Mock Test: Business Laws and Business Correspondence & Reporting(Paper-2) Answers - May 2022 | Business and Commercial Knowledge (Old Scheme) - CA Foundation PDF Download

 Page 1


1 
MOCK TEST PAPER 1 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS AND BUSINESS CORRESPONDENCE AND REPORTING 
SECTION A: BUSINESS LAWS 
Question No. 1 is compulsory.  
Answer any four questions from the remaining five questions.  
 
ANSWERS 
 
1. (a)  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. Murti filed the suit against Himalya 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. Murti 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.  
 (b) (A) Yes, it is mandatory for Vinod to withdraw his nomination in the said OPC as he is leaving 
India permanently as only a natural person who is an Indian citizen and 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 a nominee in OPC.  
 Since Vinod will not satisfy this condition, so he needs to withdraw his nomination. 
(B) No, Rohan cannot make his 17 year old son as a nominee of his OPC as no minor shall 
become member or nominee of the OPC or can hold beneficial interest. 
(c) Section 13 of the Sale of Goods Act, 1930 specifies cases where a breach of condition be treated 
as a breach of warranty. As a result of which the buyer loses his right to rescind the contract and 
can claim damages only. 
In the following cases, a contract is not avoided even on account of a breach of a condition:  
(i) Where the buyer altogether waives the performance of the condition. A party may for his own 
benefit, waive a stipulation. It should be a voluntary waiver by buyer.  
(ii) Where the buyer elects to treat the breach of the conditions, as one of a warranty. That is to 
say, he may claim only damages instead of repudiating the contract. Here, the buyer has not 
waived the condition but decided to treat it as a warranty. 
(iii) Where the contract is non-severable and the buyer has accepted either the whole goods or 
any part thereof. Acceptance means acceptance as envisaged in Section 72 of the Indian 
Contract Act, 1872. 
(iv) Where the fulfilment of any condition or warranty is excused by law by reason of impossibility 
or otherwise. 
 
Page 2


1 
MOCK TEST PAPER 1 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS AND BUSINESS CORRESPONDENCE AND REPORTING 
SECTION A: BUSINESS LAWS 
Question No. 1 is compulsory.  
Answer any four questions from the remaining five questions.  
 
ANSWERS 
 
1. (a)  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. Murti filed the suit against Himalya 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. Murti 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.  
 (b) (A) Yes, it is mandatory for Vinod to withdraw his nomination in the said OPC as he is leaving 
India permanently as only a natural person who is an Indian citizen and 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 a nominee in OPC.  
 Since Vinod will not satisfy this condition, so he needs to withdraw his nomination. 
(B) No, Rohan cannot make his 17 year old son as a nominee of his OPC as no minor shall 
become member or nominee of the OPC or can hold beneficial interest. 
(c) Section 13 of the Sale of Goods Act, 1930 specifies cases where a breach of condition be treated 
as a breach of warranty. As a result of which the buyer loses his right to rescind the contract and 
can claim damages only. 
In the following cases, a contract is not avoided even on account of a breach of a condition:  
(i) Where the buyer altogether waives the performance of the condition. A party may for his own 
benefit, waive a stipulation. It should be a voluntary waiver by buyer.  
(ii) Where the buyer elects to treat the breach of the conditions, as one of a warranty. That is to 
say, he may claim only damages instead of repudiating the contract. Here, the buyer has not 
waived the condition but decided to treat it as a warranty. 
(iii) Where the contract is non-severable and the buyer has accepted either the whole goods or 
any part thereof. Acceptance means acceptance as envisaged in Section 72 of the Indian 
Contract Act, 1872. 
(iv) Where the fulfilment of any condition or warranty is excused by law by reason of impossibility 
or otherwise. 
 
