Business Laws Model Test Paper - 4 (Answers) | Mock Tests & Past Year Papers for CA Foundation PDF Download

 Page 1


ANSWERS OF MODEL TEST PAPER 4 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS 
1. (a)  (i)  Responsibility of finder of goods (Section 71 of the Indian
Contract Act, 1872): A person who finds goods belonging to 
another and takes them into his custody is subject to same 
responsibility as if he were a bailee. 
Thus, a finder of lost goods has: 
(i) to take proper care of the property as man of ordinary
prudence would take
(ii) no right to appropriate the goods and
(iii) to restore the goods if the owner is found.
In the light of the above provisions, the manager must return the 
smart watch to Rahul, since Rahul is entitled to retain the smart 
watch found against everybody except the true owner. 
(ii) The problem as asked in the question is based on Section 10 of the
Indian Contract Act, 1872. This Section says that all agreements
are contracts if they are made by the free consent of the parties
competent to contract, for a lawful consideration and with a lawful
object and are not expressly declared to be void. Further, Section
23 also states that every agreement of which the object is unlawful
is void.
Accordingly, one of the essential elements of a valid contract in the
light of the said provision is that the agreement entered into must
not be which the law declares to be either illegal or void. An illegal
agreement is an agreement expressly or impliedly prohibited by
law. A void agreement is one without any legal effects.
The given instance is a case of interference with the course of
justice and results as opposed to public policy. This can also be
called an agreement in restraint of legal proceedings. This
agreement restricts one’s right to enforce his legal rights. Such an
agreement has been expressly declared to be void under section
28 of the Indian Contract Act, 1872. Hence, Mr. Manoj in the given
case cannot recover the amount of ` 10 lakh promised by Mr. Vikas
because it is a void agreement and cannot be enforced by law.
(b) (i)  It was decided by the court in the case of Gilford Motor Co. Vs.
Horne, that if the company is formed simply as a mere device to 
evade legal obligations, though this is only in limited and discrete 
circumstances, courts can pierce the corporate veil. In other words, 
if the company is a mere sham or cloak, the separate legal entity 
can be disregarded.  
On considering the decision taken in Gilford Motor Co. Vs. Horne 
and facts of the problem given, it is very much clear that Nine Stars 
673
Page 2


ANSWERS OF MODEL TEST PAPER 4 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS 
1. (a)  (i)  Responsibility of finder of goods (Section 71 of the Indian
Contract Act, 1872): A person who finds goods belonging to 
another and takes them into his custody is subject to same 
responsibility as if he were a bailee. 
Thus, a finder of lost goods has: 
(i) to take proper care of the property as man of ordinary
prudence would take
(ii) no right to appropriate the goods and
(iii) to restore the goods if the owner is found.
In the light of the above provisions, the manager must return the 
smart watch to Rahul, since Rahul is entitled to retain the smart 
watch found against everybody except the true owner. 
(ii) The problem as asked in the question is based on Section 10 of the
Indian Contract Act, 1872. This Section says that all agreements
are contracts if they are made by the free consent of the parties
competent to contract, for a lawful consideration and with a lawful
object and are not expressly declared to be void. Further, Section
23 also states that every agreement of which the object is unlawful
is void.
Accordingly, one of the essential elements of a valid contract in the
light of the said provision is that the agreement entered into must
not be which the law declares to be either illegal or void. An illegal
agreement is an agreement expressly or impliedly prohibited by
law. A void agreement is one without any legal effects.
The given instance is a case of interference with the course of
justice and results as opposed to public policy. This can also be
called an agreement in restraint of legal proceedings. This
agreement restricts one’s right to enforce his legal rights. Such an
agreement has been expressly declared to be void under section
28 of the Indian Contract Act, 1872. Hence, Mr. Manoj in the given
case cannot recover the amount of ` 10 lakh promised by Mr. Vikas
because it is a void agreement and cannot be enforced by law.
(b) (i)  It was decided by the court in the case of Gilford Motor Co. Vs.
Horne, that if the company is formed simply as a mere device to 
evade legal obligations, though this is only in limited and discrete 
circumstances, courts can pierce the corporate veil. In other words, 
if the company is a mere sham or cloak, the separate legal entity 
can be disregarded.  
