Business Laws Model Test Paper - 10 (Answers) | Mock Tests & Past Year Papers for CA Foundation PDF Download

 Page 1


ANSWERS OF MODEL TEST PAPER 10 
FOUNDATION COURSE 
PAPER – 2: BUSINESS LAWS 
1. (a) (i) According to Section 69 of the Indian Contract Act, 1872, a person 
who is interested in the payment of money which another is bound 
by law to pay, and who therefore pays it, is entitled to be reimbursed 
by the other.  
 In the instant case, Mr. M paid the electricity bill to avoid the 
disconnection that was pending due to Mr. L's failure to fulfil his 
contractual obligation. Hence, Mr. M is entitled to be reimbursed ? 
50,000 from Mr. L.  
(ii) In terms of Section 5 of the Indian Contract Act, 1872, a proposal 
can be revoked at any time before the communication of its 
acceptance is complete as against the proposer. 
 Accordingly, an offer may be revoked by the offeror before its 
acceptance, even though he had originally agreed to hold it open 
for a definite period of time. So long as it is a mere offer, it can be 
withdrawn whenever the offeror desires. 
 In the instant case, B cannot claim damages from A because the 
offer made by A is a mere offer and it can be withdrawn whenever 
A desires. 
(iii) The general rule is that an agreement made without consideration 
is void (Section 25 of the Indian Contract Act, 1872).  
 However, in the following case, the agreement though made 
without consideration, will be valid and enforceable. 
 Charity: If a promisee undertakes the liability on the promise of 
the person to contribute to charity, there the contract shall be 
valid.  
  In the instant case, Mr. A can claim 1.5 lakh from Mr. S. 
 (b) (i)  As per Rule 3 of the Companies (Incorporation) Rules, 2014:  
  Only a natural person who is an Indian citizen whether resident in 
India or otherwise 
(a)  shall be eligible to incorporate a One Person Company; 
(b)  shall be a nominee for the sole member of a One Person 
Company. 
 Here, “resident in India” means a person who has stayed in India 
for a period of not less than one hundred and twenty days during 
the immediately preceding financial year. 
 In the instant case,  
(i) Robert cannot be appointed as a nominee in the OPC by 
Kamal as his stay in the preceding F/Y 2022-23 is only for 61 
757
Page 2


ANSWERS OF MODEL TEST PAPER 10 
FOUNDATION COURSE 
PAPER – 2: BUSINESS LAWS 
1. (a) (i) According to Section 69 of the Indian Contract Act, 1872, a person 
who is interested in the payment of money which another is bound 
by law to pay, and who therefore pays it, is entitled to be reimbursed 
by the other.  
 In the instant case, Mr. M paid the electricity bill to avoid the 
disconnection that was pending due to Mr. L's failure to fulfil his 
contractual obligation. Hence, Mr. M is entitled to be reimbursed ? 
50,000 from Mr. L.  
(ii) In terms of Section 5 of the Indian Contract Act, 1872, a proposal 
can be revoked at any time before the communication of its 
acceptance is complete as against the proposer. 
 Accordingly, an offer may be revoked by the offeror before its 
acceptance, even though he had originally agreed to hold it open 
for a definite period of time. So long as it is a mere offer, it can be 
withdrawn whenever the offeror desires. 
 In the instant case, B cannot claim damages from A because the 
offer made by A is a mere offer and it can be withdrawn whenever 
A desires. 
(iii) The general rule is that an agreement made without consideration 
is void (Section 25 of the Indian Contract Act, 1872).  
 However, in the following case, the agreement though made 
without consideration, will be valid and enforceable. 
 Charity: If a promisee undertakes the liability on the promise of 
the person to contribute to charity, there the contract shall be 
valid.  
  In the instant case, Mr. A can claim 1.5 lakh from Mr. S. 