2 
2. (a) Definition of ‘Contingent Contract’ (Section 31 of the Indian Contract Act, 1872): A contract 
to do or not to do something, if some event, collateral to such contract, does or does not happen. 
Example: A contracts to pay B Rs. 1,00,000 if B’s house is burnt. This is a contingent contract. 
Rules Relating to Enforcement: The rules relating to enforcement of a contingent contract are 
laid down in sections 32, 33, 34, 35 and 36 of the Act.  
(i) Enforcement of contracts contingent on an event happening: Where a contract identifies 
happening of a future contingent event, the contract cannot be enforced until and unless the 
event ‘happens’. If the happening of the event becomes impossible, then the contingent 
contract is void.   
(ii) Enforcement of contracts contingent on an event not happening: Where a contingent 
contract is made contingent on non-happening of an event, it can be enforced only when its 
happening becomes impossible.  
(iii) A contract would cease to be enforceable if it is contingent upon the conduct of a living 
person when that living person does something to make the ‘event’ or ‘conduct’ as 
impossible of happening.  
(iv) Contingent on happening of specified event within the fixed time: Section 35 says that 
Contingent contracts to do or not to do anything, if a specified uncertain event happens within 
a fixed time, becomes void if, at the expiration of time fixed, such event has not happened, or 
if, before the time fixed, such event becomes impossible. 
(v)  Contingent on specified event not happening within fixed time: Section 35 also says that 
“Contingent contracts to do or not to do anything, if a specified uncertain even t does not 
happen within a fixed time, may be enforced by law when the time fixed has expired, and such 
event has not happened or before the time fixed has expired, if it becomes certain that such 
event will not happen”. 
(vi)  Contingent on an impossible event (Section 36): Contingent agreements to do or not to 
do anything, if an impossible event happens are void, whether the impossibility of the event 
is known or not to the parties to the agreement at the time when it is made. 
(b) LLP gives the benefits of limited liability of a company and the flexibility of a partnership  
Limited Liability: Every partner of a LLP is, for the purpose of the business of LLP, the agent of 
the LLP, but not of other partners (Section 26 of the LLP Act, 2008).  The liability of the partners 
will be limited to their agreed contribution in the LLP, while the LLP itself will be liable for the full 
extent of its assets.   
Flexibility of a partnership: The LLP allows its members the flexibility of organizing their internal 
structure as a partnership based on a mutually arrived agreement. The LLP form enables 
entrepreneurs, professionals and enterprises providing services of any kind or engaged in scientific 
and technical disciplines, to form commercially efficient vehicles suited to their requirements. 
Owing to flexibility in its structure and operation, the LLP is a suitable vehicle for small enterprises 
and for investment by venture capital.  
3. (a) Definition of Partnership: '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. (Section 4 of the Indian 
Partnership Act, 1932) 
The definition of the partnership contains the following five elements which must co -exist before a 
partnership can come into existence: 
1. Association of two or more persons 
2. Agreement 
3. Business 
Page 3


1 
MOCK TEST PAPER 1 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS AND BUSINESS CORRESPONDENCE AND REPORTING 
SECTION A: BUSINESS LAWS 
Question No. 1 is compulsory.  
Answer any four questions from the remaining five questions.  
 
ANSWERS 
 
1. (a)  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. Murti filed the suit against Himalya 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. Murti 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.  
 (b) (A) Yes, it is mandatory for Vinod to withdraw his nomination in the said OPC as he is leaving 
India permanently as only a natural person who is an Indian citizen and 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 a nominee in OPC.  
 Since Vinod will not satisfy this condition, so he needs to withdraw his nomination. 
(B) No, Rohan cannot make his 17 year old son as a nominee of his OPC as no minor shall 
become member or nominee of the OPC or can hold beneficial interest. 
(c) Section 13 of the Sale of Goods Act, 1930 specifies cases where a breach of condition be treated 
as a breach of warranty. As a result of which the buyer loses his right to rescind the contract and 
can claim damages only. 
In the following cases, a contract is not avoided even on account of a breach of a condition:  
(i) Where the buyer altogether waives the performance of the condition. A party may for his own 
benefit, waive a stipulation. It should be a voluntary waiver by buyer.  
(ii) Where the buyer elects to treat the breach of the conditions, as one of a warranty. That is to 
say, he may claim only damages instead of repudiating the contract. Here, the buyer has not 
waived the condition but decided to treat it as a warranty. 
(iii) Where the contract is non-severable and the buyer has accepted either the whole goods or 
any part thereof. Acceptance means acceptance as envisaged in Section 72 of the Indian 
Contract Act, 1872. 
(iv) Where the fulfilment of any condition or warranty is excused by law by reason of impossibility 
or otherwise. 
 
