Question Paper

Economic Legislation-I (161): October 2005

• Answer all questions.
• Marks are indicated against each question.

1. Which of the following is an inland bill? < Answer >

I. A bill drawn in Delhi on a merchant of Bombay payable in Bombay or London

II. A bill drawn in Bombay on a merchant of Tokyo but made payable or accepted payable in Delhi.
III. A bill drawn in Madras on a merchant of Kanpur and accepted payable in Paris
IV. A bill drawn in Bombay on a merchant of Tokyo but made payable or accepted payable in Delhi
and endorsed in New York.
(a) Both (I) and (II) above (b) Both (I) and (III) above
(c) Both (II) and (III) above (d) Both (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
(1 mark)
2. Under which of the following matters, joint holders of shares are treated as single member? < Answer >

I. For making an application to NCLT for oppression and mismanagement

II. For counting number of members of a private company
III. For the purpose of quorum
IV. For making an application for right issue
(a) Only (I) above (b) Both (I) and (II) above
(c) Both (II) and (III) above (d) Both (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
(1 mark)
3. A company can issue prospectus to public within < Answer >

(a) 30 days after it is registered with the Registrar of Companies

(b) 45 days after it is registered with the Registrar of Companies
(c) 60 days after it is registered with the Registrar of Companies
(d) 90 days after it is registered with the Registrar of Companies
(e) 120 days after it is registered with the Registrar of Companies.
(1 mark)
4. The paid-up capital and free reserves of a Government company stood at Rs.1,000 crores. The company < Answer >
can accept public deposits up to
(a) Rs.100 crores (b) Rs.250 crores (c) Rs.350 crores
(d) Rs.500 crores (e) Rs.1000 crores.
(1 mark)
5. Which of the following agents are treated as non-mercantile agents? < Answer >

(a) Factors (b) Auctioneers (c) Brokers

(d) Del-credere agents (e) Insurance agents.
(1 mark)
6. Depreciation for an asset whose actual cost is not more than Rs.5,000 can be provided to the extent of < Answer >

(a) 25% of the value of the asset (b) 35% of the value of the asset
(c) 50% of the value of the asset (d) 75% of the value of the asset
(e) 100% of the value of the asset.
(1 mark)
7. The doctrine of constructive notice can be invoked by < Answer >

(a) A company
(b) The third party
(c) The National Company Law Tribunal

1
 (d) The Registrar of Companies
(e) The Securities and Exchange Board of India.
(1 mark)
8. Which of the following relationships does not raise presumption of undue influence? < Answer >

(a) Trustee and beneficiary (b) Doctor and patient

(c) Solicitor and client (d) Husband and wife being Pardanashin woman
(e) Landlord and tenant.
(1 mark)
9. Under the Companies Act, 1956,which of the following acts is held as oppressive? < Answer >

(a) That the majority shareholders appointed all directors

(b) That the management is inefficient
(c) Denying a shareholder the right to inspect the registers maintained by the company
(d) Failure to comply with the formalities of giving notice for general meeting or refusal to declare
more than moderate rate of dividend, where the profits of the company justify a higher rate
(e) A person and who had no authority at all usurps the office of a director and managing director.
(1 mark)
10. Under which of the following situations, shares of a company must be offered to the existing < Answer >
shareholders?
(a) In case of an issue or allotment of shares within two years of the formation of the company or
within one year after the allotment, whichever is earlier
(b) Where a special resolution u/s 81(1A) is passed in the general meeting
(c) In the case of a private company raising capital
(d) In case of issue of shares against conversion of loans or debentures
(e) A public company issues shares at any time after the expiry of two years from the date of
incorporation or after one year from the date of first allotment of shares, which ever is earlier.
(1 mark)
11. Which of the following statements is not correct? < Answer >

(a) A borrowing which is ultravires does not create an actionable debt

(b) Borrowings which are beyond the powers of the directors can be ratified by the shareholders in
general meeting
(c) If the borrowing is intravires the company but ultravires the directors, the doctrine of indoor
management protects the lender
(d) A lender cannot sue the company in the case of ultravires borrowing, even though the funds are
used by the company for its benefit
(e) A loan to a company which is ultravires is null and void.
(2 marks)
12. The debentures, which are similar to share warrants are known as < Answer >

(a) Registered debentures (b) Secured debentures

(c) Bearer debentures (d) Naked debentures
(e) Irredeemable debentures.
(1 mark)
13. Which of the following is not a ground for winding up of a company? < Answer >

(a) Default in holding statutory meeting by a public company limited by shares

(b) Default in holding annual general meeting
(c) Failure to commence business within a year of its incorporation
(d) Inability to pay debts
(e) Reduction of number of members below statutory minimum.
(1 mark)
14. According to section 205 of the Companies Act, 1956 Which of the following sources are not permitted < Answer >
for payment of dividend?
I. Current year profits
II. Securities premium account
2
 III. Past reserves created out of profits or credit balance in the profit and loss account brought forward
IV. Money provided by Government
(a) Only (I) above (b) Only (II) above (c) Both (I) and (II) above
(d) Both (I) and (III) above (e) (I), (II) and (IV) above.
(1 mark)
15. When a promissory note or bill of exchange has been dishonored by non-acceptance or non-payment, < Answer >
the holder may, within a reasonable time cause such dishonour to be noted and certified by a notary
public. Such certificate is called a/an
(a) Protest (b) Noting (c) Endorsement (d) Estoppel (e) Allonge.
(1 mark)
16. In which of the following cases an agency is terminated other than by operation of law? < Answer >

(a) Upon performance of the contract

(b) By mutual agreement
(c) Upon the insolvency of principal
(d) Upon the destruction of subject matter
(e) Upon termination of sub-agents authority.
(1 mark)
17. In a general meeting of a company, a matter could not be resolved because of tie, what is the remedy < Answer >
available to the company?
(a) Meeting will be adjourned
(b) Meeting will be dissolved
(c) Meeting will be postponed
(d) Chairman of the meeting can give his second /casting vote
(e) Managing director can give his casting second vote.
(1 mark)
18. Which of the following matters can be referred to arbitration? < Answer >

(a) Matrimonial matters (b) Testamentary matters

(c) Lunacy proceedings (d) Matters relating to breach of contracts
(e) Criminal proceedings.
(1 mark)
19. One of the directors of ABC Ltd. stood guarantee for the loans taken by the company and company paid < Answer >
guarantee commission for that security. Is it the part of the remuneration payable to the directors?
(a) Guarantee commission is outside the perview of the maximum remuneration to director
(b) Guarantee commission is with in the maximum remuneration payable to directors, hence it cannot
exceed the limit prescribed U/S 198 of the Act
(c) Guarantee commission cannot be paid to a director
(d) Guarantee commission must be with in the limits of sec.309 of the Act
(e) Both (b) and (d) above.
(1 mark)
20. According to the provisions of performance of Indian Contract Act, Both the parties to a contract < Answer >
believe that an agreement is capable of being performed, while such performance is actually not
possible, under that situation, which of the following is true as regards the impossibility?
(a) The parties are bound to perform their part of obligation
(b) The contract entered by such mistake may be declared as void
(c) Mistake of fact is no excuse
(d) What is possible only can be performed by the parties
(e) Compensation must be paid by the parties to each other entering into such kind of contract.
(1 mark)
21. The auditors of Vinod Textiles Ltd. have been signing the balance sheets for several years by relying on < Answer >
the certificate given by the Production Manager of the company for the value of stock- in- trade. Basing
on the auditor’s report, the company declared dividends. Later, it came to light that the production
manager inflated the value of stock. As a result of which dividends were paid out of capital. The

