AMIT BACHHAWAT TRAINING FORUM
CA FOUNDATION LAW
1) Mr. Ayush is the principal in Modern Public School. He needs 2000 packets of Biscuits to be distributed to
students in his school on the occasion of Republic Day celebration. For this purpose, he contracted with Yograj
Biscuit Company. Mr. Ayush visited the workshop of Yograj Biscuit Company and was very much satisfied with
the quality of biscuits. He also found that a large number of varieties of biscuits are manufactured in the
workshop. He ordered 2000 packs of biscuits and gave the token money but did not specify the category of biscuits,
he needed. Yograj Biscuit Company did not supply the biscuits on the due date. Mr. Ayush filed the suit against Yograj
Biscuit Company for compensation. State with reasons, whether Yograj Biscuit Company is liable under Indian
Contract Act, 1872? (4 Marks)
Ans:
According to the Indian Contract Act 1872, the meaning of agreement must be certain and not vague
or indefinite. If the meaning of agreement is not certain, the agreement is not enforceable by law.
In the instant case, Mr. Ayush is being principal in Modern Public School ordered 2000 packs of biscuits
to Yograj Biscuit Company for the purpose of distribution on Republic Day among students. He also
gave the token money but did not specify the category of biscuits. Yograj Biscuit Company did not
supply the biscuits on the due date and Mr. Ayush filed the suit for compensation.
On the basis of above provisions and facts, it can be said that the agreement was not enforceable for
want of certainty of meaning as Mr. Ayush did not specify the category of biscuits. Hence, Yograj
Biscuit Company is not liable to pay any compensation to Mr. Ayush.
2) Explain any five circumstances under which contracts need not be performed with the consent of
both the parties. (7 Marks)
Ans:
Under following circumstances, the contracts need not be performed with the consent of both the
parties:
• Novation: Where the parties to a contract substitute a new contract for the old, it is called novation.
A contract in existence may be substituted by a new contract either between the same parties or
between different parties the consideration mutually being the discharge of old contract. Novation can
take place only by mutual agreement between the parties. On novation, the old contract is discharged
and consequently it need not be performed. (Section 62 of the Indian Contract Act, 1872)
• Rescission: A contract is also discharged by recission. When the parties to a contract agree to rescind
it, the contract need not be performed. (Section 62)
• Alteration: Where the parties to a contract agree to alter it, the original contract is rescinded, with the
result that it need not be performed. In other words, a contract is also discharged by alteration.
(Section 62)
, • Remission: Every promisee may dispense with or remit, wholly or in part, the performance of the
promise made to him, or may extend the time for such performance or may accept instead of it any
satisfaction which he thinks fit. In other words, a contract is discharged by remission. (Section 63)
• Rescinds voidable contract: When a person at whose option a contract is voidable rescinds it, the other
party thereto need not perform any promise therein contained in which he is the promisor.
• Neglect of promisee: If any promisee neglects or refuses to afford the promisor reasonable facilities for
the performance of his promise, the promisor is excused by such neglect or refusal as to any non-
performance caused thereby. (Section 67)
•
3) Chhotu of 17 years has purchased a mobile of ` 25,000 for his online classes from Mobile Sales Centre
on credit. On due date, he did not make the payment of mobile. Mobile Sales Centre sued Chhotu and
his parents for the price of mobile. Chhotu has ` 15,000 as his cash balance but his father has enough
money to pay the price of mobile. Who will be liable to pay the price of mobile under the provisions of
Indian Contract Act, 1872? (6 Marks)
Ans:
Section 11 of the Indian Contract Act, 1872 provides that a minor is not capable to enter into a
contract. A contract with minor is void-ab-initio. A minor cannot be enforced to pay off his liabilities.
Parents or guardians of minor are also not liable for any contract entered by minor. However, a minor
is liable for supplies of necessaries out of his assets. Minor is not personally liable even for necessaries.
In the instant case, parents of Chhotu are not liable for price of mobile. Chhotu’s assets are liable to
make the payment of price. Hence, Mobile Sales Centre can recover only ` 15,000 from Chhotu i.e.
equal to his assets.
4) The Articles of Association (AOA) of Avenue International Private Limited contained a clause that
in case of insolvency of any member, his shares in the company should be sold to other person and at
the price fixed by directors of the company. Mr. Neeraj, a shareholder was adjudicated insolvent. His
official assignee in insolvency claimed that he was not bound by the provisions of AOA and is free to
sell the shares at their true value. Referring the provisions of the Companies Act 2013, whether
official assignee is bound by AOA? (6 Marks)
Ans:
The Articles of Association (AOA) of a company are its rules and regulations, which are framed to
manage its internal affairs. Just as the Memorandum contains the fundamental conditions upon which
the company is allowed to be incorporated, so also the articles are the internal regulations of the
company (Guiness vs. Land Corporation of Ireland). Further according to the decision taken in case of
S.S. Rajkumar vs. Perfect Castings (P) Ltd., the document containing the AOA of a company (the Magna
Carta) is a business document; hence it has to be construed strictly. It regulates the domestic
management of a company and creates certain rights and obligations between the members and the
company.
CA FOUNDATION LAW
1) Mr. Ayush is the principal in Modern Public School. He needs 2000 packets of Biscuits to be distributed to
students in his school on the occasion of Republic Day celebration. For this purpose, he contracted with Yograj
Biscuit Company. Mr. Ayush visited the workshop of Yograj Biscuit Company and was very much satisfied with
the quality of biscuits. He also found that a large number of varieties of biscuits are manufactured in the
workshop. He ordered 2000 packs of biscuits and gave the token money but did not specify the category of biscuits,
he needed. Yograj Biscuit Company did not supply the biscuits on the due date. Mr. Ayush filed the suit against Yograj
Biscuit Company for compensation. State with reasons, whether Yograj Biscuit Company is liable under Indian
Contract Act, 1872? (4 Marks)
Ans:
According to the Indian Contract Act 1872, the meaning of agreement must be certain and not vague
or indefinite. If the meaning of agreement is not certain, the agreement is not enforceable by law.
In the instant case, Mr. Ayush is being principal in Modern Public School ordered 2000 packs of biscuits
to Yograj Biscuit Company for the purpose of distribution on Republic Day among students. He also
gave the token money but did not specify the category of biscuits. Yograj Biscuit Company did not
supply the biscuits on the due date and Mr. Ayush filed the suit for compensation.
On the basis of above provisions and facts, it can be said that the agreement was not enforceable for
want of certainty of meaning as Mr. Ayush did not specify the category of biscuits. Hence, Yograj
Biscuit Company is not liable to pay any compensation to Mr. Ayush.
2) Explain any five circumstances under which contracts need not be performed with the consent of
both the parties. (7 Marks)
Ans:
Under following circumstances, the contracts need not be performed with the consent of both the
parties:
• Novation: Where the parties to a contract substitute a new contract for the old, it is called novation.
A contract in existence may be substituted by a new contract either between the same parties or
between different parties the consideration mutually being the discharge of old contract. Novation can
take place only by mutual agreement between the parties. On novation, the old contract is discharged
and consequently it need not be performed. (Section 62 of the Indian Contract Act, 1872)
• Rescission: A contract is also discharged by recission. When the parties to a contract agree to rescind
it, the contract need not be performed. (Section 62)
• Alteration: Where the parties to a contract agree to alter it, the original contract is rescinded, with the
result that it need not be performed. In other words, a contract is also discharged by alteration.
(Section 62)
, • Remission: Every promisee may dispense with or remit, wholly or in part, the performance of the
promise made to him, or may extend the time for such performance or may accept instead of it any
satisfaction which he thinks fit. In other words, a contract is discharged by remission. (Section 63)
• Rescinds voidable contract: When a person at whose option a contract is voidable rescinds it, the other
party thereto need not perform any promise therein contained in which he is the promisor.
• Neglect of promisee: If any promisee neglects or refuses to afford the promisor reasonable facilities for
the performance of his promise, the promisor is excused by such neglect or refusal as to any non-
performance caused thereby. (Section 67)
•
3) Chhotu of 17 years has purchased a mobile of ` 25,000 for his online classes from Mobile Sales Centre
on credit. On due date, he did not make the payment of mobile. Mobile Sales Centre sued Chhotu and
his parents for the price of mobile. Chhotu has ` 15,000 as his cash balance but his father has enough
money to pay the price of mobile. Who will be liable to pay the price of mobile under the provisions of
Indian Contract Act, 1872? (6 Marks)
Ans:
Section 11 of the Indian Contract Act, 1872 provides that a minor is not capable to enter into a
contract. A contract with minor is void-ab-initio. A minor cannot be enforced to pay off his liabilities.
Parents or guardians of minor are also not liable for any contract entered by minor. However, a minor
is liable for supplies of necessaries out of his assets. Minor is not personally liable even for necessaries.
In the instant case, parents of Chhotu are not liable for price of mobile. Chhotu’s assets are liable to
make the payment of price. Hence, Mobile Sales Centre can recover only ` 15,000 from Chhotu i.e.
equal to his assets.
4) The Articles of Association (AOA) of Avenue International Private Limited contained a clause that
in case of insolvency of any member, his shares in the company should be sold to other person and at
the price fixed by directors of the company. Mr. Neeraj, a shareholder was adjudicated insolvent. His
official assignee in insolvency claimed that he was not bound by the provisions of AOA and is free to
sell the shares at their true value. Referring the provisions of the Companies Act 2013, whether
official assignee is bound by AOA? (6 Marks)
Ans:
The Articles of Association (AOA) of a company are its rules and regulations, which are framed to
manage its internal affairs. Just as the Memorandum contains the fundamental conditions upon which
the company is allowed to be incorporated, so also the articles are the internal regulations of the
company (Guiness vs. Land Corporation of Ireland). Further according to the decision taken in case of
S.S. Rajkumar vs. Perfect Castings (P) Ltd., the document containing the AOA of a company (the Magna
Carta) is a business document; hence it has to be construed strictly. It regulates the domestic
management of a company and creates certain rights and obligations between the members and the
company.