2 
2. (a) Definition of ‘Contingent Contract’ (Section 31 of the Indian Contract Act, 1872): A contract 
to do or not to do something, if some event, collateral to such contract, does or does not happen. 
Example: A contracts to pay B Rs. 1,00,000 if B’s house is burnt. This is a contingent contract. 
Rules Relating to Enforcement: The rules relating to enforcement of a contingent contract are 
laid down in sections 32, 33, 34, 35 and 36 of the Act.  
(i) Enforcement of contracts contingent on an event happening: Where a contract identifies 
happening of a future contingent event, the contract cannot be enforced until and unless the 
event ‘happens’. If the happening of the event becomes impossible, then the contingent 
contract is void.   
(ii) Enforcement of contracts contingent on an event not happening: Where a contingent 
contract is made contingent on non-happening of an event, it can be enforced only when its 
happening becomes impossible.  
(iii) A contract would cease to be enforceable if it is contingent upon the conduct of a living 
person when that living person does something to make the ‘event’ or ‘conduct’ as 
impossible of happening.  
(iv) Contingent on happening of specified event within the fixed time: Section 35 says that 
Contingent contracts to do or not to do anything, if a specified uncertain event happens within 
a fixed time, becomes void if, at the expiration of time fixed, such event has not happened, or 
if, before the time fixed, such event becomes impossible. 
(v)  Contingent on specified event not happening within fixed time: Section 35 also says that 
“Contingent contracts to do or not to do anything, if a specified uncertain even t does not 
happen within a fixed time, may be enforced by law when the time fixed has expired, and such 
event has not happened or before the time fixed has expired, if it becomes certain that such 
event will not happen”. 
(vi)  Contingent on an impossible event (Section 36): Contingent agreements to do or not to 
do anything, if an impossible event happens are void, whether the impossibility of the event 
is known or not to the parties to the agreement at the time when it is made. 
(b) LLP gives the benefits of limited liability of a company and the flexibility of a partnership  
Limited Liability: Every partner of a LLP is, for the purpose of the business of LLP, the agent of 
the LLP, but not of other partners (Section 26 of the LLP Act, 2008).  The liability of the partners 
will be limited to their agreed contribution in the LLP, while the LLP itself will be liable for the full 
extent of its assets.   
Flexibility of a partnership: The LLP allows its members the flexibility of organizing their internal 
structure as a partnership based on a mutually arrived agreement. The LLP form enables 
entrepreneurs, professionals and enterprises providing services of any kind or engaged in scientific 
and technical disciplines, to form commercially efficient vehicles suited to their requirements. 
Owing to flexibility in its structure and operation, the LLP is a suitable vehicle for small enterprises 
and for investment by venture capital.  
3. (a) Definition of Partnership: '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. (Section 4 of the Indian 
Partnership Act, 1932) 
The definition of the partnership contains the following five elements which must co -exist before a 
partnership can come into existence: 
1. Association of two or more persons 
2. Agreement 
3. Business 
3 
4. Agreement to share Profits 
5. Business carried on by all or any of them acting for all 
ELEMENTS OF PARTNERSHIP 
The definition of the partnership contains the following five elements which must co -exist before a 
partnership can come into existence: 
1.  Association of two or more persons: Partnership is an association of 2 or more persons. 
Again, only persons recognized by law can enter into an agreement of partnership. Therefore, 
a firm, since it is not a person recognized in the eyes of law cannot be a partner. Again, a 
minor cannot be a partner in a firm, but with the consent of all the partners, may be admitted 
to the benefits of partnership. 
 The Partnership Act is silent about the maximum number of partners but Section 464 of the 
Companies Act, 2013 read with the relevant Rules has now put a limit of 50 partners in any 
association / partnership firm. 
2.  Agreement: It may be observed that partnership must be the result of an agreement between 
two or more persons. There must be an agreement entered into by all the persons concerned. 
This element relates to voluntary contractual nature of partnership. Thus, the nature of the 
partnership is voluntary and contractual. An agreement from which relationship of Partnership 
arises may be express. It may also be implied from the act done by partners and from a 
consistent course of conduct being followed, showing mutual understanding between them. It 
may be oral or in writing. 
3.  Business: In this context, we will consider two propositions. First, there must exist a 
business. For the purpose, the term 'business' includes every trade, occupation and 
profession. The existence of business is essential. Secondly, the motive of the business is 
the "acquisition of gains" which leads to the formation of partnership. Therefore, there can be 
no partnership where there is no intention to carry on the business and to share the profit 
thereof. 
4.  Agreement to share profits: The sharing of profits is an essential feature of partnership. 
There can be no partnership where only one of the partners is entitled to the whole of the 
profits of the business. Partners must agree to share the profits in any manner they choose. 
But an agreement to share losses is not an essential element. It is open to one or more 
partners to agree to share all the losses. However, in the event of losses, unless agreed 
otherwise, these must be borne in the profit-sharing ratio. 
5.  Business carried on by all or any of them acting for all: The business must be carried on 
by all the partners or by anyone or more of the partners acting for all. This is the cardinal 
principle of the partnership Law. In other words, there should be a binding contract of mutual 
agency between the partners. An act of one partner in the course of the business of the firm 
is in fact an act of all partners. Each partner carrying on the business is the principal as well 
as the agent for all the other partners. He is an agent in so far as he can bind the other 
partners by his acts and he is a principal to the extent that he is bound by the act of other 
partners. It may be noted that the true test of partnership is mutual agency rather than sharing 
of profits. If the element of mutual agency is absent, then there will be no partnership. 
(b)  Section 17 of Indian Contract Act, 1872 defines ‘Fraud’. According to section, “Fraud” means and 
includes any of the following acts committed by a party to a contract or by his agent with intent to 
deceive or to induce a person to enter into the contract: 
(i)  the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;  
(ii)  the active concealment of a fact by one having knowledge or belief of the fact;  
Page 4


1 
MOCK TEST PAPER 1 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS AND BUSINESS CORRESPONDENCE AND REPORTING 
SECTION A: BUSINESS LAWS 
Question No. 1 is compulsory.  
Answer any four questions from the remaining five questions.  
 
