Business Laws Model Test Paper - 9 (Answers) | Mock Tests & Past Year Papers for CA Foundation PDF Download

 Page 1


ANSWERS OF MODEL TEST PAPER 9 
FOUNDATION COURSE 
PAPER 2 : BUSINESS LAWS 
 
1. (a) As per section 126 of the Indian Contract Act, 1872, the contract of 
guarantee is defined as a contract to perform the promise or discharge 
the liability of a third person in case of his default.  
 In this case, S has given a guarantee for P's payment obligation 
towards R. When P defaulted after making four monthly instalments 
and became insolvent, S's liability as a guarantor will come into 
existence.  
 According to Section 128 of the Act, the liability of the surety is co-
extensive with that of the principal debtor, unless it is otherwise 
provided by the contract. 
 Since P failed to pay the remaining instalments due to insolvency, S, 
as the guarantor, is liable to pay the balance price of the water purifier 
to R. In the given situation, S will have to pay the balance amount of  
` 30,000 to R. [54,000-(4x6,000)] 
 In the second situation, R sold the water purifier misrepresenting it as 
having a copper filter, while it actually has a normal filter; this changes 
the situation significantly. 
 According to Section 142 of the Act, any guarantee which has been 
obtained by means of misrepresentation made by the creditor, or with 
his knowledge and assent, concerning a material part of the 
transaction, is invalid. Here, guarantee is obtained by means of 
misrepresentation made by the creditor (R), and therefore the 
guarantee is invalid.  
 Furthermore, under Section 143, any guarantee which the creditor has 
obtained by means of keeping silence as to material circumstances, is 
invalid. 
 Here R misrepresented the filter type and both P and S were unaware 
of this fact. The creditor (R) has obtained the guarantee by remaining 
silent as to material circumstances. Therefore, the guarantee obtained 
from S will be considered to be invalid. 
 Consequently, S cannot be held liable to pay the balance price of the 
water purifier to R. 
(b) As per Section 2(46) of the Companies Act, 2013, holding company in 
relation to one or more other companies, means a company of which 
such companies are subsidiary companies.  
 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  
740
Page 2


ANSWERS OF MODEL TEST PAPER 9 
FOUNDATION COURSE 
PAPER 2 : BUSINESS LAWS 
 
1. (a) As per section 126 of the Indian Contract Act, 1872, the contract of 
guarantee is defined as a contract to perform the promise or discharge 
the liability of a third person in case of his default.  
 In this case, S has given a guarantee for P's payment obligation 
towards R. When P defaulted after making four monthly instalments 
and became insolvent, S's liability as a guarantor will come into 
existence.  
 According to Section 128 of the Act, the liability of the surety is co-
extensive with that of the principal debtor, unless it is otherwise 
provided by the contract. 
 Since P failed to pay the remaining instalments due to insolvency, S, 
as the guarantor, is liable to pay the balance price of the water purifier 
to R. In the given situation, S will have to pay the balance amount of  
` 30,000 to R. [54,000-(4x6,000)] 
 In the second situation, R sold the water purifier misrepresenting it as 
having a copper filter, while it actually has a normal filter; this changes 
the situation significantly. 
 According to Section 142 of the Act, any guarantee which has been 
obtained by means of misrepresentation made by the creditor, or with 
his knowledge and assent, concerning a material part of the 
transaction, is invalid. Here, guarantee is obtained by means of 
misrepresentation made by the creditor (R), and therefore the 
guarantee is invalid.  
 Furthermore, under Section 143, any guarantee which the creditor has 
obtained by means of keeping silence as to material circumstances, is 
invalid. 
 Here R misrepresented the filter type and both P and S were unaware 
of this fact. The creditor (R) has obtained the guarantee by remaining 
silent as to material circumstances. Therefore, the guarantee obtained 
from S will be considered to be invalid. 
 Consequently, S cannot be held liable to pay the balance price of the 
water purifier to R. 
(b) As per Section 2(46) of the Companies Act, 2013, holding company in 
relation to one or more other companies, means a company of which 
such companies are subsidiary companies.  
 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  
740
(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. 
 In the instant case, as on 31.03.2023, ABC Limited had a paid-up 
capital of ` 1 lakh (10,000 equity shares of ` 10 each). In June 2023, 
ABC Limited issued additional 10,000 equity shares, which was fully 
subscribed. Post-issue, the total paid-up capital of ABC Limited is ` 2 
lakhs (20,000 equity shares of `10 each).  
