Business Laws Model Test Paper - 2 (Qestions) | Mock Tests & Past Year Papers for CA Foundation PDF Download

 Page 1


MODEL TEST PAPER 2 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS (100 Marks) 
Question No. 1 is compulsory.  
Answer any four questions from the remaining five questions. 
1. (i) Mr. Y aged 21 years, lost his mental balance after the death of his parents
in an accident. He was left with his grandmother aged 85 years, incapable 
of walking and dependent upon him. Mr. M, their neighbour, out of pity, 
started supplying food and other necessaries to both of them. Mr. Y and his 
grandmother used to live in the house built by his parents. Mr. M also 
provided grandmother with some financial assistance for her emergency 
medical treatment.  After supplying necessaries to Mr. Y for four years, 
Mr. M approached the former asking him to payback ` 15 Lakhs inclusive 
of ` 7 Lakhs incurred for the medical treatment of the lady 
(grandmother). Mr. Y pleaded that he has got his parents’ jewellery to sell 
to a maximum value of ` 4 Lakhs, which may be adjusted against the 
dues. Mr. M refused and threatened Mr. Y with a legal suit to be brought 
against for recovering the money. 
Now, you are to decide upon based on the provisions of the Indian Contract 
Act, 1872: 
(a) Will Mr. M succeed in filing the suit to recover money?
(b) What is the maximum amount of money that can be recovered by Mr.
M?
(c) Shall the provisions of the above Act also apply to the medical
treatment given to the grandmother?   (7 Marks)
(ii) Jagannath Oils Limited is a public company and having 220 members. Of
which 25 members were employed in the company during the period 1
st
April 2006 to 28
th
 June 2016. They were allotted shares in Jagannath Oils
Limited first time on 1
st
 July 2007 which were sold by them on 1
st
 August
2016. After some time, on 1
st
 December 2016, each of those 25 members
acquired shares in Jagannath Oils Limited which they are holding till date.
Now the company wants to convert itself into a private company. State with
reasons:
(a) Whether Jagannath Oils Limited is required to reduce the number of
members.
(b) Would your answer be different, if above 25 members were the
employee in Jagannath Oils Limited for the period from 1
st
 April 2006
to 28
th
 June 2017? (7 Marks)
(iii) (a)  What do you mean by 'Partnership for a fixed period' as per the Indian
Partnership Act, 1932? (2 Marks) 
84
Page 2


MODEL TEST PAPER 2 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS (100 Marks) 
Question No. 1 is compulsory.  
Answer any four questions from the remaining five questions. 
1. (i) Mr. Y aged 21 years, lost his mental balance after the death of his parents
in an accident. He was left with his grandmother aged 85 years, incapable 
of walking and dependent upon him. Mr. M, their neighbour, out of pity, 
started supplying food and other necessaries to both of them. Mr. Y and his 
grandmother used to live in the house built by his parents. Mr. M also 
provided grandmother with some financial assistance for her emergency 
medical treatment.  After supplying necessaries to Mr. Y for four years, 
Mr. M approached the former asking him to payback ` 15 Lakhs inclusive 
of ` 7 Lakhs incurred for the medical treatment of the lady 
(grandmother). Mr. Y pleaded that he has got his parents’ jewellery to sell 
to a maximum value of ` 4 Lakhs, which may be adjusted against the 
dues. Mr. M refused and threatened Mr. Y with a legal suit to be brought 
against for recovering the money. 
Now, you are to decide upon based on the provisions of the Indian Contract 
Act, 1872: 
(a) Will Mr. M succeed in filing the suit to recover money?
(b) What is the maximum amount of money that can be recovered by Mr.
M?
(c) Shall the provisions of the above Act also apply to the medical
treatment given to the grandmother?   (7 Marks)
(ii) Jagannath Oils Limited is a public company and having 220 members. Of
which 25 members were employed in the company during the period 1
st
April 2006 to 28
th
 June 2016. They were allotted shares in Jagannath Oils
Limited first time on 1
st
 July 2007 which were sold by them on 1
st
 August
2016. After some time, on 1
st
 December 2016, each of those 25 members
acquired shares in Jagannath Oils Limited which they are holding till date.
