Business Law
Suggested Answers
Certificate in Accounting and Finance – Spring 2019
Mercantile Law Section
Ans.1 (a) Rules regarding performance of reciprocal promises under the Contract Act, 1872
(i) Simultaneous performance
When a contract consists of reciprocal promises to be simultaneously performed, the
promisor need not perform his promise unless the promisee is ready and willing to
perform his reciprocal promise.
(ii) Order of performance
Where the order in which reciprocal promises are to be performed is expressly fixed
by the contract, they must be performed in that order, and where the order is not
expressly fixed by the contract, they must be performed in that order which the
nature of the transaction requires.
(iii) Preventing the performance
When a contract contains reciprocal promises, and one party to the contract prevents
the other from performing his promise, the contract becomes voidable at the option
of the party so prevented; and he is entitled to compensation from the other party for
any loss which he may sustain in consequence of the non-performance of the
contract.
(iv) Mutual and dependent reciprocal promises
Where the performance of one party depends on the prior performance of the other
party and party who is liable to perform first, fails to perform it, then such party
cannot claim the performance from the other party and must make compensation to
the other party for any loss which the other party may sustain by non-performance of
the contract.
(v) Promise to do legal & illegal things
Where persons reciprocally promise, firstly, to do certain things which are legal, and
secondly, under specified circumstances, to do certain other things which are illegal,
the first set of promises is a contract, but the second is a void agreement.
(b) (i) Isfandyar has committed anticipatory breach of contract so Javed has following
options:
He may either treat the contract as rescinded and claim damages from Isfandyar
for breach of contract immediately without waiting until the due date of
performance, or
He may elect not to rescind but to treat the contract as still operative and wait for
the time of performance and then hold Isfandyar responsible for the
consequences of non-performance.
(ii) The first letter from Ahmed and Adil’s response on it were merely ‘asking for
information’ and ‘providing information’ respectively and not offer and acceptance.
The second letter from Ahmed sent as a reply to Adil was itself an offer and not the
acceptance of an offer. Since this offer had not been accepted by Adil, there is no
binding contract between the parties. Accordingly, there is no liability if Adil sells his
bungalow to Hamid.
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Business Law
Suggested Answers
Certificate in Accounting and Finance – Spring 2019
(iii) An act done by one person on behalf of another, without such other person's
authority, which, if done with authority, would have the effect of terminating any
right or interest of a third person, cannot be ratified.
Considering the above, notice served by Noman’s wife is not valid. If Noman wants, he
will have to give fresh notice.
(iv) Khizar in this situation has become agent of Lucky by estoppel. Lucky is bound by this
transaction and he is stopped from denying the existence of the agency since he gave
out clear representation to others by smiling and keeping quiet.
Moiz relied on representation of existence of agency. Thus, if he suffers a loss from
the transaction, he may hold Lucky liable as principal.
Ans.2 (a) Holder in due course - means any person who for consideration becomes the possessor
(holder) of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or
endorsee thereof, if payable to order, before it became overdue, without notice that the title
of the person from whom he derived his own title was defective.
Acceptor for honour - when a bill of exchange has been noted or protested for non-acceptance
or for better security, and any person accepts it supra protest for honour of the drawer or of
any one of the endorsers, such person is called an "acceptor for honour."
(b) (i) An incomplete or blank negotiable instrument which is properly stamped and signed
but where the name or amount is missing is an ‘Inchoate Instrument’.
Umair is liable to pay when blank (i.e. amount) is filled in which makes the
instrument complete.
(ii) Vazir being holder can only recover the amount intended to be paid by Umair i.e. Rs.
500,000.
(iii) Waris being holder in due course can recover the amount of Rs. 600,000 from Umair.
Ans.3 (a) Responsibility of Hotel Management as finder of goods
The contract which exists between Yasmin and the Hotel Management is a bailment contract.
Yasmin in this case is the bailor while the Hotel Management is the bailee, being finder of lost
goods.
Ahmed has wrongfully deprived the Hotel Staff of the possession of the goods bailed. Now, the
Hotel Management may use such remedies as the owner, might have used as if no bailment
had been made and may bring a suit against Ahmed.
Rights of Hotel Management in case ring is recovered
(i) Repayment by Yasmin of necessary expenses
Under the conditions of bailment, where the goods are to be kept or carried, and the
Hotel Management is to receive no remuneration, Yasmin shall repay to the Hotel
Management the necessary expenses incurred by them for the purpose of the
bailment.
(ii) Right to lien
The Hotel Management has no right to sue Yasmin for compensation for the trouble
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Business Law
Suggested Answers
Certificate in Accounting and Finance – Spring 2019
and expense voluntarily incurred by them to preserve the ring, but they may retain
the ring against Yasmin until they receive such compensation.
(iii) Right of sale
If Yasmin after returning from the tour refuses to pay the lawful charges to the Hotel
Management in respect of the ring; Hotel Management may sell the ring, being
commonly a subject of sale, if the lawful charges in this respect amount to two third
of the ring’s value.
(b) (i) When two or more persons are co-sureties for the same debt, either jointly or
severally, in the absence of any contract to the contrary, they are liable, as between
themselves, to pay an equal share of the whole debt, or of that part of it which
remains unpaid by the principal debtor.
Accordingly, the liability will be divided in ratio of 50:50 and not 75:25 and Amir and
Rehan would be liable for Rs. 55,000 each.
(ii) Where there are co-sureties, a release by the creditor of one of them does not
discharge the other; neither does it free the surety so released from his responsibility
to the other sureties. Accordingly, Amir and Rehan will still be liable for Rs. 55,000
each.
(c) Where an agent, without having authority to do so, has appointed a person to act as a sub-
agent, the agent stands towards such person in the relation of a principal to an agent, and is
responsible for the acts of the sub-agent, both to the principal and to third persons.
Ans.4 (a) (i) A transfer by a partner of his interest in the firm does not entitle Hatim to interfere in
the conduct of the business, or to require accounts, or to inspect the books of the firm,
but entitles Hatim only to receive the share of profits of Zain, and Hatim shall accept
the account of profits agreed to by the partners.
(ii) The firm cannot be made liable since the receiving of money by Sarim for investment
purposes is not in ordinary course of a lawyer’s business and accordingly, is beyond
the scope of his implied authority as a partner.
(iii) A partner has authority, in an emergency, to do all such acts for the purpose of
protecting the firm from loss as would be done by a person of ordinary prudence, in
his own case, acting under similar circumstances, and such acts bind the firm. Hence,
Faizan cannot be held responsible for misconduct.
(b) Holding out
Anyone, who by words spoken or written or by conduct represents himself, or knowingly
permits himself to be represented, to be a partner in a firm, is liable as a partner in that firm
to anyone who has on the faith of any such representation given credit to the firm, whether
the person representing himself or represented to be a partner does or does not know that
the representation has reached the person so giving credit.
Exceptions of holding out partner
After a partner’s death if the business of the firm is continued in the old firm’s name, the
continued use of that name or of the deceased partner will not itself make legal
representatives of the deceased partner liable for any act of the firm done after his death.
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Business Law
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Certificate in Accounting and Finance – Spring 2019
Ans.5 (a) Magistrates Court
Staff Jurisdiction
Judicial Magistrate Offences with punishment of imprisonment for a term not exceeding
1st Class three years, fine not exceeding Rs. 15,000 and whipping.
Judicial Magistrate Offences with punishment of imprisonment for a term not exceeding
2nd Class one year, fine not exceeding Rs. 5,000.
Judicial Magistrate Offences with punishment of imprisonment for a term not exceeding
3rd Class one month, fine not exceeding Rs. 100.
(b) Family Court
Civil Judge 1st Class Suit of unlimited value of subject matter.
Civil Judge 2nd Class Suit having value of subject matter not exceeding Rs. 50,000.
Civil Judge 3rd Class Suit having value of subject matter not exceeding Rs. 5,000.
Company Law Section
Ans.6 (a) No director shall be considered independent if following circumstances exist:
(a) he has been an employee of the company, any of its subsidiaries or holding company
within the last three years or two years in case of public sector companies;
(b) he is or has been the chief executive officer of subsidiaries, associated company,
associated undertaking or holding company in the last three years or two years in case
of public sector companies;
(c) he has, or has had within the last three years or within the last two years in case of
public sector companies; a material business relationship with the company either
directly, or indirectly as partner, major shareholder or director of a body that has such
a relationship with company.
(d) he has received remuneration in the three years preceding his/her appointment as a
director or receives additional remuneration, excluding retirement benefits from the
company apart from director’s fee or has participated in the company’s stock option or
a performance-related pay scheme;
(e) he is a close relative of the company’s promoters, directors or major shareholders;
(f) he holds cross-directorships or has significant links with other directors through
involvement in other companies or bodies not being the associations licenced under
section 42.
(b) Any of the non-executive directors (i.e. Khalid, Dawood, Rehmat, Salman, Arif, Ashraf) may be
appointed as Chairman. The board of Faisal Limited shall within fourteen days from the date
of election of directors appoint a chairman who shall hold office for a period of three years
unless he earlier resigns, becomes ineligible or disqualified under the Companies Act, 2017 or
is removed by the directors.
