Question 1

State Cricket Club was formed as a Limited Liability Company under Section 8 of the Companies Act, 2013 with the object of promoting cricket by arranging introductory cricket courses at district level and friendly matches. The club has been earning surplus. Of late, the affairs of the company are conducted fraudulently and dishonestly and the club paid its members. Mr. Cool, a member decided to make a complaint with Regulatory Authority to curb the fraudulent activities by cancelling the licence given to the Company.

Accepted Answer

**(i) Revocation of Licence under Section 8(6) of the Companies Act, 2013:**

Yes, there is an express provision for revocation of licence granted to a Section 8 company. Under **Section 8(6) of the Companies Act, 2013**, the **Central Government** may by order revoke the licence of a Section 8 company if it is satisfied that:

- The company has contravened any of the requirements of Section 8 or any conditions subject to which the licence was granted; OR
- The affairs of the company are conducted **fraudulently** or in a manner violative of the objects of the company or **prejudicial to public interest**.

In the present case, since the affairs of State Cricket Club are being conducted **fraudulently and dishonestly**, and the company has been paying its members (which is against the object of a Section 8 company), the Central Government has sufficient grounds to revoke the licence. The complaint by Mr. Cool to the Regulatory Authority is a valid recourse.

**Important procedural safeguard:** Before revoking the licence, the Central Government must give the company a **reasonable opportunity of being heard**.

On revocation, the Registrar shall add the word **"Limited" or "Private Limited"** (as applicable) to the company's name in the register.

**(ii) Whether the Company may be Wound Up — Section 8(7):**

Yes, the company **may be wound up** after revocation of its licence. Under **Section 8(7) of the Companies Act, 2013**, where the licence of a Section 8 company is revok…

Question 2

AB & Associates, a firm of Chartered Accountants was re-appointed as auditors at the Annual General Meeting of X Ltd. held on 15-03-2019. However, the Board of Directors recommended to remove them before expiry of their term by passing a resolution in the Board Meeting held on 31-03-2020. Subsequently, having given consideration to the Board recommendation, AB & Associates were removed at the general meeting held on 25-04-2020 by passing a special resolution subject to approval of the Central Government. Explaining the provisions for removal of second and subsequent auditors, examine the validity of removal of AB & Associates by Y Ltd. under the provisions of the Companies Act, 2013.

Accepted Answer

**Provisions for Removal of Second and Subsequent Auditors under Section 140(1) of the Companies Act, 2013:**

Section 140(1) of the Companies Act, 2013 lays down the procedure for removal of an auditor appointed under Section 139 before the expiry of his term. The key provisions are as follows:

**(i)** The auditor can only be removed by a **special resolution** of the company.

**(ii)** The company must obtain the **previous (prior) approval of the Central Government** before passing such special resolution. The word 'previous' is of critical significance — it mandates that the Central Government's approval must be secured *before* the special resolution is passed at the general meeting.

**(iii)** Before taking any action for removal, the **auditor concerned must be given a reasonable opportunity of being heard**.

**(iv)** The Board of Directors passes a resolution recommending the removal and authorising the filing of an application to the Central Government. Under **Rule 7 of the Companies (Audit and Auditors) Rules, 2014**, such an application to the Central Government must be filed within **30 days** of the Board resolution.

**(v)** Only after the Central Government grants approval, the company can convene a general meeting and pass the special resolution for removal.

**Examination of Validity of Removal of AB & Associates:**

Applying the above provisions to the given facts:

- AB & Associates were re-appointed as auditors at the AGM held on **15-03-2019**.
- The B…

Question 3

Mr. Stefan owns a chicken firm near Gurgaon, where he breeds them and sells poultry birds to retail shops in Gurgaon. Mr. Flemming also owns a similar firm near Gurgaon, doing the same business. Mr. Flemming had to go back to his native place in Australia for two years. He needed money for travel so he had pledged his firm to Mr. Stefan for one year and received a deposit of ₹25 lakhs and went away. At that point of time, stock of live birds were 100,000 and eggs 10,000. The condition was that when Flemming returns, he will repay the deposit and take possession of his firm with live birds and eggs. After one week after Flemming came back and returned the deposit, at that time there were 100,000 live birds (increase is due to hatching of eggs out of 10,000 eggs he had left), and 15,000 eggs…

Accepted Answer

**Legal Framework — Pledge under the Indian Contract Act, 1872**

A **pledge** (also called pawn) is defined under **Section 172 of the Indian Contract Act, 1872** as the bailment of goods as security for payment of a debt or performance of a promise. Mr. Flemming (Pawnor) pledged his chicken farm (including 1,00,000 live birds and 10,000 eggs) to Mr. Stefan (Pawnee) for ₹25 lakhs for one year.

**Duties of Mr. Stefan as Pawnee**

(a) **Duty to take reasonable care:** Under **Section 151 of the Indian Contract Act, 1872**, the pawnee (as a bailee) is bound to take as much care of the goods bailed as a man of ordinary prudence would take of his own goods of the same bulk, quality, and value.

(b) **Duty not to make unauthorised use:** Under **Section 154**, if the pawnee makes any use of the goods inconsistent with the conditions of the bailment, he is liable to make compensation to the pawnor for any damage arising.

(c) **Duty to return goods on redemption:** Under **Section 173**, the pawnee may retain the goods pledged only for payment of the debt or performance of the promise. Once Mr. Flemming repaid the ₹25 lakhs, Mr. Stefan was duty-bound to return the pledged goods immediately.

(d) **Duty to return accretions (most critical duty in this case):** Under **Section 163 of the Indian Contract Act, 1872**, in the absence of any contract to the contrary, the bailee (and by extension the pawnee) is **bound to deliver to the bailor/pawnor any increase or profit which may have…

Question 4

Mr. Harsha donated ₹50,000 to an NGO by cheque for sponsoring the education of one child for one year. Later on he found that the NGO was a fraud and did not engage in philanthropic activities. He gave a "stop payment" instruction to his bankers and the cheque was not honoured by the bank as per his instruction. The NGO has sent a demand notice and threatened to file a case against Harsha. Advise Mr. Harsha about the course of action available under the Negotiable Instruments Act, 1881.

Accepted Answer

Under the Negotiable Instruments Act, 1881, **Section 43** provides that the drawer of a cheque has a right to countermand (cancel) payment of a cheque as to any amount not then actually paid. Mr. Harsha, as the drawer of the cheque, validly exercised this right by issuing a stop payment instruction to his bank, and the bank correctly honored this instruction by refusing to pay the cheque.

