2005 ICFAI University M B A Business Law MB261 July 2005 Question paper
University Question Papers
2005 ICFAI University M B A Business Law MB261 July 2005 Question paper
Business Law (MB261) : July 2005
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. Section 197A of the Companies Act, 1956 provides for prohibition of simultaneous appointment of
certain categories of managerial personnel. Accordingly the category of persons are
(a) Manager and whole time director
(b) Manager and managing director
(c) Manager and a director
(d) Managing director and a whole time director
(e) Manager and a secretary.
2. Modern Ltd. proposes to appoint Kalid, a relative of one of the directors of the company, as general
manager marketing on a monthly remuneration of Rs.40,000. In this context, which of the following
provisions of the Companies Act are to be complied with?
(a) Passing of a board resolutio n alone is sufficient
(b) Passing of a special resolution is required
(c) Passing of an ordinary resolution and Central Government’s permission are required
(d) Prior consent of the company by a special resolution and the approval of the Central Government
(e) No resolution is required to be passed, but Central Government’s permission is compulsory.
3. Which of the following matters require special resolution ?
(a) To remit or give time for repayment of any debt due by a director
(b) To borrow monies exceeding the aggregate of the company’s paid up capital and the free reserves
(c) To contribute to charitable and other funds not relating directly to the business of the company
(d) To appoint managing director/manager/whole time director
(e) To authorize commencement of new business u/s 149 (2A) of the Companies Act.
4. Under which of the following circumstances, the office of a director shall become vacant?
(a) When he obtains qualification shares with in one month from the date of his appointment
(b) When he absents himself consecutively for two Board meetings
(c) When he acts in contravention of section 77A
(d) When he acts in contravention of section 299
(e) When he acts in contravention of section 372A.
5. Under which of the following circumstances a company is not permitted to engage in buy -back of its
(a) When default is made in filing its annual return
(b) When managing director is not appointed as required
(c) When annual general meeting is not conducted for a calendar year
(d) When the Board of directors claims excess remuneration than prescribed under the Act.
(e) When a higher rate of dividend than the recommended one is declared in the annual general
6. Which of the following is true ?
(a) There are always two parties in a contract of guarantee
(b) The liability of the surety is primary
(c) It is necessary for the indemnifier to act at the request of the indemnity holder
(d) The surety generally gives the guarantee at the request of the principal debtor
(e) In a contract of indemnity three parties are necessary.
7. An instrument which is incomplete in some respects, is called
(a) Foreign instrument
(b) Inland instrument
(c) Inchoate instrument
(d) Ambiguous instrument
(e) Fictitious instrument.
8. Which of the following is/are true as regards the difference between assignment and negotiation under
the Negotiable Instruments Act, 1881?
I. Assignment is made in writing and signed by the transferor whereas negotiation requires mere
delivery of a bearer instrument to effect a transfer.
II. Title of assignee is subject to all defects whereas in case of negotiation the title of the transferee is
better than that of the transferor.
III. Consideration is presumed in case of assignment whereas in the case of negotiation the transferee
must prove consideration for the transfer.
(a) Only (I) above (b) Both (I) and (II) above(c) Both (I) and (III) above
(d) Both (II) and (III) above (e) All (I), (II) and (III) above.
9. According to the Arbitration and Conciliation Act, 1996 the first step involved in an arbitration
(a) Appointment of arbitrator
(b) Making an application to the High Court, requesting to give permission to appoint arbitrator
(c) Entering of arbitration agreement by the parties to the dispute
(d) Submission of statement of claims by the complainant
(e) Writing and signing of the award by the members of the Arbitral Tribunal.
10. Doctrine of restitution can be invoked in the case of
(b) Void agreements
(c) Valid contracts
(d) Collateral contracts
(e) Contingent contracts.
11. Which of the following instances is/are treated as crossing under the Negotiable Instruments Act, 1881?
I. A cheque bearing across its face the words ‘account payee’ without two transverse parallel lines.
II. A cheque bearing acro ss its face the words ‘not negotiable’ without two transverse parallel lines.
III. A cheque bearing across its face the words ‘not exceeding rupees two hundred’ within two
transverse parallel lines.
IV. A cheque bearing across its face the words ‘Indian Bank, Himayathnagar branch, Hyderabad’
within two transverse parallel lines.
V. A cheque bearing across its face the words ‘Andhra Bank, Gaganmahal branch, Hyderabad’
without two transverse parallel lines.
(a) Only (I) above
(b) Both (I) and (II) above
(c) (I), (II) and (III) above
(d) (II), (III) and (IV) above
(e) (III), (IV) and (V) above.
12. The term ‘goods’ under Sale of Goods Act does not include
(a) Stocks and shares
(b) Actionable claims and money
(c) Growing crops
(e) Every kind of movable property.
13. Under the Transfer of Property Act 1882, which of the following is not an exception to the general rule
that ‘every kind of property can be transferred’?
(a) Right to sue
(b) Stipends and pensions
(c) Right of marshalling by a subsequent mortgage
(d) Spes succession
(e) Right to future maintenance.