 (b) (i)  As per Rule 3 of the Companies (Incorporation) Rules, 2014:  
  Only a natural person who is an Indian citizen whether resident in 
India or otherwise 
(a)  shall be eligible to incorporate a One Person Company; 
(b)  shall be a nominee for the sole member of a One Person 
Company. 
 Here, “resident in India” means a person who has stayed in India 
for a period of not less than one hundred and twenty days during 
the immediately preceding financial year. 
 In the instant case,  
(i) Robert cannot be appointed as a nominee in the OPC by 
Kamal as his stay in the preceding F/Y 2022-23 is only for 61 
757
days which is less than 120 days. 
(ii) Dinkar can be appointed as a nominee in the OPC by Kamal 
as he is an Indian Citizen and non-resident in India.  
Alternative Answer as follows:  
As per Rule 3 of the Companies (Incorporation) Rules, 2014: 
 Only a natural person who is an Indian citizen whether resident in 
India or otherwise and has stayed in India for a period of not less 
than 120 days during the immediately preceding financial year. 
• shall be eligible to incorporate a OPC;  
• shall be a nominee for the sole member of a OPC. 
 In the instant case,  
(i) Robert cannot be appointed as a nominee in the OPC by 
Kamal as his stay in the preceding F/Y 2022-23 is only for 61 
days which is less than 120 days. 
(ii) Dinkar cannot be appointed as a nominee in the OPC by 
Kamal as he has not stayed in the preceding F/Y 2022-23 for a 
single day. 
 Procedure for changing the nominee: The member of OPC may 
at any time change the name of nominee by giving notice to the 
company and the company shall intimate the same to the 
Registrar. 
 Any such change in the name of the person shall not be deemed 
to be an alteration of the memorandum. 
(ii) According to Section 455 of the Companies Act, 2013, where a 
company is formed and registered under this Act for a future 
project or to hold an asset or intellectual property and has no 
significant accounting transaction, such a company or an inactive 
company may make an application to the Registrar in such 
manner as may be prescribed for obtaining the status of a 
dormant company.  
 In the instant case, XYZ Ltd. has made a significant accounting 
transaction (down payment of ?1 crore for plant and machinery), it 
does not meet the criteria of a dormant company under Section 
455 of the Companies Act, 2013. 
 Therefore, XYZ Ltd. cannot acquire the status of dormant 
company. 
 (c) (i) If a partner is otherwise expelled, the expulsion is null and void. 
 According to Section 33 of the Indian Partnership Act, 1932  
(i) the power of expulsion must have existed in a contract 
between the partners;  
(ii) the power has been exercised by a majority of the partners; 
and  
758
Page 3


ANSWERS OF MODEL TEST PAPER 10 
FOUNDATION COURSE 
PAPER – 2: BUSINESS LAWS 
1. (a) (i) According to Section 69 of the Indian Contract Act, 1872, a person 
who is interested in the payment of money which another is bound 
by law to pay, and who therefore pays it, is entitled to be reimbursed 
by the other.  
 In the instant case, Mr. M paid the electricity bill to avoid the 
disconnection that was pending due to Mr. L's failure to fulfil his 
contractual obligation. Hence, Mr. M is entitled to be reimbursed ? 
50,000 from Mr. L.  
(ii) In terms of Section 5 of the Indian Contract Act, 1872, a proposal 
can be revoked at any time before the communication of its 
acceptance is complete as against the proposer. 
 Accordingly, an offer may be revoked by the offeror before its 
acceptance, even though he had originally agreed to hold it open 
for a definite period of time. So long as it is a mere offer, it can be 
withdrawn whenever the offeror desires. 
 In the instant case, B cannot claim damages from A because the 
offer made by A is a mere offer and it can be withdrawn whenever 
A desires. 
(iii) The general rule is that an agreement made without consideration 
is void (Section 25 of the Indian Contract Act, 1872).  
 However, in the following case, the agreement though made 
without consideration, will be valid and enforceable. 
 Charity: If a promisee undertakes the liability on the promise of 
the person to contribute to charity, there the contract shall be 
valid.  