The NGO's legal position is weak. As the payee, they cannot enforce payment of a cheque that has been stopped by the drawer. Their claim is further weakened by the fact that the NGO was fraudulent and did not fulfill the consideration for which the cheque was drawn (sponsoring education of a child). **Fraud vitiates the underlying transaction**, rendering the cheque null and void.

If the NGO attempts to initiate prosecution under **Section 138 of the NI Act** (which deals with dishonour of cheques), Harsha can raise the defense of fraud. The section requires the cheque to be drawn 'by way of' a lawful obligation. Since the underlying obligation (the NGO's promise to sponsor education) was fraudulent and never fulfilled, no lawful obligation existed, and the cheque was not validly drawn. **Section 19** (holder in due course) would also be unavailable to the NGO as they cannot be innocent holders when they obtained the cheque through fraud.

Regarding his course of action, Mr. Harsha should maintain records of the stop payment instruction and bank's confirmation, gather evidence of the NGO'…

Question 5

Ajit was supposed to submit an appeal to High Court of Kolkata on 30th March, 2020, which was the last day on which such appeal could be submitted. Unfortunately, on that day High Court was closed due to total Lockdown all over India due to Covid-19 pandemic. Examine the remedy available to Ajit under the provisions of the General Clauses Act, 1897.

Accepted Answer

**Relevant Provision: Section 10 of the General Clauses Act, 1897**

**Section 10** of the General Clauses Act, 1897 provides for the computation of time in cases where a prescribed act or proceeding is to be done or taken in any Court or office on a certain day or within a prescribed period.

The provision states: *Where, by any Central Act or Regulation made after the commencement of this Act, any act or proceeding is directed or allowed to be done or taken in any Court or office on a certain day or within a prescribed period, then, if the Court or office is closed on that day or the last day of the prescribed period, the act or proceeding shall be considered as done or taken in due time if it is done or taken on the **next day afterwards on which the Court or office is open**.*

**Application to the Facts of Ajit's Case**

*Facts:* Ajit was required to submit an appeal to the High Court of Kolkata on **30th March, 2020**, which was the last day for filing such appeal. On that day, the High Court was closed due to the **total lockdown imposed across India on account of the COVID-19 pandemic**.

*Analysis:* Since 30th March, 2020 was the last prescribed day for Ajit to submit his appeal, and the High Court of Kolkata was **closed on that very day** due to circumstances beyond Ajit's control (nationwide COVID-19 lockdown), the provisions of Section 10 of the General Clauses Act, 1897 are squarely attracted.

The closure of the Court on the last day of the prescribed period is…

Question 6

You are to advise on the following points explaining the provisions of the Companies Act, 2013

Accepted Answer

**Sub-part (i): Whether Smart Solutions Private Limited qualifies as a Small Company**

As per **Section 2(85) of the Companies Act, 2013**, a 'small company' means a company, **other than a public company**, which satisfies **both** of the following conditions as at the relevant date:

(a) Paid-up share capital does not exceed **₹50 lakhs** (as prescribed under the Companies (Specification of Definitions Details) Rules, 2014, applicable for FY 2019-20); and

(b) Turnover as per its last profit and loss account does not exceed **₹2 crores**.

However, the following companies are **specifically excluded** from the definition of small company, even if the above monetary thresholds are met:
- A **holding company or a subsidiary company**
- A company registered under **Section 8**
- A company governed by any special Act

**Applying the conditions to Smart Solutions Private Limited:**

- It is a **private limited company** — eligible to be a small company.
- Paid-up equity share capital = ₹50,00,000 = ₹50 lakhs — satisfies condition (a) (not exceeding ₹50 lakhs).
- Turnover = ₹2,00,00,000 = ₹2 crores — satisfies condition (b) (not exceeding ₹2 crores).

**Regarding the holding by Nice Software Limited (public company):**

Nice Software Limited holds **2,00,000 out of 5,00,000** equity shares = **40% of voting power**. As per **Section 2(87)**, a company becomes a subsidiary only if another company controls more than **one-half (50%)** of total voting power or controls composition …

Question 7

ABC Limited presents the following financial figures: Net Worth ₹100 crore, Turnover ₹500 crore, and Net Profit ₹1 crore (31-03-2020) / ₹5 crore (30-09-2020). Explaining the provisions of the Companies Act, 2013, examine whether ABC Limited is required to constitute 'Corporate Social Responsibility Committee' (CSR Committee) during the second half of the financial year 2020-21.

Accepted Answer

**Section 135 of the Companies Act, 2013** prescribes the criteria for constituting a Corporate Social Responsibility Committee. A company must constitute a CSR Committee if it meets ANY of the following thresholds during any of the **three immediately preceding financial years**: (i) Net worth of ₹500 crore or more; (ii) Turnover of ₹1,000 crore or more; or (iii) Net profit of ₹5 crore or more.

**Analysis of ABC Limited's Eligibility:**

For FY 2020-21 (01-04-2020 to 31-03-2021), the "three immediately preceding financial years" are FY 2019-20, FY 2018-19, and FY 2017-18. The relevant data available is as of 31-03-2020 (end of FY 2019-20): Net Worth ₹100 crore, Turnover ₹500 crore, and Net Profit ₹1 crore.

Against the Section 135(1) thresholds:
- Net Worth (₹100 crore) < ₹500 crore ✗
- Turnover (₹500 crore) < ₹1,000 crore ✗
- Net Profit (₹1 crore) < ₹5 crore ✗

The company did **not** meet any of the three criteria as on 31-03-2020.

Although the Net Profit became ₹5 crore by 30-09-2020 (during FY 2020-21), this does not satisfy Section 135(1) because the criterion requires eligibility in "any of three immediately preceding financial years," not the current financial year. A company becoming eligible mid-year does not retroactively trigger the obligation for that year.

**Conclusion:** ABC Limited is **NOT required** to constitute a CSR Committee during the second half of FY 2020-21. However, if the Net Profit remains ₹5 crore or more at the end of FY 2020-21, the company …

Question 8

Smart Solutions Private Limited has the following details: (1) Paid-up equity share capital of ₹50,00,000 divided into 5,00,000 equity shares (carrying voting rights) of ₹10 each. There is no change in the paid-up share capital thereafter. (2) The turnover is ₹2,00,00,000. It is further understood that Nice Software Limited, which is a public limited company, is holding 2,00,000 equity shares, fully paid-up, of Smart Solutions Private Limited. Smart Solutions Private Limited has filed its Financial Statement for the year 2020-21 with the Registrar of Companies (ROC) excluding the Cash Flow Statement within the prescribed time line. The ROC has issued a notice regarding failure to file the cash flow statement along with the Balance Sheet and Profit and Loss Account. You are to advise on the…

Accepted Answer

**PART (i): Small Company Status with Public Company Shareholding**

No, Smart Solutions Private Limited shall NOT be deemed a small company. Although it satisfies the primary quantitative criteria under Section 2(85) of the Companies Act, 2013—paid-up capital of ₹50,00,000 and turnover of ₹2,00,00,000—it is expressly excluded from small company classification.