On considering the decision taken in Gilford Motor Co. Vs. Horne 
and facts of the problem given, it is very much clear that Nine Stars 
673
Timbers Private Limited was formed just to evade legal obligations 
of the agreement between Mr. Samyak and Moonlight Timber 
Private Limited. Hence, Nine Stars Timbers Private Limited is just 
a sham or cloak and the separate legal entity between Mr. Samyak 
and Nine Stars Timbers Private Limited should be disregarded. 
(ii) According to the provisions of Section 2(45) of Companies Act,
2013, Government Company means any company in which not less
than 51% of the paid-up share capital is held by-
(i) the Central Government, or
(ii) by any State Government or Governments, or
(iii) partly by the Central Government and partly by one or more
State Governments, and the section includes a company
which is a subsidiary company of such a Government
company.
According to Section 2(87), “subsidiary company” in relation to any 
other company (that is to say the holding company), means a 
company in which the holding exercises or controls more than one-
half of the total voting power either at its own or together with one 
or more of its subsidiary companies. 
By virtue of provisions of Section 2(87) of Companies Act, 2013, 
Rama Auto Private Limited is a subsidiary company of Pacific 
Motors Limited because Pacific Motors Limited is holding more than 
one-half of the total voting power in Rama Auto Private Limited. 
Further as per Section 2(45), a subsidiary company of Government 
Company is also termed as Government Company. Hence, Rama 
Auto Private Limited, being a subsidiary of Pacific Motors Limited 
will also be considered as Government Company.      
(c) (i)  Revocation of continuing guarantee (Section 38 of the Indian
Partnership Act, 1932) 
According to section 38, a continuing guarantee given to a firm or 
to third party in respect of the transaction of a firm is, in the absence 
of an agreement to the contrary, revoked as to future transactions 
from the date of any change in the constitution of the firm. Such 
change may occur by the death, or retirement of a partner, or by 
introduction of a new partner. 
(ii) Effects of insolvency of a partner (Section 34 of the Indian
Partnership Act, 1932):
(i) The insolvent partner cannot be continued as a partner.
(ii) He will be ceased to be a partner from the very date on which
the order of adjudication is made.
(iii) The estate of the insolvent partner is not liable for the acts of
the firm done after the date of order of adjudication.
674
Page 3


ANSWERS OF MODEL TEST PAPER 4 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS 
1. (a)  (i)  Responsibility of finder of goods (Section 71 of the Indian
Contract Act, 1872): A person who finds goods belonging to 
another and takes them into his custody is subject to same 
responsibility as if he were a bailee. 
Thus, a finder of lost goods has: 
(i) to take proper care of the property as man of ordinary
prudence would take
(ii) no right to appropriate the goods and
(iii) to restore the goods if the owner is found.
In the light of the above provisions, the manager must return the 
smart watch to Rahul, since Rahul is entitled to retain the smart 
watch found against everybody except the true owner. 
(ii) The problem as asked in the question is based on Section 10 of the
Indian Contract Act, 1872. This Section says that all agreements
are contracts if they are made by the free consent of the parties
competent to contract, for a lawful consideration and with a lawful
object and are not expressly declared to be void. Further, Section
23 also states that every agreement of which the object is unlawful
is void.
Accordingly, one of the essential elements of a valid contract in the
light of the said provision is that the agreement entered into must
not be which the law declares to be either illegal or void. An illegal
agreement is an agreement expressly or impliedly prohibited by
law. A void agreement is one without any legal effects.
The given instance is a case of interference with the course of
justice and results as opposed to public policy. This can also be
called an agreement in restraint of legal proceedings. This
agreement restricts one’s right to enforce his legal rights. Such an
agreement has been expressly declared to be void under section
28 of the Indian Contract Act, 1872. Hence, Mr. Manoj in the given
case cannot recover the amount of ` 10 lakh promised by Mr. Vikas
because it is a void agreement and cannot be enforced by law.
(b) (i)  It was decided by the court in the case of Gilford Motor Co. Vs.
Horne, that if the company is formed simply as a mere device to 
evade legal obligations, though this is only in limited and discrete 
circumstances, courts can pierce the corporate veil. In other words, 
if the company is a mere sham or cloak, the separate legal entity 
can be disregarded.  
On considering the decision taken in Gilford Motor Co. Vs. Horne 
and facts of the problem given, it is very much clear that Nine Stars 
673
Timbers Private Limited was formed just to evade legal obligations 
of the agreement between Mr. Samyak and Moonlight Timber 
Private Limited. Hence, Nine Stars Timbers Private Limited is just 
a sham or cloak and the separate legal entity between Mr. Samyak 
and Nine Stars Timbers Private Limited should be disregarded. 
