Question 1

X agreed to become an assistant for 5 years to Y who was a doctor practicing at Chennai. It was also agreed that during the term of agreement X will not practice on his own account in Chennai. At the end of the term Y sold the assistantship of Y and began to practice on his own account. Referring to the provisions of the Indian Contract Act, 1872, explain whether X could be restrained from doing so?

Accepted Answer

**Relevant Provision:** Section 27 of the Indian Contract Act, 1872 declares that every agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind is, to that extent, **void**. The only statutory exception is in favour of the buyer of goodwill — a seller of goodwill may be restrained from carrying on a similar business within specified local limits, provided the restriction is reasonable.

**Analysis of the Agreement:** In the given case, X agreed with Y (a doctor practicing at Chennai) to serve as his assistant for 5 years. The restraint clause prohibited X from practicing **on his own account in Chennai during the term of the agreement**. This is a restraint operative only for the duration of service — not a post-service restraint.

**Effect of Restraint During Service Period:** A restraint agreed upon during an employment/service contract that operates only for the period of service is generally treated as a **reasonable and valid** restriction, as it is ancillary to the main contract of employment. The restriction does not permanently deprive X of his right to livelihood — it is limited in time (5 years) and in scope (practice on own account in Chennai). Such a clause is enforceable during the currency of the agreement.

**Situation After Expiry of Term:** The critical fact is that **X began to practice on his own account only after the term of 5 years had expired**. The agreement did not contain any post-service restraint …

Question 2

What is meant by 'Minimum subscription'? State the provisions of the Companies Act, 1956 regarding the refund and deposit of minimum subscription.

Accepted Answer

**Part (a): Meaning of Minimum Subscription**

**Minimum subscription** is the minimum amount which, in the opinion of the Board of Directors, must be raised by the issue of shares in order to provide for the following items as stated in the prospectus:

1. The purchase price of any property proposed to be acquired out of the proceeds of the issue.
2. Preliminary expenses of the company.
3. Repayment of any money borrowed by the company in respect of items (1) and (2) above.
4. Working capital requirements of the company.
5. Any other expenditure required for the objects of the company.

Under **Section 69(1) of the Companies Act, 1956**, no allotment shall be made of any share capital of a company offered to the public for subscription unless the amount stated in the prospectus as the minimum subscription has been subscribed, and the sum payable on application for such amount has been paid to and received by the company. The amount payable on application on each share shall not be less than **5% of the nominal (face) value** of the share.

**Part (b): Provisions Regarding Refund and Deposit of Minimum Subscription**

**Deposit of Application Monies [Section 69(4)]:**
All monies received from applicants for shares shall, until the allotment of shares, be kept deposited in a **Scheduled Bank**. This ensures the safety of application money during the subscription period and prior to allotment.

**Time Limit for Receiving Minimum Subscription:**
Minimum subscription must be rece…

Question 3

State with reasons whether the following statements are correct or incorrect

Accepted Answer

**Statement (i): INCORRECT**

Promotion policies based on individual merits and not purely on seniority basis are **not discriminatory**—they are fair and objective. Non-discrimination requires treating all individuals equitably based on relevant, legitimate criteria such as qualifications, competence, performance, and merit. Discrimination arises when individuals are treated unfairly based on irrelevant factors such as caste, religion, gender, age, or other protected characteristics. Merit-based promotion policies are **ethical and aligned with principles of equity and justice**, as they reward performance and encourage excellence. They comply with principles of natural justice and procedural fairness. Seniority alone may be an outdated criterion that does not reflect actual capability or contribution.

**Statement (ii): INCORRECT**

Small ethical lapses **do result in unethical behaviour** and cannot be overlooked. This reflects the concept of the **ethical slippery slope**—once an individual or organization compromises on ethical principles, even in seemingly minor matters, it becomes progressively easier to violate ethical standards further. Ethics are absolute values requiring strict adherence without compromise; there is no such thing as a "small" deviation from ethical conduct. Professional ethics demands zero tolerance for breaches. Small lapses erode the ethical culture, normalize unethical practices, set dangerous precedents, and gradually lead to serious violations…

Question 4

State the qualities which a sustainable innovation organization should possess.

Accepted Answer

A **sustainable innovation organization** is one that continuously generates, develops, and implements innovative ideas while maintaining long-term viability and adaptability. Such an organization must possess the following key qualities:

**1. Clear Vision and Strategic Direction:** The organization must have a well-defined vision that aligns innovation with long-term strategic goals. Leadership should articulate a compelling innovation agenda that motivates employees and guides resource allocation toward sustainable outcomes.

**2. Culture of Creativity and Risk-Taking:** A sustainable innovation organization fosters a culture where employees feel psychologically safe to experiment, take calculated risks, and learn from failures. Innovation thrives where ideas are welcomed without fear of ridicule or punishment for unsuccessful attempts.