3
 company fixed the liability on auditor for their misrepresentation and sued the auditors to make good
the loss. In the above situation, which of the following is/are correct?
(a) Auditors are liable as they are required to enquire into the value of stocks
(b) Auditors are not liable as they need not enquire into details of value of stocks
(c) Production manager is not liable as the duty lies upon auditors to verify
(d) Directors are not liable as the duty lies upon auditors to verify
(e) It is the duty of the auditors who were to physically verify the stock and ensure that the dividends
are not declared out of capital.
(2 marks)
22. Raj and Rohit were the only two members of a private limited company. Both of them died in an air < Answer >
crash. The status of the company is that
(a) The company ceases to exist
(b) The Registrar of Companies takes over the management
(c) The legal heirs of Raj and Rohit will become the members
(d) The employees of the company will become the members of the company
(e) The creditors of the company will become the members of the company.
(1 mark)
23. A, B and C are the joint holders of 500 shares in Gem Ltd. All correspondence from the company is < Answer >
addressed to A, who is the first named person in the joint holding of shares. Later the joint holders wish
to dispose of their shares, but they do not know of the transfer procedures in the event of sale of shares.
Who among the following persons must sign on the share transfer form in the case of joint holders of
shares?
(a) A, being the first named person has to sign on the share transfer form
(b) A and B have to sign on the share transfer from
(c) B and C have to sign since A is receiving all the communication from the company
(d) A, B and C must sign on the share transfer form
(e) No signatures are needed, the share certificate can be transferred by mere delivery.
(1 mark)
24. Non Est Factum means < Answer >

(a) A plea that an agreement mentioned in the pleading was not the act of the defendant
(b) The meaning of the word can be gathered from the context
(c) Where there is a right there is remedy
(d) Ignorance of law is no excuse
(e) No one can pass better title than what he has.
(1 mark)
25. ABC Ltd. wants to appoint Mr. Ajay, a chartered accountant working as the finance manager of the < Answer >
company, as the statutory auditor for the year 2005-2006.Which of the following statements is/are
correct?
(a) Ajay is eligible to be appointed as the statutory auditor of the company
(b) A body corporate only is eligible to be appointed as the statutory auditors of a company
(c) Ajay cannot be appointed as auditor of ABC Limited
(d) Employee of the company is to be appointed as the statutory auditors of the company
(e) Auditor of a company is nothing but an employee and hence no specific appointment is required
and he can render his services as an auditor to ABC Ltd.
(1 mark)
26. Which of the following is/are the advantages of legal justice? < Answer >

(a) Impartiality in the administration of justice

(b) Ensure uniformity and certainty in the administration of justice
(c) It represents the collective wisdom of community
(d) Both (a) and (b) above
(e) All (a), (b) and (c) above.
(1 mark)
27. A cheque is drawn by Aryan ‘payable to Bansal or bearer’. The cheque is stolen and Bansal’s < Answer >
endorsement is forged The banker pays the amount in due course Which of the following statements
4
 endorsement is forged. The banker pays the amount in due course. Which of the following statements
is/are correct?
(a) Aryan is discharged from liability
(b) Banker is discharged from liability
(c) Banker is not discharged from liability
(d) Aryan is not discharged from liability
(e) Both (a) and (b) above.
(1 mark)
28. Ananth Tech Ltd. received a certificate of incorporation from the Registrar of Companies. Later it was < Answer >
found that, out of the seven persons signed the memorandum, only two were adults and other five
members were minors. The Registrar of Companies issued notice on the company for the cancellation
of certificate granted, under this situation, which of the following statements is/are correct?
(a) The certificate of incorporation is void as there is no minimum subscribers for the memorandum
(b) The incorporation is invalid
(c) The certificate of incorporation issued by the Registrar of Companies is a conclusive evidence for
the incorporation of a company
(d) The Registrar of Companies can cancel the certificate of incorporation of the company any time
by using his discretion
(e) The Registrar of Companies can cancel the certificate of incorporation but after one year of
incorporation.
(1 mark)
29. Krishna Prasad, a senior citizen, by deed of a gift made over certain property to his daughter Lavanya < Answer >
with a condition that she should pay her uncle Raja Rao, the brother of the senior citizen, a certain sum
of money annually. The same day Lavanya registered the agreement with Raja Rao to pay him the
agreed amount. Later Lavanya refuses to pay the amount on the plea that no consideration moved from
Raja Rao to her. Raja Rao proposes to file suit. Which of the following is true?
(a) The suit filed by Raja Rao is not maintainable as he is stranger to the contract
(b) The suit filed by Raja Rao is not maintainable as there is no consideration
(c) An agreement made out of love and affection is not enforceable in law and hence Raja Rao will
not succeed
(d) Raja Rao will succeed in his move to court
(e) Lavanya can refuse to pay the amount as she has accepted in property under a gift.
(2 marks)
30. Mr. ‘X’, who was appointed as director of ABC Limited in the last general meeting, died in a car < Answer >
accident. The Board of directors appointed Mr. Y as casual director in the place of Mr. ‘X’. But Mr. Y
resigned from the post. The Board now intends to appoint ‘Z’ as casual director in the place of Mr. Y.
In this situation, which of the following is true as regards the appointment of director in casual vacancy
(a) The company shall conduct an extra-ordinary general meeting and pass ordinary resolution for
appointing Mr. ‘Z’ as director
(b) The company shall conduct an extra-ordinary general meeting and pass special resolution for
appointing Mr. ‘Z’ as director in the place of Mr. ‘Y’
(c) The company need not conduct extra-ordinary general meeting but through resolution by postal
ballot may appoint Mr. ‘Z’ as director in the place of Mr. ‘Y’
(d) The Board of directors can appoint Mr. ‘Z’ as casual director in their meeting in the place of Mr.
‘Y’
(e) The Board of directors can appoint Mr. ‘Z’ through circular resolution without conducting Board
meeting.
(1 mark)
31. Which of the following is/are illegal agreement(s)? < Answer >

(a) Lending a truck knowingly for bringing goods which are prohibited
(b) Agreeing to sale a house for paying money lost in gambling
(c) Agreement by way of wager
(d) Agreement not to enforce promise through legal means
(e) Both (b) and (c) above.
(1 mark)

5
32. Under which of the following acts, a director is personally liable to the company? < Answer >

(a) For malafide acts

(b) For bonafide acts
(c) For the negligent acts
(d) Both (a) and (b) above
(e) Both (a) and (c) above.
(1 mark)
33. Which of the following provisions are applicable to private companies (which are not subsidiary of any < Answer >
public companies)?
(a) Appointment of managing director/whole time director /manager
(b) Appointment of audit committee
(c) Restrictions on remuneration to directors
(d) Maintenance of statutory book
(e) Passing of resolutions by postal ballot.
(1 mark)
34. Which of the following agreements are not enforceable? < Answer >

I. Agreements to sell the ice at a minimum price which was fixed

II. Contract which is collateral to an illegal agreement
III. Contract which is partly legal and partly illegal but both are inseparable
IV. Agreement of partners of a firm not to carry on similar business of firm while he is a partner

(a) Only (II) above (b) Both (I) and (II) above
(c) Both (II) and (III) above (d) Both (III) and (IV) above
(e) Both (I) and (IV) above.
(1 mark)
35. Which of the following is true? < Answer >

(a) A private company need not have directors

(b) A company which could not raise minimum capital before 14th December 2002 is a defunct
company
(c) A company registered with an objective of promoting science, art, charity must have minimum
capital of rupees five lakh
(d) A Public company must raise capital from the public
(e) A Private company can raise capital from the public.
(1 mark)
36. Which of the following statements is true, with regard to a minor’s appointment as director of a < Answer >
company?
(a) Minor can be appointed as a director of a Government company
(b) Minor can be appointed as director of a private company
(c) Minor can be appointed as director in a public company
(d) Minor with the permission of all the directors can become director of a company
(e) Minor with the approval of the Central Government can become director of a company.
(1 mark)
37. Which of the following statements is true, with regard to jumbling of the agenda items at members < Answer >
meeting?
(a) Agenda items can be jumbled with the permission of the chairman of the meeting
(b) Agenda items cannot be jumbled at members meeting
(c) Agenda items can be jumbled with the permission of all the members
(d) Agenda items can be jumbled only with the permission of the quorum
(e) Agenda items can be jumbled only with the permission of the managing director.
(1 mark)
38. Which of the following persons can be counted for the purpose of quorum at a general meeting? < Answer >