(ii) According to the provisions of Section 2(45) of Companies Act,
2013, Government Company means any company in which not less
than 51% of the paid-up share capital is held by-
(i) the Central Government, or
(ii) by any State Government or Governments, or
(iii) partly by the Central Government and partly by one or more
State Governments, and the section includes a company
which is a subsidiary company of such a Government
company.
According to Section 2(87), “subsidiary company” in relation to any 
other company (that is to say the holding company), means a 
company in which the holding exercises or controls more than one-
half of the total voting power either at its own or together with one 
or more of its subsidiary companies. 
By virtue of provisions of Section 2(87) of Companies Act, 2013, 
Rama Auto Private Limited is a subsidiary company of Pacific 
Motors Limited because Pacific Motors Limited is holding more than 
one-half of the total voting power in Rama Auto Private Limited. 
Further as per Section 2(45), a subsidiary company of Government 
Company is also termed as Government Company. Hence, Rama 
Auto Private Limited, being a subsidiary of Pacific Motors Limited 
will also be considered as Government Company.      
(c) (i)  Revocation of continuing guarantee (Section 38 of the Indian
Partnership Act, 1932) 
According to section 38, a continuing guarantee given to a firm or 
to third party in respect of the transaction of a firm is, in the absence 
of an agreement to the contrary, revoked as to future transactions 
from the date of any change in the constitution of the firm. Such 
change may occur by the death, or retirement of a partner, or by 
introduction of a new partner. 
(ii) Effects of insolvency of a partner (Section 34 of the Indian
Partnership Act, 1932):
(i) The insolvent partner cannot be continued as a partner.
(ii) He will be ceased to be a partner from the very date on which
the order of adjudication is made.
(iii) The estate of the insolvent partner is not liable for the acts of
the firm done after the date of order of adjudication.
674
(iv) The firm is also not liable for any act of the insolvent partner
after the date of the order of adjudication,
(v) Ordinarily, the insolvency of a partner results in dissolution of
a firm; but the partners are competent to agree among
themselves that the adjudication of a partner as an insolvent
will not give rise to dissolution of the firm.
2. (a) (i)  As per the provisions of Sub-Section (2) of Section 17 of the Sale
of Goods Act, 1930, in a contract of sale by sample, there is an 
implied condition that: 
(a) the bulk shall correspond with the sample in quality;
(b) the buyer shall have a reasonable opportunity of comparing
the bulk with the sample.
In the instant case, in the light of the provisions of Sub-Clause (b) 
of Sub-Section (2) of Section 17 of the Act, Mrs. Seema  will not be 
successful as she casually examined the sample of rice (which 
exactly corresponded to the entire lot) without noticing the fact that 
even though the sample was that of Basmati Rice but it contained 
a mix of long and short grains.  
(ii) Sale by Sample (Section 17 of the Sale of Goods Act, 1930): As
per the provisions of Sub-Section (1) of section 17 of the Sale of
Goods Act, 1930, a contract of sale is a contract for sale by sample
where there is a term in the contract, express or implied, to that
effect.
As per the provisions of Sub-Section (2) of section 17 of the Sale
of Goods Act, 1930, in a contract of sale by sample, there is an
implied condition that:
(a) that the bulk shall correspond with the sample in quality;
(b) that the buyer shall have a reasonable opportunity of
comparing the bulk with the sample.
(c) that the goods shall be free from any defect, rendering them
unmerchantable, which would not be apparent on reasonable
examination of the sample.
(iii) In case Mrs. Seema specified her exact requirement as to length of
rice, then there is an implied condition that the goods shall
correspond with the description. If it is not so, the seller will be held
liable.
(b) (i)  Listed company: As per the definition given in the section 2(52) of
the Companies Act, 2013, it is a company which has any of its 
securities listed on any recognised stock exchange.  
Provided that such class of companies, which have listed or intend 
to list such class of securities, as may be prescribed in consultation 
with the Securities and Exchange Board, shall not be considered 
as listed companies. 
675
Page 4


ANSWERS OF MODEL TEST PAPER 4 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS 
1. (a)  (i)  Responsibility of finder of goods (Section 71 of the Indian
Contract Act, 1872): A person who finds goods belonging to 
another and takes them into his custody is subject to same 
responsibility as if he were a bailee. 
