Business Laws and Business Correspondence & Reporting(Paper-2) - May 2018 | Mock Tests & Past Year Papers for CA Foundation PDF Download

 Page 1


PAPER - 2: BUSINESS LAWS AND BUSINESS CORRESPONDENCE AND REPORTING
SECTION A: BUSINESS LAWS
PART - I: RELEVANT AMENDMENTS APPLICABLE FOR MAY 2018 EXAMINATION
Applicability of Relevant Amendments/ Circulars/ Notifications/ Regulations etc.
For May 2018 examinations for Paper 2, Section A: Business Laws, the significant amendments 
made in the respective subject for the period 1s t May 2017 to 31s t October, 2017 are relevant 
and applicable for said examinations.
This RTP of May 2018 examination is very important to the students to update themselves with 
the relevant amendments pertaining to the Business Laws.
Students are advised to refer the following publications -
1. Study Material (Edition July 2017) containing Legislative amendments issued 
upto 30th April, 2017.
2. RTP of May 2018 examination containing a gist of all the significant notified 
legislative amendments from 1 st May 2017 to 31 st October, 2017 along with the 
suggested sample questions and answers for understanding and practice.
Following is the relevant amendment:
S. No. Subject Matter
1. The Ministry of Corporate Affairs vide Notification S.O. 3086(E) dated 20th 
September, 2017 has notified the proviso to clause (87) of section 2 of the 
Companies Act, 2013 w.e.f. 20th September, 2017.
[Proviso to clause (87) of Section 2 of the Companies Act, 2013 is covered on Page 
No. 5.12, Chapter 5 of the study material]
PART II: QUESTIONS AND ANSWERS
QUESTIONS
The Indian Contract Act, 1872
1. (i) 'X' agreed to become an assistant for 2 years to Y who was practicing Chartered
Accountant at Jodhpur. It was also agreed that during the term of agreement 'X' will 
not practice as a Chartered Accountant on his own account within 20 kms of the office 
of Y at Jodhpur. At the end of one year, 'X' left the assistantship of Y and started 
practice on his own account within the said area of 20 kms.
Page 2


PAPER - 2: BUSINESS LAWS AND BUSINESS CORRESPONDENCE AND REPORTING
SECTION A: BUSINESS LAWS
PART - I: RELEVANT AMENDMENTS APPLICABLE FOR MAY 2018 EXAMINATION
Applicability of Relevant Amendments/ Circulars/ Notifications/ Regulations etc.
For May 2018 examinations for Paper 2, Section A: Business Laws, the significant amendments 
made in the respective subject for the period 1s t May 2017 to 31s t October, 2017 are relevant 
and applicable for said examinations.
This RTP of May 2018 examination is very important to the students to update themselves with 
the relevant amendments pertaining to the Business Laws.
Students are advised to refer the following publications -
1. Study Material (Edition July 2017) containing Legislative amendments issued 
upto 30th April, 2017.
2. RTP of May 2018 examination containing a gist of all the significant notified 
legislative amendments from 1 st May 2017 to 31 st October, 2017 along with the 
suggested sample questions and answers for understanding and practice.
Following is the relevant amendment:
S. No. Subject Matter
1. The Ministry of Corporate Affairs vide Notification S.O. 3086(E) dated 20th 
September, 2017 has notified the proviso to clause (87) of section 2 of the 
Companies Act, 2013 w.e.f. 20th September, 2017.
[Proviso to clause (87) of Section 2 of the Companies Act, 2013 is covered on Page 
No. 5.12, Chapter 5 of the study material]
PART II: QUESTIONS AND ANSWERS
QUESTIONS
The Indian Contract Act, 1872
1. (i) 'X' agreed to become an assistant for 2 years to Y who was practicing Chartered
Accountant at Jodhpur. It was also agreed that during the term of agreement 'X' will 
not practice as a Chartered Accountant on his own account within 20 kms of the office 
of Y at Jodhpur. At the end of one year, 'X' left the assistantship of Y and started 
practice on his own account within the said area of 20 kms.
2 FOUNDATION EXAMINATION: MAY, 2018
Referring to the provisions of the Indian Contract Act, 1872, decide whether 'X' could 
be restrained from doing so?