I. A person who is not member but representing three companies which are members

6
 II. A person representing the joint owners of shares who are absent in the meeting
III. Managing director of the company who is not a member of the company
IV. Auditor of the company
(a) Only (I) above
(b) Both (I) and (II) above
(c) Both (II) and (III) above
(d) Both (I) and (IV) above
(e) All (I), (II), (III), (IV) above.
(1 mark)
39. A private company (which is not subsidiary of a public company) could not file its profit and loss < Answer >
account along with the balance sheet with Registrar of Companies. Later it was filed with in 7 days, but
with in thirty days from the date of annual general meeting. How much penalty is to be paid by the
company?
(a) Rupees one thousand (b) Rupees five thousand
(c) Rupees two thousand (d) Rupees ten thousand
(e) No penalty is required to be paid.
(1 mark)
40. As a general principle, the ‘Board of directors can exercise unlimited powers’. Which of the following < Answer >
is/are the exceptions to the above general rule?
I. Dead lock II. Incompetence of the Board
III. Malafide acts IV. Acts in violation of Companies Act

(a) Only (I) above (b) Both (I) and (II) above
(c) Both (II) and (III) above (d) Both (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
(1 mark)
41. ABC listed company formed an Audit committee consisting of five directors. At a meeting, a director, < Answer >
an auditor and an internal auditor attended the meeting to form quorum and voted on resolutions. As
regards the above matter, which of the following is true?
(a) A listed company cannot form an audit committee
(b) A listed company cannot form an audit committee without the approval of the Central Government
(c) At a meeting of an audit committee, statutory/internal auditors can take part in discussion but
cannot vote on resolutions
(d) The resolutions passed at such committee are valid
(e) An audit committee need not pass resolutions.
(1 mark)
42. A notice was received from a member of New Age Ltd. proposing to appoint Frazil as a director of the < Answer >
company in the annual general meeting. The notice was in full compliance with the requirements of
Section 257 of the Companies Act, 1956. Also, the consent of Frazil to act as a director in terms of
Section 264 of the Companies Act, 1956 was received. Frazil is not a retiring director and he is one of
the partners of the firm ‘Frazil and Garza chartered accountants’, which is the retiring auditors of New
Age Ltd. Being eligible, the firm has offered itself for re-appointment as auditors. The Board of
directors is unable to know whether Frazil can be validly appointed as a director of the company and if
so, is there any bar to the re-appointment of the auditors, if Frazil is elected as a director. In the above
situation which of the following is true
(a) Auditor of the company is qualified to be appointed as director of the same company
(b) Frazil can be appointed as director of the company but later the ‘Frazil and Garza chartered
accountants firm’ cannot be re- appointed as auditors of the company
(c) Frazil can be appointed as director and also be re-appointed as auditor of the company
(d) Frazil cannot be appointed either as director or auditor
(e) A member cannot propose the director’s name and ask for a resolution.
(1 mark)
43. A public limited company didn’t comply with provisions of the Companies Act, 1956 in respect of < Answer >
display of its name and address of its registered office outside its office premises. As regards the above

7
 matter, which of the following is true?
(a) The directors are liable to pay penalty and also undergo imprisonment for six months
(b) The directors are held liable to pay penalty of rupees ten thousand
(c) The company and officer in default shall be punishable with fine of rupees five hundred
(d) The officer in default is liable to pay penalty of rupees five thousand
(e) The members of the company are held liable for the default.
(1 mark)
44. Which of the following category of directors cannot be removed by the members of the company in < Answer >
general meeting under section 284 of the Companies Act?
(a) The director appointed in casual vacancy
(b) The director appointed as additional director
(c) The director appointed as alternate director
(d) The director appointed by the Central Government
(e) Director appointed as regular director under section 257 of the Act.
(1 mark)
45. A agrees to marry B, but before the due date of marriage, A marries C. The above act of disabling < Answer >
herself from performing the contract is called
(a) Actual breach (b) Anticipatory breach (c) Implied breach
(d) Non performance (e) Discharged performance.
(1 mark)
46. Which of the following is/are negotiable instruments by custom or usage? < Answer >

(a) Share warrants (b) Money orders (c) Postal orders

(d) Railway receipts (e) Dock warrants.
(1 mark)
47. Which of the following instruments can be drawn by any citizen payable to ‘bearer on demand’ < Answer >

I. A promissory note
II. A bill of exchange
III. A cheque
IV. A hundi

(a) Only (IV) above (b) Only (III) above (c) Both (I) and (II) above
(d) Both (II) and (III) above (e) (I), (II) and (III) above.
(1 mark)
48. Mr. Kumar tried to sell an unsound horse, forges a veterinary surgeon’s certificate, stating that the horse < Answer >
is sound and in good condition. Mr. Pawan who wants to purchase the horse comes and examines the
horse but the certificate gets unnoticed by him .He buys the horse and later finds the horse to be
unsound. He wants to avoid the agreement under the plea that he has been defrauded. In the above
context, which of the following is true?
(a) Pawan will not succeed as he did not rely on the certificate and examined before purchase of the
horse
(b) The contract is voidable at the option of Mr. Kumar
(c) The contract is void
(d) Contract is valid but Pawan can claim only for the damages and compensation but he cannot
cancel the contract
(e) Pawan will succeed in avoiding the contract on the plea of fraud.
(1 mark)
49. Which of the following is not the right of an auditor of a company < Answer >

(a) To have access to books of accounts

(b) To call for information and explanations
(c) To receive notices and other communications relating to general meetings
(d) To receive remuneration for auditing the accounts
(e) To check whether the transactions of the company, which are represented merely by book entries,
are not prejudicial to the interest of the company.
8
 (1 mark)
50. Which of the following entities are qualified to be appointed as an auditor of a company < Answer >

(a) Who has given guarantee to the company in connection with the indebtedness of any third person
(guarantor)
(b) A person holding any security of that company
(c) An officer of the company
(d) A partner of an officer of the company
(e) Any person holds shares as nominee for the third person.
(1 mark)
51. Which of the following powers can be exercised by the committee of directors? < Answer >

I. To borrow money otherwise than on debentures

II. To invest funds of the company
III. To make calls on the uncalled capital
IV. To issue debentures
V. To give loans

(a) Both (I) and (II) above (b) Both (II) and (III) above
(c) (I), (II) and (III) above (d) (II), (III) and (IV) above
(e) (I), (II) and (V) above.
(1 mark)
52. Which of the following provisions is not exempted to Government companies? < Answer >

(a) Filing of consent of a director within 30 days of his appointment with ROC
(b) Conducting of statutory meeting
(c) Remuneration to the directors and its increase
(d) Conducting of annual general meeting
(e) Minimum number of members.
(1 mark)
53. Which of the following is true as regards the differences between the annual general meeting and a < Answer >
board meeting?
(a) No quorum is required for the adjourned board meeting where as quorum is required even for the
adjourned annual general meeting
(b) Notice of the board meeting must specify the agenda items where as in the case of a annual general
meeting agenda items need not be specified
(c) Annual general meeting must be conducted only within the city where the registered office is
situated whereas the board meeting can be conducted any where with in India
(d) Annual general meeting can be conducted at any place where as board meeting should be
conducted only at the place where registered office at the company is situated
(e) Board meeting should be conducted on a working day during the working hours where as annual
general meeting can be held other than the working days and working hours.
(1 mark)
54. Which of the following is the main difference between shares and debentures? < Answer >

(a) Shares indicate owners funds whereas debentures indicate the borrowed funds
(b) Share may be secured but debenture are unsecured
(c) Share may be in different types where as debentures are only one type
(d) Shares are redeemable where as debentures are irredeemable
(e) Shares are associated with cost of capital where as debentures are not associated with cost of
capital.
(1 mark)
55. Which of the following statement is true as regards the eligibility of receiving sitting fees on attending < Answer >
board meeting?
(a) Every director including the managing director, attended to the meeting is entitled to receive the
sitting fees
(b) Only the non-executive directors are entitled to receive the sitting fees

9
 (c) Executive directors only are entitled to receive the sitting fees for attending the board meetings
(d) Managing director cum chairman of a Board meeting, only is entitled for sitting fees
(e) Nominee directors above are allowed for sitting fees.
(1 mark)
56. Standee the Managing Director, of Aswin software Ltd, had occupied the guesthouse for his personal < Answer >
stay. But his wife carried some other software development business. Which is not related to the
companies business on coming to know the fact, the company ordered him to vacate the guesthouse,
since the house is provided for his residential purpose but not for the commercial purpose. Where as his
wife started commercial venture in the guesthouse. In the above context which of the following
statements is true with regard to the taking the possession back of the guesthouse of the company?
(a) Once residence is provided, it is immaterial to the company for what purpose it is used for, hence
no action can be taken by the company
(b) The company by taking the legal aid can get the possession of the guest house
(c) Since Standee is continuing as managing director, he cannot be asked for vacation of the
residential house
(d) Managing director cannot be questioned by the company, since he is the top cadre officer
(e) The company should get the commercial venture closed without waiting further.
(1 mark)
57. A Pawnee may retain the goods pledged < Answer >

