Business Law

Suggested Answers
Certificate in Accounting and Finance – Autumn 2021

Section A – Multiple Choice Questions

A.1 (i) (a) (xi) (b) (xxi) (a)

(ii) (c) (xii) (d) (xxii) (c)
(iii) (d) (xiii) (a) (xxiii) (b)
(iv) (c) (xiv) (a) (xxiv) (b)
(v) (d) (xv) (b) (xxv) (a)
(vi) (b) (xvi) (d) (xxvi) (c)
(vii) (c) (xvii) (b) (xxvii) (c)
(viii) (d) (xviii) (d) (xxviii) (d)
(ix) (c) (xix) (a) (xxix) (a)
(x) (c) (xx) (b) (xxx) (c)

Section B – Mercantile Law

A.2 Where a bill is rejected by the Senate, then such bill will not be effective unless it is, at
the request of National Assembly, (i.e. the house in which it originated) is considered in
joint sitting of both the houses (i.e. National Assembly and Senate both).

If in the joint sitting, such bill is passed by the votes of the majority of the members
present and voting in the joint sitting, it shall be presented to the President for assent.

The President shall within 10 days assent to the bill or return it to the Parliament for
reconsideration of any provision or any amendment therein.

A.3 (a) Rules regarding performance of reciprocal promises under the Contract Act, 1872:

(i) Simultaneous performance

When contract consists of reciprocal promises to be simultaneously
performed, the promisor needs not perform his promise unless the
promisee is ready and willing to perform his reciprocal promise.

(ii) Order of performance

Where the order in which reciprocal promises are to be performed is
expressly fixed by contract, they must be performed in that order as fixed
by the contract, and where the order is not expressly fixed by the contract,
they must be performed in that order which the nature of the transaction
requires.

(iii) Preventing the performance

When a contract contains reciprocal promises, and one party to the
contract prevents the other from performing his promise, the contract
becomes voidable at the option of the party so prevented; and he is entitled
to compensation from the other party for any loss which he may sustain in
consequence of non-performance of the contract.

(iv) Mutual and dependent reciprocal promises

Where the performance of one party depends on the prior performance of
the other party and party who is liable to perform first, fails to perform it,
then such party cannot claim the performance from the other party and
must make compensation to the other party for any loss which the other
party may sustain by non-performance of the contract.

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 Business Law
Suggested Answers
Certificate in Accounting and Finance – Autumn 2021

(v) Promise to do legal and illegal things

Where persons reciprocally promise, firstly, to do certain things which are
legal, and secondly, under specified circumstances, to do certain other
things which are illegal, the first set of promises is a contract, but the
second is a void agreement.

(b) Although APL did not send instructions for appropriation that the payments
should be adjusted against cost of fuel only, APL’s payment of two bulk amounts
equivalent to the cost of fuel purchased from 1 July 2019 to 15 June 2021 are
indicative of the fact that APL intends to have the payments applied against the
cost of fuel only as intimation given by a debtor may be given impliedly. Further,
APL refused to acknowledge the surcharge and asked for its cancellation, hence it
cannot be considered as lawful debt.

Considering the above, APL’s demand is valid as SL was not justified in first
adjusting the late payment surcharge and then adjusting the cost of fuel.

A.4 (a) (i) Noman, as Akmal’s agent has exceeded his authority by purchasing
150 sheep. Consideration shall have to be given to the following:
 Akmal shall not be bound for the purchase if the extent of excess
authority exercised by Noman is not separable. Therefore, if price of
150 sheep cannot be determined separately, Akmal will not be bound
for entire transaction.
 However, if the price of 150 sheep can be separately determined, then
only the part which is within Noman’s authority (i.e. 200 goats and
250 cows) is binding on Akmal.

(ii) The conclusion in (i) above would be changed if Akmal sells the sheep, as it
shall be treated as ratification and in such case it shall be treated as if
Noman made the transaction having full authority.

(b) Status of the contract:

Salima’s regret to send the manuscript and sending back the cheque of Rs.
100,000 received as advance was anticipatory breach of contract because she has
forwarded her intention of not performing the contract before the actual date of
performance.

Remedies for breach of contract available to HP are as follows:

Since anticipatory breach has taken place, HP may treat the contract as rescinded
and can take action immediately on receipt of Salima’s notification to repudiate
the contract, without waiting for the actual contractual date of performance.
Alternatively, HP may treat the contract as operative and wait until the actual
date of performance, before taking action and take action against Salima if she
still fails to perform on due date.

In either of the case:

 HP can sue Salima for damages in order to be compensated for financial loss
sustained as a consequence of Salima’s breach. However, the amount of
damages awarded shall not be more than the actual loss suffered by HP.
 Damages will only be awarded in respect of losses which arise naturally, or
which both parties may reasonably be supposed to have contemplated when
the contract was made, as a probable result of its breach.
Therefore, HP would only be able to recover the campaign cost from Salima
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Suggested Answers
Certificate in Accounting and Finance – Autumn 2021

and will not able to claim the anticipated profits of the pre-orders, as it was
not contemplated by the parties when the contract was signed in June 2021.

