CS Executive

Indian Evidence Act, 1872 – Jurisprudence, Interpretation & General Laws Important Questions

Question 1.
Distinguish between: ‘Relevant Facts’ & ‘Facts In issue’ [Dec2011 (4 Marks)]
Answer:
Relevant Fact [Section 3]: One fact is said to be relevant to another when one is connected with the other in any of the ways referred to in the provisions of this Act relating to the relevancy of facts.

Where in a case direct evidence is not available to prove a fact in issue then it may be proved by any circumstantial evidence and in such a case every piece of circumstantial evidence would be an instance of a “relevant fact”.

Sections 6 to 55 of the Indian Evidence Act, 1872 deal with the relevancy of facts. A fact is also known as factum plans or a fact that proves.

Facts in issue [Section 3]: Facts in issue means and includes any fact from which, either by itself or in connection with other facts, the existence, non-existence, nature or extent of any right, liability, or disability, asserted or denied in any suit or proceedings, necessarily follows.

Explanation: Whenever, under the provisions of the law for the time being in force relating to Civil Procedure, any Court records an issue of fact, the fact to be asserted or denied in the answer to such issue is a fact in issue.

Question 2.
Satyam is facing trial for the charge of committing the murder of Raja at Pune at 5.00 p.m. on 5th November 2019. Satyam wants to prove that he had a telephonic conversation with Nalin, from Delhi on 5th November 2019 at about 3.30 p.m. Will he be permitted to do so? [Dec. 2000 (5 Marks)]
Answer:
As per Section 11 of the Indian Evidence Act, 1872, a fact that is inconsistent with fact in issue, is a relevant fact. The fact that Satyam had a telephonic conversation with Nalin from Delhi on 5th November 2019 at about 3.30 p.m. is inconsistent with the fact that he was present on the date of murder i.e. 5th November 2019 in Pune at 5.00 p.m.

Question 3.
Enjoy, after learning that Chander had been murdered by Bijoy, went to the spot and found that the body of Chander was being taken to the house of Chander by four persons who told him that Bijoy had murdered Chander and he had run away. Is the statement of Ajoy that he was told by four persons that Bijoy had murdered Chander and run away admissible as evidence? [Dec. 2004 (6 Marks)]
Answer:
As per Section 6 of the Indian Evidence Act, 1872, facts which, though not in issue are so connected with the fact in issue as to form part of the same transaction, are relevant, whether they occurred at the same time and place or at different time and place.

In this case, Ajoy is a bystander he was told by other bystanders that Bijoy had murdered Chander and run away. Hence, this is not admissible as evidence | as it will be considered as hearsay.

Question 4.
Write a short note on Rule of res gestae [June 2011 (4 Marks)]
Answer:
There are certain facts which though not in issue, are so connected with a fact in issue as to form part of the same transaction. This is known as the rule of res gestae.

Section 6 embodies the rule of admission of evidence relating to what is commonly known as res gestae.

Relevancy of facts forming part of the same transaction [Section 6]: Facts which, though not in issue are so connected with the fact in issue as to form part of the same transaction, are relevant, whether they occurred at the same time and place or at different time and place.

Example: A is accused of the murder of B by beating him. Whatever was said or done by A or B or the bystanders at the beating, or so shortly before or after is as to form part of the transaction, is a relevant fact.

The above section lays down the rule which in English textbooks is treated under the head of res gestae.

The essence of the doctrine of res gestae is that the facts which, though not in issue are so connected with the fact in issue as to form part of the same transaction and thereby become relevant like the fact in issue.

Question 5.
A was tried for the murder of B whose body was found in a well and the ornaments that B was wearing were missing from his body. A, while in police custody, during the investigation said that he had removed the ornaments, pushed B into the well and had pledged the ornaments with C. In consequence of this statement, the ornaments were recovered from C. Discuss the admissibility of A’s statement. [June 2002 (5 Marks)]
Answer:
As per Section 27 of the Indian Evidence Act, 1872, when any fact is deposed to as discovered in consequences of information received from a person accused of any offence, in the custody of a police officer, so much of such information, whether it amounts to a confession or not, as relates distinctly to the fact thereby discovered, may be proved. The effect is that so much of the information as relates distinctly to the fact thereby discovered is admissible in evidence.

In the given case, A had given three information’s, namely:

• He had removed the ornaments.
• He pushed B into the well.
• He pledged the ornaments with C.

In consequence of the statement of A, the ornaments were recovered from C. However, only the last information that he pledged the ornaments with C is discovered and hence, it can be proved by A’s admission. The other two pieces of information’s do not distinctly relate to the recovery of ornaments from C. Hence, they cannot be proved by A’s admission.

Question 6.
Anand is on trial for the murder of Chanchal. There is evidence to show that Chanchal was murdered by Anand and Birender and that Birender said, “Anand and I murdered Chanchal.” Can the Court take into consideration this statement against Anand? Will your reply be different in case there is a joint trial against Anand and Birender? Give reasons.[June 2005 (6 Marks)]
Answer:
According to Section 30 of the Indian Evidence Act, 1872, when more persons than one are being tried jointly for the same offence, and a confession made by one of such persons affecting himself and some other of such persons is proved, the Court may take into consideration such confession as against such other person as well as against the person who makes such confession.

In the given case, Anand and Birender are not jointly tried hence Court cannot take into consideration this statement given by Birender against Anand.

If they are jointly tried then Court may take into consideration the confession of Birender as against Anand as well as Birender.

Question 7.
An accused person makes a confessional statement to the police officer in the hearing and presence of a private person. Can the private person give evidence of the confessional statement made by the accused person so as to be proved against the accused? [June 2006 (5 Marks)]
Answer:
As per Section 25 of the Indian Evidence Act, 1872, no confession made to a police officer shall be proved as against a person accused of any offence.

As per Section 26, no confession made by any person whilst he is in the custody of a police officer unless it is made in the immediate presence of a Magistrate shall be proved as against such person.

In the given case, there is no Magistrate present; hence, the private person cannot give evidence of the confessional statement of the accused so that it can be proved against the accused.

Question 8.
On 20th March, Kamal told his wife that he was going to Berhampore, as Pankaj’s wife has written a letter and asked him to come and receive payments due to him. On 21st March, Kama! left his house in time to catch a train for Berhampore, where Pankaj lived with his wife. On 23rd March, Kamal’s dismembered body was found in a box that had been purchased for Pankaj. Decide whether, on the trial of Pankaj for the murder of Kamal, the statement made by Kamal to his wife was admissible in evidence. If so, on what grounds? [June 2009 (6 Marks)]
Answer:
In Indian law, for admissibility of a statement as a dying declaration, it is not necessary that at the time when the deceased made the statement there must be a danger to his death and he must also entertain a reasonable apprehension of his death.

The statement of Kamal is admissible in evidence as to his dying declaration as per Section 32 of the Indian Evidence Act, 1872 because it throws light upon the probable cause of his death or as to any of the circumstances of the transaction which resulted in his death.

Therefore, although at the time Kamal made the statement, there was no danger to his life, yet this statement can be accepted in evidence as to the dying declaration of Kamal.

Question 9.
Mohan and Sohan are jointly tried for the murder of Rohan. It is proved that Mohan said, Sohan and I murdered Rohan. Can the court consider the effect of this confession as against Sohan? Give reasons. [June 2013 (5 Marks)]
Answer:
Provision: According to Section 30 of the Indian Evidence Act, 1872, when more persons than one are being tried jointly for the same offence, and a confession made by one of such persons affecting himself and some other of such persons is proved, the Court may take into consideration such confession as against such other person as well as against the person who makes such confession.

Facts:

1. Mohan and Sohan are jointly tried for the murder of Rohan.
2. It is proved that Mohan said, “Sohan and I murdered Rohan.
3. Mohan and Sohan are co-accused and are jointly tried

Conclusion: Court can take into consideration the statement given by Mohan against Sohan.

Question 10.
Distinguish between: Confession & Admission [Dec. 2009 (4 Marks)]
Answer:
Following are the main points of distinction between confession & admission:

Question 11.
A confession made by an accused on the faith of a promise made by the police officer making the investigation that he would get off if he made a disclosure of the offence committed by him or would get a pardon. Whether such a confession made by the accused is admissible in evidence? Answer citing the relevant provisions of law. [Dec 2011 (6 Marks)]
Answer:
As per Section 24 of the Indian Evidence Act, 1872, a confession is irrelevant as an admission if it is made to a person in authority in consequence of some inducement, threat or promise held out by him in reference to the charge against the accused. Further Section 25 provides that confession made to a police officer shall not be proved against a person accused of any offence. Hence, a confession made by the accused person to a police officer is inadmissible in evidence.

Question 12.
Distinguish between: ‘Admissions’ and ‘confessions’ under the Indian Evidence Act, 1872. [Dec 2013 (4 Marks)]
Answer:
Following are the main points of distinction between confession & admission:

Question 13.
Distinguish between ‘Admission’ and ‘Confession’ under Indian Evidence Act, 1872. [Dec 2018 (4 Marks)]
Answer:
Following are the main points of distinction between confession & admission:

Question 14.
‘Confession caused by inducement, threat or promise is irrelevant. Explain briefly. [June 2019 (4 Marks)]
Answer:
As per Section 24 of the Indian Evidence Act, 1872, a confession made by an accused person is irrelevant in a criminal proceeding, if the making of the confession appears to the Court to have been caused by any inducement, threat or promise to have reference to the charge against the accused person, proceeding from a person in authority and sufficient, in the opinion of the Court, to give the accused person grounds which would appear to him reasonable for supposing that by making it he would gain any advantage or avoid any evil of a temporal nature in reference to the proceedings against him.

Question 15.
Explain Expert Opinion under the Indian Evidence Act, 1872. [June 2012 (4 Marks)]
Answer:
Opinion of experts [Section 45]: When the Court has to form an opinion upon a point of foreign law or of science or art, or as to the identity of handwriting or finger impressions, the opinions upon that point of persons specially skilled in such foreign law, science or art, or in questions as to the identity of handwriting or finger impressions are relevant facts. Such persons are called experts.

Examples:
(a) The question is, whether the death of A was caused by poison.
The opinions of experts as to the symptoms produced by the poison by which A is supposed to have died are relevant.

(b) The question is, whether a certain document was written by X.
Another document is produced which is proved or admitted to have been written by X. The opinions of experts on the question of whether the two documents were written by the same person or by different persons, are relevant.

Question 16.
Opinion of experts under section 45 of the Indian Evidence Act, 1872. [June 2019 (4 Marks)]
Answer:
Opinion of experts [Section 45]: When the Court has to form an opinion upon a point of foreign law or of science or art, or as to the identity of handwriting or finger impressions, the opinions upon that point of persons specially skilled in such foreign law, science or art, or in questions as to the identity of handwriting or finger impressions are relevant facts. Such persons are called experts.

Examples:
(a) The question is, whether the death of A was caused by poison.
The opinions of experts as to the symptoms produced by the poison by which A is supposed to have died are relevant.

(b) The question is, whether a certain document was written by X.
Another document is produced which is proved or admitted to have been written by X. The opinions of experts on the question of whether the two documents were written by the same person or by different persons, are relevant.

Question 17.
“Hearsay evidence is no evidence”. Explain this rule of law. Is hearsay evidence ever admissible? [Dec 2000 (8 Marks)]
Answer:
Section 59 of the Indian Evidence Act, 1872 provides that, except the contents of the document, all other facts may be proved by oral evidence.

Section 60 enacts that, oral evidence must not be indirect or hearsay. The term ‘hearsay’ is not mentioned in the legislation, it is in constant use in the Court of law. In a larger context, it can be termed as statements oral or written reported to have been made by persons, not called witnesses.

Example: Amar gives the evidence in the Court that “he had seen Baban while making the murder of Chirag”. It is direct evidence and is admissible.

However, if Amar gives the evidence that he has heard from someone that “Baban murdered Chirag” is hearsay evidence and is not admissible.

Reasons for rejection of hearsay evidence: There are many reasons for rejection of hearsay evidence, among them, being:

• The irresponsibility of the original declarant.
• Depreciation of truth in the process of repetition.
• Chances for fraud on its admission.
• Waste of time involved in listening to idle rumour etc.

Hearsay evidence is therefore not ordinarily accepted in line with the principle that best available evidence should be brought before the Court. Section 60 puts an embargo on the reception of hearsay evidence. However, it does not apply when the object is not to establish the truth of one’s statement but only to establish the fact that one did make a statement.

Question 18.
Explain: Circumstantial Evidence [Dec 2009 (2 Marks)]
Answer:
Circumstantial evidence is evidence that strongly suggests something but does not exactly prove it. Circumstantial evidence simply helps people draw inferences about a fact or the events that took place. This type of evidence is, on its own, considered to be weak or ineffective, so it is used in conjunction with direct evidence in both criminal and civil cases. Whether or not the Court makes the intended inference has a major impact on the outcome of the case.

Example: Meena testifies in Court that she saw Rohan standing over a man with a bloody knife in his hand. Menna did not see Rohan stab the victim, so she can only testify and describe what she saw. This circumstantial evidence j is likely not enough by itself to convict Rohan, so the prosecution provides J other evidence which, when added to Meena’s testimony, leads the Court to j the conclusion that Rohan stabbed the victim.

Question 19.
Distinguish between: Primary Evidence & Secondary Evidence [June 2010 (4 Marks)]
Answer:
Primary Evidence [Section 62]: Primary evidence means the document itself produced for the inspection of the Court.

Secondary Evidence [Section 63]: Secondary evidence is generally in the form of compared copies, certified copies or copies made by such mechanical processes as in themselves ensure accuracy.

Secondary evidence means and includes:

• certified copies;
• copies made from the original by mechanical processes which in themselves insure the accuracy of the copy, and copies compared with such copies;
• copies made from or compared with the original;
• counterparts of documents as against the parties who did not execute them;
• oral accounts of the contents of a document given by some person who has himself seen it.

Question 20.
Write a short note on Circumstantial Evidence [Dec 2010 (4 Marks)]
Answer:
Circumstantial evidence is evidence that strongly suggests something but does not exactly prove it. Circumstantial evidence simply helps people draw inferences about a fact or the events that took place. This type of evidence is, on its own, considered to be weak or ineffective, so it is used in conjunction with direct evidence in both criminal and civil cases. Whether or not the Court makes the intended inference has a major impact on the outcome of the case.

Example: Meena testifies in Court that she saw Rohan standing over a man with a bloody knife in his hand. Menna did not see Rohan stab the victim, so she can only testify and describe what she saw. This circumstantial evidence j is likely not enough by itself to convict Rohan, so the prosecution provides J other evidence which, when added to Meena’s testimony, leads the Court to j the conclusion that Rohan stabbed the victim.

Question 21.
Write a short note on Primary Evidence & Secondary Evidence [June 2011 (4 Marks)]
Answer:
Primary Evidence [Section 62]: Primary evidence means the document itself produced for the inspection of the Court.

Secondary Evidence [Section 63]: Secondary evidence is generally in the form of compared copies, certified copies or copies made by such mechanical processes as in themselves ensure accuracy.

Secondary evidence means and includes:

• certified copies;
• copies made from the original by mechanical processes which in themselves insure the accuracy of the copy, and copies compared with such copies;
• copies made from or compared with the original;
• counterparts of documents as against the parties who did not execute them;
• oral accounts of the contents of a document given by some person who has himself seen it.

Question 22.
What is ‘documentary evidence’ under the Indian Evidence Act, 1872? Explain briefly. [Dec 2018 (4 Marks)]
Answer:
Documentary Evidence: A “document” means any matter expressed or described upon any substance by means of letters, figures or marks, or by more than one of those means, intended to be used, or which may be used for the purpose of recording that matter. Documents produced for the inspection of the Court is called documentary evidence.

Proof of contents of documents [Section 61]: The contents of documents may be proved either by primary or by secondary7 evidence.

Question 23.
Explain the special provisions as to Evidence relating to Electronic Record under the provisions of the Indian Evidence Act, 1872. [Dec 2019 (4 Marks)]
Answer:
Section 65A of the Indian Evidence Act, 1 872 provides that the contents of electronic records ma\ be proved in accordance with the provisions of Section 65B.

Under Section 65B( 1) any information contained in an electronic record which is printed on a paper, stored, recorded or copied in optical or magnetic media produced by a computer shall be deemed to be also a document if the conditions mentioned in this Section are satisfied in relation to the information and computer in question and shall be admissible in any proceedings, without further proof or production of the original, as evidence of any contents of the original or of any fact stated therein of which direct evidence would be admissible. The conditions in respect of a computer output related above, have 1 been stipulated under Section 65B(2) of the Evidence Act.

Question 24.
A, a client, says to B, an advocate, “I have committed a murder and want you to defend me”. Whether the advocate can disclose the aforesaid j communication to the court or to the police?
Answer:
As per Section 126 of the Indian Evidence Act, 1872, no barrister, attorney, [ pleader or vakil shall at any time be permitted, to disclose any communication made to him in the course and for the purpose of his employment. However, disclosure is permitted with his client’s express consent.

Accordingly, in the given case the communication of A to B cannot be disclosed by B.

Question 25.
Kamini informed Ajay in the year 2001 that she had committed theft of the jewellery of her neighbour. Thereafter, Kamini and Ajay were married on 4 2002. In the year 2003, criminal proceedings were instituted against Kamini r in respect of the theft of jewellery. Ajay is called to give evidence in the case. Decide whether Ajay can disclose the communication made to him by Kamini. [June 2010 (5 Marks)]
Answer:
As per Section 122 of the Indian Evidence Act, 1872, no person who is or has been married shall be compelled to disclose any communication made to him during marriage by any person to whom he is or has been married. No such person shall be permitted to disclose any such communication, unless the person, who made it, or his representative, consents.

Thus, the communication made by Kamini or Ajay during married life is a privileged one and Ajay cannot be compelled or permitted to disclose the same in the capacity of a witness.

In this case, Kamini gave the information to Ajay in 2014, but they got married in 2015. Thus, communication is made ‘before marriage’ and not ‘during the marriage’. Hence, Ajay can give evidence and disclose the communication made to him by Kamini because Kamini communicated with Ajay before her marriage with Ajay.

Question 26.
There are some facts of which evidence cannot be given, though they are relevant. They are also referred to as ‘privileged communications’. Discuss briefly. [Dec 2014 (4 Marks)]
Answer:
There are some facts of which evidence cannot be given though they are relevant, such as facts coming under Sections 121 to 127, where evidence is prohibited under those sections.

They are discussed as follows:
1. Privilege of Judge or Magistrate [Section 121]: No Judge or Magistrate shall be compelled to answer any question as to his own conduct in Court or as to anything that has come to his knowledge in Court as a Judge
or
Magistrate. But he can be compelled to give evidence on a special order of Superior Court.

2. Communications during marriage [Section 122]: No person who is or has been married shall be compelled to disclose any communication made to him during marriage by any person to whom he is or has been married.

No such person shall be permitted to disclose any such communication, unless the person, who made it, or his representative, consents.

However, in suits between married persons or proceedings in which one married person is prosecuted for any crime committed against the other disclosure of communication will be allowed.

3. Evidence as to affairs of State [Section 123]: No one shall be permitted to give any evidence derived from unpublished official records relating to any affairs of State. However, with the permission of the officer at the head of the department evidence as to unpublished official records can be given.

4. Official communications [Section 124]: No public officer shall be compelled to disclose communications made to him in official confidence when he considers that the public interests would suffer by the disclosure.

5. Information as to the commission of offences [Section 125]: No Magistrate or Police Officer shall be compelled to say when he got any information as to the commission of any offence, and no Revenue-Officer shall be compelled to say when he got any information as to the commission of any offence against the public revenue.

6. Professional communication [Section 126]: No barrister, attorney, pleader or vakil shall at any time be permitted, to disclose any communication made to him in the course and for the purpose of his employment. However, disclosure is permitted with his client’s express consent.

However, nothing in this section shall protect from disclosure:

• Any such communication made in furtherance of any illegal purpose.
• Any fact observed showing that any crime or fraud has been com¬mitted since the commencement of his employment.

It is immaterial whether the attention of such barrister, pleader, attorney or vakil was or was not directed to such fact by or on behalf of his client.

Question 27.
The ‘Privileged Communications’ are based on Public Policy and a witness cannot be compelled to answer the same during the evidence in the Court or before any other authority. Explain in brief. [June 2019 (5 Marks)]
Answer:
There are some facts of which evidence cannot be given though they are relevant, such as facts coming under Sections 121 to 127, where evidence is prohibited under those sections.

They are discussed as follows:
1. Privilege of Judge or Magistrate [Section 121]: No Judge or Magistrate shall be compelled to answer any question as to his own conduct in Court or as to anything that has come to his knowledge in Court as a Judge
or
Magistrate. But he can be compelled to give evidence on a special order of Superior Court.

2. Communications during marriage [Section 122]: No person who is or has been married shall be compelled to disclose any communication made to him during marriage by any person to whom he is or has been married.

No such person shall be permitted to disclose any such communication, unless the person, who made it, or his representative, consents.

However, in suits between married persons or proceedings in which one married person is prosecuted for any crime committed against the other disclosure of communication will be allowed.

3. Evidence as to affairs of State [Section 123]: No one shall be permitted to give any evidence derived from unpublished official records relating to any affairs of State. However, with the permission of the officer at the head of the department evidence as to unpublished official records can be given.

4. Official communications [Section 124]: No public officer shall be compelled to disclose communications made to him in official confidence when he considers that the public interests would suffer by the disclosure.

5. Information as to the commission of offences [Section 125]: No Magistrate or Police Officer shall be compelled to say when he got any information as to the commission of any offence, and no Revenue-Officer shall be compelled to say when he got any information as to the commission of any offence against the public revenue.

6. Professional communication [Section 126]: No barrister, attorney, pleader or vakil shall at any time be permitted, to disclose any communication made to him in the course and for the purpose of his employment. However, disclosure is permitted with his client’s express consent.

However, nothing in this section shall protect from disclosure:

• Any such communication made in furtherance of any illegal purpose.
• Any fact observed showing that any crime or fraud has been com¬mitted since the commencement of his employment.

It is immaterial whether the attention of such barrister, pleader, attorney or vakil was or was not directed to such fact by or on behalf of his client.

Question 28.
Ragini told Rajendra in the year 2007 that she had committed theft of the jewellery of her neighbour Asha. Thereafter, Ragini and Rajendra were married in the year 2008. In the year 2009, criminal proceedings were instituted against Ragini in respect of the theft of the said jewellery. Rajendra is summoned to give evidence in the said criminal proceedings. Decide whether Rajendra can disclose the communication made to him by Ragini in the year 2007, in the criminal proceedings in respect of the theft of the jewellery. [June 2013 (5 Marks)]
Answer:
Provision: Section 122 of the Indian Evidence Act, 1872 says communication between the husband and the wife during marriage is privileged and its disclosure cannot be enforced.

Facts:

1. Ragini told Rajendra in the year 2007 that she had committed theft of j the jewellery of her neighbour Asha.
2. Ragini and Rajendra were married in the year 2008.

Ref. Case Law: Nagaraj vs. State of Karnataka In M.C. Verghese v. T J. Ponnam

Conclusion: Hence, such a communication cannot be treated as privileged information, and Rajendra can disclose such communication made to him by Ragini.

Question 29.
What is the principle of estoppel under the Indian Evidence Act, 1872? [Dec 2008 (4 Marks)]
Answer:
Estoppel [Section 115]: When one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and such person or his representative, to deny the truth of that thing.

Example: A intentionally and falsely leads B to believe that certain land belongs to A, and thereby induces B to buy and pay for it. The land afterwards becomes the property of A, and A seeks to set aside the sale on the ground that, at the time of the sale, he had no title. He must not be allowed to prove his want of title.

The principle of Estoppel is based on the maxim ‘allegations Contratia non-estaudiendus i.e. a person alleging contrary facts should not be heard. It says that man cannot approbate and reprobate, or that a man cannot blow hot and cold, or that a man shall not say one thing at one time and later on say a different thing.

Question 30.
Write a short note on Rules relating to presumptions [Dec 2010 (4 Marks)]
Answer:
The court may presume the existence of certain facts [Section 114]: The Court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct and public and private business, in their relation to the facts of the particular case.

1. Presumptions are inferences that are drawn by the court with respect to the existence of certain facts.
2. When certain facts are presumed to be in existence the party in whose favour they are presumed to exist need not discharge the burden of proof with respect to it. This is an exception to the general rule that the party which alleges the existence of certain facts has the initial burden of proof but presumptions do away with this requirement.
3. Presumptions can be defined as an affirmative or negative inference drawn about the truth or falsehood of a fact by using a process of prob¬able reasoning from what is taken to be granted.
4. A presumption is said to operate where certain fact is taken to be in existence even there is no complete proof.
5. A presumption is a rule where if one fact which is known as the primary fact is proved by a party then another fact which is known as the presumed fact is taken as proved if there is no contrary evidence of the same.
6. The presumption is a rule which is used by judges and courts to draw inference from a particular fact or evidence unless such an inference is said to be disproved.

Presumptions can be classified into certain categories:

• Presumptions of fact
• Presumptions of law
• Mixed Presumptions

Question 31.
Explain in brief ‘Principle of Estoppel’ under Indian Evidence Act, 1872. [Dec 2018 (4 Marks)]
Answer:
Estoppel [Section 115]: When one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and such person or his representative, to deny the truth of that thing.

Example: A intentionally and falsely leads B to believe that certain land belongs to A, and thereby induces B to buy and pay for it. The land afterwards becomes the property of A, and A seeks to set aside the sale on the ground that, at the time of the sale, he had no title. He must not be allowed to prove his want of title.

The principle of Estoppel is based on the maxim ‘allegations Contratia non-estaudiendus i.e. a person alleging contrary facts should not be heard. It says that man cannot approbate and reprobate, or that a man cannot blow hot and cold, or that a man shall not say one thing at one time and later on say a different thing.

Jurisprudence, Interpretation & General Laws Questions and Answers

Contract Act, 1872 – Economic, Business and Commercial Laws Important Questions

Question 1.
Arun has two cars – one of white color and another of red color; He offers to sell one of the cars to Basu thinking that he is selling the car which has white color. Basu agrees to buy the car thinking that Arun is selling the car which has red in color. Will this agreement become a valid contract? Give reasons. [June 2005 (5 Marks)]
Answer:
The parties who enter into an agreement must agree upon the subject matter in the same sense and at the same time, ie. there must be consensus ad idem. In the given problem, the agreement between Arun and Basu will not become a valid contract because there is no consensus ad idem

Question 2.
X promised to pay ₹ 10,000 per month to his wife Mrs. X who was living in Mumbai. On receiving information that she was unfaithful to him, he stopped paying ₹ 10,000 to Mrs. X. Mrs. X approaches you to file a case against Mr. X. Advise her with reference to the Indian Contract Act, 1872. [Dec. 2013 (5 Marks)]
Answer:
An agreement may be a social agreement. A social agreement is that which does not give rise to legal consequences. In case of its breach, the parties cannot go to the Law Court to enforce a right.

Agreement between husband and wife is a social agreement and does not create any binding legal relations. Hence, Mrs. X cannot file suit against her husband for non-payment of ₹ 10,000 to her every month.

Question 3.
Write a short note on e-Contract [June 2014 (3 Marks)]
Answer:
Electronic contracts are not paper-based but rather in electronic form are born out of the need for speed, convenience, and efficiency. In the electronic age, the whole transaction can be completed in seconds, with both parties simply affixing their digital signatures to an electronic copy of the contract.

