Mba Apr07 Law

Question Paper Business Law (MB261) : April 2007 Section A : Basic Concepts (30 Marks) • This section consists of questions with serial number 1 - 30. • Answer all questions. • Each question carries one mark. • Maximum time for answering Section A is 30 Minutes.

1.

Beta Ltd. proposes to pay a dividend of 14% on the paid-up capital. What is the minimum amount to be transferred out of current profits to its reserves? (a) (b) (c) (d) (e)

2.

3.

(c) (d) (e)

5.

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When notice of dishonour is waived impliedly When the drawer and acceptor are different When the party entitled to notice cannot after due search be found When the drawer countermands payment When the note is not negotiable.

A prospectus which does not have complete particulars on the price of securities offered and the quantum of securities offered is known as (a) (b) (c) (d) (e)

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The arbitral tribunal can make an interim award Arbitral tribunal has full powers to decide the procedure to be followed, unless parties agree on the procedure to be followed The submission of documents by claimant and defense party can be amended or supplemented any time before pronouncing the arbitral award The parties to the dispute cannot arrive at any mutual settlement during the pendency of the arbitration The aggrieved party can approach the court only after arbitral award is made.

Under which of the following circumstances a notice of dishonour of a negotiable instrument is required? (a) (b) (c) (d) (e)

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Mr. Kartik who is a minor Mr. Anshu who is of unsound mind Mr. Ashwin who is an official receiver of an adjudged insolvent Mr. Parthu who is convicted by a competent Court and undergoing imprisonment Mr. Pavan who is an alien enemy.

Which of the following statements is not true in respect of conduct of arbitral proceedings under the Arbitration and Conciliation Act, 1996? (a) (b)

4.

2.50% of current profits 5.00% of current profits 7.50% of current profits 10.00% of current profits 12.50% of current profits.

Which of the following persons is competent to enter into a valid contract? (a) (b) (c) (d) (e)

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Shelf prospectus Deemed prospectus Red-herring prospectus Information memorandum Statement in lieu of prospectus

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6.

Adarsh, Bharath and Sanjay are co-sureties for Dinesh towards a loan of Rs.60,000 given by Prajay. In the case of default by Dinesh and in the absence of any restrictive clause in the contract of guarantee, Adarsh’s liability is limited to the extent of (a) (b) (c) (d) (e)

7.

8.

(c) (d) (e)

(b) (c) (d) (e)

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Statutory meeting shall be held within 6 months from the date the company is entitled to commence business Statutory meeting shall be held within 1 month from the date the company is entitled to commence business Statutory meeting shall be held within a period of not less than 1 month and not more than 6 months from the date company is entitled to commence business Statutory meeting shall be held within 12 months from the date of its incorporation Statutory meeting shall be held at any time before holding annual general meeting

10. Every instrument not being a bill of exchange or promissory note chargeable with stamp duty executed out of India, after it has been first received in India may be stamped within a period of (a) (b) (c) (d) (e)

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Chamanlal, the agent is personally liable for lapse Chamanlal, the agent is not personally liable as he acted as an agent to the insurance company Anand cannot proceed against the insurance company, as he has not disclosed his infirmity under insurance contract The insurance company can sue Anand for damages arising out of fraud The insurance company is under an obligation to honour the claim of Anand, since the insurance company is bound by the notice or information obtained by the agent in the course of principal’s business.

Which of the following statements is true in respect of holding a statutory meeting by a public company under Companies Act, 1956? (a)

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The director appointed in casual vacancy The director appointed as additional director The director appointed as alternate director The director appointed by the Financial institution under statutory powers The director who absents himself for three consecutive board meetings without obtaining leave of absence.

Anand, who was blind in one eye, obtained an insurance policy against accidental injury. As Anand was illiterate, Chamanlal, the insurance agent, filled-in the form without disclosing Anand’s infirmity. Later, when Anand got injured in an accident, the insurance company refused Anand’s claim for compensation. In the above circumstances, which of the following statements is true under the provisions of the Indian Contract Act, 1872? (a) (b)

9.

Rs.10,000 Rs.15,000 Rs.20,000 Rs.30,000 Rs.60,000.

