meeting, appoint an alternate director to act for a director during his absence
for a period of not less than 3 months from the State in which the meetings of the Board
are ordinarily held. The alternate director can be appointed only by the Board of
Directors and only in cases where the Board is authorized by Articles or by the company
in general meeting. Hence Mr. Lalit the director in question, is not competent to
appoint alternate director and the appointment of Mr. Mohan as alternate director is
not valid.
(b) Implementation of a supporting legal framework is a basic requirement for successful
implementation of e-Governance.
Moving to a digital government required supporting laws, for example, governments
need to enact usage of digital authentication and digital signatures as legally valid.
However this is not easy task as enacting laws alone is not sufficient. Implementing a
digital signature and approval systems (OECD, 1998) within government organisations
can be implemented in a fast way but implementing a Public Key Infrastructure (PKI) for
issuing digital signatures for all citizens may prove difficult and/ or expensive. This is
especially true for developing countries with a large population base like India. Existing
laws in most developing countries still require the presence of physical files for decision
making. This is due to the more formalistic nature of public organisations and related
requirement to have a high level of work related record keeping (Welch & Pandey,
2006). However, lack of necessary legal support for digital files will add an additional
layer of complexity during the implementation of e-governance projects as
government staff will be forced to maintain both physical and digital files.
The Government of India now recognizes the requirement to provide a necessary legal
framework for efficient delivery of government services. Electronic Service Delivery Bill,
2011 aims to cut red tape and corruption by delivering all public services to citizens
through electronic mode. Implementation of the bill will enhance transparency,
efficiency, accountability, accessibility and reliability and by eliminating paperwork on
a massive scale, (Electronic Service Delivery Bill, 2011).
9. (a) The MOA of a Company was signed by two adult members and by a guardian of the
other five minor members, the guardian signing separately for each minor member. The
Registrar registered the company and issued under his hand a certificate of
incorporation. The plaintiff contented that (a) conditions of registration were not duly
compiled with, (b) that there were no seven subscribers to the MOA. Will the Court
upheld his contention? 3
(b) "The German Corporate Governance System is based on a dual board system". Explain.
3
(c) Explain the meaning of Competent Authority under Right to Information Act, 2005. 2
Answer:
9.(a) No. The certificate of incorporation is conclusive for all purposes. According to the
section 35 of the Companies Act, 1956 a certificate of incorporation given by the
Registrar in respect of any association shall be conclusive evidence that all
requirements of this Act have been compiled with in respect of registration and matters
precedent and incidental thereof, and that the association is a company authorized to
be registered and duly registered under this Act.
(b) The German Corporate Governance system is based around a dual board system, and
essentially, the dual board system comprises a management board (Vorstand) and a
supervisory board (Aufsichtsrat). The management board is responsible for managing
the enterprise. Its members are jointly accountable for the management of the
enterprise and the chairman of the management board coordinates the work of the
management board. On the other hand, the supervisory board appoints, supervises
and advises the members of the management board and is directly involved in
decisions of fundamental importance to the enterprise. The chairman of the supervisory
board coordinates the work of the supervisory board. The members of the supervisory
board are elected by the shareholders in general meetings. The co-determination
principle provides for compulsory employees representation. So, for firms or companies
which have more than five hundred or two thousand employees in Germany,
employees are also represented in the supervisory board which then comprises one
third employee representative or one half employee representative respectively. The
representatives elected by the shareholders and representatives of the employees are
equally obliged to act in the enterprise's best interests.
(c) "Competent Authority" means-
(i) The Speaker in the case of the House of the People or the Legislative Assembly
and the Chairman in the case of the Council of States or the Legislative Council :
(ii) The Chief Justice of India in the case of the Supreme Court,
(iii) The Chief Justice of the High Court in the case of a High Court,
(iv) The President or the Governor, as the case may be, in case of other authorities
constituted or established by or under the Constitution,
(v) The administrator appointed under article 239 of the Constitution.
Section C
10. (a) "Business Ethics is the study of business situations, activities and decisions where issues
of right and wrong are addressed". Explain. 4
(b) Discuss the important principles of Ethical Behaviour. 4
Answer:
10.(a)Business Ethics also called Corporate Ethics is a form of applied ethics or professional
ethics that examines ethical principles and moral or ethical problems that arise in a
business environment. It applies to all aspects of business conduct, and is relevant to
the conduct of individuals and the entire organisations. Business ethics concerns itself
with adhering to the social principles of the situations in which business takes place. No
matter how hard one tries, it is impossible to separate life from business. For a
businessman, business is life. Mahatma Gandhi (1948) said, ‘It is difficult but not
impossible to conduct strictly honest business. What is true is that honesty is
incompatible with amassing of large fortune’. The business world is an important part
of society, as it is concerned with the livelihoods of people. Business activity too is
subjected to the code of conduct without any exception. People expect businessmen
to possess the same rationality as any other citizen. Therefore, there is no separate
business ethics for businessmen, as ethics applies to all the activities of people.
Consequently, we have to keep business within the bounds of ethics.
(b) The following are the fundamental principles of ethical behavior:
(i) Integrity: The principle calls upon all accounting and finance professionals to
adhere to honesty and firmness while discharging their respective
professional duties. This principle therefore, encourages professionals to
(a) Avoid being involved in activities which would impair the goodwill
of the organization.
(b) Communicate adverse as well as favorable information with those
concerned.
(ii) Objectivity: This principle calls upon professionals to communicate information
fairly and objectively in a transparent manner.
(iii) Confidentiality: Under this principle, Accounting and Financial management
should refrain from disclosing confidential information acquired during
their work. Utmost care should be taken that ultimate confidentiality is
maintained.
(iv) Professional Competence: This principle calls for Finance and Accounting
professionals to update their professional skills from time to time. It has to
be ensured that the client or employer receives competent professional
services based upon current and contemporary development in the
related areas.
(v) Obedience to Rules: Accounting and Finance professionals should comply with
relevant laws and regulations and avoid such actions which may result
into discrediting the progression.
11. (a) Explain the interface between Ethics and Laws. 3
(b) Discuss the different types of Ethical issues. 5
Answer:
11.(a) Ethics and Law- The Interface
Law is essentially an institutionalization or codification of ethics into specific social rules,
regulations and prescriptions. Perhaps the best way of visualizing ethics and law is in
terms of two intersecting domains as depicted in the following figure:
Thus, in one sense, business ethics can be said to begin where law ends. Business Ethics
is primarily concerned with those issues not completely covered by law, or where there
is no definite consensus on whether something is right or wrong. Hence, it is often
remarked, that business ethics is about the "grey areas" of business where values are in
conflict.
(b) Ethical dilemma exists in all walks of business. Business situations are highly complex
with no clear guidelines and equally justifiable alternatives. Hence, ethical dilemma
should be dealt carefully. They arise when there are conflict in values with superiors in
the area of strategy, goals, policy and administration. Ethical issues get categorized in
the following four main areas:
(i) Business Relationships: i.e. relationships with customers, suppliers and others in the
work place also have ethical concerns. Ethical behavior in the business involves
meeting obligations and responsibilities duly on time, keeping company secrets
and avoiding undue pressure that may force others to act unethically. The
managers and other superiors can use their authority to influence the employees
and make them act in an unethical manner. In the process, the manager may tell
the employees to adopt unethical practices which the employee may not be
willing to adopt. The ethical practices of the business must be focused on
customer needs as the customer is the life line of the business. Organisations that
cater to customer needs by adopting an honest and ethical approach make the
customer feel that they are important and this in turn guarantees the success of
the organization in the long run.
(ii) Conflict of interest: Conflict of interest exists when a person has to decide whether
to proceed with his own personal interest or in the interest of the organization.
Example: Bribe is a conflict of interest because it benefits the individual but harms
the organisation and the society.
Conflict of interest can be managed in an effective manner when employees are
able to separate either personal interests from their business dealings. Sam Walton,
the late founder of Wal-Mart, banned company buyers from accepting even a
cup of coffee from suppliers. It is not always necessary that conflict of interest
should be financial.
(iii) Fairness and honesty: Fairness and honesty are difficult principles of business ethics,
which an organization is expected to follow. It is not enough for a company to
ensure compliance with applicable laws and regulations, it should not cause any
harm to employees, customers, competitors knowingly by means of unfair and
deceptive trade practices. Disclosure of potential harm caused by product use is
an example of "fairness and honesty". Though the legal system encourages
competition and prevents monopoly, business organisations continue doing
activities causing harm to the competition. Thus, ethical conduct of business
depends on their Commitment to fairness and honesty.
(iv) Communication: Organisations need to communicate with its environment to
sustain and grow. They have to give true and correct information about their
products and services. Nowadays, false and misleading advertisements occupy
the business world. Consumers have a right to know full and true information about
product's quality, price and safety. Manufacturers often fail to communicate the
differences or similarities between products.
12. (a) What are the different types of threat that may affect the business environment and
influence financial and accounting professionals? 4
(b) What is Ethical Conflict? What are the aspects to be considered to resolve the
conflict? 4
Answer:
12.(a) The following types of threats may affect the business environment and thus, can
influence Finance and Accounting professionals:
i. Self-Interest Threats: These threats occur as a result of financial or other interest of
Financial and Accounting professionals or personal interest of key personnel.
ii. Self-Review Threats: When a previous judgment of the finance and professional is
to be re-evaluated.
iii. Advocacy Threats: When a professional promotes a position or opinion to such
extent that some objectivity may have to be compromised.
iv. Familiarity Threats: When a professional has close relationship with the work
environment, thereby impacting his or her selfless attitude towards work.
v. Intimidation Threats: When a professional may be prohibited from acting
objectively by actual or perceived threats.
(b) Ethical conflict is a situation where the professionals have to decide between
compliance with principles and actions which are beneficial to the business
organisation. An ethical conflict is a complex situation that often involves an
apparent mental conflict between moral imperatives, in which to obey one would
result in transgressing another. This is also called an ethical paradox since in moral
philosophy, paradox often plays a central role in ethics debates.
To resolve the conflict, following aspects should be considered:
a) Relevant facts;
b) Ethical issues involved;
c) Fundamental principles related to the matter in question;
d) Established internal procedures; and
e) Alternative courses of action
GROUP I
(SYLLABUS 2012)