Now the company wants to convert itself into a private company. State with
reasons:
(a) Whether Jagannath Oils Limited is required to reduce the number of
members.
(b) Would your answer be different, if above 25 members were the
employee in Jagannath Oils Limited for the period from 1
st
 April 2006
to 28
th
 June 2017? (7 Marks)
(iii) (a)  What do you mean by 'Partnership for a fixed period' as per the Indian
Partnership Act, 1932? (2 Marks) 
84
(b)  Can a minor become a partner in a partnership firm? Justify your 
answer and also explain the rights of a minor in a partnership firm. 
 (4 Marks) 
2. (i)  Sonal went to a Jewellery shop and asked the salesgirl to show her 
diamond bangles with Ruby stones. The Jeweller told her that we have a 
lot of designs of diamond bangles but with red stones. If she chooses for 
herself any special design of diamond bangle with red stones, they will 
replace red stones with Ruby stones. But for the Ruby stones they will 
charge some extra cost. Sonal selected a beautiful set of designer bangles 
and paid for them. She also paid the extra cost of Ruby stones. The 
Jeweller requested her to come back a week later for delivery of those 
bangles. When she came after a week to take delivery of bangles, she 
noticed that due to Ruby stones, the design of bangles has been completely 
disturbed. Now, she wants to terminate the contract and thus, asked the 
manager to give her money back, but he refused for the same. Answer the 
following questions as per the Sale of Goods Act, 1930. 
(a) State with reasons whether Sonal can recover the amount from the 
Jeweller. 
(b)  What would be your answer, if Jeweller says that he can change the 
design as to his original form, but he will charge extra cost for the 
same? (7 Marks) 
(ii)  An employee, Mr. Karan, signed a contract with his employer, company 
ABC Limited, that he will not solicit the customers after leaving the 
employment from the company. 
 But after Mr. Karan left ABC Limited, he started up his own company PQR 
Limited and he started soliciting the customers of ABC Limited for his own 
business purposes. 
 ABC Limited filed a case against Mr. Karan for breach of employment 
contract and for soliciting their customers for own business. Mr. Karan 
contended that there is a corporate veil between him, and his company and 
he should not be personally held liable for this. 
 In this context, the company ABC Limited seek your advice as to the 
meaning of corporate veil and when the veil can be lifted to make the 
owners liable for the acts done by a company.   (7 Marks)  
(iii)  “A LLP (Limited Liability Partnership) is a type of partnership which provides 
the benefits of limited liability but allows its members the flexibility of 
organizing their internal structure as a partnership based on a mutually 
arrived agreement.”  
 In line with the above statement clearly elaborate the difference between 
LLP and Limited Liability Company (LLC).     (6 Marks) 
3. (i) State whether the following are partnerships under the Indian Partnership 
Act, 1932:  
85
Page 3


MODEL TEST PAPER 2 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS (100 Marks) 
Question No. 1 is compulsory.  
Answer any four questions from the remaining five questions. 
1. (i) Mr. Y aged 21 years, lost his mental balance after the death of his parents
in an accident. He was left with his grandmother aged 85 years, incapable 
of walking and dependent upon him. Mr. M, their neighbour, out of pity, 
started supplying food and other necessaries to both of them. Mr. Y and his 
grandmother used to live in the house built by his parents. Mr. M also 
provided grandmother with some financial assistance for her emergency 
medical treatment.  After supplying necessaries to Mr. Y for four years, 
Mr. M approached the former asking him to payback ` 15 Lakhs inclusive 
of ` 7 Lakhs incurred for the medical treatment of the lady 
(grandmother). Mr. Y pleaded that he has got his parents’ jewellery to sell 
to a maximum value of ` 4 Lakhs, which may be adjusted against the 
dues. Mr. M refused and threatened Mr. Y with a legal suit to be brought 
against for recovering the money. 