(ii) A stranger to a contract cannot sue, however in some cases even a stranger to 
contract may enforce a claim. Explain.
2. (i) PM Ltd., contracts with Gupta Traders to make and deliver certain machinery to them
by 30th June 2017 for ? 21.50 Lakhs. Due to labour strike, PM Ltd. could not 
manufacture and deliver the machinery to Gupta Traders. Later Gupta Traders 
procured the machinery from another manufacturer for ? 22.75 lakhs. Gupta Traders 
was also prevented from performing a contract which it had made with Zenith Traders 
at the time of their contract with PM Ltd. and were compelled to pay compensation 
for breach of contract. Calculate the amount of compensation which Gupta Traders 
can claim from PM Ltd., referring to the legal provisions of the Indian Contract Act, 
1872.
(ii) A student was induced by his teacher to sell his brand new car to the latter at less 
than the purchase price to secure more marks in the examination. Accordingly the 
car was sold. However, the father of the student persuaded him to sue his teacher. 
State on what ground the student can sue the teacher?
3. (i) Explain the term "coercion" and describe its effect on the validity of a contract?
(ii) “Though a minor is not competent to contract, nothing in the Contract Act prevents 
him from making the other party bound to the minor”. Discuss.
(iii) A received certain goods from B promising to pay ? 1,00,000. Later on, A expressed 
his inability to make payment. C, who is known to A, pays ? 60,000 to B on behalf of 
A. However, A was not aware of the payment. Now B is intending to sue A for the 
amount of ? 1,00,000. Discuss whether the contention of B is right?
4. Decide with reasons whether the following agreements are valid or void under the
provisions of the Indian Contract Act, 1872:
(i) Vijay agrees with Saini to sell his black horse for ? 3,00,000. Unknown to both the 
Parties, the horse was dead at the time of the agreement.
(ii) Sarvesh sells the goodwill of his shop to Vikas for ? 10,00,000 and promises not to 
carry on such business forever and anywhere in India.
(iii) Mr. X agrees to write a book with a publisher. After few days, X dies in an accident.
The Sale of Goods Act, 1930
5. (i) Explain the term “Delivery and its form” under the Sale of Goods Act, 1930.
(ii) Describe the consequences of “destruction of goods” under the Sale of Goods Act, 
1930, where the goods have been destroyed after the agreement to sell but before 
the sale is affected.
Page 3


PAPER - 2: BUSINESS LAWS AND BUSINESS CORRESPONDENCE AND REPORTING
SECTION A: BUSINESS LAWS
PART - I: RELEVANT AMENDMENTS APPLICABLE FOR MAY 2018 EXAMINATION
Applicability of Relevant Amendments/ Circulars/ Notifications/ Regulations etc.
For May 2018 examinations for Paper 2, Section A: Business Laws, the significant amendments 
made in the respective subject for the period 1s t May 2017 to 31s t October, 2017 are relevant 
and applicable for said examinations.
This RTP of May 2018 examination is very important to the students to update themselves with 
the relevant amendments pertaining to the Business Laws.
Students are advised to refer the following publications -
1. Study Material (Edition July 2017) containing Legislative amendments issued 
upto 30th April, 2017.
2. RTP of May 2018 examination containing a gist of all the significant notified 
legislative amendments from 1 st May 2017 to 31 st October, 2017 along with the 
suggested sample questions and answers for understanding and practice.
Following is the relevant amendment:
S. No. Subject Matter
1. The Ministry of Corporate Affairs vide Notification S.O. 3086(E) dated 20th 
September, 2017 has notified the proviso to clause (87) of section 2 of the 
Companies Act, 2013 w.e.f. 20th September, 2017.
[Proviso to clause (87) of Section 2 of the Companies Act, 2013 is covered on Page 
No. 5.12, Chapter 5 of the study material]
PART II: QUESTIONS AND ANSWERS
QUESTIONS
The Indian Contract Act, 1872
1. (i) 'X' agreed to become an assistant for 2 years to Y who was practicing Chartered
Accountant at Jodhpur. It was also agreed that during the term of agreement 'X' will 
not practice as a Chartered Accountant on his own account within 20 kms of the office 
of Y at Jodhpur. At the end of one year, 'X' left the assistantship of Y and started 
practice on his own account within the said area of 20 kms.