A.5 (a) Following are the circumstances in which sharing of profit of a partnership
business does not make a person partner in the firm:
(i) (i) Lender of money to persons engaged or about to engage in any business;
(ii) Servant as remuneration;
(iii) Agent as remuneration;
(iv) Widow of a deceased partner as annuity;
(v) Child of a deceased partner as annuity;
(vi) Transferee of a partner’s interest;
(vii A minor who is admitted to the benefits of partnership;
)
(viii) Previous owner as consideration for the sale of goodwill or share thereof;
(ix) Part owner as consideration for the sale of goodwill or share thereof.

(b) Aslam would be regarded as partner by estoppel or holding out if he knowingly

permitted himself to be represented as a partner in the business by Ibad; and
Mehmood on the faith of such representation delivered the trawler on credit.

In above case, Aslam would be liable for paying the outstanding amount to
Mehmood. It does not matter whether Aslam does or does not know that the
representation reached Mehmood.

However, Aslam would not be considered as holding out partner and therefore
would not be liable to pay the outstanding amount to Mehmood if he had denied
Ibad’s representation holding him as a partner in the business or if he had no
knowledge of Ibad’s representation.

A.6 Saad should ensure the following as essentials of a valid endorsement after which a
promissory note will be considered as properly endorsed, that:
(i) it must be made on the face of the negotiable instrument, however, if no space is
left on its face then must be made on either the back of the said instrument or on
a slip of paper attached to it called ‘allonge’.
(ii) it must be signed by the endorser for the purpose of negotiation or by any person
who becomes the holder of instrument. Signature of the endorser without any
additional words is sufficient.
(iii) it must be endorsed for the entire instrument since endorsement for part of the
amount or to two or more endorsees severally is invalid.

Section C – Company Law

A.7 Quorum of DL’s EGM when meeting is requisitioned by directors/members

 10 members present personally or through video-link representing 25% of total
voting power, either of their own account or as proxies, unless GL’s articles
require a larger number.

Quorum of SGL’s EGM when meeting is requisitioned by directors/members

 Where SGL has share capital, 2 members present personally or through video-link
representing 25% of total voting power, either of their own account or as proxies,
unless the SGL’s articles require a larger number.
 Where SGL does not have share capital, then as provided in SGL’s articles of
association.

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Suggested Answers
Certificate in Accounting and Finance – Autumn 2021

Quorum of DL’s & SGL’s EGM(s) if meeting is requisitioned by the Commission

If the meetings are called on the direction of the Commission, then Commission may
give such ancillary / consequential directions as it thinks expedient in relation to the
calling, holding and conducting of the meeting. Accordingly, Commission may direct that
one member present in person or by proxy shall be deemed to constitute a meeting.

A.8 (a) The prescribed procedure for changing ML’s principal line of business are as
follows:
 ML shall alter the provisions of its memorandum of association through
special resolution.
 ML shall file duly authenticated special resolution with the registrar within
15 days from passing of special resolution.
 ML shall report to the registrar within 30 days from the date of change, on
the specified form and file the amended memorandum of association.
 Registrar may give direction of change of name if the name of ML does not
commensurate with the principal line of business.

(b) (i) Eligibility of Saleem Hussain to demand increase in voting rights of Class A
Since Saleem Hussain holds 14.71% [i.e. 25 (50 million shares × 50%) ÷
{170 (50×1) + (30×2) + (20×3)}] of total voting power in ML which is
more than one-tenth of the total voting power, he is eligible to demand
discussion of any agenda item proposed by him in accordance with the
Companies Act, 2017 at any general meeting of ML.

Requisite approvals required to be sought for getting such change approved

Currently all class of shares in ML carry equal voting rights of 10% of the
face value of each class (i.e. face value of Rs. 10/-, Rs. 20/- and Rs. 30/- each
of class A, B and C respectively). The request to increase the voting rights of
class A shares without changing their face value will be considered as
variation in shareholders’ rights that will affect the substantive rights of
members of class B and C, as it will give 20% voting rights to members of
class A.

Accordingly, the requisite approvals required to be sought for getting such

change approved will be from at least three-fourths of the affected class of
members i.e. class B and C.

(ii) Following actions are required to be taken by ML upon receipt of Saleem

Hussain’s application requesting variation in shareholders’ rights by
increasing voting rights of class A shares:
 The management shall call the board meeting forthwith to consider the
requisition made by Saleem Hussain.
 Shares of different classes are issued in accordance with the
memorandum of association (MOA) and articles of association (AOA) of
the company. Accordingly, ML needs to alter its MOA and AOA if
requisite approval is in place. Hence, the board of ML shall proceed to
call an extraordinary general meeting (EGM) by sending notice of EGM
to all the members within 21 days from the date of Saleem Hussain’s
requisition for discussing the agenda item of change in voting rights.
EGM shall be held within 90 days from the date of the deposit of the
said requisition.
 The alterations are considered as special business, hence, a statement
shall be annexed to the notice setting out all material facts concerning
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Suggested Answers
Certificate in Accounting and Finance – Autumn 2021

variation in shareholders’ right including, in particular, the nature and

extent of interest, if any, therein of every director.
 The alterations shall be subject to the provisions of the Companies Act,
2017 and to the conditions contained in ML’s MOA that requires passing
a special resolution.