**3. Strong Leadership Commitment:** Top management must demonstrate visible and consistent commitment to innovation. Leaders should act as champions of change, allocating adequate budgets, removing bureaucratic obstacles, and rewarding innovative thinking at all levels.

**4. Cross-Functional Collaboration:** Innovation rarely emerges in silos. The organization must encourage collaboration across departments — R&D, marketing, operations, finance — to combine diverse perspectives and expertise. Cross-functional teams accelerate the development of breakthrough ideas.

**5. Customer-Centric Approach:** Sustainable innovation is driven by a d…

Question 5

An employee was drawing a salary of ₹ 9,000 per month. He joined his service on January 22nd, 2013 and remained absent from February 10th to 21st until 7th, 2013 due to temporary disablement caused by an accident arising out of and in the course of his employment. Examine the relative difference in the amount of Bonus Act, 1965 whether he is eligible for bonus for the year 2012-2013.

Accepted Answer

**Relevant Provisions — Payment of Bonus Act, 1965**

**Section 8** of the Payment of Bonus Act, 1965 provides that an employee is entitled to bonus only if he has worked in the establishment for **not less than 30 working days** in the accounting year.

**Section 14** deems the following as days on which the employee has worked: absence due to **temporary disablement caused by accident arising out of and in the course of employment**. Therefore, such absence days must be counted as days worked when determining both eligibility and proportionate bonus.

**Section 13** provides for proportionate reduction of bonus where an employee has not worked for all working days in the accounting year.

**Salary Ceiling:** Since the employee's salary is ₹9,000 per month, which exceeds ₹3,500, bonus is computed on the **statutory ceiling of ₹3,500 per month** (applicable for the accounting year 2012-13, under the pre-2015 limits).

**Step 1 — Period worked in the accounting year 2012-13:**
The employee joined on January 22, 2013. Days from January 22 to March 31, 2013 = **69 days**.

**Step 2 — Absence period:**
Absent from February 10 to March 7, 2013 = **26 days** (due to temporary disablement from accident arising in course of employment).

**Step 3 — Eligibility under Section 8:**
- Without Section 14 benefit: Actual days worked = 69 − 26 = **43 days** > 30 days → **Eligible**
- With Section 14 benefit: Deemed days worked = **69 days** > 30 days → **Eligible**

In both scenarios, the e…

Question 6

Mr. X was serving in Popular Gratuity Limited. After serving for four years, X met with an accident and became permanently disabled. X applied to the company for the payment of gratuity. The company paid the gratuity on the ground that X's service was for four years. Decide, whether the contention of the company is valid?

Accepted Answer

**Relevant Provision:** Section 4(1) of the Payment of Gratuity Act, 1972 provides that gratuity is payable to an employee on termination of employment after rendering **continuous service of not less than five years**. However, the **proviso to Section 4(1)** carves out a specific exception: the requirement of five years' continuous service shall **NOT apply** where the termination of employment is due to **death or disablement**.

**Application to the Given Case:**

Mr. X was employed with Popular Gratuity Limited for **four years**. During service, he met with an accident and became **permanently disabled**, leading to termination of his employment. Since the termination was caused by disablement due to an accident, the condition of completing five years of continuous service is expressly waived under the proviso to Section 4(1) of the Payment of Gratuity Act, 1972.

Therefore, X is **legally entitled to receive gratuity** even though he has not completed the minimum five years of service.

**Regarding Calculation:** The gratuity is payable at the rate of **15 days' wages for each completed year of service** (or part thereof exceeding six months) under Section 4(2). Since X has rendered four years of service, the gratuity will be computed on the basis of **four years of actual service**.

**Conclusion:** The contention of the company is **valid**. The company was correct in paying gratuity to Mr. X despite his service being only four years, as the five-year eligibility con…

Question 7

What is meant by 'Corporate Social Responsibility (CSR)'? How corporate social responsibility helps in enhancing the brand image and reputation of a business organization?

Accepted Answer

**Corporate Social Responsibility (CSR) – Definition and Meaning**

Corporate Social Responsibility refers to the commitment of business organizations to contribute positively to society beyond their statutory and economic obligations. CSR encompasses the voluntary initiatives undertaken by companies to address social, environmental, and economic issues that affect the communities in which they operate. It represents the integration of social and environmental concerns into business operations and stakeholder interactions on a voluntary basis, beyond legal compliance.

In the Indian context, CSR is governed by **Section 135 of the Companies Act, 2013**, which mandates certain companies to undertake CSR activities. CSR extends beyond profit maximization and includes initiatives such as education, environmental sustainability, health and sanitation, poverty alleviation, and community development. The fundamental essence of CSR is that corporations recognize their responsibility toward society and actively participate in its welfare while conducting their business operations.