Section 2(85) provides three exceptions (proviso) to small company status. The company fails the third exception: **"a company having significant equity shares held by a public company."** Nice Software Limited (a public company) holds 2,00,000 fully paid-up equity shares out of 5,00,000 total shares, constituting **40% shareholding**. This percentage is unquestionably significant because it represents:

• Ownership exceeding one-third of voting capital
• Substantial influence over company decisions and resolutions
• Material economic interest sufficient to control or influence policies

Therefore, despite meeting the capital and turnover thresholds, Smart Solutions is disqualified from small company status due to the public company shareholding proviso.

**PART (ii): Default in Filing Financial Statement**

Yes, Smart Solutions Private Limited has committed a statutory default in filing its financial statement. Under Section 129(1) of the Companies Act, 2013, every company must prepare and attach a **Cash Flow Statement** to its balance sheet. The only exemption from this obligation is provided in Section 149 for sma…

Question 9

A signs his name on a blank cheque with 'not negotiable crossing' which is to be given to B with an authority to fill up a sum of ₹ 3,000 only. But if B fills it for ₹ 3,000. It then endorsed it to C for a consideration of ₹ 5,000 who takes it in good faith. Examine whether C is entitled to recover the full amount of the instrument from B or A as per the provisions of the Negotiable Instruments Act, 1881.

Accepted Answer

**Answer:**

C is entitled to recover ₹3,000 (the full authorized amount) from either B or A despite the "not negotiable" crossing, under the Negotiable Instruments Act, 1881.

**Against B (as Endorser):**

Under **Section 36**, an endorser is liable to pay the cheque amount to any subsequent holder. Since B endorsed the cheque to C, B is liable for ₹3,000 regardless of the "not negotiable" crossing.

**Against A (as Drawer):**

Under **Section 32**, the drawer is liable to pay the cheque to the holder upon presentment. A is liable for ₹3,000 (the amount A authorized B to fill). The "not negotiable" crossing does not release drawer liability; it only affects title acquisition.

**Effect of "Not Negotiable" Crossing (Section 125):**

The "not negotiable" crossing means:

1. **C is not a holder in due course** – Under Section 125, C cannot acquire a better title than the transferor (B)

2. **C's title is derivative** – C's rights are subject to any defects in B's title. However, since B filled the cheque correctly for ₹3,000 (within the authority given by A), no defect exists in B's title

3. **C is subject to A's defenses** – A can raise any defense against C that A could raise against B

**Critical Issue - Authority to Fill:**

A authorized B to fill only ₹3,000. Since B filled it for ₹3,000, B acted within authority and acquired valid title. This means:
- B could validly endorse to C
- C can recover the full ₹3,000 from B or A

**Note on Consideration:** C paid ₹5,000 as con…

Question 10

ASR Limited declared dividend at its Annual General Meeting held on 31-03-2020. The dividend warrant to Mr. A, a shareholder, was posted on 22nd January, 2021. Due to postal delay, Mr. A received the warrant on 5th February, 2021 and cashed it subsequently. Can Mr. A initiate action against the company for failure to distribute the dividend within 30 days of declaration under the provisions of the Companies Act, 2013?

Accepted Answer

**Yes, Mr. A can initiate action against the company for failure to distribute the dividend within 30 days of declaration.**

**Legal Framework:**
Section 127 of the Companies Act, 2013 mandates that dividends declared by a company must be distributed to shareholders within **30 days from the date of declaration**. Any default in distribution attracts penalty and criminal liability on the company and its officers.

**Application to the Given Facts:**

**Timeline Analysis:**
- Dividend declared: 31st March 2020
- 30-day statutory period: Expiry by 30th April 2020
- Dividend warrant posted: 22nd January 2021
- Warrant received: 5th February 2021

The company posted the dividend warrant on 22nd January 2021, which is **significantly beyond the 30-day statutory period**. The 30 days should have elapsed by 30th April 2020, but the warrant was dispatched after approximately 9.5 months.

**Position on Postal Delay:**
The postal delay (from 22nd January to 5th February 2021) is **immaterial** to Mr. A's right to take action. The company's statutory obligation is to dispatch the warrant within 30 days of declaration, not to ensure physical receipt by the shareholder within that period. Once the company dispatches the warrant properly, postal delays are beyond its control. However, in this case, the company **itself failed to dispatch within 30 days**, which is the primary breach.

**Mr. A's Right of Action:**
Under Section 127, Mr. A (as an aggrieved shareholder) can initiate action a…

Question 11

The balance extracted from the financial statement of ABC Limited are as below: Net Worth - ₹100.00 crore (as on 31-03-2020), ₹100.00 crore (as on 30-09-2020); Turnover - ₹500.00 crore (as on 31-03-2020), ₹1000.00 crore (as on 30-09-2020); Net Profit - ₹1.00 crore (as on 31-03-2020), ₹5.00 crore (as on 30-09-2020). Explaining the provisions of the Companies Act, 2013, you are required to examine whether ABC Limited is required to constitute 'Corporate Social Responsibility Committee' (CSR) for the second half of the financial year 2020-21.

Accepted Answer

ABC Limited is **NOT required** to constitute a Corporate Social Responsibility Committee for the second half of FY 2020-21 (or for the entire FY 2020-21). The CSR Committee requirement under Section 135 of the Companies Act, 2013 is determined annually based on whether the company meets any of the prescribed financial thresholds in the **immediately preceding financial year**. For FY 2020-21, the immediately preceding financial year is FY 2019-20, and the determination must be based on the company's financial position as on 31-03-2020. As on 31-03-2020, ABC Limited's financial position is: (1) Net Worth of ₹100 crore, which is less than the prescribed threshold of ₹500 crore; (2) Turnover of ₹500 crore, which is less than the prescribed threshold of ₹1000 crore; and (3) Net Profit of ₹1 crore, which is less than the prescribed threshold of ₹5 crore. Since the company fails to satisfy **any one of the three criteria** as on 31-03-2020, it does not qualify for mandatory CSR Committee constitution for FY 2020-21. The fact that ABC Limited's financial position improved significantly by 30-09-2020 (Turnover reaching ₹1000 crore and Net Profit reaching ₹5 crore) does not alter the CSR Committee requirement for the current financial year. These improved figures will be relevant only for determining the CSR Committee requirement for FY 2021-22, where the company's position as on 31-03-2021 would be the determining factor. The CSR Committee requirement cannot be triggered mid-way thr…

Question 12

Examine the validity of the following statements in respect of Annual General Meeting (AGM) as per the provisions of the Companies Act, 2013: (i) The first AGM of a company shall be held within a period of six months from the date of closing of the first financial year. (ii) The Registrar may, for any special reason, extend the time within which the first AGM shall be held. (iii) Subsequent (second onwards) AGMs should be held within 6 months from closing of the financial year. (iv) There shall be a maximum interval of 15 months between two AGMs.

