Business Law

Suggested Answers
Certificate in Accounting and Finance – Spring 2021

Section A – Multiple Choice Questions

Ans.1 (i) (c) (xi) (b) (xxi) (c)

(ii) (b) (xii) (d) (xxii) (a)
(iii) (a) (xiii) (b) (xxiii) (b)
(iv) (d) (xiv) (d) (xxiv) (a)
(v) (c) (xv) (c) (xxv) (c)
(vi) (c) (xvi) (c) (xxvi) (b)
(vii) (d) (xvii) (c) (xxvii) (c)
(viii) (c) (xviii) (d) (xxviii) (a)
(ix) (c) (xix) (d) (xxix) (d)
(x) (c) (xx) (a) (xxx) (b)

Section B – Mercantile Law

Ans.2 (a) Part III - The Federation of Pakistan include provisions related to:
 eligibility, term of office, powers, removal of President of Pakistan;
 the President of Pakistan’s job responsibilities and limitations such as exercising
functions in accordance with the advice of the Cabinet or Prime Minister;
 composition, duration and meetings of the Parliament and Senate;
 qualifications and disqualifications for membership of the Parliament;
 introduction and passing of bills.

(b) Part VI - Finance, Property, Contracts and Suits include provisions of:
 distribution of revenues between the federation and the provinces;
 financial provisions such as exemption and imposition of certain taxes;
 borrowing by Federal and Provincial government;
 appointment, powers and functions of Auditor General of Pakistan;
 property, contracts, liabilities and suits.

Ans.3 (a) Following are the circumstances:

(i) Foreign Principal: where the contract is made by an agent for the sale or purchase of
goods for a merchant residing abroad.
(ii) Unnamed Principal: If an agent declines to disclose the identity of his principal then
he is personally liable to the third party.
(iii) Principal cannot be sued: An agent is also presumed to incur personal liability where
he contracts on behalf of a principal who though disclosed cannot be sued.
(iv) Undisclosed Principal: Where an agent acts for an undisclosed principal and
contracts in his own name then he is personally liable to the third parties.
(v) Agent exceeding his authority: Where an agent while acting in the course of business
of agency exceeds his authority, he is personally liable for the excess part if it is a
separable transaction otherwise for the entire transaction.
(vi) Improperly appointed sub-agent: An agent is personally liable to third parties for the
acts of a sub-agent appointed by him without having authority to do so.

(b) Since Maria knew that she did not have enough funds to make the payment, EJ’s consent
was caused by fraud. Therefore, the contract is voidable at EJ’s option.

Maria obtained possession of necklace under a voidable contract, however, she pledged the
necklace before the contract was rescinded (i.e. before EJ demanded the return of
necklace); hence, RT has acquired a good title (i.e. the pledge is valid) provided RT acted in
good faith and without any notice of the defective title.

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 Business Law
Suggested Answers
Certificate in Accounting and Finance – Spring 2021

Since the pledge is valid, EJ will not be able to claim the necklace from RT’s possession.

Ans.4 (a) Aliya’s brother is justified in refusing the delivery to Salma, if at the time of making the
agreement, Aliya was:
 not capable of understanding it; and
 not capable of forming a rational judgment as to its effect upon her interests.

If Aliya is usually of unsound mind but occasionally of sound mind then she may enter into
a contract when she is of sound mind. However, if she was of unsound mind, then the
agreement would be void.

(b) The contract between Salman and Rehan is partly valid to the extent of supply of cotton
yarn and partly void where it restricts them absolutely from enforcing their rights by legal
proceeding.

Under the Contract Act, 1872 the remedy available to Rehan is that he may approach the
Court if there is any dispute with Salman.

Ans.5 (a) Rights of the bank in the dairy business:

 The bank is entitled to receive the share of profits of Malik in the dairy business.
 In case of dissolution or if Malik ceases to be a partner, the bank will be entitled as
against the remaining partners to receive the share of the assets of the dairy business
to which Malik was entitled, and, for the purpose of ascertaining that share, to receive
partnership’s accounts as from the date of the dissolution.

Limitation of the bank in the dairy business:

The bank, during the continuance of the dairy business, is not entitled to:
 interfere in the conduct of the dairy business, or
 to require its accounts, or
 to inspect the books of the dairy business.