2 FOUNDATION EXAMINATION: MAY, 2018
Referring to the provisions of the Indian Contract Act, 1872, decide whether 'X' could 
be restrained from doing so?
(ii) A stranger to a contract cannot sue, however in some cases even a stranger to 
contract may enforce a claim. Explain.
2. (i) PM Ltd., contracts with Gupta Traders to make and deliver certain machinery to them
by 30th June 2017 for ? 21.50 Lakhs. Due to labour strike, PM Ltd. could not 
manufacture and deliver the machinery to Gupta Traders. Later Gupta Traders 
procured the machinery from another manufacturer for ? 22.75 lakhs. Gupta Traders 
was also prevented from performing a contract which it had made with Zenith Traders 
at the time of their contract with PM Ltd. and were compelled to pay compensation 
for breach of contract. Calculate the amount of compensation which Gupta Traders 
can claim from PM Ltd., referring to the legal provisions of the Indian Contract Act, 
1872.
(ii) A student was induced by his teacher to sell his brand new car to the latter at less 
than the purchase price to secure more marks in the examination. Accordingly the 
car was sold. However, the father of the student persuaded him to sue his teacher. 
State on what ground the student can sue the teacher?
3. (i) Explain the term "coercion" and describe its effect on the validity of a contract?
(ii) “Though a minor is not competent to contract, nothing in the Contract Act prevents 
him from making the other party bound to the minor”. Discuss.
(iii) A received certain goods from B promising to pay ? 1,00,000. Later on, A expressed 
his inability to make payment. C, who is known to A, pays ? 60,000 to B on behalf of 
A. However, A was not aware of the payment. Now B is intending to sue A for the 
amount of ? 1,00,000. Discuss whether the contention of B is right?
4. Decide with reasons whether the following agreements are valid or void under the
provisions of the Indian Contract Act, 1872:
(i) Vijay agrees with Saini to sell his black horse for ? 3,00,000. Unknown to both the 
Parties, the horse was dead at the time of the agreement.
(ii) Sarvesh sells the goodwill of his shop to Vikas for ? 10,00,000 and promises not to 
carry on such business forever and anywhere in India.
(iii) Mr. X agrees to write a book with a publisher. After few days, X dies in an accident.
The Sale of Goods Act, 1930
5. (i) Explain the term “Delivery and its form” under the Sale of Goods Act, 1930.
(ii) Describe the consequences of “destruction of goods” under the Sale of Goods Act, 
1930, where the goods have been destroyed after the agreement to sell but before 
the sale is affected.
PAPER - 2 : BUSINESS LAWS AND BUSINESS CORRESPONDENCE AND REPORTING 3
6. (i) Describe the term “unpaid seller” under the Sale of Goods Act, 1930? When can an
unpaid seller exercise the right of stoppage of goods in transit?
(ii) Explain the “condition as to Merchantability” and “condition as to wholesomeness” 
under the Sale of Goods Act, 1930.
7. (i) J the owner of a Fiat car wants to sell his car. For this purpose he hand over the car
to P, a mercantile agent for sale at a price not less than ? 50, 000. The agent sells 
the car for ? 40, 000 to A, who buys the car in good faith and without notice of any 
fraud. P misappropriated the money also. J sues A to recover the Car. Decide given 
reasons whether J would succeed.
(ii) Explain the term “Caveat-Emptor” under the Sale of Goods Act, 1930? What are the 
exceptions to this rule?
The Indian Partnership Act, 1932
8. (i) Whether a minor may be admitted in the business of a partnership firm? Explain the
rights of a minor in the partnership firm.
(ii) A & Co. is registered as a partnership firm in 2015 with A, B and C partners. In 2016, 
A dies. In 2017, B and C sue X in the name and on behalf of A & Co., without fresh 
registration. Decide whether the suit is maintainable. Whether your answer would be 
same if in 2017 B and C had taken a new partner D and then filed a suit against X 
without fresh registration?
9. (i) A, B and C are partners in a firm. As per terms of the partnership deed, A is entitled
to 20 percent of the partnership property and profits. A retires from the firm and dies 
after 15 days. B and C continue business of the firm without settling accounts. Explain 
the rights of A’s legal representatives against the firm under the Indian Partnership 
Act, 1932?
