Business Laws Model Test Paper - 5 (Answers) | Mock Tests & Past Year Papers for CA Foundation PDF Download

 Page 1


ANSWERS OF MODEL TEST PAPER 5 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS 
1. (a) (i) Section 73 of Indian Contract Act, 1872 provides that when a 
contract has been broken, the party who suffers by such breach is 
entitled to receive, from the party who has broken the contract, 
compensation for any loss or damage caused to him thereby, which 
naturally arose in the usual course of things from such breach, or 
which the parties knew, when they made the contract, to be likely 
to result from the breach of it. But such compensation is not to be 
given for any remote and indirect loss or damage sustained by 
reason of the breach. 
In the instant case, Mr. Chetan filed the suit against Himalayan 
Travels Pvt. Ltd. for damages for the personal inconvenience, hotel 
charges and medical treatment for his wife. 
On the basis of above provisions and facts of the case, it can be 
said that Mr. Chetan can claim damages for the personal 
inconvenience and hotel charges but not for medical treatment for 
his wife because it is a remote or indirect loss.  
(ii) According to section 17 of the Indian Contract Act, 1872, mere
silence as to facts likely to affect the willingness of a person to enter
into a contract is not fraud, unless the circumstances of the case
are such that, regard being had to them, it is the duty of the person
keeping silence to speak, or unless his silence is, in itself,
equivalent to speech. Hence, in the instant case,
(A) This contract is valid since as per section 17, mere silence as
to the facts likely to affect the willingness of a person to enter
into a contract is not fraud. Here, it is not the duty of the seller
to disclose defects.
(B) This contract is not valid since as per section 17, it becomes
Sahil’s duty to tell Rohan about the unsoundness of the horse
because a fiduciary relationship exists between Sahil and his
son Rohan. Here, Sahil’s silence is equivalent to speech and
hence amounts to fraud.
(C) This contract is not valid since as per section 17, Sahil’s
silence is equivalent to speech and hence amounts to fraud.
(b) (i) As per Section 2(6) of the Companies Act, 2013, an Associate 
Company 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.  
685
Page 2


ANSWERS OF MODEL TEST PAPER 5 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS 
1. (a) (i) Section 73 of Indian Contract Act, 1872 provides that when a 
contract has been broken, the party who suffers by such breach is 
entitled to receive, from the party who has broken the contract, 
compensation for any loss or damage caused to him thereby, which 
naturally arose in the usual course of things from such breach, or 
which the parties knew, when they made the contract, to be likely 
to result from the breach of it. But such compensation is not to be 
given for any remote and indirect loss or damage sustained by 
reason of the breach. 
In the instant case, Mr. Chetan filed the suit against Himalayan 
Travels Pvt. Ltd. for damages for the personal inconvenience, hotel 
charges and medical treatment for his wife. 
On the basis of above provisions and facts of the case, it can be 
said that Mr. Chetan can claim damages for the personal 
inconvenience and hotel charges but not for medical treatment for 
his wife because it is a remote or indirect loss.  
(ii) According to section 17 of the Indian Contract Act, 1872, mere
silence as to facts likely to affect the willingness of a person to enter
into a contract is not fraud, unless the circumstances of the case
are such that, regard being had to them, it is the duty of the person
keeping silence to speak, or unless his silence is, in itself,
equivalent to speech. Hence, in the instant case,
(A) This contract is valid since as per section 17, mere silence as
to the facts likely to affect the willingness of a person to enter
into a contract is not fraud. Here, it is not the duty of the seller
to disclose defects.
(B) This contract is not valid since as per section 17, it becomes
Sahil’s duty to tell Rohan about the unsoundness of the horse
because a fiduciary relationship exists between Sahil and his
son Rohan. Here, Sahil’s silence is equivalent to speech and
hence amounts to fraud.
(C) This contract is not valid since as per section 17, Sahil’s
silence is equivalent to speech and hence amounts to fraud.
(b) (i) As per Section 2(6) of the Companies Act, 2013, an Associate 
Company 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.  
685
The term “significant influence” means control of at least 20% of 
total voting power, or control of or participation in business 
decisions under an agreement.  
