Mittal Commerce Classes

CA Foundation Course (Mock Test Paper – Series: 4)

DATE: 07.06.2024 MAXIMUM MARKS: 100 TIMING: 3 Hours

PAPER 2 : BUSINESS LAW

Question No. 1 is Compulsory.
Answer any four question from the remaining five questions.
Wherever necessary, suitable assumptions should be made and disclosed by way of note
forming part of the answer. Working Notes should from part of the answer.

Question 1:

(a) Explain the concept of misrepresentation in matters of contract. Sohan induced Suraj
to buy his motorcycle saying that it was in a very good condition. After taking the
motorcycle, Suraj complained that there were many defects in the motorcycle.
Sohan proposed to get it repaired and promised to pay 40% cost of repairs. After a
few days, the motorcycle did not work at all. Now Suraj wants to rescind the
contract. Decide giving reasons. (6 marks)

(b) Mr. X had purchased some goods from M/s ABC Limited on credit. A credit period of
one month was allowed to Mr. X. Before the due date Mr. X went to the company
and wanted to repay the amount due from him. He found only Mr. Z there, who was
the factory supervisor of the company. Mr. Z told Mr. X that the accountant and the
cashier were on leave, he is in-charge of receiving money and he may pay the
amount to him. Mr. Z issued a money receipt under his signature. After two months
M/s ABC Limited issued a notice to Mr. X for non-payment of the dues within the
stipulated period. Mr. X informed the company that he had already cleared the dues
and he is no more responsible for the same. He also contended that Mr. Z is an
employee of the company to whom he had made the payment and being an
outsider, he trusted the words of Mr. Z as duty distribution is a job of the internal
management of the company.
Analyse the situation and decide whether Mr. X is free from his liability.
(7 marks)

(c) Mr. A. Mr. B and Mr. C were partners in a partnership firm M/s ABC & Co., which is
engaged in the business of trading of branded furniture. The name of the partners
was clearly written along with the firm name in front of the head office of the firm as
well as on letter-head of the firm. On 1st October, 2018, Mr. C passed away. His
name was neither removed from the list of partners as stated in front of the head
office nor from the letter-heads of the firm. As per the terms of partnership, the firm
continued its operations with Mr. A and Mr. B as partners. The accounts of the firm
were settled and the amount due to the legal heirs of Mr. C was also determined on
10th October, 2018. But the same was not paid to the legal heirs of Mr. C. On 16th
October, 2018, Mr. X, a supplier supplied furniture worth Rs.20,00,000 to M/s ABC &
Co. M/s ABC & Co. could not repay the amount due to heavy losses. Mr. X wants to

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recover the amount not only from M/s ABC & Co., but also from the legal heirs of Mr.
C.
Analyses the above situation in terms of the provisions of the Indian Partnership Act,
1932 and decide whether the legal heirs of Mr. C can also be held liable for the dues
towards Mr. X. (7 marks)

Question 2:

(a) (i) Akansh purchased a Television set from Jethalal, the owner of Gada
Electronics on the condition that first three days he will check its quality and if
satisfied he will pay for that otherwise he will return the Television set. On the
second day, the Television set was spoiled due to an earthquake. Jethalal
demands the price of Television set from Akansh. Whether Akansh is liable to
pay the price under the Sale of Goods Act, 1930? If not, who will ultimately
bear the loss? (3 marks)

(ii) Explain the type of contracts in the following agreements under the Indian
Contract Act, 1872:
(i) A coolie in uniform picks up the luggage of A to be carried out of the
railway station without being asked by A and A allows him to do so.
(ii) Obligation of finder of lost goods to return them to the true owner.
(iii) A contracts with B (owner of the factory) for the supply of 10 tons of
sugar, but before the supply is effected, the fire caught in the factory
and everything was destroyed.
(3 marks)

(b) Explain Corporate veil theory and when this corporate veil can be lifted?
(7 marks)

(c) Give provisions related to incorporation of LLP? (7 marks)

Question 3:

(a) (i) Ashwin goes to super market to buy a Air Conditioner. He selects a branded
Air Conditioner having a price tag of Rs. 40,000 after a discount of Rs. 3000.
Ashwin reaches at cash counter for making the payment, but cashier says,
―Sorry sir, the discount was upto yesterday. There is no discount from today.
Hence you have to pay Rs. 43,000.‖ Ashwin got angry and insists for Rs.
40,000. State with reasons whether under Indian Contract Act, 1872, Ashwin
can enforce the cashier to sell at discounted price i.e. Rs. 40,000.
(3 marks)

(ii) Comment on to form a valid contract, consideration must be adequate‘‘.

(4 marks)

(b) Mr. X, in association with his relative formed a company to promote education for
the children of poor section. A licence was issued by the Central Government
allowing the said company to be registered under section 8 of the Company.
Government aids and lot of funds were contributed by public for the fulfilment of the
benevolent object. However, on the compliant against the company, CG came to
know about the manipulation of the funds in the company and so order to revoke the
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VCF-5, GTW-2 + CA FND, JCC XII + CA FND, VH-1, KCF-1, DCF-1, DCF-9, DCF-10 & DRIVE) 2|Page
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licence of the company. Further, directed for the amalgamation with another
company registered under this section with an object to save girl child.
Examine the legal position as to the order passed by the Central government in the
given situation in the light of the Companies Act, 2013. (7 marks)

