PAPER 2: BUSINESS LAWS ANSWERS
1.) (a) (i) Section 73 of Indian Contract Act, 1872 provides that when a contract has been
broken, the party who suffers by such breach is entitled to receive, from the party who has
broken the contract, compensation for any loss or damage caused to him thereby, which
naturally arose in the usual course of things from such breach, or which the parties knew, when
they made the contract, to be likely to result from the breach of it. But such compensation is not
to be given for any remote and indirect loss or damage sustained by reason of the breach.
In the instant case, Mr. Chetan filed the suit against Himalayan Travels Pvt. Ltd. for damages for
the personal inconvenience, hotel charges and medical treatment for his wife.
On the basis of above provisions and facts of the case, it can be said that Mr. Chetan can claim
damages for the personal inconvenience and hotel charges but not for medical treatment for his
wife because it is a remote or indirect loss.
(ii) According to section 17 of the Indian Contract Act, 1872, mere silence as to facts likely to
affect the willingness of a person to enter into a contract is not fraud, unless the circumstances
of the case are such that, regard being had to them, it is the duty of the person keeping silence
to speak, or unless his silence is, in itself, equivalent to speech. Hence, in the instant case,
(A) This contract is valid since as per section 17, mere silence as to the facts likely to affect the
willingness of a person to enter into a contract is not fraud. Here, it is not the duty of the seller to
disclose defects.
(B) This contract is not valid since as per section 17, it becomes Sahil’s duty to tell Rohan about
the unsoundness of the horse because a fiduciary relationship exists between Sahil and his son
Rohan. Here, Sahil’s silence is equivalent to speech and hence amounts to fraud.
(C) This contract is not valid since as per section 17, Sahil’s silence is equivalent to speech and
hence amounts to fraud.
1.(b) According to Section 15 of the Sale of Goods Act, 1930, whenever the goods are sold as
per sample as well as by description, the implied condition is that the goods must correspond to
both sample as well as description. In case the goods do not correspond to a sample or
description, the buyer has the right to repudiate the contract.
Further under Sale 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 his judgment and skill of
the seller, it is the duty of the seller to supply such goods which are fit for that purpose.
In the given case, Mr. Vivek informed Mr. Manoj that he wanted the washing machine for
washing woollen clothes. However, the machine which was delivered by Mr. Manoj was unfit for
the purpose for which Mr. Vivek wanted the machine.
Based on the above provision and facts of case, there is breach of implied condition as to
sample as well as description, therefore Mr. Vivek can either repudiate the contract or claim the
refund of the price paid by him or he may require Mr. Manoj to replace the washing machine
with desired one.
1.(c) (c) Meaning of Law: Law is a set of obligations and duties imposed by the government for
securing welfare and providing justice to society. India’s legal framework reflects the social,
political, economic, and cultural aspects of our vast and diversified country.
The Process of Making a Law
● When a law is proposed in parliament it is called a Bill.
● After discussion and debate, the law is passed in Lok Sabha.
● Thereafter, it has to be passed in Rajya Sabha.
● It then has to obtain the assent of the President of India.
● Finally, the law will be notified by the Government in the publication called the Official
Gazette of India.
● The law will become applicable from the date mentioned in the notification as the
effective date.
● Once it is notified and effective, it is called an Act of Parliament.
2.(a) 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.
(i) On the basis of above provisions and facts given in the question, it can be said that there is
an agreement to sell between Simran and Jeweller and not a sale. Even though the payment
was made by Simran, the property in goods can be transferred only after the fulfilment of
conditions fixed between the buyer and the seller. As due to Ruby Stones, the original design is
disturbed, bangles are not in original position. Hence, Simran has right to avoid the agreement
to sell and can recover the price paid.
(ii) If Jeweller offers to bring the bangles in original position by repairing, he cannot charge extra
cost from Simran. Even though he has to bear some expenses for repair; he cannot charge it
from Simran.
2.(b) Definition of ‘Contingent Contract’ (Section 31 of the Indian Contract Act, 1872)
“A contract to do or not to do something, if some event, collateral to such contract, does or
does not happen”.
Contracts of Insurance, indemnity and guarantee fall under this category.
Meaning of collateral Event: Collateral event is “an event which is neither a performance
directly promised as part of the contract, nor the whole of the consideration for a promise”.
Essentials of a contingent contract
(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 to as 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.
Where the event is certain or bound to happen, the contract is due to be performed, then it is a
not contingent contract.
2.(c) If the seller commits a breach of contract, the buyer gets the following rights against
the seller:
1. Damages for non-delivery [Section 57 of the Sale of Goods Act, 1930]:
Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may
sue the seller for damages for non-delivery.
2. Suit for specific performance (Section 58):
Where the seller commits breach of the contract of sale, the buyer can appeal to the court for
specific performance. The court can order for specific performance only when the goods are
ascertained or specific and where damages would not be an adequate remedy.
3. Suit for breach of warranty (Section 59):
Where there is breach of warranty on the part of the seller, or where the buyer elects to or is
forced to treat breach of condition as breach of warranty, the buyer is not by reason only of such
breach of warranty entitled to reject the goods on the basis of such breach of warranty; but the
buyer may –
(i) set up against the seller the breach of warranty in diminution or extinction of the price; or
(ii) sue the seller for damages for breach of warranty.
4. Repudiation of contract before due date (Section 60):
Where either party to a contract of sale repudiates the contract before the date of delivery, the
other may either treat the contract as:
● subsisting and wait till the date of delivery, or
● he may treat the contract as rescinded and sue for damages for the breach.
5. Suit for interest:
(1) The buyer is entitled to recover interest or special damages, or to recover the money paid
where the consideration for the payment of it has failed.
(2) In the absence of a contract to the contrary, the court may award interest at such rate as it
thinks fit on the amount of the price to the buyer in a suit by him for the refund of the price in a
case of a breach of the contract on the part of the seller from the date on which the payment
was made.
3.(a) When there is a dispute between citizens or between citizens and the Government, these
disputes are resolved by the judiciary.
The functions of judiciary system of India are:
● Regulation of the interpretation of the Acts and Codes,
● Dispute Resolution,
● Promotion of fairness among the citizens of the land.
In the hierarchy of courts, the Supreme Court is at the top, followed by the High Courts and
District Courts. Decisions of a High Court are binding in the respective state but are only
persuasive in other states. Decisions of the Supreme Court are binding on all High Courts under
Article 141 of the Indian Constitution. In fact, a Supreme Court decision is the final word on the
matter.
(i) Supreme Court
The Supreme Court is the apex body of the judiciary. The Chief Justice of India is the highest
authority appointed under Article 126. The principal bench of the Supreme Court consists of
seven members including the Chief Justice of India.
(ii) High Court
The highest court of appeal in each state and union territory is the High Court. Article 214 of the
Indian Constitution states that there must be a High Court in each state. The High Court has
appellant, original jurisdiction, and Supervisory jurisdiction. However, Article 227 of the Indian
Constitution limits a High Court’s supervisory power.
(iii) District Court
Below the High Courts are the District Courts. The Courts of District Judge deal with Civil law
matters i.e. contractual disputes and claims for damages etc., The Courts of Sessions deals with
Criminal matters.
Under pecuniary jurisdiction, a civil judge can try suits valuing not more than Rupees two crore.
(iv) Metropolitan courts
Metropolitan courts are established in metropolitan cities in consultation with the High Court
where the population is ten lakh or more. Chief Metropolitan Magistrate has powers as Chief
Judicial Magistrate and Metropolitan Magistrate has powers as the Court of a Magistrate of the
first class.
3.(b) (i) 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.
In the instant case, Ashok reaches to super market and selects a Air Conditioner with a
discounted price tag of ₹ 40,000 but cashier denied to sell at discounted price by saying that
discount is closed from today and request to make full payment. But Ashok insists to purchase
at discounted price.
On the basis of above provisions and facts, the price tag with Air Conditioner was not offer. It is
merely an invitation to offer. Hence, it is the Ashok who is making the offer not the super market.
Cashier has right to reject the Ashok’s offer. Therefore, Ashok cannot enforce cashier to sell at
discounted price.
(ii) Agent's authority in an emergency (Section 189 of the Indian Contract Act, 1872): An
agent has authority, in an emergency, to do all such acts for the purpose of protecting his
principal from loss as would be done by a person of ordinary prudence, in his own case, under
similar circumstances.
In the instant case, Rahul, the agent, was handling perishable goods like ‘tomatoes’ and can
decide the time, date and place of sale, not necessarily as per instructions of the Aswin, the
principal, with the intention of protecting Aswin from losses.
