Jaju’s Professional Academy

CA Foundation MTP- Answer Sheet

Business Law
Marks: 100 Time: 3 hours

Question no.1 is compulsory

Candidates are required to attempt any four questions from the remaining five questions.

Question 1
a)
A limited liability partnership is a body corporate formed and incorporated under this Act and is a legal entity
separate from that of its partners. The LLP itself will be liable for the full extent of its assets but the liability of
the partners will be limited. Creditors of LLP shall be the creditors of LLP alone. In other words, creditors of LLP
cannot claim from partners. The liability of the partners will be limited to their agreed contribution in the LLP.
Hence the creditors of Devi Ram Food Circle LLP are the creditors of Devi Ram Food Circle LLP only. Partners
of LLP are not personally liable towards creditors. Mr. Mudit can not claim his deficiency of Rs. 3,00,000 from
the partners of Devi Ram Food Circle LLP.

b)
Provisions: Section 3 of the Companies Act, 2013
Explanation:
a. The memorandum of One Person Company (OPC) shall indicate the name of the other person (nominee),
who shall, in the event of the subscriber's death or his incapacity to contract, become the member of the
company.
b. The other person (nominee) whose name is given in the memorandum shall give his prior written consent
in prescribed form and the same shall be filed with Registrar of companies at the time of incorporation
c. Such other person (nominee) may withdraw his consent in such manner as may be prescribed.
d. Therefore, in terms of the above law, Mr. King, the nominee, whose name was given in the memorandum,
can withdraw his consent as a nominee of the OPC by giving a notice in writing to the sole member and to
the One Person Company.
Conclusion:
Following are the answers to the second part of the question as regards the eligibility for being nominated as
nominee:
(i) No minor shall become member or nominee of the OPC. Therefore, Mr. Shyam, being a minor is not
eligible for being nominated as Nominee of the OPC.

(ii) Only a natural person who is an Indian citizen whether resident in India or otherwise, shall be a nominee or
the sole member of a One Person Company. Here Ms. Devaki is an Indian Citizen. So, she is eligible for
being nominated as nominee of the OPC.

(iii) As per the Rule 3 of the Companies (Incorporation) Rules, 2014, a person shall not be a member of more
than one OPC at any point of time and the said person shall not be a nominee of more than 1 OPC. Mr.
Ashok, an Indian Citizen residing in India who is a member of an OPC (Not a nominee in any OPC), can be
nominated as nominee.
c)

(i) The bill of exchange is drawn, mentioning expressly as ‗payable on demand‘. The bill will be at
maturity for payment on 04-1-2021, if presented on 01-01-2021: This statement is not valid as no
days of grace are allowed in the case of bill payable on demand.

(ii) A holder gives notice of dishonor of a bill to all the parties except the acceptor. The drawer claims
that he is discharged form his liability as the holder fails to give notice of dishonour of the bill to all
the parties thereto:
As per section 93 of the Negotiable Instruments Act, 1881, notice of dishonor must be given by the
holder to all parties other than the maker or the acceptor or the drawee whom the holder seeks to
make liable. Accordingly, notice of dishonour to the acceptor of a bill is not necessary. Therefore,
claim of drawer that he is discharged from his liability on account of holder‘s failure to give notice to
all the parties thereto, is invalid.

d) Write a brief note on SEBI. (Module)

(e)
Person to be called as a holder: As per section 8 of the Negotiable Instruments Act, 1881 holder of a
Negotiable Instrument means any person entitled in his own name to the possession of it and to receive or
recover the amount due thereon from the parties thereto:
On applying the above provision in the given cases-
(i) Yes, X can be termed as a holder because he has a right to possession and to receive the amount due in
his own name.
(ii) No, he is not a holder because to be called as a holder he must be entitled not only to the possession of
the instrument but also to receive the amount mentioned therein.
(iii) No, M is not a holder of the instrument though he is a possession of the cheque, so is not entitled to the
possession of it in his own name.
(iv) No, B is not a holder. While the agent may receive payment of the amount mentioned in the cheque. Yet
he cannot be called the holder thereof because he has no right to sue on the instrument in his own name.
(v) No, B is not a holder because he is in wrongful possession of the instrument.