(ii) State the differences between Partnership and Hindu Undivided Family.
The Limited Liability Partnership Act, 2008
10. (i) What do you mean by Limited Liability Partnership (LLP)? What are the advantages 
for forming a LLP for doing business?
List the differences between the Limited Liability Partnership and the Limited Liability 
Company.
The Companies Act, 2013
11. (i) Explain the concept of "Dormant Company" as envisaged in the Companies Act, 
2013.
(ii) The Articles of Association of XYZ Ltd. provides that Board of Directors has authority 
to issue bonds provided such issue is authorized by the shareholders by a necessary 
resolution in the general meeting of the company. The company was in dire need of
Page 4


PAPER - 2: BUSINESS LAWS AND BUSINESS CORRESPONDENCE AND REPORTING
SECTION A: BUSINESS LAWS
PART - I: RELEVANT AMENDMENTS APPLICABLE FOR MAY 2018 EXAMINATION
Applicability of Relevant Amendments/ Circulars/ Notifications/ Regulations etc.
For May 2018 examinations for Paper 2, Section A: Business Laws, the significant amendments 
made in the respective subject for the period 1s t May 2017 to 31s t October, 2017 are relevant 
and applicable for said examinations.
This RTP of May 2018 examination is very important to the students to update themselves with 
the relevant amendments pertaining to the Business Laws.
Students are advised to refer the following publications -
1. Study Material (Edition July 2017) containing Legislative amendments issued 
upto 30th April, 2017.
2. RTP of May 2018 examination containing a gist of all the significant notified 
legislative amendments from 1 st May 2017 to 31 st October, 2017 along with the 
suggested sample questions and answers for understanding and practice.
Following is the relevant amendment:
S. No. Subject Matter
1. The Ministry of Corporate Affairs vide Notification S.O. 3086(E) dated 20th 
September, 2017 has notified the proviso to clause (87) of section 2 of the 
Companies Act, 2013 w.e.f. 20th September, 2017.
[Proviso to clause (87) of Section 2 of the Companies Act, 2013 is covered on Page 
No. 5.12, Chapter 5 of the study material]
PART II: QUESTIONS AND ANSWERS
QUESTIONS
The Indian Contract Act, 1872
1. (i) 'X' agreed to become an assistant for 2 years to Y who was practicing Chartered
Accountant at Jodhpur. It was also agreed that during the term of agreement 'X' will 
not practice as a Chartered Accountant on his own account within 20 kms of the office 
of Y at Jodhpur. At the end of one year, 'X' left the assistantship of Y and started 
practice on his own account within the said area of 20 kms.
2 FOUNDATION EXAMINATION: MAY, 2018
Referring to the provisions of the Indian Contract Act, 1872, decide whether 'X' could 
be restrained from doing so?
(ii) A stranger to a contract cannot sue, however in some cases even a stranger to 
contract may enforce a claim. Explain.
2. (i) PM Ltd., contracts with Gupta Traders to make and deliver certain machinery to them
by 30th June 2017 for ? 21.50 Lakhs. Due to labour strike, PM Ltd. could not 
manufacture and deliver the machinery to Gupta Traders. Later Gupta Traders 
procured the machinery from another manufacturer for ? 22.75 lakhs. Gupta Traders 
was also prevented from performing a contract which it had made with Zenith Traders 
at the time of their contract with PM Ltd. and were compelled to pay compensation 
for breach of contract. Calculate the amount of compensation which Gupta Traders 
can claim from PM Ltd., referring to the legal provisions of the Indian Contract Act, 
1872.
(ii) A student was induced by his teacher to sell his brand new car to the latter at less 
than the purchase price to secure more marks in the examination. Accordingly the 
car was sold. However, the father of the student persuaded him to sue his teacher. 
State on what ground the student can sue the teacher?
3. (i) Explain the term "coercion" and describe its effect on the validity of a contract?
(ii) “Though a minor is not competent to contract, nothing in the Contract Act prevents 
him from making the other party bound to the minor”. Discuss.
(iii) A received certain goods from B promising to pay ? 1,00,000. Later on, A expressed 
his inability to make payment. C, who is known to A, pays ? 60,000 to B on behalf of 
A. However, A was not aware of the payment. Now B is intending to sue A for the 
amount of ? 1,00,000. Discuss whether the contention of B is right?