 Out of these, 5,000 shares were issued to XYZ Private Limited. Since 
XYZ Private Limited holds only 25% of the shares in ABC Limited, it 
does not have control of more than one-half of the total voting power of 
ABC Limited. Hence, XYZ Private Limited cannot be considered as a 
subsidiary company of ABC Limited in terms of the second criteria 
stated above, that of controlling of voting power. 
 XYZ Private Limited is the holding company of PQR Private Limited by 
having control over the composition of its Board of Directors. But since 
XYZ Private Limited cannot be termed as a subsidiary company of ABC 
Limited, PQR Private Limited cannot claim the status of being a 
subsidiary of ABC Limited in terms of the first criteria, that of controlling 
of the composition of directors. 
 As per section 2(6) of the Act, 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.  
 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. 
 In terms of the above provision, the relationship between ABC Limited 
and XYZ Private Limited can be of an Associate Company.  
 Since XYZ Private Limited holds more than 20 percent of voting power 
in ABC Limited, it can be considered as an Associate Company of ABC 
Limited.  
(c) The Indian Partnership Act, 1932 does not make the registration of 
firms compulsory nor does it impose any penalty for non-registration. 
However, under Section 69, non-registration of partnership gives rise to 
a number of disabilities. Although registration of firms is not 
compulsory, yet the consequences or disabilities of non-registration 
have a persuasive pressure for their registration. 
 Exceptions: Non-registration of a firm does not, however affect the 
following rights: 
1.  The right of third parties to sue the firm or any partner. 
2. The right of partners to sue for the dissolution of the firm or for the 
settlement of the accounts of a dissolved firm, or for realization of 
the property of a dissolved firm. 
741
Page 3


ANSWERS OF MODEL TEST PAPER 9 
FOUNDATION COURSE 
PAPER 2 : BUSINESS LAWS 
 
1. (a) As per section 126 of the Indian Contract Act, 1872, the contract of 
guarantee is defined as a contract to perform the promise or discharge 
the liability of a third person in case of his default.  
 In this case, S has given a guarantee for P's payment obligation 
towards R. When P defaulted after making four monthly instalments 
and became insolvent, S's liability as a guarantor will come into 
existence.  
 According to Section 128 of the Act, the liability of the surety is co-
extensive with that of the principal debtor, unless it is otherwise 
provided by the contract. 
 Since P failed to pay the remaining instalments due to insolvency, S, 
as the guarantor, is liable to pay the balance price of the water purifier 
to R. In the given situation, S will have to pay the balance amount of  
` 30,000 to R. [54,000-(4x6,000)] 
 In the second situation, R sold the water purifier misrepresenting it as 
having a copper filter, while it actually has a normal filter; this changes 
the situation significantly. 
 According to Section 142 of the Act, any guarantee which has been 
obtained by means of misrepresentation made by the creditor, or with 
his knowledge and assent, concerning a material part of the 
transaction, is invalid. Here, guarantee is obtained by means of 
misrepresentation made by the creditor (R), and therefore the 
guarantee is invalid.  
 Furthermore, under Section 143, any guarantee which the creditor has 
obtained by means of keeping silence as to material circumstances, is 
invalid. 
 Here R misrepresented the filter type and both P and S were unaware 
of this fact. The creditor (R) has obtained the guarantee by remaining 
silent as to material circumstances. Therefore, the guarantee obtained 
from S will be considered to be invalid. 
 Consequently, S cannot be held liable to pay the balance price of the 
water purifier to R. 
(b) As per Section 2(46) of the Companies Act, 2013, holding company in 
relation to one or more other companies, means a company of which 
such companies are subsidiary companies.  
 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  
740
(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. 
 In the instant case, as on 31.03.2023, ABC Limited had a paid-up 
capital of ` 1 lakh (10,000 equity shares of ` 10 each). In June 2023, 
ABC Limited issued additional 10,000 equity shares, which was fully 
subscribed. Post-issue, the total paid-up capital of ABC Limited is ` 2 
lakhs (20,000 equity shares of `10 each).  