Which of the following category of directors cannot be removed by the members of the company in general meeting under section 284 of the Companies Act, 1956? (a) (b) (c) (d) (e)

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Six months Three months Fifteen days Forty five days One month.

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11. An auditor is appointed by the shareholders at the annual general meeting. Which of the following statements is true with respect to the tenure of the auditor’s office? (a)

(b) (c) (d) (e)

The auditor can continue in office as a non-retiring auditor provided a special resolution is passed and prior approval of the Central Government is obtained The auditor vacates office on the last date on which the next annual general meeting should have been held The auditor is appointed from the conclusion of one annual general meeting and holds the office until the conclusion of next annual general meeting The auditor will retire as soon as the resolution appointing another auditor is passed The auditor shall be appointed for a period of five years.

12. Where a person in any of the notified cities or towns, delivers to a creditor or his agent documents of title to immoveable property, with intent to create a security thereon, the transaction is called as a / an (a) (b) (c) (d) (e)

(b) (c) (d) (e)

(c) (d) (e)

(c) (d) (e)

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If it is revoked by Mr. Madan Mohan at any time before its acceptance If Mr. Madan Mohan or Mr. Jai Kishan dies or becomes insane and the other party comes to know of it before acceptance If the offer is not accepted within the specified time or within a reasonable time Upon failure to make the advance payment within stipulated period by Mr. Jai Kishan If Mr. Madan Mohan dies or becomes insane, Mr. Jai Kishan comes to know about it after acceptance.

15. Which of the following acts of directors is not held as oppressive? (a) (b)

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The right of lien on the goods in the custody of the unpaid seller, will arise only if the property in the goods has not passed to the buyer The unpaid seller has the right to detain the goods even if the price is paid The unpaid seller has no right to deal with the goods i.e. the right to sell the goods The right of stoppage in transit arises only upon the insolvency of the buyer The right of stoppage in transit accrues and continues even if the goods are in the hands of the buyer

14. On March 01, 2007, Mr. Madan Mohan offered to sell his house at New Delhi for Rs.20 lakhs to Mr. Jai Kishan, with a condition that Rs.5 lakhs is to be paid as advance by Mr. Jai Kishan within one month from the date of offer. Under which of the following circumstances the offer does not lapse? (a) (b)

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Simple Mortgage Mortgage by Deposit of Title Deeds Mortgage by Conditional Sale English Mortgage Anomalous Mortgage.

13. Which of the following statements is true in respect of the rights of an unpaid seller? (a)

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Acts done by a person who usurped the office of a director and who has no authority at all Conducting the affairs of the company in a manner, and not doing anything to defend the interests of the company Inefficient management by the directors Diverting a business opportunity to a company controlled by a director who holds a major stake in the first company Director refusing to register a transfer of shares according to the directions contained in a will.

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16. Mr. Arun, a director of Gayatri Ltd. is drawing a consolidated salary of Rs.1,20,000 per annum. The following perquisites are provided to Mr. Arun during the financial year 2006-07:

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Free services of sweeper, watchman, cook and gardener are provided by employer at a monthly salary of Rs.200, Rs.500, Rs.300 and Rs.600 respectively. The total value of the perquisites for the assessment year 2007-08 is (a) (b) (c) (d) (e)

Rs. 19,200 Rs. 16,800 Rs. 13,200 Rs. 15,600 Rs. 12,000.

17. Which of the following conditions is/are to be satisfied for excluding unrealized rent from rent received / receivable? I. II. III. IV. (a) (b) (c) (d) (e)

The tenancy is bonafide. The defaulting tenant has vacated or steps have been taken to compel him to vacate the property. The defaulting tenant is not in occupation of any other property of the assessee. The assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless. Only (II) above Both (II) and (IV) above Both (I) and (II) above (I), (II) and (IV) above All (I), (II), (III) and (IV) above.

18. A return of income is considered not to be defective, when (a)

The return is filed by an employee through his employer

(b) (c) (d) (e)

The proof of the tax deducted at source is not enclosed The proof of the self assessment tax paid is not enclosed The return of income is not duly filled in Audit report under section 44AB has not been enclosed in the relevant cases.