(a) For repayment of the debt together with interest

(b) For the necessary expenses incurred for the preservation of the goods pledged
(c) For any debt other than the debt for which the goods were pledged
(d) Both (a) and (b) above
(e) Both (b) and (c) above.
(1 mark)
58. In the case of an offer made through post, revocation of acceptance should be < Answer >

(a) Sent by registered post to ensure delivery

(b) Made in person by the acceptor to the offeror
(c) Communicated to the offeror earlier than the letter of acceptance itself
(d) Notarized by a notary public
(e) Posted before the letter of offer is received by the acceptor.
(1 mark)
59. ‘A’, a ship builder, contracts to sell to ‘B’, for a stated price, a vessel which is lying in A’s yard. The < Answer >
vessel is to be rigged and fitted for voyage and the price to be paid on delivery. When does the property
in the vessel pass to ‘B’?
(a) At the time when the contract is entered
(b) When the vessel has been rigged and fitted
(c) When the vessel has been rigged and fitted and notice thereof is given to B
(d) When the vessel is delivered to B
(e) When B pays the price.
(1 mark)
60. State decisis means < Answer >

(a) Parties to a contract cannot modify their agreement

(b) Government cannot take away concessions once granted
(c) A court has to adhere to its own earlier decision
(d) Parliament cannot amend laws
(e) The President has the power to set aside a law passed by Parliament.
(1 mark)
61. The Doctrine of Election lays down the principle that < Answer >

(a) Representatives of the people should be elected

(b) A person has the liberty to do whatever he wants
(c) A man taking a benefit under an instrument must also bear the burden
(d) Between alternative legal remedies a person may choose that which is most beneficial to him

10
 (e) A property cannot be transferred where a suit or proceeding is pending in any court.
(1 mark)
62. Where a contract of guarantee states that A and B (Joint promisors) are jointly and severally liable, this < Answer >
means
(a) A & B shall pay jointly or not at all
(b) A & B shall pay equally
(c) A & B shall pay in proportion to their involvement in the contract
(d) The guaranteed may compel either A or B to perform the whole of the promise
(e) A & B are liable only for their agreed share in the contract.
(1 mark)
63. ‘A’, a longstanding customer of a bank, not having sufficient funds with his banker issue a cheque. On < Answer >
presentment of the cheque, the banker should
(a) Inform ‘A’ and request him to deposit money into his account sufficient to honour the cheque
(b) Honour the cheque and proceed against ‘A’ for the overdrawn amount
(c) Dishonour the cheque after serving notice on ‘A’
(d) Dishonour the cheque
(e) Freeze A’s account thus blocking all future transactions.
(1 mark)
64. ‘P’ was engaged by ‘C’ to write a book to be published in parts in a weekly magazine. After few < Answer >
serials had appeared, the magazine was abandoned. What is the most appropriate course of action to be
pursued by ‘P’?
(a) He can sue ‘C’ for damages
(b) He can insist that ‘C’ continue to bring out the magazine with parts of his book
(c) He can file a suit for the entire consideration for the contract
(d) He can file a suit for recovery of consideration for the work done on the contract
(e) He can initiate criminal action against ‘C’ for cheating.
(1 mark)
65. ‘A’ fraudulently informs ‘B’ that A’s estate is free from encumbrance. ‘B’ thereupon buys the estate. < Answer >
The estate is subject to a mortgage. The contract is
(a) Void
(b) Voidable at the option of ‘A’, who may have it enforced
(c) Valid
(d) Voidable at the option of ‘B’
(e) Valid if the possession in granted.
(1 mark)
66. The doctrine of Ejusdem Generis states that < Answer >

(a) It is no business of a court to fill up the gaps in the statute

(b) The expression of one person or thing implies the exclusion of other persons or things of the same
class which are not mentioned
(c) A general term shall be read as if it belongs to the same kind as the specific terms preceding it
(d) A specific provision will override a general provision
(e) The statute should be construed in a manner so as to further the intention of the legislature.
(1 mark)
67. Mr. A, the accounts officer of Faithful Company Limited, issued a cheque to Classic Company Limited, < Answer >
on behalf of his company. Mr. A ordered his assistant Mr. B to affix the name of the company on the
Cheque, which Mr. B, failed. The bankers of Faithful Company Limited refused to honour the cheque.
What will be the consequence?
(a) The cheque becomes bogus under Negotiable Instruments Act, 1881
(b) Mr. A loses his job
(c) Mr. A becomes personally liable for the payment to Classic Company Limited
(d) Faithful Company Limited may have to pay damages if any to Classic Company Limited in
addition to cheque amount
(e) The banker of Faithful Company Limited shall order the company to close the accounts.

11
 (1 mark)
68. Praise Worthy Ltd., a new company obtained a certificate of incorporation from the Registrar of < Answer >
Companies on 17th August 2000. No general meeting was held due to difference of opinion among
members of Board in the year 2001. However, it managed to hold an AGM in January 2002, as its first
AGM. The chairman has a doubt as to whether the company has complied with the Companies Act,
1956. The company has fulfilled the requirements of Section 166 of Companies Act, 1956 in respect of
AGM for the
(a) Year 2002 only (b) Year 2000 only
(c) Year 2000 and 2001 (d) Year 2000, 2001 and 2002
(e) Year 2002 and 2003.
(1 mark)
69. Which of the following is not one of the rules of interpretation? < Answer >

(a) The statute must be read as a whole and construction should be put on all parts of the statute
(b) The statute must be construed in a manner to carry out the intention of the legislature
(c) The interpretation should be in accordance with the policy and object of the statute in question
(d) The existence of long established custom is a great help in the formulation of the law and its
acceptance by the people
(e) The words used should be in the popular sense.
(1 mark)
70. Which of the following documents is not required to be filed with ROC after the annual general < Answer >
meeting?
(a) Annual return
(b) Balance sheet and profit and loss account
(c) Secretarial compliance report, if applicable
(d) Special resolutions and other resolutions
(e) Auditors report.
(1 mark)
71. Mr. X holds 1000 shares in ABC Ltd., he wishes to sell some part of his shares to more than one person. < Answer >
But the share certificate represents for 200 shares as one lot. What is the advise you give to Mr. X?
(a) He can execute a blank transfer
(b) He cannot sell part of the shares, which the share certificate bears
(c) He can request the company to issue balance ticket
(d) Both (a) and (b) above
(e) He has to sell only 200 shares.
(1 mark)
72. Which of the following persons is qualified to enter into a contract < Answer >

(a) An alien enemy (b) A foreign sovereign (c) A company

(d) An adjudged insolvent (e) A convict.
(1 mark)
73. ABC Ltd company sends a notice of general meeting to its members. In that notice it is stated that ‘the < Answer >
9th annual general meeting of the company will be held on 30-9-2005, the Monday’. In fact, 30-9-2005
is happened to be Tuesday. In this situation, when meeting of the company shall be held?
(a) The company has to conduct meeting on Monday only since it is specifically mentioned in the
notice
(b) The company has to conduct on Tuesday only since the date is important
(c) The company has to postpone the meeting and send a fresh notice by giving correct date and day
(d) The company has to cancel the annual general meeting for that year
(e) Company may conduct meeting either on Monday or Tuesday at the discretion of the Board of
directors.
(1 mark)
74. Consideration in a contract can be < Answer >

I. Past II. Present III. Future

12
 (a) Only (II) above (b) Only (III) above
(c) Both (I) and (II) above (d) Both (II) and (III) above
(e) All (I), (II) and (III) above.
(1 mark)
75. An extraordinary general meeting may be called by < Answer >