Now, you are to decide upon based on the provisions of the Indian Contract 
Act, 1872: 
(a) Will Mr. M succeed in filing the suit to recover money?
(b) What is the maximum amount of money that can be recovered by Mr.
M?
(c) Shall the provisions of the above Act also apply to the medical
treatment given to the grandmother?   (7 Marks)
(ii) Jagannath Oils Limited is a public company and having 220 members. Of
which 25 members were employed in the company during the period 1
st
April 2006 to 28
th
 June 2016. They were allotted shares in Jagannath Oils
Limited first time on 1
st
 July 2007 which were sold by them on 1
st
 August
2016. After some time, on 1
st
 December 2016, each of those 25 members
acquired shares in Jagannath Oils Limited which they are holding till date.
Now the company wants to convert itself into a private company. State with
reasons:
(a) Whether Jagannath Oils Limited is required to reduce the number of
members.
(b) Would your answer be different, if above 25 members were the
employee in Jagannath Oils Limited for the period from 1
st
 April 2006
to 28
th
 June 2017? (7 Marks)
(iii) (a)  What do you mean by 'Partnership for a fixed period' as per the Indian
Partnership Act, 1932? (2 Marks) 
84
(b)  Can a minor become a partner in a partnership firm? Justify your 
answer and also explain the rights of a minor in a partnership firm. 
 (4 Marks) 
2. (i)  Sonal went to a Jewellery shop and asked the salesgirl to show her 
diamond bangles with Ruby stones. The Jeweller told her that we have a 
lot of designs of diamond bangles but with red stones. If she chooses for 
herself any special design of diamond bangle with red stones, they will 
replace red stones with Ruby stones. But for the Ruby stones they will 
charge some extra cost. Sonal selected a beautiful set of designer bangles 
and paid for them. She also paid the extra cost of Ruby stones. The 
Jeweller requested her to come back a week later for delivery of those 
bangles. When she came after a week to take delivery of bangles, she 
noticed that due to Ruby stones, the design of bangles has been completely 
disturbed. Now, she wants to terminate the contract and thus, asked the 
manager to give her money back, but he refused for the same. Answer the 
following questions as per the Sale of Goods Act, 1930. 
(a) State with reasons whether Sonal can recover the amount from the 
Jeweller. 
(b)  What would be your answer, if Jeweller says that he can change the 
design as to his original form, but he will charge extra cost for the 
same? (7 Marks) 
(ii)  An employee, Mr. Karan, signed a contract with his employer, company 
ABC Limited, that he will not solicit the customers after leaving the 
employment from the company. 
 But after Mr. Karan left ABC Limited, he started up his own company PQR 
Limited and he started soliciting the customers of ABC Limited for his own 
business purposes. 
 ABC Limited filed a case against Mr. Karan for breach of employment 
contract and for soliciting their customers for own business. Mr. Karan 
contended that there is a corporate veil between him, and his company and 
he should not be personally held liable for this. 
 In this context, the company ABC Limited seek your advice as to the 
meaning of corporate veil and when the veil can be lifted to make the 
owners liable for the acts done by a company.   (7 Marks)  
(iii)  “A LLP (Limited Liability Partnership) is a type of partnership which provides 
the benefits of limited liability but allows its members the flexibility of 
organizing their internal structure as a partnership based on a mutually 
arrived agreement.”  
 In line with the above statement clearly elaborate the difference between 
LLP and Limited Liability Company (LLC).     (6 Marks) 
3. (i) State whether the following are partnerships under the Indian Partnership 
Act, 1932:  
85
(a)  X, a contractor, appointed Y one of his servants to manage his business 
of loading and unloading railway wagons. Y was to receive 50% of the 
profits of the business and also to bear the losses, if any.  
(b)  Two firms each having 12 partners combine by an agreement into one 
firm.  
(c)  A and B, co-owners, agree to conduct the business in common for 
profit.  
(d)  Some individuals form an association to which each individual 
contributes ` 500 annually. The objective of the association is to 
produce clothes and distribute the clothes free to the war widows.  