Here, Rahul acts in an emergency as a man of ordinary prudence, so Aswin will not succeed
against him for recovering the loss.
3.(c) (i) According to Section 64 of the Sale of Goods Act, 1930, the sale is complete when the
auctioneer announces its completion by the fall of hammer or in any other customary manner.
In the given question, the auction sale is completed on 7th March, 2024.
(ii) 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 this case, M received the goods by sample from L but since the goods were not according to
the sample, M can reject the goods and can sue L.
With regard to K and L, L can recover damages from K and K can recover damages from J. But,
for both K and L, 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 Sale of Goods Act, 1930.
4.(a) 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.
Effect of Anticipatory Breach: The promisee is excused from performance or from further
performance. Further he gets an option:
(1) To either treat the contract as rescinded and sue the other party for damages for breach of
contract immediately without waiting until the due date of performance; or
(2) 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.
4.(b) (i) Subsequent or Supervening impossibility (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.
Also, 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.
In the given question, after Mr. Gaurav and Mr. Vikas have entered into the contract to supply
100 tons of sugar, the event of flood occurred which made it impossible to deliver the sugar
within the stipulated time. Thus, the promise in question became void. Further, Mr. Gaurav has
to pay back the amount of ₹ 70,000 that he received from Mr. Vikas as an advance for the
supply of sugar within the stipulated time. Hence, the contention of Mr. Vikas is correct.
(ii) Section 161 of the Indian Contract Act, 1872 clearly says that where a bailee fails to return
the goods within the agreed time, he shall be responsible to the bailor for any loss, destruction
or deterioration of the goods from that time notwithstanding the exercise of reasonable care on
his part. Hence, in the instant case, M shall have to bear the loss since he failed to return the
umbrella within the stipulated time.
4.(c)
(i) The Securities and Exchange Board of India (SEBI):
● It is the regulatory body
● for securities and commodity market in India
● under the ownership of Ministry of Finance within the Government of India.
● It was established on 12 April, 1988 as an executive body and was given statutory
powers on 30 January, 1992 through the SEBI Act, 1992.
(ii) Reserve Bank of India (RBI):
● It is India’s Central Bank and regulatory body responsible for regulation of the Indian
banking system.
● It is under the ownership of Ministry of Finance, Government of India.
● It is responsible for the control, issue and maintaining supply of the Indian rupee.
● It also manages the country’s main payment systems and works to promote its economic
development.
● Bharatiya Reserve Bank Note Mudran (BRBNM) is a specialised division of RBI through
which it prints and mints Indian currency notes (INR) in two of its currency printing
presses located in Nashik (Western India) and Dewas (Central India).
● RBI established the National Payments Corporation of India as one of its specialised
division to regulate the payment and settlement systems in India.
● Deposit Insurance and Credit Guarantee Corporation was established by RBI as one of
its specialised division for the purpose of providing insurance of deposits and
guaranteeing of credit facilities to all Indian banks.
(iii) Insolvency and Bankruptcy Board of India (IBBI)-
● It is the regulator for overseeing insolvency proceedings and entities like Insolvency
Professional Agencies (IPA), Insolvency Professionals (IP) and Information Utilities (IU)
in India.
● It was established on 1 October 2016 and given statutory powers through the Insolvency
and Bankruptcy Code, which was passed by Lok Sabha on 5th May 2016.
● It covers Individuals, Companies, Limited Liability, Partnerships and Partnership firms.
The new code will speed up the resolution process for stressed assets in the country.
● It attempts to simplify the process of insolvency and bankruptcy proceedings.
● It handles the cases using two tribunals like NCLT (National Company Law Tribunal) and
Debt Recovery Tribunal.
5.(a) As per section 126 of the Indian Contract Act, 1872, the contract of guarantee is defined as
a contract to perform the promise or discharge the liability of a third person in case of his
default.
In this case, Sooraj has given a guarantee for Pankaj's payment obligation towards Rahul.
When Pankaj defaulted after making four monthly instalments and became insolvent, Sooraj's
liability as a guarantor will come into existence.
According to Section 128 of the Act, the liability of the surety is co-extensive with that of the
principal debtor, unless it is otherwise provided by the contract.
Since Pankaj failed to pay the remaining instalments due to insolvency, Sooraj, as the
guarantor, is liable to pay the balance price of the water purifier to Rahul. In the given situation,
Sooraj will have to pay the balance amount of ₹ 30,000 to Rahul. [54,000-(4x6,000)]
In the second situation, Rahul sold the water purifier misrepresenting it as having a copper
filter, while it actually has a normal filter; this changes the situation significantly.
According to Section 142 of the Act, any guarantee which has been obtained by means of
misrepresentation made by the creditor, or with his knowledge and assent, concerning a
material part of the transaction, is invalid. Here, guarantee is obtained by means of
misrepresentation made by the creditor (Rahul), and therefore the guarantee is invalid.
Furthermore, under Section 143, any guarantee which the creditor has obtained by means of
keeping silence as to material circumstances, is invalid.
Here Rahul misrepresented the filter type and both Pankaj and Sooraj were unaware of this fact.
The creditor (Rahul) has obtained the guarantee by remaining silent as to material
circumstances. Therefore, the guarantee obtained from Sooraj will be considered to be invalid.
Consequently, Sooraj cannot be held liable to pay the balance price of the water purifier to
Rahul.
5.(b) (i) 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 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, Mohan, who had taken delivery of the camera on Sale or Return basis and delivers the
same to Raj on sale for cash only or return, 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 (Camera) passes to Mohan.
Now, Raj delivered it to Vikas on a sale or return without paying cash to Mohan.
Since Raj did not pay cash and had not exercised the option to purchase, ownership of the
camera did not pass to Raj. Therefore, Raj is not liable to pay the price of the camera either.
Since Vikas did not accept the goods and the camera was lost by theft (despite his due care),
Vikas is not liable for the price of the camera as ownership had not passed to him.
Therefore, Mohan is solely liable to pay the price of the camera to Ashish, as he accepted the
camera on a "sale or return" basis and did not return it within a reasonable time.
(ii) According to Section 51 of the Sale of Goods Act, 1930, when the carrier wrongfully refuses
to deliver the goods to buyer, the right of stoppage in transit is lost and transit comes to an end.
On the other hand, according to section 57 of the Sale of Goods Act, 1930, where buyer suffers
losses due to non-delivery, he can sue seller for damages on account of non-delivery.
In the instant case, the transit came to an end when Chirag wrongfully refused to deliver the
goods to Barun, and he suffered a huge loss due to non- delivery. Hence, Akash cannot
exercise the right of stoppage of goods in transit as the transit has already come to an end.
Barun can claim loss suffered due to non-delivery from Akash.
5.(c) (c) Wagering agreement (Section 30 of the Indian Contract Act, 1872):
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.
Transactions resembling with wagering transaction but are not void
(i) 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.
(ii) 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.
(iii) 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 competitions are valid.
(iv) 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.
6.(a) Quasi Contracts: Under certain special circumstances, obligations 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 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.
6.(b) The main points of distinction between the 'Sale' and 'Hire-Purchase' are as follows:
Sr. Basis of Sale Hire-Purchase
No. difference
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 The position of the buyer is The position of the hirer is that of a
property that of the owner of the bailee till he pays the last installment.
goods
3 Termination of The buyer cannot The hirer may, if he so likes, terminate
contract terminate the contract and the contract by returning the goods to
is bound to pay the price of its owner without any liability to pay
the goods the remaining installments.
4 Burden of Risk of The seller takes the risk of The owner takes no such risk, for if
Insolvency of the any 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 The hirer cannot pass any title even
good title to a bona fide to a bona fide purchaser.
purchaser from him
6 Resale The buyer in sale can The hire purchaser cannot resell
resell the goods unless he has paid all the
installments.
6.(c) 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:–
(i) When the person to whom the goods are given either accepts them or does an act which
implies adopting the transaction.
(ii) 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, J (seller) has delivered on approval 100 bags of rice of 10 kg each to local
retailer (buyer) on sale or returnable basis within a month of delivery. Out of these 100 bags, the
local retailer sold 5 bags to K (customer). It implies that the local retailer has accepted 5 bags
out of 100.
A week later, local retailer received the complaint of some defect in the rice bags, so, he wanted
to return all the bags to the J (seller).
According to the above provisions, the local retailer is entitled to return only 95 bags to the J
(seller) and not those 4 bags which are not used by K. Because, as per clause (i) above, the
local retailer has already sold 5 bags, signifying that he has done an act which implies adopting
the transaction relating to those 5 bags.