  In the instant case, Mr. A can claim 1.5 lakh from Mr. S. 
 (b) (i)  As per Rule 3 of the Companies (Incorporation) Rules, 2014:  
  Only a natural person who is an Indian citizen whether resident in 
India or otherwise 
(a)  shall be eligible to incorporate a One Person Company; 
(b)  shall be a nominee for the sole member of a One Person 
Company. 
 Here, “resident in India” means a person who has stayed in India 
for a period of not less than one hundred and twenty days during 
the immediately preceding financial year. 
 In the instant case,  
(i) Robert cannot be appointed as a nominee in the OPC by 
Kamal as his stay in the preceding F/Y 2022-23 is only for 61 
757
days which is less than 120 days. 
(ii) Dinkar can be appointed as a nominee in the OPC by Kamal 
as he is an Indian Citizen and non-resident in India.  
Alternative Answer as follows:  
As per Rule 3 of the Companies (Incorporation) Rules, 2014: 
 Only a natural person who is an Indian citizen whether resident in 
India or otherwise and has stayed in India for a period of not less 
than 120 days during the immediately preceding financial year. 
• shall be eligible to incorporate a OPC;  
• shall be a nominee for the sole member of a OPC. 
 In the instant case,  
(i) Robert cannot be appointed as a nominee in the OPC by 
Kamal as his stay in the preceding F/Y 2022-23 is only for 61 
days which is less than 120 days. 
(ii) Dinkar cannot be appointed as a nominee in the OPC by 
Kamal as he has not stayed in the preceding F/Y 2022-23 for a 
single day. 
 Procedure for changing the nominee: The member of OPC may 
at any time change the name of nominee by giving notice to the 
company and the company shall intimate the same to the 
Registrar. 
 Any such change in the name of the person shall not be deemed 
to be an alteration of the memorandum. 
(ii) According to Section 455 of the Companies Act, 2013, where a 
company is formed and registered under this Act for a future 
project or to hold an asset or intellectual property and has no 
significant accounting transaction, such a company or an inactive 
company may make an application to the Registrar in such 
manner as may be prescribed for obtaining the status of a 
dormant company.  
 In the instant case, XYZ Ltd. has made a significant accounting 
transaction (down payment of ?1 crore for plant and machinery), it 
does not meet the criteria of a dormant company under Section 
455 of the Companies Act, 2013. 
 Therefore, XYZ Ltd. cannot acquire the status of dormant 
company. 
 (c) (i) If a partner is otherwise expelled, the expulsion is null and void. 
 According to Section 33 of the Indian Partnership Act, 1932  
(i) the power of expulsion must have existed in a contract 
between the partners;  
(ii) the power has been exercised by a majority of the partners; 
and  
758
(iii) it has been exercised in good faith.  
 If all these conditions are not present, the expulsion is not 
deemed to be in bona fide interest of the business of the firm. 
 The test of good faith as required under Section 33(1) includes 
three things:  
(i) The expulsion must be in the interest of the partnership.  
(ii) The partner to be expelled is served with a notice.   
(iii)  He is given an opportunity of being heard.  
 Hence, it is correct to say that, if a partner is otherwise expelled, 
the expulsion is null and void.  
(ii) “The partner who is expelled will cease to be liable to the 
third party for the act of the firm done after expulsion” 
 According to Section 32(3) of the Indian Partnership Act, 1932, 
notwithstanding the expulsion a partner from a firm, he and the 
partners continue to be liable as partners to third parties for any 
act done by any of them which would have been an act of the firm 
if done before the expulsion, until public notice is given of the 
expulsion.  
 However, an expelled partner is not liable to any third party who 
deals with the firm without knowing that he was a partner. 
 Hence, the statement given is partially correct. 
2. (a) (i) According to Section 15 of the Sale of Goods Act, 1930, where there 
is a contract of sale of goods by description, there is an implied 
condition that the goods shall correspond with the description. The 
buyer is not bound to accept and pay for the goods which are not in 
accordance with the description of goods. 