Question 2
(a)
1. Agency by Ratification:
a) A person may act on behalf of another without his knowledge or consent. Later on, such another
person may accept the act of the former or reject it.
b) If he accepts the act of the former done without his consent, he is said to have ratified that act and it
places the parties in exactly the same position in which they would have been, the former had later‘s
authority at the time he made the contract.
c) Further when an agent exceeds the authority bestowed upon him by the principal, the principal may
ratify the unauthorised act.
2. Essential of valid ratification are as follows:
a) Ratification may be expressed or Implied [Section 197]: Ratification may be expressed or may be
implied in the conduct of the person on whose behalf the acts are done.
 b) Knowledge requisite for valid ratification [Section 198]: No valid ratification can be made by a
person whose knowledge of the facts of the case is materially defective.
c) Effect of ratifying unauthorized act forming part of a transaction [Section 199]:
Ratification of an act in entirely or its rejection in entirely. The principal cannot ratify a part of the
transaction which is beneficial to him and reject the rest.
d) Ratification of unauthorized act cannot injure third person [Section 200]: When the interest of
third parties is affected, the principle of ratification does not apply.
e) Ratification within reasonable time: Ratification must be done within a reasonable time.
f) Communication of Ratification: Ratification must be communicated to the other party.
g) Act to be ratified must be valid: Act to be ratified should not be void or illegal.

(b)
Section – Section 17 of Indian Contract Act, 1872.
Provisions and Solution -
a) 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:
i. the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
ii. the active concealment of a fact by one having knowledge or belief of the fact;
iii. a promise made without any intention of performing it;
iv. any other act fitted to deceive;
v. any such act or omission as the law specially declares to be fraudulent.
b) A mere expression of opinion does not amount does not lead to suggestion, as a fact, of that which is not
true so it does not amount to fraud.
c) In the given case, the vendor says that in his opinion the land could support 2000 heads of sheep but in
fact the land can hold only 1500 ships. This statement is only an opinion and not a representation.
Further, the buyer is also expected to apply his common diligence before relying on statements made by
vendor. So there is no fraud in above case
Conclusion- There is no fraud as the statement made is mere expression of opinion.

(c)
A went to B‘s shop and asked for a Merrit sewing machine B gave A the Merrit sewing machine and A
paid he price. A relied on the trade name of the machine rather than on the skill and judgement of
the seller B. In this case there is no implied condition as to the fitness of the machine for buyer‘s
particular purpose.

(d)
Affixing of Common seal on company‘s documents is compulsory. Comment

(e)
i. Introduction of a Partner (Section 31 of the Indian Partnership Act, 1932): Subject to contract
between the partners and to the provisions of Section 30, no person shall be introduced as a partner
into a firm without the consent of all the existing partners. In the instant case, Mr. Vikas can be
introduced as a partner with the consent of Mr. B and Mr. C, the existing partners.
 ii. Rights of Transferee of a Partner’s interest (Section 29): 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.
iii. Hence, here Mr. Vikas, the transferee in M/S ABC Associates, cannot inspect the books of the firm and
the contention of the other partners is right that Mr. Vikas cannot challenge the books of accounts.

f)
Provisions and Solution –
i. According to section 37 of the Indian Partnership Act, 1932, 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 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
a. 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
b. to interest at the rate of six per cent per annum on the amount of his share in the property of
the firm.
ii. In the instant case, Suman is entitled to claim either interest on her share in the property i.e.
₹1,20,000 (6% of ₹20 Lakh) or a share of the profits i.e., ₹1 Lakh (10% of ₹10 Lakh) from the firm for
the use of her share in the property.
Conclusion -Therefore, claim of Suman of ₹3 Lakh is not valid.

Question 3
(a)
1. Contract is made for a foreign principal: When an agent has entered into a contract for the sale or
purchase of goods on behalf of a principal resident abroad, the presumption is that the agent undertakes
to be personally liable for the performances of such contract
2. Undisclosed Principal: When the agent does not disclose the name of the principal, there arises a
presumption that he himself undertakes to be personally liable. When the principal is undisclosed, the
liability is of the agent only, and the principal cannot be sued in such a case.
3. Pretended agent – if the agent pretends but is not an actual agent, and the principal does not rectify the
act but disowns it, the pretended agent will be himself liable (Section 235).
4. Principal cannot be sued [Sec 230]: Where the principal, though disclosed, cannot be sued, e.g., Principal
becoming of unsound mind, subsequent to appointment of Agent.
5. Acting for a Principal not in existence: Where the Agent acts for a principal who is not in existence at the
time of making contracts, he shall be personally held liable.
6. Agency coupled with interest [Sec 202]: Where the Agent has an interest in the subject matter of Agency.
7. Agent guilty of Fraud [Sec 238]: Where an Agent is guilty of fraud or misrepresentation in matters that
are outside the scope of his authority, he is personally liable, and do not affect his Principal.
8. Agent exceeds authority & act not ratified: Where an Agent acts either without any authority or exceeds
his authority, he shall be held personally liable when the Principal does not ratify his acts.
9. Express Agreement for personal liability: Where an Agent expressly agrees to be personally bound.
 10. Execution of Contract in his own name: Where an Agent executes a contract in his own name, without
disclosing that he is acting as agent for a principal, he shall be personally liable.
11. Trade custom or Usage: Where trade usage or custom makes an Agent personally liable.
12. Action against Agent or Principal [Sec 233]: Where the Agent is personally liable, a person dealing with
him may hold – (a) either him, or (b) his Principal or (c) both of them liable. The liability of Principal and
Agent is ―joint and several‖.

(b)
Section - Section 39 of Indian Contract Act, 1872.
Provisions and Solution-
a) According to Section 39 of Indian Contract Act, If a party fails to perform his promise partially or in entirety
then it results in breach of contract.
b) Whenever contract is breached then the aggrieved party may put an end to the contract and claim
damages from defaulting party.
c) Assignment refers to transfer of an individual's contractual rights or property to another person. In case of
assignment, only the benefits or rights pertaining to contract can be assigned. However, personal rights
given by law cannot be assigned.
d) Right to sue and claim damages being a personal right given by law cannot be assigned.
e) In the above case as M has done breach of contract, so N can file a case for recovery of damages. But he
cannot assign the right to sue and claim damages.
Conclusion– N cannot assign his right to sue and claim damages.

(c)
Section – Section 4 of Sale of Goods Act, 1930.
Provisions and Solution –
i. 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.
ii. 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.
iii. On the basis of above provisions and facts given in the question, it can be said
a. 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 polishing, bangles are not in original position. Hence, Archika has right to avoid
the agreement to sell and can recover the price paid.
On the other hand, if shopkeeper offers to bring the bangles in original position by repairing, he cannot
charge extra cost from Archika. Even if he has to bear some expenses for repair; he cannot charge it
from Archika.

(d)
Provisions and Solution –
a) Although registration of firms is not compulsory, but there are certain disabilities of non-registration
b) The firm or any other person on its behalf cannot bring an action against the third party for any contract
entered into by the firm, unless the firm is registered and the persons suing have been shown in the
register of firms as partners in the firm.
c) In other words, only a registered firm can file a suit against a third party. However, an unregistered firm may
get itself registered first and then file a suit against a third party even for transactions done before
registration.
d) In the above case A, B & C Co. filed the suit against Y before the firm was registered. So as per above
provisions they cannot file the suit against Y. Rather the firm should file suit after registration.
Conclusion- The firm will not succeed in filing the suit and recovery of money.

(e)
A an auctioneer held a public auction for the sale of certain goods. It was notified that the suction
was subject to s reserve price. B attended the auction and made a had which was lower than the
reserve price. However A by mistake, accepted the bid by striking the hammer. On finding that the
hid was below the reserve price, the auctioneer refused to deliver the goods to B. And B filed a suit
against A for the recovery of the goods sold to him. It was held that the sale was not valid and B was
not entitled to the goods.
It may also be noted that where a reserve price has been fixed then, even if the goods are specific
the ownership will not pass if the highest bid falls short of the reserve price.

Question 4:
(a)
State the cases of discharge of surety by the conduct of the creditor.

(b)
Section – Section 215 and 216 of the Indian Contract Act, 1872
Provisions and Solution –
i. As per Section 215 of Indian Contract Act, 1872, If an agent deals on his own account in the business of
the agency, without obtaining the consent of his principal and without acquainting him with all material
circumstances, then the principal may repudiate the transaction.
ii. Further section 216 provides that, if an agent without the knowledge of his principal acts on his own
account in the business of the agency, then the principal may claim any benefit which may have accrued to
the agent from such a transaction.
iii. It is Agent‘s duty to disclose all material circumstances & his duty not to deal on his own account without
principal‘s consent
iv. Hence in the first instance, though Pankaj had given his consent to Shruti permitting the later to act on his
own account in the business of agency. Pankaj may still repudiate the sale as the existence of the mine a
material circumstances, had not been disclosed to him.
In the second instance, Pankaj had knowledge that Shruti was acting on her own account and also that the
mine was in existence hence, Pankaj cannot repudiate the transaction under section 215. Also, under section
216 he cannot claim any benefit from Shruti as he had knowledge that Shruti was acting or her own account in
the business of the agency.

(c)
As per Section 24 of Indian Partnership Act, 1932, The notice to a partner, who habitually acts in business of
the firm, on matters relating to the affairs of the firm, operates as a notice to the firm except in the case of a
fraud on the firm committed by or with the consent of that partner. Thus, the notice to one is equivalent to
the notice to the rest of the partners of the firm, just as a notice to an agent is notice to his principal. This
notice must be actual and not constructive. It must be received by a working partner. It must further relate to
the firm‘s business. Only then it would constitute a notice to the firm. The only exception would be in the case
of fraud, whether active or tacit.
Example:
A, a working partner bought for his firm, certain goods, while he knew of a particular defect in the goods. His
knowledge as regards the defect, ordinarily, would be construed as the knowledge of the firm, though the
other partners in fact were not aware of the defect. But if A had, in league with the seller, conspired to conceal
the defect from the other partners, the rule would be inoperative and the other partners would be entitled to
reject the goods, upon detection by them of the defect.

(d)
A public notice under this Act is given-
(a) Where it relates to the retirement or expulsion of a partner from a registered firm, or to the dissolution of a
registered firm, or to the election to become or not to become a partner in a registered firm by a person
attainting majority who was admitted as a minor to the benefits of partnership.
(b) In case of registered firm, the public notice is given to the Registrar of Firms, published in the Official
Gazette and in at least one vernacular newspaper circulation in the district where the firm to which it
relates has its place or principal place of business, and
(c) in any other case, it is published in the Official Gazette and in at least one vernacular newspaper circulating
in the district where the firm to which it relates has its place or principal place of business.

(e)
Section – Section 50 of Sale of Goods Act, 1930.
Provisions and Solution –
a) Unpaid seller means a seller to whom the whole of the price has not been paid or tendered and the seller
had an immediate right of action for the price. An unpaid seller has certain rights in respect of goods
supplied by him. One such right is right of stoppage of the goods in transit.
b) The right to right of stoppage is exercisable only if the following conditions are fulfilled.
i. The seller must be unpaid
ii. He must have parted with the possession of goods
iii. The goods must be in transit
iv. The buyer must have become insolvent
c) Goods are said to be in transit when they are out of possession of the seller but not yet into buyer‘s
possession of the buyer. However, if the carrier acknowledges to the buyer that the goods are being held
on his behalf, then the transit comes to an end.
d) In this case Ashu sends five motor cycles to New Delhi with a transporter. After reaching Delhi, the
transporter informs Jay that the goods are lying at their godown at Jay‘s risk. So the transit comes to an
end even tough the actual delivery of goods is not taken by the buyer.
e) As per the above provisions, as the transit has come to an end, right of stoppage also comes to an end.
 Conclusion- Ashu cannot exercise his right of stoppage in transit as the transit has come to an end.