Accepted Answer

**Statement (i) - INVALID**: The first AGM of a company shall be held within a period of **9 months** (not 6 months) from the date of closing of the first financial year, as per Section 87 of the Companies Act, 2013. The statement is therefore incorrect.

**Statement (ii) - PARTIALLY VALID**: The Registrar does have the power to extend the time for holding the first AGM for any special reason under Section 87. However, the statement is incomplete and must be qualified. The extension permitted is limited to: (a) not exceeding **3 months** at a time, and (b) not exceeding in aggregate **9 months** from the date of closing of the first financial year. Thus while the Registrar's power exists, it is circumscribed by temporal limits.

**Statement (iii) - VALID**: All subsequent AGMs (second and onwards) shall be held within **6 months** from the closing of the financial year, as per Section 86(1) of the Companies Act, 2013. This statement is correct.

**Statement (iv) - VALID**: There shall be a maximum interval of **15 months** between two consecutive AGMs, as per Section 96 of the Companies Act, 2013. This means if an AGM is held, the next AGM must be held within 15 months. This statement is correct.

**Summary**: Statements (iii) and (iv) are entirely valid. Statement (ii) is valid but requires qualification regarding the limits of extension. Statement (i) is invalid as it misstates the timeline for the first AGM as 6 months instead of 9 months.

Question 13

KSR Limited, an unilisted company furnishes the following data: (a) Paid-up share capital as on 31-3-2021 : ₹ 45 Crore. (b) Turnover for the year ended 31-3-2021 : ₹ 120 Crore. (c) Outstanding loan from bank as on 31-3-2021 : ₹ 105 crore (₹ 110 Crore loan obtained from bank) and the outstanding balance as on 31-3-2020 : ₹ 90 crore repayment. Whether as per provision of the Companies Act, 2013 the company is required to appoint Independent Auditor during the year 2021-2022?

Accepted Answer

**Applicable Provision:** Section 138 of the Companies Act, 2013 read with Rule 13 of the Companies (Accounts) Rules, 2014 governs mandatory appointment of an **Internal Auditor** for certain classes of companies.

**Thresholds for Unlisted Public Company (Rule 13(1)):**
An unlisted public company is required to appoint an internal auditor if, during the **preceding financial year**, any of the following conditions are satisfied:
(a) Paid-up share capital of **₹50 crore or more**; OR
(b) Turnover of **₹200 crore or more**; OR
(c) Outstanding loans or borrowings from banks or public financial institutions exceeding **₹100 crore or more at any point of time**; OR
(d) Outstanding deposits of **₹25 crore or more at any point of time**.

**Application to KSR Limited** (for appointment in 2021-22, preceding FY = 2020-21):

| Criterion | Threshold | Actual (FY 2020-21) | Satisfied? |
|---|---|---|---|
| Paid-up share capital | ≥ ₹50 crore | ₹45 crore | No |
| Turnover | ≥ ₹200 crore | ₹120 crore | No |
| Outstanding bank loan (at any point) | > ₹100 crore | ₹110 crore (at time of drawdown) | **Yes** |
| Outstanding deposits | ≥ ₹25 crore | Not mentioned | No |

**Conclusion:** The bank loan obtained was ₹110 crore, meaning at the point of drawdown during FY 2020-21, the outstanding loan exceeded ₹100 crore. Even though the closing balance (₹105 crore as on 31-3-2021) and the opening balance (₹90 crore as on 31-3-2020) are relevant context, the decisive fact is that the loan **at any…

Question 14

State the provisions of the Companies Act, 2013 relating to appointment of First Auditor of a Government Company.

Accepted Answer

**Provisions for Appointment of First Auditor of a Government Company under the Companies Act, 2013**

**Appointment Authority:** As per Section 139(7) of the Companies Act, 2013, the **Central Government shall appoint the first auditor** of a Government Company. This is a significant deviation from the general rule where the Board of Directors appoints the first auditor.

**Definition of Government Company:** The provisions apply to any company where not less than **51% of the paid-up share capital** is held by the Central Government or any State Government or partly by both, as defined under Section 2(45).

**Timing of Appointment:** The Central Government must appoint the first auditor **within 30 days of incorporation** of the company, similar to the timeline applicable to other companies.

**Qualifications:** The appointed auditor must satisfy the eligibility criteria prescribed under Section 141, including not being disqualified under Section 141(3). The auditor must be a **Chartered Accountant** and must hold a valid certificate of practice.

**Term of Office:** The first auditor **holds office until the conclusion of the first Annual General Meeting (AGM)** of the company or until a successor is appointed, whichever is earlier.

**Consent and Eligibility:** Before appointment, the Central Government must obtain **written consent** from the proposed auditor confirming his willingness to act and his compliance with all applicable conditions.

**Reappointment:** After th…

Question 15

Paul (minor) purchased a smart phone on credit from a mobile dealer on the surety given by Mr. Jack (a major). Paul did not pay for the mobile. The mobile dealer demanded the payment from Mr. Jack, arguing that because the contract entered with Paul (minor) is void, Jack (as principal debtor) is also not liable to pay the amount. Examine whether this argument is correct under the Indian Contracts Act, 1872. What would be your answer if both Jack and Paul are minors?

Accepted Answer

**The dealer's argument is INCORRECT.** The surety's liability is independent of the principal debtor's capacity to contract.

**When Jack (major) is the surety:**

Under Section 11 of the Indian Contracts Act, 1872, any contract made by a minor is void ab initio. Therefore, Paul's contract to purchase the smartphone is void because he lacks contractual capacity. However, this does NOT absolve Jack of liability.

