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CS Executive Guideline Answers for ECONOMIC BUSINESS AND COMMERCIAL LAWS

CS Executive Guideline Answers for ECONOMIC BUSINESS AND COMMERCIAL LAWS

CS Executive Guideline Answers Economic Business & Commercial Laws: This excellent blog gives you complete knowledge, improve your skills in preparing and answering for Economic Business & Commercial Laws in CS Executive.

This blog contains model answers for Economic Business & Commercial Laws given by expert faculty of CS Executive.

We hope that these CS Executive guideline answers will assist the students in preparing for the Institute’s examinations.

cs executive guideline answers for Economic Business & Commercial Laws

cs executive guideline answers for Economic Business & Commercial Laws

CS Executive Guideline Answers for ECONOMIC BUSINESS AND COMMERCIAL LAWS – PART I

Question 1

(a). Explain the powers of the Reserve Bank of India to issue directions to an authorised person under the Foreign Exchange Management Act,

Answer 1(a):

Section 11 of the Foreign Exchange Management Act, 1999 empowers the Reserve Bank of India (RBI) to issue directions to the authorised person in regard to making of payment or doing or desist from doing any act relating to foreign exchange or foreign security. Reserve Bank of India has also been empowered to issue directions to the authorised persons to furnish such information in such manner as it deems fit. If any authorised person contravenes any direction given by the RBI or fails to file the return as directed by RBI, he may be liable to a fine not exceeding Rs. 10,000/- and in the case of continuing contravention, with an additional penalty which may extend to Rs. 2,000 for every day during which such contravention continues.

(b). Enumerate the powers of the Central Government to prohibit receipt of foreign contribution under the Foreign Contribution (Regulation) Act,

Answer 1(b):

Section 9 of the Foreign Contribution (Regulation) Act, 2010 deals with power of Central Government to prohibit receipt of foreign contribution, etc., in certain cases. Accordingly, the Central Government has been empowered to –

  • prohibit any person or organisation not specified in section 3 of the Act, from accepting any foreign contribution;
  • require any person or class of persons, not specified in section 6 of the Act , to obtain prior permission of the Central Government before accepting any foreign hospitality;
  • require any person or class of persons not specified in section 11, to furnish intimation within such time and in such  manner  as may  be prescribed  as to the amount of any foreign contribution received by such person or class of persons as the case may be, and the source from which and the manner in which such contribution was received and the purpose for which and the manner in which such foreign contribution was utilised;
  • without prejudice to the provisions of section 11(1), require any person or class of persons specified in section 11(1) to obtain prior permission of the Central Government before accepting any foreign contribution;
  • require any person or class of persons, not specified in section 6, to furnish intimation, within such time and in such manner as may be prescribed,  as  to the receipt of any foreign hospitality, the source from which and the manner in which such hospitality was received.

(c). Gupta, an Indian national, residing in Thailand and wanted to avail foreign exchange facility upto USD 2,00,000 only. Whether he can do so ? Explain the relevant provisions of the Foreign Exchange Management Act, 1999 in this respect.

Answer 1(c):

Remittances of USD 2,50,000 per Financial Year (FY) for permitted Current Account Transactions such as private visit; gift/donation; going abroad on employment; emigration; maintenance of close relatives abroad; business trip; medical treatment abroad; studies abroad are available to resident individuals under Schedule III to Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015 read with Foreign Exchange Management Act, 1999 are subsumed under the Liberalised Remittance Scheme (LRS).Release of foreign exchange exceeding USD 2,50,000, requires prior permission from the Reserve Bank of India.

In view of the above, Dr. Gupta can freely avail foreign exchange facilities upto USD 2,00,000.

(d). State the prime functions of the Development Commissioner as incorporated in the Special Economic Zones Act, 2005.            (5 marks each)

Answer 1(d):

Section 12 of the Special Economic Zones Act, 2005 deals with the functions of the Development Commissioner. The functions of the Development Commissioner include:

  • guide the entrepreneurs for setting up of Units in the Special Economic Zone;
  • ensure and take suitable steps for effective promotion of exports from the Special Economic Zone;
  • ensure proper coordination with the Central Government or State Government Departments concerned or agencies with respect to, or for above purposes;
  • monitor the performance of the Developer and the Units in SEZ;
  • discharge such other functions as may be assigned to him by the Central Government under this Act or any other law for the time being in force; and
  • any other functions as may be delegated to him by the Board of approval.

Question 2

(a). What are the privileges of ‘‘Status Holders’ under the Foreign Trade Policy and Procedure of India enumerated under the Foreign Trade Policy 2015-20 ?       (4 marks)

Answer 2(a):

Privileges of “Status Holders” under Foreign Trade Policy and Procedure 2015-20 are as under:

  • Authorisation and Customs Clearances for both imports and exports may be granted on self-declaration basis;
  • Input-Output norms may be fixed on priority within 60 days by the Norms Committee; ‘
  • Exemption from furnishing of Bank Guarantee for Schemes under FTP, unless specified otherwise anywhere in FTP or Hand Book of Procedure (HBP);
  • Exemption from compulsory negotiation of documents through banks. Remittance/receipts, however, would be received through banking channels;
  • Two star and above Export houses shall be permitted to establish Export Warehouses as per Department of Revenue guidelines.
  • Three Star and above Export House shall be entitled to get benefit of Accredited Clients Programme (ACP) as per the guidelines of Central Board of Excise and Customs (CBEC).
  • The status holders would be entitled to preferential treatment and priority in handling of their consignments by the concerned agencies.
  • Manufacturers who are also status holders (Three Star/Four Star/Five Star) will be enabled to self-certify their manufactured goods as originating from India with a view to qualify for preferential treatment under different preferential trading agreements, free trade agreements, partnership or cooperation agreements
  • Manufacturer exporters who are also Status Holders shall be eligible to self – certify their goods as originating from India as per Hand Book of Procedures.
  • Status holders shall be entitled to export freely exportable items on free of cost basis for export promotion.

(b). What are the regulations relating to acceptance of deposits by non-banking financial companies conferred under chapter III B of the Reserve Bank of India Act, 1934 ?      (4 marks)

Answer 2(b):

Chapter III B of Reserve Bank of India Act, 1934 deals inte-alia with the regulation and supervision of non-banking financial institutions and with the provisions relating to institutions receiving deposits. Some of the important regulations relating to acceptance of deposits by Non-Banking Financial Companies (NBFCs) are as under:

  • The NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months and maximum period of 60 months. They cannot accept deposits repayable on demand.
  • NBFCs cannot offer interest rates higher than the ceiling rate prescribed by Reserve Bank of India from time to time.
  • NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors.
  • NBFCs should have minimum investment grade credit rating.
  • The deposits with NBFCs are not insured.
  • The repayment of deposits by NBFCs is not guaranteed by Reserve Bank of  India.
  • Certain mandatory disclosures are to be made about the NBFC in the Application form issued by the NBFC soliciting deposits.
  • The said NBFC’s are also required to submit various returns from time to time in relation to the said deposits.

(c). What is the eligibility criteria for overseas investment by proprietorship concerns and registered (4 marks)

Answer 2(c):

Eligibility Criteria for overseas investment by proprietorship concern are as under:

  • The proprietorship concern is classified as ” Status Holder” as per the Foreign Trade Policy issued by the Ministry of Commerce and Industry, Government of India from time to time;
  • The proprietorship concern has a proven track record, e., the export outstanding does not exceed 10% of the average export realisation of preceding three years and a consistently high export performance;
  • The proprietorship concern is KYC (Know Your Customer)
  • The proprietorship concern has not come under the adverse notice of any Government agency like the Directorate of Enforcement, Central Bureau of Investigation, Income Tax Department, etc. and does not appear in the exporters’ caution list of the Reserve Bank or in the list of defaulters to the banking system in India; and
  • The amount of proposed investment (or financial commitment) outside India does not exceed the export realisation or net owned funds of the proprietorship concern as specified by the Reserve Bank of India.

Eligibility Criteria for overseas investment by Trust are as under:

  • The Trust should be registered under the Indian Trust Act, 1882;
  • The Trust deed permits the proposed investment overseas;
  • The proposed investment should be approved by the trustee/s;
  • Trust is KYC (Know Your Customer) compliant and is engaged in a bonafide activity;
  • The Trust has been in existence at least for a period of three years;
  • The Trust has not come under the adverse notice of any Regulatory / Enforcement agency like the Directorate of Enforcement, Central Bureau of Investigation (CBI),

(d). Point out the prohibited transactions under the Liberalised Remittane Scheme (4 marks)

Answer 2(d):

Prohibited Transactions under Liberalised Remittance Scheme are as under:

  1. Remittance out of lottery winnings
  2. Remittance of income from racing/riding or any other hobby.
  3. Remittance for purchase of lottery tickets, banned /proscribed magazines, football pools, sweepstakes, etc.
  4. Payment of commission on exports made towards equity investment in Joint Ventures / Wholly Owned Subsidiaries abroad of Indian companies.
  5. Remittance of dividend by any company to which the requirement of dividend balancing is applicable
  6. Payment of commission on exports under Rupee State Credit Route, except commission up to 10% of invoice value of exports of tea and tobacco.
  7. Payment related to “Call Back Services” of telephones.
  8. Remittance of interest income on funds held in Non-Resident Special Rupee (Account) Scheme.

(e). How is the Monetary Policy Committee constituted under the Reserve Bank of India Act, 1934 ? What are its functions ? (4 marks)

Answer 2(e):

Section 45ZB of the Reserve Bank of India Act, 1934 empowers the Central Government to constitute the Monetary Policy Committee of the Reserve Bank of India. The Monetary Policy Committee shall consist of the following Members, namely:—

  • the Governor of the Bank—Chairperson, ex officio;
  • Deputy Governor of the Bank, in charge of Monetary Policy—Member, ex officio;
  • one officer of the Bank to be nominated by the Central Board—Member, ex officio; and
  • three persons to be appointed by the Central Government—Members.

The Monetary Policy Committee shall determine the Policy Rate required to achieve the inflation target. The decision of the Monetary Policy Committee shall be binding on the Reserve Bank of India and the RBI is required to publish a document explaining the steps to be taken to implement the decisions of the Monetary Policy Committee.

OR (Alternate question to Q. No. 2)

 

Question 2A

(i). Discuss the establishment and jurisdiction of Appellate Tribunal constituted under the Foreign Exchange Management Act,1999.

Answer 2A(i):

Section 18 of the Foreign Exchange Management Act, 1999 empowers the Central Government to establish an Appellate Tribunal, to hear appeals against the certain orders of Adjudication Authorities and the orders of the Special Director (Appeals).

The Central Government or any person aggrieved by the orders of Adjudicating Authority or Special Director (Appeals) may prefer an appeal to the Appellate Tribunal under Section 19 of the Act.

The procedure, powers, time period for disposal of the Appeals by the Appellate Tribunal etc. are specified under Section 19 and Section 28 of the Act.

Any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal to the High Court within the stipulated time on any question of law arising out of such order.

(ii). Enumerate the sectors/activities where foreign direct investment is prohibited under the Foreign Direct Investment Policy in India.

Answer 2A(ii):

Sector or activities where Foreign Direct Investment is prohibited are as under:

  • Lottery Business including Government/private lottery, online lotteries,etc.
  • Gambling and Betting including casinos etc.
  • Chit funds
  • Nidhi company
  • Trading in Transferable Development Rights (TDRs)
  • Real Estate Business or Construction of Farm Houses
  • Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
  • Activities/sectors not open to private sector investment e.g. (I) Atomic Energy and (II) Railway operations(other than permitted activities).

(iii). Explain the functions and powers of Approval Committee under the Special Economic Zone Act,2005.

Answer 2A(iii):

Section 14 of the Special Economic Zones Act, 2005 empowers every Approval Committee to discharge the functions and exercise the powers in respect of the following matters:

  • approve, the import or procurement of goods from the Domestic Tariff Area, for carrying on the authorised operations by a Developer in the Special Economic Zone;
  • approve providing of services by a service provider from outside India or from the Domestic Tariff Area for carrying on the authorised operations by the Developer, in the Special Economic Zone;
  • monitor th2e utilisation of goods or services or warehousing or trading in the Special Economic Zone;
  • approve, modify or reject proposals for setting up Units for manufacturing or rendering of services or warehousing or trading in SEZ in accordance with the provisions of Section 15(8) of the Act;
  • allow on receipt of approval foreign collaborations and foreign direct investments, including investments by a person outside India for setting up a Unit;
  • monitor and supervise compliance of conditions subject to which the letter of approval or permission, if any, is granted to the Developer or entrepreneur; and
  • perform any other functions as may be entrusted to it by the Central Government or the State Government concerned, as the case may be.

(iv). State the requirements for registration of Non-Banking Finance Company with Reserve Bank of India under the Reserve Bank of India Act,1934.

Answer 2A(iv):

In terms of Section 45-IA of the RBI Act, 1934, no Non-banking Financial Company can commence or carry on business of a non-banking financial institution without obtaining a certificate of registration from the Reserve Bank of India. There are various broad categories of NBFC’s which can apply to and be registered with the RBI. However, for applying for registration, the NBFC should comply with the following:

  1. It should be a company registered under the Companies Act, and
  2. It should have a minimum net owned

(v). State the provisions regarding the penalties and punishment provided under the Foreign Contribution (Regulation) Act, (4 marks each)

Answer 2A(v):

Section 34 of the Foreign Contribution (Regulation) Act, 2010 prescribes for penalty on any person, on whom  any  prohibitory order has  been served under Section 10  of the Act, pays, delivers, transfers or otherwise deals with, in any manner whatsoever, any article or currency or security, whether Indian or foreign, in contravention of such prohibitory order, he shall be punished with imprisonment for a term which may extend to three years, or with fine, or with both.

The Court trying such contravention may also impose on the person convicted an additional fine equivalent to the market value of the article or the amount of the currency or security in respect of which the prohibitory order has been contravened by him or such part thereof as the court may deem fit.

Section 35 of the Foreign Contribution (Regulation) Act, 2010 on the other hand provides for punishment with imprisonment for a term which may extend to five years, or with fine, or with both for accepting, or assisting any person, political party or organisation in accepting, any foreign contribution or any currency or security from a foreign source, in contravention of any provision of this Act or any rule or order made thereunder.

Section 39 deals with offences by companies and Section 41 provides for composition of certain offences.

CS Executive Guideline Answers for ECONOMIC BUSINESS AND COMMERCIAL LAWS – PART II

Question 3

(a). In which circumstances collusive bidding or bid rigging may occur as per the Competition Act, 2002 ?

Answer 3(a):

Circumstances in which collusive bidding or bid rigging may occur are:

  • agreements to submit identical bids
  • agreements as to who shall submit the lowest bid,agreements for the submission of cover bids (voluntarily inflated bids)
  • agreements not to bid against each other,
  • agreements on common norms to calculate prices or terms of bids
  • agreements to squeeze out outside bidders
  • agreements designating bid winners in advance on a  rotational  basis,  or on a geographical or customer allocation basis.

(b). What penalties are prescribed by the Competition Act, 2002 for contravention of orders of the Competition Commission.

Answer 3(b):

The Competition Act, 2002 prescribes penalties for contravention of orders of the Competition Commission of India.

As per Section 42, the Competition Commission of India may cause an inquiry to be made into compliance of its orders or directions made in exercise of its powers under the Act.

If any person, without reasonable clause, fails to comply with the orders or directions of the Commission issued under sections 27, 28, 31, 32, 33, 42A and 43A of the Competition Act, he shall be punishable with fine which may extend to rupees one lakh for each day during which such non-compliance occurs, subject to a maximum of rupees ten crore, as the Commission may determine.

If any person does not comply with the orders or directions issued, or fails to pay the fine imposed above, he shall, without prejudice to any proceeding under section 39, be punishable with imprisonment for a term which may extend to three years, or with fine which may extend to rupees twenty-five crore, or with both, as the Chief Metropolitan Magistrate, Delhi may deem fit.

(c). What do you mean by the term ‘person’ as given under the Competition Act, 2002 ?

Answer 3(c)

In terms of Section 2(l) of the Competition Act, 2002 “person” includes—

(i) an individual;

(ii) a Hindu undivided family;

(iii) a company;

(iv) a firm;

(v) an association of persons or a body of individuals, whether incorporated or not, in India or outside India;

(vi) any corporation established by or under any Central, State or Provincial Act or a Government company as defined in section the Companies Act;

(vii) any body corporate incorporated by or under the laws of a country outside India;

(viii) a co-operative society registered under any law relating to co-operative societies;

(ix) a local authority;

(x) every artificial juridical person, not falling within any of the preceding sub-clauses.

(d). Who can appear before the Competition Commission of India ?

Answer 3(d)

As per Section 35 of the Competition Act, 2002, following persons are entitled to appear before the Competition Commission of India:

(i) a complainant; or (ii) a defendant; or (iii) the Director General. They may either appear in person or authorise any of the following:

  • a chartered accountant as defined in Section 2(1)(b) of Chartered Accountants Act, 1949 who has obtained a certificate of practice; or
  • a company secretary as defined in Section 2(1)(c) of the Company Secretaries Act, 1980 and who has obtained a certificate of practice;
  • a cost accountant as defined in Section 2(1)(b) of the Cost and Works Accountants Act, 1959 and who has obtained a certificate of practice;
  • a legal practitioner that is an advocate, vakil or an attorney of any High Court including a pleader in practice

(e). State the conditions which are conducive to cartelization under the Competition Act, (3 marks each)

Answer 3(e):

Conditions that are conducive to cartelization under the Competition Act, 2002 are:

  • high concentration – few competitors
  • high entry and exit barriers
  • homogeneity of the products (similar products)
  • similar production costs
  • excess capacity
  • high dependence of the consumers on the product
  • history of collusion.

Question 4

(a). Explain the term ‘Competition Advocacy’. State, whether the Central/State Government may make a reference to the Competition Commission for its opinion on possible effects of such policy on the competition under the Competition Act, 2002 ?

Answer 4(a):

Section 49 of the Competition Act, 2002 deals with Competition Advocacy. Under Section 49 the Central Government/State Government may seek the opinion of the Competition Commission on the possible effects of the policy on competition or any other matter. In this context, Section 49 envisages that while formulating a policy on the competition, the Central/State Government may make a reference to the Commission for its opinion on possible effect of such a policy on the competition, or any other matter.

On receipt of such a reference, the Commission shall, give its opinion on it to the Central Government/State Government, within sixty days of making such a reference and the latter may  formulate the policy  as it deems fit. The role of the Commission  is advisory and the opinion given by the Commission shall not be binding upon the Central Government/State Government in formulating such a policy. The Commission  is also empowered to take suitable measures for the (a) promotion of competition advocacy; (b) creating awareness about the competition; and (c) imparting training about competition issues.

Creating awareness about benefits of competition and imparting training in competition issues is expected to generate conducive environment to promote and foster competition, which is sine-qua non for accelerating economic growth.

(b). Explain the procedure for investigation of combination under the Competition Act, (5 marks each)

Answer 4(b):

The procedure for investigation of combination by the Commission has been stipulated under Section 29 of the Competition Act, 2002. It involves following stages-

  • The Commission first has to form a prima facie opinion that a combination is likely to cause, or has caused an appreciable adverse effect on competition within the relevant market in Further, when the Commission has come to such a conclusion then it shall proceed to issue a notice to the parties to the combination, calling upon them to show cause why an investigation in respect of such combination should not be conducted;
  • After receipt of the response of the parties to the combination may call for the report of the Director General.
  • When pursuant to response of parties or on receipt of report of the Director General whichever is later, the Commission prima-facie is of the opinion that the Combination is likely to cause an appreciable adverse effect on competition in relevant market, it shall direct the parties to the combination to publish within ten working days, the details of the combination, in such manner as it thinks appropriate so as, to bring to the information of public and persons likely to be affected by such combination.
  • The Commission may invite any person affected or likely to be affected by the said combination, to file his written objections within fifteen working days of the publishing of the public notice, with the Commission for its consideration.
  • The Commission may, within fifteen working days of the filing of written objections, call for such additional or other information as it deem fit from the parties to the said combination and the information shall be furnished by the parties above referred within fifteen days from the expiry of the period notified by the Commission.
  • After receipt of all the information and within forty-five days from expiry of period for filing further information, the Commission shall proceed to deal with the case, in accordance with provisions contained in Section 31 of the Act.

CS Executive Guideline Answers for ECONOMIC BUSINESS AND COMMERCIAL LAWS – PART III

Question 5

(a). A advertises in the newspaper that he will pay ` 1,000 to any one who brings to him his lost B without knowing of this reward finds A’s lost son and restore him to A. Can B claim for the reward under the provisions of the Indian Contract Act, 1872 ? (4 marks)

Answer 5(a):

According to Indian Contract Act, 1872, for a valid contract an acceptance never precedes an offer. There can be no acceptance of an offer which is not communicated. Similarly, performance of conditions of an offer without the knowledge of the specific offer, is no acceptance and therefore does not result in a contract.

Thus, as held in the case of Lalman Shukla v.Gauri Dutt (1913), where a servant brought the boy without knowing of the reward, he was held not entitled to reward because he did not know about the offer and therefore could not have accepted it.

In this given case since B did not know of the reward, he cannot claim it from A even though he finds A‘s lost son and brings him to A.

(b). X draws a cheque in favour of Y, a minor, Y endorses the same in favour of Z.

The cheque is dishonoured by bank on grounds of inadequate funds. What legal remedy is available to Z under the provisions of the Negotiable Instruments Act, 1881 ?         (4 marks)

Answer 5(b):

Capacity to incur liability as a party to a negotiable instrument is co-extensive with capacity to contract. According to Section 26 of the Negotiable Instruments Act, 1881, every person capable of contracting according to law to which he is subject, may bind himself and be bound by making, drawing, acceptance, endorsement, delivery and negotiation of a promissory note, bill of exchange or cheque.

Negatively, minors, lunatics, idiots, drunken person and persons otherwise disqualified by their personal law, do not incur any liability as parties to negotiable instruments. But incapacity of one or more of the parties to a negotiable instrument in no way, diminishes the liabilities of the competent parties to the said instrument. Therefore, where a minor is the endorser or payee of an instrument which has been endorsed all the parties excepting the minor are liable in the event of its dishonour.

In the given case Z can recover the amount of cheque from X who delivers the cheque in favour of Y, a minor by resorting to the provisions of the Negotiable Instruments Act, 1881,

(c). A and B are litigating in a count of law over property X and during the pendency of the suit, A transfers the property X to The suit ends in B’s favour. Decide, who shall be entitled for property X under the provisions of the Transfer of Property Act, 1882 ? (4 marks)

Answer 5(c):

Section 52 of the Transfer of Property Act, 1882 incorporates the doctrine of Lis pendens. It states that during the pendency of a suit in a Court of Law, property which is subject to the suit/ litigation cannot be transferred. When it is said that the property cannot be transferred what is meant in this context is that property may be transferred but this transfer is subject to the rights that are created by a Court?s decree.

In the given case, A and B are litigating in a Court of law over property X and during the pendency of the suit A transfers the property X to C. The suit ends in B?s favour. Here C who obtained the property during the time of litigation cannot claim the property. He is bound by the decree of the Court wherein B has been given the property.

(d). A doctor purchased woollen undergarments from S, a retailer shopkeeper whose business was to sell goods of the But after wearing the undergarments, the doctor got developed some skin disease. Can the doctor claim damages from S under the Sale of Goods Act, 1930 ? Decide. (4 marks)

Answer 5(d):

According to the Sale of Goods Act, 1930 in a contract of sale, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied.

But there is an implied condition that the goods are reasonably fit for the purpose for which they are required if:

  • the buyer expressly or by implication makes known to the seller the particular purpose for which the goods are required, so as to show that he relies on the seller’s skill and judgement, and
  • the goods are of a description which it is in the course of the seller’s business to supply (whether he is the manufacturer or producer or not). There is no such condition if the goods are bought under a patent or trade

In the case of Grant v. Australian Knitting Mills (1936) 70 MLJ 513, G a doctor purchased woollen underpants from M, a retailer whose business was to sell goods of that description. After wearing the underpants G developed some skin diseases. The Court held that the goods were not fit for their only use and G was entitled to avoid the contract and claim damages.

In view of the above Doctor can claim damages from S under Sale of Goods Act, 1930.

(e). Avanti, took out motor car insurance from Healthy Trip Insurance A cheque was issued under a contract of insurance of motorcar by the insured for the payment of premium of the policy. However, the cheque was dishonoured for want of funds in the account. Meanwhile the car met with an accident and badly damaged, killing the insured owner. The claim for insured amount was repudiated by the company.

Decide :

  • Whether the contract of insurance has been performed ? Analyse the provisions of the Indian Contract Act, 1872 in this respect ?
  • Whether the claim of the insured amount may be recovered from Healthy Trip Insurance Company ? (4 marks)

Answer 5(e):

The fact in given case are similar to the case of National Insurance Co. Ltd. vs. Seema Malhotra [2001(2) SCALE 140]. In this case the Supreme Court held that applying the principles envisaged under Section 51, 52 and 54 of Indian Contract  Act, 1872 relating to reciprocal promises, insurer need not to perform his part of promise when the other party fails to perform his part and thus not liable to pay the insured amount.

When the insured fails to pay the premium promised, or when the cheque issued by him towards the premium is returned dishonoured by the bank concerned the insurer need not perform his part of the promise. The corollary is that the insured cannot claim performance from the insurer in such a situation. The contract of insurance therefore cannot be said to have been performed.

Therefore, the claim of the insured amount from the Healthy Trip Insurance Company can not be recovered.

Question 6

Distinguish between the following :

(a).Vested and contingent interest

Answer 6(a):

The following are the principal points of distinction between a vested and a contingent interest:

  1. When an interest is vested the transfer is complete. It creates an immediate proprietary interest in the property though the enjoyment may be postponed to a future date. A contingent interest on the other hand is dependent upon the fulfilment of some conditions which may or may not In other words, in case of vested interest, the owner’s title is already prefect; in case of a contingent interest, the title is as yet imperfect but may become perfect on the fulfilment of a stipulated condition.
  2. A vested interest takes effect from the date of A contingent interest in order to become vested is conditioned by a contingency which may not occur.
  3. A vested interest cannot be defeated by the death of the transferee before he obtains A contingent interest may fail in case of the death of transferee before the fulfilment of condition.
  4. Since vested interest is not circumscribed by any limitation which derogates from the completeness of the grant, it logically follows that a vested interest is transferable as well as If, therefore, a transferee of the vested interest dies before actual enjoyment, it will devolve on his legal heirs. A contingent interest, on the other hand, cannot be inherited though it may be transferred coupled with limitation regarding fulfilment of a condition.

(b).Void and illegal agreements

Answer 6(b):

A void agreement is one which is destitute of all legal effects. It cannot be enforced and confers no rights on either party. It is really not a contract at all, it is non- existent. The expression provides a useful label for describing the situation that arises when a contract is claimed but in fact does not exist. For example, a minor’s contract is void.

An illegal agreement is one which, like the void agreement has no legal effects as between the immediate parties. Further, transactions collateral to it also become tainted with illegality and are, therefore, not enforceable. Parties to an unlawful agreement cannot get any help from a Court of law. On the other hand, a collateral transaction can be supported by a void agreement. Therefore, it may be said that all illegal agreements are void but all void agreements are not necessarily illegal.

(c).Bearer and order instrument

Answer 6(c):

Bearer Instrument : A promissory note, bill of exchange or cheque is payable to bearer when (i) it is expressed to be so payable, or (ii) the only or last endorsement on the instrument is an endorsement in blank. A person who is a holder of a bearer instrument can obtain the payment of the instrument.

Order Instruments : A promissory note, bill of exchange or cheque is payable to order (i) which is expressed to be so payable; or (ii) which is expressed to be payable to a particular person, and does not contain any words prohibiting transfer or indicating an intention that it shall not be transferable.

(d).Co-ownership and partnership

Answer 6(d):

Coownership is not always the result of an agreement: it may arise by the operation of law or from status, e.g., co-heirs of a property. Partnership is between two persons. Partnership must arise from an agreement. A partner is the agent of the other partners, but a co-owner is not the agent of the other co-owner(s). Co-ownership does not necessarily involve community of profits and loss, partnership does. A co-owner can without the consent of the others transfer his rights and interests to strangers, a partner cannot do so without the consent of all the other partners so as to make the transferee a partner in the firm. A co-owner can ask for division of property in specie, but no partner can ask for this. His only right is to have a share of the profits out of the properties. Partnerships end at death or insolvency; co-ownerships end at death. A co-owner has no lien on the property while a partner has a lien on the firm property.

(e). Sale and  Bailment   (3 marks each)

Answer 6(e):

“Sale”, is a contract by which property in goods passes from the seller to the buyer for a price. A “bailment” is a transaction under which goods are delivered by one person (the bailor) to another (the bailee) for some purpose, upon a contract that they be returned or disposed of as directed after the purpose is accomplished (Section 148 of the Indian Contact Act, 1872).

The property in the goods is not intended to and does not pass on delivery though it may sometimes be the intention of the parties that it should pass in due course. But where goods are delivered to another on terms which indicate that the property is to pass at once the contract must be one of sale and not bailment.

 

OR (Alternate question to Q. No. 6)

Question 6A

(i). Explain the rights and duties of allotees under Real Estate (Regulation and Development) Act, 2016

Answer 6A(i):

Section 19 of the Real Estate (Regulation & Development) Act, 2016 provides for the various rights and duties of the allottees. It states that:

  • The allottee shall be entitled to obtain the information relating to sanctioned plans, layout plans along with the specifications, approved by the competent authority and such other information as provided in the Act or the rules and regulations made thereunder or the agreement for sale signed with the promoter.
  • The allottee shall be entitled to know stage-wise time schedule of completion  of the project, including the provisions for water, sanitation, electricity and other amenities and services as agreed to between the promoter and the  allottee in accordance with the terms and conditions of the agreement for sale.
  • The allottee shall be entitled to claim the possession of apartment, plot or building, as the case may be, and the association of allottees shall be entitled to claim the possession of the common areas, as per the declaration given by the promoter
  • The allottee shall be entitled to claim the refund of amount paid along with interest at such rate as may be prescribed and compensation in the manner as provided under the Act, from the promoter, if the promoter fails to comply or is unable to give possession of the apartment, plot or building, as the case may be, in accordance with the terms of agreement for sale or due to discontinuance of his business as a developer on account of suspension or revocation of his registration under the provisions of the Act or the rules or regulations made thereunder.
  • The allottee shall be entitled to have the necessary documents and plans, including that of common areas, after handing over the physical possession of the apartment or plot or building as the case may be, by the promoter.
  • Every allottee, who ha entered into an agreement for sale to take an apartment, plot or building as the case may be, shall be responsible to make necessary payments in the manner and within the time as specified in the said agreement for sale and shall pay at the proper time and place, the share of the registration charges, municipal taxes, water and electricity charges, maintenance charges, ground rent, and other charges, if any.
  • The allottee shall be liable to pay interest, at such rate as may be prescribed, for any delay in payment towards any amount or charges to be paid under sub- section (6).
  • The obligations of the allottee under sub-section (6) and the liability towards interest under sub-section (7) may be reduced when mutually agreed to between the promoter and such allottee.
  • Every allottee of the apartment, plot or building as the case may be, shall participate towards the formation of an association or society or cooperative society of the allottees, or a federation of the same
  • Every allottee shall take physical possession of the apartment, plot or building as the case may be,within a period of two months of the occupancy certificate issued for the said apartment, plot or building, as the case may be.

Every allottee shall participate towards registration of the conveyance deed of the apartment, plot or building, as the case may be,

(ii). State the provisions regarding punishment for Benami Transactions incorporated under the Benami Transaction (Prohibition) Act, 1988

Answer 6A(ii):

According to Benami Transactions (Prohibition) Act, 1988 where any person enters into any benami transaction in order to defeat the provisions of any law or to avoid payment of statutory dues or to avoid payment to creditors, the beneficial owner, benamidar and any other person who abets or induces any person to enter into the benami transaction, shall be guilty of the offence of benami transaction, he shall be punishable in accordance with the provisions contained in Chapter VII of the Act.

Chapter VII of the Benami Transactions (Prohibition) Act, 1988 deals with offences and prosecution. Section 53 provides that if a person is found guilty of offence of benami transaction by the competent court, he shall be punishable with rigorous imprisonment for a term not less than one year but which may extend to 7 years and shall also be liable to fine which may extend to 25% of the fair market value of the property.

Section 54 relates to penalty for false information whereas Section 62 relates to consequences in case of offences by Company.

(iii). What are the contracts which cannot be specifically enforced under the Specific Relief Act, 1963 ?

Answer 6A(iii):

According to Section 14 Specific Relief Act, 1963 the following contracts cannot be specifically enforced, namely:—

  • where a party to the contract has obtained substituted performance of contract in accordance with the provisions of section 20 of the Act;
  • a contract, the performance of which involves the performance of a continuous duty which the court cannot supervise;
  • a contract which is so dependent on the personal qualifications of the parties that the court cannot enforce specific performance of its material terms; and
  • a contract which is in its nature determinable.

(iv). What do you mean by the KYC guidelines as given under the Prevention of Money Laundering Act, 2002 ?

Answer 6A(iv):

Reserve Bank of India issued Master Circular on Know Your Customer(KYC) Guidelines under Prevention of Money Laundering Act, (PMLA), 2002 and Banks were advised to follow certain customer identification procedure for opening of accounts and monitoring transactions of a suspicious nature for the purpose of reporting it to appropriate authority. The objective of Know Your Customer (KYC) Norms/Anti-Money Laundering (AML) Measures/Combating of Financing of Terrorism (CFT) guidelines is to prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering or terrorist financing activities. KYC procedures also enable banks to know/ understand their customers and financial dealings better which in turn help banks manages their risks prudently. The 4 key elements of the KYC Policy include Customer Acceptance Policy, Customer Identification Procedures, Monitoring of Transactions and Risk Management.

(v). State the penalty provisions for use of non-standard weight and measures under the Legal Metrology Act, 2009 (3 marks each)

Answer 6A(v):

Section 25 of the Legal Metrology Act, 2009 provides for penalty for use of non- standard weight or measure. The section stipulates that whoever uses or keeps for use any weight or measure or makes use of any numeration otherwise than in accordance with the standards of weight or measure or the standard of numeration, as the case may be, specified by or under the Act, shall be punished with fine which may extend to twenty-five thousand rupees and for the second or subsequent offence, with imprisonment for a term which may extend to six months and also with fine.

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