Business Laws Solved Question Papers' 2019 | Gauhati University Solved Question Papers | B.Com 1st Sem CBCS Pattern

BUSINESS LAWS (Honours)’ 2019
Paper: COM – HC - 1036
Full Marks: 80: Time: 3 hours     

The figures in the margin indicate full marks for the questions

1. (a) Choose the correct option from the following:                                      1x5=5

1)         An agreement to procure a Government job is a/an

a)         Void agreement.

b)         Illegal agreement.

c)          Voidable agreement.

d)         Unenforceable agreement.

2)         Who among the folio Wing appoints a sub-agent?

a)         Principal.

b)         Agent.

c)          Both (a) and (b).

d)         Third person.

3)         The Sale of Goods Act, 1930 came force on

a)         1st May, 1930.

b)         1st June, 1930.

c)          1st July, 1930.

d)         1st July, 1931.

4)         Registration of partnership firm is

a)         Optional.

b)         Compulsory.

c)          Both (a) and (b).

d)         None of the above.

5)         Who appoints the Central Information Commissioner?

a)         The Prime Minister of India.

b)         The President of India.

c)          The Chief Justice of the Supreme Court.

d)         None of them.

(b) State whether the following statements are correct or incorrect:                      1x5=5

1)         The Indian Contract Act came into effect from 1st September, 1872.                               True

2)         A contract of life insurance is an indemnity contract.                             False, contract of guarantee

3)         Sale is an executed contract.                            True

4)         The paying banker has no right to dishonour a cheque.        False

5)         A promissory note can be crossed.                                False

2. Answer the following questions in brief:                        2x5=10

a) Who can cross a cheque?

Ans: A cheque can be crossed by the:

1. Drawer; or 

2. The holder; when the cheque is open; or

3. The collecting banker.

b) What is contract?

Ans: Section 2 (h) defines ‘Contract’ as an agreement enforceable by law.  If we analyse the definition it has two components viz.

1. An agreement between two or more persons "To Do" or "Not to Do" something.

2. An enforceability of such an agreement at law i.e. personal rights and personal obligations created and defined by agreement must be recognized by law.

c) Write two rights of surety.

Ans: Rights of surety:

a) Right to securities: On default of principal debtor, when the surety is sued by the creditor to compensate the surety has the right to the benefit of all securities which the creditor has against the principal debtor at the time of contract of guarantee.

b) Right of set-off: If the surety is sued by the creditor, he is entitled to use all the defences against the creditor principal debtor.

d) Write two essentials elements of a contract of sale.

Ans: Elements of Contract of Sale:

a) There are two parties in a contract of sale – buyer and seller.

b) The consideration for a contract of sale is price.

e) Write two differences between partnership and co-ownership.

Ans: Difference between partnership and co-ownership




1. Basis of creation

Partnership is arises from contract not from status.

Co-ownership may be arises from contract or from status.

2. Covered by

Partnership is covered under the Indian Partnership Act’ 1932.

Co-ownership is not covered under the Indian Partnership Act’ 1932.

3. Transfer of interest

No partner can transfer his interest to anyone without the consent of all partners.

A co-owner can transfer his share.


3. Answer any four of the following questions:                                                 5x4=20

a) Briefly state the various kinds of contract on the basis of validity.

Ans: On the basis of validity, contract is of various types which are discussed below:

a) VALID CONTRACT: Valid contract is that which is enforceable at law. It creates legal obligations between the parties. It enables one party to compel another party to do something or not to do something. In case of valid contract all the parties to the contract are legally responsible for the performance of a contract. If one party breaks the contract other has right to be enforced through the court.

b) VOID CONTRACT: "An agreement not enforceable at law is a void contract". Originally it is a valid contract but due to certain reasons it becomes void after its formation. A void contract cannot be enforced by either party. In this case the parties are not legally responsible to fulfill the contract. If any party has received any benefit is bound to return. This contract takes place when consent of one of the parties is not free.

c) VOIDABLE CONTRACT: An agreement, which is enforceable by law at the option of one more of the parties, but not at the option of the other (s), is a voidable contract.

d) Unenforceable Contract: An unenforceable contract is that contract which cannot be enforced in courts due to some technical defect, such as absence of writing, payment of inadequate stamp duty etc.

e) Illegal Contract: An illegal agreement is one the object of which is: a) Fraudulent b) against the provisions of any law c) causes an injury or damage to any person or his property d) immoral or opposed to public policy.

b) Explain the duties of bailee.