The key principle is that **the surety's contract with the creditor (mobile dealer) is separate and independent from the principal debtor's contract.** When Jack becomes surety, he enters into a distinct contract with the dealer—not with Paul. Section 124 defines a surety as "a person who undertakes or promises to be answerable for the payment of a sum of money... if the principal debtor makes default."

Jack's liability arises from his agreement with the mobile dealer, and this agreement is valid because:
1. Jack is a major and has capacity to contract
2. The dealer extended credit based on Jack's promise of security
3. The consideration for Jack's promise is the creditor's act of forbearance (extending credit)
4. Jack's capacity is all that is required for his contract—Paul's incapacity is irrelevant

Therefore, **the dealer can demand payment from Jack despite Paul's contract being void.** Jack cannot use the void status of Paul's contract as a defense to escape his surety obligations. The void principal contract does not render the surety's independent contract v…

Question 16

जनरल कंपनी अधिनियम, 2013 की धारा 8 के अनुसार निजी कंपनी को पंजीकरण देने के लिए आवश्यक शर्तों का विवरण दें। अपने विचार के अनुसार निम्नलिखित के आधार पर स्पष्ट करें:
(i) क्या कंपनी अधिनियम, 2013 के तहत निर्धारित पूंजी सीमा है?
(ii) क्या कंपनी का परिभाषा क्या है?
(iii) क्या स्टॉक क्रिकेट क्लब Ltd ने M/s Gold Cricket Limited, जयपुर में निवेश के लिए आवेदन किया है?

Accepted Answer

**Section 8 of the Companies Act 2013** deals with **companies with charitable objects**, not general private company registration requirements. However, addressing the requirements for **private company registration** under the Companies Act 2013:

**Requirements for Private Company Registration:**

A **private company** under Section 2(68) of the Companies Act 2013 is a company which by its articles restricts the right to transfer its shares, limits the number of members to 200, and prohibits invitation to the public to subscribe for securities. Private companies do not require government approval for formation like Section 8 companies, but must comply with general incorporation requirements.

**(i) Capital Limit Under Companies Act 2013:**

**There is NO prescribed minimum paid-up capital limit** for private companies under the Companies Act 2013. The Memorandum and Articles of Association determine the authorized capital, and companies can now be incorporated with nominal capital. Previously under the Companies Act 1956, there was a minimum paid-up capital requirement of ₹100,000 for private companies, but this has been removed in the 2013 Act to facilitate ease of doing business.

**(ii) Definition of Company:**

As per **Section 2(20) of the Companies Act 2013**, a **company** is defined as a company formed and registered under this Act. A company is an artificial juristic person created by law with perpetual succession and a common seal. It possesses the capacity to en…

Question 17

30-09-2019 को AB & Co Limited के लेखा विवरण से संबंधित AB & Co Limited 01-02-2020 को जारी किए गए प्रश्न के आधार पर: 31-03-2020 को समापन तुलनपत्र में AB & Co Limited की लेखा पुस्तकों के अनुसार सभी प्रविष्टियों के संबंध में जांचें और AB & Co Limited की 25-05-2020 को की जांच करने के लिए AB & Co Limited द्वारा दिया गया लेखा सूचना तैयार किया गया। भारतीय चार्टर्ड अकाउंटेंट्स संस्थान, 2013 के अनुसार AB & Co Limited को AB & Co Limited की Ltd.

Accepted Answer

The question, as presented, appears to relate to **accounting records, books of account, and audit documentation** obligations of AB & Co. Limited under the **Companies Act, 2013** and applicable **Standards on Auditing (SA)**. Based on the dates referenced (30-09-2019, 01-02-2020, 31-03-2020, 25-05-2020) and the topic of 'Accounting Records and Documentation', the following provisions are applicable:

**(a) Maintenance of Books of Account — Section 128 of the Companies Act, 2013**

Every company, including AB & Co. Limited, is required under **Section 128 of the Companies Act, 2013** to prepare and maintain books of account and other relevant books and papers and financial statements for every financial year which give a **true and fair view** of the state of affairs of the company. Key requirements include:
- Books of account must be maintained on **accrual basis** and according to the **double entry system** of accounting.
- Books must be maintained at the **registered office** of the company, unless the Board of Directors decides otherwise by passing a resolution.
- If books are maintained at any place in India other than the registered office, the company must file a **notice with the Registrar** within 7 days.
- Books of account must be preserved for a minimum period of **8 years** immediately preceding the current year.
- Where there is an **investigation**, the Central Government may direct preservation for a longer period.

**(b) Audit Documentation — SA 230 (Audit D…

Question 18

ASR Limited declared dividend at its Annual General Meeting held on 22-01-2020. The dividend warrant was posted on 22 January, 2021. Due to postal delay Mr. A received the warrant on 5th February, 2021 and encashed it subsequently. Can Mr. A initiate action against the company for failure to distribute the dividend in the prescribed 30 days of declaration under the provisions of the Companies Act, 2013?

Accepted Answer

Under **Section 127 of the Companies Act, 2013**, every company must pay any dividend within **30 days from the date of declaration**. The company's statutory obligation is discharged when the dividend warrant is **dispatched/posted**, not when the shareholder actually receives it. **Postal delays after dispatch are the responsibility of the postal service, not the company.**

Key principle: The 30-day period is calculated from the date of declaration (22-01-2020), which means the company should have posted the warrant by approximately 21-02-2020. Once the warrant is posted, the company has fulfilled its obligation under Section 127. Any subsequent delay in the shareholder receiving the warrant due to postal delays does not extend the company's liability—it does not shield the company from liability, nor does it absolve the shareholder's right to sue.

Applying to the facts: The dividend was declared on 22-01-2020, and the warrant was posted on 22 January 2021. This represents a 12-month delay, far exceeding the prescribed 30-day period. The company has **clearly breached Section 127**. The postal delay experienced by Mr. A (receiving on 5-02-2021 instead of 22-01-2021) is immaterial to establishing the company's breach—the breach occurred at the posting stage.

**Yes, Mr. A can initiate action against the company.** Under Section 127, Mr. A's remedies include: (1) filing a complaint with the **Registrar of Companies**, who can direct the company to pay the dividend plus inte…

Question 19

State Cricket Club was formed as a Limited Liability Company under Section 8 of the Companies Act, 2013 with the object of promoting cricket by arranging introductory cricket courses at district level and friendly matches. The club has been earning annual income of late, the affairs of the company are conducted fraudulently and dividend was paid to members. Mr. Cool, a member decided to make a complaint with Regulatory Authority to curb the fraudulent activities by cancelling the licence given in the Company.