The conventional law relating to contracts is not sufficient to address all the issues that arise in electronic contracts. The Information Technology Act, 2000 solves some of the particular issues that arise in the formation and authentication of electronic contracts. As in every other contract, an electronic contract also requires fulfilling the essential element of the contract laid down in a section of the Indian Contract, 1872

Question 4.
Rain employed in Mumbai promised to pay ₹ 8,000 per month to his wife Sunila. She was living in Delhi. On receiving information that she has become unfaithful to him, Ram stopped the payment of ₹ 8,000 to Sunita. Sunita approaches to file a case against Ram. Advise her with reference to the Indian Contract Act, 1872. [June 2019 (4 Marks)]
Answer:
An agreement may be a social agreement. A social agreement is that which does not give rise to legal consequences. In case of its breach, the parties cannot go to the Law Court to enforce a right.

Agreement between husband and wife is a social agreement and does not create any binding legal relations. Hence, Mrs. X cannot file suit against her husband for non-payment of ₹ 10,000 to her every month.

Question 5.
Discuss the essential elements of a valid contract? [Dec. 2013 (5 Marks)]
Answer:
What agreements are contracts [Section 10]: All agreements are contracts, if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not expressly declared to be void.

Essential elements of a valid contract are as follows:

• There must be an agreement. This involves two parties, one party making the offer and the other party accepting it.
• The parties must intend to create a legal relationship.
• The parties must be capable of entering into an agreement as regards age and understanding. Thus, a person making a contract should not be a minor, idiot, or lunatic.
• The agreement must be supported by consideration on both sides.
• The consent of the parties must be free and genuine.
• The object of the agreement must be lawful.
• The terms of the agreement must be certain and capable of performing.
• The agreement must not have been expressly declared as void.

Question 6.
Distinguish between: Offer & An invitation to offer [Dec. 2011 (5 Marks)]
Answer:
Following are the main points of distinction between an offer and an invitation to offer:

Question 7.
What are the various modes of revocation of the offer as per the Contract Act, 1872? [Dec. 2014 (3 Marks)]
Answer:
Offer may lapse or come to an end by various modes as given below:

• Offer may come to an end by communication of notice of revocation by the offeror at any time before acceptance.
• If the offeree does not accept the offer within a given time or if no time is given, then within a reasonable time.
• If condition precedent is not fulfilled then the offer may come to an end.
• Offer may come to an end by the death or insanity of the offeror.
• When a counteroffer is made original offers come to an end.
• If an offer is not accepted according to the prescribed mode.
• Offer may come to an end due to a change in the law.

Question 8.
State the difference in rules of making offer and acceptance when the mode of making the same varies from post to telephone and e-mail as governed by the Information Technology Act, 2000. [Dec. 2016 (3 Marks)]
Answer:
Contracts by Post: Contracts by post are subject to the same rules as others, but because of their importance, these are stated below separately:

1. An offer by post may be accepted by post unless the offeror indicates anything to the contrary.
2. An offer is made only when it actually reaches the offeree and not before, i.e., when the letter containing the offer is delivered to the offeree.
3. An acceptance is made as far as the offeror is concerned, as soon as the letter containing the acceptance is posted, to the offeror’s correct address; it binds the offeror, but not the acceptor. An acceptance binds the acceptor only when the letter containing the acceptance reaches the offeror. The result is that the acceptor can revoke his acceptance before it reaches the offeror.
4. An offer may be revoked before the letter containing the acceptance is posted. An acceptance can be revoked before it reaches the offeror.

Contracts over the Telephone: Contracts over the telephone are regarded the same in principle as those negotiated by the parties in the actual presence of each other. In both cases, an oral offer is made and an oral acceptance is expected. It is important that the acceptance must be audible, heard, and understood by the offeror. If during the conversation the telephone lines go ‘dead’ and the offeror does not hear the offeree’s word of acceptance, there is no contract at the moment. If the whole conversation is repeated and the offeror hears and understands the words of acceptance, the contract is complete. [Kanhaiyala. lv. Dineshwarchandra]

Question 9.
A young boy ran away from his father’s home. His father issued a pamphlet offering a reward of ₹ 5 lakh to anybody who would bring the boy home. Arun saw the boy at a railway station and sent an e-mail to the boy’s father.
(i) Is Arun entitled to a reward?
(ii) In the light of the above case, explain the rules governing offer, [Dec. 2016 (5 Marks)]
Answer:
The communication of the offer may be general or specific. Where an offer is made to a specific person it is called a specific offer and it can be accepted only by that person. But when an offer is addressed to an uncertain body of individuals i.e. the world at large, it is a general offer and can be accepted by any member of the general public by fulfilling the condition laid down in the offer.

In Harbhajan Lai v. Harcharan Lai, a young boy ran away from his father’s home. The father issued a pamphlet offering a reward of 1500 to anybody who would bring the boy home. The plaintiff saw the boy at a railway station and sent a telegram to the boy’s father. It was held that the handbill was an offer open to the world at large and was capable of acceptance by any person who fulfilled the conditions contained in the offer. The plaintiff substantially performed the conditions and was entitled to the reward offered.

The same rule will also apply for a reply through e-mail

Question 10.
A invites B to stay with him during winter vacation at his residence. ! B accepts the invitation and informs A accordingly. When ‘B’ reaches A’s house, he finds it locked and he has to stay in a hotel. Can B claim damages from A? [June 2017 (3 Marks)]
Answer:
Section 2(b) says that when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted and a proposal when accepted becomes a promise. In a broad sense, therefore, a contract is an exchange of promises by two or more persons, resulting in an obligation to do or abstain from doing a particular act, where such obligation is recognized and enforced by law.

An agreement between two persons to go together to the cinema, or for a j walk, does not create a legal obligation on their part to abide by it. Similarly, if I promise to buy you a dinner and break that promise, I do not expect to be liable to legal penalties. There cannot be any offer and acceptance to hospitality.

Keeping in view of the above discussion, it can be concluded that there is no contract if Mr. A invites Mr. B to stay with him during winter vacation f at his residence as it is a social contract, and offer and acceptance to hospitality do not create a contract.

Question 11.
Aman hired a room in a hotel and paid a week’s rent in advance. After registering, he went up to occupy the room. Aman found a notice on the wall that “The proprietor will not be responsible for articles lost or stolen unless handed over to the manager of the hotel for safe custody.” Owing to the negligence of the hotel staff, a thief gained access to the room j and stole some goods from Aman. State whether the proprietor of the hotel is liable for the loss caused to Aman? State also which type of contract it J is? [June 2017 (5 Marks)]
Answer:
Where any special terms are to be included in a contract, these must be duly brought to the notice of the offeree at the time when the proposal j is made. If it is not done and if the contracts subsequently entered into, the offeree will not be bound by them. Also, these terms should be presented in such a manner that a reasonable man can become aware of them before he enters into a contract.

Example: A hotel put a notice in the bedroom, exempting the proprietor from liability for the loss of the client’s goods. Held, the notice was not effective as it came to the knowledge of the client only when the contract to take a room had already been entered into. [Olley v. Marlborough Court Ltd.] As per facts given in the case, the hotel has failed to bring to the notice of Aman special term that the hotel will not be responsible for article lost or stolen in j hotel at the time of entering into a contract and hence hotel cannot escape its liability as special terms in the contract should be presented in such a manner that a reasonable man can become aware of them before he enters into a contract.

Question 12.
Gamaxo Ltd. offered a reward of ₹ 10,000 by advertisement to anyone who infected influenza after using their smoke ball in a specified manner. Mr. Upma uses a smoke ball in a specified manner, but still infected by influenza. She claims the reward. Decide the case with the help of leading case laws and related sections of the Contract Act, 1872. [June 2018 (5 Marks)]
Answer:
The communication of the oiler may be general or specific. Where an offer is made to a specific person it is called a specific offer and it can be accepted only by that person. But when an offer is addressed to an uncertain body of individuals i.e. the world at large, it is a general offer and can be accepted by any member of the general public by fulfilling the condition laid down in the offer.

The leading case on the subject is Carlill v. Carbolic Smoke Ball Co. The company offered by advertisement, a reward of ₹ 100 to anyone who contacted influenza after using their smoke ball in a specified manner. Mrs. Carlill did use the smoke ball in a specified manner but was attacked by influenza.

She claimed the reward and it was held that she could recover the reward as a general offer can be accepted by anybody. Since this offer is of a continuing nature, more than one person can accept it and can even claim the reward. But if the offer of a reward is for seeking some information or seeking the restoration of a missing thing, then the offer can be accepted by one individual who does it first of all. The condition is that the claimant must have prior knowledge of the reward before doing that act or providing that information.

Question 13.
ABZ company offered by an advertisement, a reward of ₹ 1,000 to anyone who contacted influenza after using the smoke ball in the specified ( manner. Amita used the smoke ball in a specified manner but was attacked by influenza. She filed a suit against ABZ company and claimed the reward. Decide whether the suit is maintainable. [Dec. 2018 (5 Marks)]
Answer:
The communication of the oiler may be general or specific. Where an offer is made to a specific person it is called a specific offer and it can be accepted only by that person. But when an offer is addressed to an uncertain body of individuals i.e. the world at large, it is a general offer and can be accepted by any member of the general public by fulfilling the condition laid down in the offer.

The leading case on the subject is Carlill v. Carbolic Smoke Ball Co. The company offered by advertisement, a reward of ₹ 100 to anyone who contacted influenza after using their smoke ball in a specified manner. Mrs. Carlill did use the smoke ball in a specified manner but was attacked by influenza.

She claimed the reward and it was held that she could recover the reward as a general offer can be accepted by anybody. Since this offer is of a continuing nature, more than one person can accept it and can even claim the reward. But if the offer of a reward is for seeking some information or seeking the restoration of a missing thing, then the offer can be accepted by one individual who does it first of all. The condition is that the claimant must have prior knowledge of the reward before doing that act or providing that information.

Question 14.
A advertises in the newspaper that he will pay ₹ 1,000 to anyone who brings to him his lost son. B without knowing of this reward finds A’s lost son and restores him to A. Can B claim for the reward under the provisions of the Indian Contract Act, 1872? [Dec. 2019 (4 marks)]
Answer:
Facts of Case: A advertises in the newspaper that he will pay ₹ 1,000 to anyone who brings to him his lost son. B without knowing of this reward j finds A’s lost son and restores him to A.

Provision: An offer can be accepted only by a person who knows about 1 it. In the case of a general offer, it could be accepted by anyone, provided the j person was aware of the offer. B restored A’s son but knew nothing [ about the offer of reward.

Conclusion: He, therefore, could not have been accepted it and hence he j cannot claim the reward.

Question 15.
“Gratuitous promises are not enforceable by law.” Explain the statement. [June 2005 (5 Marks)]
Answer:
A promise to contribute to charity, though gratuitous, would be enforceable if on the faith of the promise, the promise is put to some detriment and the promisor was aware of the fact. In such a case, the promisor is liable to pay the promised amount of the subscription. [KedarNathv. Gorie Mohan]

Question 16.
Anurag promises to pay ₹ 11,000 to the management committee of a school by way of a donation. The management committee, on the basis of Anurag’s promise, gets a Water Purifier System (Aquaguard) installed in the school at a cost of ₹ 8,000 on credit. Now, Anurag refuses to pay the donation. What is the remedy available to the management committee of the school? Give reasons. [Dec. 2005 (5 Marks)]
Answer:
In the case of a charitable subscription, if a person (promisor) promises to pay a certain amount and on the basis of that promise, another person (promise) incurs liability, then the promisor is bound to pay the amount promised, even if there is the absence of consideration.

The contract is binding on Anurag because the management committee has undertaken liability on the faith of Anurag’s promise.

Question 17.
No Consideration, no contract; subject to certain exceptions. Explain briefly. [Dec. 2015 (3 Marks)]
Answer:
Consideration is one of the essential elements of a valid contract. Without consideration, there is a contract. Contract without consideration is known as nudum pactum.

No consideration, no contract [Section 25]: In the following cases even if there is no consideration contracts are valid.

• Agreement made on account of natural love and affection. If they are written and duly registered.
• Compensation for voluntary services.
• Promise to pay time-barred debt made in writing and signed by the person liable to pay the amount.
• Completed gifts.
• No consideration is required to make an agency.
• In the case of a charitable subscription, if a person (promisor) promises to pay a certain amount and on the basis of that promise, other people (promise) incur liability, then the promisor is bound to pay the amount promised, even if there is an absence of consideration.

Question 18.
X and Y are husband and wife, respectively. X, by a registered document, after referring to quarrels and disagreement between himself and his wife Y, promised to pay his wife, a sum of money for her maintenance and separate residence.
Whether this document is a contract enforceable by law? Give reasons with reference to decided case law, if any. [Dec. 2015 (5 Marks)]
Answer:
Consideration is one of the essential elements of a valid contract. Without consideration, there is a contract. Contract without consideration is known as nudum pactum. However, there is a certain exception to the rule that “no consideration, no contract”.

One of the exceptions is “agreement made on account of natural love and affection which are written and duly registered”.

As per facts given in the case, the husband had promised to pay the wife a sum of money for her maintenance and separate residence which is duly registered but frequent quarrels between them show the absence of natural love and affection, and hence it is not valid contract enforceable by law.

Question 19.
What is meant by ‘privity of contract’? Discuss briefly State the exception to privity of contract. [Dec. 2015 (5 Marks)]
Answer:
Privity of contract means the only party to a contract can sue each other or only party to contract to impose an obligation on each other. In other words as per the doctrine of privity of contract third party i.e. stranger to a contract cannot sue a party to a contract.

The exception to the rule that a stranger to a contract cannot sue: In the following cases stranger to a contract can sue the parties to the contract.

1. The beneficiary in trust: A beneficiary under an agreement to create a trust can sue upon the agreement, though not a party to it, for the enforcement of the trust so as to get the trust executed for his benefit.
2. Assignee: An assignee under an assignment made by the parties, or by
   the operation of law (e.g. in case of death or insolvency), can sue upon the contract for the enforcement of his rights, title, and interest. But a mere nominee (ie. the person for whose benefit another has insured his own life) cannot sue on the policy because the nominee is not an assignee.
3. The beneficiary in case of family arrangements or settlements: In cases of family arrangements or settlements between male members of j a Hindu family which provide for the maintenance or expenses for 4 marriages of female members, the latter though not parties to the contract, possess an actual beneficial right which places them in the position of beneficiaries under the contract, and can, therefore, sue.
4. Agency: Principal can sue in case of a contract entered through agent,

Question 20.
“Contract cannot confer rights or impose obligations arising under [ it on any person or agent except the parties to the contract”. Critically analyze this statement. [June 2018 (5 Marks)]
Answer:
When a contract is created between two or more person it confers rights or imposes obligation under it on the person executing the contract, j A contract never bins a third party. It is binding the only party to contract.

A stranger to a contract cannot sue both under the English and Indian law for want of privity of contract.
In Dunlop Pneumatic Tyre Co. v. Selfridge Ltd., D supplied tires to a wholesaler X, on condition that any retailer to whom X re-supplied the tires should promise X, not to sell them to the public below D’s list price.

X supplied tires to S upon this condition, but nevertheless, sold the tires below the list price.

Held: There was a contract between D and X and a contract between X and S. Therefore, D could not obtain damages from S, as D had not given any consideration for the promise to X nor was he party to the contract between D and X.

Thus, a person who is not a party to a contract cannot sue upon it even though the contract is for his benefit.

A, who is indebted to B, sells his property to C, and C the purchaser of the I property, promises to pay off the debt to B. In case C fails to pay B, B has no right to sue C for there is no privity of contract between B and C. The leading English case on the point is Tweddle v. Atkinson.

In this case, the father of a boy and the father of a girl who was to be married to the boy agreed that each of them shall pay a sum of money to the boy who was to take up the new responsibilities of married life. After the demise of both the contracting parties, the boy (the husband) sued the executors of his father-in-law upon the agreement between his father-in-law and his father.

Held: The suit was not maintainable as the boy was not a party to the contract.

Question 21.
Explain, with suitable examples, the circumstances under which a minor’s estate is liable to reimburse for necessaries supplied to him. [Dec. 2005 (5 Marks)]
Answer:
A minor is liable to pay out of his property for “necessaries” supplied to him. It is to be noted that the minor is not personally liable, but what is liable is – his ‘property.

Necessaries: The term ‘necessaries’ is not defined in the Contract Act, 1872. The English Sale of Goods Act, 1893, defines it in section 2 as, “goods suitable to the condition in life of such infant or other people, and to his actual requirement at the time of sale and delivery.” Such goods need not necessarily belong to a class of useful goods, but they must be:

• Suitable to the position and financial status of the minor.
• Necessaries both at the time of sale and at the time of delivery.

Necessaries include:
1. Necessary Goods: Necessary goods are not restricted to articles, which are required to maintain a bare existence, such as bread and clothes, but include articles, which are reasonably necessary to the minor having, regard to his station in life. A watch and a bicycle may well be considered to be necessary. An engagement ring may be necessary, but not a vanity bag bought for the minor’s fiancee.

2. Services rendered: Certain services rendered to a minor have been held to be necessary. These include:

• Education
• Training for a trade
• Medical advice
• Legal advice
• Provision of a funeral for deceased husband of a minor widow
• A house was given to a minor on rent for the purpose of living and continuing his studies.

As regards contracts that are for the supply of necessaries and which are beneficial to the minor, the private estate of the minor is liable.

Loans incurred to obtain necessaries: A loan is taken by a minor to obtain j necessaries also binds him and is recoverable by the lender as if he himself j had supplied the necessaries. But the minor is not personally liable. It is only his estate, which is liable for such loans.

Question 22.
Write a short note on Person disqualified from entering into a contract [June 2009 (5 Marks)]
Answer:
As per Section 10 of the Contract Act, 1872, one of the essential elements of a valid contract is that the parties must be competent to contract. Capacity to contract means competence of persons to enter into a valid contract. is Who are competent to contract [Section 11]: Every person is competent to contract if he fulfills all following three qualifications:

• He is a major.
• He is of sound mind.
• He has not been disqualified to contract under any law.

Any person who does not fulfill the conditions laid down in section 11 is j disqualified from entering into a contract.

Question 23.
John, who is a known minor, fraudulently overstates his age and takes delivery of a motor car after executing a promissory note in favor of the dealer for its price. He does not knowingly honor his promissory note; that is to say, he does not pay the price of the said motor car. What j is the remedy available to the motor car dealer in the above situation? Advise. [June 2018 (5 Marks)]
Answer:
An agreement with or by a minor is void and in-operative rhinitis, Where the loan was obtained by fraudulent representation by the minor j or some property was sold by him and the transactions are set aside as j being void, the Court may direct the minor to restore the property to the other party. For example, a minor fraudulently overstate his age and takes j delivery of a motor car after executing a promissory note in favor of the trader for its price. The minor cannot be compelled to pay the amount to the promissory note, but the Court on equitable grounds may order the minor to return the car to the trader if it is still with the minor.

Question 24.
A minor fraudulently overstated his age and purchased a motor car after executing a promissory note in favor of the owner of the motor j car for its price. The car owner compelled the minor to pay the amount of the promissory note. Whether the car owner will succeed? Examine it with reference to the Indian Contract Act, 1872 and the Specific Relief Act, 1963. [June 2019 (4 Marks)]
Answer:
An agreement with or by a minor is void and in-operative ab initio. Where the loan was obtained by fraudulent representation by the minor or some property was sold by him and the transactions are set aside as being void, the Court may direct the minor to restore the property to the other party.

For example, a minor fraudulently overstate his age and takes delivery of a motor car after executing a promissory note in favor of the trader for its price. The minor cannot be compelled to pay the amount to the promissory note, but the Court on equitable grounds may order the minor to return the car to the trader if it is still with the minor.

Thus, the motor car dealer cannot recover the amount of promissory note but can recover the motor car if is still with the minor.

Question 25.
K, who is trying to sell an unsound horse, forges a Veterinary Surgeon’s certificate stating the horse to be sound and pins it on the stable door. P comes to examine the horse but the certificate goes unnoticed by him. He buys the horse and finds later on the horse to be unsound. He wants to avoid the agreement under the plea that he has defrauded. Will he succeed? [June 2006 (5 Marks)]
Answer:
P will not succeed for though K attempted to defraud by putting up the surgeon’s forged certificate as to the soundness of the horse, P was not influenced by it. P bought the horse after his examination and not I on the basis of the certificate. Section 17 says that an attempt at deceit that does not deceive is not a fraud. Hence P will not be able to set aside the purchase of a horse.

Question 26.
Avdesh contracts to sell a piece of silk to Bhupesh. Bhupesh thinks it is Chinese silk. Avdesh knows that Bhupesh thinks so, but Avdesh knows that it is English silk. Avdesh does not correct Bhupesh’s impression. Subsequently, Bhupesh discovers that it is not Chinese silk. Can he repudiate the contract? Discuss. [June 2009 (5 Marks)]
Answer:
When in a contract only one of the parties is a mistake it is called a unilateral mistake. A unilateral mistake is not allowed as a defense in avoiding a contract. Hence, Bhupesh cannot repudiate the contract.

Question 27.
Distinguish between: Misrepresentation and Fraud [Dec. 2009 (5 Marks)]
Answer:
Following are the main points of distinction between fraud and misrepresentation.

Question 28.
Mention the main flaws of Inacontract. [June 2015 (3 Marks)]
Answer:
There may be the circumstances under which a contract made under these rules may still be bad because there is a flaw or error somewhere.

The chief flaws in contract arc:

• Incapacity
• Mistake
• Misrepresentation
• Fraud
• Undue Influence
• Coercion
• Illegality
• Impossibility.

Question 29.
Discuss the concept of ignorant Juris non-excusat. [Dec. 2016 (5 Marks)]
Answer:
A mistake in the nature of miscalculation or error of judgment by one or both parties has no effect on the validity of the contract. To be operative so as to render the contract void, the mistake must be:
(a) of fact, and not of law or opinion;
(b) the fact must be essential to agreement i,e. so fundamental as to negative the agreement;
(c) must be on the part of both the parties. Thus, where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. [Section 20]

Mistakes are of two kinds: (i) mistake of law, and (ii) mistake of fact. If there is a mistake of law of the land, the contract is binding because everyone is deemed to have knowledge of law of the land, and ignorance of the law is no excuse (Ignorantia Juris non-excusat).

Question 30.
Amit promises to procure employment for Bima! in a government department and Bimal promises to pay ₹ 5,000 to Amit for the same. Amit gets the said job for Bimal. However, Bimal refuses to pay the promised money to Amit who files a suit in the court of law to recover t 5,000 from Bimal. Will Amit succeed? Give reasons. [Dec. 2007 (5 Marks)]
Answer:
Amit’s promise to procure employment for Bimal in a government department is an agreement opposed to public policy and unlawful, hence void. Thus, Amit will not succeed to recover ₹ 5,000.

Question 31.
There was an agreement to lend ₹ 5 lakh to Bimla in consideration of her getting a divorce and marrying Govind, the lender. Is the agreement enforceable? Give reasons. [Dec. 2008 (5 Marks)]
Answer:
The agreement which involves interfering with marital duties is opposed to public policy and unlawful, hence void. Hence, it is not enforceable.

Question 32.
Amrit’s wife Barkha paid ₹ 5,000 to Chandan to be given as a bribe to a jailor for procuring the release of her husband from jail. The jailor failed to procure the release. Can Barkha recover the amount? Give reasons. [June 2009 (5 Marks)]
Answer:
The agreement which interferes with the administration of justice is opposed to public policy and unlawful and hence void. Thus, Barkha cannot recover the amount of ₹ 5,000 paid to Chandan given as a bribe to a jailor for procuring the release of her husband from jail.

Question 33.
Every agreement by which anyone is restrained from exercising a j lawful profession, trade, or business of any kind, is to that extent void. Discuss. [June 2014 (5 Marks)]
Answer:
Agreement in restraint of trade, void [Section 27]: Every agreement, by which, anyone is restrained from exercising a lawful profession, trade ‘ or business of any kind, is to that extent void.

The exception to the agreement in restraint of trade: That is to say in following g cases agreement even though in restraint of trade are valid:
1. Employment Agreement: An agreement of employment under which, the employee agrees to serve a certain employer for a certain duration, and that he will not serve anybody else during such period is a valid agreement.

2. Sale of goodwill: Where the seller of the goodwill of a business undertakes not to compete with the purchaser of the goodwill, the contract j is enforceable provided the restraint appears to be:

• Reasonable as to territorial limits, and
• The length of time.

Example: N was an inventor and a manufacturer of guns and ammunition. He sold his worldwide business to M and promised not to manufacture guns anywhere in the world for 25 years. The House of Lords held that the restraint was reasonable as it was necessary for the protection of the company. [Nordenfelt v. Maxim Nordenfelt Guns & Co.]

3. Restriction on the existing partner: Section 11(2) of the Partnership Act, 1932 provides that a partner shall not carry on any business other than that of the firm while he is a partner.

Restriction on an outgoing partner: Section 36(2) and section 54 of the Partnership Act, 1932 provide that a partner may make an agreement with his partners that on ceasing to be a partner he will not carry on any business similar to that of the firm within the specified period or within specified limits. Such agreements are valid if the restrictions are reasonable.

Question 34.
“Every agreement in which anyone is restrained from exercising a lawful profession, trade or business of any kind is, to that extent, void.” Discuss. [June 2016 (5 Marks)]
Answer:
The agreement which interferes with the administration of justice is opposed to public policy and unlawful and hence void. Thus, Barkha cannot recover the amount of ₹ 5,000 paid to Chandan given as a bribe to a jailor for procuring the release of her husband from jail.

Question 35.
Distinguish between: Void Contract and Voidable Contract [June 2008 (5 Marks)]
Answer:
Following are the main points of distinction between void and voidable contract:

Question 36.
Distinguish between: Illegal Agreement and Void Agreement [June 2010 (5 Marks)]
Answer:
Following are the main points of distinction between illegal and void agreement:

Question 37.
Difference between Void agreement and illegal Agreement [Dec. 2019 (3 marks each)]
Answer:
Following are the main points of distinction between void and voidable contract:

Question 38.
“An agreement to do an act impossible itself is void”. Explain. [June 2015 (3 Marks)]
Answer:
Agreement to do impossible acts [Section 56]: An agreement to do an act impossible in itself is void.

A contract to do an act which becomes impossible after the contract is made by reason of some event which the promisor could not prevent then such contract becomes void when the act.

Where one person has promised to be something which he knew to be impossible and the promisee did not know to be impossible, such promisor must make compensation to such promisee for any loss which the promisee | may sustain through the non-performance of the promise.

Illustrations:

• A agrees with B to discover treasure by magic. The agreement is void.
• A and B contract to marry each other. Before the time fixed for the marriage, A goes mad. The contract becomes void.

Question 39.
Ajay agrees to sell his old car to Bijoy for ₹ 1,00,000 or ₹ 80,000. Is it a valid contract? Give reasons. [June 2006 (5 Marks)]
Answer:
As per Section 29 of the Contract Act, 1872, if the meaning of the 1 agreement is not certain, such agreements are void. Thus, agreements must be in clear words.

In this case, there is nothing to show which of the two prices is to be taken into consideration. Hence, the agreement is void.

Question 40.
Discuss briefly whether an agreement by way of wager is a voidable contract. [Dec. 2007 (5 Marks)]
Answer:
Agreements by way of wager, void [Section 30]: A wagering agreement is an agreement between two parties by which one promises to pay money or money’s worth on the happening of some uncertain event in consideration of the other party promise to pay if the event does not happen. Wagering agreements are void.