DECEMBER 2013
Paper- 6: LAWS ETHICS AND GOVERNANCE
Question No. 1 is compulsory
1. Choose the correct answer from the given four alternatives. 1 x 20 = 20
(i) Cash is withdrawn by a customer of a bank from the automatic teller machine is an
example of
(a) Express Contract
(b) Void Contract
(c) Tacit Contract
(d) Illegal Contract
(ii) Which of the following is not implied condition under The Sale of Goods Act, 1930?
(a) Sale by description
(b) Sale by discount price
(c) Sale by sample
(d) Quality or fitness
(iii) Occupier of every factory shall provide and maintain suitable room or rooms for the use
of the children under the age of six years of women workers where the number of such
women workers exceed
(a) 20
(b) 50
(c) 30
(d) 150
(iv) Examine as to which of the following payments form part of "salary" under the provisions of
the Payment of Bonus Act, 1965.
(a) Travelling allowance
(b) Commission on sales
(c) Dearness allowance
(d) Overtime allowance
(v) Under Payment of wages Act, 1963, in any factory, in which 1200 persons are employed,
wages must be paid
(a) any time
(b) before the expiry of 10th day of the following month
(c) before the close of the month
(d) before the expiry of 7th day of the following month
Board of Studies, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 1
(vi) The Employees Provident Funds Act, 1952 is applicable to every establishment mentioned
in schedule 1 and employed
(a) 10 persons or more
(b) 100 or more persons
(c) 20 or more persons
(d) 50 or more persons
(vii) A factory employs 250 workers. All the workers including workers above 60 years of age
and below 15 years of age went on strike. The employer
(a) can deduct fine from all the workers
(b) cannot deduct fine from workers who are under the age of 15
(c) no fine can be imposed from workers who are 60 years and above
(d) cannot deduct any fine from any worker
(viii) The employer's and employee's share of contribution of ESI fund is

(a) 1.75% and 4.75% of wages respectively
(b) 4.75% and 1.75% of wages respectively
(c) 10% and 3.75% of wages respectively
(d) 11 % and 3.75% of wages respectively
(ix) A Formal notarial certificate attesting the dishonour of a bill or note is called
(a) Noting
(b) Protest
(c) Attestation of Dishonour
(d) Endorsement
(x) Public notice is not required when there is

(a) admission of new partner
(b) retirement of any partner
(c) expulsion of any partner
(d) dissolution of the firm
(xi) A LLP shall file an annual return duly authenticated with the Registrar within _________ of
closure of a financial year under Limited Liability Partnership Act, 2008.
(a) 30 days
(b) 45 days
(c) 60 days
(d) 90 days
(xii) Under Prevention of Money Laundering Act, 2002, CDD means

(a) Compact Disk Delivery
(b) Customer Direct Dealing
(c) Customer Designated Director
(d) Customer Due Diligence
(xiii) The board of directors may appoint additional directors from time to time if so authorized
by
(a) Articles of Association
(b) Memorandum of Association
(c) A resolution passed at general meeting
(d) A resolution passed at board meeting
(xiv) As per clause 49 of corporate governance, independent director means a non

executive director of the company who
(a) is not less than 21 years of age
(b) has been an executive of the company in the immediately preceding three financial
years
(c) is related to promoters or persons occupying management positions
(d) is a substantial shareholder of the company
(xv) Where the information sought for concerns the life and death or liberty of a person,
information under RTI Act, 2005 is to be supplied within
(a) 15 days from the date of receipt of request
(b) 72 hours from the date of receipt of request
(c) 48 hours from the date of receipt of request
(d) 30 hours from the date of receipt of request
(xvi) Board of German Corporate Governance system is based on

(a) one-tier concept
(b) two-tier concept
(c) three-tier concept
(d) four-tier concept
(xvii) Business ethics are gaining importance because of

(a) smooth functioning
(b) good image
(c) the growth of consumer movement
(d) increasing profit
(xviii) Which of the following statement is correct about business ethics?