 In the instant case, the contract specified that the basmati rice 
should be grown in Chhattisgarh, packed in pink colour bags of 25 
kg each but the seller mistakenly packed 1800 kg of rice from 
Maharashtra in white bags of 30 kg each, and only 200 kg of rice 
from Chhattisgarh in the correct pink bags. 
 Therefore, the buyer has the right to reject the entire quantity of 
basmati rice supplied by the buyer as the goods do not 
correspond with the description. 
 ANSWER TO SECOND PART 
 In case the buyer has to accept the entire quantity of rice to fulfil 
his other contracts with other parties, he can claim damages 
which provides that where the seller wrongfully neglects or 
refuses to deliver the goods to the buyer, the buyer may sue the 
seller for damages for non-delivery. 
  
759
Page 4


ANSWERS OF MODEL TEST PAPER 10 
FOUNDATION COURSE 
PAPER – 2: BUSINESS LAWS 
1. (a) (i) According to Section 69 of the Indian Contract Act, 1872, a person 
who is interested in the payment of money which another is bound 
by law to pay, and who therefore pays it, is entitled to be reimbursed 
by the other.  
 In the instant case, Mr. M paid the electricity bill to avoid the 
disconnection that was pending due to Mr. L's failure to fulfil his 
contractual obligation. Hence, Mr. M is entitled to be reimbursed ? 
50,000 from Mr. L.  
(ii) In terms of Section 5 of the Indian Contract Act, 1872, a proposal 
can be revoked at any time before the communication of its 
acceptance is complete as against the proposer. 
 Accordingly, an offer may be revoked by the offeror before its 
acceptance, even though he had originally agreed to hold it open 
for a definite period of time. So long as it is a mere offer, it can be 
withdrawn whenever the offeror desires. 
 In the instant case, B cannot claim damages from A because the 
offer made by A is a mere offer and it can be withdrawn whenever 
A desires. 
(iii) The general rule is that an agreement made without consideration 
is void (Section 25 of the Indian Contract Act, 1872).  
 However, in the following case, the agreement though made 
without consideration, will be valid and enforceable. 
 Charity: If a promisee undertakes the liability on the promise of 
the person to contribute to charity, there the contract shall be 
valid.  
  In the instant case, Mr. A can claim 1.5 lakh from Mr. S. 
 (b) (i)  As per Rule 3 of the Companies (Incorporation) Rules, 2014:  
  Only a natural person who is an Indian citizen whether resident in 
India or otherwise 
(a)  shall be eligible to incorporate a One Person Company; 
(b)  shall be a nominee for the sole member of a One Person 
Company. 
 Here, “resident in India” means a person who has stayed in India 
for a period of not less than one hundred and twenty days during 
the immediately preceding financial year. 
 In the instant case,  
(i) Robert cannot be appointed as a nominee in the OPC by 
Kamal as his stay in the preceding F/Y 2022-23 is only for 61 
757
days which is less than 120 days. 
(ii) Dinkar can be appointed as a nominee in the OPC by Kamal 
as he is an Indian Citizen and non-resident in India.  
Alternative Answer as follows:  
As per Rule 3 of the Companies (Incorporation) Rules, 2014: 
 Only a natural person who is an Indian citizen whether resident in 
India or otherwise and has stayed in India for a period of not less 
than 120 days during the immediately preceding financial year. 
• shall be eligible to incorporate a OPC;  
• shall be a nominee for the sole member of a OPC. 
 In the instant case,  
(i) Robert cannot be appointed as a nominee in the OPC by 
Kamal as his stay in the preceding F/Y 2022-23 is only for 61 
days which is less than 120 days. 
(ii) Dinkar cannot be appointed as a nominee in the OPC by 
Kamal as he has not stayed in the preceding F/Y 2022-23 for a 
single day. 
 Procedure for changing the nominee: The member of OPC may 
at any time change the name of nominee by giving notice to the 
company and the company shall intimate the same to the 
Registrar. 