Accepted Answer

**Sub-part (i): Revocation of Licence under Section 8(6) of the Companies Act, 2013**

Yes, there is a specific provision for revocation of licence granted to a Section 8 company. **Section 8(6) of the Companies Act, 2013** empowers the **Central Government** to revoke the licence of a company registered under Section 8 if:

(a) The company contravenes any of the requirements of Section 8;
(b) The conditions subject to which the licence was granted have not been complied with;
(c) The affairs of the company are conducted **fraudulently** or in a manner **violative of the objects** of the company or **prejudicial to public interest**.

In the given case, **two clear grounds** for revocation exist: (1) the affairs of State Cricket Club are being conducted **fraudulently**, and (2) **dividend has been paid to members**, which directly violates Section 8, as a Section 8 company is prohibited from paying any dividend to its members — its income must be applied solely towards the promotion of its objects.

On revocation, the Registrar shall enter the fact in the register and the company shall either:
- **Convert its status** by adding 'Limited' or 'Private Limited' to its name under the applicable provisions, OR
- Be **wound up** in accordance with the provisions of the Act.

Before revoking the licence, the Central Government must give the company a **reasonable opportunity of being heard**. Therefore, Mr. Cool's complaint to the Regulatory Authority (Central Government/Regional D…

Question 20

AB & Associates, a firm of Chartered Accountants was re-appointed as auditors at the Annual General Meeting of X Ltd. held on 30-09-2019. However, the Board of Directors recommended to remove them before expiry of their term by passing a resolution in the Board Meeting held on 31-03-2020. Subsequently, having given consideration to the Board recommendation, AB & Associates were removed at the general meeting held on 25-05-2020 by passing a special resolution subject to approval of the Central Government. Explaining the provisions for removal of second and subsequent auditors, examine the validity of removal of AB & Associates by X Ltd. under the provisions of the Companies Act, 2013.

Accepted Answer

**Provisions for Removal of Auditor Before Expiry of Term — Section 140(1) of the Companies Act, 2013**

The removal of an auditor appointed under the Companies Act, 2013 before the expiry of his term is governed by **Section 140(1) of the Companies Act, 2013** read with **Rule 7 of the Companies (Audit and Auditors) Rules, 2014**.

The prescribed procedure is as follows:

**(i)** The company shall hold a **Board Meeting** and pass a resolution recommending the removal of the auditor.

**(ii)** Within **30 days** of passing the Board resolution, the company shall make an application to the **Central Government** in **Form ADT-2** seeking prior approval for removal.

**(iii)** The auditor concerned shall be given a **reasonable opportunity of being heard** before the Central Government passes its order.

**(iv)** After receipt of the **prior approval** of the Central Government, the company shall, within **60 days** of such approval, hold a **General Meeting** and pass a **Special Resolution** to remove the auditor.

The critical point is that the **approval of the Central Government must be obtained first (prior approval)** — the special resolution at the General Meeting can only be passed *after* such approval is received, not before.

**Examination of Validity of Removal of AB & Associates:**

In the given case:
- AB & Associates were re-appointed at the AGM held on **30-09-2019**.
- The Board of Directors passed a resolution recommending removal on **31-03-2020**.
- A spec…

Question 21

Examine the following cases with respect to their validity. State your answer with reasons.

Accepted Answer

**(i) Bill of Exchange Payable on Demand — Maturity Date:**

The statement that the bill will be at maturity on **04-01-2021** is **incorrect and invalid**.

Under **Section 22 of the Negotiable Instruments Act, 1881**, three days of grace are allowed only for instruments that are payable otherwise than on demand, at sight, or on presentment. Where a bill of exchange is expressly drawn as **'payable on demand'**, it falls within the category of demand instruments under **Section 19 of the Negotiable Instruments Act, 1881**, and **no days of grace** are applicable to such instruments.

Therefore, when the bill is presented on 01-01-2021, it becomes due and payable on **01-01-2021 itself** — the day of presentment. The three days of grace cannot be added to arrive at 04-01-2021. The statement is legally incorrect.

**(ii) Notice of Dishonor — Drawer's Claim:**

The drawer's claim is **not valid** and he **cannot** escape liability.

Under **Section 93 of the Negotiable Instruments Act, 1881**, when a negotiable instrument is dishonored, the holder must give notice of dishonor to all parties whom he intends to make liable. However, **Section 98 of the Negotiable Instruments Act, 1881** specifically provides that notice of dishonor is **not required to be given to the maker of a promissory note or the acceptor of a bill of exchange**, as these parties are themselves the primary obligors responsible for the dishonor — they are already aware of non-payment.

In the given case, the …

Question 22

Mr. Stefan owns a chicken firm near Gurgaon, where he breeds them and sells eggs and live chicken to retail shops in Gurgaon. Mr. Flemming also owns a similar firm near Gurgaon, doing the same business. Mr. Flemming had to go back to his native place in Australia for one year. He needed money for travel so he pledged his firm to Mr. Stefan for one year and received a deposit of ₹ 25 lakhs and went away. At that point of time, stock of live birds were 100,000 and eggs 10,000. The condition was that when Flemming returns, he will repay the deposit and take back ownership of his firm with live birds and eggs. After one year Flemming came back and returned the deposit. At that time there were 109,000 live birds (increase is due to hatching of eggs out of 10,000 used) and 15,000 eggs. Mr. Stefa…

Accepted Answer

**Facts of the Case:** Mr. Flemming (Pawnor) pledged his chicken farm to Mr. Stefan (Pawnee) for ₹25 lakhs for one year. At the time of pledge: 1,00,000 live birds and 10,000 eggs. After one year, Flemming repaid the deposit. At that time: 1,09,000 live birds and 15,000 eggs. Stefan offered to return only 1,00,000 birds and 10,000 eggs, refusing to return the accretions.

**Legal Provisions Applicable:**

A **pledge** is defined under **Section 172 of the Indian Contract Act, 1872** as the bailment of goods as security for payment of a debt or performance of a promise. Since pledge is a special form of bailment, the general duties of a bailee also apply to a pawnee.

**Duties of Mr. Stefan as Pawnee:**

**1. Duty to take reasonable care (Section 151):** The pawnee is bound to take as much care of the goods pledged as a man of ordinary prudence would take of his own goods of the same bulk, quality, and value.

**2. Duty not to make unauthorised use (Section 154):** The pawnee must not use the goods pledged beyond the purpose of the contract. Any unauthorised use makes the pawnee liable for any damage caused.