In the given case, ABC Ltd. has allotted equity shares with voting 
rights to XYZ Limited of ` 15 crore, which is less than requisite 
control of 20% of total share capital (i.e. ` 100 crore) to have a 
significant influence of XYZ Ltd. Since the said requirement is not 
complied therefore ABC Ltd. and XYZ Ltd. are not associate 
companies as per the Companies Act, 2013.  
(ii) “Inactive company” means a company which has not been
carrying on any business or operation or has not made any
significant accounting transaction during the last two financial
years or has not filed financial statements and annual returns
during the last two financial years. [Explanation (i) to Section 455
of the Companies Act, 2013]
“Significant accounting transaction” means any transaction other
than—
(a) payment of fees by a company to the Registrar;
(b) payments made by it to fulfil the requirements of this Act or
any other law;
(c) allotment of shares to fulfil the requirements of this Act; and
(d) payments for maintenance of its office and records.
[Explanation (ii) to Section 455 of the Companies Act, 2013] 
In the instant case, MTK Private Limited was registered on 
5
th
 January 2022 and did not start its business till 31
st
 July 2024. 
Since the Company has not started its business and a period of 
more than two years has already elapsed, it will be treated as an 
inactive company.   
(c) (i) Partnership Vs. Co-Ownership or joint ownership i.e. the relation 
which subsists between persons who own property jointly or in 
common. 
Basis of difference Partnership Co-ownership 
1. Formation Partnership 
always arises out 
of a contract, 
express or 
implied. 
Co-ownership 
may arise either 
from agreement or 
by the operation of 
law, such as by 
inheritance. 
2. Implied agency A partner is the 
agent of the other 
partners. 
A co-owner is not 
the agent of other 
co-owners. 
686
Page 3


ANSWERS OF MODEL TEST PAPER 5 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS 
1. (a) (i) Section 73 of Indian Contract Act, 1872 provides that when a 
contract has been broken, the party who suffers by such breach is 
entitled to receive, from the party who has broken the contract, 
compensation for any loss or damage caused to him thereby, which 
naturally arose in the usual course of things from such breach, or 
which the parties knew, when they made the contract, to be likely 
to result from the breach of it. But such compensation is not to be 
given for any remote and indirect loss or damage sustained by 
reason of the breach. 
In the instant case, Mr. Chetan filed the suit against Himalayan 
Travels Pvt. Ltd. for damages for the personal inconvenience, hotel 
charges and medical treatment for his wife. 
On the basis of above provisions and facts of the case, it can be 
said that Mr. Chetan can claim damages for the personal 
inconvenience and hotel charges but not for medical treatment for 
his wife because it is a remote or indirect loss.  
(ii) According to section 17 of the Indian Contract Act, 1872, mere
silence as to facts likely to affect the willingness of a person to enter
into a contract is not fraud, unless the circumstances of the case
are such that, regard being had to them, it is the duty of the person
keeping silence to speak, or unless his silence is, in itself,
equivalent to speech. Hence, in the instant case,
(A) This contract is valid since as per section 17, mere silence as
to the facts likely to affect the willingness of a person to enter
into a contract is not fraud. Here, it is not the duty of the seller
to disclose defects.
(B) This contract is not valid since as per section 17, it becomes
Sahil’s duty to tell Rohan about the unsoundness of the horse
because a fiduciary relationship exists between Sahil and his
son Rohan. Here, Sahil’s silence is equivalent to speech and
hence amounts to fraud.
(C) This contract is not valid since as per section 17, Sahil’s
silence is equivalent to speech and hence amounts to fraud.
(b) (i) As per Section 2(6) of the Companies Act, 2013, an Associate 
Company 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.  
685
The term “significant influence” means control of at least 20% of 
total voting power, or control of or participation in business 
decisions under an agreement.  
In the given case, ABC Ltd. has allotted equity shares with voting 
rights to XYZ Limited of ` 15 crore, which is less than requisite 
control of 20% of total share capital (i.e. ` 100 crore) to have a 
significant influence of XYZ Ltd. Since the said requirement is not 
complied therefore ABC Ltd. and XYZ Ltd. are not associate 
companies as per the Companies Act, 2013.  