 Any such change in the name of the person shall not be deemed 
to be an alteration of the memorandum. 
(ii) According to Section 455 of the Companies Act, 2013, where a 
company is formed and registered under this Act for a future 
project or to hold an asset or intellectual property and has no 
significant accounting transaction, such a company or an inactive 
company may make an application to the Registrar in such 
manner as may be prescribed for obtaining the status of a 
dormant company.  
 In the instant case, XYZ Ltd. has made a significant accounting 
transaction (down payment of ?1 crore for plant and machinery), it 
does not meet the criteria of a dormant company under Section 
455 of the Companies Act, 2013. 
 Therefore, XYZ Ltd. cannot acquire the status of dormant 
company. 
 (c) (i) If a partner is otherwise expelled, the expulsion is null and void. 
 According to Section 33 of the Indian Partnership Act, 1932  
(i) the power of expulsion must have existed in a contract 
between the partners;  
(ii) the power has been exercised by a majority of the partners; 
and  
758
(iii) it has been exercised in good faith.  
 If all these conditions are not present, the expulsion is not 
deemed to be in bona fide interest of the business of the firm. 
 The test of good faith as required under Section 33(1) includes 
three things:  
(i) The expulsion must be in the interest of the partnership.  
(ii) The partner to be expelled is served with a notice.   
(iii)  He is given an opportunity of being heard.  
 Hence, it is correct to say that, if a partner is otherwise expelled, 
the expulsion is null and void.  
(ii) “The partner who is expelled will cease to be liable to the 
third party for the act of the firm done after expulsion” 
 According to Section 32(3) of the Indian Partnership Act, 1932, 
notwithstanding the expulsion a partner from a firm, he and the 
partners continue to be liable as partners to third parties for any 
act done by any of them which would have been an act of the firm 
if done before the expulsion, until public notice is given of the 
expulsion.  
 However, an expelled partner is not liable to any third party who 
deals with the firm without knowing that he was a partner. 
 Hence, the statement given is partially correct. 
2. (a) (i) According to Section 15 of the Sale of Goods Act, 1930, where there 
is a contract of sale of goods by description, there is an implied 
condition that the goods shall correspond with the description. The 
buyer is not bound to accept and pay for the goods which are not in 
accordance with the description of goods. 
 In the instant case, the contract specified that the basmati rice 
should be grown in Chhattisgarh, packed in pink colour bags of 25 
kg each but the seller mistakenly packed 1800 kg of rice from 
Maharashtra in white bags of 30 kg each, and only 200 kg of rice 
from Chhattisgarh in the correct pink bags. 
 Therefore, the buyer has the right to reject the entire quantity of 
basmati rice supplied by the buyer as the goods do not 
correspond with the description. 
 ANSWER TO SECOND PART 
 In case the buyer has to accept the entire quantity of rice to fulfil 
his other contracts with other parties, he can claim damages 
which provides that where the seller wrongfully neglects or 
refuses to deliver the goods to the buyer, the buyer may sue the 
seller for damages for non-delivery. 
  
759
 ALTERNATE ANSWER TO SECOND PART 
 Section 13 of the Sale of the Goods Act, 1930 specifies cases 
where a breach of condition be treated as a breach of warranty. 
As a result of which the buyer loses his right to rescind the 
contract and can claim damages only.  
 In the following cases, a contract is not avoided even on account 
of a breach of a condition:  
(i)  Where the buyer altogether waives the performance of the 
condition. A party may for his own benefit, waive a stipulation. 
It should be a voluntary waiver by buyer.  
(ii)  Where the buyer elects to treat the breach of the conditions, as 
one of a warranty. That is to say, he may claim only damages 
instead of repudiating the contract. Here, the buyer has not 
waived the condition but decided to treat it as a warranty. 
 According to above stated provision, there is a breach of 
condition, and the buyer can reject the goods. But if the buyer so 
elects, he may treat it as a breach of warranty, hence he may 
accept the entire quantity to fulfil his other contracts with other 
parties and claim damages. 