(c) Mohan, Sohan and Rohan are partners in the firm M/s Mosoro & Company. They
admitted Bohan as nominal partner and on agreement between all the partners,
Bohan is not entitled to share profit in the firm. After some time, a creditor Karan
filed a suit to Bohan for recovery of his debt. Bohan denied for same as he is just a
nominal partner and he is not liable for the debts of the firm and Karan should claim
his dues from the other partners. Taking into account the provisions of the Indian
Partnership Act, 1932.
(a) Whether Bohan is liable for the dues of Karan against the firm.
(b) In case, Karan has filed the suit against firm, whether Bohan would be liable?
(6 marks)

Question 4:

(a) (i) Rohan is running a grocery store in Delhi. He sells his grocery business,
including goodwill worth Rs. 1,00,000 to Rohit for a sum of Rs. 5,00,000.
After the sale of goodwill, Rohit made an agreement with Rohan. As per this
agreement, Rohan is not to open another grocery store (similar kind of
business) in the whole of India for next ten years. However, Rohan opens
another store in the same city two months later. What are the rights available
with Rohit regarding the restriction imposed on Rohan with reference to
Indian Contract Act, 1872? (4 marks)

(ii) Difference between conditions and warranties? (3 marks)

(b) (i) Z rent out his house situated at Mumbai to W for a rent of Rs. 10,000 per
month. A sum of Rs. 5 lac, the house tax payable by Z to the Municipal
Corporation being in arrears, his house is advertised for sale by the
corporation. W pays the corporation, the sum due from Z to avoid legal
consequences. Referring to the provisions of the Indian Contract Act, 1872
decide whether W is entitled to get the reimbursement of the said amount
from Z. (3 marks)

(ii) When the agency is irrevocable? (3 marks)

(c) Differentiate between Inland instrument and Foreign instrument? (7 marks)

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Question 5:

(a) (i) Write short note on Insolvency and Bankruptcy Board of India (IBBI)?
(3 marks)

(ii) Give the circumstances as to when ―Vindictive or Exemplary Damages may

be awarded for breach of a contract. (3 marks)

(b) Mr. Rich aspired to get a self-portrait made by an artist. He went to the workshop of
Mr. C an artist and asked whether he could sketch the former‘s portrait on oil
painting canvass. Mr. C agreed to the offer and asked for Rs. 50,000 as full advance
payment for the above creative work. Mr. C clarified that the painting shall be
completed in 10 sittings and shall take 3 months.
On reaching to the workshop for the 6th sitting, Mr. Rich was informed that Mr. C
became paralyzed and would not be able to paint for near future. Mr. C had a son
Mr. K who was still pursuing his studies and had not taken up his father‘s profession
yet?
Discuss in light of the Indian Contract Act, 1872?
(i) Can Mr. Rich ask Mr. K to complete the artistic work in lieu of his father?
(ii) Could Mr. Rich ask Mr. K for refund of money paid in advance to his father?
(7 marks)

(c) (i) Sandeep guarantees for Gaurav, a retail textile merchant, for an amount of
Rs. 1,00,000, for which Sharma, the supplier may from time to time supply
goods on credit basis to Gaurav during the next 3 months.
After 1 month, Sandeep revokes the guarantee, when Sharma had supplied
goo ds on credit for Rs. 40,000. Referring to the provisions of the Indian
Contract Act, 1872, decide whether Sandeep is discharged from all the
liabilities to Sharma for any subsequent credit supply. What would be your
answer in case Gaurav makes default in paying back Sharma for the goods
already supplied on credit i.e. Rs. 40,000? (3 marks)

(ii) Mr. Stefen owns a chicken firm near Gurgaon, where he breeds them and
sells eggs and live chicken to retail shops in Gurgaon. Mr. Flemming also
owns a similar firm near Gurgaon, doing the same business. Mr. Flemming
had to go back to his native place in Australia for one year. He needed money
for travel so he had pledged his firm to Mr. Stefen for one year and received a
deposit of Rs. 25 lakhs and went away. At that point of time, stock of live
birds were 100,000 and eggs 10,000. The condition was that when Flemming
returns, he will repay the deposit and take possession of his firm with live
birds and eggs.
After one year Flemming came back and returned the deposit. At that time
there were 109,000 live birds (increase is due to hatching of eggs out of
10,000 eggs he had left), and 15,000 eggs.
Mr. Stefen agreed to return 100,000 live birds and 10,000 eggs only.
State the duties of Mr. Stefen as Pawnee and advise Mr. Flemming about his
rights in the given case. (4 marks)

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Question 6:
(a) A agrees to sell certain goods to B on a certain date on 10 days credit. The period of
10 days expired and goods were still in the possession of A. B has also not paid the
price of the goods. B becomes insolvent. A refuses to deliver the goods to exercise
his right of lien on the goods. Can he do so under the Sale of Goods Act, 1930?
(6 marks)

(b) Explain those conditions when a partnership firm will dissolved by the order of court.
(7 marks)

(c) Rahul drew a cheque in favour of Aman. After having issued the cheque; Rahul
requested Aman not to present the cheque for payment and gave a stop payment
request to the bank in respect of the cheque issued to Aman. Decide, under the
provisions of the Negotiable Instruments Act, 1881 whether the said acts of Rahul
constitute an offence? (7 marks)

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(GCF-1, GCF-1-A, GCF-1-B, GCF-15, GCF-16, GCF-17, GCF-17-A, GCF-18, ACF-2, ACF-6, ACF-7, VCF-1,
VCF-5, GTW-2 + CA FND, JCC XII + CA FND, VH-1, KCF-1, DCF-1, DCF-9, DCF-10 & DRIVE) 5|Page