 Out of these, 5,000 shares were issued to XYZ Private Limited. Since 
XYZ Private Limited holds only 25% of the shares in ABC Limited, it 
does not have control of more than one-half of the total voting power of 
ABC Limited. Hence, XYZ Private Limited cannot be considered as a 
subsidiary company of ABC Limited in terms of the second criteria 
stated above, that of controlling of voting power. 
 XYZ Private Limited is the holding company of PQR Private Limited by 
having control over the composition of its Board of Directors. But since 
XYZ Private Limited cannot be termed as a subsidiary company of ABC 
Limited, PQR Private Limited cannot claim the status of being a 
subsidiary of ABC Limited in terms of the first criteria, that of controlling 
of the composition of directors. 
 As per section 2(6) of the Act, 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.  
 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. 
 In terms of the above provision, the relationship between ABC Limited 
and XYZ Private Limited can be of an Associate Company.  
 Since XYZ Private Limited holds more than 20 percent of voting power 
in ABC Limited, it can be considered as an Associate Company of ABC 
Limited.  
(c) The Indian Partnership Act, 1932 does not make the registration of 
firms compulsory nor does it impose any penalty for non-registration. 
However, under Section 69, non-registration of partnership gives rise to 
a number of disabilities. Although registration of firms is not 
compulsory, yet the consequences or disabilities of non-registration 
have a persuasive pressure for their registration. 
 Exceptions: Non-registration of a firm does not, however affect the 
following rights: 
1.  The right of third parties to sue the firm or any partner. 
2. The right of partners to sue for the dissolution of the firm or for the 
settlement of the accounts of a dissolved firm, or for realization of 
the property of a dissolved firm. 
741
3. The power of an Official Assignees, Receiver of Court to release 
the property of the insolvent partner and to bring an action. 
4. The right to sue or claim a set-off if the value of suit does not 
exceed ` 100 in value. 
5.  The right to suit and proceeding instituted by legal representatives 
or heirs of the deceased partner of a firm for accounts of the firm 
or to realise the property of the firm. 
2. (a)  Ascertainment of price (Section 9 of the Sale of Goods Act, 1930): By 
virtue of Section 9, the price in a contract of sale may be- 
(1) fixed by the contract, or 
(2) agreed to be fixed in a manner provided by the contract, e.g., by a 
valuer, or 
(3) determined by the course of dealing between the parties. 
 Agreement to sell at valuation (Section 10): Section 10 provides for 
the determination of price by a third party. 
1.  Where there is an agreement to sell goods on the terms that price 
is to be fixed by the valuation of a third party and that third party 
either does not or cannot make such valuation, the agreement is 
thereby avoided. 
 However, a buyer who has received and appropriated the goods, 
must pay a reasonable price for them. 
2.  In case the third party is prevented from making the valuation by 
the default of either party, the party not at fault may maintain a 
suit for damages against the party in fault. 
(i)  In the instant case, Priya handed over the keys of her two-
wheeler to Sony and it was decided between them that price 
of the vehicle will be fixed by Priya’s father. However, Priya’s 
father refused to fix the price as he did not want Priya to sell 
her vehicle. As the keys have already been handed over to 
Sony, Priya cannot take back the keys from Sony and Sony 
shall pay reasonable price to Priya for the two-wheeler.  
(ii)  If Priya had not handed over the vehicle to Sony, the 
contract could have been avoided as Priya’s father refused 
to fix the price of the vehicle.  
 (b) (a) Section 2(62) of the Companies Act, 2013 defines one person 
company (OPC) as a company which has only one person as a 
member.  
 Ram wants to incorporate a company in which he will be the only 
member. Hence, he can incorporate an One person Company.  
 According to section 3(1)(c) of the Companies Act, 2013, OPC is 
a private limited company with the minimum paid up share capital 
as may be prescribed and having one member.  
742
Page 4


ANSWERS OF MODEL TEST PAPER 9 
FOUNDATION COURSE 
PAPER 2 : BUSINESS LAWS 
 
1. (a) As per section 126 of the Indian Contract Act, 1872, the contract of 
guarantee is defined as a contract to perform the promise or discharge 
the liability of a third person in case of his default.  
 In this case, S has given a guarantee for P's payment obligation 
towards R. When P defaulted after making four monthly instalments 
and became insolvent, S's liability as a guarantor will come into 
existence.  
 According to Section 128 of the Act, the liability of the surety is co-
extensive with that of the principal debtor, unless it is otherwise 
provided by the contract. 