4. Decide with reasons whether the following agreements are valid or void under the
provisions of the Indian Contract Act, 1872:
(i) Vijay agrees with Saini to sell his black horse for ? 3,00,000. Unknown to both the 
Parties, the horse was dead at the time of the agreement.
(ii) Sarvesh sells the goodwill of his shop to Vikas for ? 10,00,000 and promises not to 
carry on such business forever and anywhere in India.
(iii) Mr. X agrees to write a book with a publisher. After few days, X dies in an accident.
The Sale of Goods Act, 1930
5. (i) Explain the term “Delivery and its form” under the Sale of Goods Act, 1930.
(ii) Describe the consequences of “destruction of goods” under the Sale of Goods Act, 
1930, where the goods have been destroyed after the agreement to sell but before 
the sale is affected.
PAPER - 2 : BUSINESS LAWS AND BUSINESS CORRESPONDENCE AND REPORTING 3
6. (i) Describe the term “unpaid seller” under the Sale of Goods Act, 1930? When can an
unpaid seller exercise the right of stoppage of goods in transit?
(ii) Explain the “condition as to Merchantability” and “condition as to wholesomeness” 
under the Sale of Goods Act, 1930.
7. (i) J the owner of a Fiat car wants to sell his car. For this purpose he hand over the car
to P, a mercantile agent for sale at a price not less than ? 50, 000. The agent sells 
the car for ? 40, 000 to A, who buys the car in good faith and without notice of any 
fraud. P misappropriated the money also. J sues A to recover the Car. Decide given 
reasons whether J would succeed.
(ii) Explain the term “Caveat-Emptor” under the Sale of Goods Act, 1930? What are the 
exceptions to this rule?
The Indian Partnership Act, 1932
8. (i) Whether a minor may be admitted in the business of a partnership firm? Explain the
rights of a minor in the partnership firm.
(ii) A & Co. is registered as a partnership firm in 2015 with A, B and C partners. In 2016, 
A dies. In 2017, B and C sue X in the name and on behalf of A & Co., without fresh 
registration. Decide whether the suit is maintainable. Whether your answer would be 
same if in 2017 B and C had taken a new partner D and then filed a suit against X 
without fresh registration?
9. (i) A, B and C are partners in a firm. As per terms of the partnership deed, A is entitled
to 20 percent of the partnership property and profits. A retires from the firm and dies 
after 15 days. B and C continue business of the firm without settling accounts. Explain 
the rights of A’s legal representatives against the firm under the Indian Partnership 
Act, 1932?
(ii) State the differences between Partnership and Hindu Undivided Family.
The Limited Liability Partnership Act, 2008
10. (i) What do you mean by Limited Liability Partnership (LLP)? What are the advantages 
for forming a LLP for doing business?
List the differences between the Limited Liability Partnership and the Limited Liability 
Company.
The Companies Act, 2013
11. (i) Explain the concept of "Dormant Company" as envisaged in the Companies Act, 
2013.
(ii) The Articles of Association of XYZ Ltd. provides that Board of Directors has authority 
to issue bonds provided such issue is authorized by the shareholders by a necessary 
resolution in the general meeting of the company. The company was in dire need of
4 FOUNDATION EXAMINATION: MAY, 2018
funds and therefore, it issued the bonds to Mr. X without passing any such resolution 
in general meeting. Can Mr. X recover the money from the company? Decide referring 
the relevant provisions of the Companies Act, 2013.
12. (i) State whether a non-profit organization be registered as a company under the 
Companies Act, 2013? If so, what procedure does it have to adopt?
(ii) When a company is registered, it is clothed with a legal personality. Explain.
SUGGESTED ANSWERS / HINTS
1. (i) Agreement in Restraint of Trade: Section 27 of the Indian Contract Act, 1872 deals
with agreements in restraint of trade. According to the said section, every agreement 
by which any person is restrained from exercising a lawful profession, trade or 
business of any kind, is to that extent void. However, in the case of the service 
agreements restraint of trade is valid. In an agreement of service by which a person 
binds himself during the term of agreement not to take service with anyone else 
directly or indirectly to promote any business in direct competition with that of his 
employer is not in restraint of trade, so it is a valid contract.