(ii) Section 10 of the Sale of Goods Act, 1930 provides for the 
determination of price by a third party. 
1.  Where there is an agreement to sell goods on the terms that 
price has to be fixed by the third party and he either does not 
or cannot make such valuation, the agreement will be void. 
2.  In case the third party is prevented by the default of either 
party from fixing the price, the party at fault will be liable to the 
damages to the other party who is not at fault.  
 In the instant case, as Kusum cannot do valuation of laptop due to 
non-sharing of particulars and configuration by Kartik who was 
bound by his promise, the agreement will be void.  
 The other remedy available to Vasant is that he can claim 
damages from Kartik as he will be liable for the damages to 
Vasant who is not at fault. 
 (b) (i) "Corporate veil sometimes fails to protect the members of the 
company from the liability connected to the company's 
actions." 
 The following are the cases where company law disregards the 
principle of corporate personality or the principle that the company 
is a legal entity distinct and separate from its shareholders or 
members: 
(1) To determine the character of the company i.e. to find out 
whether co-enemy or friend: It is true that, unlike a natural 
person, a company does not have mind or conscience; 
therefore, it cannot be a friend or foe. It may, however, be 
760
Page 5


ANSWERS OF MODEL TEST PAPER 10 
FOUNDATION COURSE 
PAPER – 2: BUSINESS LAWS 
1. (a) (i) According to Section 69 of the Indian Contract Act, 1872, a person 
who is interested in the payment of money which another is bound 
by law to pay, and who therefore pays it, is entitled to be reimbursed 
by the other.  
 In the instant case, Mr. M paid the electricity bill to avoid the 
disconnection that was pending due to Mr. L's failure to fulfil his 
contractual obligation. Hence, Mr. M is entitled to be reimbursed ? 
50,000 from Mr. L.  
(ii) In terms of Section 5 of the Indian Contract Act, 1872, a proposal 
can be revoked at any time before the communication of its 
acceptance is complete as against the proposer. 
 Accordingly, an offer may be revoked by the offeror before its 
acceptance, even though he had originally agreed to hold it open 
for a definite period of time. So long as it is a mere offer, it can be 
withdrawn whenever the offeror desires. 
 In the instant case, B cannot claim damages from A because the 
offer made by A is a mere offer and it can be withdrawn whenever 
A desires. 
(iii) The general rule is that an agreement made without consideration 
is void (Section 25 of the Indian Contract Act, 1872).  
 However, in the following case, the agreement though made 
without consideration, will be valid and enforceable. 
 Charity: If a promisee undertakes the liability on the promise of 
the person to contribute to charity, there the contract shall be 
valid.  
  In the instant case, Mr. A can claim 1.5 lakh from Mr. S. 
 (b) (i)  As per Rule 3 of the Companies (Incorporation) Rules, 2014:  
  Only a natural person who is an Indian citizen whether resident in 
India or otherwise 
(a)  shall be eligible to incorporate a One Person Company; 
(b)  shall be a nominee for the sole member of a One Person 
Company. 
 Here, “resident in India” means a person who has stayed in India 
for a period of not less than one hundred and twenty days during 
the immediately preceding financial year. 
 In the instant case,  
(i) Robert cannot be appointed as a nominee in the OPC by 
Kamal as his stay in the preceding F/Y 2022-23 is only for 61 
757
days which is less than 120 days. 
(ii) Dinkar can be appointed as a nominee in the OPC by Kamal 
as he is an Indian Citizen and non-resident in India.  
Alternative Answer as follows:  
As per Rule 3 of the Companies (Incorporation) Rules, 2014: 
 Only a natural person who is an Indian citizen whether resident in 
India or otherwise and has stayed in India for a period of not less 
than 120 days during the immediately preceding financial year. 
• shall be eligible to incorporate a OPC;  
• shall be a nominee for the sole member of a OPC. 