(a) Members holding at least 10% of the called-up capital that carries voting rights
(b) Members holding at least 10% of the paid-up share capital that carries voting rights
(c) Members holding at least 10% of the authorised capital that carries voting rights
(d) Members holding at least 10% of the issued capital that carries voting rights
(e) Members holding at least 10% of the paid-up share capital that do not carry voting rights.
(1 mark)
76. Consent obtained to a contract by other party under fraud renders the contract < Answer >

(a) Void (b) Voidable (c) Valid

(d) Illegal (e) Unenforceable.
(1 mark)
77. What is the upper age limit to a person to be appointed as director? < Answer >

(a) Attaining the age of fifty eight years

(b) Attaining the age of fifty five years
(c) Attaining the age of sixty years
(d) Attaining the age of sixty five years
(e) No limit was mentioned under the Companies Act.
(1 mark)
78. Mr. X, endorsed by giving the right of the endorsee to receive the amount due on the instrument may be < Answer >
made dependent on the happening of a specified event which may not happen is called
(a) Conditional endorsement (b) Restrictive endorsement
(c) Partial endorsement (d) Special endorsement
(e) Blank endorsement.
(1 mark)
79. Which of the following amounts to blank endorsement? < Answer >

(a) The endorser proposes to transfer to the endorsee only a part of the amount payable on the
instrument
(b) Which prohibits further negotiation of an endorsement
(c) Which limits or negatives the liability of the endorser
(d) Where the endorser merely signs at the back of the instrument and delivers it to the endorsee
(e) Both (a) and (b) above.
(1 mark)
80. Res ipsa loquitur means < Answer >

(a) The thing speaks for itself (b) Some thing in return
(c) Guilty intention (d) Legal position
(e) No man can pass better title than what he has.
(1 mark)
81. When a bill is drawn, accepted or endorsed for consideration is called < Answer >

(a) Accommodation bill (b) Genuine trade bill

(c) Inchoate or incomplete bill (d) Ambiguous bill (e) Foreign bill.
(1 mark)
82. Which of the following statements is true? < Answer >

(a) Every holder is a holder in due course

(b) Every holder in due course is a holder for value
(c) Every holder for value is a holder in due course
(d) A holder in due course need not have taken the instrument in good faith
13
 (e) Holder in due course may be party to the fraud.
(1 mark)
83 Where allotment of shares is made by a company before receiving the minimum subscription, then the < Answer >
allotment is
(a) Valid (b) Voidable at the option of the allottee (c) Void
(d) Illegal (e) Illegal and void.
(1 mark)
84. Reserve Capital Under Section 99 < Answer >

(a) Can be called up at any time during the life time of the company
(b) Can never be called up
(c) Cannot be called up except at the time of winding up of the company
(d) Can be called up any time by a Board resolution
(e) Can be called up any time if the shareholders so agree.
(1 mark)
85. Which of the following correctly describes restrictive crossing? < Answer >

(a) The name of the banker is added across the face of a cheque with or without the transverse lines
(b) The cheque is made payable to a group of persons designated on the reverse of the cheque
(c) The word ‘account payee’ is added to the general or special crossing
(d) The word ‘not negotiable’ is added to the general or special crossing
(e) The word ‘& Co’ is added to the general crossing.
(1 mark)
86. When the date of maturity of a promissory note or bill of exchange is a public holiday, then the < Answer >
instrument
(a) Is due on that day (b) Is deemed to be due on the preceding business day
(c) Is deemed to be due on the succeeding business day
(d) Is invalid (e) Is ambiguous.
(1 mark)
87. X is an MD for 2 companies. In case both of the companies get inadequate profits, which of the < Answer >
following is true?
(a) He is entitled to remuneration from only one of the two companies
(b) He is not entitled to any amount of remuneration from both the companies
(c) He is entitled to remuneration as per section 309 of the Companies Act
(d) He is entitled to remuneration from both companies. However, the total remuneration from both
companies shall not exceed the higher of the amount eligible under Schedule XIII from each
company
(e) He is not entitled to any remuneration in the year in which he is appointed as MD in the later
company.
(1 mark)
88. Which of the following matters require previous approval of the Central Government? < Answer >

(a) Appointment of a managing director

(b) Appointment of a manager
(c) Payment of remuneration to directors in excess of the limits specified
(d) A relative of a director is interested in a contract entered by a public company, with a private
company whose paid up capital is one crore
(e) A relative of a director is interested in contract entered for purchase of raw material by a public
company whose paid up capital is one crore, with another public company.
(1 mark)
89. Which of the following acts may be held as mismanagement? < Answer >

(a) Failure to declare dividend (b) Company incurring losses

(c) Funds siphoned off (d) Wrong and imprudent decisions of management
(e) Reckless sanction and disbursement of loans.

14
 (1 mark)

90. The maximum interest payable on public deposits is < Answer >

(a) Fourteen percent per annum (b) Twelve and half percent per annum
(c) Fifteen percent per annum (d) Thirteen percent per annum
(e) Eleven and half percent per annum.
(1 mark)

91. When a company took up the activity of buy-back of securities, within how many days the share < Answer >
certificates must be destroyed?
(a) Within 30 days of the last date of completion of buy back
(b) Within 7 days of the last date of completion of buy back
(c) Within 3 days of the last date of completion of buy back
(d) Within 10 days of the last date of completion of buy back
(e) Within 15 days of the last date of completion of buy back.
(1 mark)

92. Which of the following matters require passing of Board resolution, sanction of shareholders in general < Answer >
meeting and approval of Central Government?
(a) To sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of
the company
(b) Investment of compensation money received on compulsory acquisition of any of its properties
(c) Borrow money in excess of paid up capital and free reserves of the company
(d) Remission of a debt due by a director
(e) Conversion of public limited company into a private limited company.
(1 mark)

93. Which of the following matters do not require passing of special resolution? < Answer >

(a) Alteration of articles of association

(b) Issue of sweat equity shares
(c) Offer further shares to persons other than existing members
(d) Re-issue of redeemed debentures
(e) Appointment of auditors when shareholding of Government, financial institution and Nationalized
banks is 25% or more.
(1 mark)

94. Who among the following persons is a ‘general agent’ under the Indian Contract Act? < Answer >

(a) The one whose authority to act for the principal is unlimited
(b) The one who is appointed to represent his principal in some particular transaction
(c) The one who has authority to do all acts connected with a particular trade, business or employment
(d) The one to whom goods are entrusted for the purpose of selling them
(e) The one who is employed to buy or sell goods on behalf of another.
(1 mark)

95. What is the kind of relationship exists between a banker and his customer? < Answer >

(a) Principal and agent (b) Creditor and debtor

(c) Principal to principal (d) Both (a) and (b) above
(e) Both (b) and (c) above.
(1 mark)

96. A bill is drawn on Arvind in Chennai and is payable at Bangalore. In case the bill is dishonored by non- < Answer >
acceptance, at which place it can be protested?
(a) It may be protested in Bangalore without presenting it once again to Arvind at Chennai
(b) It may be protested in Chennai by presenting it once again to Arvind at Bangalore
(c) It may be protested even out side India
(d) It may be protested any where in India other than the places of Chennai and Bangalore
(e) It may be protested in India or out side India other than the places of Chennai and Bangalore.
(1 mark)

15
97. The inspection by the Securities Exchange Board of India shall be made in respect of matters relating to < Answer >

I. Acceptance of public deposits

II. Exercising borrowing powers in the companies
III. Issue and transfer of securities
IV. Non-payment of dividend

(a) Only (II) above (b) Both (I) and (II) above
(c) Both (II) and (III) above (d) Both (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
(1 mark)

16
 Suggested Answers
Economic Legislation-I (161): October 2005
1. Answer : (b) < TOP >

Reason : According to Section 11 of the NI Act, a promissory note, bill of exchange or cheque
which is (1) both drawn or made in India and made payable in India, or (2) drawn upon
any person resident in India, is deemed to be an inland instrument. Accordingly, cases
mentioned in (I) and (II) satisfy the criterion of Inland Bills. As such the correct answer
is (b).
2. Answer : (b) < TOP >

Reason : For making an application to NCLT for oppression and mismanagement and for counting
number of members of a private company, joint holders of shares are treated as single
member. But for the matters like – counting the members for the purpose of quorum and
for making an application for right issue all the joint holders are treated separately.
3. Answer : (d) < TOP >

Reason : A company issuing a prospectus to the public should issue it within 90 days after it is
registered with the ROC.
4. Answer : (c) < TOP >

Reason : No government company shall accept any deposits in excess of 35% of its paid up capital
and free reserves. Hence the company can accept public deposits upto Rs.350 crore.
5. Answer : (e) < TOP >

Reason : Factors, Auctioneers, Brokers, and Bankers are classified as mercantile agents. Insurance
agents are classified as non-mercantile agents. Correct answer is (e).
6. Answer : (e) < TOP >

Reason : Depreciation for an asset whose actual cost is not more than Rs.5,000 can be provided to
the extent of 100%.
7. Answer : (a) < TOP >

Reason : The doctrine of constructive notice can be invoked by a company.