19. Where a person transfers capital asset to a firm in which he becomes a partner, the full value of consideration in the context of capital gain computation, will be (a) (b) (c) (d) (e)

(e)

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It is taxable under the head ‘Income from salaries’ It is taxable under the head ‘Profits and gains from business or profession’ It is taxable under the head ‘Income from other sources’ It is taxable under the head ‘Income from salaries’ in respect of the salary and ‘Income from other sources’ in respect of the allowances It is exempted from tax.

21. Which of the following is not considered as deemed income within the meaning of section 69 of the Income Tax Act? (a) (b) (c) (d) (e)

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Amount recorded in the books as the value of capital asset Fair Market Value of capital asset The value decided by the partners of the firm The value is decided by the newly admitted partner Decided by the Income Tax authorities.

20. Which of the following statements is true in respect of the salary and other allowances received by a Member of Parliament? (a) (b) (c) (d)

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Unexplained investments Unexplained money Investments not fully disclosed Explained expenditure Amount borrowed or repaid on Hundi.

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22. Which of the following statements is / are true in respect of the clubbing provisions, where both the husband and the wife have the substantial interest in the concern and both receive the remuneration from the concern?

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I. II.

The remuneration received from the concern is taxable in the hands of the respective recipients. Remuneration will be included in the total income of either the husband or the wife, whose total income, excluding such remuneration is greater. III. Remuneration once taxed in the hands of one spouse, cannot be included in the income of the other spouse in subsequent years, without the assessing officer giving an opportunity to the assessee in whose hands he would like to charge the income of being heard. (a) (b) (c) (d) (e)

Only (I) above Only (II) above Only (III) above Both (I) and (II) above Both (II) and (III) above.

23. Arti, a minor daughter of Geeta, is a professional dancer and earns an amount of Rs.3,75,000 during the previous year 2006-2007 on account of her dance performances. The income received by Arti is (a) (b) (c) (d) (e)

Taxable in the hands of Arti Taxable in the hands of her mother Geeta Exempted from tax as Arti is a minor Exempted as it is the income from the exercise of an art Taxable as family income as the income is earned by a minor.

24. According to the Income Tax Act, 1961 which of the following is not considered as an income? (a) (b) (c) (d) (e)

Particulars Self occupied residential house property Residential house let out for the entire previous year Gold ornaments of wife gifted by assessee Cars Loan (taken to purchase cars) Manthan for the assessment year 2007-08 is

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Rs. 15,00,000 18,00,000 4,00,000 3,00,000 1,00,000 The wealth tax liability of Mr.

Nil Rs. 9,000 Rs.24,000 Rs.10,000 Rs. 6,000.

26. Form ‘G’ under Central Sales Tax Act relates to (a) (b) (c) (d) (e)

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Interest on refund of income tax Refund of income tax Salary in lieu of notice period Advance salary Winnings from betting.

25. Consider the following particulars furnished by Mr. Manthan as on March 31, 2007:

(a) (b) (c) (d) (e)

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Sales covered in the course export Indemnity furnished by dealer in matters of security deposit For stock transfers from one state to another Supply to government concerns by the dealers Interstate sales.

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27. A manufactured certain goods that were exempted from the excise duty. He cleared the goods subsequently, by which time the exemption on the said goods was withdrawn. In the present situation which of the following statements is true? (a) (b) (c) (d) (e)

No duty is payable as they were exempted at the time of the manufacture Status of the goods (i.e. exempted or not) on the date of clearing is important Subsequent withdrawal of the exemption is immaterial Duty is payable as per the rates applicable on the date of the clearing/removal The duty has to be paid as per the rates applicable on the date of clearing, as the status of the exemption of the goods on the date of clearing is important

28. Which of the following is not ‘goods’ under the Central Excise Act? (a) (b) (c) (d) (e)

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By-products Drawings and designs relating to the machinery Intermediate goods which are not marketable Sub-standard goods Gas and steam.

29. Which of the following statements is true as per the provisions of the Customs Act 1962? (a) (b) (c) (d) (e)

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Baggage does not include unaccompanied baggage or luggage Coastal goods are those goods which enter the country by a sea port Conveyance includes a vehicle and a vessel but does not include an aircraft Goods does not include currency or negotiable instruments Customs station includes any customs port, customs airport or land customs station.