**3. Duty to return accretions/increase along with the goods (Section 163):** This is the most critical duty in the present case. Under **Section 163 of the Indian Contract Act, 1872**, in the absence of any contract to the contrary, the bailee (and by extension, the pawnee) is **bound to deliver to the bailor/pawnor any increase or profit which may have accrued from the …

Question 23

Examine the following cases with respect to their validity. State your answer with reason:

Accepted Answer

**(i) Bill of Exchange Payable on Demand — Validity of Maturity Date:**

The statement is **not valid**. Under **Section 22 of the Negotiable Instruments Act, 1881**, days of grace (3 days) are added only to instruments which are **not** expressed to be payable on demand, at sight, or on presentment. A bill expressed as 'payable on demand' falls squarely within the exception and therefore **no days of grace are applicable**.

If such a bill is presented on 01-01-2021, it becomes due and payable **on the very date of presentation**, i.e., 01-01-2021 itself. The claim that the bill will mature on 04-01-2021 (i.e., adding 3 days of grace) is incorrect in law. **The bill is at maturity on 01-01-2021**, the date of presentation.

**(ii) Notice of Dishonor — Validity of Drawer's Claim:**

The drawer's claim is **not valid**. Under **Section 93 of the Negotiable Instruments Act, 1881**, when a bill of exchange is dishonored, the holder must give **notice of dishonor to all parties whom the holder seeks to make liable**. However, **Section 98** carves out specific situations where notice of dishonor is unnecessary.

Notice of dishonor is **not required to be given to the acceptor** of a bill of exchange, because the acceptor is the **primary/principal debtor** who is himself the party that has dishonored the instrument — he already has knowledge of the dishonor. Giving notice to the acceptor would serve no practical purpose as no damage can arise from its omission.

Since the holder …

Question 24

Explain the impact of the two words 'means' and 'includes' in a definition, while interpreting such definition.

Accepted Answer

In statutory interpretation, the words **'means'** and **'includes'** carry distinctly different implications when used in definitions. Understanding this distinction is critical for accurate statutory construction.

**The word 'MEANS'** in a definition is **exhaustive and exclusive**. When a statute defines a term using 'means', it restricts the meaning strictly to only what is explicitly stated in that definition. No extension or analogy beyond the stated scope is permitted. The definition creates fixed and closed boundaries. For example, if a definition reads 'Income means salary, wages, and commission', then income is limited solely to these three categories and nothing else. Courts interpret 'means' definitions narrowly and rigidly—they do not add items that may be similar in nature.

**The word 'INCLUDES'** in a definition is **non-exhaustive and illustrative**. When a statute defines a term using 'includes', it provides examples but does not restrict the meaning to those examples alone. It operates as an expansion beyond what is explicitly mentioned. Using the same example: 'Income includes salary, wages, and commission' means income encompasses at minimum these items, but may include other similar items as well. The definition remains open-ended and broader in scope. Courts interpret 'includes' definitions liberally, allowing for additions of similar items not specifically listed.

**Key Distinction:** With 'means', the list is **maximum and final**. With 'includes', …

Question 25

Mr. Harsha donated ₹ 50,000 to an NGO by cheque for sponsoring the education of one child for one year. Later on he found that the NGO was a fraud and did not engage in philanthropic activities. He gave a 'stop payment' instruction to his bankers and the cheque was not honoured by the bank as per his instruction. The NGO has sent a demand notice and threatened to file a case against Harsha. Advise Mr. Harsha about the course of action available under the Negotiable Instruments Act, 1881.

Accepted Answer

Mr. Harsha has taken a valid and legally protected course of action by issuing a **stop payment instruction** to his bank. His legal position is strong, and the NGO's threats to sue are unlikely to succeed.

**Validity of Stop Payment Instruction Under the NI Act**:

Under the Negotiable Instruments Act, 1881, a **drawer has an absolute right** to issue a stop payment instruction to the banker at any time before the cheque is presented for payment. Once such an instruction is given, the bank is legally bound to dishonor the cheque. When the bank complies with this instruction (as in Mr. Harsha's case), the cheque is **cancelled and becomes ineffective**. The banker incurs no liability for non-payment, and the drawer (Mr. Harsha) incurs no liability under Section 128 of the NI Act.

**Effect on the NGO's Rights**:

The NGO cannot compel payment or recover the amount through the cheque because:
1. The cheque was validly dishonored due to the drawer's stop payment instruction, not due to insufficiency of funds.
2. A cheque is fundamentally a **conditional payment instrument**—conditional on being honored by the bank. Once stopped, the condition fails and the cheque becomes unenforceable.
3. Even if the NGO initiates proceedings under Section 138 of the NI Act (Dishonor of Cheque), the cheque was not dishonored for "insufficiency of funds," a core requirement of Section 138. Therefore, the provision may not even apply.

**Defenses Available to Mr. Harsha Under Section 139**:

Add…

Question 26

Explain the impact of the two words 'means' and 'includes' in a definition, while interpreting such definition:

Accepted Answer

The terms **'means'** and **'includes'** in statutory definitions have distinct legal implications and impact interpretation differently.

**Meaning of 'Means'**: When a statute uses the word 'means', it provides an **exhaustive or restrictive definition**. This means the term is defined completely and exclusively. The definition covers only what is stated and nothing beyond. It is a closed definition that precludes any other interpretation or extension.

**Meaning of 'Includes'**: When a statute uses the word 'includes', it provides an **illustrative or inclusive definition**. This means the term includes at least what is stated, but is not limited to only those items. The definition is non-exhaustive and allows for interpretation beyond what is explicitly mentioned. It is an open definition.

**Impact on Interpretation**:

1. **Scope Determination**: 'Means' limits the scope to a fixed and finite list, creating certainty and finality. 'Includes' expands the scope by providing examples while leaving room for other possibilities.

2. **Inclusivity vs. Exclusivity**: 'Means' is mutually exclusive—if something is not mentioned, it is excluded by definition. 'Includes' is cumulative—the listed items are minimum inclusions, and other similar items may be included by interpretation.

3. **Interpretation Approach**: Where 'means' is used, courts adopt a restrictive interpretation and do not extend the definition. Where 'includes' is used, courts can extend the meaning beyond the ex…

Question 27

A signs his name on a blank cheque with 'not negotiable crossing' which is given to B with an authority to fill up a cheque of ₹5,000 only. But B fills it up for ₹5,000 only. B then endorsed it to C for a consideration of ₹5,000. Examine whether C is entitled to recover the full amount of the instrument from B or A as per the provisions of the Negotiable Instruments Act, 1881.

