INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

EXAMINERS’ COMMENTS

SUBJECT SESSION
Business Law Certificate in Accounting and Finance
– Spring 2017

General:

The overall performance in this attempt was similar to last attempt with passing
percentage of 25.1% as compared to 23.7% in the previous attempt. Very poor
performance was witnessed in Questions 4, 5 and 7. A large majority of the students
appeared to have been involved in selective studies and answered the remaining topics
based on guesswork or their general knowledge/logic which mostly lead them to incorrect
or at least incomplete answers. Besides selective studies, a prime reason for low
performance in the above questions was the inability to implement theoretical knowledge
to scenario based questions. Question 5 pertained to Negotiable instruments have
remained a low scoring area for quite some time and the candidates need to understand
the concepts involved as thorough knowledge of law is required to deal with the scenario
based questions. Moreover, the correct approach to answer scenario based question can
be learnt by paying special attention to the suggested answers which are provided on
ICAP’s website after each exam.

Question-wise comments

Question 1

This question having potential of 12 marks was divided into two parts. Part (a) required
candidates to define the term Alternate Dispute Resolution (ADR) and briefly explain the
ADR mechanisms. Part (b) was further divided into two parts. First sub-part required
examinees to identify the contractual relationships existing between the parties in the
given scenario whereas sub-part (ii) required candidates to explain the duties of the bailee
(retailer) towards the bailor (Danish).

Question 1(a)

Majority of the candidates were able to produce the definition of ADR but while
explaining the different ADR mechanisms, most of them got mixed up especially
between mediation and conciliation. A number of students ignored this aspect altogether.

Question 1(b)

Very few students were able to correctly identify the types of contractual relationships in
the given scenario. A number of students described the retailer as Sub-bailee. Duties of
bailee (retailer) were well answered in most of the cases.

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Question 2

This question with a potential 10 marks was divided into three parts. Part (a) required
students to define the persons who despite being major and of sound mind, are
disqualified from entering into a contract. Part (b) was a scenario based question
requiring candidates to comment on the validity of the contract in the given scenario. Part
(c) was also a scenario based question requiring students to identify the type of contract
and whether the contracting parties were bound by such contract after one of the parties
was unable to meet its responsibilities because of restrictions imposed by the
Government.

Question 2(a)

Only few candidates were able to identify the persons who even being major and of
sound mind are unable to enter into a contract. Many students repeated the conditions
which were already mentioned in the question which was obviously incorrect. Many
students wasted time in explaining who is of unsound mind or a minor, which was totally
irrelevant.

Question 2(b)

Many candidates seemed confused between void and voidable contracts. About 50% of
the students mentioned that the contract was void. Many candidates wrote that it was an
invalid contract and also wrote that it was a voidable contract. Many candidates
mentioned that it was a case of undue influence instead of coercion.

Question 2(c)

It was a poorly attempted question. Most of the students could not identify that the
contract between the parties was a contingent contract. Some of them also stated
incorrectly that the contract can be enforced since Saulat had made the necessary efforts.

Question 3

This question with a potential of 8 marks was divided into two parts. Part (a) comprising
of 6 marks was a scenario based question and required the candidates to describe the
rights & liabilities of joint promisors amongst themselves and towards the promisee and
also in case the promisee releases one of the joints promisors from his obligation. Part (b)
was based on the same scenario and required the candidates to highlight how the liability
will devolve in case of death of one or more or all the promisors.

Question 3(a)

The overall performance was average. Most candidates correctly mentioned that joint
promisors are jointly liable to the promisee but promisee's right to compel one or more
promisor to pay the entire debt was not stated by the majority. Further, joint promisors'
responsibility in case of default of one the joint promisor was also mentioned by few
candidates only. While commenting on the effect of the release of one joint promisor by
the promisee, majority of the students correctly explained that it will not discharge other
joint promisors but failed to mention that Jameel will be responsible to Faheem and
Saleem.

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Question 3(b)

The performance on this part was good as most of the students stated correctly that
liability of deceased promisor(s) would devolve to their legal representatives. However,
many students mixed up the situation with reference to Partnership Act and stated some
or all of the rights and liabilities of partners under the Partnership Act.