30. Under the Customs Act, the provisional assessment of the duty payable, can be done under which of the following conditions? I.

When the Customs Officer is satisfied that the importer or the exporter is unable to furnish the information required for the assessment. II. When the goods are to be subjected to the chemical and other tests. III. When the Customs Officer needs to make further enquiry even after the submission of all the relevant documents. Only (I) above Only (II) above Only (III) above Both (II) and (III) above All (I), (II) and (III) above.

END OF SECTION A

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Section B : Problems (50 Marks) • This section consists of questions with serial number 1 – 7.

• Answer all questions. • Marks are indicated against each question. • Detailed workings should form part of your answer. • Do not spend more than 110 - 120 minutes on Section B.

1.

a.

Harish owner of a farm offered to sell it to Mahesh for Rs.5,00,000. Mahesh did not a first instance. A counter offer was made by Mahesh, expressing his willingness Rs.4,00,000. The counter offer was rejected by Harish. Later, Mahesh agreed t Rs.5,00,000 as indicated by Harish originally. Mahesh’s offer was again rejected by rights of Mahesh to enforce the specific performance of the sale of farm by Harish Act, 1872.

b.

A borrowed Rs.1,00,000 from B and C extended his guarantee, by depositing title property worth about Rs. 15,00,000 for the repayment of the debt by A along with int the interest. B issued notice to both A and C demanding the repayment of the entire interest. B filed a suit against C for attachment of the house property for repayment Now, C contends that B should first exhaust all his remedies against A and then only attachment of C’s property. Examine the rights of B against A and C.

2.

The Board of directors of Palaniappan Shipping Company Ltd., Chennai in their B 10.02.2007 appointed Mr. Arunachalam as a director. Mr. Arunachalam also filed a director. The Articles of Association of the company contained a provision that the b company would be held on the Second Saturday of each month. Accordingly, a board m 10.03.2007. Mr. Arunachalam did not attend the board meeting as he did not receive any the Company Secretary. Mr. Arunachalam lodged a complaint with the Chairman and against the Company Secretary for his negligence in sending the required notice of board m rights of Mr. Arunachalam to receive notice of board meeting and the validity of the d board meeting on 10.03.2007.

3.

a.

Deendayal working as a clerk in Kineticmagnetics Ltd. executed a transfer deed in f Upadhyaya, even though he did not own any shares. The company registered lodgement of original share certificate by Deendayal and issued a new share certif Mrs. Laxmi Upadhyaya. Examine the rights of Mrs. Laxmi Upadhyaya a Kineticmagnetics Ltd.

b.

M/s Vigilant and Co., Chartered Accountants, auditors of Bharat Navnirman Ltd annual audit of the company noticed huge variation in the book value and realizable the company and submitted a confidential report on the same to the directors. Th stated in their official report that the value of the assets of the company depended u The directors relying on the official report paid dividend which resulted in reducti capital. Examine the liability of the auditors to make good the company’s loss.

4.

Mysore Sales Corporation is maintaining a current account with the State Bank of Mysore of the company had committed forgeries for over a decade. However, the company did no to the entries made in the statement of accounts given by the bank from time to time, dur the company detected the fraud and brought a suit against the bank for the recovery of am by the bank. Examine the rights and liabilities of banker and customer in this case.

5.

Latha purchased 1,000 equity shares of Rs.10 each for Rs.25 in the year 2002-03 and inc of 1% on brokerage. In July 2004 she received 125 bonus shares. In September 2005 she for Rs.30 each. She sold 125 bonus shares in October 2005 at Rs.90 per share and 200 righ share in December 2006. You are required to compute the capital gains taxable in the ha assessment year 2007-08. Cost of inflation index 2002–2003 2003–2004

Suggested Answers Business Law (MB261) : April 2007 Section A : Basic Concepts 1.

Answer : (b) Reason : The minimum amount to be transferred out of current profits to reserves by a company, which proposes to pay a dividend exceeds 12.5% but does not exceed 15% of the paid up capital shall be 5.% of current profits.

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2.