ANSWERS 
 
1. (a)  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. Murti filed the suit against Himalya 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. Murti 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.  
 (b) (A) Yes, it is mandatory for Vinod to withdraw his nomination in the said OPC as he is leaving 
India permanently as only a natural person who is an Indian citizen and 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 a nominee in OPC.  
 Since Vinod will not satisfy this condition, so he needs to withdraw his nomination. 
(B) No, Rohan cannot make his 17 year old son as a nominee of his OPC as no minor shall 
become member or nominee of the OPC or can hold beneficial interest. 
(c) Section 13 of the Sale of Goods Act, 1930 specifies cases where a breach of condition be treated 
as a breach of warranty. As a result of which the buyer loses his right to rescind the contract and 
can claim damages only. 
In the following cases, a contract is not avoided even on account of a breach of a condition:  
(i) Where the buyer altogether waives the performance of the condition. A party may for his own 
benefit, waive a stipulation. It should be a voluntary waiver by buyer.  
(ii) Where the buyer elects to treat the breach of the conditions, as one of a warranty. That is to 
say, he may claim only damages instead of repudiating the contract. Here, the buyer has not 
waived the condition but decided to treat it as a warranty. 
(iii) Where the contract is non-severable and the buyer has accepted either the whole goods or 
any part thereof. Acceptance means acceptance as envisaged in Section 72 of the Indian 
Contract Act, 1872. 
(iv) Where the fulfilment of any condition or warranty is excused by law by reason of impossibility 
or otherwise. 
 
