ABSTRACT

Covering all ICAI MTPs, RTPs, Study Material, Past

year Papers.

Rishabh Gaur
For CA - Foundation

QUESTION BANK
Must Read Questions before Appearing for Exam
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Rishabh Gaur
“There is no boring subject, only disinterested minds”
Faculty of EIS – SM & LAW
CA – Inter | CA - Foundation

About the author

Rishabh Gaur, Tricenarian, Maven in the field of Information technology and system, laws and
Strategic Management. He is an educator, who believes that collaborating and sharing knowledge is a
very powerful tool. His pedagogy helps students to achieve their learning goals. He is a law student,
commerce done and done ATC from ICAI, with an extensive background of education in Business
Administration.
He has a teaching experience of more than 11 years. Many of his students have successfully become
CA, and have secured AIR under his guidance. He was earlier associated with a unit of Shri Ram College
of Commerce (SRCC) as a faculty member. At present, he is providing his services at IGP PVT. LTD.
He can be reached at -
whatsapp at 8527931436 | Rishabhgaurinstitute@gmail.com | T.me/Rishabhgaurinstitute

Teaching Experience of more than 12 years | Mentor of More than 80+ All
India Rank holders (CA Inter & CA Foundation) | Taught 8000+ CA Students
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Question Bank
Indian Contract Act
Q1. A, B, C and D are the four partners in a firm. They jointly promised to pay 6,00,000 to F. B and C
have become insolvent. B was unable to pay any amount and C could pay only 50,000. A is compelled
to pay the whole amount to F. Decide the extent to which A can recover the amount from D with
reference to the provisions of the Indian Contract Act, 1872.

Q2. Explain any five circumstances under which contracts need not be performed with the consent of
both the parties.

Q3. Examine the validity of the following contracts as per the Indian Contract Act, 1872 giving reasons.
a) X aged 16 years borrowed a loan of 50,000 for his personal purposes. Few months later he had
become major and could not pay back the amount borrowed, on due date. The lender wants to
file a suit against X.
b) J contracts to take in cargo for K at a foreign port. J's government afterwards declares war against
the country in which the port is situated and therefore the contract could not be fulfilled. K wants
to file a suit against J.

Q4. What is meant by 'Quasi-Contract'? State any three salient features of a quasi-contract as per the
Indian Contract Act, 1872.

Q5. Mr. S aged 58 years was employed in a Government Department. He was going to retire after two
years. Mr. D made a proposal to Mr. S to apply for voluntary retirement from his post so that Mr. D
can be appointed in his place. Mr. D offered a sum of INR 10 Lakhs as consideration to Mr. S in order
to induce him to retire.
Mr. S refused at first instance but when he evaluated the amount offered as consideration is just
double of his cumulative remuneration to be received during the tenure of two years of employment,
he agreed to receive the consideration and accepted the above agreement to receive money to retire
from his office.
Whether the above agreement is valid? Explain with reference to provision of Indian Contract Act,
1872.

Q6. Define the term acceptance under the Indian Contract Act, 1872. Explain the legal rules regarding
a valid acceptance.

Q7. Mr. B makes a proposal to Mr. S by post to sell his house for 10 lakhs and posted the letter on
10th April 2020 and the letter reaches to Mr. S on 12th April 2020. He reads the letter on 13th April
2020.
Mr. S sends his letter of acceptance on 16th April 2020 and the letter reaches Mr. B on 20th April 2020.
On 17th April Mr. S changed his mind and sends a telegram withdrawing his acceptance. Telegram
reaches to Mr. B on 19th April 2020.
Examine with reference to the Indian Contract Act, 1872:
a) On which date, the offer made by Mr. B will complete?
b) Discuss the validity of acceptance.
c) What would be validity of acceptance if letter of revocation and letter of acceptance reached
together?

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Q8. The general rule is that an agreement without consideration is void. Discuss the cases where the
agreement though made without consideration will be valid and enforceable as per Indian Contract
Act, 1872.

Q9. State with reason(s) whether the following agreements are valid or void:
a) A clause in a contract provided that no action should be brought upon in case of breach.
b) Where two courts have jurisdiction to try a suit, an agreement between the parties that the suit
should be filed in one of those courts alone and not in the other.
c) X offers to sell his Maruti car to Y. Y believes that X has only Wagon R Car but agrees to buy it.
d) X, a physician and surgeon, employs Y as an assistant on a salary of 75,000 per month for a term
of two years and Y agrees not to practice as a surgeon and physician during these two years.

Q10. Explain the term Contingent Contract with reference to the Indian Contract Act, 1872 with the
help of an example. Also discuss the rules relating to enforcement of a contingent contract.

Q11. X, Y and Z jointly borrowed 90,000 from L. Decide each of the following in the light of the Indian
Contract Act, 1872:
a) Whether L can compel only Y to pay the entire loan of 90,000?
b) Whether L can compel only the legal representatives of Y to pay the loan of 90,000, if X, Y and Z
died?
c) Whether Y and Z are released from their liability to L and X is released from his liability to Y and Z
for contribution, if L releases X from his liability and sues Y and Z for payment?

Q12. Explain what is meant by 'Supervening Impossibility' as per the Indian Contract Act, 1872 with
the help of an example. What is the effect of such impossibility?

Q13. Mr. X a businessman has been fighting a long drawn litigation with Mr. Y an industrialist. To
support his legal campaign he enlists the services of Mr. C a Judicial officer stating that the amount of
10 lakhs would be paid to him if he does not take up the brief of Mr. Y.
Mr. C agrees but, at the end of the litigation Mr. X refuses to pay to Mr. C. Decide whether Mr. C can
recover the amount promised by Mr. X under the provisions of the Indian Contract Act, 1872?

Q14. Define Misrepresentation and Fraud. Explain the difference between Fraud and
Misrepresentation as per the Indian Contract Act, 1872.

Q15. In light of provisions of the Indian Contract Act, 1872 answer the following:
a) Mr. S and Mr. R made contract wherein Mr. S agreed to deliver paper cup manufacture machine
to Mr. R and to receive payment on delivery. On the delivery date, Mr. R didn't pay the agreed
price. Decide whether Mr. S is bound to fulfil his promise at the time of delivery?
b) Mr. Y given loan to Mr. G of INR 30,00,000. Mr. G defaulted the loan on due date and debt became
time barred. After the time barred debt, Mr. G agreed to settle the full amount to Mr. Y. Whether
acceptance of time barred debt Contract is enforceable in law?
c) A & B entered into a contract to supply unique item, alternate of which is not available in the
market. A refused to supply the agreed unique item to B. What directions could be given by the
court for breach of such contract?

Q16. Enumerate the differences between 'Wagering Agreements' and 'Contract of Insurance' with
reference to provision of the Indian Contract Act, 1872.

Q17. X found a wallet in a restaurant. He enquired of all the customers present there but the true
owner could not be found. He handed over the same to the manager of the restaurant to keep till the

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true owner is found. After a week he went back to the restaurant to enquire about the wallet. The
manager refused to return it back to X, saying that it did not belong to him.
In the light of the Indian Contract Act, 1872, can X recover it from the Manager?

Q18. Define consideration. What are the legal rules regarding consideration under the Indian Contract
Act, 1872?

Q19. Mr. Sonumal a wealthy individual provided a loan of 80,000 to Mr. Datumal on 26.02.2019. The
borrower Mr. Datumal asked for a further loan of 1,50,000. Mr. Sonumal agreed but provided the loan
in parts at different dates. He provided 1,00,000 on 28.02.2019 and remaining 50,000 on 03.03.2019.
On 10.03.2019 Mr. Datumal while paying off part 75,000 to Mr. Sonumal insisted that the lender
should adjusted 50,000 towards the loan taken on·03.03.2019 and balance as against the loan on
26.02.2019.
Mr. Sonumal objected to this arrangement and asked the borrower to adjust in the order of date of
borrowal of funds.
Now you decide:
a) Whether the contention of Mr. Datumal correct or otherwise as per the provisions of the Indian
Contract Act, 1872?
b) What would be the answer in case the borrower does not insist on such order of adjustment of
repayment?
c) What would the mode of adjustment/appropriation of such part payment in case neither Mr.
Sonumal nor Mr. Datumal insist any order of adjustment on their part?

Q20. Explain the term 'Coercion" and what are the effects of coercion under Indian Contract Act,
1872.

Q21. “All contracts are agreements, but all agreements are not contracts”. Comment.

Q22. A sends an offer to B to sell his second-car for 1,40,000 with a condition that if B does not reply
within a week, he (A) shall treat the offer as accepted. Is A correct in his proposition?

Q23. Explain the type of contracts in the following agreements under the Indian Contract Act, 1872:
a) 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.
b) Obligation of finder of lost goods to return them to the true owner.
c) 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.

Q24. Shambhu Dayal started “self service” system in his shop. Smt. Prakash entered the shop, took a
basket and after taking articles of her choice into the basket reached the cashier for payments. The
cashier refuses to accept the price. Can Shambhu Dayal be compelled to sell the said articles to Smt.
Prakash? Decide as per the provisions of the Indian Contract Act, 1872.

Q25.State whether there is any contract in following cases:

a) A engages B to do certain work and remuneration to be paid as fixed by C.
b) A and B promise to pay for the studies of their maid’s son
c) A takes a seat in public bus.
d) A, a chartered accountant promises to help his friend to file his return.

Q26. Miss Shakuntala puts an application to be a teacher in the school. She was appointed by the trust
of the school. Her friend who works in the same school informs her about her appointment informally.

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But later due to some internal reasons her appointment was cancelled. Can Miss Shakuntala claim for
damages?

Q27. To form a valid contract, consideration must be adequate”. Comment.

Q28. Mr. Sohanlal sold 10 acres of his agricultural land to Mr. Mohanlal on 25th September 2020 for
25 Lakhs. The Property papers mentioned a condition, amongst other details, that whosoever
purchases the land is free to use 9 acres as per his choice but the remaining 1 acre has to be allowed
to be used by Mr. Chotelal, son of the seller for carrying out farming or other activity of his choice. On
12th October, 2020, Mr. Sohanlal died leaving behind his son and life. On 15th October, 2020
purchaser started construction of an auditorium on the whole 10 acres of land and denied any land to
the son.
Now Mr. Chotelal wants to file a case against the purchaser and get a suitable redressal. Discuss the
above in light of provisions of Indian Contract Act, 1872 and decide upon Mr. Chotelal’s plan of action?

Q29. “Mere silence does not amount to fraud”. Discuss.

Q30. “An agreement, the meaning of which is not certain, is void”. Discuss.

Q31. “Though a minor is not competent to contract, nothing in the Contract Act prevents him from
making the other party bound to the minor”. Discuss.

Q32. A student was induced by his teacher to sell his brand new car to the later at less than the
purchase price to secure more marks in the examination. Accordingly, the car was sold. However, the
father of the student persuaded him to sue his teacher. State whether the student can sue the
teacher?

Q33. 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 few days, the motorcycle did not work at all. Now Suraj wants to rescind
the contract. Decide giving reasons whether Suraj can rescind the contract?

Q34. Mr. SAMANT owned a motor car. He approached Mr. CHHOTU and offered to sell his motor car
or 3,00,000. Mr. SAMANT told Mr. CHHOTU that the motor car is running at the rate of 30 KMs per
litre of petrol. Both the fuel meter and the speed meter of the car were working perfectly. Mr.
CHHOTU agreed with the proposal of Mr. SAMANT and took delivery of the car by paying 3,00,000/-
to Mr. SAMANT. After 10 days, Mr. CHHOTU came back with the car and stated that the claim made
by Mr. SAMANT regarding fuel efficiency was not correct and therefore there was a case of
misrepresentation. Referring to the provisions of the Indian Contract Act, 1872, decide and write
whether Mr. CHHOTU can rescind the contract in the above ground.

Q35. Ishaan, aged 16 years, was studying in an engineering college. On 1st March, 2018 he took a loan
of 2 lakhs from Vishal for the payment of his college fee and agreed to pay by 30th May, 2019. Ishaan
possesses assets worth 15 lakhs. On due date Ishaan fails to pay back the loan to Vishal. Vishal now
wants to recover the loan from Ishaan out of his assets. Decide whether Vishal would succeed referring
to the provisions of the Indian Contract Act, 1872.

Q36. X, Y and Z jointly borrowed 50,000 from A. The whole amount was repaid to A by Y. Decide in
the light of the Indian Contract Act, 1872 whether:
a) Y can recover the contribution from X and Z,

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b) Legal representatives of X are liable in case of death of X,

c) Y can recover the contribution from the assets, in case Z becomes insolvent.

Q37. 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 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?
a) Can Mr. Rich ask Mr. K to complete the artistic work in lieu of his father?
b) Could Mr. Rich ask Mr. K for refund of money paid in advance to his father?

Q38. Mr. JHUTH entered into an agreement with Mr. SUCH to purchase his (Mr. SUCH’s) motor car for
5,00,000/- within a period of three months. A security amount of 20,000/- was also paid by Mr. JHUTH
to Mr. SUCH in terms of the agreement. After completion of three months of entering into the
agreement, Mr. SUCH tried to contract Mr. JHUTH to purchase the car in terms of the agreement. Even
after lapse of another three month period, Mr. JHUTH neither responded to Mr. SUCH, nor to his
phone calls. After lapse of another period of six months. Mr. JHUTH contracted Mr. SUCH and denied
to purchase the motor car. He also demanded back the security amount of ` 20,000/- from Mr. SUCH.
Referring to the provisions of the Indian Contract Act, 1872, state whether Mr. SUCH is required to
refund the security amount to Mr. JHUTH.
Also examine the validity of the claim made by Mr. JHUTH, if the motor car would have destroyed by
an accident within the three month’s agreement period.

Q39. Mr. Murari owes payment of 3 bills to Mr. Girdhari as on 31st March, 2020. (i) 12,120 which was
due in May 2016. (ii) 5,650 which was due in August 2018 (iii) 9,680 which was due in May 2019. Mr.
Murari made payment on 1st April 2020 as below without any notice of how to appropriate them:
a) A cheque of 9,680
b) A cheque of 15,000
Advice under the provisions of the Indian Contract Act, 1872.

Q40. What will be rights with the promisor in following cases? Explain with reasons:
a) Mr. X promised to bring back Mr. Y to life again.
b) A agreed to sell 50 kgs of apple to B. The loaded truck left for delivery on 15th March but due to
riots in between reached A on 19th March.
c) An artist promised to paint on the fixed date for a fixed amount of remuneration but met with an
accident and lost his both hands.
d) Abhishek entered into contract of import of toys from China. But due to disturbance in the relation
of both the countries, the imports from China were banned.

Q41. “An anticipatory breach of contract is a breach of contract occurring before the time fixed for
performance has arrived”. Discuss stating also the effect of anticipatory breach on contracts.

Q42. “Liquidated damage is a genuine pre-estimate of compensation of damages for certain

anticipated breach of contract whereas Penalty on the other hand is an extravagant amount stipulated
and is clearly unconscionable and has no comparison to the loss suffered by the parties”. Explain.

Q43. ‘X’ entered into a contract with ‘Y’ to supply him 1,000 water bottles @ 5.00 per water bottle, to
be delivered at a specified time. Thereafter, ‘X’ contracts with ‘Z’ for the purchase of 1,000 water

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bottles @4.50 per water bottle, and at the same time told ‘Z’ that he did so for the purpose of
performing his contract entered into with ‘Y’. ‘Z’ failed to perform his contract in due course and
market price of each water bottle on that day was 5.25 per water bottle. Consequently, ‘X’ could not
procure any water bottle and ‘Y’ rescinded the contract. Calculate the amount of damages which ‘X’
could claim from ‘Z’ in the circumstances? What would be your answer if ‘Z’ had not informed about
the ‘Y’s contract? Explain with reference to the provisions of the Indian Contract Act, 1872.

Q44. Explain the-term ‘Quasi Contracts’ and state their characteristics.

Q45. X, a minor was studying in M.Com. in a college. On 1st July, 2019 he took a loan of 1,00,000 from
B for payment of his college fees and to purchase books and agreed to repay by 31st December, 2019.
X possesses assets worth 9 lakhs. On due date, X fails to pay back the loan to B. B now wants to recover
the loan from X out of his (X’s) assets. Referring to the provisions of Indian Contract Act, 1872 decide
whether B would succeed.

Q46. P left his carriage on D’s premises. Landlord of D seized the carriage against the rent due from D.
P paid the rent and got his carriage released. Can P recover the amount from D?

Q47. A enters into a contract with B that he (A) sells his house for 10,00,000 to B. Further they both
signed an agreement that if B uses the house for gambling purposes, then B shall pay A 50,000 for it.
B agreed to this, however after a year of sale, B started gambling business in that house. Can A claim
50,000 from B? Discuss with reference to the provisions of Indian Contract Act, 1872.

Q48. Seema was running a boutique in New Delhi. She has to deliver some cloth to her friend Kiran
who was putting up an exhibition at Mumbai. Seema delivered the sewing machine and some cloth to
a railway company to be delivered at a place where the exhibition was to be held. Seema expected to
earn an exceptional profit from the sales made at this exhibition however she did not bring this fact
to the notice of the railway’s authorities. The goods were delivered at the place after the conclusion
of the exhibition. On account of such breach of contract by railways authorities, can Seema recover
the loss of profits under the Indian Contract Act, 1872?

Q49. Chandan was suffering from some disease and was in great pain. He went to Dr. Jhunjhunwala
whose consultation fee was 300. The doctor agreed to treat him but on the condition that Chandan
had to sign a promissory note of 5000 payable to doctor. Chandan signed the promissory note and
gave it to doctor. On recovering from the disease, Chandan refused to honour the promissory note.
State with reasons, can doctor recover the amount of promissory note under the provisions of the
Indian Contract Act, 1872?

Q50. Mr. Aseem is a learned advocate. His car was stolen from his house. He gave an advertisement
in newspaper that he will give the reward of 10,000 who will give the information about his car. Mr.
Vikram reads the advertisement and on making some efforts got the stolen car and informed Mr.
Aseem. Mr. Aseem found his car but denied giving reward of 10,000 to Mr. Vikram with the words,
“An advertisement in newspaper is just an invitation to make offer and not an offer. Hence, he is not
liable to make the reward.” State with reasons whether under Indian Contract Act, 1872, Mr. Vikram
can claim the reward of 10,000.

Q51. Mr. Singhania entered into a contract with Mr. Sonu to sing in his hotel for six weeks on every
Saturday and Sunday. Mr. Singhania promised to pay 20,000 for every performance. Mr. Sonu
performed for two weeks but on third week his health condition was very bad, so he did not come to
sing. Mr. Singhania terminated the contract. State in the light of provisions of the Indian Contract Act,
1872:-

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a) Can Mr. Singhania terminate the contract with Mr. Sonu?

b) What would be your answer in case Mr. Sonu turns up in fourth week and Mr. Singhania allows
him to perform without saying anything?
c) What would be your answer in case Mr. Sonu sends Mr. Mika on his place in third week and Mr.
Singhania allows him to perform without saying anything?

Q52. “An anticipatory breach of contract is a breach of contract occurring before the time fixed for
performance has arrived”. Discuss stating also the effect of anticipatory breach on contracts.

Q53. X, a minor was studying in M.Com. in a college. On 1st July, 2019 he took a loan of 1,00,000 from
B for payment of his college fees and to purchase books and agreed to repay by 31st December, 2019.
X possesses assets worth 9 lakhs. On due date, X fails to pay back the loan to B. B now wants to recover
the loan from X out of his (X’s) assets. Referring to the provisions of Indian Contract Act, 1872 decide
whether B would succeed.

Q54. “Only a person who is party to a contract can sue on it”. Explain this statement and describe its
exceptions, if any.

Q55. Explain the circumstances in which the person is deemed to be in a position to dominate the will
of the other person under the Indian Contract Act, 1872.

Q56. What is a wagering agreement? Describe the transactions which resembles with wagering
transactions but are not void.

Q57. “The basic rule is that the promisor must perform exactly what he has promised to perform.”
Explain stating the obligation of parties to contracts.

Q58. What do you mean by Quantum Meruit and state the cases where the claim for Quantum Meruit
arises?

Q59. Explain the meaning of ‘Contingent Contracts’ and state the rules relating to such contracts.

Q60. Explain the type of contracts in the following agreements under the Indian Contract Act, 1872:
a) X promise to sell his scooter to Y for 1 Lac. However, the consent of X has been procured by Y at a
gun point.
b) A bought goods from B in 2015. But no payment was made till 2019.
c) G agrees to give tuitions to H, a pre-engineering student, from the next month and H in
consideration promises to pay G 5,000 per month.

Q61. Mr. X was a Disk Jockey at a five star hotel bar. As per the contract, he is supposed to perform
every weekend (i.e. twice a week). Mr. X will be paid 1500 per day. However, after a month, Mr. X
willfully absents himself from the performance.
a) Does the hotel have the right to end the contract?
b) If the hotel sends out a mail to X that they are interested to continue the contract and X accepts,
can the hotel rescind the contract after a month on this ground subsequently?
c) In which of the cases – (termination of contract or continuance of contract) can the hotel claim
damages that it has suffered as a result of this breach?

Q62. Mr. SHYAM owned a motor car. He approached Mr. HARISH and offered to sell his motor car for
3,00,000. Mr. SHYAM told Mr. HARISH that the motor car is running at the rate of 20 KMs per litre of
petrol. Both the fuel meter and the speed meter of the car were working perfectly. Mr. HARISH agreed

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with the proposal of Mr. SHYAM and took delivery of the car by paying 3,00,000/- to Mr. SHYAM. After
10 days, Mr. HARISH came back with the car and stated that the claim made by Mr. SHYAM regarding
fuel efficiency was not correct and therefore there was a case of misrepresentation. Referring to the
provisions of the Indian Contract Act, 1872, decide and write whether Mr. HARISH can rescind the
contract on the above ground.

Q63. “Liquidated damage is a genuine pre-estimate of compensation of damages for certain

anticipated breach of contract whereas Penalty on the other hand is an extravagant amount stipulated
and is clearly unconscionable and has no comparison to the loss suffered by the parties”. Explain.

Q64. In light of provisions of the Indian Contract Act, 1872 answer the following:
a) Mr. S and Mr. R made contract wherein Mr. S agreed to deliver paper cup manufacture machine
to Mr. R and to receive payment on delivery. On the delivery date, Mr. R didn’t pay the agreed
price. Decide whether Mr. S is bound to fulfil his promise at the time of delivery?
b) Mr. Y has given loan to Mr. G of 30,00,000. Mr. G defaulted the loan on due date and debt became
time barred. After the time barred debt, Mr. G agreed to settle the full amount to Mr. Y. Whether
acceptance of time barred debt contract is enforceable in law?
c) A & B entered into a contract to supply unique item, alternate of which is not available in the
market. A refused to supply the agreed unique item to B. What directions could be given by the
court for breach of such contract?

Q65. Mr. Pratham applied for a job as principal of a school. The school management decided to
appoint him. One member of the school management committee privately informed Mr. Pratham that
he was appointed but official communication was not given from the school. Later, the management
of the school decided to appoint someone else as a principal. Mr. Pratham filed a suit against the
school for cancellation of his appointment and claimed damages for loss of salary. State with reasons,
will Mr. Pratham be successful in suit filed against school under the Indian Contract Act, 1872?

Q66. Rahul, a minor, falsely representing his age, enters into an agreement with a shopkeeper for a
loan amount for purchasing a laptop. He gave his expensive watch as a security and took a loan of
40,000. He was very happy to get 40,000 and quickly went to the market and purchased a laptop worth
30,000. He happily spent the rest of the amount with his friends on a pleasure trip.
Later on, Rahul realized that his watch was an expensive watch and he should not have given like this
to the shopkeeper. So, he went back to the shopkeeper and asked for his watch back. Also, he refused
to repay the loan amount. The shopkeeper disagrees to this and files a case against minor for recovery
of the loan amount. Can the shopkeeper succeed in recovering the loan amount under the Indian
Contract Act, 1872?

Q67. Mr. Ram Lal Birla was a big businessman of city Pune having two sons and one married daughter.
He decided to gift his one house to his daughter. For this purpose, he called his lawyer at his house
and made a written document for such gift. The lawyer advised him to get the transfer document
properly registered. When they both were going for registration of document, they met with an
accident and both of them died. Later, his daughter found the document and claimed the house on
the basis of that document. Explain, whether she can get the house as gift under the Indian Contract
Act, 1872?

Q68. PQR, a hospital in Delhi, recruits Dr. A, on contract basis for a period of 3 months. The hospital
management promises to pay Dr. A, a lumpsum amount of 1,00,000 if Dr. A test positive for noval
corona virus (Covid 19) during the contract period of 3 months.
Identify the type of contract and highlight the rule of enforcement. Also, what will happen if Dr. A does
not contract Covid 19.

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Q69. “An agreement, the meaning of which is not certain, is void”. Discuss.

Sales of Goods Act

Q1. "A breach of condition can be treated as a breach of warranty". Explain this statement as per
relevant provisions of the Sale of Goods Act, 1930.

Q2. Distinguish between 'Sale' and 'Hire Purchase' under the Sale of Goods Act, 1930.

Q3. TK ordered timber of 1 inch thickness for being made into drums. The seller agreed to supply the
required timber of 1 inch. However, the timber supplied by the seller varies in thickness from 1 inch
to 1.4 inches. The timber is commercially fit for the purpose for which it was ordered. TK rejects the
timber. Explain with relevant provisions of the Sale of Goods Act, 1930 whether TK can reject the
timber.

Q4. AB sold 500 bags of wheat to CD. Each bag contains 50 Kilograms of wheat. AB sent 450 bags by
road transport and CD himself took remaining 50 bags. Before CD receives delivery of 450 bags sent
by road transport, he becomes bankrupt. AB being still unpaid, stops the bags in transit. The official
receiver, on CD's insolvency claims the bags. Decide the case with reference to the provisions of the
Sale of Goods Act, 1930.

Q5. What are the rules which regulate the Sale by Auction under the Sale of Goods Act, 1930?

Q6. Explain, when shall a 'breach of condition' be treated as 'breach of warranty' under provisions of
the Sale of Goods Act, 1930?

Q7. Mr. T was a retail trader of fans of various kinds. Mr. M came to his shop and asked for an exhaust
fan for kitchen. Mr. T showed him different brands and Mr. M approved of a particular brand and paid
for it. Fan was delivered at Mr. M's house; at the time of opening the packet he found that it was a
table fan. He informed Mr. T about the delivery of the wrong fan. Mr. T refused to exchange the same,
saying that the contract was complete after the delivery of the fan and payment of price.
a) Discuss whether Mr. T is right in refusing to exchange as per provisions of Sale of Goods Act, 1930?
b) What is the remedy available to Mr. M?

Q8. "Risk Prima Facie passes with property." Elaborate in the context of the Sales of Goods Act, 1930.

Q9. Discuss the rights of an unpaid seller against the buyer under the Sales of Goods Act, 1930.

Q10. Mr. Das, a general store owner went to purchase 200 kg of Basmati Rice of specific length from
a whole seller. He saw the samples of rice and agreed to buy the one for which the price was quoted
as 150 per kg. While examining the sample Mr. Das failed to notice that the rice contained a mix of
long and short grain of rice.
The whole seller supplied the required quantity exactly the same as shown in the sample. However,
when Mr. Das sold the rice to one of his regular customers she complained that the rice contained
two different qualities of rice and returned the rice.
With reference to the provisions of the Sales of Goods Act, 1930, discuss the options open to Mr. Das
for grievance redressal. What would be your answer in case Mr. Das specified his exact requirement
as to length of rice?

Q11. Write any four exceptions to the doctrine of Caveat Emptor as per the Sale of Goods Act, 1930.

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Q12. Explain any six circumstances in detail in which non-owner can convey better title to Bona fide
purchaser of goods for value as per the Sale of Goods Act, 1930.