In the instant case, agreement entered by ‘X’ with Y is reasonable, and do not 
amount to restraint of trade and hence enforceable.
Therefore, ‘X’ can be restrained by an injunction from practicing on his own account 
in within the said area of 20 Kms for another one year.
(ii) Stranger to a contract cannot sue is known as a “doctrine of privity of contract”.
This rule is however, subject to certain exceptions. In other words, even a stranger 
to a contract may enforce a claim in the following cases:
(1) In the case of trust, a beneficiary can enforce his right under the trust, though 
he was not a party to the contract between the settler and the trustee.
(2) In the case of a family settlement, if the terms of the settlement are reduced 
into writing, the members of family who originally had not been parties to the 
settlement may enforce the agreement.
(3) In the case of certain marriage contracts, or arrangements, a provision may 
be made for the benefit of a person. The person may enforce the agreement 
though he is not a party to the agreement.
(4) In the case of assignment of a contract, when the benefit under a contract 
has been assigned, the assignee can enforce the contract.
(5) Acknowledgement or estoppel - where the promisor by his conduct 
acknowledges himself as an agent of the third party, it would result into a binding 
obligation towards third party.
Page 5


PAPER - 2: BUSINESS LAWS AND BUSINESS CORRESPONDENCE AND REPORTING
SECTION A: BUSINESS LAWS
PART - I: RELEVANT AMENDMENTS APPLICABLE FOR MAY 2018 EXAMINATION
Applicability of Relevant Amendments/ Circulars/ Notifications/ Regulations etc.
For May 2018 examinations for Paper 2, Section A: Business Laws, the significant amendments 
made in the respective subject for the period 1s t May 2017 to 31s t October, 2017 are relevant 
and applicable for said examinations.
This RTP of May 2018 examination is very important to the students to update themselves with 
the relevant amendments pertaining to the Business Laws.
Students are advised to refer the following publications -
1. Study Material (Edition July 2017) containing Legislative amendments issued 
upto 30th April, 2017.
2. RTP of May 2018 examination containing a gist of all the significant notified 
legislative amendments from 1 st May 2017 to 31 st October, 2017 along with the 
suggested sample questions and answers for understanding and practice.
Following is the relevant amendment:
S. No. Subject Matter
1. The Ministry of Corporate Affairs vide Notification S.O. 3086(E) dated 20th 
September, 2017 has notified the proviso to clause (87) of section 2 of the 
Companies Act, 2013 w.e.f. 20th September, 2017.
[Proviso to clause (87) of Section 2 of the Companies Act, 2013 is covered on Page 
No. 5.12, Chapter 5 of the study material]
PART II: QUESTIONS AND ANSWERS
QUESTIONS
The Indian Contract Act, 1872
1. (i) 'X' agreed to become an assistant for 2 years to Y who was practicing Chartered
Accountant at Jodhpur. It was also agreed that during the term of agreement 'X' will 
not practice as a Chartered Accountant on his own account within 20 kms of the office 
of Y at Jodhpur. At the end of one year, 'X' left the assistantship of Y and started 
practice on his own account within the said area of 20 kms.
2 FOUNDATION EXAMINATION: MAY, 2018
Referring to the provisions of the Indian Contract Act, 1872, decide whether 'X' could 
be restrained from doing so?
(ii) A stranger to a contract cannot sue, however in some cases even a stranger to 
contract may enforce a claim. Explain.
2. (i) PM Ltd., contracts with Gupta Traders to make and deliver certain machinery to them
by 30th June 2017 for ? 21.50 Lakhs. Due to labour strike, PM Ltd. could not 
manufacture and deliver the machinery to Gupta Traders. Later Gupta Traders 
procured the machinery from another manufacturer for ? 22.75 lakhs. Gupta Traders 
was also prevented from performing a contract which it had made with Zenith Traders 
at the time of their contract with PM Ltd. and were compelled to pay compensation 
for breach of contract. Calculate the amount of compensation which Gupta Traders 
can claim from PM Ltd., referring to the legal provisions of the Indian Contract Act, 
1872.
(ii) A student was induced by his teacher to sell his brand new car to the latter at less 
than the purchase price to secure more marks in the examination. Accordingly the 
car was sold. However, the father of the student persuaded him to sue his teacher. 