2 
2. (a) Definition of ‘Contingent Contract’ (Section 31 of the Indian Contract Act, 1872): A contract 
to do or not to do something, if some event, collateral to such contract, does or does not happen. 
Example: A contracts to pay B Rs. 1,00,000 if B’s house is burnt. This is a contingent contract. 
Rules Relating to Enforcement: The rules relating to enforcement of a contingent contract are 
laid down in sections 32, 33, 34, 35 and 36 of the Act.  
(i) Enforcement of contracts contingent on an event happening: Where a contract identifies 
happening of a future contingent event, the contract cannot be enforced until and unless the 
event ‘happens’. If the happening of the event becomes impossible, then the contingent 
contract is void.   
(ii) Enforcement of contracts contingent on an event not happening: Where a contingent 
contract is made contingent on non-happening of an event, it can be enforced only when its 
happening becomes impossible.  
(iii) A contract would cease to be enforceable if it is contingent upon the conduct of a living 
person when that living person does something to make the ‘event’ or ‘conduct’ as 
impossible of happening.  
(iv) Contingent on happening of specified event within the fixed time: Section 35 says that 
Contingent contracts to do or not to do anything, if a specified uncertain event happens within 
a fixed time, becomes void if, at the expiration of time fixed, such event has not happened, or 
if, before the time fixed, such event becomes impossible. 
(v)  Contingent on specified event not happening within fixed time: Section 35 also says that 
“Contingent contracts to do or not to do anything, if a specified uncertain even t does not 
happen within a fixed time, may be enforced by law when the time fixed has expired, and such 
event has not happened or before the time fixed has expired, if it becomes certain that such 
event will not happen”. 
(vi)  Contingent on an impossible event (Section 36): Contingent agreements to do or not to 
do anything, if an impossible event happens are void, whether the impossibility of the event 
is known or not to the parties to the agreement at the time when it is made. 
(b) LLP gives the benefits of limited liability of a company and the flexibility of a partnership  
Limited Liability: Every partner of a LLP is, for the purpose of the business of LLP, the agent of 
the LLP, but not of other partners (Section 26 of the LLP Act, 2008).  The liability of the partners 
will be limited to their agreed contribution in the LLP, while the LLP itself will be liable for the full 
extent of its assets.   
Flexibility of a partnership: The LLP allows its members the flexibility of organizing their internal 
structure as a partnership based on a mutually arrived agreement. The LLP form enables 
entrepreneurs, professionals and enterprises providing services of any kind or engaged in scientific 
and technical disciplines, to form commercially efficient vehicles suited to their requirements. 
Owing to flexibility in its structure and operation, the LLP is a suitable vehicle for small enterprises 
and for investment by venture capital.  
3. (a) Definition of Partnership: '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. (Section 4 of the Indian 
Partnership Act, 1932) 
The definition of the partnership contains the following five elements which must co -exist before a 
partnership can come into existence: 
1. Association of two or more persons 
2. Agreement 
3. Business 
3 
4. Agreement to share Profits 
5. Business carried on by all or any of them acting for all 
ELEMENTS OF PARTNERSHIP 
The definition of the partnership contains the following five elements which must co -exist before a 
partnership can come into existence: 
1.  Association of two or more persons: Partnership is an association of 2 or more persons. 
Again, only persons recognized by law can enter into an agreement of partnership. Therefore, 
a firm, since it is not a person recognized in the eyes of law cannot be a partner. Again, a 
minor cannot be a partner in a firm, but with the consent of all the partners, may be admitted 
to the benefits of partnership. 
 The Partnership Act is silent about the maximum number of partners but Section 464 of the 
Companies Act, 2013 read with the relevant Rules has now put a limit of 50 partners in any 
association / partnership firm. 
2.  Agreement: It may be observed that partnership must be the result of an agreement between 
two or more persons. There must be an agreement entered into by all the persons concerned. 
This element relates to voluntary contractual nature of partnership. Thus, the nature of the 
partnership is voluntary and contractual. An agreement from which relationship of Partnership 
arises may be express. It may also be implied from the act done by partners and from a 
consistent course of conduct being followed, showing mutual understanding between them. It 
may be oral or in writing. 
3.  Business: In this context, we will consider two propositions. First, there must exist a 
business. For the purpose, the term 'business' includes every trade, occupation and 
profession. The existence of business is essential. Secondly, the motive of the business is 
the "acquisition of gains" which leads to the formation of partnership. Therefore, there can be 
no partnership where there is no intention to carry on the business and to share the profit 
thereof. 
4.  Agreement to share profits: The sharing of profits is an essential feature of partnership. 
There can be no partnership where only one of the partners is entitled to the whole of the 
profits of the business. Partners must agree to share the profits in any manner they choose. 
But an agreement to share losses is not an essential element. It is open to one or more 
partners to agree to share all the losses. However, in the event of losses, unless agreed 
otherwise, these must be borne in the profit-sharing ratio. 
5.  Business carried on by all or any of them acting for all: The business must be carried on 
by all the partners or by anyone or more of the partners acting for all. This is the cardinal 
principle of the partnership Law. In other words, there should be a binding contract of mutual 
agency between the partners. An act of one partner in the course of the business of the firm 
is in fact an act of all partners. Each partner carrying on the business is the principal as well 
as the agent for all the other partners. He is an agent in so far as he can bind the other 
partners by his acts and he is a principal to the extent that he is bound by the act of other 
partners. It may be noted that the true test of partnership is mutual agency rather than sharing 
of profits. If the element of mutual agency is absent, then there will be no partnership. 
(b)  Section 17 of Indian Contract Act, 1872 defines ‘Fraud’. According to section, “Fraud” means and 
includes any of the following acts committed by a party to a contract or by his agent with intent to 
deceive or to induce a person to enter into the contract: 
(i)  the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;  
(ii)  the active concealment of a fact by one having knowledge or belief of the fact;  
4 
(iii)  a promise made without any intention of performing it;  
(iv)  any other act fitted to deceive;  
(v)  any such act or omission as the law specially declares to be fraudulent.  
It was also explained that mere silence is not fraud. Silence amounts to fraud where (a) there is a 
duty to speak or (b) where silence is equivalent to speech. 
On the basis of provisions of Section 17 and the facts given above, it was not the duty of salesman 
to inform Mr. Kapil about his mistake. Hence, there was no fraud and Kapil was not eligible to file 
suit for fraud against departmental store under Indian Contract Act, 1872. 
4. (a) The right against the buyer are as follows: 
1. Suit for price (Section 55 of the Sale of Goods Act, 1930) 
(a) Where under a contract of sale, the property in the goods has passed to the buyer and 
the buyer wrongfully neglects or refuses to pay for the goods according to the terms of 
the contract, the seller may sue him for the price of the goods. [Section 55(1)] 
(b)  Where under a contract of sale, the price is payable on a certain day irrespective of 
delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may 
sue him for the price although the property in the goods has not passed and the goods 
have not been appropriated to the contract. [Section 55(2)]. 
2. Suit for damages for non-acceptance (Section 56): Where the buyer wrongfully neglects 
or refuses to accept and pay for the goods, the seller may sue him for damages for non -
acceptance.  
3. Repudiation of contract before due date (Section 60): Where the buyer repudiates the 
contract before the date of delivery, the seller may treat the contract as rescinded and sue 
damages for the breach. This is known as the ‘rule of anticipatory breach of contract’. 
4. Suit for interest [Section 61]: Where there is specific agreement between the seller and the 
buyer as to interest on the price of the goods from the date on which payment becomes due, 
the seller may recover interest from the buyer. If, however, there is no specific agreement to 
this effect, the seller may charge interest on the price when it becomes due from such day as 
he may notify to the buyer. 
 In the absence of a contract to the contrary, the Court may award interest to the seller in a 
suit by him at such rate as it thinks fit on the amount of the price from the date of the tender 
of the goods or from the date on which the price was payable.  
(b) According to Section 29 of the Indian Partnership Act, 1932,  
(1) A transfer by a partner of his interest in the firm, either absolute or by mortgage, or by the 
creation by him of a charge on such interest, does not entitle the transferee, during the 
continuance of the firm, to interfere in the conduct of business, or to require accounts, or to 
inspect the books of the firm, but entitles the transferee only to receive the share of p rofits of 
the transferring partner, and the transferee shall accept the account of profits agreed to by 
the partners. 
(2) If the firm is dissolved or if the transferring partner ceases to be a partner, the transferee is 
entitled as against the remaining partners to receive the share of the assets of the firm to 
which the transferring partner is entitled, and, for the purpose of ascertaining that share, to 
an account as from the date of the dissolution. 
In the light of facts of the question and provision of law: 
(i) Yes, Mr. M can validly transfer his interest in the firm by way of sale. 
Page 5