(e)  A and B, co-owners share between themselves the rent derived from a 
piece of land.  
(f)  A and B buy commodity X and agree to sell the commodity, sharing the 
profits equally.  
(g)  10 major persons form an association to which each member 
contributes ` 10,000. The purpose is to produce medicines for free 
distribution to poor patients.  (7 Marks)  
(ii) BC Private Limited and its subsidiary KL Private Limited are holding 90,000 
and 70,000 shares respectively in PQ Private Limited. The paid-up share 
capital of PQ Private Limited is ` 30 Lakhs (3 Lakhs equity shares of ` 10 
each fully paid). Analyse with reference to provisions of the Companies Act, 
2013 whether PQ Private Limited is a subsidiary of BC Private Limited. 
What would be your answer if KL Private Limited holds 1,60,000 shares in 
PQ Private Limited and no shares are held by BC Private Limited in PQ 
Private Limited? (7 Marks) 
(iii) As per the general rule, "Stranger to a contract cannot file a suit in case of 
breach of contract". Comment and explain the exceptions to this rule as per 
the provisions of the Indian Contract Act, 1872.  (6 Marks) 
4. (i) (a)  Mr. R extended a loan to Mr. D with X, Y, and Z as sureties. Each surety 
executed a bond with varying penalty amounts, X with a penalty of  
` 10,000, Y with ` 20,000 and Z with ` 40,000, in the event of Mr. D's 
failure to repay the borrowed money to Mr. R. Examine the liabilities of 
the sureties in accordance with the Indian Contract Act, 1872, when Mr. 
D defaults to the tune of ` 42,000. Additionally, assess the situation, if 
there is no contractual arrangement among the sureties.  (4 Marks) 
(b)  X agrees to pay Y ` 1,00,000, if Y kills Z. To pay Y, X borrows  
` 1,00,000 from W, who is also aware of the purpose of the loan. Y kills 
Z but X refuses to pay. X also to repay the loan to W. Explain the validity 
of the contract. 
(i)  Between X and Y 
(ii) Between X and W  (3 Marks) 
(ii) What is a Bill of Exchange? Also, explain its essential characteristics under 
the Negotiable Instruments Act, 1881.  (7 Marks) 
86
Page 4


MODEL TEST PAPER 2 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS (100 Marks) 
Question No. 1 is compulsory.  
Answer any four questions from the remaining five questions. 
1. (i) Mr. Y aged 21 years, lost his mental balance after the death of his parents
in an accident. He was left with his grandmother aged 85 years, incapable 
of walking and dependent upon him. Mr. M, their neighbour, out of pity, 
started supplying food and other necessaries to both of them. Mr. Y and his 
grandmother used to live in the house built by his parents. Mr. M also 
provided grandmother with some financial assistance for her emergency 
medical treatment.  After supplying necessaries to Mr. Y for four years, 
Mr. M approached the former asking him to payback ` 15 Lakhs inclusive 
of ` 7 Lakhs incurred for the medical treatment of the lady 
(grandmother). Mr. Y pleaded that he has got his parents’ jewellery to sell 
to a maximum value of ` 4 Lakhs, which may be adjusted against the 
dues. Mr. M refused and threatened Mr. Y with a legal suit to be brought 
against for recovering the money. 
Now, you are to decide upon based on the provisions of the Indian Contract 
Act, 1872: 
(a) Will Mr. M succeed in filing the suit to recover money?
(b) What is the maximum amount of money that can be recovered by Mr.
M?
(c) Shall the provisions of the above Act also apply to the medical
treatment given to the grandmother?   (7 Marks)
(ii) Jagannath Oils Limited is a public company and having 220 members. Of
which 25 members were employed in the company during the period 1
st
April 2006 to 28
th
 June 2016. They were allotted shares in Jagannath Oils
Limited first time on 1
st
 July 2007 which were sold by them on 1
st
 August
2016. After some time, on 1
st
 December 2016, each of those 25 members
acquired shares in Jagannath Oils Limited which they are holding till date.