 Since P failed to pay the remaining instalments due to insolvency, S, 
as the guarantor, is liable to pay the balance price of the water purifier 
to R. In the given situation, S will have to pay the balance amount of  
` 30,000 to R. [54,000-(4x6,000)] 
 In the second situation, R sold the water purifier misrepresenting it as 
having a copper filter, while it actually has a normal filter; this changes 
the situation significantly. 
 According to Section 142 of the Act, any guarantee which has been 
obtained by means of misrepresentation made by the creditor, or with 
his knowledge and assent, concerning a material part of the 
transaction, is invalid. Here, guarantee is obtained by means of 
misrepresentation made by the creditor (R), and therefore the 
guarantee is invalid.  
 Furthermore, under Section 143, any guarantee which the creditor has 
obtained by means of keeping silence as to material circumstances, is 
invalid. 
 Here R misrepresented the filter type and both P and S were unaware 
of this fact. The creditor (R) has obtained the guarantee by remaining 
silent as to material circumstances. Therefore, the guarantee obtained 
from S will be considered to be invalid. 
 Consequently, S cannot be held liable to pay the balance price of the 
water purifier to R. 
(b) As per Section 2(46) of the Companies Act, 2013, holding company in 
relation to one or more other companies, means a company of which 
such companies are subsidiary companies.  
 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  
740
(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. 
 In the instant case, as on 31.03.2023, ABC Limited had a paid-up 
capital of ` 1 lakh (10,000 equity shares of ` 10 each). In June 2023, 
ABC Limited issued additional 10,000 equity shares, which was fully 
subscribed. Post-issue, the total paid-up capital of ABC Limited is ` 2 
lakhs (20,000 equity shares of `10 each).  
 Out of these, 5,000 shares were issued to XYZ Private Limited. Since 
XYZ Private Limited holds only 25% of the shares in ABC Limited, it 
does not have control of more than one-half of the total voting power of 
ABC Limited. Hence, XYZ Private Limited cannot be considered as a 
subsidiary company of ABC Limited in terms of the second criteria 
stated above, that of controlling of voting power. 
 XYZ Private Limited is the holding company of PQR Private Limited by 
having control over the composition of its Board of Directors. But since 
XYZ Private Limited cannot be termed as a subsidiary company of ABC 
Limited, PQR Private Limited cannot claim the status of being a 
subsidiary of ABC Limited in terms of the first criteria, that of controlling 
of the composition of directors. 
 As per section 2(6) of the Act, 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.  
 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. 
 In terms of the above provision, the relationship between ABC Limited 
and XYZ Private Limited can be of an Associate Company.  
 Since XYZ Private Limited holds more than 20 percent of voting power 
in ABC Limited, it can be considered as an Associate Company of ABC 
Limited.  
(c) The Indian Partnership Act, 1932 does not make the registration of 
firms compulsory nor does it impose any penalty for non-registration. 
However, under Section 69, non-registration of partnership gives rise to 
a number of disabilities. Although registration of firms is not 
compulsory, yet the consequences or disabilities of non-registration 
have a persuasive pressure for their registration. 
 Exceptions: Non-registration of a firm does not, however affect the 
following rights: 
1.  The right of third parties to sue the firm or any partner. 
2. The right of partners to sue for the dissolution of the firm or for the 
settlement of the accounts of a dissolved firm, or for realization of 
the property of a dissolved firm. 
741
3. The power of an Official Assignees, Receiver of Court to release 
the property of the insolvent partner and to bring an action. 
4. The right to sue or claim a set-off if the value of suit does not 
exceed ` 100 in value. 
5.  The right to suit and proceeding instituted by legal representatives 
or heirs of the deceased partner of a firm for accounts of the firm 
or to realise the property of the firm. 
2. (a)  Ascertainment of price (Section 9 of the Sale of Goods Act, 1930): By 
virtue of Section 9, the price in a contract of sale may be- 
(1) fixed by the contract, or 
(2) agreed to be fixed in a manner provided by the contract, e.g., by a 
valuer, or 
(3) determined by the course of dealing between the parties. 
 Agreement to sell at valuation (Section 10): Section 10 provides for 
the determination of price by a third party. 
1.  Where there is an agreement to sell goods on the terms that price 
is to be fixed by the valuation of a third party and that third party 
either does not or cannot make such valuation, the agreement is 
thereby avoided. 