 However, if any general meeting of ML is already scheduled to be held,

and the said request was sent by Saleem Hussain at least 10 days before
the said meeting, then ML shall forthwith circulate the notice of
resolution together with draft resolution and supporting statement, if
any, as submitted by Saleem Hussain to all the members of ML.
 ML shall file duly authenticated special resolution with the registrar
within 15 days from passing of special resolution.
 ML shall file a copy of MOA and AOA as altered, with the registrar,
within 30 days from the date of passing of special resolution.

A.9 (a) Conditions to be met for appointment of Zakir Hussain on GL’s board
Validity of Zakir Hussain’s demand
Under the Companies Act, 2017 the requisite shareholding to demand fresh
elections of GL is 14.28% (i.e. 100% ÷ 7 directors).

Considering this, Zakir Hussain’s demand seeking a position on GL’s board is valid
as he now holds 3 million shares in GL equal to 15% which is more than the
requisite shareholding.

Grounds under which Zakir Hussain may not be elected

Following are the grounds under which Zakir Hussain might not be eligible to
become a director on GL’s board i.e. if he:
(i) is a minor;
(ii) is of unsound mind;
(iii) has been convicted by a court of law for an offence involving moral
turpitude;
(iv) has been debarred from holding office of director under the Companies Act,
2017;
(v) is lacking fiduciary behavior and a declaration to this effect have been made
by the Court under Companies Act, 2017 at any time during preceding five
years;
(vi) does not hold National Tax Number as per the provisions of Income Tax
Ordinance, 2001 unless the Commission has granted an exemption;
(vii) holds office as a director, including as an alternate director at the same time
in more than such number of companies as may be specified.

(b) Procedure to be followed for appointment of Zakir Hussain on GL’s board

(i) GL shall call the board meeting forthwith to consider the requisition made
by Zakir Hussain.
(ii) Board, upon receipt of requisition shall as soon as practicable but not later
than 30 days from the receipt of such requisition, proceed to hold fresh
election of directors by calling general meeting. [It could be AGM if to be
held within 30 days of request otherwise by calling extraordinary general
meeting].
GL shall send notice of general meeting not less than 21 days before the said
general meeting for holding election of directors to all the members of GL
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Suggested Answers
Certificate in Accounting and Finance – Autumn 2021

specifying the number of directors to be elected (this shall be same as was

fixed in immediately preceding election, unless members in general meeting
increase the same).
(iii) All notices received by GL from persons seeking to contest election of
directors shall be transmitted to the members not later than 7 days before
the date of the meeting, in the same manner in which notice of said general
meeting has been sent.
(iv) If the number of persons who offer themselves to be elected are more than
the number of directors required to be elected in the said general meeting
then each member of GL shall be given such number of votes as is equal to
the product of the number of voting shares held by him and the number of
directors to be elected.
(v) If the number of persons who offer themselves to be elected are equal to the
number of directors to be elected then directors shall stand elected
unopposed in the general meeting.

Zakir Hussain may also be appointed if there occurs a casual vacancy on board
through resignation of a director. In this case, with mutual consent of GL’s
directors, he is appointed on board since casual vacancy on board of a company
may also be filled up by directors themselves.

A.10 (a) The restrictions imposed under the provisions of the Companies Act, 2017 on a
company with regard to declaration of dividend are as follows:

 Dividend shall not be declared by a company otherwise than out of its profits.
 Dividend declared in general meeting shall not exceed the amount
recommended by the board.
 Dividend shall not be declared by a company for any financial year, out of the
profits of the company made from the sale or disposal of any immovable
property or assets of a capital nature comprised in the undertaking or any of
the undertaking of the company, unless the business of the company consists,
whether wholly or partly, of selling and purchasing any such property or
assets, except after such profits are set off or adjusted against losses arising
from the sale of any such immovable property or assets of a capital nature.
 Dividend shall not be declared out of unrealized gain on investment property
credited to the profit or loss account.

(b) The requirement of submission of prospectus to the Commission for its approval
is not required by an issuer or offeror of the securities intending to approach
general public for raising funds in the following circumstances:
(i) securities offered by the State Bank of Pakistan;
(ii) securities offered in connection with a private offering or private
placement;
(iii) issue of shares of a subsidiary to the members of a listed holding company
by way of specie dividend or any other distribution in the prescribed
manner;
(iv) securities offered by the issuer to:
 members or employees of the issuer; or
 members of the families of any such members or employees.

(THE END)
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