Answer : (c) Reason : Mr. Ashwin who is an official receiver of an adjudged insolvent is competent to enter into a valid contract. All the other persons (a) Mr. Kartik who is a minor, (b) Mr. Anshu who is of unsound mind, (d) Mr. Parthu who is convicted by a competent Court and undergoing imprisonment and (e) Mr. Pavan who is an alien enemy are not competent to enter into a contract. Hence, the answer is (c).

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3.

Answer : (d) Reason : The arbitral tribunal has full powers to decide the procedure to be followed, place of hearing and language to be used in the arbitral proceedings, unless parties agree on the procedure to be followed. [Section 19(4)]. The claimant should submit statement of claims, points of issue and releif or remedy sought. The respondent shall state his defense in respect of these particulars. All relevant documents should be submitted. Siuch claim or defense can be ammended or supplemented any time [Section 23]. The parties to the dispute may arrive at any mutual settlement during the pendency of the arbitration (Section 30) The aggrieved party can approach the court only after arbitral award is made. The arbitral tribunal can make interim award also [Section 31(6)].

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4.

Answer : (b) Reason : When the drawer and acceptor are different notice of dishonour of a negotiable instrument is necessary.

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5.

Aswer: Reason:

(c) A prospectus which does not have complete particulars on the price of securities offered and the quantum of securities offered is known as red-herring prospectus

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6.

Answer : (c) Reason : As Adarsh, Bharath and Sanjay are co-sureties, on default by Dinesh and in the absence of any restrictive clause, Adarsh will be liable for one-third of the amount lent to Dinesh which is Rs.20,000.

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7.

Answer : (d) Reason : The director appointed by the Central government/ financial institution cannot be removed by the members under section 284 of the Act and all others can be removed by the members in general meeting.

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8.

Answer: (e) Reason: The facts are similar to the decided case of Bawden vs The London Edinburgh and Glasgow Assurance Company. It was held that the policy was good and the insurance company was bound by the knowledge of the agent. Hence, the insurance company cannot reject the claim filed by Anand.

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9.

Answer: (c) Reason: Acording to Section 165 of the Companies Act,1956, every company limited by shares, and every company limited by guarantee and having share capital, shall, within a period of not less than one month nor more than six months from the date at which the company is entitled to commence business hold a general meeting of the members of the company, which shall be called ‘statutory meeting’.

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10.

Answer: (b) Reason: Every instrument not being a bill of exchange or promissory note chargeable with stamp duty executed out of India may be stamped within three months after it has been first received in India.

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11.

Answer : (c) Reason : Section 224(1) of the Companies Act provides that an auditor is appointed from the conclusion of one annual general meeting until the conclusion of the next annual general meeting.

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12.

Answer : (b) Reason : Where a person in any of the notified cities or towns, delivers to a creditor or his agent documents of title to immoveable property, with intent to create a security thereon, the transaction is called as a Mortgage by Deposit of Title Deeds

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13.

Answer : (d) Reason : The right of stoppage in transit arises only upon the insolvency of the buyer Other statements are incorrect because: The right of lien on the goods in the custody of the unpaid seller, will arise notwithstanding the fact that the property in the goods has passed to the buyer The unpaid seller has the right to detain the goods till price is paid The unpaid seller has a right to deal with the goods i.e. the right to sell the goods The right of stoppage in transit accrues and continues so long as the goods are in the hands of middlemen

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14.

Answer : (e) Reason : If Mr. Madan Mohan dies or becomes insane, Mr. Jai Kishan comes to know of it after acceptance then an offer does not lapse. In all the other cases (a) if it is revoked by Mr. Madan Mohan at any time before its acceptance, (b) if Mr. Madan Mohan or Mr. Jai Kishan dies or becomes insane and the other party comes to know of it before acceptance, (c) if the offer is not accepted within the specified time or within a reasonable time and (d) upon failure to fulfill a condition precedent to acceptance the offer would lapse. Hence, the answer is (e).

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15.

Answer : (c) Reason : Inefficient management by the directors is not an act of oppression by the directors. All the other acts are held as oppressive.

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16.