Q13. Ms. R owns a Two Wheeler which she handed over to her friend Ms. K on sale or return basis.
Even after a week, Ms. K neither returned the vehicle nor made payment for it. She instead pledged
the vehicle to Mr. A to obtain a loan. Ms. R now wants to claim the Two Wheeler from Mr. A. Will she
succeed?
a) Examine with reference to the provisions of the Sale of Goods Act, 1930, what recourse is available
to Ms. R?
b) Would your answer be different if it had been expressly provided that the vehicle would remain
the property of Ms. R until the price has been paid?

Q14. State the various essential elements involved in the sale of unascertained goods and its
appropriation as per the Sale of Goods Act, 1930.

Q15. A agrees to buy a new TV from a shop keeper for Rs. 30,000 payable partly in cash of Rs. 20,000
and partly in exchange of old TV set. Is it a valid Contract of Sale of Goods? Give reasons for your
answer.

Q16. A agrees to sell to B 100 bags of sugar arriving on a ship from Australia to India within next two
months. Unknown to the parties, the ship has already sunk. Does B have any right against A under the
Sale of Goods Act, 1930?

Q17. X contracted to sell his car to Y. They did not discuss the price of the car at all. X later refused to
sell his car to Y on the ground that the agreement was void being uncertain about price. Can Y demand
the car under the Sale of Goods Act, 1930?

Q18. Classify the following transactions according to the types of goods they are:
a) A wholesaler of cotton has 100 bales in his godown. He agrees to sell 50 bales and these bales
were selected and set aside.
b) A agrees to sell to B one packet of sugar out of the lot of one hundred packets lying in his shop.
c) T agrees to sell to S all the apples which will be produced in his garden this year.

Q19. M/s Woodworth & Associates, a firm dealing with the wholesale and retail buying and selling of
various kinds of wooden logs, customized as per the requirement of the customers. They dealt with
Rose wood, Mango wood, Teak wood, Burma wood etc.
Mr. Das, a customer came to the shop and asked for wooden logs measuring 4 inches broad and 8 feet
long as required by the carpenter. Mr. Das specifically mentioned that he required the wood which
would be best suited for the purpose of making wooden doors and window frames. The Shop owner
agreed and arranged the wooden pieces cut into as per the buyers requirements.
The carpenter visited Mr. Das's house next day, and he found that the seller has supplied Mango Tree
wood which would most unsuitable for the purpose. The carpenter asked Mr. Das to return the
wooden logs as it would not meet his requirements.
The Shop owner refused to accept return of the wooden logs on the plea that logs were cut to specific
requirements of Mr. Das and hence could not be resold.
a) Explain the duty of the buyer as well as the seller according to the doctrine of “Caveat Emptor”.
b) Whether Mr. Das would be able to get the money back or the right kind of wood as required
serving his purpose?

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Q20. Mrs. Geeta went to the local rice and wheat wholesale shop and asked for 100 kgs of Basmati
rice. The Shopkeeper quoted the price of the same as ` 125 per kg to which she agreed. Mrs. Geeta
insisted that
she would like to see the sample of what will be provided to her by the shopkeeper before she agreed
upon such purchase. The shopkeeper showed her a bowl of rice as sample. The sample exactly
corresponded to the entire lot.
The buyer examined the sample casually without noticing the fact that even though the sample was
that of Basmati Rice but it contained a mix of long and short grains. The cook on opening the bags
complained that the dish if prepared with the rice would not taste the same as the quality of rice was
not as per requirement of the dish. Now Mrs. Geeta wants to file a suit of fraud against the seller
alleging him of selling mix of good and cheap quality rice. Will she be successful?
Decide the fate of the case and options open to the buyer for grievance redressal as per the provisions
of Sale of Goods Act, 1930?
What would be your answer in case Mrs. Geeta specified her exact requirement as to length of rice?

Q21. X consults Y, a motor-car dealer for a car suitable for touring purposes to promote the sale of his
product. Y suggests ‘Santro’ and X accordingly buys it from Y. The car turns out to be unfit for touring
purposes. What remedy X is having now under the Sale of Goods Act, 1930?

Q22. Mrs. G bought a tweed coat from P. When she used the coat she got rashes on her skin as her
skin was abnormally sensitive. But she did not make this fact known to the seller i.e. P. Mrs. G filled a
case against the seller to recover damages. Can she recover damages under the Sale of Goods Act,
1930?

Q23. Certain goods were sold by sample by A to B, who in turn sold the same goods by sample to C
and C by sample sold the goods to D. The goods were not according to the sample. Therefore, D who
found the deviation of the goods from the sample rejected the goods and gave a notice to C. C sued B
and B sued A. Advise B and C under the Sale of Goods Act, 1930.

Q24. A person purchased bread from a baker’s shop. The piece of bread contained a stone in it which
broke buyer’s tooth while eating. What are the rights available to the buyer against the seller under
the Sale of Goods Act, 1930?

Q25. “Nemo Dat Quod Non Habet” – “None can give or transfer goods what he does not himself own.”
Explain the rule and state the cases in which the rule does not apply under the provisions of the Sale
of Goods Act, 1930.

Q26. J the owner of a Fiat car wants to sell his car. For this purpose, he hand over the car to P, a
mercantile agent for sale at a price not less than 50,000. The agent sells the car for 40,000 to A, who
buys the car in good faith and without notice of any fraud. P misappropriated the money also. J sues
A to recover the Car. Decide giving reasons whether J would succeed.

Q27. Mr. S agreed to purchase 100 bales of cotton from V, out of his large stock and sent his men to
take delivery of the goods. They could pack only 60 bales. Later on, there was an accidental fire and
the entire stock was destroyed including 60 bales that were already packed. Referring to the provisions
of the Sale of Goods Act, 1930 explain as to who will bear the loss and to what extent?

Q28. Ms. Preeti owned a motor car which she handed over to Mr. Joshi on sale or return basis. After
a week, Mr. Joshi pledged the motor car to Mr. Ganesh. Ms. Preeti now claims back the motor car
from Mr. Ganesh. Will she succeed? Referring to the provisions of the Sale of Goods Act, 1930, decide
and examine what recourse is available to Ms. Preeti.

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Q29. A, B and C were joint owner of a truck and the possession of the said truck was with B. X
purchased the truck from B without knowing that A and C were also owners of the truck. Decide in
the light of provisions of Sales of Goods Act 1930, whether the sale between B and X is valid or not?
X agreed to purchase 300 tons of wheat from Y out of a larger stock. X sent his men with the sacks and
150 tons of wheat were put into the sacks. Then there was a sudden fire and the entire stock was
gutted. Who will bear the loss and why?

Q30. The buyer took delivery of 20 tables from the seller on sale or return basis without examining
them. Subsequently, he sold 5 tables to his customers. The customer lodged a complaint of some
defect in the tables. The buyer sought to return tables to the seller. Was the buyer entitled to return
the tables to the seller under the provisions of the Sale of Goods Act, 1930?

Q31. A delivered a horse to B on sale and return basis. The agreement provided that B should try the
horse for 8 days and return, if he did not like the horse. On the third day the horse died without the
fault of B. A files a suit against B for the recovery of price. Can he recover the price?

Q32. When can an unpaid seller of goods exercise his right of lien over the goods under the Sale of
Goods Act? Can he exercise his right of lien even if the property in goods has passed to the buyer?
When such a right is terminated? Can he exercise his right even after he has obtained a decree for the
price of goods from the court?

Q33. Mr. D sold some goods to Mr. E for 5,00,000 on 15 days credit. Mr. D delivered the goods. On
due date, Mr. E refused to pay for it. State the position and rights of Mr. D as per the Sale of Goods
Act, 1930.

Q34. Ram sells 200 bales of cloth to Shyam and sends 100 bales by lorry and 100 bales by Railway.
Shyam receives delivery of 100 bales sent by lorry, but before he receives the delivery of the bales
sent by railway, he becomes bankrupt. Can Ram exercise right of stopping the goods in transit?

Q35. Suraj sold his car to Sohan for 75,000. After inspection and satisfaction, Sohan paid 25,000 and
took possession of the car and promised to pay the remaining amount within a month. Later on, Sohan
refuses to give the remaining amount on the ground that the car was not in a good condition. Advise
Suraj as to what remedy is available to him against Sohan.

Q36. 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?

Q37. A, who is an agent of a buyer, had obtained the goods from the Railway Authorities and loaded
the goods on his truck. In the meantime, the Railway Authorities received a notice from B, the seller
for stopping the goods in transit as the buyer has become insolvent. Referring to the provisions of Sale
of Goods Act, 1930, decide whether the Railway Authorities can stop the goods in transit as instructed
by the seller?

Q38. J sold a machine to K. K gave a cheque for the payment. The cheque was dishonoured. But J
handed over a delivery order to K. K sold the goods to R on the basis of the delivery order. J wanted
to exercise his right of lien on the goods. Can he do so under the provisions of the Sale of Goods Act,
1930?

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Q39. AB Cloth House, a firm dealing with the wholesale and retail buying and selling of various kinds
of clothes, customized as per the requirement of the customers. They dealt with Silk, Organdie, cotton,
khadi, chiffon and many other different varieties of cloth.
Mrs. Reema, a customer came to the shop and asked for specific type of cloth suitable for making a
saree for her daughter’s wedding. She specifically mentioned that she required cotton silk cloth which
is best suited for the purpose.
The Shop owner agreed and arranged the cloth pieces cut into as per the buyers’ requirements.
When Reema went to the tailor for getting the saree stitched, she found that seller has supplied her
cotton organdie material, cloth was not suitable for the said purpose. It has heavily starched and not
suitable for making the saree that Reema desired for. The Tailor asked Reema to return the cotton
organdie cloth as it would not meet his requirements.
The Shop owner refused to return the cloth on the plea that it was cut to specific requirements of Mrs.
Reema and hence could not be resold.
With reference to the doctrine of "Caveat Emptor' explain the duty of the buyer as well as the seller.
Also explain whether Mrs. Reema would be able to get the money back or the right kind of cloth as
per the requirement?

Q40. A went to B’s shop and selected some jewellery. He falsely represented himself to be a man of
credit and thereby persuaded B to take the payment by cheque. He further requested him to hand
over the particular type of ring immediately. On the due date, when the seller, B presented the cheque
for payment, the cheque was found to be dishonoured. Before B could avoid the contract on the
ground of fraud by A, he had sold the ring to C. C had taken the ring in good faith and without any
notice of the fact that the goods with A were under a voidable contract. Discuss if such a sale made
by non-owner is valid or not as per the provisions of Sale of Goods Act, 1930?

Q41. Certain goods were sold by sample by A to B, who in turn sold the same goods by sample to C
and C by sample sold the goods to D. The goods were not according to the sample. Therefore, D who
found the deviation of the goods from the sample rejected the goods and gave a notice to C. C sued B
and B sued A. Advise B and C under the Sale of Goods Act, 1930.

Q42. Mr. Amit was shopping in a self-service Super market. He picked up a bottle of cold drink from a
shelf. While he was examining the bottle, it exploded in his hand and injured him. He files a suit for
damages against the owner of the market on the ground of breach of condition. Decide under the
Sale of Goods Act, 1930, whether Mr. Amit would succeed in his claim?

Q43. Archika went to a jewellery shop and asked the shopkeeper to show the gold bangles with white
polish. The shopkeeper informed that he has gold bangles with lots of designs but not in white polish
rather if Archika select gold bangles in his shop, he will arrange white polish on those gold bangles
without any extra cost. Archika select a set of designer bangles and pay for that. The shopkeeper
requested Archika to come after two days for delivery of those bangles so that white polish can be
done on those bangles. When Archika comes after two days to take delivery of bangles, she noticed
that due to white polishing , the design of bangles has been disturbed. Now, she wants to avoid the
contract and asked the shopkeeper to give her money back but shopkeeper has denied for the same.
a) State with reasons whether Archika can recover the amount under the Sale of Goods Act, 1930.
b) What would be your answer if shopkeeper says that he can repair those bangles but he will charge
extra cost for same?

Q44. Prashant reaches a sweet shop and ask for 1 Kg of ‘Burfi’ if the sweets are fresh. Seller replies’
“Sir, my all sweets are fresh and of good quality.” Prashant agrees to buy on the condition that first
he tastes one piece of ‘Burfi’ to check the quality. Seller gives him one piece to taste. Prashant, on
finding the quality is good, ask the seller to pack. On reaching the house, Prashant finds that ‘Burfi’ is

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stale not fresh while the piece tasted was fresh. Now, Prashant wants to avoid the contract and return
the ‘Burfi’ to seller.
a) State with reason whether Prashant can avoid the contract under the Sale of Goods Act, 1930?
b) Will your answer be different if Prashant does not taste the sweet?

Q45. 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?

Q46. Rachit arranges an auction to sale an antic wall clock. Megha, being one of the bidders, gives
highest bid. For announcing the completion of sale, the auctioneer fall the hammer on table but
suddenly hammer brakes and damages the watch. Megha wants to avoid the contract. Can she do so
under the provisions of the Sale of Goods Act, 1930?

Q47. X contracted to sell his car to Y. They did not discuss the price of the car at all. X later refused to
sell his car to Y on the ground that the agreement was void being uncertain about price. Can Y demand
the car under the Sale of Goods Act, 1930?

Partnership Act
Q1. Define partnership and name the essential elements for the existence of a partnership as per the
Indian Partnership Act, 1932. Explain any two such elements in detail.

Q2. State whether the following are partnerships:

a) A and B jointly own a car which they used personally on Sundays and holidays and let it on hire as
taxi on other days and equally divide the earnings.
b) Two firms each having 12 partners combine by an agreement into one firm
c) A and B, co-owners, agree to conduct the business in common for profit.
d) Some individuals form an association to which each individual contributes 500 annually. The
objective of the association is to produce clothes and distribute the clothes free to the war
widows.
e) A and B, co-owners share between themselves the rent derived from a piece of land.
f) A and B buy commodity X and agree to sell t e commodity with sharing the profits equally.

Q3. “Sharing in the profits is not conclusive evidence in the creation of partnership”. Comment.

Q4. What do you mean by "Particular Partnership" under the Indian Partnership Act, 1932?

Q5. Who is a nominal partner under the Indian Partnership Act, 1932? What are his liabilities?

Q6. "Business carried on by all or any of them acting for all." Discuss the statement under the Indian
Partnership Act, 1932.

Q7. M, N and P were partners in a firm. The firm ordered JR Limited to supply the furniture. P dies,
and M and N continues the business in the firm's name. The firm did not give any notice about P's
death to the public or the persons dealing with the firm. The furniture was delivered to the firm after
P's death, fact about his death was known to them at the time of delivery. Afterwards the firm became
insolvent and failed to pay the price of furniture to JR Limited.
Explain with reasons:
a) Whether P's private estate is liable for the price of furniture purchased by the firm?

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b) Whether does it make any difference if JR Limited supplied the furniture to the firm believing that
all the three partners are alive?

Q8. Discuss the liability of a partner for the act of the firm and liability of firm for act of a partner to
third parties as per Indian Partnership Act, 1932.

Q9. Define Implied Authority. In the absence of any usage or custom of trade to the contrary, the
implied authority of a partner does not empower him to do certain acts. State the acts which are
beyond the implied authority of a partner under the provisions of the Indian Partnership Act, 1932?

Q10. Mr. M is one of the four partners in M/s XY Enterprises. He owes a sum of 6 crore to his friend
Mr. Z which he is unable to pay on due time. So, he wants to sell his share in the firm to Mr. Z for
settling the amount.
In the light of the provisions of the Indian Partnership Act, 1932, discuss each of the following:
a) Can Mr. M validly transfer his interest in the firm by way of sale?
b) What would be the rights of the transferee (Mr. Z) in case Mr. M wants to retire from the firm
after a period of 6 months from the date of transfer?

Q11. Subject to agreement by partners, state the rules that should be observed by the partners in
settling the accounts of the firm after dissolution under the provisions of the Indian Partnership Act,
1932.

Q12. Comment on 'the right to expel partner must be exercised in good faith' under the Indian
Partnership Act, 1932.

Q13. Referring to the Provisions of the Indian Partnership Act, 1932, answer the following:
a) What are the consequences of Non-Registration of Partnership firm?
b) What are the rights which won't be affected by Non-Registration of Partnership firm?

Q14. P, Q, R and S are the partners in M/S PQRS & Co., a partnership firm which deals in trading of
Washing Machines of various brands.
Due to the conflict of views between partners, P & Q decided to leave the partnership firm and started
competitive business on 31st July, 2019, in the name of M/S PQ & Co. Meanwhile, R & S have
continued using the property in the name of M/S PQRS & Co. in which P & Q also has a share.
Based on the above facts, explain in detail the rights of outgoing partners as per the Indian Partnership
Act, 1932 and comment on the following:
a) Rights of P & Q to start a competitive business.
b) Rights of P & Q regarding their share in property of M/S PQRS & Co.

Q15. Explain in detail the circumstances which lead to liability of firm for misapplication by partners
as per provisions of the Indian Partnership Act, 1932.

Q16. When the continuing guarantee can be revoked under the Indian Partnership Act, 1932?

Q17. What do you mean by Goodwill as per the provisions of Indian Partnership Act,1932?

Q18. With reference to the provisions of Indian partnership Act, 1932 explain the various effects of
insolvency of a partner.

Q19. Master X was introduced to the benefits of partnership of M/s ABC & Co. with the consent of all
partners. After attaining majority, more than six months elapsed and he failed to give a public notice

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as to whether he elected to become or not to become a partner in the firm. Later on, Mr. L, a supplier
of material to M/s ABC & Co., filed a suit against M/s ABC & Co. for recovery of the debt due.
In the light of the Indian Partnership Act, 1932, explain:
a) To what extent X will be liable if he failed to give public notice after attaining majority?
b) Can Mr. L recover his debt from X?

Q20. "Dissolution of a firm is different from dissolution of Partnership". Discuss.

Q21. Mr. XU and Mr. YU are partners in a partnership firm. Mr. XU introduced MU (an employee) as
his partner to ZU. MU remained silent. ZU, a trader believing MU as partner supplied 50 Laptops to
the firm on credit. After expiry of credit period, ZU did not get amount of Laptop sold to the
partnership firm. ZU filed a suit against XU and MU for the recovery of price. Does MU is liable for such
purpose?

Q22. Ms. Lucy while drafting partnership deed taken care of few important points. What are those
points? She wants to know the list of information which must be part of partnership deed drafted by
her. Also, give list of information to be included in partnership deed?

Q23. M/s XYZ & Associates, a partnership firm with X, Y, Z as senior partners were engaged in the
business of carpet manufacturing and exporting to foreign countries. On 25th August, 2018, they
inducted Mr. G, an expert in the field of carpet manufacturing as their partner. On 10th January 2020,
Mr. G was blamed for unauthorized activities and thus expelled from the partnership by united
approval of rest of the partners.
a) Examine whether action by the partners was justified or not?
b) What should have the factors to be kept in mind prior expelling a partner from the firm by other
partners according to the provisions of the Indian Partnership Act, 1932?

Q24. A, B and C are partners in a firm. As per terms of the partnership deed, A is entitled to 20 percent
of the partnership property and profits. A retires from the firm and dies after 15 days. B and C continue
business of the firm without settling accounts. Explain the rights of A’s legal representatives against
the firm under the Indian Partnership Act, 1932?

Q25. Master X was introduced to the benefits of partnership of M/s ABC & Co. with the consent of all
partners. After attaining majority, more than six months elapsed and he failed to give a public notice
as to whether he elected to become or not to become a partner in the firm. Later on, Mr. L, a supplier
of material to M/s ABC & Co., filed a suit against M/s ABC & Co. for recovery of the debt due.
In the light of the Indian Partnership Act, 1932, explain:
a) To what extent X will be liable if he failed to give public notice after attaining majority?
b) Can Mr. L recover his debt from X?

Q26. Mr. A (transferor) transfer his share in a partnership firm to Mr. B (transferee). Mr. B is not
entitled for few rights and privileges as Mr. A (transferor) is entitled therefor. Discuss in brief the
points for which Mr. B is not entitled during continuance of partnership?

Q27. When does dissolution of a partnership firm take place under the provisions of the Indian
Partnership Act, 1932? Explain.

Q28. Sohan, Rohan and Jay were partners in a firm. The firm is dealer in office furniture. They have
regular dealings with M/s AB and Co. for the supply of furniture for their business. On 30th June 2018,
one of the partners, Mr. Jay died in a road accident. The firm has ordered M/s AB and Co. to supply
the furniture for their business on 25 May 2018, when Jay was also alive.

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Now Sohan and Rohan continue the business in the firm’s name after Jay’s death. The firm did not
give any notice about Jay’s death to the public or the persons dealing with the firm. M/s AB and Co.
delivered the furniture to the firm on 25 July 2018. The fact about Jay’s death was known to them at
the time of delivery of goods. Afterwards the firm became insolvent and failed to pay the price of
furniture to M/s AB and Co. Now M/s AB and Co. has filed a case against the firm for recovery of the
price of furniture. With reference to the provisions of Indian Partnership Act, 1932, explain whether
Jay’s private estate is also liable for the price of furniture purchased by the firm?

Q29. Moni and Tony were partners in the firm M/s MOTO & Company. They admitted Sony as partner
in the firm and he is actively engaged in day-to-day activities of the firm. There is a tradition in the
firm that all active partners will get a monthly remuneration of 20,000 but no express agreement was
there. After admission of Sony in the firm, Moni and Tony were continuing getting salary from the firm
but no salary was given to Sony from the firm. Sony claimed his remuneration but denied by existing
partners by saying that there was no express agreement for that. Whether under the Indian
Partnership Act, 1932, Sony can claim remuneration from the firm?

Q30. M/s XYZ & Company is a partnership firm. The firm is an unregistered firm. The firm has
purchased some iron rods from another partnership firm M/s LMN & Company which is also an
unregistered firm. M/s XYZ & Company could not pay the price within the time as decided. M/s LMN
& Company has filed the suit against M/s XYZ & Company for recovery of price. State under the
provisions of the Indian Partnership Act, 1932;
a) Whether M/s LMN & Company can file the suit against M/s XYZ & Company?
b) What would be your answer, in case M/s XYZ & Company is a registered firm while M/s LMN &
Company is an unregistered firm?
c) What would be your answer, in case M/s XYZ & Company is an unregistered firm while M/s LMN
& Company is a registered firm?

Q31. Explain the following kinds of partnership under the Indian Partnership Act, 1932:
a) Partnership at will
b) Particular partnership

Q32. “Partner indeed virtually embraces the character of both a principal and an agent”. Describe the
said statement keeping in view of the provisions of the Indian Partnership Act, 1932.
What are the various grounds under the Indian Partnership Act, 1932, on which the Court may, at the
suit of the partner, dissolve a firm?

Q33. A, B and C are partners in a firm. As per terms of the partnership deed, A is entitled to 20 percent
of the partnership property and profits. A retires from the firm and dies after 15 days. B and C continue
business of the firm without settling accounts. What are the rights of A’s legal representatives against
the firm under the Indian Partnership Act, 1932?

Q34. A, B and C are partners of a partnership firm carrying on the business of construction of
apartments. B who himself was a wholesale dealer of iron bars was entrusted with the work of
selection of iron bars after examining its quality. As a wholesaler, B is well aware of the market
conditions. Current market price of iron bar for construction is ` 350 per Kilogram. B already had 1000
Kg of iron bars in stock which he had purchased before price hike in the market for ` 200 per Kg. He
supplied iron bars to the firm without the firm realising the purchase cost. Is B liable to pay the firm
the extra money he made, or he doesn’t have to inform the firm as it is his own business and he has
not taken any amount more than the current prevailing market price of ` 350? Assume there is no
contract between the partners regarding the above.

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Q35. Mr. A (transferor) transfers his share in a partnership firm to Mr. B (transferee). Mr. B felt that
the book of accounts was displaying only a small amount as profit inspite of a huge turnover. He
wanted to inspect the book of accounts of the firm arguing that it is his entitlement as a transferee.
However, the other partners were of the opinion that Mr. B cannot challenge the books of accounts.
As an advisor, help them solve the issue applying the necessary provisions from the Indian Partnership
Act, 1932.

Q36. MN partnership firm has two different lines of manufacturing business. One line of business is
the manufacturing of Ajinomoto, a popular seasoning & taste enhancer for food. Another line of
business is the manufacture of paper plates & cups. One fine day, a law is passed by the Government
banning Ajinomoto’ use in food and to stop its manufacturing making it an unlawful business because
it is injurious to health. Should the firm compulsorily dissolve under the Indian Partnership Act, 1932?
How will its other line of business (paper plates & cups) be affected?

Q37. Whether a minor may be admitted in the business of a partnership firm? Explain the rights of a
minor in the partnership firm.

Companies Act
Q1. AK Private Limited has borrowed 36 crores from BK Finance Limited. However, as per
memorandum of AK Private Limited the maximum borrowing power of the company is 30 crores.
Examine, whether AK Private Limited is liable to pay this debt? State the remedy, if any available to
BK Finance Limited.

Q2. What do you mean by the term Capital? Describe its classification in the domain of Company Law.

Q3. BC Private Limited and its subsidiary KL Private Limited are holding 90,000 and 70,000 shares
respectively in PQ Private Limited. The paid-up share capital of PQ Private Limited is 30 Lakhs (3 Lakhs
equity shares of 10 each fully paid). Analyse with reference to provisions of the Companies Act, 2013
whether PQ Private Limited is a subsidiary of BC Private Limited. What would be your answer if KL
Private Limited is holding 1,60,000 shares in PQ Private Limited and no shares are held by BC Private
Limited in PQ Private Limited?

Q4. ABC Limited was registered as a public company. There were 245 members in the company. Their
details are as follows:
Directors and their relatives 190
Employees 15
Ex-employees
(shares were allotted when they were employees) 20
Others 20
(Including 10 joint holders holding shares jointly in the name of father and son)
The Board of directors of the company propose to convert it into a private company. Advice whether
reduction in the number of members is necessary for conversion.

Q5. Explain Doctrine of 'Indoor Management' under the Companies Act, 2013. Also state the
circumstances where the outsider cannot claim relief on the ground of 'Indoor Management'.

Q6. SK Infrastructure Limited has a paid-up share capital divided into 6,00,000 equity shares of INR
100 each. 2,00,000 equity shares of the company are held by Central Government and 1,20,000 equity

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shares are held by Government of Maharashtra. Explain with reference to relevant provisions of the
Companies Act, 2013, whether SK Infrastructure Limited can be treated as Government Company.

Q7. Y incorporated a "One Person Company (OPC)" making his sister Z as nominee. Z is leaving India
permanently due to her marriage abroad. Due to this fact, she is withdrawing her consent of
nomination in the said OPC. Taking into considerations the provisions of the Companies Act, 2013
answer the questions given below:
a) Is it mandatory for Z to withdraw her nomination in the said OPC, if she is leaving India
permanently?
b) Can Z continue her nomination in the said OPC, if she maintained the status of Resident of India
after her marriage?

Q8. What is the main difference between a Guarantee Company and a Company having Share Capital?

Q9. What are the significant points of Section 8 Company which are not applicable for other
companies? Briefly explain with reference to provisions of the Companies Act, 2013.

Q10. Mike Limited company incorporated in India having Liaison office at Singapore. Explain in detail
meaning of Foreign Company and analysis., on whether Mike Limited would be called as Foreign
Company as it established a Liaison office at Singapore as per the provisions of the Companies Act,
2013?

Q11. "The Memorandum of Association is a charter of a company". Discuss. Also explain in brief the
contents of Memorandum of Association.

Q12. A, an assessee, had large income in the form of dividend and interest. In order to reduce his tax
liability, he formed four private limited company and transferred his investments to them in exchange
of their shares. The income earned by the companies was taken back by him as pretended loan. Can
A be regarded as separate from the private limited company he formed?

Q13. Jagannath Oils Limited is a public company and having 220 members. Of which 25 members were
employee in the company during the period 1st April 2006 to 28th June 2016. They were allotted
shares in Jagannath Oils Limited first time on 1st July 2007 which were sold by them on 1st August
2016. After some time, on 1st December 2016, each of those 25 members acquired shares in
Jagannath Oils Limited which they are holding till date. Now company wants to convert itself into a
private company. State with reasons:
a) Whether Jagannath Oils Limited is required to reduce the number of members.
b) Would your answer be different if above 25 members were the employee in Jagannath Oils
Limited for the period from 1st April 2006 to 28th June 2017?