(ii) “Inactive company” means a company which has not been
carrying on any business or operation or has not made any
significant accounting transaction during the last two financial
years or has not filed financial statements and annual returns
during the last two financial years. [Explanation (i) to Section 455
of the Companies Act, 2013]
“Significant accounting transaction” means any transaction other
than—
(a) payment of fees by a company to the Registrar;
(b) payments made by it to fulfil the requirements of this Act or
any other law;
(c) allotment of shares to fulfil the requirements of this Act; and
(d) payments for maintenance of its office and records.
[Explanation (ii) to Section 455 of the Companies Act, 2013] 
In the instant case, MTK Private Limited was registered on 
5
th
 January 2022 and did not start its business till 31
st
 July 2024. 
Since the Company has not started its business and a period of 
more than two years has already elapsed, it will be treated as an 
inactive company.   
(c) (i) Partnership Vs. Co-Ownership or joint ownership i.e. the relation 
which subsists between persons who own property jointly or in 
common. 
Basis of difference Partnership Co-ownership 
1. Formation Partnership 
always arises out 
of a contract, 
express or 
implied. 
Co-ownership 
may arise either 
from agreement or 
by the operation of 
law, such as by 
inheritance. 
2. Implied agency A partner is the 
agent of the other 
partners. 
A co-owner is not 
the agent of other 
co-owners. 
686
3. Nature of 
interest
There is 
community of 
interest which 
means that profits 
and losses must 
have to be shared. 
Co-ownership 
does not 
necessarily 
involve sharing of 
profits and losses. 
4. Transfer of 
interest
A share in the 
partnership is 
transferred only by 
the consent of 
other partners. 
A co-owner may 
transfer his 
interest or rights in 
the property 
without the 
consent of other 
co-owners. 
(ii) Personal Profit earned by Partners (Section 16 of the Indian
Partnership Act, 1932)
According to section 16, subject to contract between the partners:
(a) If a partner derives any profit for himself from any transaction
of the firm, or from the use of the property or business
connection of the firm or the firm name, he shall account for
that profit and pay it to the firm;
(b) If a partner carries on any business of the same nature and
competing with that of the firm, he shall account for and pay
to the firm all profits made by him in that business.
2. (a)  According to Section 15 of the Sale of Goods Act, 1930, whenever the
goods are sold as per sample as well as by description, the implied 
condition is that the goods must correspond to both sample as well as 
description. In case the goods do not correspond to a sample or 
description, the buyer has the right to repudiate the contract. 
Further under Sale of Goods Act, 1930, when the buyer makes known to 
the seller, the particular purpose for which the goods are required and 
he relies on his judgment and skill of the seller, it is the duty of the seller 
to supply such goods which are fit for that purpose. 
In the given case, Mr. Vivek informed Mr. Manoj that he wanted the 
washing machine for washing woollen clothes. However, the machine 
which was delivered by Mr. Manoj was unfit for the purpose for which Mr. 
Vivek wanted the machine.  
Based on the above provision and facts of case, there is breach of 
implied condition as to sample as well as description, therefore Mr. Vivek 
can either repudiate the contract or claim the refund of the price paid by 
him or he may require Mr. Manoj to replace the washing machine with 
desired one.   
687
Page 4


ANSWERS OF MODEL TEST PAPER 5 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS 
1. (a) (i) Section 73 of Indian Contract Act, 1872 provides that when a 
contract has been broken, the party who suffers by such breach is 
entitled to receive, from the party who has broken the contract, 
compensation for any loss or damage caused to him thereby, which 
naturally arose in the usual course of things from such breach, or 
which the parties knew, when they made the contract, to be likely 
to result from the breach of it. But such compensation is not to be 
given for any remote and indirect loss or damage sustained by 
reason of the breach. 
In the instant case, Mr. Chetan filed the suit against Himalayan 
Travels Pvt. Ltd. for damages for the personal inconvenience, hotel 
charges and medical treatment for his wife. 
On the basis of above provisions and facts of the case, it can be 
said that Mr. Chetan can claim damages for the personal 
inconvenience and hotel charges but not for medical treatment for 
his wife because it is a remote or indirect loss.  