(a) Social responsibility and business ethics are considered different concepts
(b) Making higher profits should be the main objective of a business
(c) A business may sustain only if it cares for society
(d) Companies making ethical investments may not be able to compete
(xix) Holders of public office should take decision solely in terms of the public interest. This
principle of public life is called
(a) Integrity
(b) Accountability
(c) Honesty
(d) Selflessness
(xx) To resolve the Ethical Conflict, following should not be considered.

(a) Relevant facts
(b) Alternative Course of action
(c) Arms Length
(d) Ethical issues involved
Answer:
(i) C Tacit Contract

(ii) b Sale by discount price
(iii) c 30
(iv) c Dearness allowance
(v) b Before the expiry of 10th day of the following month
(vi) c 20 or more persons
(vii) b Cannot deduct fine from workers who are under the age of 15
(viii) b 4.75% and 1.75% of wages respectively
(ix) b Protest
(x) a Admission of new partner
(xi) c 60 days
(xii) d Customer Due Diligence
(xiii) a Articles of Association
(xiv) a Is not less than 21 years of age
(xv) c 48 hours
(xvi) b Two -tier concept
(xvii) c The growth of consumer movement
(xviii) c A business may sustain only if it cares for society
(xix) d Selflessness
(xx) c Arms Length
SECTION A
Attempt any four questions.
2.
(a)
(i) Does silence amount to fraud? 3
(ii) Arvind hires a carriage of Govind and agrees to pay INR 500 as hire charges. The
carriage is unsafe though Govind is unaware of it. Arvind is injured and claims
compensation for injuries suffered by him. Govind refuses to pay. Discuss the liability of
Govind. 3
(b) Raman instructed Soman, a transporter, to send a consignment of apples to Mumbai. After
covering half a distance, Soman found that the apples will perish before reaching Mumbai.
Hence, he sold the same at a half the market price. Raman sued against Soman. Will he
succeed? 3
(c)
Arun, Varun and Tarun are partners of software business and jointly promise to pay INR
60,000 to Karun. Over a period of time, Varun becomes insolvent, but his assets are
sufficient to pay one-fourth of his debts. Tarun is compelled to pay the whole. Decide
whether Tarun is required to pay whole amount to Karun in discharging joint promise?
3
Answer:
(a)
(i) At times one of the party to a contract makes studied silence to some of the facts
relating to the subject matter of contract. The matter on which silence is maintained
by party may be material fact. Does this amount to passive fraud under the Indian
Contract Act or not depends upon various factors.
Explanation to section 17 of the Indian Contract Act, 1872, provides that mere silence
as to facts likely to affect the willingness of a person to enter into a contract is not
fraud unless the circumstances of case are such that having regard to them it is the
duty of the person keeping silence to speak or unless silence itself is equivalent to
speech.
Exceptions to the General Rule:

The general rule that silence does not amount to fraud has the following exceptions:
(i) When the parties stand in fiduciary relationship (i.e., relationship of faith and trust,
parent and child, etc.)
(ii) Where silence is equivalent to speech.
(iii) Half Truth – It is worse than a blatant lie. Partial truthful disclosures may easily
deceive the other party.
(ii) Problem asked in the question is based on the provisions of the Indian contract Act,
1872, as contained in the section of 150. The section provides that if the goods are
bailed for hire, the bailer is responsible for such damage, whether he was or was not
aware of the existence of such faults in the goods bailed. Accordingly, applying
above provisions in the given case Govind is responsible to compensate
Arvind for the Injuries sustained even if he was not aware of the defects in the
carriage.
(b) Agent‟s Authority in an emergency: As per section 189 of the sale of Goods Act, 1930.
An agent has the authority in an emergency to do all such acts as man of ordinary
prudence would do for protecting his principal from losses which the principal would
have done under similar circumstances. A typical case is where the agent handling
perishable goods like 'apples' can decide the time, date and place of sale, not
necessary as per instructions of the principal, with the intention of protecting the
principal from losses. Here the agent acts in an emergency and act as a man of ordinary
prudence. In the given case, Soman had acted in an emergency situation and Raman
will not succeed against him.
(c) According to section 43 of Indian Contract Act,1872 when two or more persons make a
joint promise, promise may, in absense of express agreement to the contrary compel
any one or more for such joint promisors to perform the whole of the promise. Further, if
any one of two or more joint promisors makes default in such contribution, the
remaining joint promisors must bear the loss arising from such default in equal shares.
Therefore, in this case, Tarun is entitled to receive INR 5000 (one fourth of Varun share of
debt) from Varun‟s assets and balance INR 27500 from Arun.
3.
(a)
(i) Who is a Partner by "Holding Out" or "Estoppels"? 2
(ii) 'Anil' draws a bill on 'Susheel' for INR 10,000 payable to his order. 'Susheel' accepts the
bill but subsequently dishonours it by non-payment. 'Anil' sues 'Susheel' on the bill.
'Susheel' proves that it was accepted for value as of INR 8,000 and as accommodation to
'Anil' for INR 2,000. How much can 'Anil' recover from 'Susheel'? Decide in the light of the
provisions of the Negotiable Instruments Act, 1881? 3
(b) Anurag was an employee of Coffee Estate Ltd. The whole undertaking of Coffee Estate Ltd.
was taken over by a new company Asian Coffee Ltd. The Service of Anurag remained
continuous in the new company. After serving for one year, Anurag met with an accident
and become permanently disable. Anurag applied to the new company for the payment
of gratuity. The company Asian Estate Ltd. refused to pay gratuity on the ground that Anurag
has served only for a year in the company. Examine the validity of refusal of the company
in the light of the provisions of the Payment of Gratuity Act, 1972. 3
(c) If the following statements are not correct, give the correct answer. 1x4=4
(i) Authorized capital for formation of limited liability partnership (LLP) is one crore.
(ii) Maximum number of partners in a LLP shall not exceed 50.
(iii) Foreign nationals can also be partners in a LLP.
(iv) Audit is not required in LLP in any circumstances.
Answer:
(a)
(i) If any person behaves and/or posses in such a way that others consider him to be a
partner, he will be held liable to those persons who have been misled, suffered or lent
finance to the firm on assumption that he is a partner. Such a person is known as
"Partner by Holding out 'or Estoppels." He is not a true partner and he is not entitled to
any share in the profit in the firm.
(ii) According to the provisions of section 44 of Negotiable Instruments Act,1881, when
there is a partial absence or failure of money consideration for which a person signed
a bill of exchange, the same rules applicable for total absence or failure of
consideration will apply. Thus, the parties standing in immediate relation to each other
cannot recover more than the actual consideration. Accordingly Anil can recover only
INR 8000.
(b) According to the section 4(1) of the Payment of Gratuity Act,1972, gratuity shall be
payable to an employee on the termination of his employment after he has rendered
continuous service for not less than five years of his superannuation or, on his retirement
or resignation or on his death or disablement due to accident or disease.
The condition of the completion of five years of continuous service is not essential in
case of the termination of the employment of any employee due to death or
disablement for the purpose of this section. Disablement means such disablement as
incapacities of an employee for the work which he was capable of performing before
the accident or disease resulting in such disablement.
The given problem fulfills all the above requirements as stated. Therefore, Anurag is
entitled to recover gratuity after becoming permanently disabled, and continuous
service of five years is not required in this case. Hence, the company cannot refuse to
pay gratuity on the ground that he has served only for a year.
(c)
(i) NIL-Since not specified in the Act.
(ii) No maximum limit-as no specific number specified in the Act.
(iii) Yes, foreign Nationals can also be partners.
(iv) Audit is required if the contribution is above INR 25 Lakhs or if annual turnover is
above INR 40 Lakhs.
4.
(a)
(i) What will be the fate of a ' 'Holder'' of negotiable instrument if he fails to give notice of
dishonour to prior parties? 2
(ii) A company having its registered head office in Kolkata has three departments in Delhi,
Chennai and Mumbai. The company paid minimum bonus under Payment of Bonus Act, to
all its entitled employees of head office excepting the employees of departments located
outside Kolkata. State whether employer was right. 3
(b) In case of auction sales, auctioneers has some implied obligations. State such obligations.
4
(c) An inspector appointed under the Employees' Provident Funds and Miscellaneous
Provisions Act, 1952 makes an inspection at 10 p.m. (five hours after factory timings) and
seeks to take copies of the ' 'shareholders Register''. How far under the Act is his action
reasonable? 3
Answer:
(a)
(i) If the Holder does not give notice of dishonour of the bill, instrument or cheque (except
when the notice of dishonour is excused, all the parties liable thereon are discharged
of their liability.)
(ii) As per section 3 of The Payment of Bonus Act, 1965, for the purpose of computation
of bonus, an establishment shall include departments, undertakings, and branches. It
is immaterial whether these are situated in same place or not.
Exception: A branch, department or undertaking shall not be treated as part of an
establishment if the following 2 conditions are satisfied –
(a) A separate B/S and P & L A/c has been prepared for such branch, department or
undertaking.
(b) Such branch, department or undertaking has never been treated as part of the
establishment for the purpose of computation of bonus.
But since the question is silent regarding the above mentioned exceptions, we may
assume that the establishment consists of different departments, undertakings, and
branches and all such units are treated as part of same establishment for the purpose
of computation of bonus.
Hence, the employer‟s contention is not correct and the employees of all the three
departments are entitled to bonus.
(b) Yes, obligations are:-

(i) He has authority to sale goods.
(ii) He warrants that he does not know any defects in the title of the principal
(iii) He undertakes to give possession of the goods against price paid.
(iv) He guarantees quiet possession of goods by the purchases.
(c) Under section 13(2) of the Employees Provident Funds and miscellaneous Provision
Act.1952, an inspector can inspect and make copies of, take extract from any book,
register or other documents maintained in relation to the establishment and where he
has reason to believe that any offence under this Act has been committed by an
employer seize with assistance as may think fit, such book, register or other documents
or portions there of as he may consider relevant in respect of that offence.
In the present case, the inspector had sought to take copies of the shareholder's
register which is irrelevant the office after the working hours (10.00 pm) which is not
reasonable.
5.
(a)
(i) Define 'Designated business or profession' under The Prevention of Money Laundering
Act, 2002. 2
(ii) Explain the partial disablement with the help of leading case under the Employees
Compensation Act, 1923. 4
(b) Explain “'Hours and period of work'' u/s 7 of the Child Labour (Prohibition and Regulation)
Act, 1986. 3
(c) What are the conditions to deduct for recovery of advances made under the Payment of
Wages Act, 1936? 3
Answer:
(a)
(i) Designated business or profession means carrying on activities for playing games of
chance for cash or kind and includes such activities associated with casino or such
other activities as the central government may by notification, so designate from time
to time.
(ii) Disablement means loss of capacity to work or to move. Disablement reduces a
worker‟s earning capacity. Disablement may be partial or total. Further it may be
temporary or permanent.
Partial disablement [Sec 2(g)] reduces the earning capacity of a workman as a result
of some accident.
Temporary partial disablement reduces the earning capacity of a workman in the
type of employment he was engaged in at the time of accident.
Permanent partial disablement reduces the earning capacity of a workman in every
types of employment he was capable of at the time of accident.
The following case will help in understanding the concept of partial disablement: in
upper Doaba Sugar Mills Ltd vs Daulat Ram Air 1060 All 493 A blacksmith lost the index
and middle finger, the rest of hand namely the thumb and other two fingers could be
utilized in work. The test laid down in this case to determine the nature of disablement
was : if it is found that the employee is disable from performing his duties of blacksmith
fitter, the court should consider whether he has been incapacities from undertaking
any employment and whether in that other employment the rest of hand could be
utilized.
(b) Hours and period of work U/S 7 of the Child Labour (Prohibition and Regulation) Act.1986
is as follows;
(i) No child shall be required or permitted to work in any establishment in excess of
such number of hours as may be prescribed for such establishment or class of
establishments.
(ii) The period of work on each day shall be so fixed that no period shall exceed three
hours and that no child shall work for more than three hours before he has had an
interval for, rest for at least one hour
(iii) The period of work of a child shall be so arranged that inclusive of his interval for rest,
under sub section (2),it shall not be spread over more than six hours including the
time spent in waiting for work on any day
(iv) No child shall be required or permitted to work between 7p.m.and 8a.m.
(v) No child shall be required or permitted to work overtime
(vi) No child shall be required or permitted to work in, any establishment on any day on
which he has already been working in another establishment.
(c) Deductions under clause (f) of sub-section (2) of section 7 (the Payment of Wages Act.
1936) shall be subject to the following conditions namely:
(i) recovery of advance of money given before employment began shall be made
from the first payment of wages in respect of a complete wage period, but no
recovery shall be made of such advances given for travelling expenses;
(ii) recovery of an advances of money given after employment began shall be subject
to such conditions as the Appropriate Government may impose;
(iii) recovery of advances of wages not already earned shall be subject to any rules
made by the Appropriate Government regulating the extent to which such
advances may be given and the installments by which it may be recovered.
6.
(a) Mr. Mahavir joined the company on 25.05.1987 and retired on 30.11.2012 when his salary
was INR 70,000 per month. He also received conveyance allowance INR 20,000 per
month and average overtime INR 1,000 per month, calculate the amount of gratuity. 3
(b) A non owner can convey a better title to the bonafide purchaser of goods for value in
certain cases. List out those cases. 6
(c) What are the circumstances in which Limited Liability Partnership may be wound up by
Tribunal? 3
Answer:
(a) He superannuated on 30.11.2012

Joined on 25.05.1987
05.06.25
He is entitled for 25 year 6 months + 5 = 26 years

15 x 26 x 70,000
Amount of gratuity =
26
= INR. 10,50,000
But maximum ceiling being INR 10,00,000

His gratuity is INR 10,00,000
(b) Sale by person not the owner

Where goods are sold by a person who is not the owner thereof and who does not sell
them under the authority or with the consent of the owner, the buyer acquires no
better title to the goods than the seller had, unless the owner of the goods is by
conduct precluded the seller's authority from denying the seller's authority to sell.
Generally the owner alone can transfer property in goods "namo dat quod non habet"
means that no one can give what he himself does not have. It means a non owner
cannot make valid transfer of property in goods. If the title of the seller is defective, the
buyer's title will also be subject to same defect. If the seller has no title, the buyer does
not acquire any title although he might have acted honestly and might have acquired
the goods after due payment. This rule is to protect the real owner of the goods.
Though this doctrine seeks to protect the interest of real owners, but in the interest of
the trade and commerce there must be some safeguard available to a person who
acquired such goods in good faith for value; accordingly the Act provides the following
exceptions to this doctrine which seeks to protect the interest of bonafide buyers.
(i) Sale by mercantile agent (section 27): Where a mercantile agent is, with the consent of
the owner, in possession of the goods or of a document of title to the goods, any sale
made by him, when acting in the ordinary course of business of a mercantile agent, shall
be as valid as if he were expressly authorized by the owner of the goods to make the
same, provided that the buyer acts in good faith and has not at the time of the
contract of sale notice that the seller has no authority to sell.
Held as H was in possession of the Car with F's consent for the purpose of sale, K
obtained a good title to the Car [Folkes v King 1923 IKB282].
(ii) Sale by one of joint owners (section 28): lf one of several joint owners of goods has the
sole possession of them by permission of the co-owners, the property in the goods is
transferred to any person who buys them of such joint owner in good faith and has not
at the time of the contract of sale notice that the seller has no authority to sell. Where
there is a contract for the sale of unascertained goods, no property in the goods is
transferred to the buyer unless and until the goods are sanctioned.
(iii) Sale by person in possession under voidable contract (section 29): When the seller of
goods has obtained possession thereof under a contract voidable under Section 19 or
Section 19A of the Indian Contract Act, 1872, but the contract has not rescinded at the
time of the sale the buyer acquires a good title to the goods, provided he buys them in
good faith and without notice of the seller's defect of title.
(iv) Seller or buyer in possession after sale (section 30): Where a person, having sold goods,
continues or is in possession of the goods or of the documents of title to the goods, the
delivery or transfer by that person or by a mercantile agent acting for him of the goods
or documents of title under any sale, pledge or other disposition thereof to any person
receiving the same in good faith and without notice of the previous sale shall have the
same effect as if the person making the delivery to transfer were expressly authorized by
the owner of the goods to make the same.
(v) Sale by estoppel (section 27): Where the owner by his conduct or omission, leads the
buyer to believe that the seller has authority to sell, he is estopped from denying the
fact afterwards. The buyer thus gets a better title than the seller.
(vi) Sale by an unpaid seller after exercising his right of lien or stoppage in transit: In addition to
the exceptions discussed above which are provided in various sections of the Sale of
Goods Act, the following exceptions are provided in other Acts like Contract Act, Civil
Procedure Code etc.
(a) Sale by a finder of lost goods: Under section 169 of the Contract Act, if a finder of lost
goods could not reasonably find the true owner or the true owner refuses to pay
the lawful charges of the finder of lost goods, the finder of lost goods can sell the
goods when the goods are perishable in nature or when the lawful charges of the
finder of lost goods amounts to 2/3 rd of its value.
(b) Under section 176 of the Indian Contract Act, a pawnee can sell the goods under
certain circumstances with due notice to the owner.
(c) Sale by official receiver or assignee: In case of insolvency of any individual his official
receiver or liquidator of a company can sell the goods and buyer thereof gets
good title to it.
(d) Execution of Sale: Under order 21 of the Civil Procedure Code officer of court may
sell goods and convey good title to the buyer inspite of the fact they are not the
true owner of the goods.
(c) The circumstances in which a limited liability of partnership may be dissolved by

Tribunal are provided in section 64 of the Limited Liability Partnership Act, 2008 A limited
liability partnership may be wound up by the Tribunal in following ways-
(i) The limited liability partnership decides that limited liability partnership be wound
up by the Tribunal;
(ii) if, for a period of more than six month, the number of partners of the limited liability
partnership is reduced below two;
(iii) if the limited liability partnership has acted against the interests of the sovereignty
and integrity of India, the security of the state or public order;
(iv) if the limited liability partnership has made a default in filling with the Registrar the
statement of account and solvency or annual return for any five consecutive
financial year; or
(v) if the Tribunal is of the opinion that it is just and equitable that the limited liability
partnership be wound up.
(vi) If the limited liability partnership is unable to pay its debts.
SECTION B
7.
(a) A Company was incorporated on 6th October, 2013. The certificate of incorporation of the
company was issued by the Registrar on 25th October, 2013. The company on 10th
October, 2013 entered into a contract, which created its contractual liability. The
company denies from the said liability on the ground that company is not bound by the
contract entered into prior to issuing of certificate of incorporation. Decide, under the
provisions of The Companies Act, 1956, whether the company can be exempted from the
said contractual liability. 3
(b) What is the difference between 'e-governance' and 'e-government'? 3
(c) Describe the meaning of 'Records' under the Right To Information Act, 2005. 2
Answer:
(a) Upon the registration of the documents as required under the Companies Act, 1956 for
incorporation of a company, and on payment of the necessary fees, the Registrar of
Companies issues a certificate that company is incorporated (u/s 34) Section 35
provides that a certificate of incorporation issued by the Registrar is conclusive as to all
administrative acts relating to the incorporation and as to the date of incorporation.
The facts as given problem are similar to those in case of Jubilee Cotton Mills Vs. Lewis
(1924) A.C. 1958 where it was held that an allotment of shares made on the date after
incorporation could not be declared void on the ground that it was made before the
company was incorporated when the certificate of incorporation was issued at a later
date.
Applying the above principles the contention of the company in this case cannot be
tenable. It is immaterial that the certificate of incorporation was issued at a later date.
Since the company came into existence on the date of incorporation stated on the
certificate, it is quite legal for the company to enter into contracts. To conclude the
contracts entered into by the company before the issue of certificate of incorporation
shall be binding upon the company. The date of issue of certificate is immaterial.
(b) Both term are treated to be the same however, there is some difference between the
two. E-government is the use of the ICTs in public administrations-combined with
organizational change and new skills- to improve public services and democratic
processes and to strengthen support to public policies. The problem in this definition to
be congruent with the definition of E-Governance is that there is no provisions for
governance of ICTs. As matter of fact, the governance of ICTs requires most probably
a substantial increase in regulation and policy-making capabilities, with all the
expertise and opinion-shaping processes among the various social stakeholders of
these concerns. So, the perspective of the E-Governance is the use of the
technologies that both help governing and have to be governed.
E-Governance is the future, many countries are looking forward to for a corruption free
government. E-government is one way communication protocol whereas
E-governance is two way communication protocol. The essence of E-governance is to
reach the beneficiary and ensure that the services intended to reach the desired
individual has been met with, there should be an auto-response system to support the
essence of E- governance, whereby the Government realizes the efficacy of its
governance. E-governance is by governed, for the governed and of the governed.
Establishing the identity of the end beneficiary is a true challenge in all citizen-centric
services. Statistical information published by governments and the world bodies do not
always reveal the facts. Best form of E-governance cuts down on unwanted
interference of too many layers while delivering governmental services, it depends on
good infrastructural setup with the support of local processes and parameters for
governments to reach their citizens or end beneficiaries. Budget for planning,
development and growth can be derived from well laid out E-governance system.
(c) Under Section 2 of the Right To Information Act 2005 "Record" includes-
1) any document, manuscript and file;
2) any microfilm, microfiche and facsimile copy of a document;
3) any reproduction of image or images embodied in such microfilm (whether
enlarged or not);and
4) any other material produced by a computer or any other device;
8.
(a)
(i) A company was formed and commenced business but directors were not appointed. In
such case who will act as director? 2
(ii) Board acts on the advice given by a person in his professional capacity, whether he shall
be treated as director. 1
(b) What are the conditions to be complied with to keep the minutes in the loose leaf binders?
3
(c) “Audit committee is only luxury to the company''. Do you agree? 2
Answer:
(a)
(i) Subject to regulations in the Articles of Association and until directors are appointed
U/S 255,the individuals who are subscribers of Memorandum of Association will be
deemed to be directors U/S.254.
(ii) As per section 7 of, Indian Companies Act 1956, such person shall not be deemed to
be directors.
(b) Minutes may be kept in the loose leaf binders

The modern practice is to type out or obtain computerized printing of the minutes in
loose leaves and then keep them in a binder. The Department of Company affairs
vide File No. 8/16(l)/61 PR have prescribed that, in certain cases, minutes may be kept
in loose leaf binder provided the following conditions are fulfilled:
(i) The pages are serially numbered;
(ii) The loose leaves are bound up at reasonable interval, say not exceeding six
months;
(iii) There should be proper locking device to ensure security and proper control to
prevent irregular removal of the loose leaves.
(c) Audit committee serves as a communication link among various departments and has
to interact with management, internal auditor, statutory auditor and the public. Audit
Committee provides an „independent‟ reassurance to the board through its oversight
and monitoring role. The Audit Committee is a key governance structure charged with
oversight over financial reporting and disclosure. The Audit Committee has a
responsibility to ensure that the company‟s financials are void of any
misrepresentation or misleading information.
The role of the Audit Committee in corporate governance has evolved in the wake of
the corporate governance failures around the world and the Audit Committee has
become increasingly relevant in enhancing confidence in the integrity of an
organization‟s processes and procedures relating to internal control and corporate
and financial reporting. The Audit Committee has become one of the main pillars of
corporate governance in checking and forestalling corporate misconduct. The
effectiveness of the Audit Committee determines to a large extent the integrity of a
company‟s financials.
So, it can be said that the given statement is not true. Audit committee is not only
luxury to the company.
9.
(a) Describe the provisions for disclosure of interest by directors‟ u/s 299 of the Companies
Act, 1956. 3
(b) A chemical manufacturing company distributed ` Twenty lakhs to scientific institutions for
furtherance of scientific education and research. Referring to the provisions of The
Companies Act, 1956, decide whether the said distribution of money was „ultra vires‟ the
company. 2
(c) Explain the combined code (2006) under the Corporate Governance in the UK. 3
Answer:
(a) According to section 299-the Companies Act, 1956, every director of a company, who
is directly or indirectly concerned or interested in a contract or proposed contract
entered into, or to be entered into, by or on behalf of the company, shall disclose the
nature of his concern or interest at a meeting of the board of directors. In case of a
proposed contract, such disclosure shall be made by a director at the meeting of the
Board at which the question of entering into contract or agreement is first taken into
consideration. In the case of any other contract or arrangement, the required
disclosure shall be made at the first meeting of the Board held after the director
becomes interested in this contract. For the purpose the director concerned shall give
a notice to the Board to this effect. This is deemed to be sufficient disclosure of the
interest.
A director of a company must not place himself in a position in which his personal
interest clashes with his duty. Therefore he should not take part in the discussion of or
vote as a director on any contract or arrangement in which he is directly or indirectly
interested unless authorized by the articles. In case he votes, his vote would not be
counted. Even his presence shall not be taken into consideration while computing the
quorum for the meeting. Every director who knowingly contravenes with these
provisions shall be punishable with fine which may extend to INR 50000.
(b) The term ultra vires means beyond powers. Here, in the given case, a chemical
manufacturing company distributed ` Twenty lakhs to scientific institutions for
furtherance of scientific education and research. It is not ultra vires since it is
conductive to the continued growth of the company as chemical manufacturers.
Similar view was found in the case of Evans v. Brunner Mond & Company, (1921) Ch
359. Here, a company was incorporated for carrying on business of manufacturing
chemicals. The objects clause in the memorandum of the company authorized the
company to do “all such business and things as maybe incidental or conductive to
the attainment of the above objects or any of them” by a resolution the directors were
authorized to distribute £ 100,000 out of surplus reserve account to such universities in
U.K. as they might select for the furtherance of scientific research and education.
The resolution was challenged on the ground that it was beyond the objects clause of
the memorandum and therefore it was ultra vires the power of the company. The
directors proved that the company had great difficulty in finding trained men and the
purpose of the resolution was to encourage scientific training of more men to enable
the company to recruit staff and continue its progress.
The court held that the expenditure authorized by the resolution was necessary for the
continued progress of the company as chemical manufacturers and thus the
resolution was incidental or conductive to the attainment of the main object of the
company and consequently it was not ultra vires. “Acts incidental or ancillary” are
those acts, which have a reasonable proximate connection with the objects stated in
the objects clause of the memorandum.
(c) An updated version of the Combined Code was issued in June 2006.There were three
main changes made:
(i) to allow the company chairman to serve on (but not to chair) the remuneration
committee where he is considered independent on appointment as chairman;
(ii) It provide a 'vote withheld' option on proxy appointment forms to enable a
shareholders to indicate that they wish to withhold their vote;
(iii) to recommend that companies publish on their website the details of proxies
lodged of general meetings where votes were taken on a show of hands.
SECTION C
10.
(a) “Good business ethics promotes good business''— Explain. 4
(b) Mr. ROY is a CEO of a pharmaceutical company. His R & D department, while
experimenting with a chemical molecule, sees the possibility that the molecule may be
developed into a drug for a rare, painful, life-threatening genetic disease that afflicts
only one child in ten million. But to develop the drug, his company may have to invest
huge sum of the shareholder‟s money, despite the drug not wide salability. Is Mr. ROY
confronted by an ethical dilemma? How should he resolve the issue? 4
Answer:
(a) There is a growing realization all over the world that ethics is vitally important for any
business and for the progress of any society. Ethics makes for an efficient economy;
ethics alone, not government or laws, can protect society; ethics is good in itself; ethics
and profits go together in the long-run. An ethically responsible company is one which
has developed a culture of caring for people and for the environment; a culture
which flows downwards from the top managers and leaders.
Thus, business ethics is vital and plays a key role in success of any business. Prof. Robert
Day has said that when ethical conduct is displayed, it puts some kind of trust and
confidence in relationship. Adopting ethical behaviour in an organization not only
increase its goodwill but also leads to positive consequences in the long run. Business
ethics protects the interest of all stakeholders. Businessman who follows business ethics
gets self satisfaction and motivates others also to follow the same principles. So in the
era of global economy, for a successful business he has to follow sound ethical
practices. Ethics are important not only in business but in all aspects of life because it is
an essential part of the foundation on which civilized society is built. A business or
society that lacks ethical principles is bound to fail sooner or later.
An organization that has a strong ethical program in place with certainly help in
reducing the burden on the employees while deciding on such alternatives, Ethics help
employees in developing a rationale behind the actions that they undertake in the
efficient performance of their duties. It will certainly help in reducing unnecessary
tensions and unavoidable thoughts that an individual gets surrounded with when he is
faced such kind of problems. This helps him in concentrating more on his work and less
on the indecisive thoughts that come to his mind
(b) Mr. Roy is in a situation where he has to choose between carrying on the development
of a drug for a painful and life threatening disease which afflicts one in ten million and
the action of spending huge sum of shareholder's money for such development. As we
can see, both are positive and ethically right choices. As a socially responsible person
he has to think in terms of eliminating serious illness but at the same time he must be
careful in dealing with shareholder's money. This is a classic case of an ethical
dilemma. Such an ethical dilemma must be resolved by addressing the following
points;
(i) Defining the problem clearly.
(ii) How to define the problem if you stood on the other side of fence?
(iii) How did the situation arise?
(iv) To whom are you loyal as person and a member of the organization?
(v) What is your intention in making this decision?
(vi) How does this intention compare with the probable results?
(vii)Whom could your decision or action injure?
(viii) Can you discuss the problem with affected parties before you make your
decision?
(ix) Are you confident that your position will be as valid over a long period?
(x) Could you disclose without any doubt your decision or action to your boss, your
CEO, the Board of Directors, your family, society as a whole?
(xi) What is the symbolic potential of your action if understood? Misunderstood?
(xii)Under what condition would you allow exceptions to your stand?
11.
(a) “Ethics and morals are one and the same” '—Comment. 3
(b) Explain briefly the matters to be considered and the step that may be taken by an
accounting professional when he is required to resolve an ethical conflict in the
application of fundamental principles. 5
Answer:
(a) The terms 'ethics' and 'morals' are etymologically that is, from their very roots or terms,
different. The word moral (s) is derived from the Latin root moral is, which implies
custom. In other words, it refers to a behaviour that is accepted or rejected due to an
accepted social custom. The word ethics stems from the Greek word ethike, which
attributes to a social environment, referred to as ethos or social milieu. This latter
meaning embraces much more than mere custom. It refers to everything that is part
and parcel of society and not just what is allowed or forbidden. Morality is more
concerned with the norms, values and beliefs embedded in social processes which
define what is right or wrong for an individual or community.
language. For instance, a lawyer defending an alleged rapist would accuse the victim
as 'morally fallen' and not as 'ethically fallen'. On the other hand, a committee that is
formed to probe the behaviour of the members of Parliament would be called 'ethics
committee', not moral committee. The meaning of the world is in its usage. Thus, both
these terms have their unique characteristics and applications.
However, the terms are intrinsically not different. Both of them refer to the same reality
of human actions, which may be characterized as morally or ethically positive or
negative as the case may be. It may be true that the terms (ethics and morals) sound
different but they refer to the same social reality wherein a certain body of accepted
norms forms a code of conduct in society. The actions of the members are described
as "moral' or "ethical' depending on the linguistic nuances of the meaning in a
particular case as well as on the conventional use of the terms. It is in the use of the
words in a given context, that the meaning becomes clear.
(b) Conflict Resolution: while evaluating compliance with the fundamental principles, a
finance and accounting professional may be required to resolve a conflict on the
application of fundamental principles. The following need to be considered, cither
individually or together with others, during a conflict resolution process:
(a) Relevant facts
(b) Ethical issues involved
(c) Fundamental principles related to the matter in question
(d) Established internal proceedings and
(e) Alternative course of action
Having considered these issues, the professional should determine the appropriate
course of action that is consistent with the fundamental principles identified. The
professional should weigh the consequences of each possible course of action. If the
matter remains unresolved, the professional should consult other appropriate persons
within the firm or employing organization for help in obtaining resolution. During times,
where a matter involves a conflict with or within an organization, the finance and
accounting professional should also consider consulting those charged with
governance of the organization, such as the Board of Directors.
If may be in the best interests of the professional to document the substance of the
issues and details of any discussions held or decisions taken, concerning that issue: If a
significant conflict cannot be resolved, a professional may also obtain professional
advice from the relevant professional body or legal advisor and there by obtain
guidance on ethical issues without breaching confidentially.
If, after adopting all strategies, the ethical conflict still remains unresolved, a
professional should try to disassociate from the matter causing the conflict or even
from the organization, if need be.
12.
(a) What are the reasons for which unethical behaviour might arise in an organization? 4
(b) Discuss the code of ethics to be followed by Management Accountant professional. 4
Answer:
(a) The reasons for unethical behaviour arise in the organization are:
Over Emphasis on Short Term Profitability: Manipulating accounting entries to show
better profitability (window dressing) to raise further capital from the market.
(i) Ignoring Small Unethical issues: companies need to develop an environment

where small ethical lapses are taken seriously so that they do not recur in the
future.
(ii) Economic Cycles: when the company is doing well, no one is bothered to
understand its actual financial position. However, when the economy takes a
downward turn, finance and accounting managers may take decisions by
compromising over the established principles. To prevent disclosure of unethical
problems in times of depression, companies need to be careful and vigilant also
during prosperous time period.
(iii) Market Complexity: In the era of globalization and massive cross border flow of
capital, accounting rules have becomes more complex. The complexity of
principles and rules and the difficulty associated with identifying abuse are reasons
which may promote unethical behavior.
(iv) Money- Mindedness: Most business organizations try to display better financial
condition by window dressing. Following such a principle towards "showing profits"
rather than "earning profits" leads to unethical accounting and financial practices.
(b) Code of Ethics by Management accountant professionals
Codes of ethics by professionals are as follows-

(i) Responsibility to Public
Members should accept the obligation to act in a way that will serve the public
interest, honor the public trust, and demonstrate commitment to professionalism. A
distinguishing mark of a profession is acceptance of its responsibility to the public.
The accounting profession's public consists of clients, credit grantors, governments,
employers, investors, the business and financial community and others who rely on
the objectivity and integrity of certified public accountants to maintain the orderly
functioning of commerce. This reliance imposes a public interest responsibility on
certified public professionals. The public interest is defined as the collective
well-being of the community of people and institution the profession serves.
(ii) Integrity
To maintain and broaden public confidence, members should perform all
professional responsibilities with the highest sense of integrity. Integrity is an
element of character fundamental to professional recognition. It is the quality from
which the public trust derives and the benchmark against which a member must
ultimately test all decisions.
Integrity requires a member to be, among other things, honest and candid within
the constraints of client confidentiality. Service and the public trust should not be
subordinated to personal gain and advantage. Integrity can accommodate the
inadvertent error and the honest difference of opinion; it cannot accommodate
deceit or subordination of principle.
(iii) Objectivity and Independence
A member should maintain objectivity and be free of conflicts of interest in
discharging professional responsibilities. A member in public practice should be
independent in fact and appearance when providing auditing and other
attestation services. Objectivity is a state of mind, a quality that lends value to a
member's services. It is a distinguishing feature of the profession. The principle of
objectivity imposes the obligation to be impartial, intellectually honest, and free of
conflicts of interest. Independence precludes relationships that may appear to
impair a member's objectivity in rendering attestation services.
(iv) Due Care
A member should observe the profession's technical and ethical standards, strive
continually to improve competence and the quality of services, and discharge
professional responsibility to the best of the member's ability. The quest for
excellence is the essence of due care. Due care requires a member to discharge
professional responsibilities with competence and diligence. It imposes the
obligation to perform professional services to the best of a member's ability with
concern for the best interest of those for whom the services are performed and
consistent with the profession's responsibility to the public.
Members should be diligent in discharging, responsibilities to clients, employers, and

the public. Diligence imposes the responsibility to render services promptly and
carefully, to be thorough and to observe applicable technical and ethical
standards. Due care requires a member to plan and supervise adequately any
professional activity for which he or she is responsible.
(v) Not to disclose any confidential client information
A member in public practice shall not disclose any confidential client information
without the specific consent of the client.
Members who are in professional practice shall not use their own advantage or
disclose any member's confidential client information that comes to their attention
in carrying out those activities. This prohibition shall not restrict member's exchange
of information in connection with the investigative or disciplinary proceedings or
the professionals practice

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SUGGESTED_ANSWERS TO QUESTIONS_SYL2016_DEC2019_PAPER-6

1. Answer all the following questions:

(iii) Writing of a person's name on the face or back of an instrument or on a slip of

(iv) Anusua and Shrita formed a partnership to undertake a construction of a

(vii)The annual return of an OPC shall be signed by

(ix) A company cannot remove a director appointed

(x) Moral management requires ethical

(b) Match and pair: 1x5=5

(i) A promise in return for promise means Cross promises.

(d) Fill in the blanks: 1x5=5

1. (a) (i) (C) understanding it

(c) (i) False

(d) (i) MGT - 7

Answer any five questions from question numbers 2 to 8

3. Discharge by lapse of time:

4. Discharge by operation of law:

adjudication, c. Unauthorized material alteration: Material alteration in the terms

5. Discharge by impossibility of performance:

"If it is a promise to compensate a person who has already voluntarily done

Facilities for storing and drying clothing:

Facilities for sitting:

First aid appliances:

Shelters, rest rooms and lunch rooms:

 payment of salaries, leave and joining time allowances, travelling and

For this purpose the term 'employee' means-

and date of meeting).Therefore, the meeting was not validly called.

appointed as a director in any company.

7. (a) Value chain is a visualization of complete business as a sequence of activities in

or agreement. In such cases-

8. Write short notes on any three of the following terms: 5×3=15

8. (a) MISREPRESENTATION: [Sec. 18]

A representation when wrongly made either innocently or unintentionally is a

(b) Director Identification Number (DIN)

individual who is to be appointed as director of a company after receiving the

(c) Advantages of Business Ethics:

 a minor child of a pre-deceased son;

1. Answer all the following questions:

(v) The amount of gratuity payable to an employee shall not exceed

(vii)In case of a private company, mention the number of members personally

(viii)Which of the following is not a valid medium of sending notice to all

(b) Match and pair:

(i) An agreement which is impossible is void.

(d) Fill in the blanks: 1x5=5

(i) When the consent is caused by __________________, the agreement is voidable at

1. (a) (i) (B) Absence of free consent

(c) (i) True

(d) (i) under influence

Answer any five questions from question numbers 2 to 8

(b) Essential elements of a contract of bailment:

(b) Difference between contract of bailment and contract of pledge:-

Stoppage in transit (Sections 50-52)

The transit comes to an end in the following cases:

Determination of enemy character of the Company: Company being an artificial

Prevention of fraud: Where a Company is used for committing frauds or improper

Where a Company acts as an agent of its shareholders: If there is an arrangement

Avoidance of Welfare Legislation: Where a Company tries to avoid its legal

(b) Discuss the rules of appointment of director elected by small shareholders in a

6. (a) Resignation of Director

(b) Process of appointment of director elected by small shareholders:

set-up." Do you agree? Give reasons in support of your answer.

8. Write short notes on any three of the following terms: 5×3=15

(c) Importance of ethics