 However, a buyer who has received and appropriated the goods, 
must pay a reasonable price for them. 
2.  In case the third party is prevented from making the valuation by 
the default of either party, the party not at fault may maintain a 
suit for damages against the party in fault. 
(i)  In the instant case, Priya handed over the keys of her two-
wheeler to Sony and it was decided between them that price 
of the vehicle will be fixed by Priya’s father. However, Priya’s 
father refused to fix the price as he did not want Priya to sell 
her vehicle. As the keys have already been handed over to 
Sony, Priya cannot take back the keys from Sony and Sony 
shall pay reasonable price to Priya for the two-wheeler.  
(ii)  If Priya had not handed over the vehicle to Sony, the 
contract could have been avoided as Priya’s father refused 
to fix the price of the vehicle.  
 (b) (a) Section 2(62) of the Companies Act, 2013 defines one person 
company (OPC) as a company which has only one person as a 
member.  
 Ram wants to incorporate a company in which he will be the only 
member. Hence, he can incorporate an One person Company.  
 According to section 3(1)(c) of the Companies Act, 2013, OPC is 
a private limited company with the minimum paid up share capital 
as may be prescribed and having one member.  
742
 OPC (One Person Company) – salient features 
? Only one person as member. 
? Minimum paid up capital – no limit prescribed. 
? The memorandum of OPC shall indicate the name of the 
other person, who shall, in the event of the subscriber’s 
death or his incapacity to contract, become the member of 
the company. 
? The other person whose name is given in the memorandum 
shall give his prior written consent in prescribed form and the 
same shall be filed with Registrar of companies at the time of 
incorporation. 
? Such other person may be given the right to withdraw his 
consent. 
? The member of OPC may at any time change the name of 
such other person by giving notice to the company and the 
company shall intimate the same to the Registrar. 
? Any such change in the name of the person shall not be 
deemed to be an alteration of the memorandum. 
? Only a natural person who is an Indian citizen whether 
resident in India or otherwise and has stayed in India for a 
period of not less than 120 days during the immediately 
preceding financial year. 
? shall be eligible to incorporate an OPC;  
? shall be a nominee for the sole member of an OPC. 
? No person shall be eligible to incorporate more than one 
OPC or become nominee in more than one such company. 
? No minor shall become member or nominee of the OPC or 
can hold share with beneficial interest. 
? Such Company cannot be incorporated or converted into a 
company under section 8 of the Act. Though it may be 
converted to private or public companies in certain cases.  
? Such Company cannot carry out Non-Banking Financial 
Investment activities including investment in securities of any 
body-corporate.  
? If One Person Company or any officer of such company 
contravenes the provisions, they shall be punishable with 
fine which may extend to ten thousand rupees and with a 
further fine which may extend to one thousand rupees for 
every day after the first during which such contravention 
continues. 
 Here the member can be the sole member-cum-director. 
743
Page 5


ANSWERS OF MODEL TEST PAPER 9 
FOUNDATION COURSE 
PAPER 2 : BUSINESS LAWS 
 
1. (a) As per section 126 of the Indian Contract Act, 1872, the contract of 
guarantee is defined as a contract to perform the promise or discharge 
the liability of a third person in case of his default.  
 In this case, S has given a guarantee for P's payment obligation 
towards R. When P defaulted after making four monthly instalments 
and became insolvent, S's liability as a guarantor will come into 
existence.  
 According to Section 128 of the Act, the liability of the surety is co-
extensive with that of the principal debtor, unless it is otherwise 
provided by the contract. 
 Since P failed to pay the remaining instalments due to insolvency, S, 
as the guarantor, is liable to pay the balance price of the water purifier 
to R. In the given situation, S will have to pay the balance amount of  
` 30,000 to R. [54,000-(4x6,000)] 
 In the second situation, R sold the water purifier misrepresenting it as 
having a copper filter, while it actually has a normal filter; this changes 
the situation significantly. 
 According to Section 142 of the Act, any guarantee which has been 
obtained by means of misrepresentation made by the creditor, or with 
his knowledge and assent, concerning a material part of the 
transaction, is invalid. Here, guarantee is obtained by means of 
misrepresentation made by the creditor (R), and therefore the 
guarantee is invalid.  
 Furthermore, under Section 143, any guarantee which the creditor has 
obtained by means of keeping silence as to material circumstances, is 
invalid. 