 In the instant case,  
(i) Robert cannot be appointed as a nominee in the OPC by 
Kamal as his stay in the preceding F/Y 2022-23 is only for 61 
days which is less than 120 days. 
(ii) Dinkar cannot be appointed as a nominee in the OPC by 
Kamal as he has not stayed in the preceding F/Y 2022-23 for a 
single day. 
 Procedure for changing the nominee: The member of OPC may 
at any time change the name of nominee by giving notice to the 
company and the company shall intimate the same to the 
Registrar. 
 Any such change in the name of the person shall not be deemed 
to be an alteration of the memorandum. 
(ii) According to Section 455 of the Companies Act, 2013, where a 
company is formed and registered under this Act for a future 
project or to hold an asset or intellectual property and has no 
significant accounting transaction, such a company or an inactive 
company may make an application to the Registrar in such 
manner as may be prescribed for obtaining the status of a 
dormant company.  
 In the instant case, XYZ Ltd. has made a significant accounting 
transaction (down payment of ?1 crore for plant and machinery), it 
does not meet the criteria of a dormant company under Section 
455 of the Companies Act, 2013. 
 Therefore, XYZ Ltd. cannot acquire the status of dormant 
company. 
 (c) (i) If a partner is otherwise expelled, the expulsion is null and void. 
 According to Section 33 of the Indian Partnership Act, 1932  
(i) the power of expulsion must have existed in a contract 
between the partners;  
(ii) the power has been exercised by a majority of the partners; 
and  
758
(iii) it has been exercised in good faith.  
 If all these conditions are not present, the expulsion is not 
deemed to be in bona fide interest of the business of the firm. 
 The test of good faith as required under Section 33(1) includes 
three things:  
(i) The expulsion must be in the interest of the partnership.  
(ii) The partner to be expelled is served with a notice.   
(iii)  He is given an opportunity of being heard.  
 Hence, it is correct to say that, if a partner is otherwise expelled, 
the expulsion is null and void.  
(ii) “The partner who is expelled will cease to be liable to the 
third party for the act of the firm done after expulsion” 
 According to Section 32(3) of the Indian Partnership Act, 1932, 
notwithstanding the expulsion a partner from a firm, he and the 
partners continue to be liable as partners to third parties for any 
act done by any of them which would have been an act of the firm 
if done before the expulsion, until public notice is given of the 
expulsion.  
 However, an expelled partner is not liable to any third party who 
deals with the firm without knowing that he was a partner. 
 Hence, the statement given is partially correct. 
2. (a) (i) According to Section 15 of the Sale of Goods Act, 1930, where there 
is a contract of sale of goods by description, there is an implied 
condition that the goods shall correspond with the description. The 
buyer is not bound to accept and pay for the goods which are not in 
accordance with the description of goods. 
 In the instant case, the contract specified that the basmati rice 
should be grown in Chhattisgarh, packed in pink colour bags of 25 
kg each but the seller mistakenly packed 1800 kg of rice from 
Maharashtra in white bags of 30 kg each, and only 200 kg of rice 
from Chhattisgarh in the correct pink bags. 
 Therefore, the buyer has the right to reject the entire quantity of 
basmati rice supplied by the buyer as the goods do not 
correspond with the description. 
 ANSWER TO SECOND PART 
 In case the buyer has to accept the entire quantity of rice to fulfil 
his other contracts with other parties, he can claim damages 
which provides that where the seller wrongfully neglects or 
refuses to deliver the goods to the buyer, the buyer may sue the 
seller for damages for non-delivery. 
  
759
 ALTERNATE ANSWER TO SECOND PART 
 Section 13 of the Sale of the Goods Act, 1930 specifies cases 
where a breach of condition be treated as a breach of warranty. 
As a result of which the buyer loses his right to rescind the 
contract and can claim damages only.  
 In the following cases, a contract is not avoided even on account 
of a breach of a condition:  
(i)  Where the buyer altogether waives the performance of the 
condition. A party may for his own benefit, waive a stipulation. 