Thus, a finder of lost goods has: 
(i) to take proper care of the property as man of ordinary
prudence would take
(ii) no right to appropriate the goods and
(iii) to restore the goods if the owner is found.
In the light of the above provisions, the manager must return the 
smart watch to Rahul, since Rahul is entitled to retain the smart 
watch found against everybody except the true owner. 
(ii) The problem as asked in the question is based on Section 10 of the
Indian Contract Act, 1872. This Section says that all agreements
are contracts if they are made by the free consent of the parties
competent to contract, for a lawful consideration and with a lawful
object and are not expressly declared to be void. Further, Section
23 also states that every agreement of which the object is unlawful
is void.
Accordingly, one of the essential elements of a valid contract in the
light of the said provision is that the agreement entered into must
not be which the law declares to be either illegal or void. An illegal
agreement is an agreement expressly or impliedly prohibited by
law. A void agreement is one without any legal effects.
The given instance is a case of interference with the course of
justice and results as opposed to public policy. This can also be
called an agreement in restraint of legal proceedings. This
agreement restricts one’s right to enforce his legal rights. Such an
agreement has been expressly declared to be void under section
28 of the Indian Contract Act, 1872. Hence, Mr. Manoj in the given
case cannot recover the amount of ` 10 lakh promised by Mr. Vikas
because it is a void agreement and cannot be enforced by law.
(b) (i)  It was decided by the court in the case of Gilford Motor Co. Vs.
Horne, that if the company is formed simply as a mere device to 
evade legal obligations, though this is only in limited and discrete 
circumstances, courts can pierce the corporate veil. In other words, 
if the company is a mere sham or cloak, the separate legal entity 
can be disregarded.  
On considering the decision taken in Gilford Motor Co. Vs. Horne 
and facts of the problem given, it is very much clear that Nine Stars 
673
Timbers Private Limited was formed just to evade legal obligations 
of the agreement between Mr. Samyak and Moonlight Timber 
Private Limited. Hence, Nine Stars Timbers Private Limited is just 
a sham or cloak and the separate legal entity between Mr. Samyak 
and Nine Stars Timbers Private Limited should be disregarded. 
(ii) According to the provisions of Section 2(45) of Companies Act,
2013, Government Company means any company in which not less
than 51% of the paid-up share capital is held by-
(i) the Central Government, or
(ii) by any State Government or Governments, or
(iii) partly by the Central Government and partly by one or more
State Governments, and the section includes a company
which is a subsidiary company of such a Government
company.
According to Section 2(87), “subsidiary company” in relation to any 
other company (that is to say the holding company), means a 
company in which the holding exercises or controls more than one-
half of the total voting power either at its own or together with one 
or more of its subsidiary companies. 
By virtue of provisions of Section 2(87) of Companies Act, 2013, 
Rama Auto Private Limited is a subsidiary company of Pacific 
Motors Limited because Pacific Motors Limited is holding more than 
one-half of the total voting power in Rama Auto Private Limited. 
Further as per Section 2(45), a subsidiary company of Government 
Company is also termed as Government Company. Hence, Rama 
Auto Private Limited, being a subsidiary of Pacific Motors Limited 
will also be considered as Government Company.      
(c) (i)  Revocation of continuing guarantee (Section 38 of the Indian
Partnership Act, 1932) 
According to section 38, a continuing guarantee given to a firm or 
to third party in respect of the transaction of a firm is, in the absence 
of an agreement to the contrary, revoked as to future transactions 
from the date of any change in the constitution of the firm. Such 
change may occur by the death, or retirement of a partner, or by 
introduction of a new partner. 
(ii) Effects of insolvency of a partner (Section 34 of the Indian
Partnership Act, 1932):
(i) The insolvent partner cannot be continued as a partner.
(ii) He will be ceased to be a partner from the very date on which
the order of adjudication is made.
(iii) The estate of the insolvent partner is not liable for the acts of
the firm done after the date of order of adjudication.
674
(iv) The firm is also not liable for any act of the insolvent partner
after the date of the order of adjudication,
(v) Ordinarily, the insolvency of a partner results in dissolution of
a firm; but the partners are competent to agree among
themselves that the adjudication of a partner as an insolvent
will not give rise to dissolution of the firm.
2. (a) (i)  As per the provisions of Sub-Section (2) of Section 17 of the Sale
of Goods Act, 1930, in a contract of sale by sample, there is an 
implied condition that: 
(a) the bulk shall correspond with the sample in quality;
(b) the buyer shall have a reasonable opportunity of comparing
the bulk with the sample.
In the instant case, in the light of the provisions of Sub-Clause (b) 
of Sub-Section (2) of Section 17 of the Act, Mrs. Seema  will not be 
successful as she casually examined the sample of rice (which 
exactly corresponded to the entire lot) without noticing the fact that 
even though the sample was that of Basmati Rice but it contained 
a mix of long and short grains.  
(ii) Sale by Sample (Section 17 of the Sale of Goods Act, 1930): As
per the provisions of Sub-Section (1) of section 17 of the Sale of
Goods Act, 1930, a contract of sale is a contract for sale by sample
where there is a term in the contract, express or implied, to that
effect.
As per the provisions of Sub-Section (2) of section 17 of the Sale
of Goods Act, 1930, in a contract of sale by sample, there is an
implied condition that:
(a) that the bulk shall correspond with the sample in quality;
(b) that the buyer shall have a reasonable opportunity of
comparing the bulk with the sample.
(c) that the goods shall be free from any defect, rendering them
unmerchantable, which would not be apparent on reasonable
examination of the sample.
(iii) In case Mrs. Seema specified her exact requirement as to length of
rice, then there is an implied condition that the goods shall
correspond with the description. If it is not so, the seller will be held
liable.
(b) (i)  Listed company: As per the definition given in the section 2(52) of
the Companies Act, 2013, it is a company which has any of its 
securities listed on any recognised stock exchange.  
Provided that such class of companies, which have listed or intend 
to list such class of securities, as may be prescribed in consultation 
with the Securities and Exchange Board, shall not be considered 
as listed companies. 
675
Whereas the word securities as per section 2(81) of the Companies 
Act, 2013 has been assigned the same meaning as defined in 
clause (h) of section 2 of the Securities Contracts (Regulation) Act, 
1956. 
Unlisted company means company other than listed company. 
(ii) In line with the Companies Act, 2013, following are the
classification of the Companies on the basis of control:
(a) Holding and subsidiary companies: ‘Holding and
subsidiary’ companies are relative terms.
A company is a holding company in relation to one or more
other companies, means a company of which such companies
are subsidiary companies. [Section 2(46)]
For the purposes of this clause, the expression “company"
includes any body corporate.
Whereas section 2(87) defines “subsidiary company” in
relation to any other company (that is to say the holding
company), means a company in which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total
voting power either at its own or together with one or
more of its subsidiary companies:
Provided that such class or classes of holding
companies as may be prescribed shall not have layers
of subsidiaries beyond such numbers as may be
prescribed.
(b) Associate company [Section 2(6)]: In relation to another
company, means a company in which that other company has
a significant influence, but which is not a subsidiary company
of the company having such influence and includes a joint
venture company.
Explanation. — For the purpose of this clause —
(i) the expression “significant influence” means control of at
least twenty per cent of total voting power, or control of
or participation in business decisions under an
agreement;
(ii) the expression “joint venture’’ means a joint
arrangement whereby the parties that have joint control
of the arrangement have rights to the net assets of the
arrangement.
(c) (i)  Partners (Section 5 of Limited Liability Partnership Act, 2008):
Any individual or body corporate may be a partner in a LLP. 
676
Page 5


ANSWERS OF MODEL TEST PAPER 4 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS 
1. (a)  (i)  Responsibility of finder of goods (Section 71 of the Indian
Contract Act, 1872): A person who finds goods belonging to 
another and takes them into his custody is subject to same 
responsibility as if he were a bailee. 
Thus, a finder of lost goods has: 
(i) to take proper care of the property as man of ordinary
prudence would take
(ii) no right to appropriate the goods and
(iii) to restore the goods if the owner is found.
In the light of the above provisions, the manager must return the 
smart watch to Rahul, since Rahul is entitled to retain the smart 
watch found against everybody except the true owner. 
(ii) The problem as asked in the question is based on Section 10 of the
Indian Contract Act, 1872. This Section says that all agreements
are contracts if they are made by the free consent of the parties
competent to contract, for a lawful consideration and with a lawful
object and are not expressly declared to be void. Further, Section
23 also states that every agreement of which the object is unlawful
is void.