Q14. A, B and C has decided to set up a new club with name of ABC club having objects to promote
welfare of Christian society. They planned to do charitable work or social activity for promoting the
art work of economically weaker section of Christian society. The company obtained the status of
section 8 company and started operating from 1 st April, 2017 onwards.
However, on 30th September 2019, it was observed that ABC club was violating the objects of its
objective clause due to which it was granted the status of section 8 Company under the Companies
Act 2013.
Discuss what powers can be exercised by the central government against ABC club, in such a case?

Q15. An employee Mr. Karan signed a contract with his employer company ABC Limited that he will
not solicit the customers after leaving the employment from the company.

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But after Mr. Karan left ABC Limited, he started up his own company PQR Limited and he started
soliciting the customers of ABC Limited for his own business purposes.
ABC Limited filed a case against Mr. Karan for breach of the employment contract and for soliciting
their customers for own business. Mr. Karan contended that there is corporate veil between him, and
his company and he should not be personally held liable for this.
In this context, the company ABC Limited seek your advice as to the meaning of corporate veil and
when the veil can be lifted to make the owners liable for the acts done by a company?

Q16. Briefly explain the doctrine of “ultravires” under the Companies Act, 2013. What are the
consequences of ultravires acts of the company?

Q17. Mr. Dhruv was appointed as an employee in Sunmoon Timber Private Limited on the condition
that if he was to leave his employment, he will not solicit customers of the company. After some time,
he was fired from company. He set up his own business under proprietorship and undercut Sunmoon
Timber Private Limited’s prices. On the legal advice from his legal consultant and to refrain from the
provisions of breach of contract, he formed a new company under the name Seven Stars Timbers
Private Limited. In this company,
his wife and a friend of Mr. Dhruv were the sole shareholders and directors. They took over Dhruv’s
business and continued it. Sunmoon Timber Private Limited files a suit against Seven Stars Timbers
Private Limited for violation of contract. Seven Stars Timbers Private Limited argued that the contract
was entered between Mr. Dhruv and Sunmoon Timber Private Limited and as company has separate
legal entity, Seven Stars Timbers Private Limited has not violated the terms of agreement. Explain with
reasons, whether separate legal entity between Mr. Dhruv and Seven Stars Timbers Private Limited
will be disregarded?

Q18. Narendra Motors Limited is a government company. Shah Auto Private Limited is a private
company having share capital of ten crores in the form of ten lacs shares of ` 100 each. Narendra
Motors Limited is holding five lacs five thousand shares in Shah Auto Private Limited. Shah Auto Private
Limited claimed the status of Government Company. Advise as legal advisor, whether Shah Auto
Private Limited is government company under the provisions of Companies Act, 2013?

Q19. Mr. A is an Indian citizen and his stay in India during immediately preceding financial year is for
115 days. He appoints Mr. B as his nominee who is a foreign citizen but has stayed in India for 130
days during immediately preceding financial year.
a) Is Mr. A eligible to be incorporated as a One Person Company (OPC). If yes, can he give the name
of Mr. B in the memorandum of Association as his nominee to become the member after Mr. A’s
incapacity to become a member.
b) If Mr. A has contravened any of the provisions of the Act, what are the consequences?

Limited Liability Partnership Act

Q1. State the rules regarding registered office of a Limited Liability Partnership (LLP) and change
therein as per provisions of the Limited Liability Partnership Act, 2008.

Q2. State the circumstances under which a LLP and its partners may face unlimited liability under the
Limited Liability Partnership Act, 2008.

Q3. Limited Liability Partnership (LLP) gives the benefits of limited liability of a company on one hand
and the flexibility of a partnership on the other. Discuss.

Q4. State the circumstances under which LLP may be wound up by the Tribunal under the Limited
Liability Partnership Act, 2008.

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Q5. Discuss the conditions under which LLP will be liable and not liable for the acts of the partner.

Q6. What do you mean by Designated Partner? Whether it is mandatory to appoint Designated
partner in a LLP?

Q7. What are the effects of registration of LLP?

Q8. Explain the essential elements to incorporate a Limited Liability Partnership and the steps involved
therein under the LLP Act, 2008.

Q9. What is the procedure for changing the name of Limited Liability Partnership (LLP) under the LLP
Act, 2008?

Q10. A and B were friends. Now they have plans of setting up a supermarket in their locality. They are
confused as to whether to register as a traditional partnership or as a Limited Liability Partnership. As
an advisor, enumerate the differences between the two forms of business highlighting the
compliances and other legal formalities.

Happy Learning
The more you practice, the more it will be easy for you.
Rishabh Gaur
8527.931.436
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Answers
Indian Contract Act
A1. When two or more persons have made a joint promise, then unless a contrary intention appears
by the contract, all such persons must jointly fulfil the promise.
As per Section 43 of the Indian Contract Act, 1872, when two or more persons make a joint promise,
the promisee may, in the absence of express agreement to the contrary, compel any one or more of
such joint promisors to perform the whole of the promise.
If any one of two or more joint promisors makes default in such contribution, the remaining joint
promisors must bear the loss arising from such default in equal shares.
In the instant case, A, B, C and D have jointly promised to pay 6,00,000 to F. B and C become insolvent.
B was unable to pay any amount and C could pay only 50,000. A is compelled to pay the whole amount
to F.
Hence, A is entitled to receive 50,000 from C and 2,75,000 from D, as worked out below:
From C 50,000= (C’s Liability 1,50,000 Less: Amount he could not pay 1,00,000).
From D 2,75,000 = (D’s Liability 1,50,000+1/2 of liability of B (Loss) (1,50,000*1/2) i.e. 75,000 +1/2 of
C’s liability (Loss) (1,00,000*1/2) i.e.,50,000) In other words, equal proportion i.e., 5,50,000
(i.e.6,00,000-50,000) / 2.
Thus, total amount A can receive from C and D comes to 3,25,000 (50,000+2,75,000)

A2. Under following circumstances, the contracts need not be performed with the consent of both the
parties:
1) Novation: Where the parties to a contract substitute a new contract for the old, it is called
novation. A contract in existence may be substituted by a new contract either between the same
parties or between different parties the consideration mutually being the discharge of old
contract. Novation can take place only by mutual agreement between the parties. On novation,
the old contract is discharged and consequently it need not be performed. (Section 62 of the
Indian Contract Act, 1872)
2) Rescission: A contract is also discharged by recission. When the parties to a contract agree to
rescind it, the contract need not be performed. (Section 62)
3) Alteration: Where the parties to a contract agree to alter it, the original contract is rescinded, with
the result that it need not be performed. In other words, a contract is also discharged by
alteration. (Section 62)
4) Remission: Every promisee may dispense with or remit, wholly or in part, the performance of the
promise made to him, or may extend the time for such performance or may accept instead of it
any satisfaction which he thinks fit. In other words, a contract is discharged by remission. (Section
63)
5) Rescinds voidable contract: When a person at whose option a contract is voidable rescinds it, the
other party thereto need not perform any promise therein contained in which he is the promisor.
6) Neglect of promisee: If any promisee neglects or refuses to afford the promisor reasonable
facilities for the performance of his promise, the promisor is excused by such neglect or refusal as
to any non-performance caused thereby. (Section 67)

A3.
a) According to Section 11 of the Indian Contract Act, 1872, every person is competent to contract
who is of the age of majority according to the law to which he is subject and therefore, a minor is
not competent to contract and any agreement with or by a minor is void from the very beginning.
A minor cannot ratify it on attaining the majority as the original agreement is void ab initio.

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According to Section 68 of the Act, a claim for necessaries supplied to a minor is enforceable by
law.
Necessaries mean those things that are essentially needed by a minor. They cannot include
luxuries or costly or unnecessary articles.
In the present case, X, the borrower, was minor at the time of taking the loan, therefore, the
agreement was void ab initio. Attaining majority thereafter will not validate the contract nor X can
ratify it. The loan was for personal purposes and not for necessaries supplied to him. Hence, the
lender cannot file a suit against X for recovery of the loan as it is not enforceable by law.
b) As per Section 56 of the Indian Contract Act, 1872 the subsequent or supervening impossibility
renders the contract void. Supervening impossibility may take place owing to various
circumstances as contemplated under that section, one of which is the declaration of war
subsequent to the contract made. In the instant case the contract when made between J and K
was valid but afterwards J’s government declares war against the country in which the port is
situated as a result of which the contract becomes void. Hence, K cannot file a suit against J for
performance of the contract.

A4. Under certain special circumstances obligation resembling those created by a contract is imposed
by law although the parties have never entered into a contract. Such obligations imposed by law are
referred to as 'Quasi Contracts'. Such a contract resembles with a contract so far as result or effect is
concerned but it has little or no affinity with a contract in respect of mode of creation. These contracts
are based on the doctrine that a person shall not be allowed to enrich himself unjustly at the expense
of another.
The salient features of Quasi-contract:
1) It does not arise from any agreement of the parties concerned but it is imposed by law.
2) The right under it is always a right to money and generally though not always to a liquidated sum
of money.
3) It is a right which is available not against all the world, but against a particular person or persons
only, so that in this respect it resembles a contractual right.

A5. Section 10 of the Indian Contract Act, 1872 provides for the legality of consideration and objects
thereto. Section 23 of the said Act also states that every agreement of which the object or
consideration is unlawful is void.
The given problem talks about entering into an agreement for traffic relating to public office, which is
opposed to public policy. Public policy requires that there should be no money consideration for the
appointment to an office in which the public is interested. Such consideration paid, being opposed to
public policy, is unlawful.
In the given case, Mr. S, who was going to be retired after two years was proposed by Mr. D, to apply
for voluntary retirement from his post, in order that he can be appointed in his place. In lieu of that
Mr. D offered Mr. S a sum of INR10 lakh as consideration. Mr. S refused initially but later accepted the
said offer to receive money to retire from his office.
Here, Mr. S’s promise of sale for Mr. D, an employment in the public services is the consideration for
Mr. D’s promise to pay INR 10 lakh. Therefore, in terms of the above provisions of the Indian Contract
Act, the said agreement is not valid. It is void, as the consideration being opposed to public policy, is
unlawful.

A6. In terms of Section 2(b) of the Indian Contract Act, 1872 the term acceptance is defined as “When
the person to whom the proposal is made signifies his assent thereto, proposal is said to be accepted.
The proposal, when accepted, becomes a promise”.
Legal Rules regarding a valid acceptance -

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1) Acceptance can be given only by the person to whom offer is made. In case of a specific offer, it
can be accepted only by the person to whom it is made. In case of a general offer, it can be
accepted by any person who has the knowledge of the offer.
2) Acceptance must be absolute and unqualified: As per section 7 of the Act, acceptance is valid only
when it is absolute and unqualified and is also expressed in some usual and reasonable manner
unless the proposal prescribes the manner in which it must be accepted. If the proposal prescribes
the manner in which it must be accepted, then it must be accepted accordingly.
3) The acceptance must be communicated: To conclude a contract between the parties, the
acceptance must be communicated in some perceptible form. Further when a proposal is
accepted, the offeree must have the knowledge of the offer made to him. If he does not have the
knowledge, there can be no acceptance. The acceptance must relate specifically to the offer made.
Then only it can materialize into a contract.
4) Acceptance must be in the prescribed mode: Where the mode of acceptance is prescribed in the
proposal, it must be accepted in that manner. But if the proposer does not insist on the proposal
being accepted in the manner prescribed after it has been accepted otherwise, i.e., not in the
prescribed manner, the proposer is presumed to have consented to the acceptance.
5) Time: Acceptance must be given within the specified time limit, if any, and if no time is stipulated,
acceptance must be given within the reasonable time and before the offer lapses.
6) Mere silence is not acceptance: The acceptance of an offer cannot be implied from the silence of
the offeree or his failure to answer, unless the offeree has in any previous conduct indicated that
his silence is the evidence of acceptance.
7) Acceptance by conduct/ Implied Acceptance: Section 8 of the Act lays down that “the performance
of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise
which may be offered with a proposal, constitutes an acceptance of the proposal. This section
provides the acceptance of the proposal by conduct as against other modes of acceptance i.e.
verbal or written communication.
Therefore, when a person performs the act intended by the proposer as the consideration for the
promise offered by him, the performance of the act constitutes acceptance.

A7.
a) According to Section 4 of the Indian Contract Act, 1872, “the communication of offer is complete
when it comes to the knowledge of the person to whom it is made”.
When a proposal is made by post, its communication will be complete when the letter containing
the proposal reaches the person to whom it is made. Further, mere receiving of the letter is not
sufficient, he must receive or read the message contained in the letter.
In the given question, Mr. B makes a proposal by post to Mr. S to sell his house. The letter was
posted on 10th April 2020 and the letter reaches to Mr. S on 12th April 2020 but he reads the
letter on 13th April 2020.
Thus, the offer made by Mr. B will complete on the day when Mr. S reads the letter, i.e. 13th April
2020.
b) When communication of acceptance is complete: Where a proposal is accepted by a letter sent
by the post, in terms of Section 4 of the Act, the communication of acceptance will be complete
as against the proposer when the letter of acceptance is posted and as against the acceptor when
the letter reaches the proposer.
Revocation of Acceptance: The acceptor can revoke his acceptance any time before the letter of
acceptance reaches the offeror, if the revocation telegram arrives before or at the same time with
the letter of acceptance, the revocation is absolute.
In the given question, when Mr. S accepts Mr. B’s proposal and sends his acceptance by post on
16th April 2020, the communication of acceptance as against Mr. B is complete on 16th April 2020,
when the letter is posted. As against Mr. S acceptance will be complete, when the letter reaches

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Mr. B i.e. 20th April 2020. Whereas, acceptor, will be bound by his acceptance only when the letter
of acceptance has reached the proposer.
The telegram for revocation of acceptance reached Mr. B on 19th April 2020 i.e. before the letter
of acceptance of offer (20th April 2020). Hence, the revocation is absolute.
c) It will not make any difference even if the telegram of revocation and letter of acceptance would
have reached on the same day, i.e. the revocation then also would have been absolute. As per
law, acceptance can be revoked anytime before the communication of acceptance is complete.
Since revocation was made before the communication of acceptance was complete and
communication can be considered as complete only when the letter of acceptance reaches the
proposer i.e. Mr. B.

A8. The general rule is that an agreement made without consideration is void (Section 25 of the Indian
Contract Act, 1872). In every valid contract, consideration is very important. A contract may only be
enforceable when consideration is there. However, the Indian Contract Act contains certain
exceptions to this rule.
In the following cases, the agreement though made without consideration, will be valid and
enforceable.
a) Natural Love and Affection: Conditions to be fulfilled under section 25(1)
 It must be made out of natural love and affection between the parties.
 Parties must stand in near relationship to each other.
 It must be in writing.
 It must also be registered under the law.
A written and registered agreement based on natural love and affection between the parties
standing in near relation (e.g., husband and wife) to each other is enforceable even without
consideration.
b) Compensation for past voluntary services: A promise to compensate, wholly or in part, a person
who has already voluntarily done something for the promisor, is enforceable under Section 25(2).
In order that a promise to pay for the past voluntary services be binding, the following essential
factors must exist:
 The services should have been rendered voluntarily.
 The services must have been rendered for the promisor.
 The promisor must be in existence at the time when services were rendered.
 The promisor must have intended to compensate the promisee.
c) Promise to pay time barred debt: Where a promise in writing signed by the person making it or by
his authorised agent, is made to pay a debt barred by limitation it is valid without consideration
[Section 25(3)].
d) Agency: According to Section 185 of the Indian Contract Act, 1872, no consideration is necessary
to create an agency.
e) Completed gift: In case of completed gift i.e. when gift is made by a donor and accepted by the
donee, the rule, no consideration no contract does not apply.
f) Bailment: In case, the delivery of goods is made by one person to another for a particular purpose,
without transfer of ownership, no consideration is required.
g) Charity: If a promisee undertakes the liability on the promise of another person to contribute to
charity, the contract shall be valid without consideration.

A9.
a) The given agreement is void.
Reason: As per Section 28 of the Indian Contract Act, 1872, this clause is in restraint of legal
proceedings because it restricts both the parties from enforcing their legal rights.
Note: Alternatively, as per Section 23 of the Indian Contract Act, 1872, this clause in the agreement
defeats the provision of law and therefore, being unlawful, is treated as void.

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b) The given agreement is valid.

Reason: An agreement in restraint of legal proceeding is the one by which any party thereto is
restricted absolutely from enforcing his rights under a contract through a Court. A contract of this
nature is void. However, in the given statement, no absolute restriction is marked on parties on
filing of suit. As per the agreement suit may be filed in one of the courts having jurisdiction.
c) The said agreement is void.
Reason: This agreement is void as the two parties are thinking about different subject matters so
that there is no real consent and the agreement may be treated as void because of mistake of fact
as well as absence of consensus.
d) The said agreement is valid.
Reason: An agreement by which any person is restrained from exercising a lawful profession, trade
or business of any kind, is to that extent void. But, as an exception, agreement of service by which
an employee binds himself, during the term of his agreement, not to compete with his employer
is not in restraint of trade.

A10. 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 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.
1) 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.
2) 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.
3) 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.
4) 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.
5) 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 event 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”.
6) 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.

A11.
a) Yes, L can compel only Y to pay 90,000/- since as per Section 43 of the Indian Contract Act, 1872,
in the absence of express agreement to the contrary, the promisee may compel any one or more
of the joint promisors to perform the whole of the promise.
b) As per Section 42, when two or more persons have made a joint promise, then, unless a contrary
intention appears by the contract, all such persons, during their joint lives and after the death of
any of them, his representative jointly with the survivor or survivors and after the death of last
survivor, the representatives of all jointly must fulfill the promise.

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In the instant case, if X, Y and Z died then the legal representatives of all (i.e. X, Y and Z) shall be
liable to pay the loan jointly. L cannot compel only the legal representatives of Y to pay the loan
of 90,000.
c) According to Section 44, where two or more persons have made a joint promise, a release of one
of such joint promisors by the promisee does not discharge the other joint promisor or joint
promisors, neither does it free the joint promisors so released from responsibility to the other
joint promisor or promisors.
In this case, the release of X does not discharge Y and Z from their liability. Y and Z remain liable
to pay the entire amount of 90,000 to L. And though X is not liable to pay to L, but he remains
liable to pay to Y and Z i.e. he is liable to make the contribution to the other joint promisors.

A12. According to Section 56 of the Indian Contract Act, 1872, the impossibility of performance may
be of the two types, namely (a) initial impossibility, and (b) subsequent impossibility.
Subsequent impossibility is also known as Supervening impossibility i.e. becomes impossible after
entering into contract. When performance of promise become impossible or illegal by occurrence of
an unexpected event or a change of circumstances beyond the contemplation of parties, the contract
becomes void e.g. change in law etc. In other words, sometimes, the performance of a contract is
quite possible when it is made. But subsequently, some event happens which renders the
performance impossible or unlawful. Such impossibility is called the subsequent or supervening. It is
also called the post-contractual impossibility.
Example: ‘A’ and ‘B’ contracted to marry each other. Before the time fixed for the marriage, ‘A’
became mad. In this case, the contract becomes void due to subsequent impossibility, and thus
discharged.
Effect of impossibility: The effect of such impossibility is that it makes the contract void, and the parties
are discharged from further performance of the contract.

A13. The problem as asked in the question is based on Section 10 of the Indian Contract Act, 1872.
This Section says that all agreements are contracts if they are made by the free consent of the parties
competent to contract, for a lawful consideration and with a lawful object and are not expressly
declared to be void. Further, Section 23 also states that every agreement of which the object is
unlawful is void.
Accordingly, one of the essential elements of a valid contract in the light of the said provision is that
the agreement entered into must not be which the law declares to be either illegal or void. An illegal
agreement is an agreement expressly or impliedly prohibited by law. A void agreement is one without
any legal effects.
The given instance is a case of interference with the course of justice and results as opposed to public
policy. This can also be called as an agreement in restraint of legal proceedings. This agreement
restricts one’s right to enforce his legal rights. Such an agreement has been expressly declared to be
void under section 28 of the Indian
Contract Act, 1872. Hence, Mr. C in the given case cannot recover the amount of 10 lakh promised by
Mr. X because it is a void agreement and cannot be enforced by law.

A14. 'Fraud' means and includes any of the following acts committed by a party to a contract, or with
his connivance, or by his agent, with an intent to deceive another party thereto or his agent, or to
induce him to enter into the contract:
1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
2) the active concealment of a fact by one having knowledge or belief of the fact;
3) a promise made without any intention of performing it;
4) any other act fitted to deceive;
5) any such act or omission as the law specially declares to be fraudulent.
As per Section 18 of the Indian Contract Act, 1872, misrepresentation means and includes-

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1) the positive assertion, in a manner not warranted by the information of the person making it, of
that which is not true, though he believes it to be true;
2) any breach of duty which, without an intent to deceive, gains an advantage to the person
committing it, or anyone claiming under him; by misleading another to his prejudice or to the
prejudice of anyone claiming under him;
3) causing, however, innocently, a party to an agreement to make a mistake as to the substance of
the thing which is the subject of the agreement.
Distinction between fraud and misrepresentation:
Basis of difference Fraud Misrepresentation
Intention To deceive the other party There is no such intention to deceive
by hiding the truth. the other party.
Knowledge of truth The person making the suggestion The person making the statement
believes that the statement as believes it to be true, although it is not
untrue. true.
Rescission of the The injured party can repudiate the The injured party is entitled to
contract and claim contract and claim damages. repudiate the contract or sue for
for damages restitution but cannot claim the
damages.
Means to discover The party using the fraudulent act Party can always plead that the injured
the truth cannot secure or protect himself by party had the means to discover the
saying that the injured party had truth.
means to discover the truth.

A15.
a) As per Section 51 of the Indian Contract Act, 1872, when a contract consists of reciprocal promises
to be simultaneously performed, no promisor needs to perform his promise unless the promisee
is ready and willing to perform his reciprocal promise. Such promises constitute concurrent
conditions and the performance of one of the promise is conditional on the performance of the
other. If one of the promises is not performed, the other too need not be performed. Referring to
the above provisions, in the given case, Mr. S is not bound to deliver goods to Mr. R since payment
was not made by him at the time of delivery of goods.
b) Promise to pay time-barred debts - Section 25 (3): Where there is an agreement, made in writing
and signed by the debtor or by his agent, to pay wholly or in part a time barred debt, the
agreement is valid and binding even though there is no consideration.
In the given case, the loan given by Mr. Y to Mr. G has become time barred. Thereafter, Mr. G
agreed to make payment of full amount to Mr. Y.
Referring to above provisions of the Indian Contract Act, 1872 contract entered between parties
post time barred debt is valid so, Mr. G is bound to pay the agreed amount to Mr. Y provided the
above mentioned conditions of section 25 (3) are fulfilled.
c) Where there is a breach of contract for supply of a unique item, mere monetary damages may not
be an adequate remedy for the other party. In such a case, the court may give order for specific
performance and direct the party in breach to carry out his promise according to the terms of
contract. Here, in this case, the court may direct A to supply the item to B because the refusal to
supply the agreed unique item cannot be compensated through money.

A16. Distinction between Wagering Agreement and Contract of Insurance

Basis Wagering Agreement Contract of Insurance

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1 Meaning It is a promise to pay money or It is a contract to indemnify the loss.

. money’s worth on the happening or
non happening of an uncertain
event.
2 Consideration There is no consideration between The crux of the insurance contract is
. the two parties. There is just the mutual consideration (premium
gambling for money. and compensation amount).
3 Insurable Interest There is no property in case of Insured party has an insurable
. wagering agreement. interest in the life or property
There is betting on other’s sought to be insured.
life and properties.
4 Contract Loser has to pay the fixed amount Except for life insurance, the
. of on the happening of an uncertain contract of insurance indemnifies
Indemnity event. the insured person against loss
5 Enforceability It is void and It is valid and enforceable
. unenforceable agreement.
6 Premium No such logical calculations are Calculation of premium is based on
. required in case of wagering scientific and actuarial calculation
agreement. of risks.
7 Public Welfare They have been regarded as against They are beneficial to the society.
. the public welfare.

A17. Responsibility of finder of goods (Section 71 of the Indian Contract Act, 1872): A person who finds
goods belonging to another and takes them into his custody is subject to same responsibility as if he
were a bailee.
Thus, a finder of lost goods has:
 to take proper care of the property as man of ordinary prudence would take
 no right to appropriate the goods and
 to restore the goods if the owner is found.
In the light of the above provisions, the manager must return the wallet to X, since X is entitled to
retain the wallet found against everybody except the true owner.

A18. Consideration [Section 2(d) of the Indian Contract Act, 1872]: When at the desire of the promisor,
the promisee or any other person has done or abstained from doing, or does or abstains from doing
or promises to do or abstain from doing something, such an act or abstinence or promise is called
consideration for the promise.
Legal Rules Regarding Consideration
 Consideration must move at the desire of the promisor: Consideration must be offered by the
promisee or the third party at the desire or request of the promisor. This implies “return” element
of consideration.
 Consideration may move from promisee or any other person: In India, consideration may proceed
from the promisee or any other person who is not a party to the contract. In other words, there
can be a stranger to a consideration but not stranger to a contract.
 Executed and executory consideration: A consideration which consists in the performance of an
act is said to be executed. When it consists in a promise, it is said to be executory. The promise by
one party may be the consideration for an act by some other party, and vice versa.
 Consideration may be past, present or future: It is a general principle that consideration is given
and accepted in exchange for the promise. The consideration, if past, may be the motive but
cannot be the real consideration of a subsequent promise. But in the event of the services being
rendered in the past at the request or the desire of the promisor, the subsequent promise is
regarded as an admission that the past consideration was not gratuitous.

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 Consideration need not be adequate: Consideration need not to be of any particular value. It need
not be approximately of equal value with the promise for which it is exchanged but it must be
something which the law would regard as having some value.
 Performance of what one is legally bound to perform: The performance of an act by a person who
is legally bound to perform the same cannot be consideration for a contract. Hence, a promise to
pay money to a witness is void, for it is without consideration. Hence such a contract is void for
want of consideration.
But where a person promises to do more that he is legally bound to do, such a promise provided
it is not opposed to public policy, is a good consideration. It should not be vague or uncertain.
 Consideration must be real and not illusory: Consideration must be real and must not be illusory.
It must be something to which the law attaches some value. If it is legally or physically impossible
it is not considered valid consideration.
 Consideration must not be unlawful, immoral, or opposed to public policy: Only presence of
consideration is not sufficient it must be lawful. Anything which is immoral or opposed to public
policy also cannot be valued as valid consideration.

A19. In case where a debtor owes several debts to the same creditor and makes payment which is not
sufficient to discharge all the debts, the payment shall be appropriated (i.e. adjusted against the debts)
as per the provisions of Section 59 to 61 of the Indian Contract Act, 1872.
a) As per the provisions of 59 of the Act, where a debtor owing several distinct debts to one person,
makes a payment to him either with express intimation or under circumstances implying that the
payment is to be applied to the discharge of some particular debt, the payment, if accepted, must
be applied accordingly.
Therefore, the contention of Mr. Datumal is correct and he can specify the manner of
appropriation of repayment of debt.
b) As per the provisions of 60 of the Act, where the debtor has omitted to intimate and there are no
other circumstances indicating to which debt the payment is to be applied, the creditor may apply
it at his discretion to any lawful debt actually due and payable to him from the debtor, where its
recovery is or is not barred by the law in force for the time being as to the limitation of suits.
Hence in case where Mr. Datumal fails to specify the manner of appropriation of debt on part
repayment, Mr. Sonumal the creditor, can appropriate the payment as per his choice.
c) As per the provisions of 61 of the Act, where neither party makes any appropriation, the payment
shall be applied in discharge of the debts in order of time, whether they are or are not barred by
the law in force for the time being as to the limitation of suits. If the debts are of equal standing,
the payments shall be applied in discharge of each proportionately.
Hence in case where neither Mr. Datumal nor Mr. Sonumal specifies the manner of appropriation
of debt on part repayment, the appropriation can be made in proportion of debts.