1 
MOCK TEST PAPER 1 
FOUNDATION COURSE 
PAPER 2: BUSINESS LAWS AND BUSINESS CORRESPONDENCE AND REPORTING 
SECTION A: BUSINESS LAWS 
Question No. 1 is compulsory.  
Answer any four questions from the remaining five questions.  
 
ANSWERS 
 
1. (a)  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. Murti filed the suit against Himalya 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. Murti 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.  
 (b) (A) Yes, it is mandatory for Vinod to withdraw his nomination in the said OPC as he is leaving 
India permanently as only a natural person who is an Indian citizen and 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 a nominee in OPC.  
 Since Vinod will not satisfy this condition, so he needs to withdraw his nomination. 
(B) No, Rohan cannot make his 17 year old son as a nominee of his OPC as no minor shall 
become member or nominee of the OPC or can hold beneficial interest. 
(c) Section 13 of the Sale of Goods Act, 1930 specifies cases where a breach of condition be treated 
as a breach of warranty. As a result of which the buyer loses his right to rescind the contract and 
can claim damages only. 
In the following cases, a contract is not avoided even on account of a breach of a condition:  
(i) Where the buyer altogether waives the performance of the condition. A party may for his own 
benefit, waive a stipulation. It should be a voluntary waiver by buyer.  
(ii) Where the buyer elects to treat the breach of the conditions, as one of a warranty. That is to 
say, he may claim only damages instead of repudiating the contract. Here, the buyer has not 
waived the condition but decided to treat it as a warranty. 
(iii) Where the contract is non-severable and the buyer has accepted either the whole goods or 
any part thereof. Acceptance means acceptance as envisaged in Section 72 of the Indian 
Contract Act, 1872. 
(iv) Where the fulfilment of any condition or warranty is excused by law by reason of impossibility 
or otherwise. 
 