Now the company wants to convert itself into a private company. State with
reasons:
(a) Whether Jagannath Oils Limited is required to reduce the number of
members.
(b) Would your answer be different, if above 25 members were the
employee in Jagannath Oils Limited for the period from 1
st
 April 2006
to 28
th
 June 2017? (7 Marks)
(iii) (a)  What do you mean by 'Partnership for a fixed period' as per the Indian
Partnership Act, 1932? (2 Marks) 
84
(b)  Can a minor become a partner in a partnership firm? Justify your 
answer and also explain the rights of a minor in a partnership firm. 
 (4 Marks) 
2. (i)  Sonal went to a Jewellery shop and asked the salesgirl to show her 
diamond bangles with Ruby stones. The Jeweller told her that we have a 
lot of designs of diamond bangles but with red stones. If she chooses for 
herself any special design of diamond bangle with red stones, they will 
replace red stones with Ruby stones. But for the Ruby stones they will 
charge some extra cost. Sonal selected a beautiful set of designer bangles 
and paid for them. She also paid the extra cost of Ruby stones. The 
Jeweller requested her to come back a week later for delivery of those 
bangles. When she came after a week to take delivery of bangles, she 
noticed that due to Ruby stones, the design of bangles has been completely 
disturbed. Now, she wants to terminate the contract and thus, asked the 
manager to give her money back, but he refused for the same. Answer the 
following questions as per the Sale of Goods Act, 1930. 
(a) State with reasons whether Sonal can recover the amount from the 
Jeweller. 
(b)  What would be your answer, if Jeweller says that he can change the 
design as to his original form, but he will charge extra cost for the 
same? (7 Marks) 
(ii)  An employee, Mr. Karan, signed a contract with his employer, company 
ABC Limited, that he will not solicit the customers after leaving the 
employment from the company. 
 But after Mr. Karan left ABC Limited, he started up his own company PQR 
Limited and he started soliciting the customers of ABC Limited for his own 
business purposes. 
 ABC Limited filed a case against Mr. Karan for breach of employment 
contract and for soliciting their customers for own business. Mr. Karan 
contended that there is a corporate veil between him, and his company and 
he should not be personally held liable for this. 
 In this context, the company ABC Limited seek your advice as to the 
meaning of corporate veil and when the veil can be lifted to make the 
owners liable for the acts done by a company.   (7 Marks)  
(iii)  “A LLP (Limited Liability Partnership) is a type of partnership which provides 
the benefits of limited liability but allows its members the flexibility of 
organizing their internal structure as a partnership based on a mutually 
arrived agreement.”  
 In line with the above statement clearly elaborate the difference between 
LLP and Limited Liability Company (LLC).     (6 Marks) 
3. (i) State whether the following are partnerships under the Indian Partnership 
Act, 1932:  
85
(a)  X, a contractor, appointed Y one of his servants to manage his business 
of loading and unloading railway wagons. Y was to receive 50% of the 
profits of the business and also to bear the losses, if any.  
(b)  Two firms each having 12 partners combine by an agreement into one 
firm.  
(c)  A and B, co-owners, agree to conduct the business in common for 
profit.  
(d)  Some individuals form an association to which each individual 
contributes ` 500 annually. The objective of the association is to 
produce clothes and distribute the clothes free to the war widows.  
(e)  A and B, co-owners share between themselves the rent derived from a 
piece of land.  
(f)  A and B buy commodity X and agree to sell the commodity, sharing the 
profits equally.  
(g)  10 major persons form an association to which each member 
contributes ` 10,000. The purpose is to produce medicines for free 
distribution to poor patients.  (7 Marks)  
(ii) BC Private Limited and its subsidiary KL Private Limited are holding 90,000 
and 70,000 shares respectively in PQ Private Limited. The paid-up share 
capital of PQ Private Limited is ` 30 Lakhs (3 Lakhs equity shares of ` 10 
each fully paid). Analyse with reference to provisions of the Companies Act, 
2013 whether PQ Private Limited is a subsidiary of BC Private Limited. 