Answer : (a) Reason :

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Particulars

i) ii) iii) iv)

Sweeper (200×12) Watchman (500×12) Cook (300×12)

Gardener (600×12) Total value of the perquisite

Rs. 2,400 6,000 3,600 7,200 19,200

17.

Answer : (e) Reason : Unrealised rent shall be excluded from rent received / receivable only if the following conditions are satisfied: •

The tenancy is bonafide.

•

The defaulting tenant has vacated or steps have been taken to compel him to vacate the property.

•

The defaulting tenant is not in occupation of any other property of the assessee.

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•

The assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless Hence the answer is (e). 18.

Answer : (a) Reason : When the return is filed by an employee through his employer, the return of income cannot be considered defective.

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19.

Answer : (a ) Reason : Where a person transfers capital asset to a firm in which he becomes partner , the full value of consideration in this context of capital gain computation will be amount recorded in the books as the value of capital asset. Hence the correct answer is option (a).

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20.

Answer : (c) Reason : The amount which is received from a person other than the employer cannot be termed as salary. A Member of Parliament or a State Legislature is not treated as an employee of the Government. Hence the salary and other allowances received by Member of Parliament is taxable under the head Income from other sources.

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21.

Answer : (d) Reason : Any income for which no explanation is forthcoming from the assessee with regard to its nature and source, such income is considered as deemed income by the Assessing Officer. If satisfactory explanation is not given with regard to investment made, monies received recorded and expended they are deemed incomes in the hands of assessee. Thus, the explained expenditure is not a deemed income.. The amounts stated in alternatives (a), (b), (c) and (e) are deemed incomes.

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22.

Answer: (e) Reason: When both the husband and the wife are having substantial interest in the company and both are in receipt of the remuneration from the concern, remuneration will be included in the total income of the husband or the wife whose total income, excluding such remuneration is higher and remuneration once taxed in the hands of one spouse, cannot be included in the income of the other spouse in subsequent years, without the assessing officer giving an opportunity of being heard, to the assessee in whose hands he would like to charge the income. Hence statement (II) & (III) are true.

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23.

Answer : (a) Reason : If the income is earned by a minor , using his/ her professional capacity, is taxable, in the hands of the minor

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24.

Answer : (b) Reason : The definition of the term income in section 2 (24) is inclusive and not exhaustive . Therefore, the term ‘income’ not only includes those things which are included in section 2 (24) but also includes such things, which the term signifies, according to its general and natural meaning. Before discussing the definition of income given in section 2(24), it is imperative to know meaning of ‘income’ as generally understood. Meaning of income as generally understood: Income is periodical monetary return with some sort of regularity. It may be recurring in nature. It may be broadly defined as the true increase in the amount of wealth which comes to a person during a fixed period of time. Hence Interest of refund of income tax Salary in lieu of notice period Advance salary Winnings from betting All these incomes qualifies the qualities of income But refund of income tax is not considered as income because it lacks some sort of regularity. It is not recurring in nature and the amount of wealth is not increasing by way of refund of income tax so it is not considered as income.

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25.

Answer: (a) Reason:

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Self occupied residential house property Residential house (let out for more than 300 days during the previous year) Gold ornaments of wife gifted by assessee Cars Less: Loan (taken to purchase cars) Gross wealth Less: Exemption under section 5(vi) (one self occupied house property) Net wealth Wealth tax liability = Nil since the net wealth is less than Rs.15,00,000

15,00,000 –– 4,00,000 3,00,000 (1,00,000) 21,00,000 15,00,000 6,00,000

26.

Answer : (b) Reason : Form G under CST Act relates to the indemnity that is required to be furnished by the dealer in matters of security deposit when ‘C’ form is lost (7A).

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27.

Answer : (e) Reason : As per the provisions of the Central Excise Act, the rate of duty as applicable on the date of removal of the goods from the factory is important. Hence even if the goods were exempted at the time of manufacture but the exemption has been withdrawn by the time the goods are cleared from the factory, the goods are liable to tax. Wallace flour Mills Co. Ltd. v CCE 1989(44) ELT 598.

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28.

Answer : (c) Reason : All the following are treated as goods : By-products Drawings and designs relating to the machinery Intermediate goods which are marketable Sub-standard goods Gas and steam. Hence the option (c) which states that intermediate goods which are not marketable are not goods .