8. Answer : (e) < TOP >

Reason : 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. The following relationships raise the assumption of undue influence. Trustee
and beneficiary, doctor and patient, solicitor and client and husband and wife being a
pardanashin. The relationship of land lord and tenant does not raise the presumption of
undue-influence.
9. Answer : (e) < TOP >

Reason : A person and who had no authority at all usurp the office of a director and managing
director will amount to oppression. But the acts like majority shareholders appointed all
directors, the management is inefficient, denying a shareholder the right to inspect the
registers maintained by the company, Failure to comply with the formalities of giving
notice for general meeting or refusal to declare dividend, will not amount to oppression.
10. Answer : (e) < TOP >

Reason : A public company issues shares at any time after the expiry of two years from the date of
incorporation of the company or after one year from the date of the first allotment of
shares, which ever is earlier, the offer first must be made to the existing share holders.
Otherwise a special resolution u/s 81(1A) is passed in the general meeting providing that
the shares may be offered to the persons other than existing equity shareholders. If the
company could not accord special resolution it must obtain permission from the Central
Government.
11. Answer : (d) < TOP >

Reason : An ultrvires borrowing does not create an actionable debt. Borrowings, which are beyond
the powers of directors, can be ratified by the shareholders in general meeting. If the
borrowing is intravires the company and ultravires the directors the doctrine of indoor

17
 management protects the lender and the ultravires loan to the company is null and void,
options in (a), (b), (c) and (e) are correct statements. But option (d) is not correct. The
company cannot refuse its liability to repay the money borrowed by the directors if the
money is used for the benefit of the company.
12. Answer : (c) < TOP >

Reason : Bearer debentures are similar to share warrants in that they too are negotiable and
transferable by mere delivery.
13. Answer : (b) < TOP >

Reason : Default in holding Annual General Meeting is not a ground for issue of winding up order.
All other grounds in options (a),(c),(d) and (e) are the grounds for issue of winding up
order.
14. Answer : (b) < TOP >

Reason : According to section 205 of the companies Act, 1956 dividend may be declared out of
the following sources
a. Current year profits
b. Past reserves created out of profits or credit balance of the profit and loss account
brought forward
c. Money provided by government, if any.
Dividend cannot be paid out of securities premium account which can be used only
specified purposes, and the purposes u/s 78 do not include ‘payment of dividend’ Hence
dividend cannot be paid out of securities premium account. There fore the option (b) is
correct.
15. Answer : (a) < TOP >

Reason : When a promissory note or bill of exchange has been dishonored by non acceptance or
non payment, the holder may, within a reasonable time cause such dishonor to be noted
and certified by a notary public. Such certificate is called a protest.
16. Answer : (b) < TOP >

Reason : Termination of agency by operation of law takes place in situations given in options
(a),(c),(d) and (e).Termination of agency by mutual agreement is not by operation of law.
17. Answer : (d) < TOP >

Reason : In a general meeting of a company, where a tie is created, the chairman of the meeting
can give second vote or casting vote. Such second vote or casting vote may be different
from the earlier one i.e. if the chairman is a member of a company, he should have given
his vote as a member and when there is a tie he can give his vote as a chairman of that
meeting. (Such vote may be for or against the resolution).
18. Answer : (d) < TOP >

Reason : Matters relating to breach of contracts can be referred to Arbitration.

19. Answer : (a) < TOP >

Reason : Guarantee commission paid to any director is outside the preview of maximum
remuneration to director. Since this commission is paid to a director is for the risk what he
accepts from the loan taken by the company to a bank (or) financial institution.
20. Answer : (b) < TOP >

Reason : As per section 56 of the Indian contract Act, 1872, consent will be nullified if both the
parties believe that an agreement is capable of being performed while such performance is
actually not possible, a contract entered by such mistake is void, on the ground of
impossibility of performance. And is also called doctrine of supervening impossibility.
21. Answer : (b) < TOP >

Reason : The facts in the given case are similar to the case of Kingstone Cotton Mills Co. where in
it was held that the auditors are not liable. It is not obligatory for an auditor to check
whether the company owns or possesses the stock-in-trade stated in its accounting or not.
However he is required to obtain a certificate to the amount and value of stock in trade
from the officers of the company charged with checking it and if the certificate agrees
with the company’s accounting and stock records, the auditor need not investigate the
matter. Options in (a) and (c) are not correct. (d) Directors are liable for the declaration of
18
 dividend. Hence option (b) is correct.
< TOP >
22. Answer : (c)
Reason : The company being an artificial person, enjoys perpetual succession. The company
remains unaffected by the death, insolvency or retirement of its members. In the given
case, the legal heirs of Raj and Rohit will become the members.
< TOP >
23. Answer : (d)
Reason : Shares can be held in joint holding in the company, but not exceeding three. In case of
joint holding, all the joint holders are treated as one member, and the company sends all
the correspondence only on the name of the first named person .If the joint holders intend
to dispose of the shares, all the joint holders must sign on the transfer form.
24. Answer : (a) < TOP >

Reason : Non Est Factum means A plea that an agreement mentioned in the pleading was not the
act of the defendant
25. Answer : (c) < TOP >

Reason : As per section 224 of the Companies Act,1956 an employee of the company is not
allowed to be appointed as the statutory auditor of the company. Hence the appointment
of Ajay is void.
26. Answer : (e) < TOP >

Reason : The advantages of legal justice are as follows:

-Impartiality in the administration of justice
-Ensure uniformity and certainty in the administration of justice
-It represents the collective wisdom of community.
27. Answer : (e) < TOP >

Reason : As per section 85 of the Negotiable Instruments Act,1881,where a cheque payable to

bearer purports to be indorsed by or on behalf of the payee, and the bank on which it is
drawn makes payment in due course, then the bank is discharged from its liability not
withstanding the fact that the endorsement of the payee might turn out to be forged.
28. Answer : (c) < TOP >

Reason : The certificate of incorporation is a conclusive evidence for the incorporation of a

company. Section 35 of the Companies Act, 1956 prevents the reopening of the matters
prior and contemporaneous to the registration of company.
29. Answer : (d) < TOP >

Reason : Consideration may move from the promisee or any other person, even a stranger. All that
matters is the presence of consideration and not the person giving it. The facts given in
the case are similar to case of Chinnayya vs Ramayya. In this case, an old lady by deed of
a gift made over certain property to her daughter ‘D’, under the direction that she should
pay her aunt ‘P’ the sister of the old lady, a certain sum of money annually. The same day
‘D’ entered into an agreement with ‘P’ to pay her the agreed amount. Later ‘D’ refused to
pay the amount on the plea that no consideration had moved from P to D. It was held that
P was entitled to maintain suit as consideration had moved from the old lady, sister of P,
to the daughter.
Hence the suit by Raghava Rao is maintainable.
The circumstances under which contracts without consideration are valid, are as follows:
Love and Affection [Section 25(1)]: An agreement made out of love and affection and
keeping in view the nearness of relationship, expressed in writing and registered under
law, is enforceable even if there is no consideration.
Voluntary Services [Section 25(2)]: A promise to compensate a person for an act
voluntarily done, is enforceable without consideration. For example, if A does a favor to
B, which he acknowledges and promises to do something in return, then the promise to A
is enforceable. It is essential that the service is rendered to the promisor and nobody else.
Time-Barred Debt [Section 25(3)]: A time-barred debt agreed upon by a written
agreement, signed by the debtor or his duly authorized agent, is enforceable even without
consideration. This debt must be one which would have otherwise been enforceable but
for the law of limitation.