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2. (a) Definition of ‘Contingent Contract’ (Section 31 of the Indian Contract Act, 1872): A contract 
to do or not to do something, if some event, collateral to such contract, does or does not happen. 
Example: A contracts to pay B Rs. 1,00,000 if B’s house is burnt. This is a contingent contract. 
Rules Relating to Enforcement: The rules relating to enforcement of a contingent contract are 
laid down in sections 32, 33, 34, 35 and 36 of the Act.  
(i) Enforcement of contracts contingent on an event happening: Where a contract identifies 
happening of a future contingent event, the contract cannot be enforced until and unless the 
event ‘happens’. If the happening of the event becomes impossible, then the contingent 
contract is void.   
(ii) Enforcement of contracts contingent on an event not happening: Where a contingent 
contract is made contingent on non-happening of an event, it can be enforced only when its 
happening becomes impossible.  
(iii) A contract would cease to be enforceable if it is contingent upon the conduct of a living 
person when that living person does something to make the ‘event’ or ‘conduct’ as 
impossible of happening.  
(iv) Contingent on happening of specified event within the fixed time: Section 35 says that 
Contingent contracts to do or not to do anything, if a specified uncertain event happens within 
a fixed time, becomes void if, at the expiration of time fixed, such event has not happened, or 
if, before the time fixed, such event becomes impossible. 
(v)  Contingent on specified event not happening within fixed time: Section 35 also says that 
“Contingent contracts to do or not to do anything, if a specified uncertain even t does not 
happen within a fixed time, may be enforced by law when the time fixed has expired, and such 
event has not happened or before the time fixed has expired, if it becomes certain that such 
event will not happen”. 
(vi)  Contingent on an impossible event (Section 36): Contingent agreements to do or not to 
do anything, if an impossible event happens are void, whether the impossibility of the event 
is known or not to the parties to the agreement at the time when it is made. 
(b) LLP gives the benefits of limited liability of a company and the flexibility of a partnership  
Limited Liability: Every partner of a LLP is, for the purpose of the business of LLP, the agent of 
the LLP, but not of other partners (Section 26 of the LLP Act, 2008).  The liability of the partners 
will be limited to their agreed contribution in the LLP, while the LLP itself will be liable for the full 
extent of its assets.   
Flexibility of a partnership: The LLP allows its members the flexibility of organizing their internal 
structure as a partnership based on a mutually arrived agreement. The LLP form enables 
entrepreneurs, professionals and enterprises providing services of any kind or engaged in scientific 
and technical disciplines, to form commercially efficient vehicles suited to their requirements. 
Owing to flexibility in its structure and operation, the LLP is a suitable vehicle for small enterprises 
and for investment by venture capital.  
3. (a) Definition of Partnership: '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. (Section 4 of the Indian 
Partnership Act, 1932) 
The definition of the partnership contains the following five elements which must co -exist before a 
partnership can come into existence: 
1. Association of two or more persons 
2. Agreement 
3. Business 
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4. Agreement to share Profits 
5. Business carried on by all or any of them acting for all 
ELEMENTS OF PARTNERSHIP 
The definition of the partnership contains the following five elements which must co -exist before a 
partnership can come into existence: 
1.  Association of two or more persons: Partnership is an association of 2 or more persons. 
Again, only persons recognized by law can enter into an agreement of partnership. Therefore, 
a firm, since it is not a person recognized in the eyes of law cannot be a partner. Again, a 
minor cannot be a partner in a firm, but with the consent of all the partners, may be admitted 
to the benefits of partnership. 
 The Partnership Act is silent about the maximum number of partners but Section 464 of the 
Companies Act, 2013 read with the relevant Rules has now put a limit of 50 partners in any 
association / partnership firm. 
2.  Agreement: It may be observed that partnership must be the result of an agreement between 
two or more persons. There must be an agreement entered into by all the persons concerned. 
This element relates to voluntary contractual nature of partnership. Thus, the nature of the 
partnership is voluntary and contractual. An agreement from which relationship of Partnership 
arises may be express. It may also be implied from the act done by partners and from a 
consistent course of conduct being followed, showing mutual understanding between them. It 
may be oral or in writing. 
3.  Business: In this context, we will consider two propositions. First, there must exist a 
business. For the purpose, the term 'business' includes every trade, occupation and 
profession. The existence of business is essential. Secondly, the motive of the business is 
the "acquisition of gains" which leads to the formation of partnership. Therefore, there can be 
no partnership where there is no intention to carry on the business and to share the profit 
thereof. 
4.  Agreement to share profits: The sharing of profits is an essential feature of partnership. 
There can be no partnership where only one of the partners is entitled to the whole of the 
profits of the business. Partners must agree to share the profits in any manner they choose. 
But an agreement to share losses is not an essential element. It is open to one or more 
partners to agree to share all the losses. However, in the event of losses, unless agreed 
otherwise, these must be borne in the profit-sharing ratio. 
5.  Business carried on by all or any of them acting for all: The business must be carried on 
by all the partners or by anyone or more of the partners acting for all. This is the cardinal 
principle of the partnership Law. In other words, there should be a binding contract of mutual 
agency between the partners. An act of one partner in the course of the business of the firm 
is in fact an act of all partners. Each partner carrying on the business is the principal as well 
as the agent for all the other partners. He is an agent in so far as he can bind the other 
partners by his acts and he is a principal to the extent that he is bound by the act of other 
partners. It may be noted that the true test of partnership is mutual agency rather than sharing 
of profits. If the element of mutual agency is absent, then there will be no partnership. 
(b)  Section 17 of Indian Contract Act, 1872 defines ‘Fraud’. According to section, “Fraud” means and 
includes any of the following acts committed by a party to a contract or by his agent with intent to 
deceive or to induce a person to enter into the contract: 
(i)  the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;  
(ii)  the active concealment of a fact by one having knowledge or belief of the fact;  