The responsibilities of the Chairman are defined by the board. Chairman shall be responsible
for leadership of the board and ensure that the board plays an effective role in fulfilling its
responsibilities.
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Business Law
Suggested Answers
Certificate in Accounting and Finance – Spring 2019
The Chairman is required to issue a review report in every annual financial statement of the
company which shall contain a review on overall performance of the board and effectiveness
of the role played by the board in achieving the company’s objectives.
Ans.7 (a) (i) a charge on any immovable property wherever situated, or any interest therein;
(ii) a charge on any movable property of the company;
(iii) a charge for the purposes of securing any issue of debentures;
(iv) a charge on book debts of the company;
(v) a floating charge on undertaking or property of the company, including stock-in trade;
(vi) a charge on a ship or aircraft, or any share in a ship or aircraft;
Effect of non-registration
Charge created by a company shall not be taken into account by the liquidator or any other
creditor unless it is duly registered under the Companies Act, 2017.
(b) Every issuer, director of an issuer or any person who has signed the prospectus shall be liable
to pay compensation to any person who acquires any of the securities, in reliance upon the
prospectus, to which the prospectus relates and suffers loss in respect of them as a result of
any incorrect, untrue or misleading statement in the prospectus or the omission from it of any
matter required to be included under the Securities Act, 2015.
Ans.8 (a) Following have the right to propose auditors:
(i) The board of directors
Auditors shall be appointed by the company in the annual general meeting on the
recommendation of the board after obtaining consent of the proposed auditors. A
notice shall be given to the members about proposed change in auditors with notice of
general meeting.
(ii) Member(s) having at least ten percent shareholdings
A member / member(s) having not less than ten percent shareholdings of the company
shall also be entitled to propose any auditor or auditors for appointment whose
consent has been obtained by him/them and a notice in this regard has been given to
the company not less than seven days before the date of the annual general meeting.
The company shall forthwith send a copy of such notice to the retiring auditors and
shall also post it on its website.
(b) The auditors appointed in the first annual general meeting shall retire on the conclusion of
the next annual general meeting. Unless, the auditors appointed in an annual general meeting
becomes disqualified, vacates office due to resignation or death, or is removed through a
members’ special resolution.
(c) Jamil Bahram & Co., Chartered Accountants being the retiring auditors shall have a right to
make a representation in writing to the company at least two days before the date of general
meeting. Such representation shall be read out at the meeting before taking up the agenda for
appointment of the auditors.
Ans.9 (a) AL may be considered as a subsidiary company of ML if:
ML controls composition of the board of AL. The composition shall be deemed to be
controlled by ML if it can appoint or remove all or a majority of AL’s directors; or
ML exercises or controls more than one-half of its voting securities either by itself or
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Business Law
Suggested Answers
Certificate in Accounting and Finance – Spring 2019
together with one or more of its subsidiary companies.
(b) Principal line of business means the business in which substantial assets are held or likely to
be held or substantial revenue is earned or likely to be earned by a company, whichever is
higher.
Principal line of business of the company shall be mentioned in the memorandum of
association of the company which shall always commensurate with name of the company.
Any change in the principal line of business shall be reported to the registrar within thirty
days from the date of change, on the form as may be specified and registrar may give direction
of change of name if the name does not commensurate with the principle line of business of
the company.
Ans.10 (a) In respect of all shares and dividend which remain unclaimed for a period of three years, the
company shall give a 90 days’ notice to shareholders to file a claim by a registered post
acknowledgement due on his last known address. After expiry of 90 days, final notice in
specified form shall be published in 2 daily newspapers, one in Urdu and one in English
having wide circulation.
If no claim is made by the shareholders, the company shall after 90 days from date of
publication of 2nd notice, deposit the unclaimed amount with the Federal Government. In the
given case, Rs. 1,760,000 [(Rs. 10,000,000×8%)+(12,000,000×8%)] worth of unclaimed
dividend will be deposited i.e. the dividend becoming due on 28 February 2015 and 28
February 2016.
Further, the management shall report and deliver 800,000 shares to the Commission and the
Commission shall, after selling these shares in specified manner and period, deposit the
proceeds to the credit of Federal Government.
(b) In the case of a listed company, the business review section must, to the extent necessary for
understanding the development, performance or position of the company’s business, include:
(i) the main trends and factors likely to affect the future development, performance and
position of the company’s business;
(ii) the impact of the company’s business on the environment;
(iii) the activities undertaken by the company with regard to corporate social
responsibility during the year; and
(iv) directors’ responsibility in respect of adequacy of internal financial controls as may
be specified.
(THE END)
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