(ii) According to section 17 of the Indian Contract Act, 1872, mere
silence as to facts likely to affect the willingness of a person to enter
into a contract is not fraud, unless the circumstances of the case
are such that, regard being had to them, it is the duty of the person
keeping silence to speak, or unless his silence is, in itself,
equivalent to speech. Hence, in the instant case,
(A) This contract is valid since as per section 17, mere silence as
to the facts likely to affect the willingness of a person to enter
into a contract is not fraud. Here, it is not the duty of the seller
to disclose defects.
(B) This contract is not valid since as per section 17, it becomes
Sahil’s duty to tell Rohan about the unsoundness of the horse
because a fiduciary relationship exists between Sahil and his
son Rohan. Here, Sahil’s silence is equivalent to speech and
hence amounts to fraud.
(C) This contract is not valid since as per section 17, Sahil’s
silence is equivalent to speech and hence amounts to fraud.
(b) (i) As per Section 2(6) of the Companies Act, 2013, an Associate 
Company 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.  
685
The term “significant influence” means control of at least 20% of 
total voting power, or control of or participation in business 
decisions under an agreement.  
In the given case, ABC Ltd. has allotted equity shares with voting 
rights to XYZ Limited of ` 15 crore, which is less than requisite 
control of 20% of total share capital (i.e. ` 100 crore) to have a 
significant influence of XYZ Ltd. Since the said requirement is not 
complied therefore ABC Ltd. and XYZ Ltd. are not associate 
companies as per the Companies Act, 2013.  
(ii) “Inactive company” means a company which has not been
carrying on any business or operation or has not made any
significant accounting transaction during the last two financial
years or has not filed financial statements and annual returns
during the last two financial years. [Explanation (i) to Section 455
of the Companies Act, 2013]
“Significant accounting transaction” means any transaction other
than—
(a) payment of fees by a company to the Registrar;
(b) payments made by it to fulfil the requirements of this Act or
any other law;
(c) allotment of shares to fulfil the requirements of this Act; and
(d) payments for maintenance of its office and records.
[Explanation (ii) to Section 455 of the Companies Act, 2013] 
In the instant case, MTK Private Limited was registered on 
5
th
 January 2022 and did not start its business till 31
st
 July 2024. 
Since the Company has not started its business and a period of 
more than two years has already elapsed, it will be treated as an 
inactive company.   
(c) (i) Partnership Vs. Co-Ownership or joint ownership i.e. the relation 
which subsists between persons who own property jointly or in 
common. 
Basis of difference Partnership Co-ownership 
1. Formation Partnership 
always arises out 
of a contract, 
express or 
implied. 
Co-ownership 
may arise either 
from agreement or 
by the operation of 
law, such as by 
inheritance. 
2. Implied agency A partner is the 
agent of the other 
partners. 
A co-owner is not 
the agent of other 
co-owners. 
686
3. Nature of 
interest
There is 
community of 
interest which 
means that profits 
and losses must 
have to be shared. 
Co-ownership 
does not 
necessarily 
involve sharing of 
profits and losses. 
4. Transfer of 
interest
A share in the 
partnership is 
transferred only by 
the consent of 
other partners. 
A co-owner may 
transfer his 
interest or rights in 
the property 
without the 
consent of other 
co-owners. 
(ii) Personal Profit earned by Partners (Section 16 of the Indian
Partnership Act, 1932)
According to section 16, subject to contract between the partners:
(a) If a partner derives any profit for himself from any transaction
of the firm, or from the use of the property or business
connection of the firm or the firm name, he shall account for
that profit and pay it to the firm;
(b) If a partner carries on any business of the same nature and
competing with that of the firm, he shall account for and pay
to the firm all profits made by him in that business.
2. (a)  According to Section 15 of the Sale of Goods Act, 1930, whenever the
goods are sold as per sample as well as by description, the implied 
condition is that the goods must correspond to both sample as well as 
description. In case the goods do not correspond to a sample or 
description, the buyer has the right to repudiate the contract. 
Further under Sale of Goods Act, 1930, when the buyer makes known to 
the seller, the particular purpose for which the goods are required and 
he relies on his judgment and skill of the seller, it is the duty of the seller 
to supply such goods which are fit for that purpose. 
In the given case, Mr. Vivek informed Mr. Manoj that he wanted the 
washing machine for washing woollen clothes. However, the machine 
which was delivered by Mr. Manoj was unfit for the purpose for which Mr. 
Vivek wanted the machine.  
Based on the above provision and facts of case, there is breach of 
implied condition as to sample as well as description, therefore Mr. Vivek 
can either repudiate the contract or claim the refund of the price paid by 
him or he may require Mr. Manoj to replace the washing machine with 
desired one.   
687
(b) (i) According to the decision taken in the case of Salomon Vs. 
Salomon & Co. Ltd., a company has a separate legal entity. A 
company is different from its members. Further, according to the 
decision taken in the case of Macaura Vs. Northern Assurance Co. 
Ltd., a member or creditor does not have any insurable interest in 
the property of the company. Members or creditors of the company 
cannot claim ownership in the property of company. 
On the basis of the above provisions and facts, it can be said that 
Mr. Sooraj and CPL Private Limited are separate entities. Mr. 
Sooraj cannot have any insurable interest in the property of CPL 
Private Limited neither as member nor as creditor. Hence, the 
insurance company is not liable to pay to Mr. Sooraj for the claim 
for the loss of stock by fire. 
(ii) Section 8 of the Companies Act, 2013 deals with the formation of
companies which are formed to promote the charitable objects of
commerce, art, science, education, sports etc. Such company
intends to apply its profit in promoting its objects. Section 8
companies are registered by the Registrar only when a license is
issued by the Central Government to them. Since, Alfa School was
a Section 8 company and it had started violating the objects of its
objective clause, hence in such a situation the following powers can
be exercised by the Central Government:
(i) The Central Government may by order revoke the licence of
the company where the company contravenes any of the
requirements or the conditions of this sections subject to
which a licence is issued or where the affairs of the company
are conducted fraudulently, or violative of the objects of the
company or prejudicial to public interest, and on revocation
the Registrar shall put ‘Limited’ or ‘Private Limited’ against the
company’s name in the register. But before such revocation,
the Central Government must give it a written notice of its
intention to revoke the licence and opportunity to be heard in
the matter.
(ii) Where a licence is revoked, the Central Government may, by
order, if it is satisfied that it is essential in the public interest,
direct that the company be wound up under this Act or
amalgamated with another company registered under this
section.
However, no such order shall be made unless the company is
given a reasonable opportunity of being heard.
(iii) Where a licence is revoked and where the Central
Government is satisfied that it is essential in the public interest
that the company registered under this section should be
amalgamated with another company registered under this
section and having similar objects, then, notwithstanding
anything to the contrary contained in this Act, the Central
688
Page 5


ANSWERS OF MODEL TEST PAPER 5 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS 
1. (a) (i) Section 73 of Indian Contract Act, 1872 provides that when a 
contract has been broken, the party who suffers by such breach is 
entitled to receive, from the party who has broken the contract, 
compensation for any loss or damage caused to him thereby, which 
naturally arose in the usual course of things from such breach, or 
which the parties knew, when they made the contract, to be likely 
to result from the breach of it. But such compensation is not to be 
given for any remote and indirect loss or damage sustained by 
reason of the breach. 
In the instant case, Mr. Chetan filed the suit against Himalayan 
Travels Pvt. Ltd. for damages for the personal inconvenience, hotel 
charges and medical treatment for his wife. 
On the basis of above provisions and facts of the case, it can be 
said that Mr. Chetan can claim damages for the personal 
inconvenience and hotel charges but not for medical treatment for 
his wife because it is a remote or indirect loss.  
(ii) According to section 17 of the Indian Contract Act, 1872, mere
silence as to facts likely to affect the willingness of a person to enter
into a contract is not fraud, unless the circumstances of the case
are such that, regard being had to them, it is the duty of the person
keeping silence to speak, or unless his silence is, in itself,
equivalent to speech. Hence, in the instant case,
(A) This contract is valid since as per section 17, mere silence as
to the facts likely to affect the willingness of a person to enter
into a contract is not fraud. Here, it is not the duty of the seller
to disclose defects.
(B) This contract is not valid since as per section 17, it becomes
Sahil’s duty to tell Rohan about the unsoundness of the horse
because a fiduciary relationship exists between Sahil and his
son Rohan. Here, Sahil’s silence is equivalent to speech and
hence amounts to fraud.
(C) This contract is not valid since as per section 17, Sahil’s
silence is equivalent to speech and hence amounts to fraud.
(b) (i) As per Section 2(6) of the Companies Act, 2013, an Associate 
Company 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.  
685
The term “significant influence” means control of at least 20% of 
total voting power, or control of or participation in business 
decisions under an agreement.  
In the given case, ABC Ltd. has allotted equity shares with voting 
rights to XYZ Limited of ` 15 crore, which is less than requisite 
control of 20% of total share capital (i.e. ` 100 crore) to have a 
significant influence of XYZ Ltd. Since the said requirement is not 
complied therefore ABC Ltd. and XYZ Ltd. are not associate 
companies as per the Companies Act, 2013.  
(ii) “Inactive company” means a company which has not been
carrying on any business or operation or has not made any
significant accounting transaction during the last two financial
years or has not filed financial statements and annual returns
during the last two financial years. [Explanation (i) to Section 455
of the Companies Act, 2013]
“Significant accounting transaction” means any transaction other
than—
(a) payment of fees by a company to the Registrar;
(b) payments made by it to fulfil the requirements of this Act or
any other law;
(c) allotment of shares to fulfil the requirements of this Act; and
(d) payments for maintenance of its office and records.
[Explanation (ii) to Section 455 of the Companies Act, 2013] 
In the instant case, MTK Private Limited was registered on 
5
th
 January 2022 and did not start its business till 31
st
 July 2024. 
Since the Company has not started its business and a period of 
more than two years has already elapsed, it will be treated as an 
inactive company.   
(c) (i) Partnership Vs. Co-Ownership or joint ownership i.e. the relation 
which subsists between persons who own property jointly or in 
common. 
Basis of difference Partnership Co-ownership 
1. Formation Partnership 
always arises out 
of a contract, 
express or 
implied. 
Co-ownership 
may arise either 
from agreement or 
by the operation of 
law, such as by 
inheritance. 
2. Implied agency A partner is the 
agent of the other 
partners. 
A co-owner is not 
the agent of other 
co-owners. 
686
3. Nature of 
interest
There is 
community of 
interest which 
means that profits 
and losses must 
have to be shared. 
Co-ownership 
does not 
necessarily 
involve sharing of 
profits and losses. 
4. Transfer of 
interest
A share in the 
partnership is 
transferred only by 
the consent of 
other partners. 
A co-owner may 
transfer his 
interest or rights in 
the property 
without the 
consent of other 
co-owners. 
(ii) Personal Profit earned by Partners (Section 16 of the Indian
Partnership Act, 1932)
According to section 16, subject to contract between the partners:
(a) If a partner derives any profit for himself from any transaction
of the firm, or from the use of the property or business
connection of the firm or the firm name, he shall account for
that profit and pay it to the firm;
(b) If a partner carries on any business of the same nature and
competing with that of the firm, he shall account for and pay
to the firm all profits made by him in that business.
2. (a)  According to Section 15 of the Sale of Goods Act, 1930, whenever the
goods are sold as per sample as well as by description, the implied 
condition is that the goods must correspond to both sample as well as 
description. In case the goods do not correspond to a sample or 
description, the buyer has the right to repudiate the contract. 
Further under Sale of Goods Act, 1930, when the buyer makes known to 
the seller, the particular purpose for which the goods are required and 
he relies on his judgment and skill of the seller, it is the duty of the seller 
to supply such goods which are fit for that purpose. 
In the given case, Mr. Vivek informed Mr. Manoj that he wanted the 
washing machine for washing woollen clothes. However, the machine 
which was delivered by Mr. Manoj was unfit for the purpose for which Mr. 
Vivek wanted the machine.  
Based on the above provision and facts of case, there is breach of 
implied condition as to sample as well as description, therefore Mr. Vivek 
can either repudiate the contract or claim the refund of the price paid by 
him or he may require Mr. Manoj to replace the washing machine with 
desired one.   
687
(b) (i) According to the decision taken in the case of Salomon Vs. 
Salomon & Co. Ltd., a company has a separate legal entity. A 
company is different from its members. Further, according to the 
decision taken in the case of Macaura Vs. Northern Assurance Co. 
Ltd., a member or creditor does not have any insurable interest in 
the property of the company. Members or creditors of the company 
cannot claim ownership in the property of company. 
On the basis of the above provisions and facts, it can be said that 
Mr. Sooraj and CPL Private Limited are separate entities. Mr. 
Sooraj cannot have any insurable interest in the property of CPL 
Private Limited neither as member nor as creditor. Hence, the 
insurance company is not liable to pay to Mr. Sooraj for the claim 
for the loss of stock by fire. 
(ii) Section 8 of the Companies Act, 2013 deals with the formation of
companies which are formed to promote the charitable objects of
commerce, art, science, education, sports etc. Such company
intends to apply its profit in promoting its objects. Section 8
companies are registered by the Registrar only when a license is
issued by the Central Government to them. Since, Alfa School was
a Section 8 company and it had started violating the objects of its
objective clause, hence in such a situation the following powers can
be exercised by the Central Government:
(i) The Central Government may by order revoke the licence of
the company where the company contravenes any of the
requirements or the conditions of this sections subject to
which a licence is issued or where the affairs of the company
are conducted fraudulently, or violative of the objects of the
company or prejudicial to public interest, and on revocation
the Registrar shall put ‘Limited’ or ‘Private Limited’ against the
company’s name in the register. But before such revocation,
the Central Government must give it a written notice of its
intention to revoke the licence and opportunity to be heard in
the matter.
(ii) Where a licence is revoked, the Central Government may, by
order, if it is satisfied that it is essential in the public interest,
direct that the company be wound up under this Act or
amalgamated with another company registered under this
section.
However, no such order shall be made unless the company is
given a reasonable opportunity of being heard.
(iii) Where a licence is revoked and where the Central
Government is satisfied that it is essential in the public interest
that the company registered under this section should be
amalgamated with another company registered under this
section and having similar objects, then, notwithstanding
anything to the contrary contained in this Act, the Central
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Government may, by order, provide for such amalgamation to 
form a single company with such constitution, properties, 
powers, rights, interest, authorities and privileges and with 
such liabilities, duties and obligations as may be specified in 
the order. 
(c) Designated Partner [Section 2(1)(j) of the LLP Act, 2008]:
“Designated partner” means any partner designated as such pursuant to
section 7.
According to section 7 of the LLP Act, 2008:
(i) Every LLP shall have at least two designated partners who are
individuals and at least one of them shall be a resident in India.
(ii) If in LLP, all the partners are bodies corporate or in which one or
more partners are individuals and bodies corporate, at least two
individuals who are partners of such LLP or nominees of such
bodies corporate shall act as designated partners.
(iii) Resident in India: For the purposes of this section, the term
“resident in India” means a person who has stayed in India for a
period of not less than 120 days during the financial year.
3. (a)  Expulsion of a Partner (Section 33 of the Indian Partnership Act, 1932):
A partner may not be expelled from a firm by a majority of partners 
except in exercise, in good faith, of powers conferred by contract 
between the partners.   
The test of good faith as required under Section 33(1) includes three 
things:   
• The expulsion must be in the interest of the partnership.
• The partner to be expelled is served with a notice.
• He is given an opportunity of being heard.
If a partner is otherwise expelled, the expulsion is null and void. 
(a) Action by the partners of M/s ABC & Associates, a partnership firm
to expel Mr. P from the partnership was justified as he was expelled
by approval of the other partners exercised in good faith to protect
the interest of the partnership against the unauthorized activities
charged against Mr. P. A proper notice and opportunity of being
heard has to be given to Mr. P.
(b) The following are the factors to be kept in mind prior expelling a
partner from the firm by other partners:
• the power of expulsion must have existed in a contract
between the partners;
• the power has been exercised by a majority of the partners;
and
• it has been exercised in good faith.
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