A20. As per Sec. 15, “Coercion’ is the committing, or threatening to commit, any act forbidden by the
Indian Penal Code or the unlawful detaining, or threatening to detain any property, to the prejudice
of any person whatever, with the intention of causing any person to enter into an agreement.”
Effects of coercion under section 19 of Indian Contract Act, 1872
 Contract induced by coercion is voidable at the option of the party whose consent was so
obtained.
 As to the consequences of the rescission of voidable contract, the party rescinding a void contract
should, if he has received any benefit, thereunder from the other party to the contract, restore
such benefit so far as may be applicable, to the person from whom it was received.
 A person to whom money has been paid or anything delivered under coercion must repay or
return it.

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A21. An agreement comes into existence when one party makes a proposal or offer to the other party
and that other party gives his acceptance to it. A contract is an agreement enforceable by law. It means
that to become a contract an agreement must give rise to a legal obligation i.e. duty enforceable by
law. If an agreement is incapable of creating a duty enforceable by law, it is not a contract. There can
be agreements which are not enforceable by law, such as social, moral or religious agreements. The
agreement is a wider term than the contract. All agreements need not necessarily become contracts
but all contracts shall always be agreements.
All agreements are not contracts: When there is an agreement between the parties and they do not
intend to create a legal relationship, it is not a contract.
All contracts are agreements: For a contract there must be two things (a) an agreement and (b)
enforceability by law. Thus, existence of an agreement is a pre-requisite existence of a contract.
Therefore, it is true to say that all contracts are agreements.
Thus, we can say that there can be an agreement without it becoming a contract, but we can’t have a
contract without an agreement.

A22.Acceptance to an offer cannot be implied merely from the silence of the offeree, even if it is
expressly stated in the offer itself. Unless the offeree has by his previous conduct indicated that his
silence amount to acceptance, it cannot be taken as valid acceptance. So, in the given problem, if B
remains silent, it does not amount to acceptance.
The acceptance must be made within the time limit prescribed by the offer. The acceptance of an offer
after the time prescribed by the offeror has elapsed will not avail to turn the offer into a contract.

A23.
a) It is an implied contract and A must pay for the services of the coolie detailed by him.
Implied Contracts: Implied contracts come into existence by implication. Most often the
implication is by law and or by action. Section 9 of the Act contemplates such implied contracts
when it lays down that in so far as such proposal or acceptance is made otherwise than in words,
the promise is said to be implied.
b) Obligation of finder of lost goods to return them to the true owner cannot be said to arise out of
a contract even in its remotest sense, as there is neither offer and acceptance nor consent. These
are said to be quasi-contracts.
Quasi-Contract: A quasi-contract is not an actual contract but it resembles a contract. It is created
by law under certain circumstances. The law creates and enforces legal rights and obligations
when no real contract exists. Such obligations are known as quasi-contracts. In other words, it is
a contract in which there is no intention on part of either party to make a contract but law imposes
a contract upon the parties.
c) The above contract is a void contract.
Void Contract: Section 2 (j) states as follows: “A contract which ceases to be enforceable by law
becomes void when it ceases to be enforceable”. Thus, a void contract is one which cannot be
enforced by a court of law.

A24. The offer should be distinguished from an invitation to offer. An offer is the final expression of
willingness by the offeror to be bound by his offer should the party chooses to accept it. Where a
party, without expressing his final willingness, proposes certain terms on which he is willing to
negotiate, he does not make an offer, but invites only the other party to make an offer on those terms.
This is the basic distinction between offer and invitation to offer.
The display of articles with a price in it in a self-service shop is merely an invitation to offer. It is in no
sense an offer for sale, the acceptance of which constitutes a contract. In this case, Smt. Prakash by
selecting some articles and approaching the cashier for payment simply made an offer to buy the
articles selected by her. If the cashier does not accept the price, the interested buyer cannot compel
him to sell.

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A25.
a) It is a valid express contract
b) It is not a contract as it is a social agreement
c) It is an implied contract. A is bound to pay for the bus fare.
d) It is a social agreement without any intention to create a legal relationship.

A26. No, Miss Shakuntala cannot claim damages. As per Section 4, communication of acceptance is
complete as against proposer when it is put in the course of transmission to him.
In the present case, school authorities have not put any offer letter in transmission. Her information
from a third person will not form part of contract.

A27. The law provides that a contract should be supported by consideration. So long as consideration
exists, the Courts are not concerned to its adequacy, provided it is of some value. The adequacy of the
consideration is for the parties to consider at the time of making the agreement, not for the Court
when it is sought to be enforced. Consideration must however, be something to which the law
attaches value though it need not be equivalent in value to the promise made.
According to Explanation 2 to Section 25 of the Indian Contract Act, 1872, an agreement to which the
consent of the promisor is freely given is not void merely because the consideration is inadequate but
the inadequacy of the consideration may be taken into account by the Court in determining the
question whether the consent of the promisor was freely given.

A28. Problem as asked in the question is based on the provisions of the Indian Contract Act, 1872 as
contained in section 2(d) and on the principle ‘privity of consideration’. Consideration is one of the
essential elements to make a contract valid and it can flow from the promisee or any other person. In
view of the clear language used in definition of ‘consideration’ in Section 2(d), it is not necessary that
consideration should be furnished by the promisee only. A promise is enforceable if there is some
consideration for it and it is quite immaterial whether it moves from the promisee or any other person.
The leading authority in the decision of the Chinnaya Vs. Ramayya, held that the consideration can
legitimately move from a third party and it is an accepted principle of law in India.
In the given problem, Mr. Sohanlal has entered into a contract with Mr. Mohanlal, but Mr. Chotelal
has not given any consideration to Mr. Mohanlal but the consideration did flow from Mr. Sohanlal to
Mr. Mohanlal on the behalf of Mr. Chotelal and such consideration from third party is sufficient to
enforce the promise of Mr. Mohanlal to allow Mr. Chotelal to use 1 acre of land. Further the deed of
sale and the promise made by Mr. Mohanlal to Mr. Chotelal to allow the use of 1 acre of land were
executed simultaneously and therefore they should be regarded as one transaction and there was
sufficient consideration for it.
Moreover, it is provided in the law that “in case covenant running with the land, where a person
purchases land with notice that the owner of the land is bound by certain duties affecting land, the
covenant affecting the land may be enforced by the successor of the seller.”
In such a case, third party to a contract can file the suit although it has not moved the consideration.
Hence, Mr. Chotelal is entitled to file a petition against Mr. Mohanlal for execution of contract.

A29. Mere silence as to facts likely to affect the willingness of a person to enter into a contract is no
fraud; but where it is the duty of a person to speak, or his silence is equivalent to speech, silence
amounts to fraud.
It is a rule of law that mere silence does not amount to fraud. A contracting party is not duty bound to
disclose the whole truth to the other party or to give him the whole information in his possession
affecting the subject matter of the contract.
The rule is contained in explanation to Section 17 of the Indian Contract Act which clearly states the
position that mere silence as to facts likely to affect the willingness of a person to enter into a contract
is not fraud.

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Exceptions to this rule:

 Where the circumstances of the case are such that, regard being had to them, it is the duty of the
person keeping silence to speak. Duty to speak arises when one contracting party reposes trust
and confidence in the other or where one party has to depend upon the good sense of the other
(e.g. Insurance Contract).
 Where the silence is, in itself, equivalent to speech.

A30. An agreement, the meaning of which is not certain, is void, but where the meaning thereof is
capable of being made certain, the agreement is valid. For example, A agrees to sell B “a hundred tons
of oil”. There is nothing whatever to show what kind of oil was intended. The agreement is void for
uncertainty. But the agreement would be valid if A was dealer only in coconut oil; because in such a
case its meaning would be capable of being made certain.

A31. Minor can be a beneficiary or can take benefit out of a contract: Though a minor is not competent
to contract, nothing in the Contract Act prevents him from making the other party bound to the minor.
Thus, a promissory note duly executed in favour of a minor is not void and can be sued upon by him,
because he though incompetent to contract, may yet accept a benefit.
A minor cannot become partner in a partnership firm. However, he may with the consent of all the
partners, be admitted to the benefits of partnership (Section 30 of the Indian Partnership Act, 1932).
Example: A mortgage was executed in favour of a minor. Held, he can get a decree for the enforcement
of the mortgage.

A32. Yes, A can sue his teacher on the ground of undue influence under the provisions of Indian
Contract Act, 1872.
According to section 16 of the Indian Contract Act, 1872, “A contract is said to be induced by ‘undue
influence’ where the relations subsisting between the parties are such that one of the parties is in a
position to dominate the will of the other and he uses that position to obtain an unfair advantage over
the other”.
A person is deemed to be in position to dominate the will of another:
 Where he holds a real or apparent authority over the other; or
 Where he stands in a fiduciary relationship to the other; or
 Where he makes a contract with a person whose mental capacity is temporarily or permanently
affected by reason of age, illness or mental or bodily distress for example, an old illiterate person.
 A contract brought as a result of coercion, undue influence, fraud or misrepresentation would be
voidable at the option of the person whose consent was caused.

A33. According to Section 18 of the Indian Contract Act, 1872, misrepresentation is:
 When a person positively asserts that a fact is true when his information does not warrant it to be
so, though he believes it to be true.
 When there is any breach of duty by a person, which brings an advantage to the person
committing it by misleading another to his prejudice.
 When a party causes, however, innocently, the other party to the agreement to make a mistake
as to the substance of the thing which is the subject of the agreement.
The aggrieved party, in case of misrepresentation by the other party, can avoid or rescind the contract
[Section 19, Indian Contract Act, 1872]. The aggrieved party loses the right to rescind the contract if
he, after becoming aware of the misrepresentation, takes a benefit under the contract or in some way
affirms it.
Accordingly, in the given case, Suraj could not rescind the contract, as his acceptance to the offer of
Sohan to bear 40% of the cost of repairs impliedly amount to final acceptance of the sale.

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A34. As per the provisions of Section 19 of the Indian Contract Act, 1872, when consent to an
agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at
the option of the party whose consent was so caused.
A party to contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit,
insist that the contract shall be performed, and that he shall be put in the position in which he would
have been if the representations made had been true.
Exception: If such consent was caused by misrepresentation or by silence, fraudulent within the
meaning of section 17, the contract, nevertheless, is not voidable if the party whose consent was so
caused had the means of discovering the truth with ordinary diligence.
In the situation given in the question, both the fuel meter and the speed meter of the car were working
perfectly, Mr. CHHOTU had the means of discovering the truth with ordinary diligence. Therefore, the
contract is not voidable. Hence, Mr. CHHOTU cannot rescind the contract in the above ground.

A35. According to Section 11 of the Indian Contract Act, 1872, every person is competent to contract
who is of the age of majority according to the law to which he is subject, and who is of sound mind
and is not disqualified from contracting by any law to which he is subject.
A person who has completed the age of 18 years is a major and otherwise he will be treated as minor.
Thus, Ishaan who is a minor is incompetent to contract and any agreement with him is void [Mohori
Bibi Vs Dharmo Das Ghose 1903].
Section 68 of the Indian Contract Act, 1872 however, prescribes the liability of a minor for the supply
of the things which are the necessaries of life to him. It says that though minor is not personally liable
to pay the price of necessaries supplied to him or money lent for the purpose, the supplier or lender
will be entitled to claim the money/price of goods or services which are necessaries suited to his
condition of life provided that the minor has a property. The liability of minor is only to the extent of
the minor’s property. Thus, according to the above provision, Vishal will be entitled to recover the
amount of loan given to Ishaan for payment of the college fees from the property of the minor.

A36. Section 42 of the Indian Contract Act, 1872 requires that when two or more persons have made
a joint promise, then, unless a contrary intention appears from the contract, all such persons jointly
must fulfill the promise. In the event of the death of any of them, his representative jointly with the
survivors and in case of the death of all promisors, the representatives of all jointly must fulfill the
promise.
Section 43 allows the promisee to seek performance from any of the joint promisors. The liability of
the joint promisors has thus been made not only joint but “joint and several”. Section 43 provides that
in the absence of express agreement to the contrary, the promisee may compel any one or more of
the joint promisors to perform the whole of the promise.
Section 43 deals with the contribution among joint promisors. The promisors, may compel every joint
promisor to contribute equally to the performance of the promise (unless a contrary intention appears
from the contract). If any one of the joint promisors makes default in such contribution the remaining
joint promisors must bear the loss arising from such default in equal shares.
As per the provisions of above sections,
a) Y can recover the contribution from X and Z because X, Y and Z are joint promisors.
b) Legal representative of X are liable to pay the contribution to Y. However, a legal representative
is liable only to the extent of property of the deceased received by him.
c) Y also can recover the contribution from Z’s assets.

A37. A contract which involves the use of personal skill or is founded on personal consideration comes
to an end on the death of the promisor. As regards any other contract the legal representatives of the
deceased promisor are bound to perform it unless a contrary intention appears from the contract
(Section 37 of the Indian Contract Act, 1872). But their liability under a contract is limited to the value
of the property they inherit from the deceased.

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a) In the instant case, since painting involves the use of personal skill and on becoming Mr. C
paralyzed, Mr. Rich cannot ask Mr. K to complete the artistic work in lieu of his father Mr. C.
b) According to section 65 of the Indian Contract Act, 1872, when an agreement is discovered to be
void or when a contract becomes void, any person who has received any advantage under such
agreement or contract is bound to restore it, or to make compensation for it to the person from
whom he received it.
Hence, in the instant case, the agreement between Mr. Rich and Mr. C has become void because of
paralysis to Mr. C. So, Mr. Rich can ask Mr. K for refund of money paid in advance to his father, Mr. C.

A38. In terms of the provisions of Section 65 of the Indian Contract Act, 1872, when an agreement is
discovered to be void or when a contract becomes void, any person who has received any advantage
under such agreement or contract is bound to restore it, or to make compensation for it to the person
from whom he received it.
Referring to the above provision, we can analyse the situation as under.
The contract is not a void contract. Mr. SUCH is not responsible for Mr. JHUTH’s negligence. Therefore,
Mr. SUCH can rescind the contract and retain the security amount since the security is not a benefit
received under the contract, it is a security that the purchaser would fulfil his contract and is ancillary
to the contract for the sale of the Motor Car.
Regarding the second situation given in the question, the agreement becomes void due to the
destruction of the Motor car, which is the subject matter of the agreement here. Therefore, the
security amount received by Mr. SUCH is required to be refunded back to Mr. JHUTH.

A39. If the performance consists of payment of money and there are several debts to be paid, the
payment shall be appropriated as per provisions of Sections 59, 60 and 61. The debtor has, at the time
of payment, the right of appropriating the payment. In default of debtor, the creditor has option of
election and in default of either the law will allow appropriation of debts in order of time.
In the present case, Mr. Murari had made two payments by way of two cheques. One cheque was
exactly the amount of the bill drawn. It would be understood even though not specifically
appropriated by Mr. Murari that it will be against the bill of exact amount. Hence cheque of 9,680 will
be appropriated against the bill of 9,680 which was due in May 2019.
Cheque of 15000 can be appropriated against any lawful debt which is due even though the same is
time-barred.
Hence, Mr. Girdhari can appropriate the same against the debt of ` 12,120 which was due in 2016 and
balance against 5650 which was due in August 2018.

A40.
a) The contract is void because of its initial impossibility of performance.
b) Time is essence of this contract. As by the time apples reached B they were already rotten. The
contract is discharged due to destruction of subject matter of contract.
c) Such contract is of personal nature and hence cannot be performed due to occurrence of an event
resulting in impossibility of performance of contract.
d) Such contract is discharged without performance because of subsequent illegality nature of the
contract.

A41. An anticipatory breach of contract is a breach of contract occurring before the time fixed for
performance has arrived. When the promisor refuses altogether to perform his promise and signifies
his unwillingness even before the time for performance has arrived, it is called Anticipatory Breach.
The law in this regard has very well summed up in Frost v. Knight and Hochster v. DelaTour:
Section 39 of the Indian Contract Act deals with anticipatory breach of contract and provides as
follows: “When a party to a contract has refused to perform or disable himself from performing, his

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promise in its entirety, the promisee may put an end to the contract, unless he has signified, but words
or conduct, his acquiescence in its continuance.”
Effect of anticipatory breach: The promisee is excused from performance or from further
performance. Further he gets an option:
a) To either treat the contract as “rescinded and sue the other party for damages from breach of
contract immediately without waiting until the due date of performance; or
b) He may elect not to rescind but to treat the contract as still operative, and wait for the time of
performance and then hold the other party responsible for the consequences of non-
performance. But in this case, he will keep the contract alive for the benefit of the other party as
well as his own, and the guilty party, if he so decides on re-consideration, may still perform his
part of the, contract and can also take advantage of any supervening impossibility which may have
the effect of discharging the contract.

A42. Liquidated damage is a genuine pre-estimate of compensation of damages for certain anticipated
breach of contract. This estimate is agreed to between parties to avoid at a later date detailed
calculation and the necessity to convince outside parties.
Penalty on the other hand is an extravagant amount stipulated and is clearly unconscionable and has
no comparison to the loss suffered by the parties.
In terms of Section 74 of the Act “where a contract has been broken, if a sum is named in the contract
as the amount to be paid in case of such breach, or if the contract contains any other stipulation by
way of penalty, the party complaining of the breach is entitled, whether or not actual damages or loss
is proved to have been caused thereby, to receive from the other party who has broken the contract,
a reasonable compensation not exceeding the amount so named, or as the case may be the penalty
stipulated for.
Explanation to Section 74
A stipulation for increased interest from the date of default may be a stipulation by way of penalty.
In terms of Section 74, courts are empowered to reduce the sum payable on breach whether it is
‘penalty’ or “liquidated damages” provided the sum appears to be unreasonably high.
Sri ChunniLal vs. Mehta & Sons Ltd (Supreme Court)
Supreme Court laid down the ratio that the aggrieved party should not be allowed to claim a sum
greater than what is specific in the written agreement. But even then, the court has powers to reduce
the amount if it considers it reasonable to reduce.

A43. Section 73 of the Indian Contract Act, 1872 lays down 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.
The leading case on this point is “Hadley v. Baxendale” in which it was decided by the Court that the
special circumstances under which the contract was actually made were communicated by the
plaintiff to the defendant, and thus known to both the parties to the contract, the damages resulting
from the breach of such contract which they would reasonably contemplate, would be the amount of
injury which would ordinarily follow from the breach of contract under these special circumstances so
known and communicated.
The problem asked in this question is based on the provisions of Section 73 of the Indian Contract Act,
1872. In the instant case ‘X’ had intimated to ‘Z’ that he was purchasing water bottles from him for
the purpose of performing his contract with ‘Y’. Thus, ‘Z’ had the knowledge of the special
circumstances. Therefore, ‘X’ is entitled to claim from ‘Z’ 500/- at the rate of 0.50 paise i.e. 1000 water
bottles x 0.50 paise (difference between the procuring price of water bottles and contracted selling
price to ‘Y’) being the amount of profit ‘X’ would have made by the performance of his contract with
‘Y’.

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If ‘X’ had not informed ‘Z’ of ‘Y’s contract, then the amount of damages would have been the
difference between the contract price and the market price on the day of default. In other words, the
amount of damages would be 750/- (i.e. 1000 water bottles x 0.75 paise).

A44. Under certain special circumstances, obligation resembling those created by a contract are
imposed by law although the parties have never entered into a contract. Such obligations imposed by
law are referred to as ‘Quasi-contracts’. Such a contract resembles with a contract so far as result or
effect is concerned but it has little or no affinity with a contract in respect of mode of creation. These
contracts are based on the doctrine that a person shall not be allowed to enrich himself unjustly at
the expense of another. The salient features of a quasi-contract are:
1) It does not arise from any agreement of the parties concerned but is imposed by law.
2) Duty and not promise is the basis of such contract.
3) The right under it is always a right to money and generally though not always to a liquidated sum
of money.
4) Such a right is available against specific person(s) and not against the whole world.
5) A suit for its breach may be filed in the same way as in case of a complete contract.

A45. Yes, B can proceed against the assets of X. According to section 68 of Indian Contract Act, 1872,
if a person, incapable of entering into a contract, or any one whom he is legally bound to support, is
supplied by another person with necessaries suited to his condition in life, the person who has
furnished such supplies is entitled to be reimbursed from the property of such incapable person.
Since the loan given to X is for the necessaries suited to the conditions in life of the minor, his assets
can be sued to reimburse B.

A46. Yes, P can recover the amount from D. Section 69 states a person who is interested in the
payment of money which another person is bound by law to pay, and who therefore pays it, is entitled
to get it reimbursed by the other.
In the present case, D was lawfully bound to pay rent. P was interested in making the payment to D’s
landlord as his carriage was seized by him. Hence being an interested party P made the payment and
can recover the same from D.

A47. According to Section 24 of the Indian Contract Act, 1872, in an agreement, where some part of
the object is legal and the other part is illegal, the question arises about the validity and enforceability
of such agreements. Where the legal and illegal part can be severed and divided, and separated, lawful
part of object is enforceable, and the unlawful part of the object is void.
In the given case, A sells the house to B, is a valid transaction as the sale of house and consideration
paid for the same i.e. 10,00,000 is valid and enforceable. However, the agreement to pay 50,000 for
gambling done in the house is illegal and thus void.
Hence, in the instant case, sale of house agreement is valid agreement and gambling agreement is
illegal and not enforceable by law.

A48. As per Section 73 to 75 of Indian Contract Act, 1872, Damage means a sum of money claimed or
awarded in compensation for a loss or an injury. Whenever a party commits a breach, the aggrieved
party can claim the compensation for the loss so suffered by him. General damages are those which
arise naturally in the usual course of things from the breach itself. (Hadley Vs Baxendale). Therefore,
when breach is committed by a party, the defendant shall be held liable for all such losses that
naturally arise in the usual course of business. Such damages are called ordinary damages. However,
special damages are those which arise in unusual circumstances affecting the aggrieved party and such
damages are recoverable only when the special circumstances were brought to the knowledge of the
defendant. If no special notice is given, then the aggrieved party can only claim the ordinary damages.

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In the given case, Seema was to earn an exceptional profit out of the sales made at the exhibition,
however she never informed about it to the railway authorities. Since the goods were delivered after
the conclusion of the exhibition, therefore Seema can recover only the losses arising in the ordinary
course of business. Since no notice about special circumstances was given to railways authorities, she
could not recover the loss of profits.

A49. Section 16 of Indian Contract Act, 1872 provides that a contract is said to be induced by “undue
influence” where the relations subsisting between the parties are such that one of the parties is in a
position to dominate the will of the other and uses that position to obtain an unfair advantage over
the other.
Further, a person is deemed to be in a position to dominate the will of another—
 where he holds a real or apparent authority over the other, or
 where he stands in a fiduciary relation to the other; or
 where he makes a contract with a person whose mental capacity is temporarily or
permanently affected by reason of age, illness, or mental or bodily distress.
Section 19A provides that when consent to an agreement is caused by undue influence, the agreement
is a contract voidable at the option of the party whose consent was so caused. Any such contract may
be set aside either absolutely or, if the party who was entitled to avoid it has received any benefit
thereunder, upon such terms and conditions as to the Court may seem just.
From the facts of the case, Chandan signed the promissory note under undue influence applied by
doctor. Hence, Dr. Jhunjhunwala cannot recover the amount of promissory note but can claim his
normal consultation fee from Chandan.

A50. An invitation to offer is different from offer. Quotations, menu cards, price tags, advertisements
in newspaper for sale are not offer. These are merely invitations to public to make an offer. An
invitation to offer is an act precedent to making an offer. Acceptance of an invitation to an offer does
not result in the contract and only an offer emerges in the process of negotiation. But there is an
exception to above provisions. When advertisement in newspaper is made for reward, it is the general
offer to public.
On the basis of above provisions and facts, it can be said that as advertisement made by Mr. Aseem
to find lost car is an offer, he is liable to pay 10,000 to Mr. Vikram.

A51. According to Section 40 of the Indian Contract Act, 1872, if it appears from the nature of the case
that it was the intention of the parties to any contract that any promise contained in it should be
performed by the promisor himself, such promise must be performed by the promisor. Section 41
provides that when a promisee accepts performance of the promise from a third person, he cannot
afterwards enforce it against the promisor.
Therefore, in the instant case,
a) As Mr. Sonu could not perform as per the contract, Mr. Singhania can repudiate the contract.
b) In the second situation, as Mr. Singhania allowed Mr. Sonu to perform in the fourth week without
saying anything, by conduct, Mr. Singhania had given his assent to continue the contract. Mr.
Singhania cannot terminate the contract however he can claim damages from Mr. Sonu.
c) In case Mr. Singhania allows Mr. Mika to perform in the third week without saying anything, by
conduct, Mr. Singhania had given his assent for performance by third party. Now Mr. Singhania
cannot terminate the contract nor can claim any damages from Mr. Sonu.

A52. An anticipatory breach of contract is a breach of contract occurring before the time fixed for
performance has arrived. When the promisor refuses altogether to perform his promise and signifies
his unwillingness even before the time for performance has arrived, it is called Anticipatory Breach.
The law in this regard has very well summed up in Frost v. Knight and Hochster v. DelaTour:

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Section 39 of the Indian Contract Act, 1872 deals with anticipatory breach of contract and provides as
follows: “When a party to a contract has refused to perform or disable himself from performing, his
promise in its entirety, the promisee may put an end to the contract, unless he has signified, but words
or conduct, his acquiescence in its continuance.”
Effect of anticipatory breach: The promisee is excused from performance or from further
performance. Further he gets an option:
a) To either treat the contract as “rescinded and sue the other party for damages from breach of
contract immediately without waiting until the due date of performance; or
b) He may elect not to rescind but to treat the contract as still operative and wait for the time of
performance and then hold the other party responsible for the consequences of non-
performance. But in this case, he will keep the contract alive for the benefit of the other party as
well as his own, and the guilty party, if he so decides on re - consideration, may still perform his
part of the contract and can also take advantage of any supervening impossibility which may have
the effect of discharging the contract.

A53. Yes, B can proceed against the assets of X. According to section 68 of Indian Contract Act, 1872,
if a person, incapable of entering into a contract, or any one whom he is legally bound to support, is
supplied by another person with necessaries suited to his condition in life, the person who has
furnished such supplies is entitled to be reimbursed from the property of such incapable person.
Since the loan given to X is for the necessaries suited to the conditions in life of the minor, his assets
can be sued to reimburse B.

A54. Though under the Indian Contract Act, 1872, the consideration for an agreement may proceed
from a third party, the third party cannot sue on contract. Only a person who is party to a contract can
sue on it.
Thus, the concept of stranger to consideration is valid and is different from stranger to a contract.
The aforesaid rule, that stranger to a contract cannot sue is known as a “doctrine of privity of
contract”, is however, subject to certain exceptions. In other words, even a stranger to a contract may
enforce a claim in the following cases:
 In the case of trust, a beneficiary can enforce his right under the trust, though he was not a party
to the contract between the settler and the trustee.
 In the case of a family settlement, if the terms of the settlement are reduced into writing, the
members of family who originally had not been parties to the settlement may enforce the
agreement.
 In the case of certain marriage contracts, a female member can enforce a provision for marriage
expenses made on the partition of the Hindu Undivided Family.
 In the case of assignment of a contract, when the benefit under a contract has been assigned, the
assignee can enforce the contract.
 Acknowledgement or estoppel – where the promisor by his conduct acknowledges himself as an
agent of the third party, it would result into a binding obligation towards third party.
 In the case of covenant running with the land, the person who purchases land with notice that the
owner of land is bound by certain duties affecting land, the covenant affecting the land may be
enforced by the successor of the seller.
 Contracts entered into through an agent: The principal can enforce the contracts entered by his
agent where the agent has acted within the scope of his authority and in the name of the principal.

A55. A person is deemed to be in such position in the following circumstances:

 Real and apparent authority: Where a person holds a real authority over the other as in the case
of master and servant, doctor and patient and etc.