Accordingly, one of the essential elements of a valid contract in the
light of the said provision is that the agreement entered into must
not be which the law declares to be either illegal or void. An illegal
agreement is an agreement expressly or impliedly prohibited by
law. A void agreement is one without any legal effects.
The given instance is a case of interference with the course of
justice and results as opposed to public policy. This can also be
called an agreement in restraint of legal proceedings. This
agreement restricts one’s right to enforce his legal rights. Such an
agreement has been expressly declared to be void under section
28 of the Indian Contract Act, 1872. Hence, Mr. Manoj in the given
case cannot recover the amount of ` 10 lakh promised by Mr. Vikas
because it is a void agreement and cannot be enforced by law.
(b) (i)  It was decided by the court in the case of Gilford Motor Co. Vs.
Horne, that if the company is formed simply as a mere device to 
evade legal obligations, though this is only in limited and discrete 
circumstances, courts can pierce the corporate veil. In other words, 
if the company is a mere sham or cloak, the separate legal entity 
can be disregarded.  
On considering the decision taken in Gilford Motor Co. Vs. Horne 
and facts of the problem given, it is very much clear that Nine Stars 
673
Timbers Private Limited was formed just to evade legal obligations 
of the agreement between Mr. Samyak and Moonlight Timber 
Private Limited. Hence, Nine Stars Timbers Private Limited is just 
a sham or cloak and the separate legal entity between Mr. Samyak 
and Nine Stars Timbers Private Limited should be disregarded. 
(ii) According to the provisions of Section 2(45) of Companies Act,
2013, Government Company means any company in which not less
than 51% of the paid-up share capital is held by-
(i) the Central Government, or
(ii) by any State Government or Governments, or
(iii) partly by the Central Government and partly by one or more
State Governments, and the section includes a company
which is a subsidiary company of such a Government
company.
According to Section 2(87), “subsidiary company” in relation to any 
other company (that is to say the holding company), means a 
company in which the holding exercises or controls more than one-
half of the total voting power either at its own or together with one 
or more of its subsidiary companies. 
By virtue of provisions of Section 2(87) of Companies Act, 2013, 
Rama Auto Private Limited is a subsidiary company of Pacific 
Motors Limited because Pacific Motors Limited is holding more than 
one-half of the total voting power in Rama Auto Private Limited. 
Further as per Section 2(45), a subsidiary company of Government 
Company is also termed as Government Company. Hence, Rama 
Auto Private Limited, being a subsidiary of Pacific Motors Limited 
will also be considered as Government Company.      
(c) (i)  Revocation of continuing guarantee (Section 38 of the Indian
Partnership Act, 1932) 
According to section 38, a continuing guarantee given to a firm or 
to third party in respect of the transaction of a firm is, in the absence 
of an agreement to the contrary, revoked as to future transactions 
from the date of any change in the constitution of the firm. Such 
change may occur by the death, or retirement of a partner, or by 
introduction of a new partner. 
(ii) Effects of insolvency of a partner (Section 34 of the Indian
Partnership Act, 1932):
(i) The insolvent partner cannot be continued as a partner.
(ii) He will be ceased to be a partner from the very date on which
the order of adjudication is made.
(iii) The estate of the insolvent partner is not liable for the acts of
the firm done after the date of order of adjudication.
674
(iv) The firm is also not liable for any act of the insolvent partner
after the date of the order of adjudication,
(v) Ordinarily, the insolvency of a partner results in dissolution of
a firm; but the partners are competent to agree among
themselves that the adjudication of a partner as an insolvent
will not give rise to dissolution of the firm.
2. (a) (i)  As per the provisions of Sub-Section (2) of Section 17 of the Sale
of Goods Act, 1930, in a contract of sale by sample, there is an 
implied condition that: 
(a) the bulk shall correspond with the sample in quality;
(b) the buyer shall have a reasonable opportunity of comparing
the bulk with the sample.
In the instant case, in the light of the provisions of Sub-Clause (b) 
of Sub-Section (2) of Section 17 of the Act, Mrs. Seema  will not be 
successful as she casually examined the sample of rice (which 
exactly corresponded to the entire lot) without noticing the fact that 
even though the sample was that of Basmati Rice but it contained 
a mix of long and short grains.  
(ii) Sale by Sample (Section 17 of the Sale of Goods Act, 1930): As
per the provisions of Sub-Section (1) of section 17 of the Sale of
Goods Act, 1930, a contract of sale is a contract for sale by sample
where there is a term in the contract, express or implied, to that
effect.
As per the provisions of Sub-Section (2) of section 17 of the Sale
of Goods Act, 1930, in a contract of sale by sample, there is an
implied condition that:
(a) that the bulk shall correspond with the sample in quality;
(b) that the buyer shall have a reasonable opportunity of
comparing the bulk with the sample.
(c) that the goods shall be free from any defect, rendering them
unmerchantable, which would not be apparent on reasonable
examination of the sample.
(iii) In case Mrs. Seema specified her exact requirement as to length of
rice, then there is an implied condition that the goods shall
correspond with the description. If it is not so, the seller will be held
liable.
(b) (i)  Listed company: As per the definition given in the section 2(52) of
the Companies Act, 2013, it is a company which has any of its 
securities listed on any recognised stock exchange.  
Provided that such class of companies, which have listed or intend 
to list such class of securities, as may be prescribed in consultation 
with the Securities and Exchange Board, shall not be considered 
as listed companies. 
675
Whereas the word securities as per section 2(81) of the Companies 
Act, 2013 has been assigned the same meaning as defined in 
clause (h) of section 2 of the Securities Contracts (Regulation) Act, 
1956. 
Unlisted company means company other than listed company. 
(ii) In line with the Companies Act, 2013, following are the
classification of the Companies on the basis of control:
(a) Holding and subsidiary companies: ‘Holding and
subsidiary’ companies are relative terms.
A company is a holding company in relation to one or more
other companies, means a company of which such companies
are subsidiary companies. [Section 2(46)]
For the purposes of this clause, the expression “company"
includes any body corporate.
Whereas section 2(87) defines “subsidiary company” in
relation to any other company (that is to say the holding
company), means a company in which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total
voting power either at its own or together with one or
more of its subsidiary companies:
Provided that such class or classes of holding
companies as may be prescribed shall not have layers
of subsidiaries beyond such numbers as may be
prescribed.
(b) Associate company [Section 2(6)]: In relation to another
company, means a company in which that other company has
a significant influence, but which is not a subsidiary company
of the company having such influence and includes a joint
venture company.
Explanation. — For the purpose of this clause —
(i) the expression “significant influence” means control of at
least twenty per cent of total voting power, or control of
or participation in business decisions under an
agreement;
(ii) the expression “joint venture’’ means a joint
arrangement whereby the parties that have joint control
of the arrangement have rights to the net assets of the
arrangement.
(c) (i)  Partners (Section 5 of Limited Liability Partnership Act, 2008):
Any individual or body corporate may be a partner in a LLP. 
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However, an individual shall not be capable of becoming a partner 
of a LLP, if—  
(a) he has been found to be of unsound mind by a Court of
competent jurisdiction and the finding is in force;
(b) he is an undischarged insolvent; or
(c) he has applied to be adjudicated as an insolvent and his
application is pending.
(ii) Effect of registration (Section 14 of Limited Liability
Partnership Act, 2008):
On registration, a LLP shall, by its name, be capable of—
(a) suing and being sued;
(b) acquiring, owning, holding and developing or disposing of
property, whether movable or immovable, tangible or
intangible;
(c) having a common seal, if it decides to have one; and
(d) doing and suffering such other acts and things as bodies
corporate may lawfully do and suffer.
3. (a) (i)  According to Section 4 of the Indian Partnership Act, 1932,
"Partnership" is the relation between persons who have agreed to 
share the profits of a business carried on by all or any of them 
acting for all. Therefore, for determining the existence of 
partnership, it must be proved that:  
1. There must be an agreement between all the persons
concerned;
2. The agreement must be to carry on some business;
3. The agreement must be to share the profits of a business and
4. The business was carried on by all or any of them acting for
all.
On the basis of above provisions and facts provided in the question, 
Mr. Ram and Mr. Raheem cannot be said under partnership as they 
are teachers in a school and just purchased a flat jointly.  
By merely giving the flat on rent, they are not doing business. They 
are just earning the income from the property under their 
co-ownership. Hence, there is no partnership between them. 
Therefore, Mr. Ram is liable to pay his share only i.e. ` 1500. 
Mr. John has to claim the rest of ` 1500 from Mr. Raheem.  
(ii) Liability of Firm for Misapplication by Partners (Section 27 of
Indian Partnership Act, 1932):
The two clauses of Section 27 bring out an important point of
distinction between the two categories of cases of misapplication
of money by partners.
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