State on what ground the student can sue the teacher?
3. (i) Explain the term "coercion" and describe its effect on the validity of a contract?
(ii) “Though a minor is not competent to contract, nothing in the Contract Act prevents 
him from making the other party bound to the minor”. Discuss.
(iii) A received certain goods from B promising to pay ? 1,00,000. Later on, A expressed 
his inability to make payment. C, who is known to A, pays ? 60,000 to B on behalf of 
A. However, A was not aware of the payment. Now B is intending to sue A for the 
amount of ? 1,00,000. Discuss whether the contention of B is right?
4. Decide with reasons whether the following agreements are valid or void under the
provisions of the Indian Contract Act, 1872:
(i) Vijay agrees with Saini to sell his black horse for ? 3,00,000. Unknown to both the 
Parties, the horse was dead at the time of the agreement.
(ii) Sarvesh sells the goodwill of his shop to Vikas for ? 10,00,000 and promises not to 
carry on such business forever and anywhere in India.
(iii) Mr. X agrees to write a book with a publisher. After few days, X dies in an accident.
The Sale of Goods Act, 1930
5. (i) Explain the term “Delivery and its form” under the Sale of Goods Act, 1930.
(ii) Describe the consequences of “destruction of goods” under the Sale of Goods Act, 
1930, where the goods have been destroyed after the agreement to sell but before 
the sale is affected.
PAPER - 2 : BUSINESS LAWS AND BUSINESS CORRESPONDENCE AND REPORTING 3
6. (i) Describe the term “unpaid seller” under the Sale of Goods Act, 1930? When can an
unpaid seller exercise the right of stoppage of goods in transit?
(ii) Explain the “condition as to Merchantability” and “condition as to wholesomeness” 
under the Sale of Goods Act, 1930.
7. (i) J the owner of a Fiat car wants to sell his car. For this purpose he hand over the car
to P, a mercantile agent for sale at a price not less than ? 50, 000. The agent sells 
the car for ? 40, 000 to A, who buys the car in good faith and without notice of any 
fraud. P misappropriated the money also. J sues A to recover the Car. Decide given 
reasons whether J would succeed.
(ii) Explain the term “Caveat-Emptor” under the Sale of Goods Act, 1930? What are the 
exceptions to this rule?
The Indian Partnership Act, 1932
8. (i) Whether a minor may be admitted in the business of a partnership firm? Explain the
rights of a minor in the partnership firm.
(ii) A & Co. is registered as a partnership firm in 2015 with A, B and C partners. In 2016, 
A dies. In 2017, B and C sue X in the name and on behalf of A & Co., without fresh 
registration. Decide whether the suit is maintainable. Whether your answer would be 
same if in 2017 B and C had taken a new partner D and then filed a suit against X 
without fresh registration?
9. (i) A, B and C are partners in a firm. As per terms of the partnership deed, A is entitled
to 20 percent of the partnership property and profits. A retires from the firm and dies 
after 15 days. B and C continue business of the firm without settling accounts. Explain 
the rights of A’s legal representatives against the firm under the Indian Partnership 
Act, 1932?
(ii) State the differences between Partnership and Hindu Undivided Family.
The Limited Liability Partnership Act, 2008
10. (i) What do you mean by Limited Liability Partnership (LLP)? What are the advantages 
for forming a LLP for doing business?
List the differences between the Limited Liability Partnership and the Limited Liability 
Company.
The Companies Act, 2013
11. (i) Explain the concept of "Dormant Company" as envisaged in the Companies Act, 
2013.
(ii) The Articles of Association of XYZ Ltd. provides that Board of Directors has authority 
to issue bonds provided such issue is authorized by the shareholders by a necessary 
resolution in the general meeting of the company. The company was in dire need of
4 FOUNDATION EXAMINATION: MAY, 2018
funds and therefore, it issued the bonds to Mr. X without passing any such resolution 
in general meeting. Can Mr. X recover the money from the company? Decide referring 
the relevant provisions of the Companies Act, 2013.
12. (i) State whether a non-profit organization be registered as a company under the 
Companies Act, 2013? If so, what procedure does it have to adopt?
(ii) When a company is registered, it is clothed with a legal personality. Explain.