Example: Rohit agrees to pay ₹ 500 to Sachin if Indian wins a cricket match with Pakistan and Sachin agrees to pay ₹ 500 if Pakistan wins. This is a wagering agreement and is void.

Essentials of a wagering agreement:

• There must be a promise to pay money or money’s worth.
• The event must be uncertain.
• Each party must stand to win or lose.
• Neither party should have any control over the event.
• Neither party should have any other interest (ie. other than the sum or stake to be win or lose) in the event.

A lottery is a wagering agreement. However, a lottery authorized by State Government is not a wagering agreement.

Question 41.
Explain the meaning of the contingent contract and state the rules relating to such contracts. [June 2003 (5 Marks)]
Answer:
Contingent Contract [Section 31]: It is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen.

Example 1: Arun sends goods to Tarun on a ‘sale or return basis. This is a contingent contract depending on the act of the Tarun to accept or reject the goods.

Example 2: When someone takes a fire insurance policy it is a contingent contract as a liability of the insurance company arises when damages to the house by fire.

Rules relating to contingent contracts are as follows:
1. Enforcement of contracts contingent on an event happening [Section 32]: Contingent contracts to do or not to do anything in an uncertain future event happens, cannot be enforced by law unless and until that event has happened.

Example: A contracts to pay B a sum of money when B marries C. C dies without being married to B. The contract becomes void.

2. Enforcement of contract contingent on an event not happening [Section 33]: Contingent contracts to do or not to do anything if an uncertain future event does not happen, can be enforced when the happening of that event becomes impossible, and not before.

Example: A agrees to pay B a sum of money if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks.

3. When event on which contract is contingent to be deemed impossible if it is the future conduct of a living person [Section 35]: If the future event on which a contract is a contingent is the way in which a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything which renders it impossible that he should so act within any definite time, or otherwise than under further contingencies.

Example: A agrees to pay B a sum of money if B marries C. C marries D. The marriage of B to C must now be considered impossible, although it is possible that D may die and that C may afterward marry B.

4. Contingent contracts to do or not to do anything, if a specified uncertain event happens within a fixed time, become void if the event does not happen or its happening becomes impossible before the expiry of that time. [Section 35]

Example: A promises to pay B a sum of money if a certain ship returns within a year. The contract may be enforced if the ship returns within the year, and becomes void if the ship is burnt within the year.

Example: A promise to pay B a sum of money if a certain ship does not return within a year. The contract may be enforced if the ship does not return within the year, or is burnt within the year.

5. Agreements contingent on impossible events, void [Section 36]: Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made.

Example: A agrees to pay B ₹ 1,000 if two straight lines should enclose a space. The agreement is void.

Example: A agrees to pay B ₹ 1,000 if B will marry A’s daughter, C. C was dead at the time of the agreement. The agreement is void.

Question 42.
Avanti took out motor car insurance from Healthy Trip Insurance Company. A cheque was issued under a contract of insurance of motorcar by the insured for the payment of premium of the policy. However, the cheque was dishonored for want of funds in the account. Meanwhile, the car met with an accident and badly damaged, killing the insured owner. The claim for the insured amount was repudiated by the company.
Decide:
(i) Whether the contract of insurance has been performed? Analyze the provisions of the Indian Contract Act, 1872 in this respect?
(ii) Whether the claim of the insured amount may be recovered from Healthy Trip Insurance Company? [Dec 2019(4 marks)]
Answer:
In National Insurance Co. Ltd. v. Seema Malhotra, a cheque was issued under a contract of insurance of motor car by the insured for payment of premium to the policy. However, the cheque was dishonored for want of funds in the account. Meanwhile, the car met with an accident and badly damaged, killing the insured owner. The claim for the insured amount was repudiated by the company.

The Supreme Court held that applying the principles envisaged under sections 51, 52, and 54 of the Indian Contract Act, 1872 relating to reciprocal promises, the insurer need not perform his part of the promise when the other party fails to perform his part and thus not liable to pay the insured amount.

Question 43.
X lent three sums to Y of ₹ 10,000, ₹ 20,000, and ₹ 50,000. Y sent a sum of ₹ 10,000 asking X to appropriate this money towards the third debt of ₹ 50,000. X wants to appropriate this money to the first loan. Can he do so?
Answer:
As per Section 59 of the Contract Act, 1872, where a single payment is made by a debtor who owes several sums to the same creditor, the debtor has the primary right to specify the manner of appropriation.

Where the debtor does indicate such a manner, the creditor must do so, or else he should refuse to accept the payment.
Since X has indicated to adjust the amount of ₹ 10,000 against the third debt of ₹ 50,000, X must do so; he cannot adjust it against the first debt.

Question 44.
Write a short note: Anticipatory breach of contract [June 2007 (4 Marks)]
Answer:
Breach of contract means breaking or non-fulfillment of an obligation under a contract. Anticipatory breach of contract: When a party to executory contract declares his intention of not performing the contract, it is known as anticipatory breach of contract.

An executory contract is a contract in which the promises of both parties have yet to be performed.

The anticipatory breach may take place in any of the following ways:
(a) Express Repudiation: When one of the parties to the contract expressly declares that he is not going to perform his part.

Example: A contracts to supply 100 bags of rice on 31-12-2018 to B. On 15-12-2018 he shows his unwillingness to supply the rice. This is known as anticipatory breach of contract, by express repudiation.

(b) Implied Repudiation: Party does some act which is against the performance of his promise.
Example: X agrees to sell his car to ”Y” on 30-12-2018. On 15-12-2018, X sells his car to Z. There is an anticipatory breach by implied conduct of X.

Question 45.
What are the ways of discharging a contract? [Dec. 2014 (5 Marks)]
Answer:
Termination of the contractual relationship between the parties is known as the discharge of the contract. A contract may be discharged by:

• Performance
• Agreement or consent
• Impossibility
• Lapse of time
• Operation of law
• Breach of contract

Question 46.
How does a valid contract gel discharged by the impossibility of performance? [June 2016 (5 Marks)]
Answer:
The impossibility that arises subsequent to the formation of a contract is called a post-contractual or supervening impossibility. In England, the doctrine of frustration is the parallel concept of “supervening impossibility”.

A contract is discharged by supervening impossibility in the following case:
1. Accidental destruction of the subject matter of the contract: After formation of the contract if the subject matter is destroyed without any fault of either party, the contract is discharged.

2. Change in a particular state of things.
Example: Anil promises to marry Madhuri. Before marriage, Madhuri becomes mad. The contract is discharged, as it becomes void due to a change in a particular state of thing.

3. Serious illness or death or incapacity of party: Where a contract depends on the personal skill or qualification of a party.
Example: A agreed with B to perform a dance show on a particular date. Before the date of the show, A was seriously ill. Here contract between A & B is discharged.

4. Change in law or stepping in of a person with statutory authority. Example: A agreed to sell certain land to B. Before the sale is effected, the land was compulsorily acquired by the Government. Here, the contract is discharged due to Government action.

5. The contract becomes void when war is declared and hence discharged.
In the following cases, a contract is not discharged on the ground of supervening impossibility:

1. The difficulty of performance: A contract is not discharged by the mere fact that it has become more difficult of performance due to some uncontemplated events or delays.
2. Commercial impossibility: A contract is not discharged merely because the expectation of higher profits is not realized, or the necessary raw material is available at a higher price because of the outbreak of war, or there is a sudden depreciation of the currency.
3. Impossibility due to failure of a third person: Where a contract could not be performed because of the default by a third person on whose work the promisor relied, it is not discharged.
4. Strikes, lock-outs & civil disturbances: Such events do not discharge a contract unless the parties have specifically agreed in this regard at the time of formation of the contract.
5. Failure of one of the objects: When a contract is entered into for several objects, the failure of one of them does not discharge the contract.

Question 47.
A agreed to supply B certain goods to be produced from Indonesia. The goods could not be produced due to riots and civil disturbances in Indonesia. Decide, whether the non-performance of the contract may be excused? [Dec. 2017 (5 Marks))
Answer:
The impossibility of performance is not an excuse for non-performance. Ordinarily, when a person undertakes to do something, he must do it unless its performance becomes absolutely impossible. However, events like strikes, lock-outs & civil disturbances do not discharge a contract unless the parties have specifically agreed in this regard at the time of formation of the contract.

As per facts given in the case, A agreed to supply B certain goods to be produced from Indonesia. However, goods could not be produced due to riots and civil disturbances in Indonesia. As discussed above such events do not discharge a contract unless the parties have specifically agreed in this regard at the time of formation of the contract. Thus, non-performance of the contract by A cannot be excused and he will have to perform the contract as agreed otherwise B may claim damages/compensation from A for non-performance of the contract.

Question 48.
Explain the concept of quantum meruit. [June 2010 (5Marks)]
Answer:
Quantum meruit literally means ‘as much earned’ ie. in proportion to the extent of work done. Sometimes a contract cannot be completed; in that case, if one party has already executed some work, then he is entitled to get a proportional amount to extent of work done. In case of breach of contract aggrieved party can claim ‘Quantum Meruit’ plus damages. Quantum meruit is available only if the original contract has discharged.

In the following cases, a claim for quantum meruit may arise.
1. When an agreement is discovered to be void /when a contract becomes void:
Example: K hired a godown from L for 12 months and paid the rent in advance. After about 7 months the godown was destroyed by fire without the fault of either party. Here, the contract has become void due to distraction of godown, and hence K can recover rent for the unexpired period from L.

2. No agreement as to remuneration: In a contract to render services, if there is no express or implied intention to provide remuneration, the party rendering services can sue upon quantum merit for reasonable remuneration.

3. When one party prevents the other from completing of contract.

In the following cases, even the party at fault can claim payment on quantum meruit.
(a) Divisible contracts partly performed: Generally, no remedy is available to default party, but even defaulting party may be entitled to get payment on quantum meruit if the following conditions are satisfied

• The contract is divisible.
• The contract is partly performed.
• The party not in default has enjoyed the benefit of the part of the performances.

If the above conditions are satisfied, a defaulting party may be entitled to get a proportionate amount after deducting compensation for loss/damage.

(b) Indivisible contract performed completely but badly: In such case party who has performed the contract can claim the lump sum, but another party can make a deduction for bad work.

Example: A agrees to repair the swimming pool of B for ₹ 50,000. The payment is to be made by B on the completion of the repair of the swimming pool. A carried the repair in a defective way. A can recover ₹ 50,000 less a deduction for bad work.

Question 49.
A jay finds a mobile phone lying on a table in a Coffee House. He hands over the mobile phone to Bijay, the manager of the Coffee House so that the true owner can claim it back. However, no one claims the mobile phone. After some time, Ajay goes to Bijay, the manager, and requests him to return the mobile phone to him. On Bijay’s refusal, Ajay files a suit against him for the recovery of the mobile phone. Will Ajay succeed? Give reasons. [June 2008 (5 Marks)]
Answer:
A person who finds goods belonging to another and takes them into his custody is subject to the same responsibility as a bailee. He is bound to take care of such goods as a man of ordinary prudence. He is treated as an owner against the whole world except the true owner.

In the given case, Ajay can recover the mobile phone from Bijay because in absence of a real owner Ajay will be treated as the owner.

Question 50.
The position of the finder of lost goods is that of the bailee. [June 2014 (5 Marks)]
Answer:
Finder of goods [Section 71]: A person who finds goods belonging to another and takes them into his custody is subject to the same responsibility as a bailee. He is bound to take care of such goods as a man of ordinary prudence. He is treated as an owner against the whole world except the true owner.

Example: A finds a diamond in B’s shop. He hands it to B to keep until the true owner is found. The true owner did not appear even advertisement in newspaper. A claims the diamond from B, who refuses to return. ”B” is bound to return the diamond to A as A is owner against the whole world except the true owner.

Question 51.
Mohit finds a ring of Shardha and sells it to a third person Prachi who purchases it for value and in good faith. Whether Shardha can file a suit to recover the ring? Advise with cogent reasons. [Dec. 2018 (5 Marks)]
Answer:
As per Section 71 of the Contract Act, 1872, a person who finds goods belonging to another and takes them into his custody is subject to the same responsibility as a bailee. He is bound to take care of such goods as a man of ordinary prudence. He is treated as an owner against the whole world except the true owner.

In the given case sale by Mohit to third-person Prachi is not valid as Mohit has no title. Shardha can recover the ring from Prachi and Prachi can recover damages from Mohit for breach of “implied condition as to title” as per the Sales of Goods Act, 1930.

Question 52.
Distinguish between: Contract of indemnity & contract of guarantee [Dec. 2008 (5 Marks)]
Answer:
Following are the main points of distinction between indemnity and contract of guarantee:

Question 53.
Amar guarantees to Bimal the payment of a bill of exchange by Chirag, the acceptor. The bill is dishonored by Chirag. What is the extent of liability of Amar? [Dec. 2009 (5 Marks)]
Answer:
As per Section 128 of the Contract Act, 1872, the liability of a surety is co-extensive with that of the principal debtor. Hence, Amar is liable to pay the amount of the bill as well as noting charges and interest.

Question 54.
What is meant by contracts ‘uberrimae fidei’? Which contract? are in general may be treated as contracts ‘uberrimae fidei? [June 2017 (5 Marks))
Answer:
uberrimae fidei means ‘utmost good faith’/’disclosure of all material facts.

The creditor is under obligation to disclose all the material facts in respect of creditworthiness of principal debtor to surety even if surety does not specifically ask.

Example: C engaged P as a clerk to collect money. P misappropriated some of C’s receipts. This sum was made good by P’s relation and C agreed to retain P in his employment on fidelity guarantee. S gave his guarantee for P’s duly accounting. C did not inform S of P’s previous dishonesty. The guarantee could not be enforced against owing to non-disclosure of P’s previous dishonesty.

Contracts Uberrimae fidei: There are contracts that require the utmost good faith. There is a special duty to disclose all the material facts and the failure to disclose such information gives a right to rescind the contract at the option of the other party.

The following contracts are contracts uberrimae fidei
(a) Contracts of insurance of all kinds: It is the duty of the assured per- j son to disclose all the material information or fact to the insurance I company, affecting the risk covered. Concealment of a material fact j will render the contract void.

(b) Company prospectus: It is the duty on the part of every company j to disclose each and every material information in the prospectus, j When it invites the public to subscribe for its shares in or debentures of. The contract to buy shares or debentures is voidable at the option of the purchaser where there is a false statement or non-disclosure in the prospectus.

(c) Contracts of family arrangements: It is the duty of every member of the family to make full disclosure of every material fact within his knowledge. Such a contract is not binding if either party has been misled by any concealment of material facts.

(d) Contract for sale of land: It is the duty of the vendor to show good title | to the land that he has contracted to sell to the purchaser.

Question 55.
Mr. X in consideration, that Mr. Y will employ Mr. Z in collecting the rent of Zamindari, promises to Mr. B to be responsible for the amount of ₹ 10,000 for the due collection and payment by Mr. Z of these rents. Decide, whether it is a contract or a guarantee? Which type of guarantee it is? When such a guarantee may be revoked? [Dec. 2017 (5 Marks)]
Answer:
As per Section 129 of the Contract Act, 1872, when a guarantee extends to a series of transactions it is called a continuing guarantee. The liability of the surety in case of a continuing guarantee extends to all the transactions until the revocation of the guarantee.

Example: C employs P for collecting rent of C’s Zamindari. S gives a guarantee for good work and honesty of P. This is continuing guarantee.
Example: S guarantees payment to C for ₹ 10,000 for any goods C may supply to P from time to time. This is continuing guarantee.

Revocation of a continuing guarantee [Section 130]: Surety may revoke at any time, a continuing guarantee as to future transactions, by giving j a notice to the creditor. A continuing guarantee cannot be revoked for the transaction which has already taken place.

As per facts given in the case, Mr. X in consideration, that Mr. Y will employ Mr.

Z in collecting rent of Zamindari, promises to Mr. Y to be responsible for the amount ₹ 10,000 for due collection and payment by Mr. Z of this rent is a continuing guarantee as it extends to series of transaction. Thus, Mr. X will be liable to Mr. Y if Mr. Z makes any default up to the amount of ₹ 10,000.

Mr. X may revoke such continuing guarantee as to future transactions, by j giving notice to Mr. Y.

Question 56.
Distinguish between: Contract of indemnity & contract of guarantee [Dec. 2018 (3 Marks)]
Answer:
A person who finds goods belonging to another and takes them into his custody is subject to the same responsibility as a bailee. He is bound to take care of such goods as a man of ordinary prudence. He is treated as owner against the whole world except the true owner.

In the given case, Ajay can recover the mobile phone from Bijay because in absence of a real owner Ajay will be treated as the owner.

Question 57.
“Goods can be pledged by the owner only.” Discuss. State the circumstances in which the goods can be pledged by non-owners. [Dec. 2006 (5 Marks)]
Answer:
The general rule is that only the owner can create a valid pledge. However, in the following situation even a non-owner can create a valid pledge:

1. Pledge by mercantile agent [Section 178]:

• A mercantile agent who is in possession of goods or of document of title to goods, with the consent of the owner, can pledge them while acting in the ordinary course of business as a mercantile agent.
• The pledge shall be valid only if the pawnee acts in good faith, and has no notice at the time of pledge that the pawnor had no authority to pledge.

2. Pledge by a person in possession under voidable contract [Section 178A]:
When the pawnor has obtained possession of goods under a voidable contract by way of fraud, coercion hut the contract is not rescinded at the time of pledge, it is a valid pledge. The pawnee obtains a good title to such goods provided that he acts in good faith and had no notice of the defective title of the pawnor.

3. Pledge where pawnor has limited interest [Section 179]: Where the pawnor has only limited interest in the goods pledge shall be valid only to the extent of such interest.

4. Pledge by seller or buyer in passion after-sale: A seller in possession of goods after the sale and a buyer in possession of goods before a sale can create a valid pledge provided the pawnee acts in good faith and has no notice of prior sale.

Example: A sells 10 bags of sugar to B on a stipulation that delivery and payment be made in next month. Before goods are delivered to B, A pledges goods with C, who acts in good faith and has no notice of prior sale. The pledge is valid.

5. Pledge by co-owner in possession: If co-owner is in possession of goods with the consent of other co-owner then co-owner in possession can create a valid pledge.

Question 58.
Ajay found a defective video camera lying in a park. He pledged it with Vijay for ₹ 3,000. Mohan, the real owner, came to know about it. Mohan sued Vijay to recover his camera. Vijay had incurred ₹ 500 on repair to make the camera operational. Can Mohan recover his camera? [June 2007 (5 Marks)]
Answer:
Mohan can recover his camera but only paying ₹ 500 to Vijay. As j per Section 179, where the pawnor has only limited interest in the goods pledge shall be valid only to the extent of such interest.

Question 59.
Distinguish between: General Lien & Particular Lien [June 2011 (5 Marks)]
Answer:
Following are the main points of distinction between general and particular lien:

Question 60.
Write short notes on Sub-agent [Dec. 2006 (5 Marks)]
Answer:
“Sub-agent” defined [Section 191]: A sub-agent is a person employed by, and acting under the control of, the original agent in the business of the agency.

Appointment of sub-agent: The general rule is that delegates cannot further delegate. Hence, a sub-agent may be appointed only where:

• Expressly permitted by the principal or inferred from the conduct of the principal.
• The ordinary customs of trade permits the delegation of authority by an agent.
• The nature of agency is such that it is necessary to appointment a subagent.
• The nature of the job assigned to an agent is purely clerical and does not involve the exercise of discretion.
• In an unforeseen emergency.

Relationship between principal and agent:

• There is no privity of contract between the sub-agent and the principal.
• Sub-agent cannot sue the principal for remuneration.
• The principal cannot sue the sub-agent for any amounts of money due from him.
• The principal has a concurrent right to proceed against the agent and sub-agent when the sub-agent is guilty of fraud or wilful wrong.

Representation of principal by sub-agent duly appointed [Section 192]: A sub-agent properly appointed can represent principal and bind him by his acts as if he were an agent originally appointed by the Principal.

Agent’s responsibility for sub-agent appointed without authority [Section 193]:

• Where an agent, without having authority to do so, has appointed a sub-agent, he becomes the principal for such sub-agent.
• The sub-agent cannot represent the original principal or make the original principal responsible for his acts.
• Sub-agent can only bind the agent, who appointed him, by contracts entered into with third parties.
• The original agent of the principal is responsible to both the principal and third parties for any act of the sub-agent.

Termination subagent’s authority [Section 210]: The termination of authority of an Agent causes termination of authority of all sub-agents appointed by him.

Question 61.
Write a short note on Irrevocable agency [June 2007 (5 Marks)]
Answer:
Irrevocable Agencies: An agency that cannot be revoked is called an irrevocable agency. The following agencies are irrevocable:
(a) When the agency is coupled with interest [Section 202]: Where the agent has himself an interest in the property which forms the subject matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest.

Example: A, gives authority to B to sell A’s land, and to pay himself, out of the proceeds, the debts due to him from A. A cannot revoke this authority, nor can it be terminated by his insanity or death.

(b) When the agent has incurred a personal liability.

(c) Where the agent has exercised his authority partly.

Question 62.
Write a short note on Agency by ratification [June 2009 (5 Marksj]
Answer:
Ratification means confirm or accept or give consent after the act or event. As per Section 197 such ratification may be express or implied in the conduct of the principal. After ratification, the principal is liable for all the act consequences of the act and also gets all rights under the contract, from the date of the action of an agent.

Example: A without authority, buys goods for B, later B sells them to C on his own account, B’s conduct implies a ratification of purchase made for him by A.

Example: P, without Q’s authority, lends money to R. Afterwards Q accepts interest on the money from R. Q’s conduct implies a ratification of the loan.

Requisites to a valid ratification:

• The agent must purport to act as an agent for a principal who is in contemplation and is identifiable at the time of contract.
• The principal must be in existence at the time of the contract. For example, the company cannot ratify the contracts entered by promoters prior to incorporation.
• The principal should have contractual capacity both at the time of contract and at the time of ratification. A minor on whose behalf a contract is made, cannot ratify it on attaining majority.
• Ratification must be made within a reasonable time. What is a reasonable time depends on the circumstances of each case.
• Ratification is valid only when the principal who ratifies has full knowledge of the facts. Ratification should be done within a reasonable time.
• The act to be ratified must be a lawful one. Ratification of an illegal act or an act, which is void ab initio, is not possible.
• Ratification can be made of the whole contract. The principal cannot ratify in part what is beneficial to him and leave the rest. Ratification must be communicated to the party who is sought to be bound by an act done by the principal.
• Ratification should not put third parties to damages.
• Ratification relates back to the date of the act or agent.

Question 63.
Suresh, an agent, has authority from his principal Bhupesh to sell goods on credit. Suresh sells goods on credit to Chandan without making proper inquiries about Chandan’s financial status. At the time of sale, Chandan was insolvent. Is Suresh under a liability to compensate his principal Bhupesh? Why? [June 2010 (5 Marks)]
Answer:
As per Section 212 of the Contract Act, 1872, the agent is bound to act with reasonable diligence and use the skill he possesses to the proper conduct of the business.

Suresh, an agent sells goods on credit to Chandan without making proper inquiries about Chandan’s financial status. Hence, Suresh has not acted with reasonable diligence and he is liable for loss to his principal.

Economic, Business and Commercial Laws Questions and Answers

Benami Transaction (Prohibition) Act, 1988 – Economic, Business and Commercial Laws Important Questions

Question 1.
Define the term ‘Benami Transactions’ under the Benami Transaction (Prohibition) Act, 1988.
Answer:
Benami transactions are a transaction or arrangement whereby the identity of the real owner (beneficial owner) of the property is concealed by showing someone else (Benamidar) as the owner on records. The beneficial owner provides or pays consideration for the purchase of the property.

Benami Transaction [Section 2(9)]:
1. Benami transactions is a transaction or an arrangement where a property is transferred to or is held by, a person, and the consideration for such property has been provided or paid by, another person. Similarly, a transaction or arrangement where the property is held by some other person for the immediate or future benefit, direct or indirect, of the person who has provided the consideration is also a Benami transaction.

However, the following transactions or arrangements do not amount to Benami transaction:

• A HUF purchasing a property in the name of a Karta or any other member from known sources.
• A person holding the property in a fiduciary capacity. (e.g. trustee, executor, partner of a partnership firm, director of a company, a depository participant, etc.)
• An individual purchasing a property in the name of his spouse or any child provided the consideration is paid out of the known sources.
• Any person purchasing property in the name of his brother or sister or lineal ascendant or descendant, where he is one of the joint-owners, provided the consideration is paid out of the known sources.

2. A transaction carried out in a fictitious name is a Benami transaction.

3. A transaction where the owner of the property is not aware of or denies knowledge of such ownership is a Benami transaction.

4. A transaction where the person providing the consideration is not traceable or is fictitious, is a Benami transaction.

Possession of property in part performance of a contract – not Benami trans-action: Benami transaction shall not include any transaction involving the allowing of possession of any property to be taken or retained in part performance of a contract referred to in Section 53A of the Transfer of Property Act, 1882, if under any law for the time being in force:
(a) consideration for such property has been provided by the person to whom the possession of the property has been allowed but the person who has granted possession thereof continues to hold ownership of such property;
(b) stamp duty on such transaction or arrangement has been paid; and
(c) the contract has been registered.

Question 2.
Ramesh invested ₹ 1,00,000 in equity shares of some private companies in name of his wife Reshma out of the savings made by him in the last five; years. However, such savings are not disclosed anywhere in his accounts or income tax returns. Whether this transaction/arrangement amounts to Benami property under the Benami Transaction (Prohibition) Act, 1988?
Answer:
(a) Facts of Case: Ramesh invested ₹ 1,00,000 in equity shares of some private companies in name of his wife Reshma out of the savings made by him in the last five years. However, such savings are not disclosed anywhere in his accounts or income tax returns.

(b) Provision: Benami transactions are a transaction or arrangement whereby the identity of the real owner (beneficial owner) of the property is concealed by showing someone else (Benamidar) as the owner on records. The beneficial owner provides or pays consideration for the purchase of the property. However, if an individual purchases a property in the name of his spouse or any child and the consideration is paid out of the known sources then it will not be a Benami transaction.

(c) Conclusion: As per the facts given case, Ramesh invested ₹ 1,00,000 in equity shares of some private companies in name of his wife Reshma out of the savings made by him in the last 5 years which was not disclosed in his accounts or income tax returns and hence investment is made from an unknown source. It amounts to a Benami transaction.

Question 3.
Ratnakar, a Karta of HUF, purchased gold for ₹ 2,00,000 in the name of her minor daughter on her sixth birthday. This gold was purchased out of funds held in Axis Bank and details of this bank account are filed with income tax authorities. Whether this transaction/arrangement amounts to Benami property under the Benami Transaction (Prohibition) Act, 1988?
Answer:
(a) Facts of Case: Ratnakar, a Karta of HUF, purchased gold for ₹ 2,00,000 in the name of her minor daughter on her sixth birthday. This gold was purchased out of funds held in Axis Bank and details of this bank account are filed with income tax authorities

(b) Provision: Benami transactions are a transaction or arrangement whereby the identity of the real owner (beneficial owner) of the property is concealed by showing someone else (Benamidar) as the owner on records. The beneficial owner provides or pays consideration for the purchase of the property. However, a HUF purchases a property in the name of a Karta, or any other member from known sources, it does not amount to a Benami transaction.

(c) Conclusion: As per facts given in the case, Ratnakar had purchased gold for his minor daughter out of the funds held in Axis Bank details of which are available with income tax authorities and thus it is an investment out of known sources and the transaction does not amount Benami transaction.

Question 4.
Mr. Nitinkumar Gupta is director of Hi-Fi Ltd. The company purchased some property in the name of Mr. Nitinkumar and paid the consideration for the property. State with reason whether this transaction/arrangement amounts to Benami transaction under the Benami Transaction (Prohibition) Act, 1988?
Answer:
(a) Facts of Case: Mr. Nitinkumar Gupta is director of Hi-Fi Ltd. The company purchased some property in the name of Mr. Nitinkumar and paid the consideration for the property

(b) Provision: As per exception provided by Section 2(9) of the Benami Transaction (Prohibition) Act, 1988, when a property is held by a person in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity, the transaction or arrangement will not be Benami transaction. Thus, property held by the trustee, executor, partner of a partnership firm, director of a company, a depository participant, for the benefit of another is not Benami property as they are holding property in a fiduciary capacity.

(c) Conclusion/Decision: Keeping in view the above discussion, property purchased by the company in the name of its director.

Mr. Nitinkumar Gupta is not a Benami transaction as he holds the property in a fiduciary capacity for the benefit of the company.

Question 5.
Explain the salient features of the Benami Transactions (Prohibition) Act. 1988. [June 2019 (3 Marks)]
Answer:
Salient features of the Benami Transaction (Prohibition) Act, 1988 are given below:

• It defines ‘Benami Transaction’ and ‘Benami Property.
• It provides for exclusions and transactions which shall not be construed by Benami.
• It provides the consequences of entering into a prohibited Benami transaction.
• It lays down the procedure for determination and related penal consequences for prohibited Benami transactions.
• It also provides that the powers of the Civil Court to the authorities under the Act.
• Provisions have been made for service of notice, protection of action taken in good faith, etc.
• Central Government empowers to make rules for the implementation of the provisions of the Bill.
• It enables the Central Government in consultation with the Chief Justice of the High Court to designate Special Courts.
• It provides a penalty for entering into Benami transactions and for furnishing any false documents.
• It provides for the transfer of suit or proceeding in respect of a Benami transaction pending in any Court/Tribunal (other than High Court) to the Appellate Tribunal.

Question 6.
How Benami transactions are prohibited under the Benami Transaction (Prohibition) Act, 1988? What is the penalty for Benami transactions under the Act?
Answer:
Prohibition of Benami transactions [Section 3]: No person shall enter into any Benami transaction. Whoever enters into any Benami transaction shall be punishable:

• with imprisonment up to 3 years or
• with fine or
• with both.

Where any person enters into any Benami transaction on and after the date of commencement of the Benami Transactions (Prohibition) Amendment Act, 2016, shall be punishable.

Property held Benami liable to confiscation [Section 5]: Any property, which is the subject matter of Benami transaction, shall be liable to be confiscated by the Central Government.

Penalty for Benami transaction [Section 53]: Where any person enters into a Benami transaction in order to defeat the provisions of any law or to avoid payment of statutory dues or to avoid payment to creditors, the beneficial owner, Benamidar and any other person who abets or induces any person to enter into the Benami transaction, shall be guilty of the of-fence of Benami transaction.

Whoever is found guilty of the offense of Benami transaction shall be punishable:

• With rigorous imprisonment for a term which shall not be less than 1 year, but which may extend to 7 years and
• With a fine that may extend to 25% of the fair market value of the property.

Question 7.
Explain Adjudication of Benami Property under the Benami Trans-action (Prohibition) Act, 1988. [Dec 2018 (3 Marks)]
Answer:
Provisions relating to the adjudication of Benami property are given below: Notice by Adjudicating Authority to furnish documents, evidence, etc.

[Section 26(1)]: On receipt of a reference u/s 24(5), the Adjudicating Authority shall issue notice, to furnish such documents, particulars, or evidence as is considered necessary on a date to be specified therein. Such notice has to be served on the following persons:

• Benamidar,
• Beneficial owner,
• Any interested party, including a banking company,
• Any person who has made a claim in respect of the property.

The Adjudicating Authority shall issue notice within a period of 30 days from the date on which a reference has been received.

Serving of notice where Benami property is held jointly [Section 26(2)]: The notice should specify that person to whom the notice is served is required to give necessary information within 30 days from the date of the notice.

Where the property is held jointly by more than one person, the Adjudicating Authority shall make all endeavors to serve notice to all persons holding the property.

Such notice can be sent to any one of the joint holders and it is not required to send the notice to all joint holders.

Orders by Adjudicating Authority [Section 26(3)]:

• Adjudicating Authority may by passing an order hold the property not to be a Benami property and revoke the attachment order.
• Adjudicating Authority may by passing an order hold the property to be a Benami property and confirm the attachment order.

Before passing any of the above order the Adjudicating Authority is required to adopt the following procedure –

•  He should consider the reply of notice issued u/s 25(1);
• He may conduct inquiries and may call such reports or evidence as he deems fit.
• He should take into account all relevant materials relating to the case.
• He should provide an opportunity of being heard to Benamidar, the Initiating Officer, and any other person who claims to be the owner of the property.

Procedure to be adopted by Adjudicating Authority when only some part of the property is Benami property [Section 26(4)]: Where the Adjudicating Authority is satisfied that some part of the properties in respect of which reference has been made to him is Benami property, but is not able to specifically identify such part, he shall record a finding to the best of his judgment as to which part of the properties is held Benami.

Power of Adjudicating Authority to attach other property even though no reference has been made by Initiating Officer [Section 26(5)]: If during the course of proceedings, the Adjudicating Authority finds that some other property is also Benami property but for such other property no reference has been made by the Initiating Officer then he can provisionally attach such other Benami property even though no reference has been made by the Initiating Officer.

Power of Adjudicating Authority to remove a name or add the name of any person in relation case before him [Section 26(6)]: The Adjudicating Authority may, at any stage of the proceedings, either on the application of any party, or Suo Motu, strike out the name of any party improperly joined or add the name of any person whose presence before the Adjudicating Authority may be necessary to enable him to adjudicate upon and settle all the questions involved in the reference.

The time limit for passing order [Section 26(7)]: No order shall be passed after the expiry of 1 year from the end of the month in which the reference was received by the Adjudicating Authority.

Appearance before Adjudicating Authority [Section 26(8)]: The Benamidar or any other person who claims to be the owner of the property may either appear in person or take the assistance of an authorized representative of his choice to present his case.

Question 8.
Explain the provisions relating to filing of an appeal with the Appellate Tribunal under the Benami Transaction (Prohibition) Act, 1988.
Answer:
Appeals to Appellate Tribunal [Section 46]:

• Any person, including the Initiating Officer, aggrieved by an order of the Adjudicating Authority may prefer an appeal to the Appellate Tribunal within a period of 45 days from the date of the order.
• The Appellate Tribunal may entertain any appeal after 45 days if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal in time.
• On receipt of an appeal, the Appellate Tribunal may pass such orders thereon as it thinks fit after giving the parties to the appeal an opportunity of being heard.
• The Appellate Tribunal, as far as possible, may hear and finally decide the appeal within a period of 1 year from the last date of the month in which the appeal is filed.

Question 9.
Discuss briefly the penalty for various offenses under the Benami Trans-action (Prohibition) Act, 1988.
Answer:
Penalty for Benami transaction [Section 53]:
(a) Who is guilty: Where any person enters into a Benami transaction in order to defeat the provisions of any law or to avoid payment of statutory dues or to avoid payment to creditors, the beneficial owner, Benamidar, and any other person who abets or induces any person to enter into the Benami transaction, shall be guilty of the offense of Benami transaction.

(b) Penalty: Whoever is found guilty of the offense of Benami transaction shall be punishable:

• with rigorous imprisonment for a term which shall not be less than 1 year, but which may extend to 7 years, and
• with a fine which may extend to 25% of the Fair Market Value of the property.

(c) Penalty for false information [Section 54]:
Any person who is required to furnish information under the Act knowingly gives false information to any authority or furnishes any false document in any proceeding under the Act, shall be punishable:

• With rigorous imprisonment for a term which shall not be less than 6 months but which may extend to 5 years and
• With a fine that may extend to 10% of the Fair Market Value of the property.

(d) Previous sanction [Section 55]: No prosecution shall be instituted against any person in respect of any offense under section 3, 53, or 54 without the previous sanction of the CBDT.

Economic, Business and Commercial Laws Questions and Answers

Transfer of Property Act, 1882 – Economic, Business and Commercial Laws Important Questions

Question 1.
Distinguish between: Vested & Contingent Interest [Dec 2009 (4 Marks)]
Answer:
Following are the main points of distinction between vested and contingent interest:

Question 2.
Distinguish between: Vested & Contingent Interest [June 2012 (4 Marks)]
Answer:
Following are the main points of distinction between vested and contingent interest:

Question 3.
Differentiate between vested and contingent interest under the Transfer of Property Act, 1882. [June 2017 (3 Marks)]
Answer:
Following are the main points of distinction between vested and contingent interest:

Question 4.
Distinguish between: Movable Property & Immovable Property. [Dec 2011 (4 Marks)]
Answer:
Following are the main points of difference between movable & immovable property:

Question 5.
State the meaning and characteristics of immovable property as per the Transfer of Property Act, 1882. [June 2013 (4 Marks)]
Answer:
(a) General Clauses Act, 1897: Definition
1. Immovable property shall include land, benefits to arise out of land and things attached to the earth, or permanently fastened to anything attached to the earth.

2. Attached to the earth” means
(a) rooted in the earth, as in the case of trees and shrubs;
(b) embedded in the earth, as in the case of walls or buildings; or
(c) attached to what is so embedded for the permanent beneficial enjoyment of that to which it is attached.

3. Things rooted In the earth: Trees and Shrubs arc immoveable property according to this definition subject to the exception as to standing timber.

4. Things embedded in the earth: A house is embedded in the earth is immovable property and this is so even if it is sold for enjoyment as a house with an option to pull it down. The mode of annexation and object of annexation are the two tests to determine whether it is immovable property or not.

5. Attached to what is so…: The attachment must be as the Section says for the permanent beneficial enjoyment of that to which it is attached e.g.the doors, windows of a house, or movable parts of fixed machinery.
But the attachment must be intended to be permanent.

(b) Transfer of Property Act: [Section 3]:

1. The immovable property does not include standing timber, growing crops, or grass.
2. The term “immovable property” is also not defined under the Transfer of Property Act. It just says what cannot be treated as immovable property.

(c) Registration Act, 1908: Immovable property includes the benefits to arise out of the land, hereditary allowances, rights of way, lights, ferries, and fisheries

Question 6.
What do you mean by ‘immovable property’ under the Transfer of Property Act, 1882? \June 2015 (3 Marks)\
Answer:
(a) General Clauses Act, 1897: Definition
1. Immovable property shall include land, benefits to arise out of land and things attached to the earth, or permanently fastened to anything attached to the earth.

2. Attached to the earth” means
(a) rooted in the earth, as in the case of trees and shrubs;
(b) embedded in the earth, as in the case of walls or buildings; or
(c) attached to what is so embedded for the permanent beneficial enjoyment of that to which it is attached.

3. Things rooted In the earth: Trees and Shrubs arc immoveable property according to this definition subject to the exception as to standing timber.

4. Things embedded in the earth: A house is embedded in the earth is immovable property and this is so even if it is sold for enjoyment as a house with an option to pull it down. The mode of annexation and object of annexation are the two tests to determine whether it is immovable property or not.

5. Attached to what is so…: The attachment must be as the Section says for the permanent beneficial enjoyment of that to which it is attached e.g.the doors, windows of a house, or movable parts of fixed machinery.
But the attachment must be intended to be permanent.

(b) Transfer of Property Act: [Section 3]:

1. The immovable property does not include standing timber, growing crops, or grass.
2. The term “immovable property” is also not defined under the Transfer of Property Act. It just says what cannot be treated as immovable property.

(c) Registration Act, 1908: Immovable property includes the benefits to arise out of the land, hereditary allowances, rights of way, lights, ferries, and fisheries

Question 7.
Distinguish between: Movable Property & Immovable Property. [June 2016 (5 Marks)]
Answer:
Following are the main points of difference between movable & immovable property:

Question 8.
Write a short note on Spes Successionis [Dec 2010 (4 Marks)]
Answer:
(a) Property of any kind may be transferred, except as otherwise provided by the Transfer of Property Act, 1882 or by any other law for the time being in force.

(b) One of the exceptions to the general rule that property of any kind may be transferred is Spes Successionis».

(c) The chance of an heir-apparent succeeding to an estate, the chance of a relation obtaining a legacy on the death of a kinsman (a man who is one of a person‘s blood relations), or any other mere possibility of a like nature cannot be transferred.

(d) if a property is neither in existence nor is the person the owner of the property then it cannot be transferred.

(e) Example:
1. Suppose A is the owner of the property and B is his son. B is the heir of A. During the lifetime of his father A, B has oni a hope expectancy that he will inherit the property of his father. This type of property which B hopes to get after the death of the father cannot be transferred, during the lifetime of A.

2. Suppose A, a Hindu who has separate property, dies leaving a widow W and a brother L, L’s succession to the property is dependent upon two factors, vie.,

1. his surviving the widow, W, and
2. We leaving the property intact. L has only a bare chance of succession to the property left by A. This is succession, and therefore, cannot be transferred.

Question 9.
A makes a gift of a house to B with whom he had illicit relations in the j past. Is this transfer valid? Will it make any difference if A’s consideration | for this transfer is adulterous relations of B with A? Give reason. [Dec 2014 (8 Marks)]
Answer:
(a) What may be transferred Section 6 of the Transfer of Property Act, 1882 deals with “what may be transferred”. Section 6 provides that, j property of any kind may be transferred, except as otherwise provided | by the Act or by any other law for the time being in force. Clauses (a) to (i) of Section 6 provides which property cannot be transferred.

(b) Indian Contract Act: As per Section 6(h), no transfer can be made for an unlawful object or consideration within the meaning of Section 23 I of the Indian Contract Act, 1872.

(c) Immoral or opposed to Public Policy: Section 23 of the Indian Contract Act, 1872 declares that – the consideration or object of an agreement j is if Court regards it as immoral or opposed to public policy.

(d) In Nagaratnambu v. Ramayya, the Supreme Court held that past co-habitation was the only motive and not a consideration for the gift, and 3 such transfer is not hit by Section 6( h) and the gift of immovable property for past illicit cohabitation is valid.

(e) However, adulterous relations are an offense and hence it is immoral and opposed to public policy. It is unlawful consideration as per Section 23 of the Indian Contract Act, 1872, and hence the transfer of immovable j property is not valid as per Section 6(h) of the Transfer of Property Act, 1882.

Question 10.
Enumerate the properties which cannot be transferred under the provisions of the Transfer of Property Act, 1882. [June 2016 (5 Marks)]
Answer:
What may be transferred [Section 6]: Property of any kind may be transferred, except as otherwise provided by the Act or by another Law for the time being in force.

Exceptions: Some exceptions to the general rule that property of any kind may be transferred. Thus, the following properties cannot be transferred:
1. Spes Succsionis: The chance of an heir-apparent succeeding to an estate, the chance of a relation obtaining a legacy on the death of a kinsman (a man who is one of a person‘s blood relations), or any other mere possibility of a like nature cannot be transferred.

Example: Suppose A is the owner of the property and B is his son. B is the heir of A. During the lifetime of his father A, B has only a hope expectancy that he will inherit the property of his father. This type of property which B hopes to get after the death of the father cannot be transferred, during the lifetime of A.

2. Right of re-entry: A mere right of re-entry for breach of a condition subsequent cannot be transferred to anyone except the owner of the property affected thereby.

Example: A grants his land by way of lease to B, a limited liability company on condition that the land should revert to A from B if the company goes into liquidation. This is a mere right in favor of A and this right of A cannot transfer to anyone as this is a personal right that can be exercised by A only. But if A transfers the whole of his interest in the land including the right of re-entry to C, there the right to re-entry is a legal incident of property and can be validly transferred along with the property.

3. Transfer of easement: An easement cannot be transferred apart from the dominant heritage. (An easement means a right to cross or otherwise use someone else’s land for a specified purpose.)

Example 1: The right of certain villagers to bathe in another’s tank cannot be transferred.
Example 2: If A, the owner of house X, has a right of way over an adjoining plot of land belonging to B, he cannot transfer this right of way to C. But if he transfers the house itself to C, the easement is also transferred to C.

4. Restricted interest or personal interest: An interest in property restricted in its enjoyment to the owner personally cannot be transferred by him. Examples of such restricted interest or property are the following:

• The right of preemption given under the Mohammedan Law.
• The office of a Shebait of a Temple or mount of a mutt or mutually of a wakf.
• Emoluments attached to a priestly office.
• Service tenures.

5. Right to future maintenance: A right to future maintenance in a what-soever manner arising, secured, or determined, cannot be transferred.

6. Mere right to sue: A mere right to sue cannot be transferred. Example: A commits an assault on B, B can file a suit to obtain damages; but B cannot assign the right to C and allow him to obtain damages. In contrast, also, the rule is the same. If A breaks a contract which he has entered into with B, B can bring an action for damages, but B cannot transfer this right to C to recover damages.

7. Transfer of public office & salaries, stipends, etc.: A public office cannot be transferred nor can the salary of a public officer, whether before or after it has become payable.

8. Stipends allowed to the military, naval, air force, and civil pensioners of the Government and political pensions cannot be transferred. Since these allowances, pensions, and stipends are given on a personal basis, the law does not allow these types of property to be transferred.

(For 5 marks you can avoid giving example if for more marks write examples as well)

Question 11.
Anil has two properties – Property-X & Property-Y. He sells Property-Y to Sunil and puts a condition that Sunil should not construct on Property-Y more than one story so that Anil’s Property-X which he retains should have good light and free air. Is such a condition valid? Give reasons in support of your answer. [Dec 2009 (5 Marks)]
Answer:
(a) Facts of Case: Anil has two properties – Property-X & Property-Y. He sells Property-Y to Sunil and puts a condition that Sunil should not construct on Property-Y more than one story so that Anil’s Property-X which he retains should have good light and free air.

(b) Provision: As per Section Ii of the Transfer of Property Act, 1882,

1. When a property is transferred absolutely, the transferee should be free to enjoy the property in any manner he likes. If the transferor imposes any restraint on the enjoyment of the property by the transferee, the restraint is treated as a clog in the enjoyment of the property by the transferee; the restraint is treated as void.
2. For e.g. A sells his house to B and he adds the condition that only B shall reside in the house. The condition is invalid.
3. It may be noted that if a person transfers a property to another keeping some other property for himself, he can impose certain conditions which may interfere with the rights of enjoyment of the transferee so that the transferee can enjoy the transferred property in a particular manner only.

(c) Conclusion: Thus, it is clear that the condition which is imposed by Anil is for the benefit of another property that he retains. Such a condition is valid.

Question 12.
Distinguish between: Conditions restraining alienation and condition restraining enjoyment. [Dec 2010 (4 Marks)]
Answer:
Following are the main points of difference between conditions re-straining alienation and condition restraining enjoyment:

Question 13.
Tarun has two properties, Property-X and Property-Y. He sells his Property-Y to Jolly and puts a condition that Jolly should not construct more than one story on Property-Y so that Property-X, which he retains, shall have good light and free air. Whether the condition imposed by Tarun is ‘valid’ under the Transfer of Property Act, 1882? Give reasons. [Dec 2016 (3 Marks)]
Answer:
(a) Facts of Case: Tarun has two properties, Property-X and Property-Y. He sells his Property-Y to Jolly and puts a condition that Jolly should not construct more than one story on Property-Y so that Property-X, which he retains, shall have good light and free air

(b) Provision:

1. As per Section 11, where land is transferred by one to another, the transferor should not impose conditions as to how and in what manner the transferee should enjoy the property.
2. If a person transfers a plot of land keeping another plot for himself, he can impose certain conditions which may interfere with the right of enjoyment of the transferee.

(c) Conclusion: Thus, it is clear that the condition imposed by Tarun is for the benefit of another property that he retains. Such a condition is valid.

Question 14.
State the circumstances in which a property may be transferred in favor of an unborn person. [June 2010 (4 Marks)]
Answer:
Transfer for benefit of unborn person [Section 13]: If there is the transfer of property for the benefit of the unborn person, subject to a prior interest created by the same transfer, the interest created for the benefit of an unborn person shall not take effect unless it extends to the whole of the remaining interest of the transferor in the property.

Thus, if a property is given to an unborn person, two conditions should be satisfied:

1. It should be preceded by a life estate in favor of a living person, and
2. It should comprise the whole of the remaining interest of the transferor so that there can be no further interest in favor of others.

Example: Ram transfers property of which he is the owner to Shyam in trust for Ram and his intended wife successively for their lives, and after the death of the survivor, for the eldest son of the intended marriage for life, and after his death for Ram’s second son. The interest so created to the benefit of the eldest son does not take effect because it does not extend to the whole of Ram’s remaining interest in the property, (ie. to say eldest son is getting only a life interest and not an absolute interest)

Effect of a transfer on the failure of prior interest [Section 16]: Further, where by reason of any rules contained in Section 13 interest created for the benefit of a person fails in regard to such person, any interest created in the same transaction and intended to take effect or upon failure of such prior interests also fail.

Question 15.
Describe the essential conditions required for transfer for benefit of the unborn person. [Dec 2016 (5 Marksj]
Answer:
Transfer for benefit of unborn person [Section 13]: If there is the transfer of property for the benefit of the unborn person, subject to a prior interest created by the same transfer, the interest created for the benefit of an unborn person shall not take effect unless it extends to the whole of the remaining interest of the transferor in the property.

Thus, if a property is given to an unborn person, two conditions should be satisfied:

1. It should be preceded by a life estate in favor of a living person, and
2. It should comprise the whole of the remaining interest of the transferor so that there can be no further interest in favor of others.

Example: Ram transfers property of which he is the owner to Shyam in trust for Ram and his intended wife successively for their lives, and after the death of the survivor, for the eldest son of the intended marriage for life, and after his death for Ram’s second son. The interest so created to the benefit of the eldest son does not take effect because it does not extend to the whole of Ram’s remaining interest in the property, (ie. to say eldest son is getting only a life interest and not an absolute interest)

Effect of a transfer on the failure of prior interest [Section 16]: Further, where by reason of any rules contained in Section 13 interest created for the benefit of a person fails in regard to such person, any interest created in the same transaction and intended to take effect or upon failure of such prior interests also fail.

Question 16.
There was a partition of property between a Hindu father and his five sons. The deed provided that if any one of his sons wanted to sell his share, he shall sell it to one of his brothers only and not to any stranger. The consideration for that share shall be ₹ 1,000 only. Are these conditions valid? Give reasons. [June 2011 (5 Marks)]
Answer:
(a) Facts of Case: There was a partition of property between a Hindu father and his five sons. The deed provided that if any one of his sons wanted to sell his share, he shall sell it to one of his brothers only and not to any stranger. The consideration for that share shall be ₹ 1,000 only

(b) Provision: As per Section 10 of the Transfer of Property Act, 1882, where the property is transferred subject to a condition absolutely restraining the transferee from parting with or disposing of the property, the transfer is valid but the condition is void.

Thus, one may give property to another subject to a condition, but the condition should not be one that absolutely prevents the transferee from alienating the property.

(c) Conclusion/Decision: In the given case the deed provided that if any one of the sons wanted to sell his share, he shall sell it to one of his brothers only and not to any stranger. The consideration for that share shall be ₹ 1,000 only. This condition is invalid and the transferee can ignore such condition. The transfer takes effect and is valid, and the condition not to alienate the property is void.

Question 17.
Exceptions to the rule that absolute restraint on the transfer of property is void. Comment. [Dec 2012 (4 Marks)]
Answer:
Condition restraining alienation [Section 10]: Where property is transferred subject to a condition absolutely restraining the transferee from parting with or disposing of the property, the transfer is valid but the condition is void.

Thus, one may give property to another subject to a condition, but the condition should not be one that absolutely prevents the transferee from alienating the property.

The exception to the rule that absolute restraint on the transfer of property Is void:
1. In the case of a lease, the lessor can impose a condition that the lessee shall not sublet the property or sell his leasehold interest. Such conditions are valid. The reason why such an exception is made in the case of a lease is that the lessor may have confidence in the lessee but may not have the same confidence in some other person. So, if the lessor puts a condition restraining the lessee from transferring the property to someone, the condition is valid.

2. The second exception is made in respect of a woman who is not a Hindu, Buddhist, or Muslim. In such a case, a condition to the effect that she shall not have power during her marriage to transfer the property is valid.

Question 18.
Raman makes the transfer of his house in favor of Sohan with the condition that Sohan will get the house only if he marries Shyama with the permission of her three brothers. Before the marriage is solemnized, one of the brothers dies. Sohan marriages Shyama with the permission of the remaining two brothers. Can he claim the house? [Dec 2000 (5 Marks)]
Answer:
(a) Facts of Case: Raman makes the transfer of his house in favor of Sohan with the condition that Sohan will get the house only if he marries Shyama with the permission of her three brothers. Before the marriage is solemnized, one of the brothers dies. Sohan marriages Shyama with the permission of the remaining two brothers

(b) Provision: As per Section 26 of the Transfer of Property Act, 1882, a condition precedent shall be deemed to have been fulfilled if it has been substantially complied with.

A transfer ₹ 5,000 to B on condition that he shall marry with the consent of C, D, and E. E dies. B marries with the consent of C and D. B is deemed to have fulfilled the condition

(c) Decision/Conclusion: In the given case, Sohan marries Shyama with the consent of two brothers ie. the condition precedent is substantially fulfilled, more particularly when one brother has already died before the marriage is solemnized. Thus, Sohan will get the house.

Question 19.
Anurag transfers ₹ 10,000 to his sister-in-law provided she deserts her husband. Is the transfer valid? [June 2003 (5 Marks)]
Answer:
(a) Facts of Case: Anurag transfer ₹ 10,000 to his sister in law provided she deserts her husband

(b) Provision:

1. As per Section 25 of the Transfer of Property Act, 1882, the condition should not be such as to cause injury to the person or property of another or should not be immoral or opposed to public policy,
2. If is it causing injury to a person or property or is immoral or opposed to the public policy then the transfer is invalid
   E.g.: A lets a farm to B on condition that he shall walk a hundred miles in an hour. The lease is void

(c) Conclusion: By referring to the above facts and provision Anurag has done a conditional transfer to his sister in law which is invalid and hence there is no valid transfer.

Question 20.
What is the ‘doctrine of election’ as enunciated under the Transfer of Property Act, 1882? [June 2015 (3 Marks)]
Answer:
(a) Election when necessary [Section 35]: Where a person

1. Professes to transfer property which he has no right to transfer, and
2. As part of the same transaction, confers any benefit on the owner of the property, such owner must elect either to confirm the transferor to dissent horn it.

(b) Dissent: If he dissents from it
(a) He must relinquish the benefit so conferred and
(b) The benefit so relinquished reverts to the transferor or his representative as if it had not been disposed of.
(c) Meaning of Election: Election may be defined as “the choice between two rights where there is a clear intention that both were not intended to be enjoyed”.
(d) Principle: The foundation of the doctrine of election is that a person taking the benefit of an instrument must also bear the burden
(e) Example: Let us suppose that one farm of Sultanpur is the property of C of ₹ 80,000. A professes to transfer that farm of Sultanpur to B and by the same instrument, ₹ 1,00,000 to C. C, the owner of the farm of Sultanpur, is to elect either to confirm the transferor to dissent from it. If C elects to transfer his Farm of Sultanpur of ₹ 80,000 to B then only he can receive ₹ 1,00,000 from A.

However, if C elects to retain the farm then he will not receive the gift of ₹ 1,00,000.

In the same case, if A dies before the election is made by C. The representatives of A must, out of the ₹ 1,00,000 pay ₹ 80,000 to B to make good to the disappointed transferee the amount or value of the property attempted to be transferred.

The exception to the doctrine of election: Where a particular benefit is expressed to be conferred on the owner of the property which the transferor professes to transfer, and such benefit is expressed to be in lieu of that property, if such owner claims the property, he must relinquish the particular benefit, but he is not bound to relinquish any other benefit conferred upon him by the same transaction.

Example: Let us suppose that X transfers to Y the property P1, in lieu of Y’s property P2 which is given to Z. X also gives to Y the property P3. If Y elects j to retain his own property he must relinquish the claim over P1 but not P3.

Question 21.
An illegitimate son of a deceased owner of a property gets possession j of the property to which he is not legally entitled but his name is entered in the papers as owner. He mortgages the property. On the date of the mortgage, the rightful owner’s suit against him for recovery and possession was j pending and it was decreed subsequently. When the rightful owner sought to avoid the mortgage, the mortgagee resisted the claim by pleading that mortgagor was the ostensible owner of the property when he mortgaged it. Decide. [Dec 2003 (6 Marks)]
Answer:
(a) Facts of Case: An illegitimate son of a deceased owner of a property gets possession of the property to which he is not legally entitled but his name is entered in the papers as owner. He mortgages the property. On the date of the mortgage, the rightful owner’s suit against him for recovery and possession was pending and it was decreed subsequently. When the rightful owner sought to avoid the mortgage, the mortgagee resisted the claim by pleading that mortgagor was the ostensible owner of the property when he mortgaged it.

(b) Provision: General rule regarding the transfer of property is that no one can transfer a better title than what he himself possesses. However, Section 41 of the Transfer of Property Act, 1882 makes an exception to this rule. Thus, a transfer made by the ostensible owner of the property is valid subject to the condition specified in Section 41.

(c) Conclusion/Decision: As per facts mentioned in the case, the illegitimate son of a deceased owner of a property is not the ostensible owner of the property and hence he cannot transfer or mortgage the property to another. Hence, the rightful owner of the property will succeed in avoiding the mortgage.

Question 22.
Sachin made an unconditional gift of property to Amit but continued in possession of the gifted property. Sachin revoked the gift deed transferred it to Naresh. Amit wants to recover possession from Naresh. Discuss it in the light of provisions of Transfer of Property Act, 1882, whether Naresh can withhold the gifted property? [June 2019 (4 Marks)]
Answer:
(a) Facts of Case: Sachin made an unconditional gift of property to Amit but continued in possession of the gifted property. Sachin revoked the gift deed transferred it to Naresh. Amit wants to recover possession from Naresh

(b) Provision:

1. As per Section 41 of the Transfer of Property Act, 1882, where, with the consent, express or implied, of the persons interested in immovable property, a person is the ostensible owner of such property and transfers the same for consideration, the transfer shall not be voidable on the ground that the transferor was not authorized to make it, provided that the transferee, after taking reasonable care to ascertain that the transferor had the power to make the transfer, has acted in good faith.
2. In simple words, if the sale is made by the ostensible owner for consideration, then such sale is valid if the transferee has taken reasonable care to see that transferor has the power to make such a sale.
3. Unconditional gifts cannot be revoked.
4. Sachin is not an “ostensible owner” as he does not hold the property with the consent of the real owner (Amit). After acceptance of the unconditional gift by Amit from Sachin, Amit is the real owner.

(c) Conclusion: Thus, Naresh cannot seek the protection of Section 41 of the Transfer of Property Act, 1882 and cannot withhold the property gifted to Amit by Sachin.

Question 23.
Arun, a Hindu, who was separated from his father Bharat, sells to Chandan three fields X, Y & Z representing that Arun is authorized to transfer the same. Of these fields, Field-Z does not belong to Arun, as it was retained by Bharat at the time of partition, but after Bharat’s death, Arun being the heir obtained Field-Z. What are the rights of Chandan now? [Dec. 2011 (5 Marks)]
Answer:
(a) Facts of Case: Arun, a Hindu, who was separated from his father Bharat, sells to Chandan three fields X, Y & Z representing that Arun is authorized to transfer the same. Of these fields, Field-Z does not belong to Arun, a§ it was retained by Bharat at the time of partition, but after Bharat’s death, Arun being the heir obtained Field-Z.

(b) Provision:
1. According to Section 43 of the Transfer of Property Act, 1882, if a transfer or transfer the property of others to which he is not entitled, then subsequently when he acquires the property, he will have to transfer the property to the transferee.

2. It is also known as “Doctrine of Feeding the Grant by Estoppel”.

3. Essentials of “Doctrine of Feeding the Grant by Estoppel”.

• There was a fraudulent or erroneous presentation of ownership by the transferor.
• The transferee must have acted on the fraudulent or erroneous representation of the transferor.
• The transferor should not have the transferable title on the property
  transferred.
• The transfer should be for consideration.
• The transferor must subsequently acquire title upon the property transferred on the basis of fraudulent or erroneous representation of ownership.
• The transferee has not canceled the contract.
• The transferee acted in good faith for consideration and without notice of the rights under the prior transfer

(c) Decision/Conclusion: As per the facts given in the case, Arun has no authority to sell Field-Z, and Chandan has yet not rescinded the contract, I hence by applying provisions of Section 43 Chandan can require Ajay to deliver Field-Z acquired by him on the death of his father.

Question 24.
“Every transfer of immovable property made with intent to defeat or delay the creditors of the transferor shall be voidable at the option of any creditor so defeated or delayed, for which he may move to the court.” Comment. [June 2016 (5 Marks)]
Answer:
Fraudulent Transfer [Section 53]: Every transfer of immovable property made with intent to defeat or delay the creditors of the transferor shall be voidable at the option of any creditor so defeated or delayed.

Thus, where an owner of the property contracts a debt and then transfers his property to someone so that the creditor cannot proceed against the property to realize his debt, such a transfer is voidable at the option of the j creditor. The transfer is valid so long as the creditor does not challenge it in a Court of law and gets a declaration that the transfer is invalid.

Suit by Creditor: A suit instituted by a creditor to avoid a transfer on the ground that it has been made with intent to defeat or delay the creditors of the transferor shall be instituted on behalf of, or for the benefit of all the creditors.

Transfer Invalid: Once the creditor sues the debtor and says that the debtor has the intention to deceive him, the transfer can be declared invalid by the Court.

The burden of Proof: The creditor has to satisfy the Court that there was an intention on the part of the debtor to defeat his rights.

Example: Suppose a man takes a loan from the creditor. He does not pay the loan. The creditor sues him in court to get back his debt. On seeing this, the debtor transfers his property to his friend or some other person who simply holds the property on behalf of the transferor. Again, the debtor may make a gift of his property to his wife or sell it to a friend who will afterward retransfer the same to the transferor. Under these circumstances, we can easily say that the debtor’s intention was to prevent creditor I from taking the property by a suit in the Court and to realize his debt.

Exception: But suppose the debtor has several creditors and he transfers his property to one of his creditors in satisfaction of his whole debt to him. This is not a fraudulent transfer. A mere preference of one creditor over the others is not fraudulent, even if the whole property is so transferred and nothing is left for the other creditors.

Remedy to other Creditors: But the other creditors may file a petition in the Court within three months of the transfer praying that the debtor is declared insolvent. If the debtor is adjudicated insolvent, their interest will be protected and the transfer will be declared as fraudulent preference. The transfer will be set aside and the property will be distributed among all the creditors.

However, the rights of a transferee in good faith and for consideration are protected. It says nothing shall affect or impair the rights of a transferee in good faith and for consideration.

Question 25.
Discuss briefly the doctrine of part performance embodied in section 53A of the Transfer of Property Act, 1882. [Dec. 2009 (4 Marks)]
Answer:
The doctrine of part-performance is embodied in Section 53A of the Transfer of Property Act.

A Contract for the sale of land has been entered into between A and B. The transferee has paid the price entering into possession and is willing to carry out his contractual obligation. As registration has not been effected A, the transferor, seeks to evict B from the land. Can he do so?

No, B will not be allowed to suffer simply because the formality of registration has not been through. The legislature grants some relief to such a transferee under Section 53A, which embodies the doctrine of part-performance.

Essential Conditions:

• There must be a contract to transfer immovable property.
• It must be for consideration.
• The contract should be in writing and signed by the transferor.
• The terms must be ascertainable with reasonable certainty.
• The transferee should have taken possession of the property. In case he is already in possession, he must have continued in possession.
• The transferee must have fulfilled or ready to fulfill his part of the obligation.

If all the abovementioned conditions are satisfied, then, the transferor and the persons claiming under him are debarred from exercising any right in relation to the property other than the right expressly provided by the terms of the contract notwithstanding the fact that the instrument of transfer has not been registered or complete in the manner prescribed therefore by the law for time being in force.

Question 26.
Discuss briefly the ‘doctrine of part performance, which is embodied in section 53A of the Transfer of Property Act, 1882. [June 2018 (5 Marks)]
Answer:
The doctrine of part-performance is embodied in Section 53A of the Transfer of Property Act.

A Contract for the sale of land has been entered into between A and B. The transferee has paid the price entering into possession and is willing to carry out his contractual obligation. As registration has not been effected A, the transferor, seeks to evict B from the land. Can he do so?

No, B will not be allowed to suffer simply because the formality of registration has not been through. The legislature grants some relief to such a transferee under Section 53A, which embodies the doctrine of part-performance.

Essential Conditions:

• There must be a contract to transfer immovable property.
• It must be for consideration.
• The contract should be in writing and signed by the transferor.
• The terms must be ascertainable with reasonable certainty.
• The transferee should have taken possession of the property. In case he is already in possession, he must have continued in possession.
• The transferee must have fulfilled or ready to fulfill his part of the obligation.

If all the abovementioned conditions are satisfied, then, the transferor and the persons claiming under him are debarred from exercising any right in relation to the property other than the right expressly provided by the terms of the contract notwithstanding the fact that the instrument of transfer has not been registered or complete in the manner prescribed therefore by the law for time being in force.

Question 27.
A contract for the sale of land has been entered into between A and B. The transferee has paid the price entering into possession and is willing to carry out his contractual obligations. As registration has not been effected, A the transferor seeks to evict B from the land. Can he do so? Explain. [Dec 2018 (4 Marks)]
Answer:
The doctrine of part-performance is embodied in Section 53A of the Transfer of Property Act.

A Contract for the sale of land has been entered into between A and B. The transferee has paid the price entering into possession and is willing to carry out his contractual obligation. As registration has not been effected A, the transferor, seeks to evict B from the land. Can he do so?

No, B will not be allowed to suffer simply because the formality of registration has not been through. The legislature grants some relief to such a transferee under Section 53A, which embodies the doctrine of part-performance.

Essential Conditions:

• There must be a contract to transfer immovable property.
• It must be for consideration.
• The contract should be in writing and signed by the transferor.
• The terms must be ascertainable with reasonable certainty.
• The transferee should have taken possession of the property. In case he is already in possession, he must have continued in possession.
• The transferee must have fulfilled or ready to fulfill his part of the obligation.

If all the abovementioned conditions are satisfied, then, the transferor and the persons claiming under him are debarred from exercising any right in relation to the property other than the right expressly provided by the terms of the contract notwithstanding the fact that the instrument of transfer has not been registered or complete in the manner prescribed therefore by the law for time being in force.

Question 28.
Write a short note on the Accumulation of income
Answer:
Direction for accumulation [Section 17]: Accumulation of income from the land for an unlimited period without the income being enjoyed by the owner of the property is not allowed. The law allows the accumulation of income for a certain period only. The period for which such accumulation is valid is:

• Life of the transferor, or
• 18 years from the date of transfer.

Any direction to accumulate the income beyond the period mentioned above is void.

Exceptions: In the following cases, any direction for accumulation of income beyond the period prescribed above is allowed:

• For the payment of the debts of the transferor or any other person. taking any interest under the transferor.
• For the provision of portions for children or any other person taking any interest in the property under the transfer, and
• For the preservation and maintenance of the property transferred. The doctrine of lis pendens

Question 29.
Explain the rule of lis pendens as provided in the Transfer of Property Act, 1882. [June 2010 (4 Marks}]
Answer:
(a) Meaning: Lis means depot, upends means pending, Lis pendens means a pending suit, action, petition, or the like.

(b) Provision: Transfer of property pending suit relating thereto [Section 52]: During the pendency of a suit in a court of law, property that is subject to litigation cannot be transferred i.e. property may be transferred but this transfer is subject to the rights that are created by a court’s decree.

(c) Maxim: The provision is based on maxim- 4l us lite pendant nihil innovator”- During litigation, nothing new should be introduced

(d) Essential of Rule of Lis Pendens:

1. The suit is filed in the Indian Court
2. The suit is not filed in a foreign court
3. The suit is in relation to immovable property in question
4. It should not be vexatious suit

(e) Movable Property: The doctrine of lis pendens does not apply to Moyabies.

(h) The doctrine is not applicable in favor of a third party.

Example: Specific office building is under litigation. Balwant and Chetan are parties to the litigation. Balwant during the pendency of suit transfer property to Aman. The suit ended in favor of Chetan. Aman is bound by order of court and Chetan can recover property from Aman

Question 30.
What do you mean by the rule of lis pendens? Write down the essentials of the rule of lis pendens as provided in the Transfer of Property Act, 1882. [June 2013 (4 Marks)]
Answer:
(a) Meaning: Lis means d&pzte, upends means pending, Lis pendens means a pending suit, action, petition, or the like.

(b) Provision: Transfer of property pending suit relating thereto [Section 52]: During the pendency of a suit in a court of law, property that is subject to litigation cannot be transferred i.e. property may be transferred but this transfer is subject to the rights that are created by a court’s decree.

(c) Maxim: The provision is based on maxim- 4l us lite pendant nihil innovator”- During litigation, nothing new should be introduced

(d) Essential of Rule of Lis Pendens:

1. The suit is filed in the Indian Court
2. The suit is not filed in a foreign court
3. The suit is in relation to the immovable property in question
4. It should not be vexatious suit

(e) Movable Property: The doctrine of lis pendens does not apply to Moyabies.

(h) The doctrine is not applicable in favor of a third party.

Example: Specific office building is under litigation. Balwant and Chetan are parties to the litigation. Balwant during the pendency of suit transfer property to Aman. The suit ended in favor of Chetan. Aman is bound by order of court and Chetan can recover property from Aman

Question 31.
What is meant by the doctrine of “Lis-Pendens “under the Transfer of Property Act, 1882? Discuss its essential elements. [Dec. 2017 (7 Marks)]
Answer:
(a) Meaning: Lis means d&pzte, upends means pending, Lis pendens means a pending suit, action, petition, or the like.

(b) Provision: Transfer of property pending suit relating thereto [Section 52]: During the pendency of a suit in a court of law, property that is subject to litigation cannot be transferred i.e. property may be transferred but this transfer is subject to the rights that are created by a court’s decree.

(c) Maxim: The provision is based on maxim- 4l us lite pendant nihil innovator”- During litigation, nothing new should be introduced

(d) Essential of Rule of Lis Pendens:

1. The suit is filed in the Indian Court
2. The suit is not filed in a foreign court
3. The suit is in relation to the immovable property in question
4. It should not be vexatious suit

(e) Movable Property: The doctrine of lis pendens does not apply to Moyabies.

(h) The doctrine is not applicable in favor of a third party.

Example: Specific office building is under litigation. Balwant and Chetan are parties to the litigation. Balwant during the pendency of suit transfer property to Aman. The suit ended in favor of Chetan. Aman is bound by order of court and Chetan can recover property from Aman

Question 32.
“Nothing new should be introduced in a pending litigation”, is a well-known concept of property law. Critically evaluate this concept. [June 2018 (3 Marks)]
Answer:
(a) Meaning: Lis means d&pzte, upends means pending, Lis pendens means a pending suit, action, petition, or the like.

(b) Provision: Transfer of property pending suit relating thereto [Section 52]: During the pendency of a suit in a court of law, property that is subject to litigation cannot be transferred i.e. property may be transferred but this transfer is subject to the rights that are created by a court’s decree.

(c) Maxim: The provision is based on maxim- 4l us lite pendant nihil innovator”- During litigation, nothing new should be introduced

(d) Essential of Rule of Lis Pendens:

1. The suit is filed in the Indian Court
2. The suit is not filed in a foreign court
3. The suit is in relation to the immovable property in question
4. It should not be vexatious suit

(e) Movable Property: The doctrine of lis pendens does not apply to Moyabies.

(h) The doctrine is not applicable in favor of a third party.

Example: Specific office building is under litigation. Balwant and Chetan are parties to the litigation. Balwant during the pendency of suit transfer property to Aman. The suit ended in favor of Chetan. Aman is bound by order of court and Chetan can recover property from Aman

Question 33.
A and B are litigating in a court of law over property X and during the pendency of the suit, A transfers property X to C. The suit ends in B’s favor. Decide, who shall be entitled to property X under the provisions of the Transfer of Property Act, 1882? [Dec. 2019 (4 Marks)] P
Answer:
(a) Facts of Case: A and B are litigating in a court of law over property X and during the pendency of the suit, A transfers property X to C. The suit ends in B’s favor.

(b) Provision: As per Section 52 Transfer of Property Act, 1882, during the pendency of a suit in a court of law, property which is subject to litigation cannot be transferred, Le. property may be transferred but this transfer is subject to the rights that are created by a court’s decree.

The provision is based on the maxim “ us lite Pendente nihil innovator”- During litigation, nothing new should be introduced.

When we say that property cannot be transferred what we mean in this context is that property may be transferred but this transfer is subject to the rights that are created by a Court’s decree. For example, A and B are litigating in a Court of law over property X, and during the pendency of the suit, A transfers property X to C. The suit ends in B’s favor

(c) Conclusion: Here C who obtained the property during the time of litigation cannot claim the property. He is bound by the decree of the Court wherein B has been given the property

Question 33.
Distinguish between: Lease & License [Dec. 2009 (4 Marks)]
Answer:
Following are the main points of difference between lease and license:

Question 34.
Distinguish between: Sale and Contract for sale. [Dec. 2010 (4 Marks)]
Answer:
(a) Sale:
1. “Sa1e has been defined as a transfer of ownership in exchange for a price paid or promised or part paid and part-promised.

2. Essential of Valid sale:

• The owner must be competent to contract
• Subject matter must be immovable property
• There is the transfer of ownership
• It is for consideration which is in price
• It is between two or more persons

(b) Contract of Sale

1. “Contract for sale” includes both a present sale and a contract to sell at a future time.
2. A contract for the sale of immovable property is a contract that a sale of such property shall take place on terms settled between the j parties.
3. A contract for the sale of immovable property differs from a contract for the sale of goods in that the Court will grant specific performance of it unless special reasons to the contrary are shown.

Question 35.
Enjoy voluntarily makes a gift of his immovable property to Bijoy. Bijoy accepts the gift. The possession of the property was given to Bijoy but the gift deed which required registration under section 123 of the Transfer of Property Act, 1882 was not registered. Whether Ajoy, the donor can revoke the gift? Decide. [Dec. 2010 (6 Marks)]
Answer:
(a) Facts of the case: Ajoy voluntarily makes a gift of his immovable property to Bijoy. Bijoy accepts the gift. The possession of the property was ‘ given to Bijoy but the gift deed which required registration under section 123 of the Transfer of Property Act, 1882 was not registered

(b) Provision: It was held by the privy council in Kalyan Sundaram Pillai v. Karuppa Mopanar when the instrument of gift has been handed over by the donor to the donee and accepted by him, the former has done everything in his power to complete the donation and to make it effective and if it is presented by a person having a necessary interest within the prescribed period the Registrar must register it.

Neither death nor the express revocation by the donor is a ground for refusing registration, provided other conditions are complied with. It should be presented within a reasonable time, it can be duly registered

(c) Conclusion/Decision: Thus, as per the facts given, the gift is complete as it was accepted by the donee and once the gift is complete donor cannot revoke it. Thus, Ajoy, the donor cannot revoke the gift.

Question 36.
Distinguish between: Sale and Exchange [Dec. 2011 (4 Marks)]
Answer:
Following are the main points of difference between sale and exchange:

Question 37.
Amrit (lessor) grants his immovable property (premises) on lease for 4 years to Sukant (lessee) commencing from 1st June 2001. The lessor gives notice to the lessee on 1st February 2008 for vacating the premises on 1st March 2008:
(i) Is this notice a valid notice?
(ii) If the lease is continued after 4 years, will the tenancy be on a monthly basis or yearly basis? Decide. [Dec. 2012 (6 Marks)]
Answer:
(a) Facts of Case: Amrit (lessor) grants his immovable property (premises) on lease for 4 years to Sukant (lessee) commencing from 1st June 2001. The lessor gives notice to the lessee on 1st February 2008 for vacating the premises on 1st March 2008:

(b) Provision:
1. Section 106 of the Transfer of Property Act, 1882 In the absence of a contract or local law or usage to the contrary

2. Lease for Agricultural or manufacturing Purpose a lease of immovable property for agricultural or manufacturing purposes shall be deemed to be a lease from year to year.

3. Lease other than agricultural or manufacturing purpose: Lease of immovable property for any purpose other than agricultural or manufacturing purposes shall be deemed to be a lease from month to month.

4. Mutual Consent: However, landlord and tenant can mutually agree and make the lease of immovable property for agricultural or manufacturing purposes on a month-to-month basis.

5. Notice:

1. In case of a tenancy for a period of more than a year the landlord wants to terminate or end the lease, he has to give 6 months notice to the lessee to quit,
2. In case of a tenancy from month to month, 15 days’ notice to quit is necessary.

6. The monthly tenancy may be created either by contract or may be presumed from the nature of the tenancy to be one, from month to month.

7. Effect of holding over [Section 116]: If a lessee of the property remains in possession after the determination of the lease granted to the lessee, and the lessor or his legal representative accepts rent from the lessee or otherwise assents to his continuing in possession, the lease is, in the absence of an agreement to the contrary, renewed from year to year, or from month to month, according to the purpose for which the property is leased, as specified in Section 106.

8. Conclusion: As per facts given in the case, Amrit has granted his immovable property on lease for 4 years to Sukant. The problem does not specifically specify that the lease of immovable property is for agricultural or manufacturing purposes; hence it is deemed to be a lease for a month-to-month basis. The lease is granted for 4 years on 1st June 2001 which ends on 31st May 2005. Sukant remains in possession after the determination of the lease; hence applying the effect of holding out it will be a lease of the month to month after 31st May 2005.

Since it is a lease of the month to month notice of 15 days will be necessary. Amrit has given notice to Sukant on 1st February 2008 for vacating the premises on 1st March 2008. The notice period is of 1 month which is more than the statutory period of 15 days. Thus, the notice given by Amrit is valid.

Question 38.
How is ‘lease’ different from ‘license’? [Dec. 2014 (5 Marks)]
Answer:
Following are the main points of difference between lease and license:

Question 39.
What is meant by ‘onerous gift’? [June 2016 (4 Marks)]
Answer:
Onerous gifts [Section 127]: Sometimes several things are transferred as a gift by a single transaction. In such cases, some of them are really beneficial while the other conveys burdensome obligations. Such gift is known as an onerous gift and the donee takes nothing by the gift unless he accepts it fully.

Where the gift is in the form of two or more independent transfers to the same person of several things, the donee is at liberty to accept one of them and refuse the other.

Examples:
(a) A-shares in X, a prosperous joint-stock company, and also shares in Y, a joint-stock company in difficulties. Heavy calls are expected in respect of the shares in Y. A gives B all his shares in joint-stock companies. B refuses to accept the shares in Y. He cannot take the shares in X.

(b) A, having a lease for a term of years of a house at a rent which he and his representatives are bound to pay during the term, and which is more than the house can be let for, gives to B the lease, and also, as a separate and independent transaction, a sum of money. B refuses to accept the lease. He does not by this refusal forfeit the money.

Question 40.
If the gift of immovable property is accepted but not registered, does it amount to a valid gift? Give reasons. [June 2016 (3 Marks)]
Answer:
According to Section 123, a gift of immovable property must be made by a registered instrument signed by or on behalf of the donor and attested by at least two witnesses. A gift of movable property may be made by a registered instrument or by delivery of property.

Revocation of gift: A revocable gift is one that may be revoked by the donor at any time. It is to be noted that, a gift cannot be revoked at the will and pleasure of the grantor. If the revocation of the gift depends upon the mere will or pleasure of the donor, then such a gift is void. But on the other hand, if the condition is one that does not depend on the will or pleasure of the donor, the gift can be revoked on the happening of such condition.

Illustrations:
(a) A gives a field to B, reserving to himself, with B’s assent, the rights to take back the field in case B and his descendants die before A, B dies I without Descendents during A’s lifetime. A may take back the field.

(b) A gives ₹ 1,00,000 to B, reserving to himself with B’s assent the right to take back at leisure ₹ 10,000 out of ₹ 1,00,000. The gift holds goods as to ₹ 90,000 but is void as to ₹ 10,000 which continue to belong to A.

It was held by the Privy Council, that while registration is a necessary soil solemnity for the enforcement of a gift of immovable property, it does not suspend the gift until registration actually takes place when the instrument y of gift has been handed over by the donor to the donee and accepted by him, the former has done everything in his power to complete the donation and to make it effective and if it is presented by a person having a necessary interest within the prescribed period the Registrar must register it. Neither death nor the express revocation by the donor is a ground for refusing registration, provided other conditions are complied with. [Kalyan Sund- aram Pillai v. Karuppa Mopanar]

Question 41.
Distinguish between: Actionable Claim and mere right to sue [June 2012 (4 Marks)]
Answer:
Following are the main points of difference between an actionable claim and the mere right to sue:

Question 42.
Distinguish between: Mortgage & Charge [Dec. 2009 (4 Marks)]
Answer:
Following arc main points of distinction between Mortgage & Charge:

Question 43.
Explain the doctrine of marshaling [Dec. 2009 (4 Marks)]
Answer:
Marshalling [Section 81]: If the owner of two or more properties mortgages them to one person and then mortgages one or more of those 1 properties to another person, the subsequent mortgagee is, in the absence of 1 a contract to the contrary – entitled to have the prior mortgage debt satisfied out of the properties not mortgaged to him, so far as the same will extend, but not so as to prejudice the rights of the prior mortgagee or any person who has for considering action acquired an interest in any of the properties, Example: Ram has three properties P1 P2 & P3. He mortgages all three properties to Shyam. He again mortgages property P1 & P2 to Mohan. Since properties P; & P2 are common to both Shyam and Mohan, Mohan can invoke the doctrine of marshaling can compel Shyam to have the prior mortgage debt satisfied out of the property P3 which was not mortgaged to Mohan.

Question 44.
Distinguish between: Mortgage & Charge [Dec. 2010 (4 Marks)]
Answer:
Following arc main points of distinction between Mortgage & Charge:

Question 45.
Discuss briefly the right of redemption. [Dec. 2011 (4 Marks)]
Answer:
A mortgager has a right of redemption. Any clause or provision inserted in the mortgage deed to prevent, evade, or hamper redemption is void. “Once a mortgage always a mortgage” rule is based on the principle of equity. The court will not allow or permit any condition which will impede the redemption of the mortgage or the repayment of the loan for v/hich the security of property was given.

A mortgage deed, providing that if the amount is not paid within a stipulated time, the mortgages would become the absolute owner of the property, was held to be a clog on the equity of redemption. [Murari Lai v. Dev Karani]
However, when conditions are reasonable and do not prevent the mortgagor to redeem the property, they will be recognized as valid and binding. Conditions like “no redemption during the cultivating season of a land, for a certain period”, were held valid and enforceable. But where “no redemption on a particular day”, barred the mortgagor from redeeming for a further long period, it was held to be a clog on redemption, hence not valid.

Question 46.
Distinguish between: English mortgage and mortgage by conditional sale [June 2012 (4 Marks)]
Answer:
Following are the main points of difference between English mortgage and mortgage by conditional sale:

Question 47.
Distinguish between: Mortgage & Charge [Dec. 2012 (4 Marks)]
Answer:
Following arc main points of distinction between Mortgage & Charge:

Question 48.
Write a short note on Usufructuary Mortgage [Dec. 2013 (5 Marks)]
Answer:
(a) Possession of Property: In this type of mortgage, the mortgagor has to deliver possession of the property to the mortgagee.

(b) Receive rent and profits: The mortgagor expressly, or by implication binds himself to deliver possession of the mortgaged property to the mortgagee: and authorizes him to retain such position until payment of the mortgage money, and to receive the rents and profits accruing from the property or any part of those and to appropriate the same in lieu of interest or partly in payment of mortgage money. This is also known as a mortgage with possession.

(c) Example: Mr. A has mortgaged his building to Mr. B and allowed Mr. B to collect rent and adjust against the outstanding loan and interest.

Question 49.
Distinguish between: Mortgage & Charge [Dec. 2013 (5 Marks)]
Answer:
Following arc main points of distinction between Mortgage & Charge:

Question 50.
Explain the doctrine of ‘clog on the equity of redemption under the Transfer of Property Act, 1882. [Dec. 2014 (5 Marks)]
Answer:
A mortgager has a right of redemption. Any clause or provision inserted in the mortgage deed to prevent, evade, or hamper redemption is void. “Once a mortgage always a mortgage” rule is based on the principle of equity. The court will not allow or permit any condition which will impede the redemption of the mortgage or the repayment of the loan for v/hich the security of property was given.

A mortgage deed, providing that if the amount is not paid within a stipulated time, the mortgages would become the absolute owner of the property, was held to be a clog on the equity of redemption. [Murari Lai v. Dev Karani]
However, when conditions are reasonable and do not prevent the mortgagor to redeem the property, they will be recognized as valid and binding. Conditions like “no redemption during a cultivating season of a land, for a certain period”, were held valid and enforceable. But where “no redemption on a particular day”, barred the mortgagor from redeeming for a further long period, it was held to be a clog on redemption, hence not valid.

Question 51.
What do you understand by ‘crystallization of floating charge’ under the Transfer of Property Act, 1882? [June 2016 (5 Marks)]
Answer:
(a) Meaning of Floating Charge: A floating charge attaches to the company’s property generally and remains dormant till it crystallizes or becomes fixed. The company has a right to carry on its business with the help of assets having a floating charge till the happening of some event which determines this right.

(b) Example: RIL Ltd created a charge on raw material worth? 100 crore in favor of HDFC Bank

(c) Crystallization of Charge:

1. Crystallization is the process by which a floating charge becomes a fixed charge
2. In certain cases like default, liquidation, etc. the lender can take physical possession of the assets and realize his dues by selling the current assets, without the intervention of the Court. This is termed as ‘crystallization of charge’.

(d) Example: ABC Ltd created a floating charge of t 100 crore on finished goods kept in Delhi Godown in favor of Debenture holder. ABC Ltd is now in the process of liquidation. Then all the finished goods will not under the control and direction of the Debenture trustee (crystallization of charge)

(e) Situation when floating charge becomes fixed charge: A floating charge crystallizes and the security becomes fixed in the following cases:

• When the company goes into liquidation
• When the company ceases to carry on the business
• When the creditors or the debenture holders take steps to enforce their security e.g. by appointing a receiver to take possession of the property charged
• On the happening of the event specified in the deed.

(f) Effect of crystallization of a floating charge: On crystallization, the floating charge converts itself into a fixed charge on the property of the company. It has priority over any subsequent equitable charge and other unsecured creditors. But preferential creditors who have priority for payment over secured creditors in the winding-up get priority over the claims of the debenture holders having floating charge.

Question 52.
Distinguish between ‘English mortgage’ and ‘mortgage by conditional sale’. [Dec. 2016 (5 Marks)]
Answer:
Following are the main points of difference between English mortgage and mortgage by conditional sale:

Question 53.
Explain the meaning of ‘Usufructuary Mortgage’ as given under the Transfer of Property Act, 1882. [Dec. 2017 (3 Marks)]
Answer:
In Usufructuary Mortgage, the mortgagor has to deliver possession of the property to the mortgagee. The mortgagor expressly, or by implication binds himself to deliver possession of the mortgaged property to the mortgagee and authorizes him to retain such position until payment of the mortgage money, and to receive the rents and profits accruing from f the property or any part of those and to appropriate the same in lieu of interest or partly in payment of mortgage money. This is also known as a mortgage with possession.

Question 54.
Define the term ‘Puisne Mortgage’. [June 2018 (3 Marks)]
Answer:
Puisne Mortgage: Where the mortgagor, having mortgaged his property, mortgages it to another person to secure another loan, the second | mortgage is called a puisne mortgage.
Example: Where A mortgages his house worth ₹ 1,00,000 to B for ₹ 40,000 and mortgages the same house to C for a further sum of ₹ 30,000, the mortgage to B is first mortgage and that to C the second or puisne mortgage C is the puisne mortgagee and can recover the debt subject to the right of B, the first mortgagee, to recover his debt of ₹ 40,000 plus interest.

Question 55.
Distinguish between: Mortgage and Charge [Dec. 2018 (3 Marks)]
Answer:
Following arc main points of distinction between Mortgage & Charge:

Question 56.
Distinguish between: Mortgage and Charge [June 2019 (3 Marks)]
Answer:
Following arc main points of distinction between Mortgage & Charge:

Economic, Business and Commercial Laws Questions and Answers

Negotiable Instruments Act, 1881 – Economic, Business and Commercial Laws Important Questions

Question 1.
State the essential characteristics of the negotiable instruments.
Answer:
Negotiable instrument [Section 13]: A negotiable instrument means ) a promissory note, bill of exchange or cheque payable either to order or to bearer.

Important characteristics of negotiable instruments:

• The holder of the instrument is presumed to be the owner of the property contained in it.
• They are freely transferable.
• A holder in due course gets the instrument free from all defects of title of any previous holder.
• The holder in due course is entitled to sue on the instrument in his own name.
• The instrument is transferable till maturity and in the case of cheques till it becomes stale (on the expiry of 6 months from the date of issue).
• Certain equal presumptions are applicable to all negotiable instruments unless the contrary is proved.

Question 2.
Distinguish between: Bill of exchange & promissory note
Answer:
Following are the main points of distinction between bill of exchange | & promissory note:

Question 3.
Distinguish between: Electronic and Truncated Cheque
Answer:
Following are the main points of distinction between electronic and truncated cheque:

Question 4.
Explain the meaning of ‘holder’ & ‘holder in due course under the Negotiable Instruments Act, 1881.
Answer:
Holder [Section 8]: The holder of the negotiable instrument means any person:

• entitled in his own name to the possession thereof, and
• to receive or recover the amount due thereon from the parties thereto.

Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the time of such loss or destruction.

If a bill is lost or stolen, the thief or person who found the instrument is not the ‘holder’.

Holder in due course [Section 9]: Holder in due course means any person:

• who for consideration became the possessor of a negotiable instrument, before the amount mentioned in it became payable, and
• without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title, (ie. he obtains instrument in good faith)

Question 5.
Distinguish between: Holder & Holder in due course
Answer:
Following are the main points of distinction between ‘holder’ & ‘holder in due course:

Question 6.
State the privileges of a “holder in due course” under the Negotiable Instruments Act, 1881.
Answer:
A holder in due course has the following privileges:

1. A person who had signed an inchoate instrument is liable to the holder in due course for full value as long as stamp value is sufficient to cover the amount. [Section 20]
2. Every prior party to a negotiable instrument is liable thereon to a holder in due course until the instrument is duly satisfied. [Section 36]
3. If the payee or drawer of the instrument is fictitious, the acceptor is liable to the holder in due course, if the signature of the drawer and endorser is appearing on the instrument tallies. (the same person draw and then endorse the instrument) [Section 42]
4. Parties to the instrument are liable to the holder in due course even if it was an accommodation bill Le. raised without consideration. [Section 43]
5. If the bill was lost, the possessor is not entitled to get anything on Bill, but the holder in due course is still entitled to get the full amount of the Bill.
6. The holder in due course gets a better title even if there was a defect in the title of the transferor. The title of a holder in due course is not affected by any offence or fraud (but not forgery) by the previous party as long as he is not a party to offence/fraud. [Section 58]
7. In a suit by the holder in due course, the maker of the promissory note, drawer of a bill of exchange or cheque cannot deny the validity of the instrument as originally drawn. [Section 120]
8. In a suit by the holder in due course, the maker of the promissory note, drawer of a bill of exchange or cheque cannot deny the payee’s capacity to endorse the promissory note or Bill. [Section 121]

In brief, all defects in Bill or Promissory note are cleaned when it comes in 1 the hands of ‘holder in due course. He gets good a title even if transferor j or any earlier party had the defective title. He gets a good title even if there is fraud/offence (but not forgery).

Question 7.
Distinguish between: Inland bills & Foreign bills
Answer:
Following are the main points of distinction between bills & foreign bills:

Question 8.
What do you understand by the term ‘ambiguous instruments’?
Answer:
Ambiguous instruments [Section 17]: Where an instrument may be construed either as a promissory note or bill of exchange. This may happen if the wording of the instrument is not clear.

Example: Demand draft issued by one branch on another may either be treated as a promissory note or as Bill of Exchange.

Question 9.
Explain the provisions relating to ‘inchoate instrument’ under the Negotiable Instruments Act, 1881.
Answer:
Inchoate means insufficient or incomplete. If a person signs a blank or incomplete stamp paper and delivers it to another person, he thereby gives authority to the person to whom he delivers the instrument to fill in the blank. Such an instrument is known as an inchoate instrument.

Example: If stamp paper was sufficient to cover the amount of ₹ 10,000 and the amount was left blank while signing, the holder can fill the amount of ₹ 10,000. Such a holder (who filled in the blanks) cannot recover an amount more than what was intended to be paid to him. However, the holder in due course can recover the whole amount from any previous party, including the drawer. Note that the provision is valid only when the instrument is delivered to another person after signature. Thus, if a signed instrument is stolen, there is no ‘delivery’.

Inchoate stamped instruments [Section 20]: Where one person signs and delivers to another a paper stamped in blank or incomplete, he thereby prima facie authorize the holder to complete the negotiable instrument. If no amount is specified, he has the authority to fill an amount not exceeding the amount covered by the stamp. The person so signing shall be liable upon such instrument to any holder in due course for such amount.

However, he is liable to the holder (who is not a holder in due course) only for the amount actually payable to him. A holder who is not a holder in due course is not entitled to recover the full amount as shown in the Bill of Exchange.

Example: Mayank signs his name on a blank but stamped instrument and gives it to Pratik with the authority to fill up as a promissory note for ₹ 3,500. However, Pratik fills the amount as ₹ 15,000. The stamp is sufficient to cover ₹ 5,000. Pratik then hands it over to Sagar for ₹ 5,000 for value. Sagar has no knowledge of the fraud. In such a case, Mayank is liable to Sagar for ₹ 5,000 but to Pratik for ₹ 3,500. [Lloyds Bank v. Cooke]

Question 10.
Distinguish between: Bill of exchange & promissory note [Dec. 2018 (3 Marks)]
Answer:
Following are the main points of distinction between bill of exchange & promissory note:

Question 11.
Distinguish between: Cheque and Bill of Exchange [June 2019 (3 Marks)]
Answer:
Following are the main points of distinction between cheque & bill of exchange:

Question 12.
X a major, and M, a minor, executed a promissory note in favour of P. Examine with reference to the provisions of the Negotiable-Instruments Act, the validity of the promissory note and whether it is binding on X and M.
Answer:
As per Section 26 of the Negotiable Instruments Act, 1881, a minor may draw, indorse, deliver and negotiate any negotiable instrument so as ) to bind all parties except himself.

Hence, the instrument is valid. The instrument is binding on X but not on VI.

Question 13.
X draws a cheque in favour of Y, a minor, Y endorses the same in favour of Z. The cheque is dishonoured by the bank on grounds of inadequate funds. What legal remedy is available to Z under the provisions of the Negotiable Instruments Act, 1881 [Dec. 2019(4 marks)]
Answer:
Section 26 of the Negotiable Instruments Act, 1881- Every person capable of contracting according to law to which he is subject, may bind himself and be bound by making, drawing, acceptance, endorsement, delivery and negotiation of a promissory note, bill of exchange or cheque.

Minors, lunatics, idiots, drunken person and persons otherwise disqualified by their personal law, do not incur any liability as parties to negotiable instruments

Incapacity of one or more of the parties to a negotiable instrument in no 4 way, diminishes the liabilities of the competent parties to the said instrument. Therefore, where a minor is the endorser or payee of an instrument that has been endorsed all the parties excepting the minor are liable in the event of its dishonour

Conclusion: Thus, if the cheque is drawn by X in favour of Y, a minor, Y en-dorses it to Z and the cheque is dishonoured then X is liable to Z but not Y.

Question 14.
A draws and B accepts the bill payable to C or order, C endorses the bill to D and D to E, who is a holder-in-due course. From whom E can; recover the amount? Examining the right of E.
Answer:
As per Section 36 of the Negotiable Instruments Act, 1881, every prior party to a negotiable instrument is liable to a holder in due course until the | instrument is duly satisfied.

The holder in due course (E) can hold all the prior parties liable jointly and severally. Prior parties include the maker or drawer, the acceptor and endorsers. Accordingly in the given problem, E, a holder in due course can recover the amount from all the prior parties i.e. D & C (the endorsers), B (an acceptor) and A (the drawer).

Question 15.
‘X’ is the holder of a bill of exchange made payable to the order of ‘B’, which contains the following endorsements in blank
First endorsement, ‘B’
Second endorsement, ‘C’
Third endorsement, ‘D’
Fourth endorsement, ‘E’
‘X’ strikeout, ‘E’ consent, the endorsement by ‘C’ and ‘D’.
Decide with reason, whether ‘X’ is entitled to recover anything from ‘E’.
Answer:
Discharge of endorser’s liability [Section 40]: Every endorser is entitled to recover the amount of Bill from prior endorsers. Hence, if a holder of a negotiable instrument destroys or impairs the endorser’s remedy against a prior party (without consent of the endorser), the endorser is discharged from liability to the holder as if the instrument had been paid at maturity.

Example: X is the holder of a bill of exchange made payable to the order of B, which contains the following endorsements in the blank:
First endorsement, “B”.
Second endorsement, “C”.
Third endorsement, “D”
Fourth endorsement “E”.

This bill X puts in a suit against E and strikes out, without E’s consent, the endorsements by C and D, X is not entitled to recover anything from E.

Question 16.
P, the holder of the bill of exchange, transfers it to Q without consideration. 0 also transfers it to R without consideration. R transfers it to X for consideration. X transfers it to Y without consideration. State giving reason whether Y can recover the amount on such instrument from X or P.
Answer:
As per Section 43 of the Negotiable Instruments Act, 1881, a negotiable instrument made, drawn, accepted, endorsed or transferred without consideration, or where consideration fails, creates no obligation of payment between immediate the parties to the transaction.

However, a holder who has obtained the bill for consideration can recover the consideration paid by him. The section applies to immediate parties to the transaction and not other parties.

Thus, Y cannot recover the amount from X (which is the immediate party) but can recover from P, Q & R.

Question 17.
P draws a bill on 0 for ₹ 10,000. 0 accepts the bill. On maturity the bill was dishonoured by non-payment, P files a suit against Q for payment of ₹ 10,000. 0 proved that the bill was accepted for a value of ₹ 7,000 and I as an accommodation to the plaintiff for the balance amount i.e. ₹ 3,000. Referring to the provisions of the Negotiable Instruments Act, 1881 decide whether P would succeed in recovering the whole amount of the bill?
Answer:
As per Section 44 of the Negotiable Instruments Act, 1881, if a person has signed a promissory note, bill of exchange or cheque consisting of partly for consideration and partly for without consideration, then he is liable to the extent of consideration involved in such instrument to the immediate party. Thus, P would not succeed in recovering the whole amount of the bill. He will be able to recover only ₹ 7,000.

Question 18.
The distinction between: Accommodation Bill & Trade Bill
Answer:
Following are the main points of difference between accommodation bill & trade bill:

Question 19.
Difference between Order Instrument and bearer Instrument | [Dec. 2019(3 marks)]
Answer:
Bearer Instruments: A promissory note, bill of exchange or cheque is payable to bearer when:

• It is expressed to be so payable, or
• The only or last endorsement on the instrument is an endorsement in blank.

A person who is a holder of a bearer instrument can obtain the payment of the instrument.

Order Instruments: A promissory note, bill of exchange or cheque is payable to order:

• Which is expressed to be so payable, or
• Which is expressed to be payable to a particular person, and does not contain any words prohibiting transfer or indicating an intention that it shall not be transferable.

Question 20.
Draws and B accept the bill payable to C or order. C endorses the bill to D and D to E, who is ‘holder in due course. Decide from whom E can recover the amount under the Negotiable Instruments Act, 1881? [June 2019 (4 Marks)]
Answer:
As per Section 36 of the Negotiable Instruments Act, 1881, every prior party to a negotiable instrument is liable to a holder in due course until the j instrument is duly satisfied.

The holder in due course (E) can hold all the prior parties liable jointly and severally. Prior parties include the maker or drawer, the acceptor and j endorsers. Accordingly in the given problem, E, a holder in due course can recover the amount from all the prior parties Le. D & C (the endorsers), B 4 (an acceptor) and A (the drawer).

Question 21.
Distinguish between: Negotiation & Assignment
Answer:
Following are the main points of difference between negotiation & assignment:

Question 22.
Explain the various types of endorsement.
Answer:
Various types of endorsement are as follows:
(a) Blank or General Endorsement [Section 54]: An endorsement is to be blank or general where the endorser merely writes his signature on the back of the instrument, and the instrument so endorsed becomes payable to the bearer, even though originally it was payable to order. Thus, where the bill is payable to “Mohan or order”, and he writes on its back “Mohan”, it is an endorsement in blank by Mohan and the property in the bill can pass by mere delivery, as long as the endorsement continues to be a blank.

But Section 49 provides that a holder of an instrument endorsed in blank may convert the endorsement in blank into an endorsement in full, by writing above the endorser’s signature, a direction to pay the instrument to another person or his order. This is subject to the provision of the crossed cheque.

(b) Special or Full Endorsement [Section 55]: If the endorser signs his name and adds a direction to pay the amount mentioned in the instrument to, or to the order of a specified person, the endorsement is said to be special or in full. A bill made payable to Mohan or Mohan or order, and endorsed “pay to the order of Sohan” would be specially endorsed and Sohan endorses it further. A blank endorsement can be turned into a special one by the addition of an order making the bill payable to the transferee.

(c) Restrictive Endorsement [Section 50]: An endorsement is restrictive which prohibits or restricts the further negotiation of an instrument. Examples of restrictive endorsement: “Pay C only” or “Pay C for my use” or “Pay C on account of B” or “Pay C or order for collection”.

(d) Partial Endorsement [Section 56]: An endorsement partial is one that purports to transfer to the endorsee a part only of the amount payable on the instrument. A partial endorsement does not operate as negotiation of the instrument. A holds a bill for ₹ 1,000 and endorses it as “Pay B or order ₹ 500″. The endorsement is partial and invalid.

(e) Conditional or Qualified Endorsement [Section 52]: An endorsement is conditional or qualified which limits or negatives the liability of the endorser. An endorser may limit his liability in any of the following ways:
1. Sans recourse endorsement, Le. by making it clear that he does not incur the liability of an endorser to the endorsee or subsequent holders and they should not look to him in case of dishonour of instrument. The endorser excludes his liability by adding the words “sans recourse” or “without recourse”, e.g. “pay A or order sans recourse”.

2. By making his liability depending upon happening of a specified event which may never happen, e.g. the holder of a bill may en-dorse it thus: “Pay A or order on his marrying B”. In such a case, the endorser will not be liable until A marries B.

Question 23.
A bill of exchange is drawn payable to X or order. X endorses it to Y, Y to Z, Z to A, A to B and B to X. State with reasons whether X can recover the amount of the bill from Y, A and B if he has originally indorsed the bill to Y by adding the words ‘Sans Recourses’.
Answer:
The endorser of a negotiable instrument may, by express words in the endorsement, exclude his own liability thereon. If the endorser writes the words ‘sans recourse’ he excludes his liability on the instrument. Where an endorser so excludes his liability and afterwards becomes the holder of the instrument, all intermediate endorsers are liable to him. If the endorser excludes his liability, further negotiation is not prohibited. It only excludes the liability of the endorsee.

In the example given, normally, X cannot hold Y, Z, A and B, as if X holds them responsible, the responsibility will come back to him by the circuitry of action. However, in this case, X had endorsed ‘Sans Recourses’. Hence, Y, Z, A & B cannot hold X liable and hence circle does not get complete. On the other hand, X is holder after Y, Z, A and B and can hold them liable.

Question 24.
B obtains A’s acceptance to a bill of exchange by fraud. B endorses it to C who is a holder in due course. C endorses the bill to D who knows of the fraud. Referring to the provisions of the Negotiable Instruments Act, 1881, decide whether D can recover the money from A in the given case.
Answer:
As per Section 58 of the Negotiable Instruments Act, 1881, if an I instrument is obtained by offence, fraud or unlawful consideration, the possessor or endorsee is not entitled to get any amount thereon. However, if the instrument goes in the hands of ‘holder in due course’, subsequent ( possessor or endorsee is entitled to recover, as he derives title from the I ‘holder in due course. This is because section 53 provides that a holder of a negotiable instrument who derives title from a holder in due course has the rights thereon of that holder in due course.

Thus, D can recover the money from A.

Question 25.
On a bill of exchange for ₹ 10,000, Sumit’s acceptance of the bill is forged. Amit takes the bill from his customer in good faith and for consideration before the bill becomes payable. State with reasons whether Amit can receive the amount of the bill from Sumit.
Answer:
The Negotiable Instruments Act, 1881 makes no specific provision in respect of forgery. Hence, common law provisions apply. As per common law, a forgery is a nullity of law and it passes no title to the holder. It is not a mere defect in the title but a complete absence of a title, which cannot be cured.

Section 58 of the Act does not give protection against forgery, though it gives protection against offence or fraud. Hence, a person does not get a good title even if he obtains Bill bona fide and for value if the signature was forged. Hence, Amit is not a holder in due course, and cannot get the amount from Sumit.

Question 26.
Distinguish between: Negotiability and Assignability [Dec. 2018 (3 Marks)]
Answer:
Bearer Instruments: A promissory note, bill of exchange or cheque is payable to bearer when –

• It is expressed to be so payable, or
• The only or last endorsement on the instrument is an endorsement in blank.

A person who is a holder of a bearer instrument can obtain the payment I of the instrument.

Order Instruments: A promissory note, bill of exchange or cheque is payable to order:

• Which is expressed to be so payable, or
• Which is expressed to be payable to a particular person, and does not contain any words prohibiting transfer or indicating an intention that it shall not be transferable.

Question 27.
State the requirements of ‘presentment for acceptance’ of the bill of exchange and promissory note under the Negotiable Instruments Act, 1881.
Answer:
Presentment for acceptance [Section 61 ]: If no time or place is specified for presentment, a bill of exchange payable after sight must be presented to the drawee for acceptance.

The requirements are:

• Presentment should be made by the person entitled to demand acceptance.
• Presentment should be made within a reasonable time after it is drawn.
• Presentment should be during business hours on a business day ie. not a public holiday.

Presentment by post: Where authorized by agreement or usage, a presentment through the post office by means of a registered letter is sufficient.

Bill deemed to be dishonoured if drawee cannot be found: If no time or place is specified for presentment and drawee cannot be found after reasonable search, the bill is said to be dishonoured.

Presentment of promissory note for sight [Section 62]: A promissory note, payable at a certain period after sight, must be presented to the maker for sight (if he can after reasonable search be found).

The requirements are:

• Presentment should be made by the person entitled to demand payment.
• Presentment should be made within a reasonable time after a promissory note is made.
• Presentment should be during business hours on a business day ie. not a public holiday.

Drawees time for deliberation [Section 63]: Drawee can take time of 48 hours (exclusive of public holidays) to consider whether he will accept the bill of exchange.

Question 28.
Promissory note dated 1st February 2019 payable two months after the date was presented to the maker for payment 10 days after maturity. What is the date of maturity? Explain with reference to relevant provisions of the Negotiable Instruments Act, 1881 whether the endorser and the maker will be discharged by reason of such delay?
Answer:
When the period of the bill is stated in months, the calculation will be in months ignoring the days in months. Thus, if a promissory note made on 1 st February 2019 then its maturity date after adding 3 grace days will be 4th April 2019.

As per Section 64 of the Negotiable Instruments Act, 1881, if there is a default in the presentment of the instrument for payment, the other parties are not liable to the holder of the instrument. Hence, if the negotiable instrument is not presented for payment on the due date to the maker, acceptor and drawee then other parties get discharged. Thus, the maker, acceptor and drawee continue to be liable even if an instrument is not presented for payment on the due date.

Thus, in view of the above provisions, the endorser will get discharged but the maker of the promissory note being a primary party is still liable to the holder.

Question 29.
Examining the provisions of the Negotiable Instruments Act, 1881, answer the following:
(i) Whether any interest is payable on dishonour of negotiable instruments? If yes, at what rate?
(ii) At what rate interest is payable if the rate of an instrument is not specified in the instrument?
Answer:
Provisions relating to the payment of interest is on negotiable inst rumens are follows:

Question 30.
When must the banker refuse payment of a cheque?
Answer:
When bank may refuse to honour the cheque:

• When the balance in the account of the drawer is insufficient.
• When a cheque is mutilated i.e. tom
• When a cheque is materially altered.
• The cheque is undated.
• The signature of the drawee does not tally with his specimen signature.
• Cheque presented after 6 months.
• Cheques signed by one authorized signatory where two are required.
• If a cheque is presented at another branch of the bank where the drawer does not have an account.
• The cheque appears to be doubtful.
• If the bank has a lien over the funds.

In all aforesaid cases, the banker may honour cheque, but at the bank’s own risk.

When banker must refuse to honour the cheque:

• If the drawer has become insolvent and the banker has notice of the same.
• If customers issues ‘stop payment’ instructions.
• When a cheque is post-dated and presented before the date mentioned on the cheque.
• Banker receives notice of death or insanity of the drawer.
• When an order for attachment of account has been issued by Court.
• If drawer informs loss of cheque to the banker.
• If the cheque is issued on a closed bank account.
• When a banker knows that title of the holder is defective.
• If the customer has assigned his credit balance and notice given to the bank.
• If such payments will violation of any law e.g. FEMA etc.

Question 31.
Describe the different modes of discharge of liability of parties with regards to a negotiable instrument.
Answer:
Discharge from liability [Section 82]: The maker, acceptor or endorser respectively of a negotiable instrument is discharged from liability thereon:
(a) Discharge by cancellation: If a holder of the instrument cancels such acceptor’s or endorser’s name with the intent to discharge him then all the parties get discharged.
(b) Discharge by release: If a holder discharges maker, acceptor or en-dorser by any mode other than cancellation (e.g. novation or rescission of contract), maker, acceptor or endorser and all parties deriving title under such holder get discharged. Notice to such parties is necessary.
(c) Discharge by payment: If the instrument is payable to the bearer or has been endorsed in blank, payment to the bearer of the instrument discharge maker, acceptor or endorser from all the parties to the instrument.

Discharge by allowing drawee more than 48 hours to accept [Section 83]:
If the holder of a bill of exchange allows the drawee more than 48 hours, exclusive of public holidays, to consider whether he will accept the same, all previous parties get discharged from liability to such holder, unless they consent to give more time.

Discharge by operation of law: Besides the mode of discharge specified above, parties can get discharged by operation of law in the following cases:
(a) By order of Court discharging insolvent.
(b) Suit becomes time-barred under the Limitation Act, 1963.

Question 32.
‘A’ draws a cheque for ₹ 50,000. When the cheque ought to be presented to the drawee bank, the drawer has sufficient funds to make payment of the cheque. The bank fails before the cheque is presented. The payee demands payment from the drawer. What is the liability of the drawer?
Answer:
As per Section 84 of the Negotiable Instruments Act, 1881, the cheque should be presented to the bank within a reasonable time. If a cheque is not presented within a reasonable time and the drawer suffers actual damages, then the drawer gets discharged to the extent of actual damages.

Applying the above provisions to the given problem, since the payee has not presented the cheque to the drawer’s bank within a reasonable time when the drawer had funds to pay the cheque, and the drawer has suffered actual damage, the drawer is discharged from the liability.

Question 33.
Under the provisions of the Negotiable Instruments Act, 1881 state as to when shall an alteration made in negotiable instrument be called ‘material alteration’. What alterations in such instrument are permitted under the Act? What is the effect of such alteration?
Answer:
An alteration is a material that in any way alters the operation of the instrument and the liabilities of the parties hereto. Material alteration to an instrument makes the instrument void against previous parties.

The alteration is void only if it is material. Following are material alteration:

• Alteration of date
• Alteration of amount
• Alteration of time of payment
• Alteration of the place of payment
• Alteration of the name of the parties
• Alteration of the rate of interest
• Putting a stamp on an insufficiently stamped instrument [Adapa Baby Sarojini v. Ravulapati Chandrashekhar]

Alterations that are not material alteration:
(a) Putting a date in an undated cheque subsequent to issue, when there is no dispute regarding the signature, amount and name, is not material alteration. [Bhaskaran Chandrashekharan v. Radhakrishanan]
(b) Filling banks of the inchoate instrument up to value covered by stamp paper. [Section 20]
(c) Conversion of the blank instrument into full endorsement. [Section 49]
(d) Acceptor making qualified acceptance if consented by all previous parties. [Section 86]
(e) Alteration made to carry out the common intention of all original parties to the instrument. [Section 87]
(f) Crossing a cheque generally or especially, or crossing a cheque especially which was crossed generally. [Section 125]

Effect of material alteration [Section 87]: Any material alteration of a negotiable instrument renders the same void as against anyone who is a party thereto at the time of making such alteration and does not consent thereto unless it was made in order to carry out the common intention of the original parties.

Question 34.
When a bill of exchange may be dishonoured by ‘non-acceptance and ‘non-payment under the provisions of Negotiable Instruments Act, 1881?
Answer:
If the negotiable instrument is not accepted (in the case of Bill) or not p paid, it is said to be dishonoured.

Dishonour by non-acceptance [Section 91]: A bill of exchange is said to be dishonoured by non-acceptance:
(a) when the drawee, or one of several drawees not being partners, makes default in acceptance upon being duly required to accept the bill, or
(b) where presentment is excused and the bill is not accepted.

Presentment is excused if:

• If the maker or drawee intentionally prevents presentment.
• Drawee cannot be found after a due search.
• Drawee is a fictitious person.

Where the drawee is incompetent to contract, or the acceptance is qualified, the bill may be treated as dishonoured.

Dishonour by non-payment [Section 92]: A promissory note, bill of exchange or cheque is said to be dishonoured by non-payment when the maker of the note, acceptor of the bill or drawee (bank) of the cheque makes default in payment upon being duly required to pay the same.

When presentment is not necessary and the instrument is treated as dishonoured [Section 76(a)]: In following cases, Bill is dishonoured by non-payment even if not presented for payment:

• Maker, drawee or acceptor intentionally prevented presentation.
• The place of business is closed.
• A person not found even after due search.

Question 35.
Examining the provisions of the Negotiable Instruments Act, 1881, state whether notice of dishonour is necessary in the following cases:
(i) X having a balance of ₹ 1,000 with his bankers and having no authority to overdraw, drew a cheque for ₹ 5,000. The cheque was dishonoured when duly presented for repayment.
(ii) X, drawer of a Bill informs Y, the holder of the bill that the bill would be dishonoured on the presentment for payment.
Answer:
When a negotiable instrument is dishonoured, notice is required to be given. However, section 98 of the Negotiable Instruments Act, 1881 enumerate the circumstance when notice of dishonour is not required to be given.

Thus, considering the provisions of section 98, the answer to the given problem is as follows:
1. Since X is aware of the fact that his account in the bank has only a balance of ₹ 1,000, no notice of dishonour of a cheque of ₹ 5,000 is required to be given to him.

2. X, drawer of a Bill informs Y, the holder of the bill that the bill would be dishonoured which shows that X is aware of the fact of dishonour of instrument and hence no notice of dishonour is required to be given to him.

Question 36.
Distinguish between: Noting & Protesting
Answer:
When a negotiable instrument is dishonoured, it is noted and protested. In noting, the notary public simply makes a note of dishonour as per the information given to him by the holder of the instrument.

In case of protest, the notary public is required to certify the dishonour of the instrument. In such a case, he is required to make a demand for payment from the person who is liable to pay on such an instrument.

Noting is optional in the case of an inland instrument. Protest is required in case of dishonour of foreign instrument if it required by the law of other countries.

Question 37.
Distinguish between: Acceptance for honour & Payment for honour
Answer:
Following are the main points of distinction between acceptance for honour and payment for honour:

Question 38.
Write a short note on: Drawee in case of need
Answer:
The Bill is drawn as an order to the drawee to pay a certain amount to the payee. If drawee refuses to honour the Bill, another person may be named ) in the Bill in case of need. Such a person is known as ‘drawee in case of need’. If drawee dishonours or does not accept the bill, it should be presented to the drawee in need.

Drawee in case of need [Section 115]: Where a drawee in case of need is named in a bill of exchange, or in any endorsement thereon, the bill is not dishonoured until it has been dishonoured by such drawee.
Acceptance and payment without protest [Section 116]: A drawee in case of need may accept and pay the bill of exchange without previous protest.

Question 39.
What is ‘crossing of a cheque? Explain in brief the various methods of crossing a cheque.
Answer:
The purpose of crossing a cheque is to provide security to the system of cheque payment. Tracing a payee is easy if the amount is deposited in his account as the banker is expected to check the details of the person before opening an account. If cheque payable to bearer goes in the wrong hand, finder can encash it and it will be impossible to find the person and recover the amount.

Cheque crossed generally [Section 123]: Cheque crossed generally means a cheque which bears across its face an addition of the words ‘& Company ’ or any abbreviation thereof, between two parallel transverse lines, or of two parallel transverse lines simply, either with or without the words ‘Not Negotiable’.

Cheque crossed especially [Section 124]: Cheque crossed especially means a cheque which bears across its face an addition of the name of a banker, either with or without the words Not Negotiable

Specimen of a special crossing
Restrictive crossing: A cheque with just two cross lines across its face is a simple crossing. Such cheque is freely negotiable. The only restriction that payment will be through the banker of the payee. Addition of words like, ‘Not negotiable’, ‘Account Payee’, ‘Axis Bank’, restrict its negotiability. Such crossings are ‘restrictive crossings’.

Not-negotiable crossing [Section 130]: If a crossed cheque bears the words Not Negotiable’, a person taking a cheque cannot get a title better than a transferor. Thus, mere writing words, Not Negotiable’ does not means that the cheque is not transferable. It is still transferable, but the effect is that transferee cannot get a title better than what the transferor had. If there is a defect in the title of the transferor, the same defect will apply to the title of the transferee also. If a non-negotiable cheque is presented to the bank, it should credit to the payee’s account only. Otherwise, the bank will be held liable for negligence and will have to pay compensation.

Account Payee Crossing: There is no provision in the Negotiable Instruments Act, 1881 regarding ‘Account Payee Crossing’. This is a commercially followed practice.

If the ‘Account Payee marking appears on the cheque, it doesn’t mean that is not negotiable. Such ‘account payee cheque’ still remains transferable. [National Bank. Silke]

Thus, a cheque marked as ‘Account Payee or ‘Not Negotiable’ can be transferred. Such ‘Account Payee cheque can be credited in some other account, as Act makes no provisions for account payee crossing. However, this is prohibited as per RBI Guideline.

Question 40.
Write a short note on Stale Cheques
Answer:
A cheque is overdue or becomes statute-barred after 3 years from its due date of issue. A holder cannot sue on the cheque after that time. Apart from this provision, the holder of a cheque is required to present it for payment within a reasonable time, as a cheque is not meant for indefinite circulation.

In India, a cheque, which has been in circulation for more than 6 months, is regarded by bankers as stale. If, as a result of any delay in presenting a cheque, the drawer suffers any loss, as, by the failure of the bank, the drawer is discharged from liability to the holder to the extent of the damage.

Question 41.
Dishonour of cheque for want of funds is an offence under the Negotiable Instruments Act, 1881. Do you agree with the statement?
Answer:
Dishonour of cheque [Section 138]: A person deemed to have committed the offence of dishonour of cheque if:

• The drawer has issued a cheque to another person from his account with the bank.
• The cheque is issued for the discharge of any debt or other liability.
• The drawee has presented the cheque to the bank within 6 months from the date on which it is drawn.
• The cheque is returned by the drawer’s bank as unpaid.
• The cheque is returned due to insufficient funds in the drawer’s bank account.
• The payee makes a demand for the payment of money by giving a notice in writing to the drawer of the cheque within 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid.
• The drawer of the cheque fails to make the payment to the payee within 15 days of the receipt of the notice.

Penalty for the dishonour of cheque: The person dishonouring the cheque shall be punished:

• with imprisonment for a term which may be extended to 2 years or
• with fine which may extend to twice the amount of the cheque or
• with both.

Question 42.
Examine, whether there is an offence under the Negotiable Instruments Act, 1881, if a Drawer of a cheque after having issued the cheque, informs the Drawee not to present the cheque as well as informs the Bank to stop the payment.
Answer:
The Supreme Court in Modi Cements Ltd. v. KuchilKumar Nandiheld that once a cheque is issued by the drawer, a presumption that the cheque has been issued for the discharge of any debt or other liability follows and merely because the drawer issued a notice thereafter to the drawee as to the bank for stoppage of payment, it will not preclude an action u/s 138 of the Negotiable Instruments Act, 1881. Hence, the drawer of the cheque will be liable for the offence u/s 138 for the dishonour of the cheque.

Economic, Business and Commercial Laws Questions and Answers

Reserve Bank of India Act, 1934 – Economic, Business and Commercial Laws Important Questions

Question 1.
What are the objectives of the Reserve Bank of India (RBI)?
Answer:
Important aspects relating to the objectives of the Reserve Bank of India (RBI) are as follows:
1. Primary objects: The Preamble to the RBI Act, 1934 spells out the objectives of the RBI as:

• To regulate the issue of banknotes.
• To keep reserves with a view to securing monetary stability in India.
• To operate the currency and credit system of the country to its advantage.

2. Remain free from political influence: Another objective of the RBI has been to remain free from political influence and be in successful operation for maintaining financial stability and credit.

3. Fundamental objects: The fundamental object of the RBI is to discharge purely central banking functions in the Indian money market i.e. to act as:

• Note-issuing authority
• Bankers’ bank
• Banker to Government

4. Promote the growth of the economy: The RBI aims to promote the growth of the economy within the framework of the general economic policy of the Government, consistent with the need for the maintenance of price stability.

5. Development of Indian Economy: Besides the traditional central banking functions, with the launching of the 5-year plans in the country, the RBI has been moving ahead in performing a host of developmental and promotional functions, which are normally beyond the purview of a traditional Central Bank.

Question 2.
Which kind of business cannot be transacted by the RBI as per the Reserve Bank of India Act, 1934?
Answer:
A business which the RBI may not transact:
1. Trading
RBI cannot engage in trade. It cannot have a direct interest in any commercial, industrial, or other undertakings except such interest as it may in any way acquire in the course of the satisfaction of any of its claims. However, all such interests shall be disposed of at the earliest possible moment.

2. Purchase of Shares
RBI cannot purchase the shares of any banking company or of any other company, or grant loans upon the security of any such shares.

3. Advance money against Immovable Property
RBI cannot advance money on mortgage of immovable property or documents of title relating thereto. The RBI cannot become the owner of immovable property, except so far as is necessary for its own business premises and residences for its officers and servants.

4. Loans and Advances generally
RBI cannot make loans or advances.

5. Draw or accept Bills of Exchange
RBI cannot draw or accept bills payable otherwise than on-demand.

6. Interest on Deposit
RBI cannot allow interest on deposits or current accounts.

Question 3.
RBI is the banker to Central and Statement Government bank. Comment.
Answer:
Bankers to Central and State Government:
(a) Payment and Receipt: Reserve Bank receives and pays money on behalf of the various Government departments

(b) Loans and advances:

1. Bank also undertakes to float loans and manage them on behalf of the Governments
2. It also provides Ways and Means Advances – a short-term interest-bearing advance – to the Governments, to meet the temporary mismatches in their receipts and payments.

(c) Investment: It arranges for investments of surplus cash balances of the Governments as a portfolio manager

(d) Advisor: The Reserve Bank also acts as adviser to Government, when-ever called upon to do so, on monetary and banking related matters

(e) Department:
Public Accounts Department: Banking functions for the governments
Public Debt Office: Management of debt

Question 4.
Write a short note on the Notes issue function of RBI
Answer:
Management of currency is one of the core central banking functions of the RBI for which it derives the necessary statutory powers from Section 22 of the RBI Act, 1934.
(a) Sole Right: The RBI shall have the sole right to issue ‘bank notes’ in India.

(b) Right to issue banknotes [Section 22]: Reserve Bank is responsible for the design, production and overall management of the nation’s currency, with the goal of ensuring an adequate supply of clean and genuine notes.

(c) Security Issue: Reserve Bank routinely addresses security issues and targets ways to enhance security features to reduce the risk of counterfeiting

(d) Denomination of Notes [Section 24]:
Bank notes shall be of the denominational values of ₹ 2,₹ 5, ₹ 10,₹ 20, ₹ 50, ₹ 100, ₹ 500, ₹ 1,000, ₹ 2,000, ₹ 5,000 & ₹ 10,000 or other denominations not exceeding ₹ 10,000

(e) Issue Department [Section 23]: The issue function of banknotes is performed by the Issue’ Department, which is separated and kept wholly distinct from Banking Department.

(f) Legal Tender [Section 26]: Every banknote is a legal tender at any place in India.

(g) Certain notes to cease to be legal tender [Section 26A]: On the recommendation of the Central Board, the Central Government may declare any series of banknotes of any denomination as not to be a legal tender.
Eg: The government of India announced the demonetisation of ₹ 500 and ₹ 1000 banknotes with effect from midnight of November 8, 2016, making these notes invalid.

(h) Stamp Duty [ Section 29]: Banknotes that are being issued by RBI are exempt from payment of stamp duty.

Question 5.
What are the ‘Stressed Assets’? What are the powers of RBI for the resolution of stressed assets?
Answer:
1. Meaning: Stressed Assets are loans where the borrower has defaulted in repayment or where the loan has been restructured.

2. Authority with RBI: In terms of Sections 35AA & 35AB of the Banking Regulation Act, 1949, the RBI has been specifically authorized to issue directions to banking companies for the resolution of stressed assets.

3. Power of RBI
(a) Power of issuing directions to banking companies to initiate insolvency resolution process [Section 35AA]: The Central Government may authorize the RBI to issue directions to any banking company to initiate insolvency resolution process in respect of a default, under the provisions of the Insolvency & Bankruptcy Code, 2016.

(b) Power of RBI to issue directions in respect of stressed assets [Section 35AB]: The RBI may, from time to time, issue directions to any banking company for resolution of stressed assets.

4. Committee to advise on resolution of stressed assets: The RBI may specify one or more authorities or committees with such members as the RBI may appoint to advise any banking company or banking companies on the resolution of stressed assets.

Question 6.
Write a short note on Coin Distribution
Answer:

1. Governing Law: The Indian Coinage Act, 1906 governs the minting of rupee coins, including small coins of the value of less than Re. 1.
2. Legal tender: Coins are legal tender in India for unlimited amounts.
3. 50 Paisa and small coins Limit: 50 paisa coins are legal tender for any sum not exceeding ₹ 10 and smaller coins for any sum not exceeding Rel.
4. Distribution of coins: The RBI acts as an agent of the Central Government for distribution, issue and handling of the coins and for withdrawing and remitting them back to the Government as may be necessary.

A mint is an industrial facility that manufactures coins that can be used as currency.

Question 7.
What do you understand by ‘counterfeit money? What steps are being taken by the RBI against counterfeiting of currency?
Answer:
1. Meaning: Counterfeit money is imitation currency produced without the legal sanction of the Government. Producing or using counterfeit money is a form of fraud or forgery.

2. Offence under IPC: Counterfeiting currency-notes or bank-notes is an offence u/s 489A of the Indian Penal Code, 1860 and

3. Punishment and Penalty: Imprisonment for life, or with imprisonment of either description for a term which may extend to 10 years and shall also be liable to fine.

4. Combating Counterfeiting: The RBI, in consultation with the Government of India,
(a) Review and Upgrade: -Periodically reviews and upgrades the security features of the banknotes to deter counterfeiting.
(b) Information Dissemination: Shares information with various law enforcement agencies to address the issue of counterfeiting.
(c) Guidelines: Issued detailed guidelines to banks and Government treasury offices on how to detect and impound counterfeit notes.

Question 8.
What are the functions of the Reserve Bank of India? [Dec. 2018 (5 Marks)]
Answer:
Various functions of RBI under the RBI Act, 1934 are as follows:

• Banking Functions
• Issue banknotes
• Monetary Policy Functions
• Public Debt Functions
• Foreign Exchange Management
• Banking Regulation & Supervision
• Regulation and Supervision of NBFCs
• Regulation & Supervision of Co-operative banks
• Regulation of Derivatives and Money Market Instruments
• Payment and Settlement Functions
• Consumer Protection Functions
• Financial Inclusion and Development Functions

Question 9.
Reserve Bank of India is a banker of banks. Comment. [June 2019 (5 Marks)]
Answer:
Reserve Bank of India as Banker to Banks:
1. Bank open account with RBI: The RBI to fulfil this function opens current accounts of banks with itself, enabling these banks to maintain cash reserves as well as to carry out inter-bank transactions through these accounts.

2. Settlement of accounts: Inter-bank accounts can also be settled by the transfer of money through an electronic fund transfer system, such as the Real-Time Gross Settlement System (RTGS).

3. Fund Management: In addition, the RBI has also introduced the Centralised Funds Management System (CFMS) to facilitate centralized funds enquiry and transfer of funds across Deposit Accounts Department (DADs). This helps banks in their fund managers as they can access information on their balances maintained across different DADs from a single location.

4. Short term loan and advances: As Banker to Banks, the RBI provides short-term loans and advances to select banks, when necessary, to facilitate lending to specific sectors and for specific purposes. These loans are provided against promissory notes and other collaterals given by the banks.

5. Lender of last resort: The RBI also acts as the ‘lender of last resort. It can come to the rescue of a bank that is solvent but faces temporary liquidity problems by supplying it with much-needed liquidity when no one else is willing to extend credit to that bank.

6. Prevent Failure of Bank: The RBI extends this facility to protect the interest of the depositors of the bank and to prevent possible failure of a bank.

Question 10.
What do you understand by ‘Open Market Operations?
Answer:
1. Meaning: Open Market Operations are conducted by the RBI by way of sale or purchase of Government Securities to adjust money supply conditions.

2. Objective: The Central Bank sells Government Securities to suck out liquidity from the system and buys back Government Securities to infuse liquidity into the system.

3. Monetary Policy Tool: The RBI uses Open Market Operations along with other monetary policy tools such as Repo Rate, Cash Reserve Ratio & Statutory Liquidity Ratio to adjust the quantum and price of money in the system.

4. System used: The Bank carries out such operations in the secondary market on the electronic Negotiated Dealing System – Order Matching (NDS-OM) platform by placing bids and/or taking the offers for securities.

Question 11.
Write a short note on the Monetary Policy Function of the RBI
Answer:
1. Meaning: Monetary policy refers to the policy of the central bank with regard to the use of monetary instruments under its control to achieve the goals specified in the Act.

2. Objective: The primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth.

3. Macro Objectives: It is the policy to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.

4. RBI: Monetary policy is the policy laid down by the RBI which involves the management of money supply and interest rate.

5. Implementation of Policy: The RBI implements the monetary policy through open market operations, bank rate policy, reserve system, credit control policy, moral persuasion and many other instruments.

6. Monetary Policy report: RBI shall publish a monetary policy report every 6 months

Question 12.
Distinguish between: Repo Rate and Bank Rate
Answer:
Following are the main points of distinction between repo rate and bank rate:

Question 13.
Distinguish between: Repo Rate and Reverse Repo Rate
Answer:
Following are the main points of distinction between repo rate and reverse repo rate:

Question 14.
Distinguish between: Cash Reserve Ratio & Statutory Liquidity Ratio
Answer:
Following are the main points of distinction between cash reserve ratio and statutory liquidity ratio:

Question 15.
Write a short note on Monetary Policy Report
Answer:

1. Authority: RBI shall publish a report once every 6 months a document called Monetary Policy Report.
2. Tenure: The RBI shall publish once every 6 months.
3. Provision: Monetary Policy report is specified in the provision of RBI Act, 1934 under Section 45ZM.
4. Explanation in Report:
   (a) the sources of inflation, and
   (b) the forecasts of inflation for the period between 6 to 18 months from the date of publication of the document.
5. Forms and Contents: The form and contents of the Monetary Policy Report shall be such as may be specified by the regulations made by the Central Board.

Question 16.
How is the Monetary Policy Committee constituted under the Reserve Bank of India Act, 1934? What are its functions? Explain [Dec. 2019 (4 Marks)}
Answer:
(a) Constituted by: The Central Government may, by notification in the Official Gazette, constitute a Committee to be called the Monetary Policy Committee of the Bank.

(b) Composition: The Monetary Policy Committee shall consist of the following Members, namely:
(a) the Governor of the Bank – Chairperson, ex officio;
(b) Deputy Governor of the Bank, in charge of Monetary Policy – Member, ex officio;
(c) one officer of the Bank to be nominated by the Central Board – Member, ex officio; and
(d) three persons to be appointed by the Central Government – Members

(c) Functions:

1. Policy Rate: The Monetary Policy Committee shall determine the Policy Rate required to achieve the inflation target.
2. Binding Decision: The decision of the Monetary Policy Committee shall be binding on the Bank.
3. Report: RBI is required to publish a document explaining the steps to be taken to implement the decisions of the Monetary Policy Committee.

Question 17.
What are the instruments of Monetary Policy?
Answer:
There are several direct and indirect instruments that are used for implementing monetary policy
(a) Repo Rate: The (fixed) interest rate at which the Reserve Bank provides overnight liquidity to banks against the collateral of government and other approved securities under the Liquidity Adjustment Facility (LAF). ‘

(b) Reverse Repo Rate: The (fixed) interest rate at which the Reserve Bank absorbs liquidity, on an overnight basis, from banks against the collateral of eligible government securities under the LAF.

(c) Corridor: The MSF rate and reverse repo rate determine the corridor for the daily movement in the weighted average call money rate.

(d) Bank Rate: It is the rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or other commercial papers. The Bank Rate is published under Section 49 of the Reserve Bank of India Act, 1934. This rate has been aligned to the MSF rate and, therefore, changes automatically as and when the MSF rate changes alongside policy repo rate changes.

(e) Cash Reserve Ratio (CRR): The average daily balance that a bank is required to maintain with the Reserve Bank as a share of such per cent of its Net demand and time liabilities (NDTL) that the Reserve Bank may notify from time to time in the Gazette of India.

(f) Statutory Liquidity Ratio (SLR): The share of NDTL that a bank is required to maintain in safe and liquid assets, such as unencumbered government securities, cash and gold. Changes in SLR often influence the availability of resources in the banking system for lending to the private sector.

(g) Open Market Operations: These include both, outright purchase and sale of government securities, for injection and absorption of durable liquidity, respectively.

(h) Liquidity Adjustment Facility (LAF): The LAF consists of overnight as well as term repo auctions.
The Reserve Bank has increased the proportion of liquidity injected under fine-tuning variable rate repo auctions of range of tenors.

(i) Marginal Standing Facility (MSF): A facility under which scheduled commercial banks can borrow an additional amount of overnight money from the Reserve Bank by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a limit at a penal rate of interest.

(j) Market Stabilization Scheme (MSS): This instrument for monetary management was introduced in 2004. Surplus liquidity of a more enduring nature arising from large capital inflows is absorbed through the sale of short-dated government securities and treasury bills

Economic, Business and Commercial Laws Questions and Answers

Partnership Act, 1932 – Economic, Business and Commercial Laws Important Questions

Question 1.
Define ‘partnership’. Discuss the essential elements of the partnership.
Answer:
Partnership [Section 4]: Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

Essentials: Following are the essentials of partnership:

• Association of two or more persons
• Carrying on business
• Agreement/contract
• Sharing the profits of the business
• Mutual agency among partners.

Question 2.
“Sharing of profits is prima facie evidence of partnership but not conclusive evidence”. Discuss this statement and bring out the true test of partnership.
Answer:
Mode of determining the existence of partnership [Section 6]: In determining whether a group of persons is or is not a firm or whether a person is or is not a partner in a firm, regard shall be had to the real relation between the parties, as shown by all relevant facts taken together.

Sharing of profits: Sharing of profits is an important criterion but is no a conclusive test. Receipt by a person of a share of profits of a business or a payment contingent upon the earning of profits or varying with the profits earned by the business does not by itself make him a partner with the persons carrying on the business.

Specific exclusions from the partnership:
1. Joint owners sharing profit are not partners.

2. A partnership is not created when share or payment is received by:

• Moneylender
• Servant or agent as remuneration.
• Widow or child or a deceased partner as an annuity.
• A previous owner or part-owner of the business, as consideration for the sale of goodwill.

Existence of mutual agency: Mutual agency is the foundation of a partner’s liability, the true test, in determining whether a partnership exists, is to see whether relations of principal and agent exist between parties and not merely profit sharing. Thus, every partner is principal as well as an agent of other partners. This unique feature distinguishes a partnership from co-ownership or simple agreements for sharing the profit.

Question 3.
A is a publisher. He agrees to publish at his own expense a book written by B and to pay Y half the net profits. Does this create a relationship of partnership between A and B? Give reasons.
Answer:
As per Section 4 of the Partnership Act, 1932, the partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The agreement between A and B does not create a partnership. The last essential which requires mutual agency is missing and hence it is not a partnership.

Question 4.
Distinguish between: Partnership and Hindu undivided family (HUE)
Answer:
Following are the main points of distinction between partnership & HUF:

Question 5.
Distinguish between Partnership and Co-ownership [Dec. 2019(3 marks)]
Answer:

Question 6.
What do you mean by the partnership at will?
Answer:
Partnership at will [Section 7]: Where no provision is made by contract between the partners for the duration of their partnership, or when ( no provision is made as to whom and how the partnership will come to an end, the partnership is known as partnership-at-will.

The partnership-at-will has no fixed or definite date of termination and, therefore, the death or retirement of a partner does not affect the existence | of such partnership.

Question 7.
Write a short note on Sleeping or dormant partner
Answer:
Sleeping/Dormant Partner: He is one who contributes to the capital and has a share in Profits, but does not actively participate in the business. | He is liable like any other Partner, but were specifically excluded, he is | not so. He is not required to give notice after he ceases to be a partner, nor does his insanity dissolve the firm.

Question 8.
Rohit is not a partner in a particular firm. But, he knowingly permits himself to be represented as a partner of that particular firm to Sanjay, who on the faith of such a representation gives credit to the firm. Is Rohit liable as a partner in the firm?
Answer:
As per Section 28 of the Partnership Act, 1932, if a person represents himself or knowingly permits himself to be represented as a partner of a particular firm when actually he is not, such person is liable as a partner of the firm.

Thus, a stranger, who represents himself to be a partner in a firm and induces others to give credit to the partnership firm is called a partner by holding j out. Hence, Rohit is liable as a partner by holding out.

Question 9.
What do you understand by “Holding out” under the Indian Partnership Act, 1932? Enumerate the circumstances under which the doctrine of “Holding out” is not applicable? [Dec. 2018 (3 Marks)]
Answer:
Partner by estoppels or holding out [Section 28]: Anyone who by words | spoken or written or by conduct represent himself, or knowingly permits j himself to be represented, to be a partner in a firm, is liable as a partner in J that firm to anyone who has on the faith of any such representation is 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.

In other words, if the behavior of a person arouses misunderstanding that he is a partner in a firm when actually he is not; such a person is stopped from later on denying the liabilities for the acts of the firm. Such a person is called a partner by estoppels and is liable to all third parties.

Holding out means to represent, a stranger, who represents himself to be a partner in a firm and induces others to give credit to the partnership are called a partner by holding out.

Example: Arun introduces Balu as a partner in his business to Chandan. Balu, in fact, was not a partner but he did not deny the statement. Chandan advanced a loan to Arun. Arun could not repay the loan. Balu is responsible for the repayment of the loan because Balu is a partner by estoppel.

Exceptions to the doctrine of holding out: The doctrine of Holding Out is not applicable in the following cases:

1. It does not apply to cases of torts committed by partners. A person, therefore, cannot be held liable for the torts of another simply because that other person held himself to be his partner.
2. It does not extend to bind the estate of a deceased partner, where after a partner’s death the business of the firm is continued in the old firm name.
3. It also does not apply where the Holding Out partner has been adjudicated insolvent.

Question 10.
A and B entered into an agreement to carry on a business of manufacturing and selling toys. Each one of them contributed ₹ 35 lakhs as their capital with a condition that A and B will share the profits equally, but the loss, if any is to be borne by A alone. Referring to provisions of the Partnership Act, 1922 decides whether there exists a partnership between A and B.
Answer:
Facts of Case:

As per Section 13 of the Partnership Act, 1932, subject to the contract | between the partners, the partners are entitled to share profits and losses equally. When all partners agree that a partner shall share only profits and not losses then such partner is known as a partner in profit only and such partnership is valid. Hence, there exists a partnership between A and B.

Question 11.
A and B, who work in partnership, deal in the purchase and sale of cloth. B starts cloth manufacturing business individually. A files a suit against B for sharing of profit of the cloth manufacturing business with him. Will he succeed? Give reasons.
Answer:
Facts of Case: A and B, who work in partnership, deal in the purchase and sale of cloth. B starts cloth manufacturing business individually. A files a suit against B for sharing of profit of cloth manufacturing business with him

Provision: As per Section 16 of the Partnership Act, 1932, a partner shall not carry on a business which is of the same nature as and competing with that of the firm, he shall account for the same and pay all such profits to the firm.

Conclusion: In the given case, B has started a cloth manufacturing business individually. Cloth manufacturing is a different activity and not similar to the purchase and sale of cloth. Hence, sharing of profits by B from the manufacturing of clothes with A is not covered u/s 16. Hence, A will not succeed.

Question 12.
A B and C enter into a partnership agreement under which C is not liable for the losses. D filed a suit against A, B and C. Examine the position of C.
Answer:
Facts of Case: A, B, and C enter into a partnership agreement under which C is not liable for the losses. D filed a suit against A, B, and C Provision: When all partners agree that a partner shall share only profits and not losses then such partner is known as a partner in profit only. As per Section 25 of the Partnership Act, 1932, every partner is liable, jointly with all the other partners, and also severally for all acts of the firm done when he was a partner. Even though C shares profit and not loss, but he is liable for all the debts of the firm jointly and severally with other partners.

Conclusion: Therefore, C is liable to D, jointly with A and B.

Question 13.
Amar, Bimal, and Chander are partners of a firm carrying on the banking business. Dhruv, a customer of the firm, deposits his ornaments with the firm for safe custody. Amar and Bimal sell these ornaments and misappropriate the money. Chander, being a sleeping partner, does not know anything about this act of Amar and Bimal. Now, Dhruv institutes a suit against the firm including all the partners. Chander intends to escape his liability on the ground of being a sleeping partner. Will Chander succeed? Give reasons.
Answer:
Facts of Case: Amar, Bimal, and Chander are partners of a firm carrying on banking business. Dhruv, a customer of the firm, deposits his ornaments with the firm for safe custody. Amar and Bimal sell these ornaments and misappropriate the money. Chander, being a sleeping partner, does not know anything about this act of Amar and Bimal. Now, Dhruv institutes a suit against the firm including all the partners. Chander intends to escape his liability on the ground of being a sleeping partner.

Provision: As per Section 25 of the Partnership Act, 1932, every partner is liable, jointly with all the other partners, and also severally for all acts of the firm done when he was a partner.

Conclusion: In the given case, Chander will not succeed to escape his liability on the grounds of being a sleeping partner. He will be jointly and severally liable along with other partners for the acts of the firm.

Question 14.
What is meant by the implied authority of a partner? Stale the acts for which a partner has implied authority to bind the firm.
Answer:
Implied Authority [Section 19]: Where the authority of a partner is not conferred by mutual agreement, but acts of partner which are excised in the ordinary course of business and which bind the firm is known as the implied authority of partner.

Following acts of partner are considered within the implied authority of partner.

• Purchase goods dealt with or used by the firm on behalf of the firm.
• Sale of the goods of the firm.
• Receiving payments of debts due to the firm and issuing receipts for it.
• Settlement of accounts with third parties.
• Appointment of employees.
• Borrowing money.
• Pledging goods of the firm as security.
• Drawing, accepting & endorsing negotiable instruments.
• Hiring solicitor.

No implied authority: In the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to:

• Submit a dispute to arbitration relating to the business of the firm.
• Open a banking account in his own name on behalf of the firm.
• Compromise or relinquish any claim or portion of a claim by the firm.
• Withdraw a suit or proceeding filed on behalf of the firm.
• Admit any liability in a suit or proceeding against the firm.
• Acquire immovable property on behalf of the firm
• Transfer immovable property belonging to the firm.
• Enter into partnership on behalf of the firm.

Question 15.
A & B are Practicing Company Secretaries and are working in partnership. A places order with for the supply of ten bags of wheat on credit. The order is placed in the name of the firm. A signs it as one of the partners. Is the firm liable to pay the price of wheat? Give reasons.
Answer:
Facts of Case: A & B are Practicing Company Secretaries and are working in partnership. A places order with for the supply of ten bags of wheat on credit. The order is placed in the name of the firm. A signs it as one of the partners.

Provision: Where the authority of a partner is not conferred by mutual agreement, but acts of partner which are excised in the ordinary course of business and which bind the firm is known as the implied authority of partner.

As per facts given in the case, the firm provides professional service of Company Secretary. In case the firm is providing professional service then there is no implied authority to purchase goods on behalf of the firm. The firm is not liable to pay for the wheat.

Conclusion: A will be personally held liable for his actions.

Question 16.
A B & C are partners. A, without the authority of B and C, purchases 100 shares of Reliance Industries Ltd., out of the firm’s money in his own name. To whom the property in shares belongs? Give reasons.
Answer:
Facts of Case: A, B & C are partners. A, without the authority of B and C, purchases 100 shares of Reliance Industries Ltd., out of the firm’s money in his own name.

Provision: As per Section 14 of the Partnership Act, 1932, unless the contrary intention appears, property and rights and interest in property acquired with money belonging to the firm are deemed to have been acquired for the firm.

The shares are acquired out of money of partnership firm;
Conclusion: hence it is the property of the firm even though they stand in the name of A.

Question 17.
Write a note on Goodwill in a partnership business
Answer:
Goodwill is the value of the reputation of a business. It is profit expected in future above the normal level of profits. Goodwill is an intangible asset. Goodwill is generally valued at the time of admission or retirement. Property of partnership includes goodwill of the firm. [Section 14]

Return of premium on premature dissolution [Section 51]: Where a partner has paid a premium on entering into a partnership for a fixed term, and it is dissolved before the expiry of such term (otherwise than by” death), he shall be entitled to repayment of the premium or part thereof.

In determining the part of the premium, regard shall be had to:
(a) The terms upon which he became a partner;
(b) The length of time during which he was a partner.

Right to carry on business when goodwill is sold [Section 55]:
(a) When the firm’s goodwill is sold upon dissolution, a partner may carry on competing business with that of the buyer of goodwill.

(b) However, in view of an agreement with the buyer of goodwill, the partner may not:

• Use the firm’s name
• Represent as carrying on of the firm’s business
• Solicit the firm’s customers.

Question 18.
Explain the position of a minor in a partnership firm.
Answer:
As per Section 11 of the Contract Act, 1872, an agreement with or by a minor is void and in-operative ab initio. Minor cannot be promisor. However, all agreements with minors are not void; if an agreement is for the benefit of the minor then it is valid and enforceable.

Minors admitted to the benefits of partnership [Section 30]: If all the partners agree, a minor may be admitted to the benefits of an already existing firm. There must be at least two major partners before a minor is admitted into the benefits of the partnership.

Share of profits & property: Such minor has a right to such share of the property and of the profits of the firm as may be agreed upon.

Inspection & copying of accounts: Minor has a right to access and inspect and copy any of the accounts of the firm.

Liability of minor: Minor’s share is liable for the acts of the firm but the minor is not personally liable for any such act.

Filing of the suit: Minor has the right to file a suit for his share of profits of the firm’s property when he is not given his due share. This right can be exercised only when he decides to sever his connections with the firm.

Election by minor: At any time within 6 months of his attaining majority, or of his obtaining knowledge that he had been admitted to the benefits of partnership, whichever date is later, such person may give public notice that he has elected to become or that he has elected not to become a partner in the firm.

If he fails to give such notice, he shall become a partner in the firm on the expiry of the said 6 months.

Exercise of option by minor on attaining majority:
1. If minor elects to become a partner: When the minor elects to become a partner of his own volition or by his failure to give public notice within the specified time:

• He becomes personally liable to third parties for all acts of the firm done since he was admitted to the benefits of the firm.
• His share in the property and profits of the firm remains the same as he was entitled as a minor.

2. If minor elects not to become a partner: If minor elects not to become a partner:

• His right and liabilities continue to be those of a minor up to the date of giving public notice.
• His share is not liable for any acts of the firm done after the date of the public notice.
• He is entitled to sue the partners for his share of the property and profits in the firm.

Question 19.
A B & C are partners. They admit D, a minor, to the benefit of the partnership. Within the six months of attaining majority, D gives public notice that he has become a full-fledged partner. But all other partners refuse to take him. Can D become a partner or not? Give reason.
Answer:
As, Section 30 of the Partnership Act, 1932, deals with the exercise of an option by a minor on attaining majority. Section 30 provides that at any time within 6 months of his attaining majority, or of his obtaining knowledge that he had been admitted to the benefits of partnership, whichever date is later, such person may give public notice that he has elected to become or that he has elected not to become a partner in the firm.

In the given case, D has given public notice within 6 months of his attaining majority and his contention that he has become a full-fledged partner is correct.

Question 20.
“Whether a minor may be admitted in the business of partnership firm under the Indian Partnership Act, 1932? Whether the minor will have any rights in a partnership firm? Explain. [June 2019 (3 Marks)]
Answer:
Goodwill is the value of the reputation of the business. It is profit expected in future above the normal level of profits. Goodwill is an intangible asset. Goodwill is generally valued at the time of admission or retirement. Property of partnership includes goodwill of the firm. [Section 14]

Return of premium on premature dissolution [Section 51]: Where a partner has paid a premium on entering into a partnership for a fixed term, and it is dissolved before the expiry of such term (otherwise than by” death), he shall be entitled to repayment of the premium or part thereof.

In determining the part of the premium, regard shall be had to:
(a) The terms upon which he became a partner;
(b) The length of time during which he was a partner.

Right to carry on business when goodwill is sold [Section 55]:
(a) When the firm’s goodwill is sold upon dissolution, a partner may carry on competing business with that of the buyer of goodwill.

(b) However, in view of an agreement with the buyer of goodwill, the partner may not –

• Use the firm’s name
• Represent as carrying on of the firm’s business
• Solicit the firm’s customers.

Question 21.
Explain the provision of the Indian Partnership Act, 1932 relating to admission of a partner.
Answer:
Introduction of a partner [Section 31]: No person shall be introduced as a partner into a firm without the consent of all the existing partners. Following are the important points relating to the admission of a new partner:

• Such a new partner is not liable for any act done by the firm before his admission.
• Where he specifically agrees to bear the past liabilities, he will be liable to other partners for such past liabilities.
• Third parties cannot hold him liable since there is no privity of contract between the new partner and creditors.
• Any act of the old partners cannot be ratified by the new partner as he was not in existence as a principal at the time when such acts were done.
• A minor opting to become a partner on attaining majority shall be liable for the acts of the firm done since the date of his admission into the benefits of a partnership.

Question 22.
A B & C are partners. C is a sleeping partner who has not been known by creditors to be a partner of A & B. C retires without giving the public notice of his retirement. Is C liable for subsequent debts incurred by A and B?
Answer:
A sleeping partner is one who does not actively participate in the business. He is not required to give notice after he ceases to be a partner. As per Section 32 of the Partnership Act, 1932, a retiring partner may be discharged from any liability to any third party for acts of the firm done before his retirement by an agreement made by him with such third party and the partners of the reconstituted firm. However, a retired partner is not liable to any third party who deals with the firm without knowing that he was a party.

As per the facts given in the case, C is a sleeping partner who has not been known by creditors to be a partner of A & B. –

Thus, considering the above-stated provisions, being a sleeping partner, C is not required to give public notice of his retirement and he is not liable for the debts incurred by the firm after his retirement.

Question 23.
P, 0 & R were three partners. P by his willful neglect has caused much loss to the firm. Q and R by a resolution decided to expel P from the firm. By the same resolution, they admit S into partnership in place of P. P objects to this arrangement. Decide.
Answer:
As per Section 33 of the Partnership Act, 1932, a partner can be expelled from the firm if the following conditions are fulfilled:
(a) Decision of a particular partner is taken by a majority of the partners.
(b) The contract/partnership deed provides for such expulsion.
(c) Such right of expulsion is exercised in good faith and for the firm’s benefit.

The test of good faith includes:

• That the expulsion must be in the interest of the partnership.
• That the partner to be expelled is served with a notice.
• That the partner has been given an opportunity of being heard.

If P has expelled after complying with the above-stated provisions and procedure, his expulsion is valid. After the expulsion, P does not remain a partner in the firm and hence he cannot object to the admission of S.

Question 24.
Distinguish between: Dissolution of partnership & dissolution of the firm
Answer:
Following are the main points of distinction between the dissolution of partnership & dissolution of the firm:

Question 25.
On what ground a partnership firm may be dissolved by the order of the Court.
Answer:
Dissolution by order of the Court [Section 44]: The Court may, at the suit of a partner, dissolve a firm on the following grounds:
1. Insanity: If a partner has become of unsound mind, the firm is dissolved. The Court may order dissolution based on a petition made by any of the other partners or by the next friend of the insane partner.

2. Permanent incapacity: A partner becomes permanently incapable of performing his duties as a partner. Application to Court shall be made by the partner who is not incapacitated.

Example: If a partner was diagnosed for paralysis which on evidence was found to be curable, dissolution shall not be granted,

3. Misconduct: If a partner is found guilty of conduct that is likely to affect the carrying on of the business of the firm then application to Court shall be made by any partner who is not guilty of misconduct for dissolution of the firm.

Example: Tina & Karina are partners. Tina has adulterous relations with Karina’s husband. This is sufficient ground for the compulsory dissolution of the firm.

Sufficient grounds for dissolution:

• Gambling on a Stock Exchange

Persistent refusal or neglect by a partner to attend to business

• Taking away of partnership books by a partner.

4. Persistent breach of agreement: The Court may dissolve a firm if:
(a) Partner wilfully and persistently commits a breach of the partnership agreement as management.
(b) Partner conducts himself in such a way that it is not reasonably practicable for the other partners to carry on business in partnership with him.

5. Transfer of interest: The Court may order dissolution when a partner has in any way –
(a) Transferred the whole of his interest in a firm to a third party.
(b) Allowed his share to be charged on account of a decree passed by a court towards payment of liabilities of that partnership.
(c) Allowed his share to be sold in the recovery of arrears of land revenue.

6. Business working at loss: The firm has been continuously suffering losses and in the future also the business cannot be carried on except at a loss, then application to Court shall be made by any partner for dissolution of the firm.

7. Any other just & equitable grounds: If on any other ground, it can be proved to the satisfaction of the Court that it is just and equitable to dissolve the firm, the Court may order dissolution. Sufficient reasons include:

• Deadlock in management
• The disappearance of a substratum of business
• Partners not on speaking terms.

Question 26.
A, B, C, D & E are partners in a firm. They decided to dissolve the firm from 1st January 2006 but failed to give public notice of its dissolution and continued the business of the firm even after that date. D died on 5th January 2006 and E was declared insolvent on 10th January 2006. On 11th January 2006, A borrowed in the firm’s name ₹ 20,000 from R who was ignorant of the dissolution. Discuss the liability of partners.
Answer:
Facts of Case: A, B, C, D & E are partners in a firm. They decided to dissolve the firm from 1st January 2006 but failed to give public notice of its dissolution and continued the business of the firm even after that date. D died on 5th January 2006 and E was declared insolvent on 10th January 2006. On 11th January 2006, A borrowed in the firm’s name ₹ 20,000 from R who was ignorant of the dissolution

Provision: As per Section 45 of the Partnership Act, 1932, until public notice is given of the dissolution, the partners continue to be liable as such to third parties for any act done by any of them which would have been the act of the firm if done before dissolution. Public notice may be given by any partner.

Conclusion: In the given case, A had borrowed money in the name of the firm but after the death of D and E had been declared insolvent. Hence, as per section 45, the rest of the partners i.e. A, B, and C will be liable to pay the debt to R.

Question 27.
X enters into partnership with Y. As per the terms of the agreement they have decided to continue the partnership for 10 years. Accordingly, X pays a premium of ₹ 2,00,000 to Y who is aware of the fact that X is inexperienced and incompetent. After the expiration of 1 year, Y complains that X’s incompetency is injurious to the business and calls upon to dissolve the partnership. X thereupon files a suit for the dissolution of the partnership and for a return of a proportionate part of the premium. Decide.
Answer:
Facts of Case: X, enters into partnership with Y. As per the terms of the agreement they have decided to continue the partnership for 10 years. Accordingly, X pays a premium of ₹ 2,00,000 to Y who is aware of the fact that X is inexperienced and incompetent. After the expiration of 1 year, Y complains that X’s incompetency is injurious to the business and calls upon to dissolve the partnership. X thereupon files a suit for the dissolution of the partnership and for a return of a proportionate part of the premium.

Provision: As per Section 51 of the Partnership Act, 1932, where a partner has paid a premium on entering into a partnership for a fixed term, and it is Sr dissolved before the expiry of such term, he shall be entitled to repayment of the premium or part thereof.

As per the facts given in the case, partners have decided to continue the partnership for 10 years, and for this X had paid ₹ 2,00,000 but the partnership comes to end before the expiry of the fixed term.

Conclusion: X shall be entitled to repayment of the proportionate premium of ₹ 1,80,000.

Question 28.
Write a short note on Registered partnership
Answer:
Registration of a firm is not mandatory under the Act. Certain privileges are available only to registered firms, thus indirectly making it compulsory to register so as to enjoy those privileges. Registration does not create a partnership but is only evidence of the existence of the partnership. It is advantageous both to the firm and also outsiders.

Provision & procedure for registration of partnership [Sections 58 & 59]:

1. Time: Registration of partnership may be effected at any time during the continuance.
2. Application form & fee: Application for registration has to be made in the prescribed form along with the prescribed fee.
3. Signing & verification: Application for registration has to be signed by all the partners, or their agent specially authorized on this behalf.
4. Registration by Registrar: If Registrar is satisfied that all requirement relating to registration of firm has been fulfilled, issues a certificate of registration.
5. The effective date of registration: Registration is effective from the date when Registrar makes entries in the ‘Register of Firms’ and not from the date of presentation of the statement to him.

Question 29.
“Registration of partnership firm is not compulsory, yet it is desirable.” Comment.
Answer:
Effects of non-registration [Section 69]: Registration of firms is not compulsory, but an unregistered firm suffers from the following disabilities as mentioned:

1. The suit between partners and firm: A partner of an unregistered firm cannot sue the firm or any other partner of the firm to enforce a right arising from a contract, or conferred by the Partnership Act.
2. The suit between the firm and third party: An unregistered firm cannot file a suit against a third party to enforce any right arising from a contract. However, a third party can file suit against an unregistered firm.
3. A claim of set-off: An unregistered firm or a partner thereof cannot claim set-off or other proceedings to enforce a right arising from a contract above t 100.

Non-registration not to affect the following [Section 69]:
1. Even if the firm is unregistered partners can sue for:

• Dissolution of the firm; or
• Settlement of accounts of a dissolved firm; or
• Realizing the property of a dissolved firm.

2. Right of the firm to institute a suit or claim of set-off not exceeding ₹ 100.

3. An unregistered firm can bring a suit against third parties to enforce a right arising otherwise than out of a contract, e.g., for enforcing a trademark.

Question 30.
A, B & C, who are partners of an unregistered firm, sell washing machine to D for ₹ 10,000 on a credit basis. After some time, the firm purchases from D a photocopying machine for ₹ 40,000 on a credit basis. On failure to pay the price, D files a suit against the firm, but the firm insists that the amount of ₹ 10,000 should be adjusted against the claim in question. Will the firm succeed? Give reasons.
Answer:
Facts of Case: A, B & C, who are partners of an unregistered firm, sell washing machine to D for ₹ 10,000 on a credit basis. After some time, the firm purchases from D a photocopying machine for ₹ 40,000 on a credit basis. On failure to pay the price, D files a suit against the firm, but the firm insists that the amount of ₹ 10,000 should be adjusted against the claim in question.

Provision: As per Section 69 of the Partnership Act, 1932, registration of firms is not compulsory, but an unregistered firm suffers from certain disabilities. An unregistered firm cannot file a suit against a third party to enforce any right arising from a contract. However, a third party can file suit against an unregistered firm.

Further, an unregistered firm cannot claim set-off or other proceedings to enforce a right arising from a contract above ₹ 100.

Conclusion: Hence, the firm will not succeed in claiming set-off as the amount is exceeding ₹ 100.

Economic, Business and Commercial Laws Questions and Answers

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• Chapter 1 Reserve Bank of India Act, 1934
• Chapter 2 Foreign Exchange Management Act, 1999
• Chapter 3 FEMA – Current & Capital Account Transactions, Liberalized Remittance Scheme
• Chapter 4 FEMA – Foreign Direct investment in India
• Chapter 5 FEMA -Direct investment Outside India
• Chapter 6 External Commercial Borrowings (ECB)
• Chapter 7 Foreign Contribution (Regulation) Act, 2010
• Chapter 8 Foreign Trade Policy & Procedures
• Chapter 9 Non-Banking Finance Companies (NBFC)
• Chapter 10 Special Economic Zones Act, 2005
• Chapter 11 Competition Act, 2002
• Chapter 12 Consumer Protection Act, 2019
• Chapter 13 Essential Commodities Act, 1955
• Chapter 14 Legal Metrology Act, 2009
• Chapter 15 Transfer of Property Act, 1882
• Chapter 16 Real Estate (Regulation & Development) Act, 2016
• Chapter 17 Benami Transaction (Prohibition) Act, 1988
• Chapter 18 Prevention of Money Laundering Act, 2002
• Chapter 19 Contract Act, 1872
• Chapter 20 Specific Relief Act, 1963
• Chapter 21 Sale of Goods Act, 1930
• Chapter 22 Partnership Act, 1932
• Chapter 23 Negotiable Instruments Act, 1881

Economic, Business and Commercial Laws Chapter Wise Weightage

Conclusion

The information shared above regarding the Economic, Business and Commercial Laws Important Questions is true and genuine as far as our knowledge is concerned. For more help do leave us your suggestions through the comment box. Keep in touch with our site to avail last updates on CS Executive Various Papers.

CS Executive Study Material

Students who are preparing for CS Executive Exams can make use of the CS Executive Setting Up Business Entities and Closure Important Questions provided here. We tried covering the CS Executive Setting Up Business and Closure Questions and Answers as per the latest syllabus guidelines. Check out the CS Executive Programme: Setting Up of Business Entities and Closure Important Chapters Questions and Answers Pdf, Notes, Study Material, Chapter Wise Weightage in the further modules.

CS Executive: Setting Up of Business Entities and Closure Questions and Answers

Chapterwise CS Executive Setting Up Business Entities and Closure Short Notes are provided below for quick reference. Access them by simply tapping on the direct links and get a good hold of the concepts within.

• Chapter 1 Choice of a Business Organization
• Chapter 2 Types of Companies
• Chapter 3 Charter Documents of Companies
• Chapter 4 Legal Status of Registered Company
• Chapter 5 Formation of LLP
• Chapter 6 Different Forms of Business Organizations & Registration Sole Proprietorship
• Chapter 7 Formation & Registration of NGO’S
• Chapter 8 Financial Services Organization & its Registration Process
• Chapter 9 Startups & its Registration
• Chapter 10 Business Collaboration
• Chapter 11 Setting-Up of Business Outside India and Issues Relating Thereto
• Chapter 12 Procedure of Conversion of Business Entities
• Chapter 13 Various Initial Registrations & Licenses
• Chapter 14 Maintenance of Registers & Record
• Chapter 15 Identifying Laws Applicable to Various Industries and their Initial Compliances
• Chapter 16 Intellectual Property Laws
• Chapter 17 Compliances Under Labour Laws
• Chapter 18 Compliances Relating to Environmental Laws
• Chapter 19 Dormant Company
• Chapter 20 Strike Off and Restoration of Name of The Company & LLP
• Chapter 21 Corporate Insolvency Resolution Process, Liquidation & Winding-up: An Overview

Setting Up of Business Entities and Closure Chapter Wise Weightage

Wrapping Up

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CS Executive Study Material