19
 As per the explanation given to the Section 25, nothing in this section shall affect the
validity, as between the donor and donee, of any gift actually made.
Section 185 of the Act states that consideration is not necessary to create an agency.
vi. Charitable Subscription: Where the promisee makes commitments on the strength
of a promise then the said promise will be enforceable.
30. Answer (d) < TOP >

Reason : According to section 262, if the office of a director appointed in a general meeting is
vacated before the expiry of his term, either by reason of death, resignation,
disqualification or for any other reason except retirement by rotation, then subject to the
articles of association, the board of directors may fill up the vacancy at a meeting of the
Board. The director who has been so appointed shall hold office only till the date upto,
which the director in whose place he is appointed would have held the office.
In the present case, Mr. X is appointed in the general meeting but he died in a car accident
in his place Y is appointed by the board of directors as casual director. But Y resigned
from the company the question is whether this will be treated as casual vacancy, which is
not filled by the members in general meeting? The answer is no only. Theoretically this
vacancy cannot be filled by the bard of directors in their meeting only the vacancy must
be filled in general meeting. But Department of company law affairs clarified that in the
interest of smooth working of the company, department will have no objection to Board
of directors filling that casual vacancy as many times as may be necessary Hence `Z’ can
be appointed as director to fill up the casual vacancy on account of `Yes resignation. Such
vacancy shall be filled at Board meeting and no Extra Ordinary General Meeting is
required. Since `Z’ has been appointed in place of `Y’, he shall hold office up to the date
on which `X’ would have held his office. `Z’ will not be liable to retire by rotation.
31. Answer : (a) < TOP >

Reason : Lending a truck knowingly for bringing goods which are prohibited is an illegal
agreement .But all others are only void agreements but they are not illegal agreements. the
major difference between the void agreement and illegal agreement is void agreement is
not punishable where as illegal agreements are punishable also. Collateral to illegal
agreement are also void where as collateral agreement to void agreements are not void.
32. Answer : (e) < TOP >

Reason : The directors are personally liable to the company in cases where they act with malafide
intention, and they act negligently.
33. Answer : (d) < TOP >

Reason : According to section 209 of the companies Act, Books of accounts to be kept by the
company is compulsory to all the companies. But the other options in the question are
applicable only to the public companies or subsidiaries of public companies.
34. Answer : (c) < TOP >

Reason : Breach of contract which is partly legal and partly illegal but both are inseparable is not
enforceable in law And also breach of contract which is collateral to an illegal agreement.
And all others are enforceable.
< TOP >
35. Answer : (b)
Reason : A company which could not raise minimum capital before 14th December 2002 is a
defunct company is a true statement but all other are false statements
36. Answer : (b) < TOP >

Reason : Minor can be appointed, as director of private company .The provisions of section 264 is
not applicable to private companies. Since, he need not give consent in Form –29, Hence -
a minor can be appointed in a private company But he will not incur any personal
liability.
37. Answer : (b) < TOP >

Reason : Agenda items cannot be jumbled at members meeting

38. Answer : (b) < TOP >

Reason : In the present question the following persons can be counted for the purpose of quorum
at a general meeting

20
 A person who is not member but representing three companies
Both the joint owners of shares present at the meeting.
39. Answer : (e) < TOP >

Reason : No penalty is required to be paid if a private company files its profit and loss account
separately with the ROC within the period given in this situation.
40. Answer : (e) < TOP >

Reason : As a general principle, the ‘Board of directors can exercise unlimited powers’. But the
following are the exceptions to the above general rule
Dead lock
Incompetence of the Board
Malafide acts
Acts in violation of Companies Act.
41. Answer : (c) < TOP >

Reason : At a meeting of audit committee, statutory/internal auditors can take part in discussion but
cannot form quorum and cannot vote on resolutions.
42. Answer : (b) < TOP >

Reason : Under the provisions of the Companies Act, 1956 there is no bar to Frazil being appointed
as a director of New Age Ltd., if so elected in the annual general meeting of the
company. Auditor is not an officer of the company for the purpose of Section 2(30) of the
Act.
How ever, a director is an officer of the company u/s 2(30) of the Act and as such if Frazil
is appointed as director, then re-appointment of the firm as the auditor will be hit by
disqualification contained in section 226(3)(b) and (c) of the Companies Act, 1956.
43. Answer : (c) < TOP >

Reason : The company and officer in default shall be punishable with fine of rupees five hundred
44. Answer : (d) < TOP >

Reason : The director appointed by the Central government cannot be removed by the members
under section 284 of the Act and all others can be removed by the members in general
meeting.
45. Answer : (b) < TOP >

Reason : A agrees to marry B, but before the due date of marriage, she marries C. The above act of
disabling her self from performing the contract is called anticipatory breach.
46. Answer : (a) < TOP >

Reason : Share warrants are recognized as negotiable instruments recognized by custom or usage
but money orders, postal orders, railway receipts Dock warrants are not recognized as
negotiable instruments though these documents are transferable by delivery and
endorsement and delivery. Yet they cannot give a better title to the transferee.
47. Answer : (b) < TOP >

Reason : A cheque can be made payable on ‘bearer on demand’ but all others i.e. a promissory
note, bill of exchange, or a hundi cannot be made payable to bearer on demand by virtue
of section 31 of the Reserve Bank of India Act,1934.
48. Answer : (a) < TOP >

Reason : Pawan will not succeed. Since Pawan bought the horse after his examination and not on
the basis of the certificate. Thus, the certificate did not deceive him. And an attempt to
deceit which does not deceive is no fraud
49. Answer : (e) < TOP >

Reason : To check whether the transactions of the company which are represented merely by book
entries are not prejudicial to the interest of the company is the duty of the auditor and not
the right of the auditor but all other are rights of an auditor.
50. Answer : (e) < TOP >

Reason : Any person holds shares as nominee for the third person is not counted for the purpose of
this section as he hold shares in the company . Hence, he is eligible to be appointed as an
21
 auditor. But all other entities are disqualified to be appointed as an auditor of a company.
51. Answer : (e) < TOP >

Reason : To borrow money otherwise than on debentures, to invest funds of the company and to
make loans can be exercised by the committee of directors. But matters like, make calls
on the uncalled capital and issue debentures cannot be exercised by the committee of
directors they can be exercised only by the Board of directors.
52. Answer : (c) < TOP >

Reason : The provision of maximum remuneration and approval of Central Government is not
applicable to Government companies. But all others are applicable to Government
companies.
53. Answer : (c) < TOP >

Reason : No quorum is required for the adjourned general meeting of the company where as
quorum is required for every board meeting.
Notice must specify the agenda where as in the case of a board meeting agenda need not
be specified
General meeting must be conducted only within the city where the registered office is
situated whereas the board meeting can be conducted any where with in the India
54. Answer : (a) < TOP >

Reason : The main difference between the share and the debenture indicates the ownership of the
company whereas debenture indicates the indebtedness of the company.
55. Answer : (b) < TOP >

Reason : All the non-executive directors only entitled to receive the sitting fees ,as per the articles
of the company subject to limits prescribed under the companies Act (i.e.Rs.5000)
56. Answer : (b) < TOP >

Reason : No director, officer or any employee of the company can refuse to vacate the company’s
accommodation after he has been removed from the office. Section 630 of the Companies
Act, 1956 specifies penalty for wrongful with holding of the company’s accommodation
which is given to him for his personal use only till such time he continues to be in the
employment of the company.
Section 630(1) of the Companies Act provides that if any officer or employee of a
company:
wrongfully obtains possession of any property of a company; or
having ay such property in his possession, wrongfully withholds it or knowingly applies it
to purposes other than those expressed or directed in the Articles and authorized by this
Act; he shall, on the complaint of the company or any creditor or any contributory
thereof, be punishable with fine which may extend to Rs. 10,000
Further sub-section (2) of Section 630 provides that the court trying the offence may order
such officer or employee to deliver up or refund within a time to be fixed by the court,
any such property wrongfully obtained or wrongfully withheld or knowingly misapplied
or in default to suffer imprisonment for a term which may extend to 2 years.
The Supreme Court has in the case of Baldev Krishna Sahi v. Shipping Corp. of India,
while deciding the applicability of Section 630, held that the term officer or employee of a
company applied not only to existing officers or employees of a company but also to past
officers or employees of a company.
Therefore, in the given case, as Mr. Sandeep, the General Manager who was removed, is
still wrongfully withholding the property belonging to the Company, the company can file
a complaint to the Court under Section 630 to order Mr. Sandeep to deliver up the said
property.
57. Answer : (d) < TOP >

Reason : This question is meant to ensure that a Pawnee has no right to retain goods pledged for
any debt other than the debt for which goods were pledged.
58. Answer : (c) < TOP >

Reason : The letter of revocation or acceptance should overtake the letter of acceptance.
59. Answer : (c) < TOP >

22
 Reason : This is a contract for sale of specific goods. Where the seller has to do something to the
goods for the purpose of putting the goods into a deliverable state, the property in the
goods passes to the buyer when such thing is done and the buyer has notice thereof. Refer
to Section 21 of the Sale of Goods Act, 1930.
60. Answer : (c) < TOP >

Reason : State decisis means a court has to adhere to its own earlier decision.
61. Answer : (c) < TOP >

Reason : The Doctrine of Election lays down the principle that a man taking a benefit under an
instrument must also bear the burden.
62. Answer : (d) < TOP >

Reason : Where a contract states that A and B (Joint promisors) are jointly and severally liable, this
means the other party may compel either A or B to perform the whole of the promise. The
party who pays can in turn recover from the other his share.
63. Answer : (d) < TOP >

Reason : Options a, b and c are not appropriate legally. Though (a) is a common course of conduct
adopted by bankers with long standing customers it is wrong. The student may hover
between (c) and (d). Hence Correct Answer : (d) as notice of dishonour is not required in
this case. (Refer to Section 98 of Negotiable Instruments Act, 1881.
64. Answer : (d) < TOP >

Reason : This is the most appropriate course of action as in law P is entitled to recover on a
quantum meruit for the work he has done under the contract. Refer Planche Vs. Colburn.
65. Answer : (d) < TOP >

Reason : The contract is voidable at the option of “B”. This is a case of fraud covered by Section
19 of the Indian Contract Act, 1872.
66. Answer : (c) < TOP >

Reason : The doctrine of Ejusdem Generics is a general term shall be read as if it belongs to the
same kind as the specific terms preceding it.
67. Answer : (d) < TOP >

Reason : As per Negotiable Instruments Act 1881, the cheque should bear the name of the
company along with signature.
68. Answer : (d) < TOP >

Reason : Every company shall in each year hold its annual general meeting. The interval between
one AGM and the next shall not be more than 15 months. A company may hold its first
AGM within 18 months from the date of incorporation. In such case, it need not to hold
AGM in the year of incorporation and the following year.
69. Answer : (d) < TOP >

Reason : The rules of interpretation are The statute must be read as a whole and construction
should be put on all parts of the statute
The statute must be construed in a manner to carry out the intention of the legislature
The interpretation should be in accordance with the policy and object of the statute in
question
(e) The words used should be in the popular sense.
70. Answer : (e) < TOP >

Reason : The auditors report is not required to be filed with the ROC but all others are required to
be filed with the registrar of companies.
71. Answer : (c) < TOP >

Reason : Where the shareholder intends to sell only a part of the shares represented by the share
certificate or if he wants to sell such shares to more than one person, he is required to
lodge the share certificate along with the instrument of transfer for a part of the shares
with the company. The company may, upon his request, certify on the instrument of
transfer that the share certificate for the shares covered by the instrument of transfer has
been lodged with the company. This is called certification and an instrument of transfer
will be deemed to be certified only when it bears the words ‘Certificated lodged’ or words
23
 to the like effect.
The certification by the company shows a prima facie title in the transferor and is in no
way a representation that the transferor has any title to the shares. Where a certificate is
lodged only for transfer of part of the shares, the company in due course will issue a fresh
certificate for the balance. However, sometimes before the issue of a fresh certificate, the
company issues a ticket for the balance which is called a balance ticket.
72. Answer : (c) < TOP >

Reason : A company incorporate under the provisions of the Companies Act is entitled to enter into
a contract and also eligible to become member of a company.
Company is an artificial juristic person it can enter into a contract and conduct business
an its own name. Can sue and be sued.
But all others in the question are incompetent to enter into a contract.
73. Answer : (a) < TOP >

Reason : The company has to conduct meeting on Monday only since it is specifically mentioned
in the notice
74. Answer : (e) < TOP >

Reason : Consideration in a contract can be Past, Present, Future

75. Answer : (b) < TOP >

Reason : An extraordinary general meeting may be called by Members holding at least 10% of the
paid-up share capital that carries voting rights.
76. Answer : (b) < TOP >

Reason : Consent obtained to a contract by other party under fraud renders the contract Voidable
77. Answer : (e) < TOP >

Reason : No age limit is prescribed under the Companies Act, a person to become a director of a
company. Even under the disqualifications mentioned under the companies Act, under
section 274, the maximum age limit is not mentioned. But a private company may have
more disqualifications than the disqualifications mentioned under sec.274.
78. Answer : (a) < TOP >

Reason : Mr. X, endorsed by giving the right of the endorsee to receive the amount due on the
instrument may be made dependent on the happening of a specified event which may not
happen is called Conditional endorsement
79. Answer : (d) < TOP >

Reason : Where the endorser merely signs at the back of the instrument and delivers it to the
endorsee
80. Answer : (a) < TOP >

Reason : Res ipsa loquitur means the thing speaks for itself.
81. Answer : (b) < TOP >

Reason : When a bill is drawn, accepted or endorsed for consideration is called Genuine trade bill
82. Answer : (b) < TOP >

Reason : Every holder in due course is a holder for value

83. Answer : (b) < TOP >

Reason : Where allotment of shares is made by a company before receiving the minimum
subscription, then the allotment is Voidable at the option of the allottee
84. Answer : (c) < TOP >

Reason : Reserve Capital u/s 99 Cannot be called up except at the time of winding up of the
company
85. Answer : (c) < TOP >

Reason : The word `account payee’ is added to the general or special crossing correctly describes
restrictive crossing
86. Answer : (b) < TOP >

24
 Reason : When the day on which a Promissory note or Bills of Exchange is at maturity is a public
holiday, the instrument shall be deemed to be due on the next preceding business day
Section 25).
87. Answer : (d) < TOP >

Reason : Managing Director is entitled to remuneration from both companies. However, the total
remuneration from both companies shall not exceed the higher of the amount eligible
under Schedule XIII from each company
88. Answer : (d) < TOP >

Reason : A relative of a director is interested in a contract entered by a public company, whose

paid up capital is one crore with any private company require previous approval of the
Central Government
89. Answer : (e) < TOP >

Reason : Reckless sanction and disbursement of loans is held as mismanagement where as all other
four are not held as mismanagement.
90. Answer : (b) < TOP >

Reason : The maximum interest payable on public deposits is Twelve and half percent per annum.
91. Answer : (b) < TOP >

Reason : When a company took up the activity of buy-back of securities, the share certificates must
be destroyed With in 7 day of the last date of completion of buy back.
92. Answer : (e) < TOP >

Reason : Conversion of public limited company into a private limited company require passing of
board resolution and sanction of shareholders in general meeting and approval of Central
Government
93. Answer : (d) < TOP >

Reason : Re-issue redeemed debentures do not require passing of special resolution under section
121 of the Companies Act but requires only passing of ordinary resolution. All others
require passing of special resolution.
94. Answer : (c) < TOP >

Reason : The one who has authority to do all acts connected with a particular trade, business or
employment. The principal may put an end to his authority. Unless the principal puts and
end to his authority, it shall be assumed continuous. All other options are wrong.
95. Answer : (b) < TOP >

Reason : Relationship between a banker and his customer is of that of a Creditor and debtor.
96. Answer : (a) < TOP >

Reason : A bill is drawn on Arvind in Chennai and is payable at Bangalore .In case the bill is
dishonored by non-acceptance, it can be protested in Bangalore with out presenting it
once again to Arvind at Chennai
97. Answer : (d) < TOP >

Reason : The inspection by the Securities Exchange Board of India shall be made in respect of
matters relating to Issue and transfer of securities and Non-payment of dividend.

< TOP OF THE DOCUMENT >

25