Question 4

This question with a potential 10 marks was divided into two parts. Part (a) required the
candidates to comment on a situation whereby a person (Kashif) represented himself as
partner of another person (Amjad) and relying on the good credit standing of Amjad,
Kalim sold goods to Kashif on credit. The candidates were required to analyse the
situation under Partnership Act, 1932 and explain whether Kalim can recover the amount
from Amjad. Part (b) was further divided into two sub parts. Part (b)(i) required the
candidates to elaborate the rights of partners in case of disagreement as regards conduct
of ordinary business. Part (b)(ii) required candidates to identify the extent of liability of a
partner who is a partner in profits only.

Question 4(a)

Majority of the students got passing marks on this part of the question but failed to secure
high marks as they failed to clarify that Amjad shall not be liable if he denied Kashif’s
representation in public or if he had no knowledge of such representation.

Question 4(b)(i)

Generally, the candidates were able to explain correctly that in case of disagreement,
such decisions are to be taken with the consent of the majority of partners. However, the
finer point that this right (like all other rights) is subject to agreement between the
partners, was mentioned by few candidates only. Some of the students mixed up the
situations with agency-principal relations.

Question 4(b)(ii)

Many candidates mentioned incorrectly that since Careem is not required to share in the
losses, he cannot be asked to meet the liabilities. In fact, all partners are liable to claims
of the third parties, both jointly and severally, irrespective of any mutual arrangement
between them.

Question 5

This question with a potential 10 marks pertained to Negotiable Instruments and was
divided into three parts. Part (a) required the candidates to define the term drawee in case
of need. Part (b) was based on a scenario requiring candidates to explain whether
recovery could be made on an instrument having defective title. Part (c) required
candidates to describe the circumstances/situations in which an acceptance is considered
as qualified acceptance and the liabilities of prior parties in case of such qualified
acceptance.

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Question 5(a)

Those who attempted, answered well. However, some mixed it up with the concept of
‘acceptance for honour’ whereas a number of students did not attempt it or produced
totally irrelevant material based on guesswork.

Question 5(b)

Most of the candidates answered it correctly. However, some candidates failed to identify
the landlord as holder in due course and mentioned Aamna as holder in due course which
was incorrect as a requirement to be holder in due course is to receive the negotiable
instrument against consideration which was missing in Aamna's case.

Question 5(c)

A large number of candidates did not attempt this part altogether. Most of those who did
attempt did not know that such qualification does not arise in case of the initial
acceptance of the instrument i.e. arises only in case of subsequent acceptance. Further,
only few students mentioned the rule that all prior parties whose consent is not obtained
to such qualified acceptance will be discharged from such obligation. Many students tried
to define the term qualified acceptance instead of mentioning the circumstances.

Question 6

This question with a potential 10 marks was divided into two parts. Part (a)(i) required
the candidates to explain the status of a contract made by a Company before issuance of
its certificate of commencement of business. Part (a)(ii) asked the candidates to list the
requirements necessary for a company to acquire certificate of commencement of
business. In part (b) the requirement was to describe the provisions related to
appointment of first directors and their tenure.

Question 6(a)(i)

Majority of the candidates stated incorrectly that the contract was invalid. In fact, in such
situation, the contract is provisional and becomes binding on the date the Company
becomes entitled to commence business.

Question 6(a)(ii)

This part of the question was very poorly attempted. A large number of students specified
the types of companies who are required to obtain certificate for commencement of
business instead of mentioning the requirements that have to be fulfilled for obtaining
such certificate. Some of the students narrated the formalities regarding incorporation of
the company which were not required/relevant.

Question 6(b)

The performance in this part remained average. Most of the candidates were able to
specify that the subscribers to memorandum shall be the first directors and that the
number of directors should be determined by them. However, while mentioning the
tenure, most students mentioned that tenure will be three years or one year whereas the
first directors are supposed to hold office till the first annual general meeting. Moreover,

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many students mentioned subscribers to the Articles instead of Memorandum. Only few
candidates mentioned that at minimum two directors need to be appointed for a private
limited company.