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(iii)  a promise made without any intention of performing it;  
(iv)  any other act fitted to deceive;  
(v)  any such act or omission as the law specially declares to be fraudulent.  
It was also explained that mere silence is not fraud. Silence amounts to fraud where (a) there is a 
duty to speak or (b) where silence is equivalent to speech. 
On the basis of provisions of Section 17 and the facts given above, it was not the duty of salesman 
to inform Mr. Kapil about his mistake. Hence, there was no fraud and Kapil was not eligible to file 
suit for fraud against departmental store under Indian Contract Act, 1872. 
4. (a) The right against the buyer are as follows: 
1. Suit for price (Section 55 of the Sale of Goods Act, 1930) 
(a) Where under a contract of sale, the property in the goods has passed to the buyer and 
the buyer wrongfully neglects or refuses to pay for the goods according to the terms of 
the contract, the seller may sue him for the price of the goods. [Section 55(1)] 
(b)  Where under a contract of sale, the price is payable on a certain day irrespective of 
delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may 
sue him for the price although the property in the goods has not passed and the goods 
have not been appropriated to the contract. [Section 55(2)]. 
2. Suit for damages for non-acceptance (Section 56): Where the buyer wrongfully neglects 
or refuses to accept and pay for the goods, the seller may sue him for damages for non -
acceptance.  
3. Repudiation of contract before due date (Section 60): Where the buyer repudiates the 
contract before the date of delivery, the seller may treat the contract as rescinded and sue 
damages for the breach. This is known as the ‘rule of anticipatory breach of contract’. 
4. Suit for interest [Section 61]: Where there is specific agreement between the seller and the 
buyer as to interest on the price of the goods from the date on which payment becomes due, 
the seller may recover interest from the buyer. If, however, there is no specific agreement to 
this effect, the seller may charge interest on the price when it becomes due from such day as 
he may notify to the buyer. 
 In the absence of a contract to the contrary, the Court may award interest to the seller in a 
suit by him at such rate as it thinks fit on the amount of the price from the date of the tender 
of the goods or from the date on which the price was payable.  
(b) According to Section 29 of the Indian Partnership Act, 1932,  
(1) A transfer by a partner of his interest in the firm, either absolute or by mortgage, or by the 
creation by him of a charge on such interest, does not entitle the transferee, during the 
continuance of the firm, to interfere in the conduct of business, or to require accounts, or to 
inspect the books of the firm, but entitles the transferee only to receive the share of p rofits of 
the transferring partner, and the transferee shall accept the account of profits agreed to by 
the partners. 
(2) If the firm is dissolved or if the transferring partner ceases to be a partner, the transferee is 
entitled as against the remaining partners to receive the share of the assets of the firm to 
which the transferring partner is entitled, and, for the purpose of ascertaining that share, to 
an account as from the date of the dissolution. 
In the light of facts of the question and provision of law: 
(i) Yes, Mr. M can validly transfer his interest in the firm by way of sale. 
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(ii) On the retirement of the transferring partner (Mr. M), the transferee (Mr. Z) will be entitled, 
against the remaining partners:  
(a) to receive the share of the assets of the firm to which the transferring partner was 
entitled, and  
(b) for the purpose of ascertaining the share,  
 he is entitled to an account as from the date of the dissolution. 
 So, in this case on Mr. M’s retirement, Mr. Z would be entitled to receive the value of Mr. M’s 
share to the extent of Rs. 6 crore in the firm’s assets. 
5. (a) The given question deals with the rule related to transfer of title of goods. Section 27 of the Sale 
of Goods Act ,1930 specify the general rule " No man can sell the goods and give a good title 
unless he is the owner of the goods". The latin maxim " NEMO DET QUOD NON HABET". However, 
there are certain exceptions to this rule. One of the exceptions is given in Section 30 (1) of Sale of 
Goods Act,1930 wherein the sale by seller in possession of goods even after sale is made, is held 
to be valid. If the following conditions are satisfied, then it amounts to a valid sale although the 
seller is no more the owner of goods after sale. 
(i)  A seller has possession of goods after sale 
(ii)   with the consent of the other party (i.e. buyer) 
(iii)  the seller sells goods (already sold) to a new buyer 
(iv)  the new buyer acts in good faith 
(v)  The new buyer has no knowledge that the seller has no authority to sell. 
In the given question, the seller Sohan has agreed to sell the goods to Binod, but delivery of the 
goods is still pending. Hence Sohan is in possession of the goods and this is with the consent of 
buyer i.e. Binod. Now Sohan sell those goods to Vikram, the new buyer. Vikram is buying the goods 
in good faith and also has no knowledge that Sohan is no longer the owner of goods.  
Since all the above conditions given under Section 30 (1) of Sale of Goods Act, 1930 are satisfied, 
therefore the sale made by Sohan to Vikram is a valid sale even if Sohan is no longer the owner of 
goods.  
(b) Doctrine of ultra vires: The meaning of the term ultra vires is simply “beyond (their) powers”. The 
legal phrase “ultra vires” is applicable only to acts done in excess of the legal powers of the doers. 
This presupposes that the powers in their nature are limited. It is a fundamental rule of Company 
Law that the objects of a company as stated in its memorandum can be departed from only to the 
extent permitted by the Act, thus far and no further. In consequence, any act done or a contract 
made by the company which travels beyond the powers not only of the directors but also of the 
company is wholly void and inoperative in law and is therefore not binding on the company. On this 
account, a company can be restrained from employing its fund for purposes other than those 
sanctioned by the memorandum. Likewise, it can be restrained from carrying on a trade different 
from the one it is authorised to carry on. 
The impact of the doctrine of ultra vires is that a company can neither be sued on an ultra vires 
transaction, nor can it sue on it. Since the memorandum is a “public document”, it is open to public 
inspection. Therefore, when one deals with a company one is deemed to know about the powers 
of the company. If in spite of this you enter into a transaction which is ultra vires the company , you 
cannot enforce it against the company.  
An act which is ultra vires the company being void, cannot be ratified even by the unanimous 
consent of all the shareholders of the company.  
Hence in the given case, ABC Limited cannot enter into a contract outside the purview of its object 
clause of memorandum of association as it becomes ultra vires and thus null and void.