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29.

Answer : (e) Reason : Customs station includes any customs port, customs airport or land customs station. Hence (e) is the correct answer.

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30.

Answer : (e) Reason : The provisional assessment of the duty payable, can be done When the Customs Officer is satisfied that the importer or the exporter is unable to furnish the information required for the assessment, When the goods are to be subjected to the chemical and other tests, When the Customs Officer needs to make further enquiry.

Section B : Problems

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1

a.

The facts of the case are similar to those in the decided case of Hyde vs Wrench wherein, an offer made for the sale of a farm for 1000 pounds was not accepted in the first instance. A counter offer was made wherein the plaintiff expressed his willigness to pay 950 pounds. When the counter offer was rejected, the plaintiff consented to buy the farm for 1,000 punds which was again rejected by the defendant. It was held that the suit filed for breach of contract was not maintainable as the counter offer implied that the original offer had been rejected. Hence, there was no valid contract between the parties. Mahesh will not succeed for specific performance of contract to sale of the farm by Harish. The facts of the case are similar to those in the decided case of Bank of Bihar vs Damaodar Prasad where the plaintiff bank advanced a loan to Damodar Prasad ,which was guranteed by Paras Nath Sinha. Inspite of repeated demands principal debtor and surety failed to make repayment. The plaintiff then, filed a suit against both the debtor and surety . Decree was passed in favour of the bank with the condition that the bank could proceed against the surety only after exhausting all remedies against the principal debtor. On an appeal made by the bank the Supreme Court, set aside the decree and allowed the bank to enforce its claim agaist the surety immediately, without first exhausting its remedies against the principal debtor.

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2

In the decided case of Arunachalam Chettiar Firm vs Kaleswarar Mills Ltd., it was held that where the articles provided that board meeting would be held on the first Saturday of each month, there was no need to issue a notice to every director, as the provision in the articles was in compliance of Section 286(1). So in view of the above, Mr. Arunachalam is deeemed to have costructive notice of the board meeting dated 11.03.2007 and the decisions taken at the board meeting are valid. An officer who fails to give a notice of board meeting will be punishable with fine which may extend to Rs. 1,000 and render the proceedings of the meeting invalid.

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3

a.

The facts of the case are similar to the decided case of Dixon vs Kennaway, wherein the clerk of a company executed a transfer in favour of Mrs. Dixon even though he did not own any shares. The company registered the transfer without requiring the clerk to produce the share certificate and issued a new share certificate to Mrs. Dixon. It was held that the company was liable for damages. The facts of the case are similar to the decided case of Re London and General Bank No.2 wherein the auditors stated in their official report that the value of the assets of the company depended upon their realization. They, however, submitted a different confidential report to the directors. The directors relying on the official report paid dividend which resulted in depletion of the company’s capital. The auditors were held liable for the company’s loss.

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The facts of the case are similar to the decided case of Canara Bank vs Canara Sales Corporation, wherein one of the officials of the company had committed forgeries for over a decade. However, the company did not raise any objection to the entries made in the pass-sheets during that period. It was observed that the bank cannot escape its liability keeping in view the fact that the contract between the banker and customer did not specify that discrepancies should be brought to the notice of the banker. Also, there was no ratification of the same by the customer. Unless otherwise provided by the banker-customer contract, it is not the duty of the customer to bring to the notice of the banker any discrepancy in the pass book or the statement of accounts. The banker cannot plead that the customer had acted irresponsibly by not checking the entries in the pass book/ statement of account. In view of the foregoing State Bank of Mysore has to refund the amount wrongly debited to the account of Mysore Sales Corporation.

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b.

b.

4

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5 Rs. Capital gains of Latha for the assessment year 2007– 08 Sale proceeds of 125 bonus shares at Rs.90 per share Less cost price (Bonus shares Long term capital gain Sales proceeds of 200 right shares at Rs.80 per share Less cost price (indexed cost of acquisition 6,000 x 519 / 497) Long term capital gain Total long term capital gains 11,250 + 9,734 @ 10% + cess

11,250 Nil 11,250 16,000 6,266 9,734 20,984 If benefit of indexation is not taken then tax