Accepted Answer

**Effect of "Not Negotiable" Crossing:** Under Section 130 of the Negotiable Instruments Act, 1881, when a cheque is crossed and bears the words "not negotiable" across its face, it ceases to be a negotiable instrument and cannot be negotiated further in respect of such crossing. Even though B endorsed the cheque to C, this crossing prevents C from acquiring the status of a holder in due course. Instead, C becomes merely an **assignee** of the instrument, not a statutory holder.

**C's Right to Recover from B:** Since B endorsed and transferred the cheque to C against consideration of ₹5,000, B undertakes liability under Section 50 of the NI Act. As an endorser, B is responsible for indemnifying C in case of dishonor or defect. Therefore, **C is entitled to recover the full amount of ₹5,000 from B** because B accepted consideration and B's liability as endorser is unaffected by the "not negotiable" crossing.

**C's Right to Recover from A:** C **cannot recover from A** under the framework of the NI Act for the following reasons: (1) The "not negotiable" crossing prevents the cheque from being a negotiable instrument in C's hands; (2) C lacks the status of a holder in due course, which is essential for direct recovery from the drawer under the Act; (3) C's rights as an assignee are subject to all equities and defenses available to A against B; (4) A's drawer liability extends only to proper holders or holders in due course, not to assignees. If C were to pursue civil action ag…

Question 28

निजी कंपनी अपने स्वयं के शेयरों को खरीदने-बेचने की क्षमता से संबंधित, गैर-बैंकिंग संस्थाओं के प्रावधान और कंपनी के अनुसार खरीदी प्रक्रियाओं को समझाइए। साथ ही गैर-बैंकिंग संस्था के लिए प्रावधान और कंपनी में शामिल होने के लिए क्या आवश्यक है, इस संबंध में 2013 के प्रावधानों को संबोधित करते हुए इस समस्या की व्याख्या करें।

Accepted Answer

**Share Buyback by Private Companies**

A private company has the statutory right to repurchase or buy back its own issued shares, subject to conditions prescribed under the Companies Act, 2013. This mechanism allows companies to return capital to shareholders, manage capital structure, and support employee share schemes.

**Conditions for Share Buyback (Section 68):**

Private companies can buyback shares only if: (1) Authorized by the Articles of Association; (2) Approved by special resolution in general meeting; (3) The buyback does not exceed 25% of paid-up capital and free reserves combined; (4) Funded from free reserves, securities premium account, or proceeds of asset sale; (5) Company is not in default in payment of statutory dues; (6) Offer is made to all members proportionately.

**Restrictions on Non-Banking Institutions (Section 72):**

Certain entities classified as **restricted persons** are prohibited from purchasing shares of a company, including non-banking institutions such as Non-Banking Financial Companies (NBFCs), finance companies, insurance companies, and certain government entities. These restrictions apply to:

- Direct purchase of shares from market transactions
- Participation in buyback offers initiated by the company
- Holding shares in certain regulated sectors

These restrictions prevent concentration of shareholding in financial institutions and protect market integrity and public interest.

**Buyback Process for Private Companies:**

(1) Board…

Question 29

"नई गुणवत्ता प्रणाली" (series of debenture) जारी करने के संबंध में दिए गए नियमों (prospectus) की जांच के लिए ABC Limited द्वारा आवश्यक प्रावधान तैयार किए गए हैं। कंपनी अधिनियम, 2013 के संबंध में देखें कि ABC Limited द्वारा प्रस्तावित (Deemed prospectus) की घोषणा को ध्यान में रखते हुए ABC Limited द्वारा दिए गए प्रावधानों को उल्लेख करें।

Accepted Answer

**Prospectus** under the Companies Act, 2013, Section 71, is an offer document inviting subscriptions or applications for debentures. **Deemed Prospectus** under Section 72 expands this definition to include any document, advertisement, notice, or circular that invites deposits or applications for debentures, whether or not it is formally called a prospectus.

For ABC Limited's series of debenture issuance, the following **essential provisions** must be incorporated:

**1. Prospectus Content (Section 71):** The prospectus must contain: (a) particulars of the company's directors and auditors; (b) details of authorized and issued capital; (c) auditor's report and certificate; (d) list and description of contracts essential to the business; (e) declaration of objects of the issue; and (f) disclaimers as prescribed.

**2. Debenture-Specific Particulars:** (a) Interest rate and payment terms; (b) redemption date and terms of redemption; (c) secured or unsecured status with security details if applicable; (d) appointment of **debenture trustee(s)** for protecting debenture holders' interests; (e) credit rating from recognized rating agency; (f) call/put options if any; and (g) terms of conversion if convertible debentures.

**3. Deemed Prospectus Compliance (Section 72):** Any circular, advertisement, or notice inviting applications for debentures is automatically treated as a prospectus. Therefore, ABC Limited must ensure all promotional materials conform to prospectus requirement…

Question 30

Paul (minor) purchased a smart phone on credit from a mobile dealer in the name of his sister Ms. Jack (a major). Paul did not pay for the mobile. The mobile dealer demanded the payment from Mr. Jack because the contract entered with Paul (minor) claiming Mr. Jack (Principal Debtor) is not liable. Whether the argument is correct under the Indian Contracts Act, 1872?

Accepted Answer

**Part (a): Is the dealer's argument correct that Jack is not liable?**

The dealer's argument is **NOT entirely correct**. Under **Section 11 of the Indian Contracts Act, 1872**, a contract with a minor is void ab initio (from the beginning). Therefore, Paul (minor) cannot be held liable on the contract. However, this does not automatically absolve Jack of liability.

The critical distinction is whether Jack was actually a party to the contract:

**If Jack was an actual party to the contract**: Jack, being a major, has full contractual capacity and can be held liable. The fact that Paul is a minor and cannot be held liable does not shield Jack from her own obligations if she voluntarily entered into the contract in her own capacity. Jack's liability is independent of Paul's incapacity.

**If Jack merely allowed her name to be used without being a party**: Jack may not be held liable on the contract itself. However, under **Section 65 of the Indian Contracts Act** (Restitution), since the dealer provided a benefit (the smartphone) under a void contract, the dealer can claim restitution of that advantage. Jack cannot retain the benefit without compensation if she received it.

**If Jack acted as a guarantor**: Different principles of guarantee liability would apply, not just contractual liability.

The dealer's correct position is that Jack's lack of liability cannot be assumed merely because Paul is a minor. Liability depends on Jack's actual role and consent in the transacti…

CA Inter Corp Laws

Drill 5 questions from this paper — instant grading

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap