IMPORTANT CASE STUDY QUESTIONS FROM MTP S1 JUNE 2024

BY CA SESHADRI – CA FOUNDATION LAW

1) Kashish was running a business of artificial jewellery since long. He sold his
business to Naman and promises, not to carry on the business of artificial
jewellery and real diamond jewellery in that area for a period of next one year.
After two months, Kashish opened a show room for real diamond jewellery.
Naman filed a suit against Kashish for closing the business of real diamond
jewellery business as it was against the agreement. Whether Kashish is liable
to close his business of real diamond jewellery following the provisions of
Indian Contract Act, 1872?

Answer

According to Section 27 of Indian Contract Act, 1872, an agreement by which

any person is restrained from exercising a lawful profession, trade or
business of any kind, is to that extent void. But this rule is subject to the
following exceptions, namely, where a person sells the goodwill of a business
and agrees with the buyer to refrain from carrying on a similar business,
within specified local limits, so long as the buyer or his successor in interest
carries on a like business therein, such an agreement is valid. The local limits
within which the seller of the goodwill agrees not to carry on similar business
must be reasonable.
In the instant case, Kashish sold his running business of artificial jewellery to
Naman and promises, not to carry on the business of artificial jewellery and
real diamond jewellery in that area and for a period of next one year but just
after two months, Kashish opened a show room of real diamond jewellery.
Naman sued Kashish for closing the business of real diamond business as it
was against the agreement.
As exceptions to section 27 is applicable to similar business only, agreement
between Naman and Kashish will not be applicable on business of real
diamond jewellery. Hence, Kashish can continue his business of real
diamond jewellery.

2) The paid-up capital of Darshan Photographs Private Limited is ` 1 Crores in the

form of 50,000 Equity Shares of ` 100 each and 50,000 Preference Shares (not
carrying any voting rights) of ` 100 each. Shadow Evening Private Limited is
holding 25,000 Equity Shares in Darshan Photographs Private Limited. State
with reason,
i. Whether Darshan Photographs Private Limited is subsidiary of
Shadow Evening Private Limited?
ii. Whether your answer would be different in case Shadow Evening
Private Limited is holding 25,000 Equity Shares and 5,000 Preference
Shares in Darshan Photographs Private Limited?
 Answer :
According to Section 2(87) of Companies Act, 2013 “subsidiary company” in
relation to any other company (that is to say the holding company), means a
company in which the holding company—
• controls the composition of the Board of Directors; or
• exercises or controls more than one-half of the total voting power
either at its own or together with one or more of its subsidiary
companies:
For the purposes of this section —
• the composition of a company’s Board of Directors shall be deemed
to be controlled by another company if that other company by
exercise of some power exercisable by it at its discretion can
appoint or remove all or a majority of the directors;
• the expression “company” includes any body corporate;
It is to be noted that Preference share capital will also be considered if
preference shareholders have same voting rights as equity shareholders.
(a) On the basis of provisions of Section 2(87) and facts of the given
problem, Shadow Evening Private Limited is holding one – half of total
equity paid up share capital of Darshan Photographs Private Limited.
Therefore, Darshan Photographs Private Limited cannot be considered
as subsidiary company of Shadow Evening Private Limited as for being
subsidiary company other company should control more than one – half
of the total voting power.
(b) Answer would remain same even if Shadow Evening Private Limited is
also holding 5,000 preference shares as they do not have voting rights.

3) Kapil entered in a contract with Rahul to purchase 1000 litres of mustard oil at
the price which should be fixed by Akhilesh. Rahul already delivered 600 litres
out of 1000 litres to Kapil but when remaining 400 litres was ready to deliver,
Akhilesh denied fixing the price of mustard oil. Rahul asked Kapil to return the
oil already delivered and avoid the delivery of 400 litres. Kapil sued Rahul for
non-delivery of remaining 400 litres mustard oil. Advise in the light of the Sale
of Goods Act, 1930.
Answer
By virtue of Section 9 of the Sale of Goods Act, 1930, the price in the contract
of sale may be fixed by the contract, or agreed to be fixed in a manner
provided by the contract, e.g., by a valuer, or determined by the course of
dealings between the parties.
Further, section 10 provides for the determination of price by a third party in the
following manner:
(a) Where there is an agreement to sell goods on the terms that price has to
be fixed by the third party and he either does not or cannot make such
 valuation, the agreement will be void.
(b) In case the third party is prevented by the default of either party from
fixing the price, the party at fault will be liable to the damages to the
other party who is not at fault.
(c) However, a buyer who has received and appropriated the goods must
pay a reasonable price for them in any eventuality.
In the instant case, Kapil contracted Rahul to purchase 1000 litres of mustard
oil at the price fixed by Akhilesh. After, Rahul delivered 600 litres Akhilesh
denied fixing the price of mustard oil. Rahul demanded back the oil already
delivered and cancel the delivery of 400 litres. Kapil sued Rahul for non-
delivery of remaining 400 litres mustard oil.
On the basis of above provisions and facts, Kapil is liable to pay a reasonable
price of 600 litres while for remaining 400 litres, contract may be avoided.

4) A and B are partners in M/s Aee Bee & Company. Firm is doing business of
trading of plastic bottles. A is authorised to sell the stock of plastic bottles. It
was decided between them that A should sell the plastic bottles at the
minimum price which they have decided and if A sells at a price less than
minimum price, he should first take the permission of B. Due to sudden
change in government policy, the price of plastic bottles were continuously
declining. To save the loss of firm, A sold the stock at lower price. Meanwhile,
A tried to contact B but could not do so as B was on foreign trip. Afterwards
when B came, he filed the suit to recover the difference of sale price and
minimum price to the firm. Whether B can do so under the provisions of
Indian Partnership Act, 1932?

Answer
According to Section 13(e) of Indian Partnership Act, 1932, every partner has
the right to be indemnified by the firm in respect of payments made and liabilities
incurred by him in the ordinary and proper conduct of the business of the firm as
well as in the performance of an act in an emergency for protecting the firm from
any loss, if the payments, liability and act are such as a prudent man would
make, incur or perform in his own case, under similar circumstances.
In the instant case, M/s Aee Bee & Company is doing business of trading of
plastic bottles. A and B, partners of the firm, authorised A to sell the stock of
plastic bottles on the condition to sale at the minimum price. In case A has to
sell at a price less than minimum price, he should first take the permission of B.
Due to some emergency, A sold the stock at lower price to save the firm from
loss.
On the basis of above provisions and facts of the problem given, sellingby at
a lower price was to save the firm from loss. As the act of A was in favour of
firm, he was not liable to bear the loss.
5) Tycoon Private Limited is the holding company of Glassware Private Limited.
As per the last profit and loss account for the year ending 31st March, 2023 of
Glassware Private Limited, its turnover was ` 1.80 crore and paid up share
capital was ` 80 lakh. The Board of Directors wants to avail the status of a small
company. The Company Secretary of the company advised the directors that
Glassware Private Limited cannot be categorized as a small company. In the
light of the above facts and in accordance with the provisions of the Companies
Act, 2013, you are required to examine whether the contention of Company
Secretary is correct, explaining the relevant provisions of the Act.
Answer
As per section 2(85) of the Companies Act, 2013, Small Company means a
company, other than a public company:
(i) paid-up share capital of which does not exceed four crore
rupees, and
(ii) turnover of which as per profit and loss account for the
immediately preceding financial year does not exceed forty
crore rupees:
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act.

In the instant case, as per the last profit and loss account for the year ending
31st March, 2023 of Glassware Private Limited, its turnover was to the extent of
` 1.80 crore, and paid-up share capital was 80 lakh. Though Glassware Private
Limited, as per the turnover and paid-up share capital norms, qualifies for the
status of a ‘small company’ but it cannot be categorized as a ‘small company’
because it is the subsidiary of another company (Tycoon Private Limited).
Hence, the contention of the Company Secretary is correct.

6) In the Flower Fans Private Limited, there are only 5 members. All of them go
in a boat on a pleasure trip into an open sea. The boat capsizes and all of
them died being drowned. Explain with reference to the provisions of
Companies Act, 2013:
(A) Is Flower Fans Private Limited no longer in existence?
(B) Further is it correct to say that a company being an artificial
person cannot own property and cannot sue or be sued?

Answer
 Perpetual Succession – A company on incorporation becomes a separate
legal entity. It is an artificial legal person and have perpetual succession which
means even if all the members of a company die, the company still continues to
exist. It has permanent existence.
The existence of a company is independent of the lives of its members. It has a
perpetual succession. In this problem, the company will continue as a legal
entity. The company's existence is in no way affected by the death of all its
members.
The statement given is incorrect. A company is an artificial person as it is
created by a process other than natural birth. It is legal or judicial as it is
created by law. It is a person since it is clothed with all the rights of an
individual. Further, the company being a separate legal entity can own property,
have banking account, raise loans, incur liabilities and enter into contracts. Even
members can contract with company, acquire right against it or incur liability to
it. It can sue and be sued in its own name. It can do everything which any
natural person can do except be sent to jail, take an oath, marry or practice a
learned profession. Hence, it is a legal person in its own sense.

7) “An anticipatory breach of contract is a breach of contract occurring before the

time fixed for performance has arrived”. Discuss stating also the effect of
anticipatory breach on contracts.

An anticipatory breach of contract is a breach of contract occurring before the

time fixed for performance has arrived. When the promisor refuses altogether
to perform his promise and signifies his unwillingness even before the time for
performance has arrived, it is called Anticipatory Breach. The law in this regard
has very well summed up in Frost v. Knight and Hochster v. DelaTour.
Section 39 of the Indian Contract Act, 1872 deals with anticipatory breach of
contract and provides as follows: “When a party to a contract has refused to
perform or disable himself from performing, his promise in its entirety, the
promisee may put an end to the contract, unless he has signified, but words
or conduct, his acquiescence in its continuance.”
Effect of anticipatory breach: The promisee is excused from performance or
from further performance. Further he gets an option:

(1) To either treat the contract as “rescinded and sue the other party for
damages from breach of contract immediately without waiting until the
due date of performance; or
(2) He may elect not to rescind but to treat the contract as still operative,
and wait for the time of performance and then hold the other party
responsible for the consequences of non-performance. But in this case,
he will keep the contract alive for the benefit of the other party as well as
his own, and the guilty party, if he so decides on re-consideration, may
 still perform his part of the contract and can also take advantage of any
supervening impossibility which may have the effect of discharging the
contract.

8) Nitesh Gupta is constructing his house. For this purpose, he entered in a

contract with M/s Baba Brick House to supply of 10,000 bricks on 12th August
2023. M/s Baba Brick House has two Lorries of 5,000
brick capacity. On 12th August 2023, one of the Lorries was not in working
condition so M/s Baba Brick House supplied only 5,000 bricks and promised
Nitesh Gupta to supply rest 5,000 bricks on next day. Nitesh Gupta wants to
cancel the contract, as M/s Baba Brick House did not supply the bricks as per
the contract. M/s Baba Brick House gave the plea that no fault has been
made from its part, hence contract should not be cancelled. In this situation,
whether Nitesh Gupta can avoid the contract under Indian Contract Act,
1872?
Answer
Performance of Contract” means fulfilment of obligations to the contract.
According to Section 37 of Indian Contract Act, 1872, the parties to a contract
must either perform, or offer to perform, their respective promises unless such
performance is dispensed with or excused under the provisions of the
Contract Act or of any other law. Further, the performance should be for whole
obligations. Part delivery cannot be considered as valid performance.
In the instant case, Nitesh Gupta contracted with M/s Baba Brick House to
supply of 10,000 bricks on 12th August 2023. M/s Baba Brick House had only
two Lorries of 5,000 brick capacity. But on the agreed date one lorry was
not in working condition so only 5,000 bricks were supplied on 12th August
2023 and promised to supply rest 5,000 bricks on next day.
After taking into account the above provisions and facts, Plea of M/s Baba
Brick House cannot be considered. Performance should be for whole
obligation. Hence, part performance by M/s Baba Brick House cannot be taken
as valid performance. Nitesh Gupta is rightin avoiding the contract.

9) Rahul, a transporter was entrusted with the duty of transporting tomatoes from a
rural farm to a city by Aswin. Due to heavy rains, Rahul was stranded for more
than two days. Rahul sold the tomatoes below the market rate in the nearby
market where he was stranded fearing that the tomatoes may perish. Can Aswin
recover the loss from Rahul on the ground that Rahul had acted beyond his
authority taking into account the provisions of the Indian Contract Act, 1872?

Answer
Agent's authority in an emergency (Section 189 of the Indian Contract
Act, 1872): An agent has authority, in an emergency, to do all such acts for
 the purpose of protecting his principal from loss as would be done by a person
of ordinary prudence, in his own case, under similar circumstances.
In the instant case, Rahul, the agent, was handling perishable goods like
‘tomatoes’ and can decide the time, date and place of sale, not necessarily as
per instructions of the Aswin, the principal, with the intention of protecting Aswin
from losses.
Here, Rahul acts in an emergency as a man of ordinary prudence, so Aswin
will not succeed against him for recovering the loss.

10) agrees to sell certain goods to B on a certain date on 10 days credit. The period of
10 days expired and goods were still in the possession of A. B has also not paid
the price of the goods. B becomes insolvent. A refuses to deliver the goods to
exercise his right of lien on the goods. Can he do so under the Sale of Goods
Act, 1930?