Ans: Duties/Responsibilities of a Bailee

1.       Duty to take reasonable care (151): The bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances take, of his own goods of the same bulk, quality, and value as the goods bailed. The bailee must treat the goods as his own in terms of care. However, this does not mean that if the bailer is generally careless about his own goods, he can be careless about the bailed goods as well. He must take care of the goods as any person of ordinary prudence would of his things.

2.       Duty not to make unauthorized use (Section 154): Section 154 says that if the bailee makes any use of the goods bailed which is not according to the conditions of the bailment; he is liable to make compensation to the bailer for any damage arising to the goods from or during such use of them. 

3.       Duty not to mix (Section 155-157): The bailee should maintain the separate identity of the bailer’s goods. He should not mix his goods with bailer’s good without bailer’s consent. If he does so, and if the goods are separable, he is responsible for separating them and if they are not separable, he will be liable to compensate the bailer for his loss.  

4.       Duty to return (Section 160): Section 160 - It is the duty of the bailee to return or deliver according to the bailer’s directions, the goods bailed, without demand, as soon as the time for which they were bailed has expired or the purpose for which they were bailed has been accomplished.

c) State the essential elements of partnership.

Ans: Partnership has the following characteristics:

(i)     Agreement: Partnership is the result of an agreement, either written or oral, between two or more persons. An agreement between the partners may be expressed or implied. It arises from contract and not from status or process of law.

a)      Number of Persons: In a partnership firm there must be at least two people to form the business. Partnership Act 1932, does not specifies the maximum numbers of persons, but Section 464 of the Indian Companies Act 2013, restricts the number of Partners to 50 for a partnership firm. But in case of limited liability partnership there is no maximum limit.

(ii)   Profit-Sharing: The agreement between/among partners must be to share profit or losses. Sharing of profit is an essential feature of partnership. But an agreement to share losses is not an essential element. There may be specific provision in the partnership deed that a particular partner or partners shall not bear the losses.

(iii)    Business: The existence of business is essential in case of partnership. The term business includes every trade, occupation and profession.  Also the motive of the business is the acquisition of gain which leads to the formation of partnership. If there is no intention to carry on the business and to share the profit thereof, there can be no partnership.

(iv)     Business carried on by all or any of them acting for all: Business must be carried on by all the partners or any one of them acting as agent of other partners. Each partner carrying on the business is the principle as well as the agent for all the other partners. Any act of one partner in the course of the business of the firm is in fact an act of all the partners. This relationship between the partners is the true test of partnership.

(v)       Motive: For a partnership firm there must be motive to earn profit. A partnership firm cannot be formed with service motive.

d) Explain the different types of goods under the Sale of Goods Act, 1930.

Ans: Goods may be classified into various types as under:

1. Existing goods: These are goods which are owned and possessed by the seller at the time of sale. Only existing goods can be the subject-matter of a sale. The existing goods may be –

Specific goods: These are goods which are identified and agreed upon at the time of contract of sale is made. For e.g. a person visit s a Titan showroom and identifies a watch for purchase.

Ascertained goods: Though commonly used as similar in meaning to specific goods, these are the goods which become ascertained subsequent to the formation of contract of sale. For e.g. from say 10 Sony T.V. a person identifies the particular T.V.

Unascertained goods: These are the goods which are not identified and agreed upon at the time of the contract of sale. They are defined only by description and may form part of a lot. For e.g. a shopkeeper has a bag containing 50 kg of sugar. He agrees to sell 10 kg sugar to X out of that bag The 10 kg of sugar is unascertained goods as they are yet to be identified from the bag containing 50 kg.

2. Future Goods: These are goods which a seller does not possess at the time of the contract but which will be manufactured, or produced, or acquired by him after the making of the contract of sale. [Section 2(6)]. A contract of present sale of future goods, though expresses as an actual sale, purports to operate as an agreement to sell the goods and not a sale. This is because the ownership of a thing cannot be transferred before that thing comes into existence.

3. Contingent Goods: It is a type of future goods but these are goods the acquisition of which by the seller depends upon a contingency which may or may not happen.

e) Distinguish between cheque and bill of exchange.

Ans: Difference between cheque and bills of exchange:



Bills of Exchange


A cheque is always drawn on a bank or banker.

A bill of exchange can be drawn on any person including a banker.


A cheque does not require any acceptance.

A bill must be accepted before the Drawee can be made liable upon it.


A cheque is payable immediately on demand without any days of grace.

A bill of exchange is normally entitled to three days of grace unless it is payable on demand.


A cheque does not require any stamp.

A bill of exchange must be stamped.


A banker is given statutory protection with regard to payment of cheques in certain circumstances.

No such protection is available to the Drawee or acceptor of a bill of exchange.

f) Discuss with examples the rules relating to contingent contract.

Ans: Rules regarding contingent contracts: To enforce the performance of a contingent contract the following rules have to be followed:

1.    Where the performance of a contingent depends on the happening of an uncertain future event, it cannot be enforced till the event takes place. And if the happening of the event becomes impossible, such contracts become void (sec. 32). Example- A contracts to sell B a piece of land if he (A) wins the legal case involving that piece of land. A loses the case. The contract becomes void.

2.    Where the performance of a contingent contract depends on the non-happening of a future event, the contract can be enforced if the happening becomes impossible (sec. 33). Example- A agrees to sell his house to B if Y dies. This contract cannot be enforced till Y is alive.

3.    If the contract is dependent on the manner in which a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything which makes it impossible that he should so act within any definite time or otherwise than under further contingencies (sec. 34). 

4.    Contingent contract to do or not to do anything, if a specified uncertain event happens within a fixed time, becomes void if the event does not happen and the time expires or its happening becomes impossible before the time expires [sec. 35(1)].

5.    Contingent contract to do or not to do anything, if a specific event does not happen within a specified time, may be enforced when the time so specified expires and such event does not happen, or before the time so specified it becomes certain that such event will not happen [sec. 35(1)].

4. Discuss with examples the essential elements of a valid contract.                      10

Ans: Section 2 (h) defines ‘Contract’ as an agreement enforceable by law.  If we analyse the definition it has two components viz.

1. An agreement between two or more persons "To Do" or "Not to Do" something.

2. An enforceability of such an agreement at law i.e. personal rights and personal obligations created and defined by agreement must be recognized by law.

Section 2 (e) defines ‘agreement’ as “every promise and set of promises forming consideration for each other”. For a contract to be enforceable by law there must be an agreement which should be enforceable by law. To be enforceable, the agreement must be coupled with obligation. Obligation is a legal duty to do or abstain from doing what one promised to do or abstain from doing.  All contracts are agreements but for agreement to be a contract it has to be legally enforceable.

Section10 of the Act provide “All agreements are contracts if they are made by the free consent of the parties competent to contract for lawful object & are not hereby expressly declared void.”

An agreement in order to become a contract must be enforceable by law. Agreements, which do not fulfill the essential requirements of a contract, are not enforceable. Thus when an agreement enables a person to compel another to do something or not to do something it is called a contract. Thus all contracts are agreements but all agreements are not contracts. In order to become a valid contract an agreement must possess the following essential elements:

a)      Offer & Acceptance: There must be two parties to an agreement i.e. one making the offer & other party accepting it. Acceptance of must be unconditional & absolute. A part of an offer cannot be accepted. The terms of an offer must be definite. The acceptance must be in the mode as prescribed & must be communicated. The acceptor of an offer must accept it in the same way & same sense & at the same time as offered by the offeror i.e. there must be consensus ad idem.

b)      Intention to create legal relationship: When two parties enter into a contract their intention must be to create legal relationship. If there is no such intention between the parties, there is no contract between them. Agreements of a social or domestic nature to do not constitute contracts.

c)       Lawful consideration: An agreement to be enforceable by law must be supported by consideration. “Consideration” means an advantage or benefit which one party receives from another. It is the essence of bargain. The agreement is legally enforceable only when both parties give something or get something in return. An agreement to do something without getting anything in return is not a contract. Contract must be in cash or kind.

d)      Capacity to Contract-Competency: The parties competent to contract must be capable of contracting i.e. they must be of the age of majority, they must be of sound mind & they must not be disqualified from contracting by any law to which they are subject to.  An agreement with minors, lunatics, drunkards, etc. is not contract & does not get a legal title.

e)      Free Consent: It is necessary between the contracting parties to have a free & genuine consent to an agreement. The consent of parties is said to be free when the contracting parties are of the same mind on the materials of a contract. They must mean the same thing at the same time the parties must not enter into a contract under undue influence, coercion, misrepresentation etc. If these flaws are present in an agreement it does not become a contract.

f)       Lawful object: The object of an agreement must be lawful. It should not be illegal, immoral or it should not oppose public policy. If an agreement suffers from a legal flaw with respect to object it is not enforceable by law & so it is not a contract.

g)      Agreement not declared void: For an agreement to be a contract it is necessary for the agreement must not be expressly declared void by any law in force in the country.

h)      Possibility & Certainty of performance: The terms of an agreement must not be vague or indefinite. It should be certain. The agreement must be to do a thing which is possible. For e.g. an agreement to sell a car for Rs. 100/- if sun does not rise tomorrow. This agreement is impossible & so not enforceable by law.  

Thus, agreement is the genus of which contract is the specie.


Discuss the different types of void agreements under the Indian Contract Act, 1872.

Ans: VOID CONTRACT: "An agreement not enforceable at law is a void contract". Originally it is a valid contract but due to certain reasons it becomes void after its formation. A void contract cannot be enforced by either party. In this case the parties are not legally responsible to fulfill the contract. If any party has received any benefit is bound to return. This contract takes place when consent of one of the parties is not free.

Cases where the contracts specifically declared to be void under the Indian Contract Act:

1) Agreement made by incompetent person, for e.g. minor, a person of unsound mind

2) Agreement made under mutual mistake as to matter of fact essential to the agreement. 

3) Agreement made under mistake as to a law not enforce in India. 

4) Agreement, the consideration or object of which is unlawful in part or in full.

5) Agreement made without consideration.

6) Agreement in restraint of marriage: Every agreement in restraint of the marriage of any person other than the minor is void. Every adult person has a right to get married and that to have a right to exercise his choice.

7) Agreement in restraint of trade: Every agreement by which anyone is restraint from exercising a lawful profession, trade or business of any kind is to that extent void.

8) Agreement in restraint of legal proceedings: Every agreement which restricts, whether wholly or partly, the enforcing of rights in a court of law or every agreement limiting the time allowed by Law of Limitation shall be void. Every individual has a right to sue in any court and enforce his rights within the time allowed by the limitation act. The following are the exceptions to this rule:

(a) An agreement to refer any dispute to arbitration is permissible.

(b) An agreement restricting the right of other party to sue in a particular court is permissible.

9) Agreement, the meaning of which is uncertain.

10) Agreements by way of wager.

11) Agreements contingent on an uncertain future event, if the event becomes impossible. 

12) Agreements contingent on an impossible event. 

13) Agreements to do the impossible act. 

14) Agreements to do an act which subsequently becomes impossible.

5. (a) Distinguish between a contract of indemnity and a contract of guarantee.                               5

Ans: Distinction between a contract of Indemnity and a contract of guarantee

The contract of indemnity differs from the contract of guarantee in the aspects shown in the following table:

Contract of Indemnity

Contract of Guarantee

1. In a contract of indemnity the promisor undertakes an independent liability.

1. A contract of guarantee is a contract to discharge the liability of a third person in case of default made by him.

2. A contract of indemnity involves two persons, viz., the indemnifier and the indemnity-holder.

2. A contract of guarantee requires the concurrence of three person viz. the principal debtor, the creditor and the surety.

3. The primary liability is on the indemnifier.

3. The principal liability is on the principal debtors.

Secondary liability is on the surety.

4. The loss to be indemnified in such contract is contingent.

4. There is an existing debt for which the surety gives guarantee.

5. The contract of indemnity is for the reimbursement of the loss.

5. The contract of guarantee is for the security of the creditor.


(b) Briefly discuss the rights of an agent.                              5

Ans: Rights of agent

a)      Right to remuneration: Every agent has a right to receive remuneration from his principal for performing his duties. But, if an agent is guilty of misconduct in the business is not entitled to any remuneration in that part of the business which he has mis-conducted.

b)      Right of retaining cash: Agent has the right to retain cash, received by selling goods of the principal, to the extent of amount spent and advances given to the principal by him in carrying out his business.

c)       Right of lien: In the absence of any contract to the contrary, an agent is entitled to retain goods, papers and other property, whether movable or immovable, of the principal received by him, until the amount due to himself for commission, disbursements and services in respect of the same has been paid or accounted for to him.

d)      Right to compensation: if any loss or injury caused to agent due to negligence or lack of skill of principal, then the agent has the right to claim compensation for the same.

e)      Right to indemnity: The employer of an agent is bound to indemnify him against the consequences of all lawful acts done by such agent in exercise of the authority conferred upon him. Further, where one person employs another to do an act, and the agent does the act in good faith, the employer is liable to indemnify the agent against the consequences of that act.


Who is an unpaid seller? Discuss the rights of an unpaid seller.                                2+8=10

Ans: Unpaid Seller and His Rights

Section 45 define an unpaid seller as “One who has not been paid or tendered the whole of the price or one who receives a bill of exchange or other negotiable instrument as conditional payment and the condition on which it was received has not been fulfilled by reason of dishonour of the instrument or otherwise.” The following conditions must be fulfilled before a seller can be deemed to be an unpaid seller:

(i) He must be unpaid and the price must be due.

(ii) He must have an immediate right of action for the price.

(iii) A bill of exchange or other negotiable instrument was received but the same has been dishonoured.

Rights of an Unpaid Seller against the Goods

According to Section 46, an unpaid seller’s rights against the goods are:

(a) A lien or right of retention

(b) The right of stoppage in transit.

(c) The right of resale.

(d) The right to withhold delivery

The above rights of the unpaid can be broadly divided under 2 main headings:

I] Rights against the goods and

II] Rights against the buyer

I] Rights against the goods:

A] Where the property in the goods has passed to the buyer: Where the ownership in the goods has already been transferred to the buyer the following rights are available to an unpaid seller –

1. Right of Lien: The right of lien means the right to retain the possession of goods until the full price is paid or tendered.  When can lien be exercised:

(a) Where the goods have been sold without any stipulation as to credit.

(b) Where the goods have been sold on credit, but the term of credit has expired, and

(c) Where the buyer becomes insolvent.

The right can be exercised even if the seller holds the goods as an agent or bailee. Where part delivery of goods has been made, it can be exercised on the remaining goods, unless circumstances show he has waived his right.

Termination of lien: The right gets terminated under following circumstances:

(a) When the goods are delivered to a carrier or bailee but without reserving the right of disposal.

(b) When the possession is acquired by the buyer or his agent lawfully.

(c) When the right of lien is waived by the seller.

(d) When the buyer has disposed of the goods by sale of in any manner with the consent of the seller.

2. Right of stoppage of goods in transit: The right of stoppage in transit means the right to stopping the goods while they are in transit, to regain possession and to retain them until the price is paid. The essential feature of stoppage in transit is that the goods should be in the possession of someone intervening between the seller and the buyer. The unpaid seller can exercise the right of stoppage in transit if:

(a) The seller has parted with the possession of the goods.

(b) The buyer has not taken possession of goods.

(c) Buyer has become insolvent.

The unpaid seller may exercise the right to stoppage in transit in any one of the following 2 ways:

(a) By taking actual possession of the goods, or

(b) By giving notice of his claim to the carrier or other bailee in whose possession the goods are.

The right to stoppage in transit is lost under the following circumstances:

(a) If the buyer or his agent obtains possession.

(b) If after arrival of the goods at the appointed destination, the carrier or the bailee acknowledges to the buyer that he holds the goods on his (buyer’s) behalf.

(c) If the carrier or bailee wrongfully refuses to deliver the goods to the buyer or his agent.

(d) Where the part delivery of the goods has been made to the buyer or his agent, the remainder of goods may be stopped in transit. But if such part delivery has been given in such circumstances as to show an agreement to give up possession of the whole of the goods the transit comes to an end at the time of part delivery.

3. Right of resale: Where the unpaid seller has exercised his right of lien or resumes possession of the goods by exercising his right of stoppage in transit upon insolvency of the buyer, he can re-sell the goods under the following circumstance:

(a) where the goods are of perishable nature.

(b) Where the seller has given notice of his intention to re-sell the goods and yet the price remains unpaid.

(c) Where the seller expressly reserves a right of resale if the buyer commits a default in making the payment.

B] Where the property in the goods has not passed to the buyer: Where the property in the goods has not passed to the buyer, the unpaid seller can exercise the right to withholding delivery of the goods. This right is similar to and co-extensive with the right of lien and stoppage in transit where the property has passed to the buyer. Other remedies may include the right to claim damages for the loss suffered, special damages, etc.

II] Rights of an unpaid seller against the buyer personally

In addition to the unpaid seller’s rights against the goods, he has rights even against the buyer personally. They are as follows:

1. Suit for Price: Generally the seller can sue for the price of the goods only when the property in the goods has passed to the buyer and the price is not paid as per the terms of the contract. In cases where the property in the goods has not passed to the buyer, suit for price generally, cannot be maintained, unless under the contract, price is payable on a certain date irrespective of the delivery of passing of the ownership of the goods.

2. Suit for damages: The unpaid seller can bring an action for damages where the buyer wrongfully refuses to accept the goods or repudiates the contract.

3. Suit for repudiation: Where the buyer repudiates the contract before the date of delivery, the seller may wait till the date of delivery or may treat the contract as cancelled and sue for damages for breach.

4. Suit for interest: In case of breach of contract on the part of the buyer, the unpaid seller can claim for interest from the date of tender of the goods or from the date, the price becomes payable along with a suit for price.

6. (a) State the features of Limited Liability Partnership.                                              4

Ans: Features of LLP:

a) An LLP is a body corporate formed and incorporated under this Act and is legal entity separate from its partners.

b) It is an alternative corporate business from that gives the benefit of limited liability of a company and the flexibility of the partnership;

c) An LLP shall have perpetual succession.

d) Minimum number of members for a LLP is 2 and no limit for maximum numbers.

e) Individuals and Corporate body can be partners in an LLP.

f) It can continue its existence irrespective of changes in partners. Admission, retirement or death of a partner does not affect the existence, rights or liabilities of the LLP.

g) It is capable of entering into contracts and holding property in its own name;

h) The provisions of the Indian Partnership Act, 1932 shall not apply to an LLP.

i) No partner is liable on account of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct.

(b) Discuss the advantages of Limited Liability Partnership.                        6

Ans: Advantages of LLP: An LLP has the following advantages:

a) Easy formation: The process of formation is very simple as compared to companies and does not involve too much formality.

b) Separate Legal Entity: It has separate legal entity distinct from its members. LLP is known by its name and not by the name of its partners.

c) Perpetual Existence: It has perpetual existence irrespective of change in partners.  The LLP shall continue to exist till it is wound up in accordance with the provisions of the relevant law.

d) Limited restrictions: In LLPs, there is no requirement of minimum capital contribution, no restrictions as to maximum number of partners.

e) Less Cost: Cost of formation of an LLP is less as compared to a company.

f) No need to maintain statutory record: There is no requirement to maintain statutory record except books of accounts and return which is required to be submitted with ROC.

g) Less Tax: Another benefit of an LLP is low tax rate. LLP is taxed at a lower rate as compared to company.

h) Easy winding up: An LLP can be wound up easily. There are limited formalities to wind up an LLP.


State the rights and duties of a partner under the Indian Partnership Act, 1932.                                10

Ans: The Rights of a partner are as under:

(i) To take active part in the business: Every partner has a right to take active part in the conduct and management of the business of the firm.

(ii) To share Profits: Every partner has a right to share profits earned and are liable to contribute to the losses incurred by the firm.

(iii) To be consulted: Every partner has a right to be consulted in all matters affecting the business of the partnership firm before any decision is been taken. In case of difference of opinion it may be settled by decision of majority of the partners.

(iv) To have access to the accounts: Every partner has a right to have access, inspect and copy the books of accounts of the firm.

(v) To be indemnified: Every partner has a right to be indemnified for the expenses incurred or payments made in the ordinary course of business.

(vi) To use the property of the firm: Every partner has a right to use the property of the firm for the purposes of the business of the firm. If the partner uses the firm’s property for private purpose then he is liable to compensate the firm for the same.

The duties of a partner are as under:

(i) To carry on the business to the common advantage: Every partner is bound to:

(a) Carry on the business of the firm to the greatest common advantage.

(b) To be just and faithful to each other in the mutual dealings.

(c) To use reasonable care and skill in the performance of his duties and

(d) Render true accounts and full information of all things, affecting the firm, to any partner or his legal representative.

(ii) To indemnify: Every partner is bound to indemnify the firm:

(a) For any loss cause to it by his fraud in the conduct of business of the firm.

(b) For any loss incurred due to his willful neglect in the conduct of the business of the firm.

(iii) To attend diligently to his duties: Every partner is bound to attend diligently to his duties in the conduct of the business of the firm. He must use his knowledge and skill for the benefit of the firm.

(iv) To account for private profits: If a partner derives any benefit, without the consent of the other partners from any transactions of the firm or from any use of the partnership property, name or business connection. He must account for it and compensate it to the firm. There exists a fiduciary relationship between partners and therefore no partner is entitled to make any personal profit.

(v) To account for profit in competing business: A partner must not carry a business as of competing nature with the firm. If he does that then he is bound to account for and compensate to the firm all the profits made by him in that competing business.

7. (a) Under what circumstances the banker must refuse payment of cheques?                                5

Ans: The bank may dishonour a cheque in the following cases.

a)      When the cheque is post dated and it is presented for payment before the date it bears.

b)      When there are insufficient funds to the credit of the drawer.

c)       When the cheque is presented for payment at branch where the drawer of the cheque has no account.

d)      When a cheque is not duly, presented, as for example a cheque presented outside banking hours.

e)      When the cheque is ambiguous, mutilated, materially altered or irregular.

f)       When the cheque has become stale, that is it is not presented within six months of the issue of the cheque.

g)      When the signatures of the drawer of a cheque do not tally with the specimen signatures in the records of the bank.

h)      When the amount in figures and in words is not the same in a cheque.

i)        When the cheque is crossed and it is not presented through a bank.

j)        Where the bank receives a notice of the insolvency or insanity of the customer.

(b) Briefly discuss the different kinds of endorsement.                                                5

Ans: Different kinds of endorsement with their respective significance are explained below:

a)      Blank or General Endorsement: An endorsement is said to be blank or general, if the endorser sings on the back or on the face of the instrument without specifying the name of any endorsee. The effect of his endorsement makes the instrument payment to bearer even though originally it was payable to order. For example, a cheque payable to Mr. X or order and Mr. X endorse the cheque by simply affixing her signature. The effect of this endorsement makes the instrument payable to bearer even though originally it was payable to order.

b)      Full or Special Endorsement: If an endorser signs his name and adds a direction to pay the amount mentioned in the instrument to or to the order of a specified persons, such an endorsement is said to be a full or special endorsement.  For example, “Pay to Mr. X or order” S/d Mr. Y is an example of full endorsement. Here Mr. Y is the endorser and he has mentioned the name of the endorsee – Mr. X.

c)       Conditional Endorsement: An endorsement is conditional or qualified if it limits or neglects the liability of the endorser.  For example, “Pay to Mr. X on his marriage” s/d Mr. Y is a conditional endorsement. In case of conditional endorsement, the liability of the endorser and the rights of the endorsee becomes conditional on the happening of a particular event.

d)      Restrictive Endorsement: An endorsement is said to be Restrictive, when it prohibits or restrictive the future negotiability of the instrument, it merely entitles the holder of the instrument to receive the amount on the instrument for a specified purpose. For example, “Pay to Mr. X only” s/d Mr. Y. This endorsement confers all the rights of an endorser to the endorsee except the right of negotiation.

e)      San Recourse endorsement and San frais endorsement: In San recourse endorsement, the endorser by his expressed words excludes his own liability and in San frais endorsement, the holders have no right against the endorser if the instrument is dishonoured. For example, “Pay to Mr. X or order – Notice of dishonour waived.” These types of endorsement are generally used to avoid personal liability.

f)       Facultative endorsement: In such type of endorsement, the endorser by his express words increases his liability or give up some of his rights.

g)      Partial Endorsement: When the endorser intends to transfer to the endorsee only a part of the amount of instrument by endorsement, the endorsement is said to be partial. A partial endorsement does not operate as a negotiation of the instrument. For example, when a cheque of Rs. 10,000 is endorsed for Rs. 5000 is an example of partial endorsement.

h)      Forged endorsement: When a negotiable instrument is endorsed with the forged signature of the endorser, the endorsement is called forged endorsement.


What are the obligations of public authorities under the Right to Information Act, 2005? Discuss.           10


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