Key characteristics of CSR include: (1) voluntary nature beyond statutory requirements, (2) balanced approach benefiting both society and the organization, (3) ethical business conduct, (4) stakeholder engagement, and (5) transparency and accountability in reporting CSR activities.

**How CSR Enhances Brand Image and Reputation**

CSR activities significantly contribute to enhancing the brand image and rep…

Question 8

State the major advantages of formal communication.

Accepted Answer

**Formal communication** refers to information exchange through officially established channels, policies, and procedures within an organization. The major advantages of formal communication are:

**1. Authenticity and Legal Protection**
Formal communication is documented and verified, creating an official record that can serve as legal evidence in disputes. This is particularly important for contracts, policy directives, and official notices, ensuring accountability at all levels.

**2. Clarity and Precision**
Formal communication requires carefully structured, well-articulated messages with minimal ambiguity. Since the message is formally prepared before transmission, there is reduced risk of misinterpretation or confusion.

**3. Uniformity and Consistency**
Formal communication ensures that standardized messages reach all relevant stakeholders, maintaining consistency in information dissemination across the organization. This prevents variations in understanding among different groups.

**4. Maintenance of Hierarchical Order**
Formal communication respects and reinforces the organizational hierarchy and chain of command. It ensures proper delegation of authority and responsibility, with clear reporting relationships and control mechanisms.

**5. Reduction of Misinformation**
By providing officially verified information through established channels, formal communication minimizes the spread of rumors, speculation, and false information that often circulate through informal …

Question 9

When a contract may be discharged under the provisions of Indian Contract Act, 1872. Explain in detail.

Accepted Answer

**Discharge of Contract under the Indian Contract Act, 1872**

A contract is said to be discharged when the obligations created by it come to an end. Under the **Indian Contract Act, 1872**, a contract may be discharged by the following modes:

**1. Discharge by Performance (Section 37)**
This is the most natural mode of discharge. When both parties fulfill their respective obligations under the contract, the contract is discharged. Performance may be:
- **Actual Performance:** Where each party has done exactly what they promised.
- **Attempted Performance (Tender):** Where the promisor offers to perform but the promisee refuses to accept. Under **Section 38**, a valid tender of performance discharges the promisor from further liability.

**2. Discharge by Mutual Agreement**
Since a contract is created by mutual consent, it can also be discharged by mutual agreement. This includes:
- **Novation (Section 62):** Substitution of a new contract in place of the old one — either between the same parties or with a new party. The old contract is extinguished.
- **Rescission (Section 62):** Cancellation of all or some terms of the contract by mutual consent.
- **Alteration (Section 62):** Change in one or more terms of the contract with the consent of all parties.
- **Remission (Section 63):** A promisee may dispense with or remit the performance of a promise, accept a lesser sum, or extend time — without any consideration.
- **Waiver:** Intentional relinquishment of a right under the…

Question 10

"The principle of integrity is a fundamental principle relating to ethics for all accounting and finance professionals." Explain.

Accepted Answer

**Integrity** is a cornerstone ethical principle requiring accounting and finance professionals to be honest, truthful, and compliant with applicable laws, regulations, and professional standards. It is fundamental because it underpins public trust, credibility, and the legitimacy of the entire profession.

**Why Integrity is Fundamental:** The accounting and finance profession serves a broader societal function—they provide assurance to stakeholders (investors, creditors, regulators, and the public) that financial information is reliable and decision-making is ethical. Integrity forms the foundation of this trust. Without it, the profession loses its credibility and social value. Professional bodies, including ICAI, mandate integrity as a non-negotiable principle because the public depends on accountants and finance professionals to act in the public interest, not personal gain.

**Application to Accounting Professionals:** Accountants must maintain integrity by preparing honest financial statements, disclosing all material facts, refusing to be party to deception or fraud, and ensuring compliance with accounting standards and laws. This means accountants will not manipulate records, suppress information, or misrepresent financial positions—even under pressure from clients or employers. Integrity demands professional judgment that prioritizes truth over convenience.

**Application to Finance Professionals:** Finance professionals managing funds, investments, or credit decisi…

Question 11

Describe the main characteristics of 'Groups' in a business organization.

Accepted Answer

A **group** in a business organization is defined as a collection of individuals who interact with each other, share common objectives, and develop a sense of belonging. The main characteristics of groups are as follows:

**1. Two or More Individuals**: A group comprises a minimum of two or more people. A single individual cannot form a group. The size may vary from small groups (2-10 members) to large groups (10+ members), but the presence of multiple people is essential for group formation.

**2. Common Goals and Objectives**: Members of a group work towards shared goals and objectives. These common goals provide direction and purpose to the group. In a business organization, groups are typically formed to achieve organizational targets such as project completion, sales targets, or quality improvement.