SUGGESTED ANSWERS / HINTS
1. (i) Agreement in Restraint of Trade: Section 27 of the Indian Contract Act, 1872 deals
with agreements in restraint of trade. According to the said section, every agreement 
by which any person is restrained from exercising a lawful profession, trade or 
business of any kind, is to that extent void. However, in the case of the service 
agreements restraint of trade is valid. In an agreement of service by which a person 
binds himself during the term of agreement not to take service with anyone else 
directly or indirectly to promote any business in direct competition with that of his 
employer is not in restraint of trade, so it is a valid contract.
In the instant case, agreement entered by ‘X’ with Y is reasonable, and do not 
amount to restraint of trade and hence enforceable.
Therefore, ‘X’ can be restrained by an injunction from practicing on his own account 
in within the said area of 20 Kms for another one year.
(ii) Stranger to a contract cannot sue is known as a “doctrine of privity of contract”.
This rule is however, subject to certain exceptions. In other words, even a stranger 
to a contract may enforce a claim in the following cases:
(1) In the case of trust, a beneficiary can enforce his right under the trust, though 
he was not a party to the contract between the settler and the trustee.
(2) In the case of a family settlement, if the terms of the settlement are reduced 
into writing, the members of family who originally had not been parties to the 
settlement may enforce the agreement.
(3) In the case of certain marriage contracts, or arrangements, a provision may 
be made for the benefit of a person. The person may enforce the agreement 
though he is not a party to the agreement.
(4) In the case of assignment of a contract, when the benefit under a contract 
has been assigned, the assignee can enforce the contract.
(5) Acknowledgement or estoppel - where the promisor by his conduct 
acknowledges himself as an agent of the third party, it would result into a binding 
obligation towards third party.
PAPER - 2 : BUSINESS LAWS AND BUSINESS CORRESPONDENCE AND REPORTING 5
(6) In the case of covenant running with the land, the person who purchases 
land with notice that the owner of land is bound by certain duties affecting land, 
the covenant affecting the land may be enforced by the successor of the seller.
(7) Contracts entered into through an agent: The principal can enforce the 
contracts entered by his agent where the agent has acted within the scope of 
his authority and in the name of the principal.
2. (i) Section 73 of the Indian Contract Act, 1872 provides for compensation for loss or
damage caused by breach of contract. According to it, when a contract has been 
broken, the party who suffers by such a breach is entitled to receive from the party 
who has broken the contract, compensation for any loss or damage caused to him 
thereby which naturally arose in the usual course of things from such breach or which 
the parties knew when they made the contract, to be likely to result from the breach 
of it.
Such compensation is not to be given for any remote and indirect loss or damage 
sustained by reason of the breach.
It is further provided in the explanation to the section that in estimating the loss or 
damage from a breach of contract, the means which existed of remedying the 
inconvenience caused by the non-performance of the contract must be taken into 
account.
Applying the above principle of law to the given case, PM Ltd. is obliged to 
compensate for the loss of ? 1.25 lakhs (i.e. ? 22.75 lakhs - ? 21.50 lakhs) which 
had naturally arisen due to default in performing the contract by the specified date.
Regarding the amount of compensation which Gupta Traders were compelled to 
make to Zenith Traders, it depends upon the fact whether PM Ltd. knew about the 
contract of Gupta Traders for supply of the contracted machinery to Zenith Traders 
on the specified date. If so, PM Ltd. is also obliged to reimburse the compensation 
which Gupta Traders had to pay to Zenith Traders for breach of contract. Otherwise 
PM Ltd. is not liable for that.
(ii) Yes, the student can sue his teacher on the ground of undue influence under the 
provisions of Indian Contract Act, 1872. A contract brought as a result of coercion, 
undue influence, fraud or misrepresentation would be voidable at the option of the 
person whose consent was caused.
3. (i) “Coercion” is the committing or threatening to commit any act forbidden by the Indian
Penal Code 1860, or the unlawful detaining or threatening to detain any property, to 
the prejudice of any person whatever, with the intention of causing any person to 
enter into an agreement. (Section 15 of the Indian Contract Act, 1872).
It is also important to note that it is immaterial whether the Indian Penal Code, 1860 
is or is not in force at the place where the coercion is employed.