Question 7

This question with the potential of 10 marks was divided into three parts. In part (a) the
candidates were asked to specify the requirements contained in Section 90 and 91 of the
Securities Act 2015 with regard to statement by an expert, to be included in the
prospectus. Part (b) required the candidates to narrate the procedure for registration of
charge with respect to property situated outside Pakistan. According to the scenario in
part (c) a company had obtained necessary approvals and was in the process of issuing
shares to the general public where the proceeds were to be used to acquire majority
shares in another company. The candidates were required to describe the additional audit
reports which would be set out in the prospectus, in the given situation.

Question 7(a)

Low marks were secured by most of the students in this part of the question as they did
not mention that expert should not be interested in the formation, promotion and
management of the company. Majority of the students also failed to mention that
prospectus cannot be issued unless written consent of the expert is obtained and a
statement from the expert in this regard, also appears in the prospectus. Many students
tried to explain as to who may be appointed as expert, which was entirely irrelevant.

Question 7(b)

Majority of the students answered it correctly. However, some students did not mention
that requirement of law of Iran should also be complied. Further, with regard to time
allowed for filing the documents, some students mentioned 21 days from the date
documents are received from Iran instead of 21 days from the date of creation of the
charge.

Question 7(c)

This part of the question was very poorly attempted. Most of the students had no idea and
used guesswork without any success. They are advised to seek guidance from ICAP’s
suggested answers.

Question 8

This question with a potential 10 marks was divided into two parts. Part (a) required the
candidates to explain the circumstances where two companies would not be regarded as
associated companies despite the fact that a person is a director in both the companies or
despite that he/she holds more than 20% shares in each company. According to the
scenario in part (b), a company (GL) had recommended dividend equal to 40% of its
undistributed profits whereas the shareholders had demanded dividend equal to 60% of
the undistributed profits. This part had three sub-parts and in each case the candidates
were asked to give their comments as mentioned below:

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Part (b)(i)

Demand of shareholders for increase in the dividend.

Part (b)(ii)

whether the declaration of dividend by directors is appropriate if 70% of the undistributed

profits represented un-realised gain on investment property.

Part (b)(iii)

Consequences of non-payment of dividend within the time specified in the Companies

Ordinance.

Question 8(a)

The overall performance was average. Most of the students correctly mentioned about the
exceptions related to directorship/holding on behalf of Federal and Provincial
Government; however, they failed to mention that financial institutions which are directly
or indirectly owned by such Governments are also excluded from the said list.

Question 8(b)(i)

This was perhaps the best attempted part as almost all the students knew the correct
answer.

Question 8(b)(ii)

The question was quite straight forward but majority of the candidates gave unrelated
answers such as the meaning of unrealised gain.

Question 8(b)(iii)

This part of the question was generally well attempted. However, some students made the
directors punishable instead of chief executive of the company. Many students did not
explain the future consequences of such failure whereby the penalized chief executive
ceases to hold the office of chief executive and is rendered ineligible from becoming
chief executive of any company for five years.

Question 9

This question with a potential 10 marks was divided into two parts. In part (a), the
candidates were required to discuss a scenario in which a company had been incorporated
on 5 October 2016, and its first auditors had been appointed by the company’s directors
on 15 January 2017 and also to specify how the remuneration of the company’s first
auditors shall be fixed. In part (b) the requirement was to explain the circumstances in
which Commission can appoint the auditors of the Company.

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Question 9(a)

The performance remained below average. Majority of the candidates were unable to
identify that the appointment of auditors was invalid as the directors failed to appoint
them within 60 days of the date of incorporation. However, as regards the fixation of
remuneration the answers were mostly correct. Some students discussed the qualification
of auditors of a private limited company which was entirely irrelevant.

Question 9(b)

The overall performance remained average as most of the candidates restricted their
answers to circumstances where Commission may appoint first auditors whereas question
requiring them to narrate all the circumstances when the Commission is required to
appoint the auditors of a company.

Question 10

This question with a potential 10 marks was divided into two parts. Part (a) required the
candidates to explain the factors to be considered while selecting the name of a company
and to advise about names which may require prior approval of the Commission. Part (b)
required the candidates to state the effects of incorporation of a company.

Both parts of the question were well attempted.

THE END

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