**3. Interdependence**: Group members are interdependent on each other. They rely on one another to achieve the group's objectives. The success of one member contributes to the success of the group, and the failure of one affects the entire group. This mutual dependence binds members together.

**4. Interaction and Communication**: Groups involve regular and meaningful interaction among members. There is continuous communication, exchange of ideas, and sharing of information. Members work together through direct contact and collaboration, which is essential for group functioning.

**5. Group Identity and Sense of Belonging**: Members develop a sense of identity with the grou…

Question 12

The statutory meeting of ABC Limited was held on 20th January, 2012 at the registered office at New Delhi. Draft the minutes of the statutory meeting of the shareholders of the company.

Accepted Answer

**MINUTES OF THE STATUTORY MEETING OF ABC LIMITED**

**Date & Venue:** 20th January 2012, Registered Office, New Delhi

**Meeting commenced at:** [Time to be filled]

**PRESENT:**

**Chairman:** [Name of Chairman]

**Directors Present:** [Names of Directors]

**Company Secretary:** [Name]

**Shareholders Present:** [Number] shareholders holding [Number] shares in person/by proxy

**Absentees:** [If any]

---

**1. CONSTITUTION OF THE MEETING**

The Chairman welcomed all present and informed that this meeting is being held in pursuance of **Section 165 of the Companies Act, 1956**, which is the first general meeting of the company. The meeting was duly constituted after verification that proper notice had been issued to all members as required by law.

**2. VERIFICATION OF NOTICE**

The Chairman confirmed that notice of the meeting in accordance with **Section 370 of the Companies Act, 1956** and the Company's Memorandum and Articles of Association was sent to all members entitled to receive notice at least 21 days before the meeting. The notice was confirmed as properly served.

**3. QUORUM**

The Chairman confirmed the presence of quorum as required under the Articles of Association. The meeting was therefore duly constituted to transact business.

**4. CHAIRMAN'S ADDRESS**

The Chairman delivered an address outlining the company's objectives, the status of business operations, and the key activities undertaken since incorporation. The Chairman emphasized the company's commi…

Question 13

Whether a company can buy-back its own shares? Discuss the legal provisions as regards to the conditions for buy-back controlled in the Companies Act, 1956.

Accepted Answer

**Buy-Back of Shares — Legal Provisions under the Companies Act, 2013**

Note: The Companies Act, 1956 has been repealed and replaced by the **Companies Act, 2013**. The answer is accordingly framed under the Companies Act, 2013, which governs the current CA Intermediate syllabus for May 2026.

**Whether a Company Can Buy-Back Its Own Shares**

Yes, a company is permitted to purchase its own shares or other specified securities. This power is governed by **Section 68 of the Companies Act, 2013**. Prior to statutory recognition, buy-back was prohibited under the doctrine of capital maintenance. The Companies Act, 2013 expressly permits buy-back subject to fulfillment of prescribed conditions.

**Sources from Which Buy-Back Can Be Made (Section 68(1))**

A company may buy-back its shares out of:
(i) its **free reserves**;
(ii) the **securities premium account**; or
(iii) the **proceeds of the issue of any shares or other specified securities** — however, the buy-back cannot be financed from the proceeds of an earlier issue of the *same kind* of shares or securities.

**Conditions for Buy-Back (Section 68(2))**

The following conditions must be satisfied:

**1. Authorisation by Articles:** The buy-back must be authorised by the **Articles of Association** of the company.

**2. Approval by Shareholders:** The buy-back must be approved by a **special resolution** passed at a general meeting of the company. However, if the buy-back does not exceed **10% of total paid-up equity capi…

Question 14

Describe the seven social sins listed by Mahatma Gandhi.

Accepted Answer

**Mahatma Gandhi's Seven Social Sins** represent fundamental ethical violations that damage society and individual character. These principles emphasize that progress must be grounded in moral values.

**Wealth without work** refers to accumulating money, riches, and material possessions without contributing productive effort or labor. This sin condemns exploitation, underhand gains, and unearned wealth obtained through unfair means. It undermines the principle that economic gains should result from honest endeavor.

**Pleasure without conscience** involves enjoying comfort, leisure, and gratification without moral consideration for the consequences or impact on others. It represents the absence of ethical restraint in pursuit of personal indulgence and satisfaction.

**Knowledge without character** highlights the danger of acquiring education and intellectual capability without developing moral values and ethical integrity. This warns that an educated person devoid of character can misuse knowledge for selfish or harmful purposes, causing greater damage to society.

**Commerce without morality** refers to conducting business and trade solely for profit maximization without ethical principles, fairness, or regard for customers, workers, and stakeholders. This represents commercialism divorced from responsibility and honesty in transactions.

**Science without humanity** means pursuing scientific advancement, technology, and innovation without consideration for human welfare, …

CA Inter Corp Laws

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