 Here R misrepresented the filter type and both P and S were unaware 
of this fact. The creditor (R) has obtained the guarantee by remaining 
silent as to material circumstances. Therefore, the guarantee obtained 
from S will be considered to be invalid. 
 Consequently, S cannot be held liable to pay the balance price of the 
water purifier to R. 
(b) As per Section 2(46) of the Companies Act, 2013, holding company in 
relation to one or more other companies, means a company of which 
such companies are subsidiary companies.  
 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  
740
(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. 
 In the instant case, as on 31.03.2023, ABC Limited had a paid-up 
capital of ` 1 lakh (10,000 equity shares of ` 10 each). In June 2023, 
ABC Limited issued additional 10,000 equity shares, which was fully 
subscribed. Post-issue, the total paid-up capital of ABC Limited is ` 2 
lakhs (20,000 equity shares of `10 each).  
 Out of these, 5,000 shares were issued to XYZ Private Limited. Since 
XYZ Private Limited holds only 25% of the shares in ABC Limited, it 
does not have control of more than one-half of the total voting power of 
ABC Limited. Hence, XYZ Private Limited cannot be considered as a 
subsidiary company of ABC Limited in terms of the second criteria 
stated above, that of controlling of voting power. 
 XYZ Private Limited is the holding company of PQR Private Limited by 
having control over the composition of its Board of Directors. But since 
XYZ Private Limited cannot be termed as a subsidiary company of ABC 
Limited, PQR Private Limited cannot claim the status of being a 
subsidiary of ABC Limited in terms of the first criteria, that of controlling 
of the composition of directors. 
 As per section 2(6) of the Act, 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.  
 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. 
 In terms of the above provision, the relationship between ABC Limited 
and XYZ Private Limited can be of an Associate Company.  
 Since XYZ Private Limited holds more than 20 percent of voting power 
in ABC Limited, it can be considered as an Associate Company of ABC 
Limited.  
(c) The Indian Partnership Act, 1932 does not make the registration of 
firms compulsory nor does it impose any penalty for non-registration. 
However, under Section 69, non-registration of partnership gives rise to 
a number of disabilities. Although registration of firms is not 
compulsory, yet the consequences or disabilities of non-registration 
have a persuasive pressure for their registration. 
 Exceptions: Non-registration of a firm does not, however affect the 
following rights: 
1.  The right of third parties to sue the firm or any partner. 
2. The right of partners to sue for the dissolution of the firm or for the 
settlement of the accounts of a dissolved firm, or for realization of 
the property of a dissolved firm. 
741
3. The power of an Official Assignees, Receiver of Court to release 
the property of the insolvent partner and to bring an action. 
4. The right to sue or claim a set-off if the value of suit does not 
exceed ` 100 in value. 
5.  The right to suit and proceeding instituted by legal representatives 
or heirs of the deceased partner of a firm for accounts of the firm 
or to realise the property of the firm. 
2. (a)  Ascertainment of price (Section 9 of the Sale of Goods Act, 1930): By 
virtue of Section 9, the price in a contract of sale may be- 
(1) fixed by the contract, or 
(2) agreed to be fixed in a manner provided by the contract, e.g., by a 
valuer, or 
(3) determined by the course of dealing between the parties. 
 Agreement to sell at valuation (Section 10): Section 10 provides for 
the determination of price by a third party. 
1.  Where there is an agreement to sell goods on the terms that price 
is to be fixed by the valuation of a third party and that third party 
either does not or cannot make such valuation, the agreement is 
thereby avoided. 
 However, a buyer who has received and appropriated the goods, 
must pay a reasonable price for them. 
2.  In case the third party is prevented from making the valuation by 
the default of either party, the party not at fault may maintain a 
suit for damages against the party in fault. 
(i)  In the instant case, Priya handed over the keys of her two-
wheeler to Sony and it was decided between them that price 
of the vehicle will be fixed by Priya’s father. However, Priya’s 
father refused to fix the price as he did not want Priya to sell 
her vehicle. As the keys have already been handed over to 
Sony, Priya cannot take back the keys from Sony and Sony 
shall pay reasonable price to Priya for the two-wheeler.  
(ii)  If Priya had not handed over the vehicle to Sony, the 
contract could have been avoided as Priya’s father refused 
to fix the price of the vehicle.  
 (b) (a) Section 2(62) of the Companies Act, 2013 defines one person 
company (OPC) as a company which has only one person as a 
member.  
 Ram wants to incorporate a company in which he will be the only 
member. Hence, he can incorporate an One person Company.  
 According to section 3(1)(c) of the Companies Act, 2013, OPC is 
a private limited company with the minimum paid up share capital 
as may be prescribed and having one member.  
742
 OPC (One Person Company) – salient features 
? Only one person as member. 
? Minimum paid up capital – no limit prescribed. 
? The memorandum of OPC shall indicate the name of the 
other person, who shall, in the event of the subscriber’s 
death or his incapacity to contract, become the member of 
the company. 
? The other person whose name is given in the memorandum 
shall give his prior written consent in prescribed form and the 
same shall be filed with Registrar of companies at the time of 
incorporation. 
? Such other person may be given the right to withdraw his 
consent. 
? The member of OPC may at any time change the name of 
such other person by giving notice to the company and the 
company shall intimate the same to the Registrar. 
? Any such change in the name of the person shall not be 
deemed to be an alteration of the memorandum. 
? Only a natural person who is an Indian citizen whether 
resident in India or otherwise and has stayed in India for a 
period of not less than 120 days during the immediately 
preceding financial year. 
? shall be eligible to incorporate an OPC;  
? shall be a nominee for the sole member of an OPC. 
? No person shall be eligible to incorporate more than one 
OPC or become nominee in more than one such company. 
? No minor shall become member or nominee of the OPC or 
can hold share with beneficial interest. 
? Such Company cannot be incorporated or converted into a 
company under section 8 of the Act. Though it may be 
converted to private or public companies in certain cases.  
? Such Company cannot carry out Non-Banking Financial 
Investment activities including investment in securities of any 
body-corporate.  
? If One Person Company or any officer of such company 
contravenes the provisions, they shall be punishable with 
fine which may extend to ten thousand rupees and with a 
further fine which may extend to one thousand rupees for 
every day after the first during which such contravention 
continues. 
 Here the member can be the sole member-cum-director. 
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(c) Body corporate: Section 2(1)(d) of the LLP Act, 2008 provides that a 
LLP is a body corporate formed and incorporated under this Act and is 
a legal entity separate from that of its partners and shall have perpetual 
succession. Therefore, any change in the partners of a LLP shall not 
affect the existence, rights or liabilities of the LLP.  
 Section 3 of LLP Act, 2008, provides that a LLP is a body corporate 
formed and incorporated under this Act and is a legal entity separate 
from that of its partners.  
 Mutual Agency: No partner is liable on account of the independent or 
un-authorized actions of other partners, thus individual partners are 
shielded from joint liability created by another partner’s wrongful 
business decisions or misconduct. In other words, all partners will be 
the agents of the LLP alone.  No one partner can bind the other partner 
by his acts. 
 Foreign LLPs: Section 2(1)(m) defines foreign limited liability 
partnership “as a limited liability partnership formed, incorporated, or 
registered outside India which established as place of business within 
India”. Foreign LLP can become a partner in an Indian LLP. 
 Artificial Legal Person: A LLP is an artificial legal person because it is 
created by a legal process and is clothed with all rights of an individual.  
It can do everything which any natural person can do, except of course 
that, it cannot be sent to jail, cannot take an oath, cannot marry or get 
divorce nor can it practice a learned profession like CA or Medicine. A 
LLP is invisible, intangible, immortal (it can be dissolved by law alone) 
but not fictitious because it really exists. 
3. (a) (i)  Section 40 of the Indian Partnership Act, 1932, gives right to the 
partners to dissolve the partnership by agreement with the consent 
of all the partners or in accordance with a contract between the 
partners. ‘Contract between the partners’ means a contract already 
made. 
 Also, according to section 44, the Court may, at the suit of a 
partner, may dissolve a firm on various grounds including where 
the business of the firm cannot be carried on except at a loss (in 
future also).  
 In the instant case, P wants to continue the partnership business 
despite the losses incurred over the past four years and Q and R 
are reluctant to continue operating the business due to continuous 
losses. 
 Here, P can insist on continuing the business if the partnership 
agreement does not specifically provide such a right to one or 
more partner / partners since Section 40 specifies that with the 
consent of all the partners or in accordance with a contract 
between the partners the firm can be dissolved. 
  
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