It should be a voluntary waiver by buyer.  
(ii)  Where the buyer elects to treat the breach of the conditions, as 
one of a warranty. That is to say, he may claim only damages 
instead of repudiating the contract. Here, the buyer has not 
waived the condition but decided to treat it as a warranty. 
 According to above stated provision, there is a breach of 
condition, and the buyer can reject the goods. But if the buyer so 
elects, he may treat it as a breach of warranty, hence he may 
accept the entire quantity to fulfil his other contracts with other 
parties and claim damages. 
(ii) Section 10 of the Sale of Goods Act, 1930 provides for the 
determination of price by a third party. 
1.  Where there is an agreement to sell goods on the terms that 
price has to be fixed by the third party and he either does not 
or cannot make such valuation, the agreement will be void. 
2.  In case the third party is prevented by the default of either 
party from fixing the price, the party at fault will be liable to the 
damages to the other party who is not at fault.  
 In the instant case, as Kusum cannot do valuation of laptop due to 
non-sharing of particulars and configuration by Kartik who was 
bound by his promise, the agreement will be void.  
 The other remedy available to Vasant is that he can claim 
damages from Kartik as he will be liable for the damages to 
Vasant who is not at fault. 
 (b) (i) "Corporate veil sometimes fails to protect the members of the 
company from the liability connected to the company's 
actions." 
 The following are the cases where company law disregards the 
principle of corporate personality or the principle that the company 
is a legal entity distinct and separate from its shareholders or 
members: 
(1) To determine the character of the company i.e. to find out 
whether co-enemy or friend: It is true that, unlike a natural 
person, a company does not have mind or conscience; 
therefore, it cannot be a friend or foe. It may, however, be 
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characterised as an enemy company, if its affairs are under the 
control of people of an enemy country. For this purpose, the 
Court may examine the character of the persons who are really 
at the helm of affairs of the company. 
(2) To protect revenue/tax: In certain matters concerning the law 
of taxes, duties and stamps particularly where question of the 
controlling interest is in issue.  
(i) Where corporate entity is used to evade or circumvent 
tax, the Court can disregard the corporate entity. 
(ii) Where the company was not a genuine company at all but 
merely the assessee himself disguised under the legal 
entity of a limited company. 
(3) To avoid a legal obligation: Where it was found that the sole 
purpose for the formation of the company was to use it as a 
device to reduce the amount to be paid by way of bonus to 
workmen, the Supreme Court upheld the piercing of the veil to 
look at the real transaction (The Workmen Employed in 
Associated Rubber Industries Limited, Bhavnagar vs. The 
Associated Rubber Industries Ltd., Bhavnagar and 
another).  
(4) Formation of subsidiaries to act as agents: A company may 
sometimes be regarded as an agent or trustee of its members, 
or of another company, and may therefore be deemed to have 
lost its individuality in favour of its principal.  Here the principal 
will be held liable for the acts of that company.  
(5) Company formed for fraud/improper conduct or to defeat 
law: Where the device of incorporation is adopted for some illegal 
or improper purpose, e.g., to defeat or circumvent law, to defraud 
creditors or to avoid legal obligations. 
(ii) Effect of Memorandum and Articles:  As per Section 10 of the 
Companies Act, 2013, where the memorandum and articles when 
registered, shall bind the company and the members thereof to 
the same extent as if they respectively had been signed by the 
company and by each member, and an agreement to observe all 
the provisions of the memorandum and of the articles.  
 All monies payable by any member to the company under the 
memorandum or articles shall be a debt due from him to the 
company. 
 (c) (i) Change of name of LLP (Section 17 of Limited Liability 
Partnership Act, 2008):  
(1)  Notwithstanding anything contained in sections 15 and 16, if 
through inadvertence or otherwise, a LLP, on its first 
registration or on its registration by a new body corporate, its 
registered name, is registered by a name which is identical 
with or too nearly resembles to — 
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