(b) Tahira and Farhana would be justified in their demand, if they have restrained Sadia from
carrying on another business other than that of the firm as is permitted under the
Partnership Act, 1932.

In the absence of any such agreement, they are not justified in claiming profits of the
jewellery shop as the said business is not of same nature nor competes with the bridal
boutique business.

Moreover, jewellery shop having same customers does not amount to misusing resources
of boutique business unless it is established that Sadia had used property or business
connection of boutique or the firm’s name to earn personal profits i.e. if she referred the
boutique customers to jewellery shop, only then she would be liable to pay such profits to
Tahira and Farhana.

Ans.6 (a) Following are the types of crossing of a cheque:

(i) General crossing:

A cheque is said to be crossed generally where it bears across its face an addition of
the words “and company” or any abbreviation of it between two parallel transverse
lines.

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 Business Law
Suggested Answers
Certificate in Accounting and Finance – Spring 2021

Effect of crossing:
The banker on whom cheque is drawn shall not pay it otherwise than to a banker.

(ii) Special crossing:

A cheque is said to be crossed especially where it bears across its face an addition of
the name of the banker, either with or without the words “not negotiable”, that
addition shall be deemed a crossing, and the cheque shall be deemed to be crossed
specially. Parallel lines are not necessary.

Effect of crossing:
The banker on whom cheque is drawn shall not pay it otherwise than to a banker to
whom it is crossed or his agent for collection.

(iii) Restrictive crossing:

Restrictive crossing may be added with general crossing by adding the words “A/c
Payee” or “A/c Payee only”.

Effect of crossing:
The cheque shall cease to be negotiable. The amount collected by the banker on the
cheque must be credited only to the account of payee named in the cheque.

(iv) Not Negotiable crossing:

The addition of the words ‘not negotiable’ does not restrict the further
transferability of the cheque. It only takes away the main feature of negotiability,
which is transferability free from defects.

Effect of crossing:
The effect of the words ‘not negotiable’ on a crossed cheque is that the title of the
transferee of such a cheque cannot be better than that of its transferor.

(b) (i) This instrument is a promissory note. It should not be accepted as it is invalid since
the amount payable under it is not certain.

(ii) This instrument is a bill of exchange. It will be considered valid if signed by drawer
and drawee as it meets rest of the conditions of bill of exchange hence should be
accepted.

(iii) This instrument is a promissory note. It should not be accepted as it is invalid since
payment of principal amount has not been promised.

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 Business Law
Suggested Answers
Certificate in Accounting and Finance – Spring 2021

Section C – Company Law

Ans.7 (a) Status of Aijaz:

Aijaz being the subscriber to the memorandum of association is deemed to have agreed to
become member of WDL and become WDL’s member on its registration.

Moreover, as Aijaz has not yet paid share money for 4,000 shares, the amount due from
him shall be considered as debt due from him and payable in cash. Hence, he will also
become debtor of WDL

Implications for Aijaz:

If share money is not deposited by Aijaz within 30 days from WDL’s incorporation i.e. on or
before 7 March 2021, the said shares shall be deemed to be cancelled and Aijaz shall not
remain WDL’s member.

Implications for WDL:

If Aijaz pays share subscription money, on or before 7 March 2021, then WDL being a
public company would be able to file duly verified declaration with reference to
commencement of business.

However, if he makes the payment after 7 March 2021, then WDL would not be able to
submit documents for commencement of business. Consequently, WDL will not be able to
start its operation or exercise any borrowing powers. Since the amount of minimum
subscription is not fixed, therefore, the entire authorized share capital other than that
issued or agreed to be issued as paid up otherwise than in cash, shall be deemed to be
minimum subscription.

If the subscribers of the memorandum have appointed Aijaz as first director and his
particulars were submitted with WDL’s documents of incorporation then the casual
vacancy will arise that may be filled up by the directors.

(b) Duties of WDL where subscription money received:

If all the subscription money is received from the subscribers on or before 1 March 2021
then WDL shall report the same to the registrar on a specified form within 45 days from
WDL’s date of incorporation i.e. by 22 March 2021, accompanied by a certificate from a
practicing Chartered Accountant or Cost and Management Accountant verifying receipt of
the money so subscribed.