(f)
Section – Section 7(7) of Companies Act, 2013.
Provisions and Solution –
a) Every company needs to follow the prescribed procedure for incorporation of the company. On the basis
of documents submitted, the Registrar shall register the company and issue a certificate of incorporation.
b) Certificate of Incorporation issued by ROC shall be conclusive evidence that all requirements of the
Companies Act pertaining to registration, and matters incidental thereto have been complied
c) Where a company has been got incorporated by furnishing false or incorrect information or representation
or by suppressing any material fact or information in any of the documents or declaration filed or made
for incorporating such company or by any fraudulent action, the Tribunal may, on an application made to
it, on being satisfied that the situation so warrants, direct that liability of the members shall be unlimited.
d) Precautions to be taken before making any order, —
i. the company shall be given a reasonable opportunity of being heard in the matter; and
ii. the Tribunal shall take into consideration the transactions entered into by the company, including the
obligations, if any, contracted or payment of any liability.

Question 5:
(a)
Where the bidder withdraws his bid before the acceptance of his bid, his security amout cannot be forfeited.
However if the bidder withdraws his bid after the full of the hammer, that amounts to a breach of contract and
his security deposit will be liable to be forfeited.

(b)
Section – Section 171 of the Indian Contract Act, 1872
Provisions and Solution –
i. As per section 171 of the Indian Contract Act, 1872, bankers, factors wharfingers, attorneys of a High Court
and policy brokers may, in the absence of a contract to the contrary, retain, as a security for a general
balance of account any goods bailed to them
ii. However, no other persons have a right to retain, as a security for such balance, goods bailed to them,
unless there is an express contract to the effect.
iii. Section 171 empowers the banker with general right of lien in absence of a contract whereby it is entitled
to retain the goods belonging to another party, until all the dues are discharged.
iv. The banker under an agreement has a right of particular lien on the gold pledged with it against the first
secured loan of Rs. 50,000/-, which has already been fully repaid by Radheshyam.
Conclusion–
Accordingly, Bank‘s decision to continue the lien on the gold until the unsecured loan of Rs. 20,000/- (which is
the second loan) is not valid.

(c)
As per Section 31 of the Indian Contract Act, 1872, ―A contract to do or not to do something, if some event,
collateral to such contract, does or does not happen‖. Contracts of Insurance, indemnity and guarantee fall
under this category.
For eg: A contracts to pay B Rs.10,000 if he is elected president of a particular association. This is a contingent
contract.
The essentials of a contingent contract are as follows:
(a) The performance of a contingent contract would depend upon the happening or non-happening
of some event or condition. The condition may be precedent or subsequent.
(b) The event referred is collateral to the contract. The event is not part of the contract. The event should be
neither performance promised nor a consideration for a promise.
(c) The contingent event should not be a mere ‗will‘ of the promisor. The event should be contingent in
addition to being the will of the promisor.
(d) The event must be uncertain.
The rules relating to enforcement of a contingent contract are as follows:
(a) Enforcement of contracts contingent on an event happening: Where a contract depends upon
happening of a certain event, the contract cannot be enforced or performed until the event ‗happens‘. If
the happening of the event becomes impossible, then the contingent contract is void.

(b) Enforcement of contracts contingent on an event not happening: Where a contingent contract is
made contingent on a non-happening of an event, it can be enforced only when its happening becomes
impossible.

(c) 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.

(d) Contingent on happening of specified event within the fixed time: Contingent contracts dependent
on happening of specified event 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.

(e) Contingent on specified event not happening within fixed time: Contingent contracts dependent on
not happening of specified event within a fixed time, may be enforced when the time fixed has expired,
and such event has not happened or before the time fixed has expired, the event becomes impossible to
happen.

(f) Contingent on an impossible event: Contingent agreements based on impossible event 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.

(d)

i. 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
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.
ii. 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.
iii. 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.

(e)
i. The new firm, including the new partner who joins it, may agree to assume liability for the existing debts of
the old firm, and creditors may agree to accept the new firm as their debtor and discharge the old
partners.
ii. The creditor‘s consent is necessary in every case to make the transaction operative. Novation is the
technical term in a contract for substituted liability, of course, not confined only to case of partnership. But
a mere agreement amongst partners cannot operate as Novation.
iii. Thus, an agreement between the partners and the incoming partner that he shall be liable for existing
debts will not ipso facto give creditors of the firm any right against him.
iv. In the instant case, Amar will not be liable in a suit filed by the creditor against the firm and all existing
partners for recovery of the old debt of the firm.

Question 6:
(a)
(1) Where the Central Government is satisfied that a LLP has been registered (whether by mistake or otherwise
and whether originally or by a change of name) under a name which —
(a) is a name which is undesirable as per Section 15(2) of LLP Act or
(b) is identical with or 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.

(2) (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 Rs. 10,000 but which may extend to Rs. 5 Lakhs.
(ii) The designated partner of such LLP shall be punishable with fine which shall not be less than Rs. 10,000
but which may extend to Rs. 1 Lakh.

(b)
(i) 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.

(ii) 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 full payment 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.

(iii) 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.

(c)
Section – Section 19 and Section 22 of Indian Partnership Act, 1932.
Provisions and Solution –
a) The act of a partner which is done to carry on firm‘s business in the usual way, binds the firm, provided that
the act is done in the firm name. Such an authority of a partner to bind the firm is called his implied
authority.
b) The implied authority is however subject to the following restrictions:
i. The act done by the partner must be done within the scope of his authority and related to the normal
business of the firm.
ii. The act is done for normal conduct of business of the firm. The usual way of carrying on the business
will depend on the nature and circumstances of each particular case.
iii. The act to be done in the name of the firm or in any other manner implying an intention to bind the fi-
rm.
c) In the current case, A, a partner of a firm, borrows money on his own credit and he later uses that money in
the partnership firm without any reference to the lender to do so. In this case the act is not done in firm‘s
name and shall not bind the firm. Thus, in above cases it will result as under:
d) 1st Case – In the above scenario as per provisions stated the firm is not liable to the lender as promissory
note was not in the name of the firm and shall not bind the firm though the money was used for the firm.
e) 2nd Case – In the above scenario, assuming that it is not a trading firm, the firm will still not be liable though
the money was taken in the name of the firm as X did not have an authority to take the money on credit in
the name of the firm.
However, in case if it is a trading firm, normally it is within the implied authority of partner to borrow money
for the business. So as the money was taken in the name of the firm even though in excess of his authority, as
the loan is in the name of the firm, the firm will still be liable.

(d)
Section – Section 2(68) of the Companies Act, 2013
Provisions and Solution -
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—
a) restricts the right to transfer its shares;
b) 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—
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, shall not be included in the number of members; and
c) prohibits any invitation to the public to subscribe for any securities of the company;

i. 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.
ii. 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.

(e)

Provisions and Solution –

i. As per section 226 of the Indian Contract Act, 1872, An agent cannot personally enforce contracts entered
into by him on behalf of the principal. Principal is considered to be liable for the acts of agents which are
within the scope of his authority.
ii. Further section 228 of the India Contract Act, 1872 states that where an agent does more than he is
authorised to do and does something beyond the scope of his authority, the principal is not bound to
recognize the transaction.
iii. In the given case, the agency agreement was signed between X and Y, authorizing Y to purchase goods
maximum upto the value of ₹10 lakh. But Y purchased a single item of ₹12 lakhs from Z as an agent of X at
a discounted rate to financially benefit to X. On demand of payment by Z. X denied saying that Y has
exceeded his authority therefore he is not liable for such purchase. Z filed a suit against X for payment.
iv. The agency agreement clearly specifies the scope of authority of Y for the purchase of goods, however the
exceeded his authority as an agent. Therefore, as the transaction is not separable.
v. X is not bound to recognize the transaction entered between Z and Y and therefore may repudiate the
whole transaction.
Conclusion - Z will not succeed in his suit against X for recovery of payment.