What would be your answer if KL Private Limited holds 1,60,000 shares in 
PQ Private Limited and no shares are held by BC Private Limited in PQ 
Private Limited? (7 Marks) 
(iii) As per the general rule, "Stranger to a contract cannot file a suit in case of 
breach of contract". Comment and explain the exceptions to this rule as per 
the provisions of the Indian Contract Act, 1872.  (6 Marks) 
4. (i) (a)  Mr. R extended a loan to Mr. D with X, Y, and Z as sureties. Each surety 
executed a bond with varying penalty amounts, X with a penalty of  
` 10,000, Y with ` 20,000 and Z with ` 40,000, in the event of Mr. D's 
failure to repay the borrowed money to Mr. R. Examine the liabilities of 
the sureties in accordance with the Indian Contract Act, 1872, when Mr. 
D defaults to the tune of ` 42,000. Additionally, assess the situation, if 
there is no contractual arrangement among the sureties.  (4 Marks) 
(b)  X agrees to pay Y ` 1,00,000, if Y kills Z. To pay Y, X borrows  
` 1,00,000 from W, who is also aware of the purpose of the loan. Y kills 
Z but X refuses to pay. X also to repay the loan to W. Explain the validity 
of the contract. 
(i)  Between X and Y 
(ii) Between X and W  (3 Marks) 
(ii) What is a Bill of Exchange? Also, explain its essential characteristics under 
the Negotiable Instruments Act, 1881.  (7 Marks) 
86
(iii) What do you understand by Law? Also, elaborate the procedure for making 
a law.   (6 Marks)  
5. (i) (a)  An auction sale of certain goods was held on 7
th
 March 2023 by the fall 
of hammer in favour of the highest bidder X. The payment of auction 
price was made on 8
th
 March 2023 followed by the delivery of goods on 
10
th
 March 2023. Based upon the provisions of the Sale of Goods Act, 
1930, decide when the auction sale is complete. (2 Marks) 
(b)  Certain goods were sold by sample by J to K, who in turn sold the same 
goods by sample to L and L by sample sold the same goods to M. M 
found that the goods were not according to the sample and rejected the 
goods and gave a notice to L. L sued K and K sued J. Can M reject the 
goods? Also advise K and L as per the provisions of the Sale of Goods 
Act, 1930. (5 Marks) 
(ii)  Can a partner be expelled? If so, how? Which factors should be kept in 
mind prior to expelling a partner from the firm by the other partners 
according to the provision of the Indian Partnership Act, 1932?  (7 Marks) 
 (iii)  (a)  Both a sub-agent and a substituted agent are appointed by the agent. 
But, however, there are some points of distinction between the two. 
Explain any three points under the Indian Contract Act, 1872. (3 Marks) 
(b) Differentiate between Novation and Alteration as per the Indian 
Contract Act, 1872.  (3 Marks) 
6. (i) Utkarsh purchased some goods from Saksham for ` 50,000 on 14
th
 August, 
2023.  Saksham drawn a bill of exchange on Utkarsh and sent to him for 
acceptance on the same day at 3:00 p.m. Utkarsh requested Saksham to 
allow him some time for acceptance. Saksham allowed him 48 hours for 
acceptance. Utkarsh could not accept till 16
th
 August, 2023 (3:00 p.m.). 
Saksham treated the bill as dishonoured for non-acceptance. Referring to 
the provisions of the Negotiable Instruments Act, 1881, whether bill of 
exchange was dishonoured due to non-acceptance?   (7 Marks)   
(ii)  Explain the following statements in the light of provisions of the Indian 
Contract Act, 1872: 
(a)  "Agreements made out of love and affection are valid agreements." 
(b)  "Promise to pay a time barred debt cannot be enforced."  (6 Marks) 
OR 
(ii)  State the essential elements of a contract of bailment.  (6 Marks) 
(iii)  What are the implied conditions in a contract of 'Sale by sample' under the 
Sale of Goods Act, 1930? Also state the implied warranties operative under 
the Act. (7 Marks) 
87