WDL shall file with the registrar a declaration duly verified by the chief executive or one of
the directors and the secretary that:
 shares have been allotted to equivalent to minimum subscription and the money has
been received by WDL;
 every director of WDL has paid full amount on each of the shares taken or contracted
to be taken by him and for which he is liable to pay in cash.

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 Business Law
Suggested Answers
Certificate in Accounting and Finance – Spring 2021

Ans.8 (a) Following are the contents of the directors’ report of a public unlisted company:
(i) the state of the company’s affairs;
(ii) a fair review of company’s business;
(iii) the amount, if any, that the directors recommend should be paid by way of
dividend;
(iv) the amount, if any, that directors propose to carry to Reserve Fund, General Reserve
or Reserve Account;
(v) the names of the persons who, at any time during the financial year, were directors
of the company;
(vi) the principal activities and the development and performance of the company’s
business during the financial year;
(vii) a description of the principal risks and uncertainties facing the company;
(viii) any changes that have occurred during the financial year concerning the nature of
the business of the company or of its subsidiaries, or any other company in which
the company has interest;
(ix) the information and explanation in regard to any contents of modification in the
auditor’s report;
(x) information about the pattern of holding of the shares;

(b) Since OL’s financial statements have not been adopted in the annual general meeting, a
statement of that fact and its reasons shall be annexed to the said financial statements
required to be filed with the registrar within thirty days from the date of the meeting
i.e. 30 March 2021.

Ans.9 (a) Faiza Ibrahim can challenge the special resolution by applying to the Court for an order
cancelling the resolution; if she holds 10% or more shares of class B either in her own
name or collectively with others who should authorize her in writing. The said application
shall be filed within 30 days of the date of the said resolution.

Following are the grounds on which the decision may be made by the Court in her favor:
(i) If the applicant(s) had casted vote in favor of the resolution and some facts which
would have had a bearing on the decision of Faiza Ibrahim, were withheld by
Sapphire Limited in getting the aforesaid resolution passed.
(ii) If the applicant(s) had not casted vote in favor of the resolution, then it will have to
be proved by Faiza Ibrahim, that the variation would unfairly prejudice their rights.

(b) If Yasmeen and Yameen together hold not less than 10% of the voting share of RCL, then
they will be eligible to demand poll.

Following procedures are to be followed for taking the poll in the general meeting subject
to fulfillment of the above conditions:
(i) Upon demand of Yasmeen and Yameen, the chairman shall entertain their demand
and order to take poll within 14 days from the day of the demand.
(ii) The chairman shall have power to regulate the manner in which a poll shall be
taken.
(iii) The chairman or his nominee and a representative of the Yasmeen and Yameen
shall scrutinize the votes given on the poll.
(iv) The result shall be announced by the chairman.
(v) The result of the poll shall be deemed to be the decision of the meeting on the
resolution for which the poll was taken.

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 Business Law
Suggested Answers
Certificate in Accounting and Finance – Spring 2021

Ans.10 (a) Impact on Ali:

Ali shall ipso facto cease to hold office of chief executive in PL from 15 February 2021
when his spouse was appointed as a director of a brokerage house.

Ali being PL’s chief executive shall be deemed to be a director, hence he shall not be able
to continue as the chief executive or a director of any other listed company including PL.

Impact on PL:
(i) Ali’s acts till discovery of ineligibility are valid notwithstanding that afterwards it
was discovered that he had ceased to hold his office in PL.
(ii) PL’s board shall have to appoint chief executive within 14 days of occurrence of
casual vacancy in the office of chief executive.

(b) As STL has nominated one of its directors on JL’s board, both the companies became
associated companies due to common directorship. Therefore, STL’s plan of further
investment would be considered as investment in associated company.

Accordingly, STL can make further investment in JL only under the authority of a special
resolution which shall indicate the nature, period, amount of investment and terms and
conditions attached thereto.

Ans.11 A Company formed under section 42 of the Companies Act, 2017 i.e. association not for profit
differs from any other limited liability company in following manner:
 It can only be formed as a public company.
 The promoters shall have to apply to the Commission for licence to permit the association
to be registered with registrar.
 The licence granted as aforesaid shall be for a specified period only.
 The licence may be granted on such conditions and subject to such regulations as the
Commission thinks fit, which shall be inserted in and deemed part of the memorandum
and articles.

(THE END)

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