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 Fiduciary relationship: where relation of trust and confidence exists between the parties to a
contract. Such type of relationship exists between father and son, solicitor and client, husband
and wife, creditor and debtor, etc.
 Mental distress: An undue influence can be used against a person to get his consent on a contract
where the mental capacity of the person is temporarily or permanently affected by the reason of
mental or bodily distress, illness or of old age.
 Unconscionable bargains: Where one of the parties to a contract is in a position to dominate the
will of the other and the contract is apparently unconscionable i.e., unfair, it is presumed by law
that consent must have been obtained by undue influence. Unconscionable bargains are
witnessed mostly in money-lending transactions and in gifts.

A56. An agreement by way of a wager is void. It is an agreement involving payment of a sum of money
upon the determination of an uncertain event. The essence of a wager is that each side should stand
to win or lose, depending on the way an uncertain event takes place in reference to which the chance
is taken and in the occurrence of which neither of the parties has legitimate interest.
For example, A agrees to pay 50,000 to B if it rains, and B promises to pay a like amount to A if it does
not rain, the agreement will be by way of wager. But if one of the parties has control over the event,
agreement is not a wager.
Transactions resembling with wagering transaction but are not void
 Chit fund: Chit fund does not come within the scope of wager (Section 30). In case of a chit fund,
a certain number of persons decide to contribute a fixed sum for a specified period and at the end
of a month, the amount so contributed is paid to the lucky winner of the lucky draw.
 Commercial transactions or share market transactions: In these transactions in which delivery of
goods or shares is intended to be given or taken, do not amount to wagers.
 Games of skill and Athletic Competition: Crossword puzzles, picture competitions and athletic
competitions where prizes are awarded on the basis of skill and intelligence are the games of skill
and hence such competition are valid. According to the Prize Competition Act, 1955 prize
competition in games of skill are not wagers provided the prize money does not exceed 1,000.
 A contract of insurance: A contract of insurance is a type of contingent contract and is valid under
law and these contracts are different from wagering agreements.

A57. Obligations of parties to contracts (Section 37 of the Indian Contract Act, 1872)
The parties to a contract must either perform, or offer to perform, their respective promises unless
such performance is dispensed with or excused under the provisions of the Contract Act or of any
other law.
Promises bind the representatives of the promisor in case of death of such promisor before
performance, unless a contrary intention appears from the contract.
Example 1: A promises to deliver goods to B on a certain day on payment of ` 1,00,000. A dies before
that day. A’s representatives are bound to deliver the goods to B, and B is bound to pay ` 1,00,000 to
A’s representatives.
Example 2
A promises to paint a picture for B by a certain day, at a certain price. A dies before the day. The
contract cannot be enforced either by A’s representatives or by B because it involves use of personal
skill.
Analysis of Section 37
A contract being an agreement enforceable by law, creates a legal obligation, which subsists until
discharged. Performance of the promise or promises remaining to be performed is the principal and
most usual mode of discharge.
The basic rule is that the promisor must perform exactly what he has promised to perform. The
obligation to perform is absolute. Thus, it may be noted that it is necessary for a party who wants to
enforce the promise made to him, to perform his promise for himself or offer to perform his promise.

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Only after that he can ask the other party to carry out his promise. This is the principle which is
enshrined in Section 37. Thus, it is the primary duty of each party to a contract to either perform or
offer to perform his promise. He is absolved from such a responsibility only when under a provision of
law or an act of the other party to the contract, the performance can be dispensed with or excused.
Thus, from above it can be drawn that performance may be actual or offer to perform.

A58. Where one person has rendered service to another in circumstances which indicate an
understanding between them that it is to be paid for although no particular remuneration has been
fixed, the law will infer a promise to pay. Quantum Meruit i.e. as much as the party doing the service
has deserved. It covers a case where the party injured by the breach had at time of breach done part
but not all of the work which he is bound to do under the contract and seeks to be compensated for
the value of the work done. For the application of this doctrine, two conditions must be fulfilled:
 It is only available if the original contract has been discharged.
 The claim must be brought by a party not in default.
The object of allowing a claim on quantum meruit is to recompensate the party or person for value of
work which he has done. Damages are compensatory in nature while quantum meruit is restitutory.
It is but reasonable compensation awarded on implication of a contract to remunerate.
The claim for quantum meruit arises in the following cases:
1) when an agreement is discovered to be void or when a contract becomes void.
2) When something is done without any intention to do so gratuitously.
3) Where there is an express or implied contract to render services but there is no agreement as to
remuneration.
4) When one party abandons or refuses to perform the contract.
5) Where a contract is divisible and the party not in default has enjoyed the benefit of part
performance.
6) When an indivisible contract for a lump sum is completely performed but badly the person who
has performed the contract can claim the lump sum, but the other party can make a deduction
for bad work.

A59. A contract may be absolute or contingent. A contract is said to be absolute when the promisor
undertakes to perform the contract in all events. A contingent contract, on the other hand "is a
contract to do or not to do something, if some event, collateral to such contract does or does not
happening (Section 31). It is a contract in which the performance becomes due only upon the
happening of some event which may or may not happen.
The rules regarding the contingent contract are as follows:
 Contingent contract dependent on the happening of an uncertain future cannot be enforced until
the event has happened. If the event becomes impossible, such contracts become void. (Section
32).
 Where a contingent contract is to be performed if a particular event does not happening
performance can be enforced only when happening of that event becomes impossible (Section
33).
 If a contract is contingent upon, how a person will act at an unspecified time, the event shall be
considered to become impossible; when such person does anything which renders it impossible
that he should so act within any definite time or otherwise than under further contingencies.
(Section 34 and 35).
 The contingent contracts to do or not to do anything if an impossible event happens, are void
whether or not the fact is known to the parties (Section 36).

A60.

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a) In the instant case, X is an aggrieved party and the contract is voidable at his option but not at the
option of Y. It means if X accepts the contract, the contract becomes a valid contract then Y has
no option of rescinding the contract.
b) B cannot sue A for the payment in 2019 as it has crossed three years and barred by Limitation Act.
A good debt becomes unenforceable after the period of three years as barred by Limitation Act.
c) Where, G agrees to give tuitions to H, a pre-engineering student, from the next month and H in
consideration promises to pay G 5,000 per month, the contract is executory because it is yet to be
carried out.

A61.By analyzing Section 39 of the Indian Contract Act 1872, it is understood that when a party to a
contract has refused to perform or disabled himself from performing his promise entirely, the
following two rights accrue to the aggrieved party (promisee)
 To terminate the contract
 To indicate by words or by conduct that he is interested in its continuance.
In either of the two cases, the promisee would be able to claim damages that he suffers. In the given
case,
a) Yes, the hotel has the right to end the contract with Mr. X, the DJ.
b) The hotel has the right to continue the contract with X. But once this right is exercised, they cannot
subsequently rescind the contract on this ground subsequently.
c) In both the cases, the hotel (promisee) is entitled to claim damages that has been suffered as a
result of breach.

A62. As per the provisions of Section 19 of the Indian Contract Act, 1872, when consent to an
agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at
the option of the party whose consent was so caused.
A party to contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit,
insist that the contract shall be performed, and that he shall be put in the position in which he would
have been if the representations made had been true.
Exception: If such consent was caused by misrepresentation or by silence, fraudulent within the
meaning of section 17, the contract, nevertheless, is not voidable if the party whose consent was so
caused had the means of discovering the truth with ordinary diligence.
In the situation given in the question, both the fuel meter and the speed meter of the car were working
perfectly, Mr. HARISH had the means of discovering the truth with ordinary diligence. Therefore, the
contract is not voidable. Hence, Mr. HARISH cannot rescind the contract on the above ground.

A63. Liquidated damage is a genuine pre-estimate of compensation of damages for certain anticipated
breach of contract. This estimate is agreed to between parties to avoid at a later date detailed
calculation and the necessity to convince outside parties.
Penalty on the other hand is an extravagant amount stipulated and is clearly unconscionable and has
no comparison to the loss suffered by the parties.
In terms of Section 74 of the Act “where a contract has been broken, if a sum is named in the contract
as the amount to be paid in case of such breach, or if the contract contains any other stipulation by
way of penalty, the party complaining of the breach is entitled, whether or not actual damages or loss
is proved to have been caused thereby, to receive from the other party who has broken the contract,
a reasonable compensation not exceeding the amount so named, or as the case may be the penalty
stipulated for.
Sri ChunniLal vs. Mehta & Sons Ltd (Supreme Court)
Supreme Court laid down the ratio that the aggrieved party should not be allowed to claim a sum
greater than what is specific in the written agreement. But even then, the court has powers to reduce
the amount if it considers it reasonable to reduce.

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A64.
a) As per Section 51 of the Indian Contract Act, 1872, when a contract consists of reciprocal promises
to be simultaneously performed, no promisor needs to perform his promise unless the promisee
is ready and willing to perform his reciprocal promise. Such promises constitute concurrent
conditions and the performance of one of the promise is conditional on the performance of the
other. If one of the promises is not performed, the other too need not be performed.
Referring to the above provisions, in the given case, Mr. S is not bound to deliver goods to Mr. R
since payment was not made by him at the time of delivery of goods.
b) Promise to pay time-barred debts - Section 25 (3): Where there is an agreement, made in writing
and signed by the debtor or by his agent, to pay wholly or in part a time barred debt, the
agreement is valid and binding even though there is no consideration.
In the given case, the loan given by Mr. Y to Mr. G has become time barred. Thereafter, G agreed
to make payment of full amount to Mr. Y.
Referring to above provisions of the Indian Contract Act, 1872 contract entered between parties
post time barred debt is valid so, Mr. G is bound to pay the agreed amount to Mr. Y provided the
above mentioned conditions of section 25 (3) are fulfilled.
c) Where there is a breach of contract for supply of a unique item, mere monetary damages may not
be an adequate remedy for the other party. In such a case the court may give order for specific
performance and direct the party in breach to carry out his promise according to the terms of
contract. Here, in this case, the court may direct A to supply the item to B because the refusal to
supply the agreed unique item cannot be compensated through money.

A65. As per the rules of acceptance, the acceptance should be communicated to offeror by offeree
himself or his authorized agent. Communication of acceptance by third person cannot be concluded
in valid acceptance.
In the instant case, Mr. Pratham applied for a job as principal of a school and one member of the
school management committee privately informed Mr. Pratham that he was appointed. Later, the
management of the school appointed someone else as a principal.
On the basis of above provisions and facts, communication of appointment of Mr. Pratham should be
made by school management committee or any authorised agent. The communication by third person
cannot be termed as communication of acceptance. Therefore, no valid contract was formed between
Mr. Pratham and school and Mr. Pratham cannot file a suit against the school for cancellation of his
appointment.

A66. As per Section 11 of Indian Contract Act, 1872, a minor is not competent to enter into any
contract. Any agreement with minor is void-ab-initio means void from the very beginning. When a
person forms an agreement with minor, such an agreement is devoid of any legal consequences for
the person because minor cannot be enforced by law to perform his part of performance in an
agreement.
However, if minor obtains any property by fraudulently misrepresenting his age, he can be ordered to
restore the property or goods thus obtained. Although no action can be taken against the minor, but
if has any property (of other party) in his possession, court can order him to return the same.
Hence, in the present case, Rahul is not liable to repay 40,000 that he has borrowed from the
shopkeeper, but he can be ordered by the court to return the laptop (which was in his possession) to
the shopkeeper.

A67. Section 25 of Indian Contract Act, 1872 provides that an agreement made without consideration
is valid if it is expressed in writing and registered under the law for the time being in force for the
registration of documents and is made on account of natural love and affection between parties
standing in a near relation to each other.

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In the instant case, the transfer of house made by Mr. Ram Lal Birla on account of natural love and
affection between the parties standing in near relation to each other is written but not registered.
Hence, this transfer is not enforceable and his daughter cannot get the house as gift under the Indian
Contract Act, 1872.

A68. Section 31 of the Indian Contract Act, 1872 provides that “A contract to do or not to do
something, if some event, collateral to such contract, does or does not happen” is a Contingent
Contract.
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.
In the instant case, the contract between PQR hospital & Dr. A is a Contingent Contract because the
promisor, PQR hospital need to perform his obligation of paying Dr. A, the lumpsum amount of
1,00,000, only if he contracts with Covid 19 within a span of 3 months.
In Case, if Dr. A does not contract Covid 19, then the contract stands void automatically.

A69. Agreement - the meaning of which is uncertain (Section 29 of the Indian Contract Act, 1872): An
agreement, the meaning of which is not certain, is void, but where the meaning thereof is capable of
being made certain, the agreement is valid.
For example, A agrees to sell B “a hundred tons of oil”. There is nothing whatever to show what kind
of oil was intended. The agreement is void for uncertainty. But the agreement would be valid if A was
dealer only in coconut oil because in such a case its meaning would be capable of being made certain.

Sales of Goods Act

A1. 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 7(2) 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.

A2. The main points of distinction between the 'Sale' and 'Hire-Purchase' are as follows -
Sr. Basis of difference Sale Hire-Purchase
No.
1 Time of passing Property in the goods is Property in goods passes to the hirer
property transferred to the buyer upon payment of the last installment.
immediately at the time of the
contract
2 Position of The position of the buyer is The position of the hirer is that of a
the that of the owner of the goods bailee till he pays the last installment.
property

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3 Termination of The buyer cannot terminate The hirer may, if he so likes,

contract the contract and is bound to terminate the contract by returning
pay the price of the goods the goods to its owner without any
liability to pay the remaining
installments.

4 Burden of Risk of The seller takes the risk of any The owner takes no such risk, for if
Insolvency of the loss resulting from the the hirer fails to pay an installment,
buyer insolvency of the buyer the owner has right to take back the
goods.

5 Transfer of title The buyer can pass a good title The hirer cannot pass any title even
to a bona fide purchaser from to a bona fide purchaser.
him
6 Resale The buyer in sale can resell the The hire purchaser cannot resell
goods unless he has paid all the
installments.

A3. The condition as to the reasonable fitness of goods for a particular purpose may be implied if the
buyer had made known to the seller the purpose of his purchase and relied upon the skill and
judgment of the seller to select the best goods and the seller has ordinarily been dealing in those
goods.
There is implied condition on the part of the seller that the goods supplied shall be reasonably fit for
the purpose for which the buyer wants them, provided the following conditions are fulfilled:
a) The buyer should have made known to the seller the particular purpose for which goods are
required.
b) The buyer should rely on the skill and judgement of the seller.
c) The goods must be of a description dealt in by the seller, whether he be a manufacturer or not.
In the instant case, as the timber supplied by the seller is commercially fit for the purposes for which
it was ordered, it means the implied condition on the part of the seller is fulfilled.
Hence, TK cannot reject the timber.
Alternatively, the above answer can also be provided as under:
According to Section 15 of the Sale of Goods Act, 1930 where there is a contract for the sale of goods
by description, there is an implied condition that the goods shall correspond with the description. The
buyer is not bound to accept and pay for the goods which are not in accordance with the description
of goods.
Thus, it has to be determined whether the buyer has undertaken to purchase the goods by their
description, i.e., whether the description was essential for identifying the goods where the buyer had
agreed to purchase. If that is required and the goods tendered do not correspond with the description,
it would be breach of condition entitling the buyer to reject the goods.
In the instant case, as the timber supplied by seller varies in thickness from 1 inch to 1.4 inches, it does
not correspond with the description ordered by TK i.e. of 1 inch, TK may reject the timber.

A4. Subject to the provisions of this Act, when the buyer of goods becomes insolvent, the unpaid seller
who has parted with the possession of the goods has the right of stopping them in transit, that is to
say, he may resume possession of the goods as long as they are in the course of transit and may retain
them until paid or tendered price of the goods.
When the unpaid seller has parted with the goods to a carrier and the buyer has become insolvent,
he can exercise this right of asking the carrier to return the goods back, or not to deliver the goods to
the buyer.

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In the instant case, CD, the buyer becomes insolvent, and 450 bags are in transit. AB, the seller, can
stop the goods in transit by giving a notice of it to CD. The official receiver, on CD’s insolvency cannot
claim the bags.

A5. Section 64 of the Sale of Goods Act, 1930 provides following rules to regulate the sale by auction:
 Where goods are sold in lots: Where goods are put up for sale in lots, each lot is prima facie
deemed to be subject of a separate contract of sale.
 Completion of the contract of sale: The sale is complete when the auctioneer announces its
completion by the fall of hammer or in any other customary manner and until such announcement
is made, any bidder may retract from his bid.
 Right to bid may be reserved: Right to bid may be reserved expressly by or on behalf of the seller
and where such a right is expressly reserved, but not otherwise, the seller or any one person on
his behalf may bid at the auction.
 Where the sale is not notified by the seller: Where the sale is not notified to be subject to a right
to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to employ any
person to bid at such sale, or for the auctioneer knowingly to take any bid from the seller or any
such person; and any sale contravening this rule may be treated as fraudulent by the buyer.
 Reserved price: The reserved price is the lowest price at which a seller is willing to sell an item.
The auction sale may be notified to be subject to a reserve or upset price; and
 Pretended bidding: If the seller makes use of pretended bidding to raise the price, the sale is
voidable at the option of the buyer.

A6. Section 13 of the Sales 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 for damages only.
In the following cases, a contract is not avoided even on account of a breach of a condition:
1) Where the buyer altogether waives the performance of the condition. A party may for his own
benefit, waive a stipulation.
2) 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.
3) Where the contract is non-severable and the buyer has accepted either the whole goods or any
part thereof.
4) Where the fulfilment of any condition or warranty is excused by law by reason of impossibility or
otherwise.

A7.
a) According to Section 15 of the Sale of Goods Act, 1930, where the goods are sold by sample as
well as by description, the implied condition is that the goods supplied shall correspond to both
with the sample and the description. In case, the goods do not correspond with the sample or with
description or vice versa or both, the buyer can repudiate the contract.
Further, as per Section 16(l) of the Sales of Goods Act, 1930, when the buyer makes known to the
seller the particular purpose for which the goods are required and he relies on the judgment or
skill of the seller, it is the duty of the seller to supply such goods as are reasonably fit for that
purpose.
In the given case, Mr. M had revealed Mr. T that he wanted the exhaust fan for the kitchen. Since
the table fan delivered by Mr. T was unfit for the purpose for which Mr. M wanted the fan,
therefore, T cannot refuse to exchange the fan.
b) When one party does not fulfill his obligation according to the agreed terms, the other party may
treat the contract as repudiated or can insist for performance as per the original contract.
Accordingly, the remedy available to Mr. M is that he can either rescind the contract or claim
refund of the price paid by him or he may require Mr. T to replace it with the fan he wanted.

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A8. According to Section 26, unless otherwise agreed, the goods remain at the seller’s risk until the
property therein is transferred to the buyer, but when the property therein is transferred to the buyer,
the goods are at the buyer’s risk whether delivery has been made or not.
It is provided that, where delivery has been delayed because of the fault of either buyer or seller, the
goods are at the risk of the party in fault as regards any loss which might not have occurred but for
such fault.
Provided also that nothing in this section shall affect the duties or liabilities of either seller or buyer as
bailee of the goods of the other party.

A9. The right against the buyer are as follows:

 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)].
 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.
 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’.
 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.

A10. As per the provisions of Sub-Section (2) of Section 17 of the Sale of Goods Act, 1930, in a contract
of sale by sample, there is an implied condition that:
a) the bulk shall correspond with the sample in quality;
b) the buyer shall have a reasonable opportunity of comparing the bulk with the sample.
In the instant case, Mr. Das on examination of the sample on which he agreed to buy, failed to notice
that it contained a mix of long and short grain of rice.
In the light of the provisions of Sub-Clause (b) of Sub-Section (2) of Section 17 of the Act, Mr. Das will
not be successful as he examined the sample of Basmati rice (which exactly corresponded to the entire
lot) without noticing the fact that even though the sample was that of Basmati Rice but it contained a
mix of long and short grains. It could
have been discovered by Mr. Das, by an ordinary examination of the goods that it contained a mix of
long and short grains. This reflects lack of due diligence on part of Mr. Das.
Therefore, Mr. Das, the buyer does not have any option available to him for grievance redressal.
In case Mr. Das specified his exact requirement as to length of rice, then there is an implied condition
that the goods shall correspond with the description. If it is not so, then in such case, seller will be held
liable.

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A11. The doctrine of Caveat Emptor given under the Sale of Goods Act, 1930 is subject to the following
exceptions:
1) Fitness as to quality or use: Where the buyer makes known to the seller the particular purpose for
which the goods are required, it is the duty of the seller to supply such goods as are reasonably fit
for that purpose [Section 16 (1)].
2) Goods purchased under patent or brand name: In case where the goods are purchased under its
patent name or brand name, there is no implied condition that the goods shall be fit for any
particular purpose [Section 16(1)].
3) Goods sold by description: Where the goods are sold by description there is an implied condition
that the goods shall correspond with the description [Section 15]. If it is not so, then seller is
responsible.
4) Goods of Merchantable Quality: Where the goods are bought by description from a seller who
deals in goods of that description there is an implied condition that the goods shall be of
merchantable quality. The rule of Caveat Emptor is not applicable. [Section 16(2)].
5) Sale by sample: Where the goods are bought by sample, this rule of Caveat Emptor does not apply
if the bulk does not correspond with the sample [Section 17].
6) Goods by sample as well as description: Where the goods are bought by sample as well as
description, the rule of Caveat Emptor is not applicable in case the goods do not correspond with
both the sample and description or either of the condition [Section 15].
7) Trade Usage: An implied warranty or condition as to quality or fitness for a particular purpose may
be annexed by the usage of trade and if the seller deviates from that, this rule of Caveat Emptor
is not applicable [Section 16(3)].
8) Seller actively conceals a defect or is guilty of fraud: Where the seller sells the goods by making
some misrepresentation or fraud and the buyer relies on it or when the seller actively conceals
some defect in the goods so that the same could not be discovered by the buyer on a reasonable
examination, then the rule of Caveat Emptor will not apply.

A12. In the following cases, a non-owner can convey better title to the bona fide purchaser of goods
for value.
a) Sale by a Mercantile Agent: A sale made by a mercantile agent of the goods for document of title
to goods would pass a good title to the buyer in the following circumstances; namely;
 If he was in possession of the goods or documents with the consent of the owner;
 If the sale was made by him when acting in the ordinary course of business as a mercantile
agent; and
 If the buyer had acted in good faith and has at the time of the contract of sale, no notice of
the fact that the seller had no authority to sell (Proviso to Section 27 of the Sale of Goods Act,
1930).
b) Sale by one of the joint owners (Section 28): If one of several joint owners of goods has the sole
possession of them by permission of the co-owners, the property in the goods is transferred to
any person who buys them of such joint owner in good faith and has not at the time of the contract
of sale notice that the seller has no authority to sell.
c) Sale by a person in possession under voidable contract: A buyer would acquire a good title to the
goods sold to him by a seller who had obtained possession of the goods under a contract voidable
on the ground of coercion, fraud, misrepresentation or undue influence provided that the contract
had not been rescinded until the time of the sale (Section 29).
d) Sale by one who has already sold the goods but continues in possession thereof: If a person has
sold goods but continues to be in possession of them or of the documents of title to them, he may
sell them to a third person, and if such person obtains the delivery thereof in good faith and
without notice of the previous sale, he would have good title to them, although the property in
the goods had passed to the first buyer earlier. A pledge or other disposition of the goods or
documents of title by the seller in possession are equally valid [Section 30(1)].

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e) Sale by buyer obtaining possession before the property in the goods has vested in him: Where a
buyer with the consent of the seller obtains possession of the goods before the property in them
has passed to him, he may sell, pledge or otherwise dispose of the goods to a third person, and if
such person obtains delivery of the goods in good faith and without notice of the lien or other
right of the original seller in respect of the goods, he would get a good title to them [Section 30(2)].
However, a person in possession of goods under a ‘hire-purchase’ agreement which gives him only
an option to buy is not covered within the section unless it amounts to a sale.
f) Effect of Estoppel: Where the owner is estopped by the conduct from denying the seller’s
authority to sell, the transferee will get a good title as against the true owner. But before a good
title by estoppel can be made, it must be shown that the true owner had actively suffered or held
out the other person in question as the true owner or as a person authorized to sell the goods.
g) Sale by an unpaid seller: Where an unpaid seller who had exercised his right of lien or stoppage in
transit resells the goods, the buyer acquires a good title to the goods as against the original buyer
[Section 54 (3)].
h) Sale under the provisions of other Acts:
 Sale by an Official Receiver or Liquidator of the Company will give the purchaser a valid title.
 Purchase of goods from a finder of goods will get a valid title under circumstances [Section
169 of the Indian Contract Act, 1872]
 A sale by pawnee can convey a good title to the buyer [Section 176 of the Indian Contract Act,
1872]

A13. As per the provisions of Section 24 of the Sale of Goods Act, 1930, when goods are delivered to
the buyer on approval or “on sale or return" or other similar terms, the property therein passes to the
buyer-
 when the buyer signifies his approval or acceptance to the seller or does any other act adopting
the transaction;
 if he does not signify his approval or acceptance to the seller but retains the goods without giving
notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration of
such time, and, if no time has been fixed, on the expiration of a reasonable time; or
 he does something to the good which is equivalent to accepting the goods e.g. he pledges or sells
the goods.
Referring to the above provisions, we can analyse the situation given in the question.
a) In the instant case, Ms. K, who had taken delivery of the two wheeler on Sale or Return basis
pledged the two wheeler to Mr. A, has attracted the third condition that she has done something
to the good which is equivalent to accepting the goods e.g. she pledges or sells the goods.
Therefore, the property therein (Two wheeler) passes to Mr. A. Now in this situation, Ms. R cannot
claim back her two wheeler from Mr. A, but she can claim the price of the two wheeler from Ms.
K only.
b) It may be noted that where the goods have been delivered by a person on “sale or return” on the
terms that the goods were to remain the property of the seller till they are paid for, the property
therein does not pass to the buyer until the terms are complied with, i.e., price is paid for.
Hence, in this case, it is held that at the time of pledge, the ownership was not transferred to Ms.
K. Thus, the pledge was not valid and Ms. R could recover the two wheeler from Mr. A.

A14. Sale of unascertained goods and Appropriation (Section 23 of the Sale of Goods Act, 1930):
Appropriation of goods involves selection of goods with the intention of using them in performance
of the contract and with the mutual consent of the seller and the buyer.
The essentials are:
 There is a contract for the sale of unascertained or future goods.
 The goods should conform to the description and quality stated in the contract.
 The goods must

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 in a deliverable state.
 The goods must be unconditionally appropriated to the contract either by delivery to the buyer or
his agent or the carrier.
 The appropriation must be made by:
 the seller with the assent of the buyer; or
 the buyer with the assent of the seller.
 The assent may be express or implied.
 The assent may be given either before or after appropriation.

A15. It is necessary under the Sales of Goods Act, 1930 that the goods should be exchanged for money.
If the goods are exchanged for goods, it will not be called a sale. It will be considered as barter.
However, a contract for transfer of movable property for a definite price payable partly in goods and
partly in cash is held to be a contract of Sale of Goods.
In the given case, the new TV set is agreed to be sold for 30,000 and the price is payable partly in
exchange of old TV set and partly in cash of 20,000. So, in this case, it is a valid contract of sale under
the Sales of Goods Act, 1930.

A16. In this case, B, the buyer has no right against A the seller. Section 8 of the Sales of Goods Act,
1930 provides that where there is an agreement to sell specific goods and the goods without any fault
of either party perish, damaged or lost, the agreement is thereby avoided. This provision is based on
the ground of supervening impossibility of performance which makes a contract void.
So, all the following conditions required to treat it as a void contract are fulfilled in the above case:
 There is an agreement to sell between A and B
 It is related to specific goods
 The goods are lost because of the sinking of ship before the property or risk passes to the buyer.
 The loss of goods is not due to the fault of either party.

A17. Payment of the price by the buyer is an important ingredient of a contract of sale. If the parties
totally ignore the question of price while making the contract, it would not become an uncertain and
invalid agreement. It will rather be a valid contract and the buyer shall pay a reasonable price.
In the give case, X and Y have entered into a contract for sale of car but they did not fix the price of
the car. X refused to sell the car to Y on this ground. Y can legally demand the car from X and X can
recover a reasonable price of the car from Y.

A18.
a) A wholesaler of cotton has 100 bales in his godown. So, the goods are existing goods. He agrees
to sell 50 bales and these bales were selected and set aside. On selection, the goods becomes
ascertained. In this case, the contract is for the sale of ascertained goods, as the cotton bales to
be sold are identified and agreed after the formation of the contract.
b) If A agrees to sell to B one packet of sugar out of the lot of one hundred packets lying in his shop,
it is a sale of existing but unascertained goods because it is not known which packet is to be
delivered.
c) T agrees to sell to S all the apples which will be produced in his garden this year. It is contract of
sale of future goods, amounting to 'an agreement to sell.'

A19.
a) In case of sale of goods, the doctrine ‘Caveat Emptor’ means ‘let the buyer beware’. When sellers
display their goods in the open market, it is for the buyers to make a proper selection or choice of
the goods. If the goods turn out to be defective he cannot hold the seller liable. The seller is in no
way responsible for the bad selection of the buyer. The seller is not bound to disclose the defects
in the goods which he is selling.

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Duty of the seller according to the doctrine of “Caveat Emptor”: The following exceptions to the
Caveat Emptor are the duties of the seller:
 Fitness as to quality or use
 Goods purchased under patent or brand name
 Goods sold by description
 Goods of Merchantable Quality
 Sale by sample
 Goods by sample as well as description
 Trade usage
 Seller actively conceals a defect or is guilty of fraud
b) As Mr. Das has specifically mentioned that he required the wood which would be best suited for
the purpose of making wooden doors and window frames but the seller supplied Mango tree
wood which is most unsuitable for the purpose. Mr. Das is entitled to get the money back or the
right kind of wood as required serving his purpose. It is the duty of the seller to supply such goods
as are reasonably fit for the purpose mentioned by buyer. [Section 16(1) of the Sale of Goods Act,
1930]

A20. As per the provisions of Sub-Section (2) of Section 17 of the Sale of Goods Act, 1930, in a contract
of sale by sample, there is an implied condition that:
a) the bulk shall correspond with the sample in quality;
b) the buyer shall have a reasonable opportunity of comparing the bulk with the sample.
 In the instant case, in the light of the provisions of Sub-Clause (b) of Sub-Section (2) of Section
17 of the Act, Mrs. Geeta will not be successful as she casually examined the sample of rice
(which exactly corresponded to the entire lot) without noticing the fact that even though the
sample was that of Basmati Rice but it contained a mix of long and short grains.
 In the instant case, the buyer does not have any option available to her for grievance redressal.
 In case Mrs. Geeta specified her exact requirement as to length of rice, then there is an implied
condition that the goods shall correspond with the description. If it is not so, the seller will be
held liable.

A21. Condition and warranty (Section 12): A stipulation in a contract of sale with reference to goods
which are the subject thereof may be a condition or a warranty. [Sub-section (1)]
“A condition is a stipulation essential to the main purpose of the contract, the breach of which gives
rise to a right to treat the contract as repudiated”. [Sub-section (2)]
In the instant case, the term that the ‘car should be suitable for touring purposes’ is a condition of the
contract. It is so vital that its non-fulfilment defeats the very purpose for which X purchases the car.
X is therefore entitled to reject the car and have refund of the price.

A22. According to Section 16(1) of Sales of Goods Act, 1930, normally in a contract of sale there is no
implied condition or warranty as to quality or fitness for any particular purpose of goods supplied. The
general rule is that of “Caveat Emptor” that is “let the buyer beware”. But where the buyer expressly
or impliedly makes known to the seller the particular purpose for which the goods are required and
also relies on the seller’s skill and judgement and that this is the business of the seller to sell such
goods in the ordinary course of his business, the buyer can make the seller responsible.
In the given case, Mrs. G purchased the tweed coat without informing the seller i.e. P about the
sensitive nature of her skin. Therefore, she cannot make the seller responsible on the ground that the
tweed coat was not suitable for her skin. Mrs. G cannot treat it as a breach of implied condition as to
fitness and quality and has no right to recover damages from the seller.

A23. In the instant case, D who noticed the deviation of goods from the sample can reject the goods
and treat it as a breach of implied condition as to sample which provides that when the goods are sold

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by sample the goods must correspond to the sample in quality and the buyer should be given
reasonable time and opportunity of comparing the bulk with the sample. Whereas C can recover only
damages from B and B can recover damages from A. For C and B it will not be treated as a breach of
implied condition as to sample as they have accepted and sold the goods according to Section 13(2)
of the Sales of Goods Act, 1930.

A24. This is a case related to implied condition as to wholesomeness which provides that the eatables
and provisions must be wholesome that is they must be fit for human consumption. In this case, the
piece of bread contained a stone which broke buyer’s tooth while eating, thereby considered unfit for
consumption. Hence, the buyer can treat it as breach of implied condition as to wholesomeness and
can also claim damages from the seller.

A25. In general, the seller can sell only such goods of which he is the absolute owner. But sometimes
a person may sell goods of which he is not the owner, then the question arises as to what is the
position of the buyer who has bought the goods by paying price. The general rule regarding the
transfer of title is that the seller cannot transfer to the buyer of goods a better title than he himself
has. If the seller is not the owner of goods, then the buyer also will not become the owner i.e. the title
of the buyer shall be the same as that of the seller. This rule is expressed in the Latin maxim “Nemo
dat quod non habet” which means that no one can give what he has not got.
Example: If A sells some stolen goods to B, who buys them in good faith, B will get no title to that and
the true owner has a right to get back his goods from B.
Example: P, the hirer of vehicle under a hire purchase agreement, sells them to Q. Q, though a bona
fide purchaser, does not acquire the ownership in the vehicle. At the most he acquires the same right
as that of the hirer.
If this rule is enforced rigidly then the innocent buyers may be put to loss in many cases. Therefore, to
protect the interests of innocent buyers, a number of exceptions have been provided to this rule.
Exceptions: In the following cases, a non-owner can convey better title to the bona fide purchaser of
goods for value.
 Sale by a Mercantile Agent: A sale made by a mercantile agent of the goods for document of title
to goods would pass a good title to the buyer in the following circumstances; namely;
 If he was in possession of the goods or documents with the consent of the owner;
 If the sale was made by him when acting in the ordinary course of business as a mercantile
agent; and
 If the buyer had acted in good faith and has at the time of the contract of sale, no notice of
the fact that the seller had no authority to sell (Proviso to Section 27).
Mercantile Agent means an agent having in the customary course of business as such agent
authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods, or to
raise money on the security of goods [Section 2(9)].
 Sale by one of the joint owners (Section 28): If one of several joint owners of goods has the sole
possession of them by permission of the co-owners, the property in the goods is transferred to
any person who buys them from such joint owner in good faith and has not at the time of the
contract of sale notice that the seller has no authority to sell.
Example: A, B, and C are three brothers and joint owners of a T.V and VCR and with the consent
of B and C, the VCR was kept in possession of A. A sell the T.V and VCR to P who buys it in good
faith and without notice that A had no authority to sell. P gets a good title to VCR and TV.
 Sale by a person in possession under voidable contract: A buyer would acquire a good title to the
goods sold to him by a seller who had obtained possession of the goods under a contract voidable
on the ground of coercion, fraud, misrepresentation or undue influence provided that the contract
had not been rescinded until the time of the sale (Section 29).

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Example: X fraudulently obtains a diamond ring from Y. This contract is voidable at the option of
Y. But before the contract could be terminated, X sells the ring to Z, an innocent purchaser. Z gets
the good title and Y cannot recover the ring from Z even if the contract is subsequently set aside.
 Sale by one who has already sold the goods but continues in possession thereof: If a person has
sold goods but continues to be in possession of them or of the documents of title to them, he may
sell them to a third person, and if such person obtains the delivery thereof in good faith and
without notice of the previous sale, he would have good title to them, although the property in
the goods had passed to the first buyer earlier. A pledge or other disposition of the goods or
documents of title by the seller in possession are equally valid [Section 30(1)].
Example: During IPL matches, P buys a TV set from R. R agrees to deliver the same to P after some
days. In meanwhile R sells the same to S, at a higher price, who buys in good faith and without
knowledge about the previous sale. S gets a good title.
 Sale by buyer obtaining possession before the property in the goods has vested in him: Where a
buyer with the consent of the seller obtains possession of the goods before the property in them
has passed to him, he may sell, pledge or otherwise dispose of the goods to a third person, and if
such person obtains delivery of the goods in good faith and without notice of the lien or other
right of the original seller in respect of the goods, he would get a good title to them [Section 30(2)].
However, a person in possession of goods under a ‘hire-purchase’ agreement which gives him only
an option to buy is not covered within the section unless it amounts to a sale.
Example: A took a car from B on this condition that A would pay a monthly instalment of 5,000 as
hire charges with an option to purchase it by payment of 1,00,000 in 24 instalments.
After the payment of few instalments, A sold the car to C. B can recover the car from C since A had
neither bought the car, nor had agreed to buy the car. He had only an option to buy the car.
 Effect of Estoppel: Where the owner is estopped by the conduct from denying the seller’s
authority to sell, the transferee will get a good title as against the true owner. But before a good
title by estoppel can be made, it must be shown that the true owner had actively suffered or held
out the other person in question as the true owner or as a person authorized to sell the goods.
Example: ‘A’ said to ‘B’, a buyer, in the presence of ‘C’ that he (A) is the owner of the horse. But
‘C’ remained silent though the horse belonged to him. ‘B’ bought the horse from ‘A’. Here the
buyer (B) will get a valid title to the horse even though the seller (A) had no title to the horse. In
this case, ‘C’, by his own conduct, is prevented from denying ‘A’s authority to sell the horse. Here,
‘C’’s silence has induced ‘B’ to believe that ‘A’ is the owner of the horse.
 Sale by an unpaid seller: Where an unpaid seller who had exercised his right of lien or stoppage in
transit resells the goods, the buyer acquires a good title to the goods as against the original buyer
[Section 54 (3)]
 Sale under the provisions of other Acts:
 Sale by an Official Receiver or Liquidator of the Company will give the purchaser a valid title.
 Purchase of goods from a finder of goods will get a valid title under circumstances [Section
169 of the Indian Contract Act, 1872]
 A sale by pawnee can convey a good title to the buyer [Section 176 of the Indian Contract Act,
1872]

A26. The problem in this case is based on the provisions of the Sale of Goods Act, 1930 contained in
the proviso to Section 27. The proviso provides that a mercantile agent is one who in the customary
course of his business, has, as such agent, authority either to sell goods, or to consign goods, for the
purpose of sale, or to buy goods, or to raise money on the security of goods [Section 2(9)]. The buyer
of goods from a mercantile agent, who has no authority from the principal to sell, gets a good title to
the goods if the following conditions are satisfied:
 The agent should be in possession of the goods or documents of title to the goods with the consent
of the owner.

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 The agent should sell the goods while acting in the ordinary course of business of a mercantile
agent.
 The buyer should act in good faith.
 The buyer should not have at the time of the contract of sale notice that the agent has no authority
to sell.
In the instant case, P, the agent, was in the possession of the car with J’s consent for the purpose of
sale. A, the buyer, therefore obtained a good title to the car. Hence, J in this case, cannot recover the
car from A.

A27. Section 26 of the Sale of Goods Act, 1930 provides that unless otherwise agreed, the goods
remain at the seller’s risk until the property therein is transferred to the buyer, but when the property
therein is transferred to the buyer, the goods are at buyer’s risk whether delivery has been made or
not. Further Section 18 read with Section 23 of the Act provide that in a contract for the sale of
unascertained goods, no property in the goods is transferred to the buyer, unless and until the goods
are ascertained and where there is contract for the sale of unascertained or future goods by
description, and goods of that description and in a deliverable state are unconditionally appropriated
to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the
seller, the property in the goods thereupon passes to the buyer. Such assent may be express or
implied.
Applying the aforesaid law to the facts of the case in hand, it is clear that Mr. S has the right to select
the goods out of the bulk and he has sent his men for same purpose.
Hence the problem can be answered based on the following two assumptions and the answer will vary
accordingly.
a) Where the bales have been selected with the consent of the buyer’s representatives: In this case,
the property in the 60 bales has been transferred to the buyer and goods have been appropriated
to the contract. Thus, loss arising due to fire in case of 60 bales would be borne by Mr. S. As regards
40 bales, the loss would be borne by Mr. V, since the goods have not been identified and
appropriated.
b) Where the bales have not been selected with the consent of buyer’s representatives: In this case,
the property in the goods has not been transferred at all and hence the loss of 100 bales would
be borne by Mr. V completely.

A28. As per the provisions of section 24 of the Sale of Goods Act, 1930, when goods are delivered to
the buyer on approval or “on sale or return" or other similar terms, the property therein passes to the
buyer-
 when the buyer signifies his approval or acceptance to the seller or does any other act adopting
the transaction;
 if he does not signify his approval or acceptance to the seller but retains the goods without giving
notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration of
such time, and, if no time has been fixed, on the expiration of a reasonable time; or
 he does something to the good which is equivalent to accepting the goods e.g. he pledges or sells
the goods.
Referring to the above provisions, we can analyse the situation given in the question.
Since, Mr. Joshi, who had taken delivery of the Motor car on Sale or Return basis and pledged the
motor car to Mr. Ganesh, has attracted the third condition that he has done something to the good
which is equivalent to accepting the goods e.g. he pledges or sells the goods. Therefore, the property
therein (Motor car) passes to Mr. Joshi. Now in this situation, Ms. Preeti cannot claim back her Motor
Car from Mr. Ganesh, but she can claim the price of the motor car from Mr. Joshi only.

A29. According to Section 28 of the Sales of Goods Act, sale by one of the several joint owners is valid
if the following conditions are satisfied:-

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 One of the several joint owners has the sole possession of them.
 Possession of the goods is by the permission of the co-owners.
 The buyer buys them in good faith and has not at the time of contract of sale knowledge that
the seller has no authority to sell.
In the above case, A, B and C were the joint owners of the truck and the possession of the truck was
with B. Now B sold the said truck to X. X without knowing this fact purchased the truck from B.
The sale between B and X is perfectly valid because Section 28 of the Sales of Goods Act provides that
in case one of the several joint owners has the possession of the goods by the permission of the co-
owners and if the buyer buys them in good faith without the knowledge of the fact that seller has no
authority to sell, it will give rise to a valid contract of sale.

A30. According to Section 24 of the Sales of Goods Act, 1930, in case of delivery of goods on approval
basis, the property in goods passes from seller to the buyer:-
 When the person to whom the goods are given either accepts them or does an act which implies
adopting the transaction.
 When the person to whom the goods are given retains the goods without giving his approval or
giving notice of rejection beyond the time fixed for the return of goods and in case no time is fixed
after the lapse of reasonable time.
In the given case, seller has delivered 20 tables to the buyer on sale or return basis. Buyer received
the tables without examining them. Out of these 20 tables, he sold 5 tables to his customer. It
implies that he has accepted 5 tables out of 20.
When the buyer received the complaint of some defect in the tables, he wanted to return all the
tables to the seller. According to the provisions of law he is entitled to return only 15 tables to the
seller and not those 5 tables which he has already sold to his customer. These tables are already
accepted by him so the buyer becomes liable under the doctrine of “Caveat Emptor”.

A31. A delivered the horse to B on sale or return basis. It was decided between them that B will try
the horse for 8 days and in case he does not like it, he will return the horse to the owner A. But on the
third day the horse died without any fault of B. The time given by the seller A to the buyer B has not
expired yet.
Therefore, the ownership of the horse still belongs to the seller A. B will be considered as the owner
of the horse only when B does not return the horse to A within stipulated time of 8 days.
The suit filed by A for the recovery of price from B is invalid and he cannot recover the price from B.
[Section 24]

A32. A lien is a right to retain possession of goods until the payment of the price. It is available to the
unpaid seller of the goods who is in possession of them where-
 the goods have been sold without any stipulation as to credit;
 the goods have been sold on credit, but the term of credit has expired;
 the buyer becomes insolvent.
The unpaid seller can exercise ‘his right of lien even if the property in goods has passed on to the
buyer. He can exercise his right even if he is in possession of the goods as agent or bailee for the buyer.
Termination of lien: An unpaid seller losses his right of lien thereon-
 When he delivers the goods to a carrier or other bailee for the purpose of transmission to the
buyer without reserving the right of disposal of the goods;
 When the buyer or his agent lawfully obtains possession of the goods;
Yes, he can exercise his right of lien even after he has obtained a decree for the price of goods from
the court.

A33. Mr. D sold some goods to Mr. E for 5,00,000 on 15 days credit. Mr. D delivered the goods. On
due date Mr. E refused to pay for it. So, Mr. D is an unpaid seller as according to section 45(1) of the

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Sale of Goods Act, 1930 the seller of goods is deemed to be an ‘Unpaid Seller’ when the whole of the
price has not been paid or tendered and the seller had an immediate right of action for the price.
Rights of Mr. D: As the goods have parted away from Mr. D, therefore, Mr. D cannot exercise the right
against the goods, he can only exercise his rights against the buyer i.e. Mr. E which are as under:
 Suit for price (Section 55): In the mentioned contract of sale, the price is payable after 15 days
and Mr. E refuses to pay such price, Mr. D may sue Mr. E for the price.
 Suit for damages for non-acceptance (Section 56): Mr. D may sue Mr. E for damages for non-
acceptance if Mr. E wrongfully neglects or refuses to accept and pay for the goods. As regards
measure of damages, Section 73 of the Indian Contract Act, 1872 applies.
 Suit for interest [Section 61]: If there is no specific agreement between Mr. D and Mr. E as to
interest on the price of the goods from the date on which payment becomes due, Mr. D may
charge interest on the price when it becomes due from such day as he may notify to Mr. E.

A34. The problem is based on Section 50 of the Sale of Goods Act, 1930 dealing with the right of
stoppage of the goods in transit available to an unpaid seller. The section states that the right is
exercisable by the seller only if the following conditions are fulfilled.
 The seller must be unpaid
 He must have parted with the possession of goods
 The goods must be in transit
 The buyer must have become insolvent
 The right is subject to the provisions of the Act.
Applying the provisions to the given case, Ram being still unpaid, can stop the 100 bales of cloth sent
by railway as these goods are still in transit.

A35. As per the section 55 of the Sale of Goods Act, 1930 an unpaid seller has a right to institute a suit
for price against the buyer personally. The said Section lays down that
 Where under a contract of sale the property in the goods has passed to buyer and the buyer
wrongfully neglects or refuses to pay for the goods, the seller may sue him for the price of the
goods [Section 55(1)].
 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. It
makes no difference even if the property in the goods has not passed and the goods have not
been appropriated to the contract [Section 55(2)].
This problem is based on above provisions. Hence, Suraj will succeed against Sohan for recovery of the
remaining amount. Apart from this, Suraj is also entitled to:-
 Interest on the remaining amount
 Interest during the pendency of the suit.
 Costs of the proceedings.

A36. Lien is the right of a person to retain possession of the goods belonging to another until claim of
the person in possession is satisfied. The unpaid seller has also right of lien over the goods for the
price of the goods sold.
Section 47(1) of the Sales of Goods Act, 1930 provides that the unpaid seller who is in the possession
of the goods is entitled to exercise right of lien in the following cases:-
 Where the goods have been sold without any stipulation as to credit
 Where the goods have been sold on credit but the term of credit has expired
 Where the buyer has become insolvent even though the period of credit has not yet expired.
In the given case, A has agreed to sell certain goods to B on a credit of 10 days. The period of 10 days
has expired. B has neither paid the price of goods nor taken the possession of the goods. That means
the goods are still physically in the possession of A, the seller. In the meantime B, the buyer has

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become insolvent. In this case, A is entitled to exercise the right of lien on the goods because the buyer
has become insolvent and the term of credit has expired without any payment of price by the buyer.

A37. The right of stoppage of goods in transit means the right of stopping the goods after the seller
has parted with the goods. Thereafter the seller regains the possession of the goods.
This right can be exercised by an unpaid seller when he has lost his right of lien over the goods because
the goods are delivered to a carrier for the purpose of taking the goods to the buyer. This right is
available to the unpaid seller only when the buyer has become insolvent. The conditions necessary for
exercising this right are:-
 The buyer has not paid the total price to the seller
 The seller has delivered the goods to a carrier thereby losing his right of lien
 The buyer has become insolvent
 The goods have not reached the buyer, they are in the course of transit. (Section 50, 51 and
52)
In the given case A, who is an agent of the buyer, had obtained the goods from the railway authorities
and loaded the goods on his truck. After this the railway authorities received a notice from the seller
B to stop the goods as the buyer had become insolvent.
According to the Sales of Goods Act, 1930, the railway authorities cannot stop the goods because the
goods are not in transit. A who has loaded the goods on his truck is the agent of the buyer. That means
railway authorities have given the possession of the goods to the buyer. The transit comes to an end
when the buyer or his agent takes the possession of the goods.

A38. The right of lien and stoppage in transit are meant to protect the seller. These will not be affected
even when the buyer has made a transaction of his own goods which were with the seller under lien.
But under two exceptional cases these rights of the seller are affected:-
 When the buyer has made the transaction with the consent of the seller
 When the buyer has made the transaction on the basis of documents of title such as bill of
lading, railway receipt or a delivery order etc.
In the given case, J has sold the machine to K and K gave a cheque for the payment. But the cheque
was dishonoured that means J, the seller is an unpaid seller. So, he is entitled to exercise the right of
lien, but according to section 53(1) his right of lien is defeated because he has given the document of
title to the buyer and the buyer has made a transaction of sale on the basis of this document. So, R
who has purchased the machine from K can demand the delivery of the machine.

A39. Duty of the buyer according to the doctrine of “Caveat Emptor”: In case of sale of goods, the
doctrine ‘Caveat Emptor’ means ‘let the buyer beware’. When sellers display their goods in the open
market, it is for the buyers to make a proper selection or choice of the goods. If the goods turn out to
be defective, he cannot hold the seller liable. The seller is in no way responsible for the bad selection
of the buyer. The seller is not bound to disclose the defects in the goods which he is selling.
Duty of the seller according to the doctrine of “Caveat Emptor”: The following exceptions to the Caveat
Emptor are the duties of the seller:
 Fitness as to quality or use
 Goods purchased under patent or brand name
 Goods sold by description
 Goods of Merchantable Quality
 Sale by sample
 Goods by sample as well as description
 Trade usage
 Seller actively conceals a defect or is guilty of fraud
Based on the above provision and facts given in the question, it can be concluded that Mrs. Reema is
entitled to get the money back or the right kind of cloth as required serving her purpose. It is the duty

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of the seller to supply such goods as are reasonably fit for the purpose mentioned by buyer. [Section
16(1) of the Sale of Goods Act, 1930].

A40. Section 27 of Sale of Goods Act, 1930 states that no man can sell the goods and give a good title
unless he is the owner of the goods. However, there are certain exceptions to this rule of transfer of
title of goods.
One of the exceptions is sale by person in possession under a voidable contract (Section 29 of Sale of
Goods Act, 1930)
 If a person has possession of goods under a voidable contract.
 The contract has not been rescinded or avoided so far
 The person having possession sells it to a buyer
 The buyer acts in good faith
 The buyer has no knowledge that the seller has no right to sell.
Then, such a sale by a person who has possession of goods under a voidable contract shall amount to
a valid sale and the buyer gets the better title.
Based on the provisions, Mr. A is in possession of the ring under a voidable contract as per provisions
of Indian Contract Act, 1872. Also, B has not rescinded or avoided the contract, Mr. A is in possession
of the ring and he sells it new buyer Mr. C who acts in good faith and has no knowledge that A is not
the real owner. Since all the conditions of Section 29 of Sale of Goods Act, 1930 are fulfilled, therefore
sale of ring made by Mr. A to Mr. C is a valid sale.

A41. In the instant case, D who noticed the deviation of goods from the sample can reject the goods
and treat it as a breach of implied condition as to sample which provides that when the goods are sold
by sample the goods must correspond to the sample in quality and the buyer should be given
reasonable time and opportunity of comparing the bulk with the sample. Whereas C can recover only
damages from B and B can recover damages from A. For C and B it will not be treated as a breach of
implied condition as to sample as they have accepted and sold the goods according to Section 13(2)
of the Sales of Goods Act, 1930.

A42. The problem as given in the question is based on Section 16(2) of the Sale of Goods Act, 1930,
which states that where goods are bought by description from a seller who deals in goods of that
description (whether he is the manufacturer or producer or not), there is an implied condition that
the goods shall be of merchantable quality. Though the term ‘merchantable quality’ is not defined in
the Act, it means that in the present case, the bottle must be properly sealed. In other words, if the
goods are purchased for self-use, they should be reasonably fit for the purpose for which it is being
used.
In the instant case, on an examination of the bottle of cold drink, it exploded and injured the buyer.
Applying the provision of Section 16(2), Mr. Amit would succeed in claim for damages from the owner
of the shop.

A43. As per Section 4(3) of the Sale of Goods Act, 1930, where under a contract of sale , the property
in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the
transfer of the property in the goods is to take place at a future time or subject to some condition
thereafter to be fulfilled, the contract is called an agreement to sell and as per Section 4(4), an
agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which
the property in the goods is to be transferred.
a) On the basis of above provisions and facts given in the question, it can be said that there is an
agreement to sell between Archika and shopkeeper and not a sale. Even the payment was made
by Archika, the property in goods can be transferred only after the fulfilment of conditions fixed
between buyer and seller. As the white polish was done but original design is disturbed due to

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polishing, bangles are not in original position. Hence, Archika has right to avoid the agreement to
sell and can recover the price paid.
b) On the other hand, if shopkeeper offers to bring the bangles in original position by repairing, he
cannot charge extra cost from Archika. Even he has to bear some expenses for repair; he cannot
charge it from Archika.

A44. By virtue of provisions of Section 17 of the Sale of Goods Act, 1930, in the case of a contract for
sale by sample there is an implied condition that the bulk shall correspond with the sample in quality
and the buyer shall have a reasonable opportunity of comparing the bulk with the sample. According
to Section 15, where there is a contract for the sale of goods by description, there is an implied
condition that the goods shall correspond with the description. If the goods do not correspond with
implied condition, the buyer can avoid the contract and reject the goods purchased.
a) In the instant case, the sale of sweet is sale by sample and the quality of bulk does not correspond
with quality of sample. Hence, Prashant can return the sweet and avoid the contract.
b) In the other case, the sale of sweet is the case of sale by description and the quality of goods does
not correspond with description made by seller. Hence, answer will be same. Prashant can return
the sweet and avoid the contract.

A45. According to Section 24 of the Sale of Goods Act, 1930, "When the goods are delivered to the
buyer on approval or on sale or return or other similar terms the property passes to the buyer:
 when he signifies his approval or acceptance to the seller,
 when he does any other act adopting the transaction, and
 if he does not signify his approval or acceptance to the seller but retains goods beyond a
reasonable time".
Further, as per Section 8, where there is an agreement to sell specific goods, and subsequently the
goods without any fault on the part of the seller or buyer perish or become so damaged as no longer
to answer to their description in the agreement before the risk passes to the buyer, the agreement is
thereby avoided.
According to above provisions and fact, the property is not passes to Akansh i.e. buyer as no condition
of Section 24 is satisfied. Hence, risk has not passed to buyer and the agreement is thereby avoided.
Akansh is not liable to pay the price. The loss finally should be borne by Seller, Mr. Jethalal.

A46. By virtue of provisions of Section 64 of the Sale of Goods Act, 1930, in case of auction sale, the
sale is complete when the auctioneer announces its completion by the fall of the hammer or in some
other customary manner.
In the instant case, Megha gives the highest bid in the auction for the sale of antic wall clock arranged
by Rachit. While announcing the completion of sale by fall of hammer on the table, hammer brakes
and damages the clock.
On the basis of above provisions, it can be concluded that the sale by auction cannot be completed
until hammer comes in its normal position after falling on table. Hence, in the given problem, sale is
not completed. Megha will not be liable for loss and can avoid the contract.

A47. Payment of the price by the buyer is an important ingredient of a contract of sale. If the parties
totally ignore the question of price while making the contract, it would not become an uncertain and
invalid agreement. It will rather be a valid contract and the buyer shall pay a reasonable price. (Section
9 of the Sale of Goods Act, 1930)
In the give case, X and Y have entered into a contract for sale of car but they did not fix the price of
the car. X refused to sell the car to Y on this ground. Y can legally demand the car from X and X can
recover a reasonable price of the car from Y.

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Partnership Act
A1. '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: 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.

A2.
a) No, this is not a case of partnership because the sharing of profits or of gross returns accruing
from property holding joint or common interest in the property would not by itself make such
persons partners.
Alternatively, this part can also be answered as below:
Yes, this is a case of partnership, as the car is used personally only on Sundays and holidays and
used for most of the days as a Taxi. Hence, it is inferred that the main purpose of owning the car
is to let it for business purpose. Also, there is an agreement for equally dividing the earnings.
b) Yes, this is a case of partnership because there is an agreement between two firms to combine
into one firm.

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c) Yes, this is a case of partnership because A & B, co-owners, have agreed to conduct a business in
common for profit.
d) No, this is not a case of partnership as no charitable association can be floated in partnership.
e) No, this is not a case of partnership as they are co-owners and not the partners. Further, there
exist no business.
f) Yes, this is a case of partnership as there exist the element of doing business and sharing of profits
equally.

A3. Sharing of profit is an essential element to constitute a partnership. But it is only a prima facie
evidence and not conclusive evidence, in that regard. The sharing of profits or of gross returns accruing
from property by persons holding joint or common interest in the property would not by itself make
such persons partners. Although the right to participate in profits is a strong test of partnership, and
there may be cases where, upon a simple participation in profits, there is a partnership, yet whether
the relation does or does not exist must depend upon the whole contract between the parties.
Where there is an express agreement between partners to share the profit of a business and the
business is being carried on by all or any of them acting for all, there will be no difficulty in the light of
provisions of Section 4, in determining the existence or otherwise of partnership.
But the task becomes difficult when either there is no specific agreement or the agreement is such as
does not specifically speak of partnership. In such a case for testing the existence or otherwise of
partnership relation, Section 6 has to be referred.
According to Section 6, regard must be had to the real relation between the parties as shown by all
relevant facts taken together. The rule is easily stated and is clear but its application is difficult.
Cumulative effect of all relevant facts such as written or verbal agreement, real intention and conduct
of the parties, other surrounding circumstances etc., are to be considered while deciding the
relationship between the parties and ascertaining the existence of partnership.
Hence, the statement is true / correct that mere sharing in the profits is not conclusive evidence.

A4. A partnership may be organized for the prosecution of a single adventure as well as for the conduct
of a continuous business. Where a person becomes a partner with another person in any particular
adventure or undertaking, the partnership is called ‘particular partnership’.
A partnership, constituted for a single adventure or undertaking is, subject to any agreement,
dissolved by the completion of the adventure or undertaking.

A5. A person who lends his name to the firm, without having any real interest in it, is called a nominal
partner.
He is not entitled to share the profits of the firm. Neither he invests in the firm nor takes part in the
conduct of the business. He is, however liable to third parties for all acts of the firm.

A6. The business must be carried on by all the partners or by anyone or more of the partners acting
for all. 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. If the element of mutual agency is
absent, then there will be no partnership.
In KD Kamath & Co., the Supreme Court has held that the two essential conditions to be satisfied are
that:
1) there should be an agreement to share the profits as well as the losses of business; and
2) the business must be carried on by all or any of them acting for all, within the meaning of the
definition of ‘partnership’ under section 4.

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The fact that the exclusive power and control, by agreement of the parties, is vested in one partner or
the further circumstance that only one partner can operate the bank accounts or borrow on behalf of
the firm are not destructive of the theory of partnership provided the two essential conditions,
mentioned earlier, are satisfied.

A7. According to Section 35 of the Indian Partnership Act, 1932, where under a contract between the
partners the firm is not dissolved by the death of a partner, the estate of a deceased partner is not
liable for any act of the firm done after his death.
Further, in order that the estate of the deceased partner may be absolved from liability for the future
obligations of the firm, it is not necessary to give any notice either to the public or the persons having
dealings with the firm.
In the given question, JR Limited has supplied furniture to the partnership firm, after P’s death. The
firm did not give notice about P’s death to public or people dealing with the firm. Afterwards, the firm
became insolvent and could not pay JR Limited.
In the light of the facts of the case and provisions of law:
a) Since the delivery of furniture was made after P’s death, his estate would not be liable for the debt
of the firm. A suit for goods sold and delivered would not lie against the representatives of the
deceased partner. This is because there was no debt due in respect of the goods in P’s lifetime.
b) It will not make any difference even if JR Limited supplied furniture to the firm believing that all
the three partners are alive, as it is not necessary to give any notice either to the public or the
persons having dealings with the firm, so the estate of the deceased partner may be absolved
from liability for the future obligations of the firm.

A8. Every partner is liable, jointly with all the other partners and also severally, for all acts of the firm
done while he is a partner. The partners are jointly and severally responsible to third parties for all
acts which come under the scope of their express or implied authority. This is because that all the acts
done within the scope of authority are the acts done towards the business of the firm.
The expression ‘act of firm’ connotes any act or omission by all the partners or by any partner or agent
of the firm, which gives rise to a right enforceable by or against the firm. Again in order to bring a case
under Section 25, it is necessary that the act of the firm, in respect of which liability is brought to be
enforced against a party, must have been done while he was a partner.
Where, -
by the wrongful act or omission of a partner in the ordinary course of the business of a firm, or with
the authority of his partners, loss or injury is caused to any third party, or any penalty is incurred, the
firm is liable therefor to the same extent as the partner.
a partner acting within his apparent authority receives money or property from a third party and
misapplies it, or a firm in the course of its business receives money or property from a third party, and
the money or property is misapplied by any of the partners while it is in the custody of the firm, the
firm is liable to make good the loss.

A9. According to Section 19 of the Indian Partnership Act, 1932, subject to the provisions of Section
22, the act of a partner which is done to carry on, in the usual way, business of the kind carried on by
the firm, binds the firm.
The authority of a partner to bind the firm conferred by this section is called his “implied authority”.
In the absence of any usage or custom of trade to the contrary, the implied authority of a partner does
not empower him to-
a) submit a dispute relating to the business of the firm to arbitration;
b) open a banking account on behalf of the firm in his own name;
c) compromise or relinquish any claim or portion of a claim by the firm;
d) withdraw a suit or proceedings filed on behalf of the firm;
e) admit any liability in a suit or proceedings against the firm;

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f) acquire immovable property on behalf of the firm;

g) transfer immovable property belonging to the firm; and
h) enter into partnership on behalf of the firm.

A10. 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 profits 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:
a) Yes, Mr. M can validly transfer his interest in the firm by way of sale.
b) On the retirement of the transferring partner (Mr. M), the transferee (Mr. Z) will be entitled,
against the remaining partners:
 to receive the share of the assets of the firm to which the transferring partner was entitled,
and
 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 6 crore in the firm’s assets.

A11. As per Section 48 of the Indian Partnership Act, 1932, in settling the accounts of a firm after
dissolution, the following rules shall, subject to agreement by the partners, be observed:-
1) Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and,
lastly, if necessary, by the partners individually in the proportions in which they were entitled to
share profits;
2) The assets of the firm, including any sums contributed by the partners to make up deficiencies of
capital, must be applied in the following manner and order:
a) in paying the debts of the firm to third parties;
b) in paying to each partner rateably what is due to him from capital;
c) in paying to each partner rateably what is due to him on account of capital; and
d) the residue, if any, shall be divided among the partners in the proportions in which they were
entitled to share profits.

A12. A partner may not be expelled from a firm by a majority of partners except in exercise, in good
faith, of powers conferred by contract between the partners. It is, thus, essential that:
a) the power of expulsion must have existed in a contract between the partners;
b) the power has been exercised by a majority of the partners; and
c) it has been exercised in good faith.
If all these conditions are not present, the expulsion is not deemed to be in bona fide interest of the
business of the firm.

A13.
a) Under Section 69 of the Indian Partnership Act, 1932 non-registration of partnership gives rise to
a number of disabilities. Though registration of firms is not compulsory, yet the consequences or
disabilities of non-registration have a persuasive pressure for their registration. Following are the
consequences:

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1) No suit in a civil court by firm or other co-partners against third party: The firm or any other
person on its behalf cannot bring an action against the third party for breach of contract
entered into by the firm.
2) No relief to partners for set-off of claim: If an action is brought against the firm by a third
party, then neither the firm nor the partner can claim any set-off, if the suit be valued for more
than 100 or pursue other proceedings to enforce the rights arising from any contract.
3) Aggrieved partner cannot bring legal action against other partner or the firm: A partner of an
unregistered firm (or any other person on his behalf) is precluded from bringing legal action
against the firm or any person alleged to be or to have been a partner in the firm.
4) Third-party can sue the firm: In case of an unregistered firm, an action can be brought against
the firm by a third party.
b) Non-registration of a firm does not, however, affect the following rights:
1) The right of third parties to sue the firm or any partner.
2) The right of partners to sue for the dissolution of the firm or for the settlement of the accounts
of a dissolved firm, or for realization of the property of a dissolved firm.
3) The power of an Official Assignees, Receiver of Court to release the property of the insolvent
partner and to bring an action.
4) The right to sue or claim a set-off if the value of suit does not exceed 100 in value.

A14.
a) Rights of outgoing partner to carry on competing business (Section 36 of the Indian Partnership
Act, 1932) - An outgoing partner may carry on business competing with that of the firm and he
may advertise such business, but subject to contract to the contrary, he may not,-
 use the firm name,
 represent himself as carrying on the business of the firm or
 solicit the custom of persons who were dealing with the firm before he ceased to be a partner.
Although this provision has imposed some restrictions on an outgoing partner, it effectively
permits him to carry on a business competing with that of the firm. However, the partner may
agree with his partners that on his ceasing to be so, he will not carry on a business similar to that
of the firm within a specified period or within specified local limits. Such an agreement will not be
in restraint of trade if the restraint is reasonable [Section 36 (2)]
From the above, we can infer that P & Q can start competitive business in the name of M/S PQ &
Co after following above conditions in the absence of any agreement.
b) Right of outgoing partner in certain cases to share subsequent profits (Section 37 of the Indian
Partnership Act, 1932) - According to Section 37, where any member of a firm has died or
otherwise ceased to be partner, and the surviving or continuing partners carry on the business of
the firm with the property of the firm without any final settlement of accounts as between them
and the outgoing partner or his estate, then, in the absence of a contract to the contrary, the
outgoing partner or his estate is entitled at the option of himself or his representatives to such
share of the profits made since he ceased to be a partner as may be attributable to the use of his
share of the property of the firm or to interest at the rate of six per cent per annum on the amount
of his share in the property of the firm.
In the instant case, P & Q can share in property of M/s PQRS & Co. keeping in view of the above
provisions.

A15. Liability of Firm for Misapplication by Partners (Section 27 of Indian Partnership Act, 1932):
Where-
a) a partner acting within his apparent authority receives money or property from a third party and
misapplies it, or

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b) a firm in the course of its business receives money or property from a third party, and the money
or property is misapplied by any of the partners while it is in the custody of the firm, the firm is
liable to make good the loss.
Analysis of section 27:
It may be observed that the workings of the two clauses of Section 27 are designed to bring out clearly
an important point of distinction between the two categories of cases of misapplication of money by
partners.
Clause (a) covers the case where a partner acts within his authority and due to his authority as a
partner, he receives money or property belonging to a third party and misapplies that money or
property. For this provision to be attracted, it is not necessary that the money should have actually
come into the custody of the firm.
On the other hand, the provision of clause (b) would be attracted when such money or property has
come into the custody of the firm and it is misapplied by any of the partners.
The firm would be liable in both the cases.

A16. According to section 38, a continuing guarantee given to a firm or to third party in respect of the
transaction of a firm is, in the absence of an agreement to the contrary, revoked as to future
transactions from the date of any change in the constitution of the firm. Such change may occur by
the death, or retirement of a partner, or by introduction of a new partner.

A17. The term “Goodwill” has not been defined under the Indian Partnership Act, 1932. Section 14 of
the Act lays down that goodwill of a business is to be regarded as a property of the firm.
Goodwill may be defined as the value of the reputation of a business house in respect of profits
expected in future over and above the normal level of profits earned by undertaking belonging to the
same class of business.

A18. Effects of insolvency of a partner (Section 34 of the Indian Partnership Act, 1932):
1) The insolvent partner cannot be continued as a partner.
2) He will be ceased to be a partner from the very date on which the order of adjudication is made.
3) The estate of the insolvent partner is not liable for the acts of the firm done after the date of order
of adjudication.
4) The firm is also not liable for any act of the insolvent partner after the date of the order of
adjudication,
5) Ordinarily, the insolvency of a partner results in dissolution of a firm; but the partners are
competent to agree among themselves that the adjudication of a partner as an insolvent will not
give rise to dissolution of the firm.

A19. As per the provisions of Section 30(5) of the Indian Partnership Act, 1932, at any time within six
months of his attaining majority, or of his obtaining knowledge that he had been admitted to the
benefits of partnership, whichever date is later, such person may give public notice that he has elected
to become or that he has elected not to become a partner in the firm, and such notice shall determine
his position as regards the firm.
However, if he fails to give such notice, he shall become a partner in the firm on the expiry of the said
six months.
If the minor becomes a partner by his failure to give the public notice within specified time, his rights
and liabilities as given in Section 30(7) are as follows:
 He becomes personally liable to third parties for all acts of the firm done since he was admitted
to the benefits of partnership.
 His share in the property and the profits of the firm remains the same to which he was entitled as
a minor.

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a) In the instant case, since, X has failed to give a public notice, he shall become a partner in the M/s
ABC & Co. and becomes personally liable to Mr. L, a third party.
b) In the light of the provisions of Section 30(7) read with Section 30(5) of the Indian Partnership Act,
1932, since X has failed to give public notice that he has not elected to not to become a partner
within six months, he will be deemed to be a partner after the period of the above six months and
therefore, Mr. L can recover his debt from him also in the same way as he can recover from any
other partner.

A20. DISSOLUTION OF FIRM VS. DISSOLUTION OF PARTNERSHIP

S. BASIS OF DISSOLUTION OF FIRM DISSOLUTION OF PARTNERSHIP
NO DIFFERENCE
.
1. Continuation It involves discontinuation of It does not affect continuation of
of business business in partnership. business. It involves only
reconstitution of the firm.
2. Winding up It involves winding up of the firm It involves only reconstitution and
and requires realization of assets requires only revaluation of assets and
and settlement of liabilities. liabilities of the firm.
3. Order of court A firm may be dissolved by the Dissolution of partnership is not
order of the court. ordered by the court.
4. Scope It necessarily involves It may or may not involve dissolution of
dissolution of partnership. firm.
5. Final closure of It involves final closure of books of It does not involve final closure of the
books the firm. books.

A21. As per Section 28 of Indian Partnership Act, 1932, Partnership by holding out is also known as
partnership by estoppel. Where a man holds himself out as a partner, or allows others to do it, he is
then stopped from denying the character he has assumed and upon the faith of which creditors may
be presumed to have acted. A person may himself, by his words or conduct have induced others to
believe that he is a partner or he may have allowed others to represent him as a partner. The result in
both the cases is identical.
In the given case, MU (the Manager) is also liable for the price because he becomes a partner by
holding out as per Section 28 of Indian Partnership Act, 1932.

A22. Ms. Lucy while drafting partnership deed must take care of following important points:
 No particular formalities are required for an agreement of partnership.
 Partnership deed may be in writing or formed verbally. The document in writing containing the
various terms and conditions as to the relationship of the partners to each other is called the
‘partnership deed’.
 Partnership deed should be drafted with care and be stamped according to the provisions of the
Stamp Act, 1899.
 If partnership comprises immovable property, the instrument of partnership must be in writing,
stamped and registered under the Registration Act.
 List of information included in Partnership Deed while drafting Partnership Deed by Ms. Lucy:
 Name of the partnership firm.
 Names of all the partners.
 Nature and place of the business of the firm.
 Date of commencement of partnership.
 Duration of the partnership firm.
 Capital contribution of each partner.
 Profit Sharing ratio of the partners.

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 Admission and Retirement of a partner.

 Rates of interest on Capital, Drawings and loans.
 Provisions for settlement of accounts in the case of dissolution of the firm.
 Provisions for Salaries or commissions, payable to the partners, if any.
 Provisions for expulsion of a partner in case of gross breach of duty or fraud.
Note: Ms. Lucy may add or delete any provision according to the needs of the partnership firm.

A23. A partner may not be expelled from a firm by a majority of partners except in exercise, in good
faith, of powers conferred by contract between the partners.
The test of good faith as required under Section 33(1) includes three things:
 The expulsion must be in the interest of the partnership.
 The partner to be expelled is served with a notice.
 He is given an opportunity of being heard.
If a partner is otherwise expelled, the expulsion is null and void.
a) Action by the partners of M/s XYZ & Associates, a partnership firm to expel Mr. G from the
partnership was justified as he was expelled by united approval of the partners exercised in good
faith to protect the interest of the partnership against the unauthorized activities charged against
Mr. G. A proper notice and opportunity of being heard has to be given to Mr. G.
b) The following are the factors to be kept in mind prior expelling a partner from the firm by other
partners:
 the power of expulsion must have existed in a contract between the partners;
 the power has been exercised by a majority of the partners; and
 it has been exercised in good faith.

A24. Section 37 of the Indian Partnership Act, 1932 provides that where a partner dies or otherwise
ceases to be a partner and there is no final settlement of account between the legal representatives
of the deceased partner or the firms with the property of the firm, then, in the absence of a contract
to the contrary, the legal representatives of the deceased partner or the retired partner are entitled
to claim either.
1) Such shares of the profits earned after the death or retirement of the partner which is attributable
to the use of his share in the property of the firm; or
2) Interest at the rate of 6 per cent annum on the amount of his share in the property.
Based on the aforesaid provisions of Section 37 of the Indian Partnership Act, 1932, in the given
problem, A’s Legal representatives shall be entitled, at their option to:
a) the 20% shares of profits (as per the partnership deed); or
b) interest at the rate of 6 per cent per annum on the amount of A’s share in the property.

A25. As per the provisions of Section 30(5) of the Indian Partnership Act, 1932, at any time within six
months of his attaining majority, or of his obtaining knowledge that he had been admitted to the
benefits of partnership, whichever date is later, such person may give public notice that he has elected
to become or that he has elected not to become a partner in the firm, and such notice shall determine
his position as regards the firm.
However, if he fails to give such notice, he shall become a partner in the firm on the expiry of the said
six months.
If the minor becomes a partner by his failure to give the public notice within specified time, his rights
and liabilities as given in Section 30(7) are as follows:
 He becomes personally liable to third parties for all acts of the firm done since he was admitted
to the benefits of partnership.
 His share in the property and the profits of the firm remains the same to which he was entitled as
a minor.

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a) In the instant case, since, X has failed to give a public notice, he shall become a partner in the M/s
ABC & Co. and becomes personally liable to Mr. L, a third party.
b) In the light of the provisions of Section 30(7) read with Section 30(5) of the Indian Partnership Act,
1932, since X has failed to give public notice that he has not elected to not to become a partner
within six months, he will be deemed to be a partner after the period of the above six months and
therefore, Mr. L can recover his debt from him also in the same way as he can recover from any
other partner.

A26. As per Section 29 of Indian Partnership Act, 1932, 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 profits of the transferring partner, and the transferee shall accept the account of profits
agreed to by the partners.
In the given case during the continuance of partnership, such transferee Mr. B is not entitled:
 to interfere with the conduct of the business.
 to require accounts.
 to inspect books of the firm.
However, Mr. B is only entitled to receive the share of the profits of the transferring partner and he is
bound to accept the profits as agreed to by the partners, i.e. he cannot challenge the accounts.

A27. The Dissolution of Firm means the discontinuation of the jural relation existing between all the
partners of the Firm. But when only one of the partners retires or becomes in capacitated from acting
as a partner due to death, insolvency or insanity, the partnership, i.e., the relationship between such
a partner and other is dissolved, but the rest may decide to continue. In such cases, there is in practice,
no dissolution of the firm. The particular partner goes out, but the remaining partners carry on the
business of the Firm. In the case of dissolution of the firm, on the other hand, the whole firm is
dissolved. The partnership terminates as between each and every partner of the firm.
Dissolution of a Firm may take place (Section 39 - 44)
 as a result of any agreement between all the partners (i.e., dissolution by agreement);
 by the adjudication of all the partners, or of all the partners but one, as insolvent (i.e., compulsory
dissolution);
 by the business of the Firm becoming unlawful (i.e., compulsory dissolution);
 subject to agreement between the parties, on the happening of certain contingencies, such as:
effluence of time; (ii) completion of the venture for which it was entered into; (iii) death of a
partner; (iv) insolvency of a partner.
 by a partner giving notice of his intention to dissolve the firm, in case of partnership at will and
the firm being dissolved as from the date mentioned in the notice, or if no date is mentioned, as
from the date of the communication of the notice; and
 by intervention of court in case of: (i) a partner becoming the unsound mind; (ii) permanent
incapacity of a partner to perform his duties as such; (iii) Misconduct of a partner affecting the
business; (iv) willful or persistent breach of agreement by a partner; (v) transfer or sale of the
whole interest of a partner; (vi) improbability of the business being carried on save at a loss; (vii)
the court being satisfied on other equitable grounds that the firm should be dissolved.

A28. According to Section 35 of the Indian Partnership Act, 1932, where under a contract between the
partners the firm is not dissolved by the death of a partner, the estate of a deceased partner is not
liable for any act of the firm done after his death.
Further, in order that the estate of the deceased partner may be absolved from liability for the future
obligations of the firm, it is not necessary to give any notice either to the public or the persons having
dealings with the firm.

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In the light of the facts of the case and provisions of law, since the delivery of furniture was made after
Jay’s death, his estate would not be liable for the debt of the firm. A suit for goods sold and delivered
would not lie against the representatives of the deceased partner. This is because there was no debt
due in respect of the goods in Jay’s lifetime. He was already dead when the delivery of goods was
made to the firm and also it is not necessary to give any notice either to the public or the persons
having dealings with the firm on a death of a partner (Section 35). So, the estate of the deceased
partner may be absolved from liability for the future obligations of the firm.

A29. By virtue of provisions of Section 13(a) of the Indian Partnership Act, 1932 a partner is not entitled
to receive remuneration for taking part in the conduct of the business. But this rule can always be
varied by an express agreement, or by a course of dealings, in which event the partner will be entitled
to remuneration. Thus, a partner can claim remuneration even in the absence of a contract, when
such remuneration is payable under the continued usage of the firm. In other words, where it is
customary to pay remuneration to a partner for conducting the business of the firm, he can claim it
even in the absence of a contract for the payment of the same.
In the given problem, existing partners are getting regularly a monthly remuneration from firm
customarily being working partners of the firm. As Sony also admitted as working partner of the firm,
he is entitled to get remuneration like other partners.

A30. According to provisions of Section 69 of the Indian Partnership Act, 1932 an unregistered firm
cannot file a suit against a third party to enforce any right arising from contract, e.g., for the recovery
of the price of goods supplied. But this section does not prohibit a third party to file suit against the
unregistered firm or its partners.
a) On the basis of above, M/s LMN & Company cannot file the suit against M/s XYZ & Company as
M/s LMN & Company is an unregistered firm.
b) In case M/s XYZ & Company is a registered firm while M/s LMN & Company is an unregistered
firm, the answer would remain same as in point a) above.
c) In case M/s LMN & Company is a registered firm, it can file the suit against M/s XYZ & Company.

A31.
a) According to Section 7 of the Indian Partnership Act, 1932, partnership at will is a partnership
when:
 no fixed period has been agreed upon for the duration of the partnership; and
 there is no provision made as to the determination of the partnership.
These two conditions must be satisfied before a partnership can be regarded as a partnership at
will. But, where there is an agreement between the partners either for the duration of the
partnership or for the determination of the partnership, the partnership is not partnership at will.
Where a partnership entered into for a fixed term is continued after the expiry of such term, it is
to be treated as having become a partnership at will.
A partnership at will may be dissolved by any partner by giving notice in writing to all the other
partners of his intention to dissolve the same.
b) A partnership may be organized for the prosecution of a single adventure as well as for the
conduct of a continuous business. Where a person becomes a partner with another person in any
particular adventure or undertaking the partnership is called ‘particular partnership’.
A partnership, constituted for a single adventure or undertaking is, subject to any agreement,
dissolved by the completion of the adventure or undertaking.

A32. “Partner indeed virtually embraces the character of both a principal and an agent”: Subject to
the provisions of section 18 of the Indian Partnership Act, 1932, a partner is the agent of the firm for
the purposes of the business of the firm.

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A partnership is the relationship between the partners who have agreed to share the profits of the
business carried on by all or any of them acting for all (Section 4). This definition suggests that any of
the partners can be the agent of the others.
Section 18 clarifies this position by providing that, subject to the provisions of the Act, a partner is the
agent of the firm for the purpose of the business of the firm. The partner indeed virtually embraces
the character of both a principal and an agent. So far as he acts for himself and in his own interest in
the common concern of the partnership, he may properly be deemed as a principal and so far as he
acts for his partners, he may properly be deemed as an agent.
The principal distinction between him and a mere agent is that he has a community of interest with
other partners in the whole property and business and liabilities of partnership, whereas an agent as
such has no interest in either.
The rule that a partner is the agent of the firm for the purpose of the business of the firm cannot be
applied to all transactions and dealings between the partners themselves. It is applicable only to the
act done by partners for the purpose of the business of the firm.

A33. Section 37 of the Indian Partnership Act, 1932 provides that where a partner dies or otherwise
ceases to be a partner and there is no final settlement of account between the legal representatives
of the deceased partner or the firms with the property of the firm, then, in the absence of a contract
to the contrary, the legal representatives of the deceased partner or the retired partner are entitled
to claim either.
 Such shares of the profits earned after the death or retirement of the partner which is attributable
to the use of his share in the property of the firm; or
 Interest at the rate of 6 per cent annum on the amount of his share in the property.
Based on the aforesaid provisions of Section 37 of the Indian Partnership Act, 1932, in the given
problem, A shall be entitled, at his option to:
 the 20% shares of profits (as per the partnership deed); or
 interest at the rate of 6 per cent per annum on the amount of A’s share in the property.

A34. According to of the Indian Partnership Act, 1932, subject to contract between partners –
a) if a partner derives any profit for himself from any transaction of the firm, or from the use of the
property or business connection of the firm or the firm name, he shall account for that profit and
pay it to the firm;
b) if a partner carries on any business of the same nature as and competing with that of the firm, he
shall account for and pay to the firm all profits made by him in that business.
In the given scenario, Mr. B had sold iron bar to the firm at the current prevailing market rate of 350
per Kg though he had stock with him which he bought for 200 per Kg. Hence, he made an extra profit
of 150 per Kg. This is arising purely out of transactions with the firm. Hence, Mr. B is accountable to
the firm for the extra profit earned thereby.

A35. As per Section 29 of the Indian Partnership Act, 1932, during the continuance of the business, a
transferee is not entitled
 To interfere with the conduct of the business
 To require the accounts
 To inspect the books of the firm
He is only entitled to his share of profit.
Keeping the above points, in the given case, since the partnership business is in continuance, Mr. B is
bound to accept the profits as agreed to by the partners. He cannot challenge the accounts. He is only
entitled to receive the share of profits of Mr. A (transferring partner).

A36. According to Section 41 of the Indian Partnership Act, 1932, a firm is compulsorily dissolved;
a) by the adjudication of all the partners or of all the partners but one as insolvent, or

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b) by the happening of any event which makes it unlawful for the business of the firm to be carried
on or for the partners to carry it on in partnership.
However, where more than one separate adventure or undertaking is carried on by the firm, the
illegality of one or more shall not of itself cause the dissolution of the firm in respect of its lawful
adventures and undertakings.
Here, MN has to compulsorily dissolve due to happening of law which bans the usage of ajinomoto.
Else the business of the firm shall be treated as unlawful.
However, the illegality of ajinomoto business will in no way affect the legality or dissolution of the
other line of business (paper plates & cups). MN can continue with paper plates and cup manufacture.

A37. A minor cannot be bound by a contract because a minor’s contract is void and not merely
voidable. Therefore, a minor cannot become a partner in a firm because partnership is founded on a
contract. Though a minor cannot be a partner in a firm, he can nonetheless be admitted to the benefits
of partnership under Section 30 of the Indian Partnership Act, 1932. In other words, he can be validly
given a share in the partnership profits. When this has been done and it can be done with the consent
of all the partners then the rights and liabilities of such a partner will be governed under Section 30 as
follows:
Rights:
A minor partner has a right to his agreed share of the profits and of the firm.
 He can have access to, inspect and copy the accounts of the firm.
 He can sue the partners for accounts or for payment of his share but only when severing his
connection with the firm, and not otherwise.
 On attaining majority, he may within 6 months elect to become a partner or not to become a
partner. If he elects to become a partner, then he is entitled to the share to which he was entitled
as a minor. If he does not, then his share is not liable for any acts of the firm after the date of the
public notice served to that effect.

Companies Act
A1. This case is governed by the ‘Doctrine of Ultra Vires’. According to this doctrine, any act done or a
contract made by the company which travels beyond the powers of the company conferred upon it
by its Memorandum of Association is wholly void and inoperative in law and is therefore not binding
on the company. This is because, the Memorandum of Association of the company is, in fact, its
charter; it defines its constitution and the scope of the powers of the company. Hence, a company
cannot depart from the provisions contained in the memorandum however imperative may be the
necessity for the departure. Hence, any agreement ultra vires the company shall be null and void.
As per the facts given, AK Private Limited borrowed 36 crores from BK Finance Limited which is beyond
its borrowing power of 30 crores.
Hence, contract for borrowing of 36 crores, being ultra vires the memorandum of association and
thereby ultra vires the company, is void. Therefore, AK Private Limited is not liable to pay the debt.
In light of the legal position explained above, BK Finance Limited cannot enforce the said transaction
and thus has no remedy against the company for recovery of the money lent. BK Finance limited may
take action against the directors of AK Private Limited as it is the personal liability of its directors to
restore the borrowed funds. Besides, BK Finance Limited may take recourse to the remedy by means
of ‘Injunction’, if feasible.

A2. In the domain of Company Law, the term capital can be classified as follows:
 Nominal or authorised or registered capital: This expression means such capital as is authorised
by memorandum of a company to be the maximum amount of share capital of the company.
 Issued capital: It means such capital as the company issues from time to time for subscription.
 Subscribed capital: As such part of the capital which is for the time being subscribed by the
members of a company.

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 Called up capital: As such part of the capital which has been called for payment. It is the total
amount called up on the shares issued.
 Paid-up capital: It is the total amount paid or credited as paid up on shares issued. It is equal to
called up capital less calls in arrears.

A3. Section 2(87) defines “subsidiary company” in relation to any other company (that is to say the
holding company), means a company in which the holding company—
a) controls the composition of the Board of Directors; or
b) exercises or controls more than one-half of the total voting power either at its own or together
with one or more of its subsidiary companies:
For the purposes of this section —
1) a company shall be deemed to be a subsidiary company of the holding company even if the control
referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding
company;
2) “layer” in relation to a holding company means its subsidiary or subsidiaries.
In the instant case, BC Private Limited together with its subsidiary KL Private Limited is holding
1,60,000 shares (90,000+70,000 respectively) which is more than one half in nominal value of the
Equity Share Capital of PQ Private Limited. Hence, PQ Private Limited is subsidiary of BC Private
Limited.
In the second case, the answer will remain the same. KL Private Limited is a holding 1,60,000 shares
i.e., more than one half in nominal value of the Equity Share Capital of PQ Private Limited (i.e., holding
more than one half of voting power). Hence, KL Private Limited is holding company of PQ Private
Company and BC Private Limited is a holding company of KL Private Limited.
Hence, by virtue of Chain relationship, BC Private Limited becomes the holding company of PQ Private
Limited.

A4. In the given case, ABC Limited was having 245 members in the company. The Board of Directors
of said company proposes to convert it into private company. In lines with Section 2 (68) of the
Companies Act, 2013, a private company by its Articles, limits the number of its members to 200.
Provided that, where two or more persons hold one or more shares in a company jointly, they shall,
for the purposes of this clause, be treated as a single member.
It is further provided that, following persons shall not be included in the number of members-
a) Persons who are in the employment of the company; and
b) Persons, who, having been formerly in the employment of the company, were members of the
company while in that employment and have continued to be members after the employment
ceased.
As per the facts, ABC Limited has members constituting of Directors & their relatives, employees, Ex-
employees and others including 10 joint holders. In line with the requirement for being a private
company, following shall be restricted to be as members i.e., Directors & their relatives & joint holders
holding shares jointly constituting 200 members (190+10).
Accordingly, ABC Limited when converted to private company shall not be required to reduce the
number of members as the number of members as per requirement of a private company, is fulfilled
that is of maximum 200 members.

A5. According to the “doctrine of indoor management” the outsiders, dealing with the company
though are supposed to have satisfied themselves regarding the competence of the company to enter
into the proposed contracts are also entitled to assume that as far as the internal compliance to
procedures and regulations by the company is concerned, everything has been done properly. They
are bound to examine the registered documents of the company and ensure that the proposed dealing
is not inconsistent therewith, but they are not bound to do more. They are fully entitled to presume
regularity and compliance by the company with the internal procedures as required by the

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Memorandum and the Articles. This doctrine is a limitation of the doctrine of “constructive notice”
and popularly known as the rule laid down in the celebrated case of Royal British Bank v. Turquand.
Thus, the doctrine of indoor management aims to protect outsiders against the company.
The above mentioned doctrine of Indoor Management or Turquand Rule has limitations of its own.
That is to say, it is inapplicable to the following cases, namely:
a) Actual or constructive knowledge of irregularity: The rule does not protect any person when the
person dealing with the company has notice, whether actual or constructive, of the irregularity.
b) Suspicion of Irregularity: The doctrine in no way, rewards those who behave negligently. Where
the person dealing with the company is put upon an inquiry, for example, where the transaction
is unusual or not in the ordinary course of business, it is the duty of the outsider to make the
necessary enquiry.
c) Forgery: The doctrine of indoor management applies only to irregularities which might otherwise
affect a transaction but it cannot apply to forgery which must be regarded as nullity.

A6. Government Company means any company in which not less than 51% of the paid-up share capital
is held by-
a) The Central Government, or
b) By any State Government or Governments, or
c) Partly by the Central Government and partly by one or more State Governments,
and the section includes a company which is a subsidiary company of such a Government company.
In the instant case, paid up share capital of SK Infrastructure Limited is 6,00,000 equity shares of 100
each. 200,000 equity shares are held by Central government and 1,20,000 equity shares are held by
Government of Maharashtra. The holding of equity shares by both government is 3,20,000 which is
more than 51% of total paid up equity shares.
Hence, SK Infrastructure Limited is a Government company.

A7.
a) Yes, it is mandatory for Z to withdraw her nomination in the said OPC as she is leaving India
permanently as only a natural person who is resident in India shall be a nominee in OPC.
b) Yes, Z can continue her nomination in the said OPC, if she maintained the status of Resident of
India after her marriage by staying in India for a period of not less than 120 days during the
immediately preceding financial year.

A8. In case of guarantee company, the members may be called upon to discharge their liability only
after commencement of the winding up and only subject to certain conditions; whereas in the case of
company having share capital, members may be called upon to discharge their liability at any time,
either during the company’s life -time or during its winding up.
It is clear from the definition of the guarantee company that it does not raise its initial working funds
from its members. Therefore, such a company may be useful only where no working funds are needed
or where these funds can be held from other sources like endowment, fees, charges, donations, etc.
In Narendra Kumar Agarwal vs. Saroj Maloo, the Supreme Court has laid down that the right of a
guarantee company to refuse to accept the transfer by a member of his interest in the company is on
a different footing than that of a company limited by shares. The membership of a guarantee company
may carry privileges much different from those of ordinary shareholders.

A9. Section 8 Company- Significant points

 Formed for the promotion of commerce, art, science, religion, charity, protection of the
environment, sports, etc.
 Requirement of minimum share capital does not apply.
 Uses its profits for the promotion of the objective for which formed.
 Does not declare dividend to members.

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 Operates under a special licence from the Central Government.

 Need not use the word Ltd./ Pvt. Ltd. in its name and adopt a more suitable name such as club,
chambers of commerce etc.
 Licence revoked if conditions contravened.
 On revocation, the Central Government may direct it to
 Converts its status and change its name
 Wind – up
 Amalgamate with another company having similar object.
 Can call its general meeting by giving a clear 14 days notice instead of 21 days.
 Requirement of minimum number of directors, independent directors etc. does not apply.
 Need not constitute Nomination and Remuneration Committee and Shareholders Relationship
Committee.
 A partnership firm can be a member of Section 8 company.

A10. Foreign Company [Section 2(42) of the Companies Act, 2013]: It means any company or body
corporate incorporated outside India which—
 has a place of business in India whether by itself or through an agent, physically or through
electronic mode; and
 conducts any business activity in India in any other manner.
Since Mike Limited is a company incorporated in India, hence, it cannot be called as a foreign company.
Even though, Liaison was officially established at Singapore, it would not be called as a foreign
company as per the provisions of the Companies Act, 2013.

A11. The Memorandum of Association of company is in fact its charter; it defines its constitution and
the scope of the powers of the company with which it has been established under the Act. It is the
very foundation on which the whole edifice of the company is built.
Object of registering a memorandum of association:
 It contains the object for which the company is formed and therefore identifies the possible scope
of its operations beyond which its actions cannot go.
 It enables shareholders, creditors and all those who deal with company to know what its powers
are and what activities it can engage in.
 A memorandum is a public document under Section 399 of the Companies Act, 2013.
Consequently, every person entering into a contract with the company is presumed to have the
knowledge of the conditions contained therein.
 The shareholders must know the purposes for which his money can be used by the company and
what risks he is taking in making the investment.
 A company cannot depart from the provisions contained in the memorandum however imperative
may be the necessity for the departure. It cannot enter into a contract or engage in any trade or
business, which is beyond the power confessed on it by the memorandum. If it does so, it would
be ultra vires the company and void.
Contents of the memorandum: The memorandum of a company shall state—
 the name of the company (Name Clause) with the last word “Limited” in the case of a public
limited company, or the last words “Private Limited” in the case of a private limited company. This
clause is not applicable on the companies formed under section 8 of the Act.
 the State in which the registered office of the company (Registered Office clause) is to be situated;
 the objects for which the company is proposed to be incorporated and any matter considered
necessary in furtherance thereof (Object clause);
 the liability of members of the company (Liability clause), whether limited or unlimited
 the amount of authorized capital (Capital Clause) divided into share of fixed amounts and the
number of shares with the subscribers to the memorandum have agreed to take, indicated

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opposite their names, which shall not be less than one share. A company not having share capital
need not have this clause.
 the desire of the subscribers to be formed into a company. The Memorandum shall conclude with
the association clause. Every subscriber to the Memorandum shall take at least one share, and
shall write against his name, the number of shares taken by him.

A12. The House of Lords in Salomon Vs Salomon & Co. Ltd. laid down that a company is a person
distinct and separate from its members, and therefore, has an independent separate legal existence
from its members who have constituted the company. But under certain circumstances the separate
entity of the company may be ignored by the courts. When that happens, the courts ignore the
corporate entity of the company and look behind the corporate façade and hold the persons in control
of the management of its affairs liable for the acts of the company. Where a company is incorporated
and formed by certain persons only for the purpose of evading taxes, the courts have discretion to
disregard the corporate entity and tax the income in the hands of the appropriate assesse.
In Dinshaw Maneckjee Petit case it was held that the company was not a genuine company at all but
merely the assessee himself disguised that the legal entity of a limited company. The assessee earned
huge income by way of dividends and interest. So, he opened some companies and purchased their
shares in exchange of his income by way of dividend and interest. This income was transferred back
to assessee by way of loan. The court decided that the private companies were a sham and the
corporate veil was lifted to decide the real owner of the income.
In the instant case, the four private limited companies were formed by A, the assesse, purely and
simply as a means of avoiding tax and the companies were nothing more than the façade of the
assesse himself. Therefore, the whole idea of Mr. A was simply to split his income into four parts with
a view to evade tax. No other business was done by the company.
Hence, A cannot be regarded as separate from the private limited companies he formed.

A13. According to Section 2(68) of Companies Act, 2013, “Private company” means a company having
a minimum paid-up share capital as may be prescribed, and which by its articles,—
 restricts the right to transfer its shares;
 except in case of One Person Company, limits the number of its members to two hundred:
Provided that where two or more persons hold one or more shares in a company jointly, they
shall, for the purposes of this clause, be treated as a single member:
Provided further that—
 persons who are in the employment of the company; and
 persons who, having been formerly in the employment of the company, were members of the
company while in that employment and have continued to be members after the employment
ceased,
 shall not be included in the number of members; and
 prohibits any invitation to the public to subscribe for any securities of the company;
a) Following the provisions of Section 2(68), 25 members were employees of the company but not
during present membership which was started from 1st December 2016 i.e. after the date on
which these 25 members were ceased to the employee in Jagannath Oils Limited. Hence, they will
be considered as members for the purpose of the limit of 200 members. The company is required
to reduce the number of members before converting it into a private company.
b) On the other hand, if those 25 members were ceased to be employee on 28th June 2017, they
were employee at the time of getting present membership. Hence, they will not be counted as
members for the purpose of the limit of 200 members and the total number of members for the
purpose of this sub-section will be 195. Therefore, Jagannath Oils Limited is not required to reduce
the number of members before converting it into a private company.

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A14. Section 8 of the Companies Act, 2013 deals with the formation of companies which are formed
to promote the charitable objects of commerce, art, science, education, sports etc. Such company
intends to apply its profit in promoting its objects. Section 8 companies are registered by the Registrar
only when a license is issued by the Central Government to them.
Since ABC Club was a Section 8 company and it was observed on 30th September, 2019 that it had
started violating the objects of its objective clause. Hence in such a situation the following powers can
be exercised by the Central Government:
 The Central Government may by order revoke the licence of the company where the company
contravenes any of the requirements or the conditions of this sections subject to which a licence
is issued or where the affairs of the company are conducted fraudulently, or violative of the
objects of the company or prejudicial to public interest, and on revocation the Registrar shall put
‘Limited’ or ‘Private Limited’ against the company’s name in the register. But before such
revocation, the Central Government must give it a written notice of its intention to revoke the
licence and opportunity to be heard in the matter.
 Where a licence is revoked, the Central Government may, by order, if it is satisfied that it is
essential in the public interest, direct that the company be wound up under this Act or
amalgamated with another company registered under this section. However, no such order shall
be made unless the company is given a reasonable opportunity of being heard.
 Where a licence is revoked and where the Central Government is satisfied that it is essential in the
public interest that the company registered under this section should be amalgamated with
another company registered under this section and having similar objects, then, notwithstanding
anything to the contrary contained in this Act, the Central Government may, by order, provide for
such amalgamation to form a single company with such constitution, properties, powers, rights,
interest, authorities and privileges and with such liabilities, duties and obligations as may be
specified in the order.

A15. Corporate Veil refers to a legal concept whereby the company is identified separately from the
members of the company.
The term Corporate Veil refers to the concept that members of a company are shielded from liability
connected to the company’s actions. If the company incurs any debts or contravenes any laws, the
corporate veil concept implies that members should not be liable for those errors. In other words,
they enjoy corporate insulation.
Thus, the shareholders are protected from the acts of the company.
However, under certain exceptional circumstances the courts lift or pierce the corporate veil by
ignoring the separate entity of the company and the promoters and other persons who have managed
and controlled the affairs of the company. Thus, when the corporate veil is lifted by the courts, the
promoters and persons exercising control over the affairs of the company are held personally liable
for the acts and debts of the company.
The following are the cases where company law disregards the principle of corporate personality or
the principle that the company is a legal entity distinct and separate from its shareholders or
members:
 To determine the character of the company i.e. to find out whether co-enemy or friend.
 To protect revenue/tax
 To avoid a legal obligation
 Formation of subsidiaries to act as agents
 Company formed for fraud/improper conduct or to defeat law
Based on the above provisions and leading case law of Gilford Motor Co. Vs Horne, the company PQR
Limited was created to avoid the legal obligation arising out of the contract, therefore that employee
Mr. Karan and the company PQR Limited created by him should be treated as one and thus veil
between the company and that person shall be lifted. Karan has formed the only for fraud/improper
conduct or to defeat the law. Hence, he shall be personally held liable for the acts of the company.

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A16. 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 by the shareholders of the
company. Sometimes, act which is ultra vires can be regularised by ratifying it subsequently.

A17. It was decided by the court in the case of Gilford Motor Co. Vs. Horne, that if the company is
formed simply as a mere device to evade legal obligations, though this is only in limited and discrete
circumstances, courts can pierce the corporate veil. In other words, if the company is mere sham or
cloak, the separate legal entity can be disregarded.
On considering the decision taken in Gilford Motor Co. Vs. Horne and facts of the problem given, it is
very much clear that Seven Stars Timbers Private Limited was formed just to evade legal obligations
of the agreement between Mr. Dhruv and Sunmoon Timber Private Limited. Hence, Seven Stars
Timbers Private Limited is just a sham or cloak and separate legal entity between Mr. Dhruv and Seven
Stars Timbers Private Limited should be disregarded.

A18. According to the provisions of Section 2(45) of Companies Act, 2013, Government Company
means any company in which not less than 51% of the paid-up share capital is held by-
 the Central Government, or
 by any State Government or Governments, or
 partly by the Central Government and partly by one or more State Governments, and the
section includes a company which is a subsidiary company of such a Government company.
According to Section 2(87), “subsidiary company” in relation to any other company (that is to say the
holding company), means a company in which the holding exercises or controls more than one-half of
the total voting power either at its own or together with one or more of its subsidiary companies.
By virtue of provisions of Section 2(87) of Companies Act, 2013, Shah Auto Private Limited is a
subsidiary company of Narendra Motors Limited because Narendra Motors Limited is holding more
than one-half of the total voting power in Shah Auto Private Limited. Further as per Section 2(45), a
subsidiary company of Government Company is also termed as Government Company. Hence, Shah
Auto Private Limited being subsidiary of Narendra Motors Limited will also be considered as
Government Company.

A19. As per the provisions of the Companies Act, 2013, only a natural person who is an Indian citizen
and resident in India (person who stayed in India for a period of not less than 120 days during
immediately preceding financial year) –
 Shall be eligible to incorporate an OPC
 Shall be a nominee for the sole member.

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a) In the given case, though Mr. A is an Indian citizen, his stay in India during the immediately
preceding previous year is only 115 days which is below the requirement of 120 days. Hence Mr.
A is not eligible to incorporate an OPC.
Also, even though Mr. B’s name is mentioned in the memorandum of Association as nominee and
his stay in India during the immediately preceding financial year is more than 120 days, he is a
foreign citizen and not an Indian citizen. Hence B’s name cannot be given as nominee in the
memorandum.
b) Since Mr. A is not eligible to incorporate a One Person Company (OPC), he will be contravening
the provisions, if he incorporates one. He shall be punishable with fine which may extent to ten
thousand rupees and with a further fine which may extent to One thousand rupees every day after
the first during which such contravention occurs.

Limited Liability Partnership Act

A1. Registered office of LLP and Change therein (Section 13 of the Limited Liability Partnership Act,
2008)
 Every LLP shall have a registered office to which all communications and notices may be addressed
and where they shall be received.
 A document may be served on a LLP or a partner or designated partner thereof by sending it by
post under a certificate of posting or by registered post or by any other manner, as may be
prescribed, at the registered office and any other address specifically declared by the LLP for the
purpose in such form and manner as may be prescribed.
 A LLP may change the place of its registered office and file the notice of such change with the
Registrar in such form and manner and subject to such conditions as may be prescribed and any
such change shall take effect only upon such filing.
 If the LLP contravenes any provisions of this section, the LLP and its every partner shall be
punishable with fine which shall not be less than 2000, but which may extend to 25000.

A2. As per Section 30 of the Limited Liability Partnership Act, 2008, LLP and its Partners may face
unlimited liability in case of fraud. According to this section, the liability arises, in the event of an act
carried out by an LLP or any of its partners -
 with intent to defraud creditors of the LLP,
 or any other person, or
 for any fraudulent purpose.
The liability of the LLP and partners who acted with intent to defraud creditors or for any fraudulent
purpose shall be unlimited for all or any of the debts or other liabilities of the LLP. However, in case
any such act is carried out by a partner, the LLP is liable to the same extent as the partner unless it is
established by the LLP that such act was without the knowledge or the authority of the LLP.
Where LLP, Partner or employee of LLP has conducted the affairs of the LLP in fraudulent manner,
then without prejudice to any criminal proceedings which may arise under any law for the time being
in force, the LLP and any such partner or employee shall be liable to pay compensation to any such
person who has suffered any loss by reason of such conduct.

A3. 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

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requirements. Owing to flexibility in its structure and operation, the LLP is a suitable vehicle for
small enterprises and for investment by venture capital.

A4. Section 64 of the Limited Liability Partnership Act, 2008 states circumstances in which limited
liability partnership (LLP) may be wound up by Tribunal.
 if the limited liability partnership decides that limited liability partnership be wound up by the
Tribunal;
 if, for a period of more than six months, the number of partners of the limited liability partnership
is reduced below two;
 if the LLP is unable to pay its debts;
 if the limited liability partnership has acted against the interests of the sovereignty and integrity
of India, the security of the State or public order;
 if the limited liability partnership has made a default in filing with the Registrar the Statement of
Account and Solvency or annual return for any five consecutive financial years; or
 if the Tribunal is of the opinion that it is just and equitable that the limited liability partnership be
wound up.

A5. Conditions under which LLP will be liable [Section 27(2) of the LLP Act, 2008]
The LLP is liable if a partner of a LLP is liable to any person as a result of a wrongful act or omission on
his part in the course of the business of the LLP or with its authority.
Conditions under which LLP will not be liable [Section 27(1) of the LLP Act, 2008]
A LLP is not bound by anything done by a partner in dealing with a person if—
a) the partner in fact has no authority to act for the LLP in doing a particular act; and
b) the person knows that he has no authority or does not know or believe him to be a partner of the
LLP.

A6. “Designated partner” means any partner designated as such pursuant to section 7.
According to section 7 of the LLP Act, 2008:
 Every LLP shall have at least two designated partners who are individuals and at least one of them
shall be a resident in India.
 If in LLP, all the partners are bodies corporate or in which one or more partners are individuals
and bodies corporate, at least two individuals who are partners of such LLP or nominees of such
bodies corporate shall act as designated partners.
 Resident in India: For the purposes of this section, the term “resident in India” means a person
who has stayed in India for a period of not less than 182 days during the immediately preceding
one year.

A7. On registration, a LLP shall, by its name, be capable of—

 suing and being sued;
 acquiring, owning, holding and developing or disposing of property, whether movable or
immovable, tangible or intangible;
 having a common seal, if it decides to have one; and
 doing and suffering such other acts and things as bodies corporate may lawfully do and suffer.

A8. Under the LLP Act, 2008, the following elements are very essential to form a LLP in India:
 To complete and submit incorporation document in the form prescribed with the Registrar
electronically;
 To have at least two partners for incorporation of LLP [Individual or body corporate];
 To have registered office in India to which all communications will be made and received;

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 To appoint minimum two individuals as designated partners who will be responsible for number
of duties including doing of all acts, matters and things as are required to be done by the LLP.
Atleast one of them should be resident in India.
 A person or nominee of body corporate intending to be appointed as designated partner of LLP
should hold a Designated Partner Identification Number (DPIN) allotted by Ministry of Corporate
Affairs.
 To execute a partnership agreement between the partners inter se or between the LLP and its
partners. In the absence of any agreement the provisions as set out in First Schedule of LLP Act,
2008 will be applied.
 LLP Name.
Steps to incorporate LLP:
1) Name reservation:
 The first step to incorporate Limited Liability Partnership (LLP) is reservation of name of LLP.
 Applicant has to file e-Form 1, for ascertaining availability and reservation of the name of a
LLP business.
2) Incorporate LLP:
 After reserving a name, user has to file e- Form 2 for incorporating a new Limited Liability
Partnership (LLP).
 e-Form 2 contains the details of LLP proposed to be incorporated, partners’/ designated
partners’ details and consent of the partners/designated partners to act as partners/
designated partners
3) LLP Agreement
 Execution of LLP Agreement is mandatory as per Section 23 of the Act.
 LLP Agreement is required to be filed with the registrar in e-Form 3 within 30 days of
incorporation of LLP.

A9. Change of name of LLP (Section 17 of LLP Act, 2008):

1) Notwithstanding anything contained in sections 15 and 16, where the Central Government is
satisfied that a LLP has been registered (whether through inadvertence or otherwise and whether
originally or by a change of name) under a name which —
 is a name referred to in sub-section (2) of section 15; or
 is identical with or too nearly resembles the name of any other LLP or body corporate or other
name as to be likely to be mistaken for it,
the Central Government may direct such LLP to change its name, and the LLP shall comply with
the said direction within 3 months after the date of the direction or such longer period as the
Central Government may allow.
1) (i)Any LLP which fails to comply with a direction given under sub-section (1) shall be punishable
with fine which shall not be less than 10,000 but which may extend to 5 Lakhs.
(ii) The designated partner of such LLP shall be punishable with fine which shall not be less than 10,000
but which may extend to 1 Lakh.

A10.
Basis LLP Partnership firm
1. Regulating Act The Limited Liability Partnership The Indian Partnership Act, 1932.
Act, 2008.
2. Body corporate It is a body corporate. It is not a body corporate,
3. Separate legal entity It is a legal entity separate from It is a group of persons with no
its members. separate legal entity.

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4. Creation It is created by a legal process It is created by an agreement

called registration under the LLP between the partners.
Act, 2008.
5. Registration Registration is mandatory. LLP Registration is voluntary. Only the
can sue and be sued in its own registered partnership firm can
name. sue the third parties.
6. Perpetual succession The death, insanity, retirement or The death, insanity, retirement or
insolvency of the partner(s) does insolvency of the partner(s) may
not affect its existence of LLP. affect its existence. It has no
Members may join or leave but its perpetual succession.
existence continues forever.
7. Name Name of the LLP to contain the No guidelines. The partners can
word limited liability partners have any name as per their choice.
(LLP) as suffix.
8. Liability Liability of each partner limited to Liability of each partner is
the extent to agreed contribution unlimited. It can be extended upto
except in case of willful fraud. the personal assets of the
partners.
9. Mutual agency Each partner can bind the LLP by Each partner can bind the firm as
his own acts but not the other well as other partners by his own
partners. acts.
10. Designated partners At least two designated partners There is no provision for such
and atleast one of them shall be partners under the Partnership
resident in India. Act, 1932.
11. Common seal It may have its common seal as its There is no such concept in
official signatures. partnership
12. Legal compliances Only designated partners are All partners are responsible for all
responsible for all the the compliances and penalties
compliances and penalties under under the Act.
this Act.
13. Annual filing of LLP is required to file: Partnership firm is not required to
documents Annual statement of accounts file any annual document with the
Statement of solvency registrar of firms.
Annual return with the
registration of LLP every year.
14. Foreign partnership Foreign nationals can become a Foreign nationals cannot become
partner in a LLP. a partner in a partnership firm.
15. Minor as partner Minor cannot be admitted to the Minor can be admitted to the
benefits of LLP. benefits of the partnership with
the prior consent of the existing
partners.

Happy Learning
Rishabh Gaur
8527.931.436
See you soon in CA – Inter With EIS-SM

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