Answer:
Lien is the right of a person to retain possession of the goods belonging to
another until claim of the person in possession is satisfied. The unpaid seller
has also right of lien over the goods for the price of the goods sold.
Section 47(1) of the Sale of Goods Act, 1930 provides that the unpaid seller
who is in the possession of the goods is entitled to exercise right of lien in the
following cases:-
1. Where the goods have been sold without any stipulation as to
credit
2. Where the goods have been sold on credit but the term of
credit has expired
3. Where the buyer has become insolvent even though the
period of credit has not yet expired.
In the given case, A has agreed to sell certain goods to B on acredit of 10
days. The period of 10 days has expired. B has neither paid the price of goods
nor taken the possession of the goods. That means the goods are still
physically in the possession of A, the seller. In the meantime, B, the buyer
has become insolvent.
In this case, A is entitled to exercise the right of lien on the goods because the
buyer has become insolvent and the term of credit has expired without any
payment of price by the buyer.

11) AB sold 500 bags of wheat to CD. Each bag contains 50 Kilograms of wheat. AB
sent 450 bags by road transport and CD himself took remaining 50 bags. Before
CD receives delivery of 450 bags sent by road transport, he becomes bankrupt.
AB being still unpaid, stops the bags in transit. The official receiver, on CD's
insolvency claims the bags. Decide the case with reference to the provisions
 of the Sale of Goods Act, 1930.

Answer
Right of stoppage in transit (Section 50 of the Sale of Goods Act, 1930): Subject
to the provisions of this Act, when the buyer of goods becomes insolvent, the unpaid
seller who has parted with the possession of the goods has the right of stopping
them in transit, that is to say, he may resume possession of the goods as long as
they are in the course of transit, and may retain them until paid or tendered price of
the goods.
When the unpaid seller has parted with the goods to a carrier and the buyer
has become insolvent, he can exercise this right of asking the carrier to return
the goods back, or not to deliver the goods tothe buyer.
In the instant case, CD, the buyer becomes insolvent and 450 bags are in
transit. AB, the seller, can stop the goods in transit by giving
a notice of it to CD. The official receiver, on CD’s insolvency cannot claim the
bags.

12) Priyansh purchased some goods from Sumit. He issued a cheque to Sumit for the
sale price on 14th June, 2023. Sumit presented the cheque in his bank and his
bank informed him on 19th June, 2023 that cheque was returned unpaid due to
insufficiency of funds in the account of Priyansh. Sumit sued against Priyansh
under section 138 of the Negotiable Instruments Act, 1881. State with reasons,
whether this suit is maintainable?

Answer
By virtue of provisions of Section 138 of the Negotiable Instruments Act, 1881,
where cheque was issued by a person to discharge a legally enforceable debt
was dishonoured by bank due to insufficiency of funds, such person shall be
deemed to have committed an offence and shall, without prejudice to any other
provision of this Act, be punished with imprisonment for a term which may
extend to two years or with fine which may extend to twice the amount of the
cheque, or with both.
However,
(a) the cheque has been presented to the bank within three months or
validity period of the cheque, whichever is earlier;
(b) the holder makes a demand for the payment of the said amount of
money by giving a notice in writing, to the drawer of the cheque
within 30 days of the receipt of information from the bank regarding
the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said
amount of money within fifteen days of the receipt of the said
notice.
In the instant case, Priyansh issued a cheque to Sumit for payment of the
 price of goods purchased from him. When Sumit presented the cheque in
bank, it was returned unpaid due to insufficiency of funds in the account of
Priyansh. Sumit sued against Priyansh under section 138 of the Negotiable
Instruments Act, 1881.
For filing the suit under section 138, Sumit should have to make a demand of
payment by giving a notice in writing to Priyansh upto 18th July, 2023. In case,
Priyansh failed in making the payment within fifteen days of the receipt of the
said notice, Sumit could sue under section 138.

13) State the various essential elements involved in the sale of unascertained
goods and its appropriation as per the Sale of Goods Act, 1930.
Answer
Sale of unascertained goods and Appropriation (Section 23 of the Sale of
Goods Act, 1930): Appropriation of goods involves selection of goods with the
intention of using them in performance of the contract and with the mutual
consent of the seller and the buyer.
The essentials are:
(a) There is a contract for the sale of unascertained or future goods.
(b) The goods should conform to the description and quality stated in
the contract.
(c) The goods must be in a deliverable state.
(d) The goods must be unconditionally appropriated to the contract
either by delivery to the buyer or his agent or the carrier.
(e) The appropriation must be made by:
(i) the seller with the assent of the buyer; or
(ii) the buyer with the assent of the seller.
(f) The assent may be express or implied.
(g) The assent may be given either before or after appropriation.