14. Which of the following is true ?
(a) Quorum is required only at the beginning of the meeting of the company
(b) Quorum is required at the end of the meeting of the company
(c) Quorum is required throughout the meeting of the company
(d) Quorum is not required for the meeting of the company
(e) Quorum is required only for the listed companies.
15. Which of the foll owing is / are the essential element(s) of a valid contract?
I. Offer, acceptance and lawful consideration.
II. Intension to create legal relationship.
III. Capacity of the parties and free consent.
IV. Clear terms and legal object.
V. Possibility of perfo rmance.
(a) Only (I) above
(b) Both (I) and (IV) above
(c) (I), (II), (III) above
(d) (I), (II), (III) and (IV) above
(e) All (I), (II), (III), (IV) and (V) above.
16. Mr.Varma has furnished the following particulars in respect of his house property situated in the city of
Hyderabad for the previous year 2004-05:
Particulars Amount (Rs.)
Self occupied portion
Let out portion (@ Rs.1,000 per month) 1/5
Municipal taxes paid
Insurance premium paid 2,000
Ground rent paid
Interest on the capital borrowed 3,000
What is the taxable income from house property (let out), of Mr.Varma for the assessment year 2005-
(a) Rs.7,310 (b) Rs.7,910
(c) Rs.11,300 (d) Rs.9,000 (e) Rs.4,910.
17. Who among the following is treated as a ‘manufacturer’ for the purposes of the Central Excise Act?
(a) Raw material supplier
(b) Independent contractor, in cases where the manufacture is carried out in the premises of the raw
(c) Loan licensee
(d) Contractor supplying the labour in the premises of the manufacturer
(e) Brand owner.
18. Mr.Lal, an individual is the holder of the following properties as on March 31, 2005:
Property at Mumbai, let out for the business of a firm in which he is a partner 12,00,000
Property at Chennai, used for his own business 8,00,000
Vehicles for personal use
Cash on hand
Property gifted to the smaller HUF consisting of himself, wife and children
(The value as per the Schedule III is Rs.8,00,000)
The gross wealth of Mr. Lal as on March 31, 2005 is
(a) Rs.20,70,000 (b) Rs.22,70,000 (c) Rs.30,20,000
(d) Rs.5,70,000 (e) Rs.15,20,000.
19. Under provisions of the Income Tax Act 1961, in the case of a non -government employee (receiving
gratuity), the commuted pension is
(a) Exempted to the extent of one-half of the commuted pension
(b) Exempted to the extent of one -third of the commuted pension
(c) Exempted to the extent of one -fourth of the commuted pension
(d) Fully exempted
(e) Fully taxable.
20. Which of the following conditions is/are to be satisfied for excluding the unrealized rent from the rent
I. The tenancy is bonafide.
II. The defaulted tenant has vacated or steps have been taken to compel him to vacate the property.
III. The defaulted tenant is not in the occupation of any other property of the assessee.
IV. The assessee has taken all the reasonable steps to institute legal proceedings for the recovery of the
unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless.
(a) Only (II) above (b) (II), (III) and (IV) above
(c) Both (I) and (II) above (d) (I), (II) and (IV) above
(e) All (I), (II), (III) and (IV) above.
21. Which of the following amounts is allowed as deduction on the payment basis under the head ‘income
from house property’?
(a) Municipal taxes (b) Insurance premium
(c) Collection charges (d) Repairs
(e) Maintenance expenses.
22. The tax incidence under the Income Tax Act, is the highest in the hands of an assessee, if his
residential status is
(a) Resident and ordinarily resident
(b) Resident but not ordinarily resident
(c) Non -resident
(d) Both resident and ordinarily resident and resident but not ordinarily resident
(e) Both resident and non -resident.
23. Mr.Jacob holds 1500 shares in X Ltd., which he acquired at a cost of Rs.75,000, during December,
1995. During June, 1997, he was given a bonus allotment of 1000 shares. During March, 2002, he was
given a rights offer for 3000 shares at Rs.75 per share, which he acquired at the same time. During the
month of February, 2005, he sold all the shares in favour of Z at a price of Rs.90 per share. What is the
amount of the capital gains chargeable in the hands of Mr.Jacob, for the assessment year 2005-06?
Cost of inflation index:
1995-96 - 281 2002-03 - 447
1997-98 - 331 2003-04 - 463
2001-02 - 426 2004-05 - 480
(a) Rs.1,13,365 (b) Rs.23,665 (c) Rs.1,95,000
(d) Rs.1,45,000 (e) Rs.Nil.
24. The ‘taxable event’ under the Central Excise Act means
(a) Clearance from the factory
(c) Purchase of the raw material
(d) Sale of the goods
(e) Clearance from the factory or the actual sale whichever is later.
25. Which of the following assets (the profit on sale of asset) is taxable under the head capital gains?
(a) Personal computer
(b) Personal household goods
(c) Person al house property
(d) Personal car
(e) Personal apparel.
26. If the declared goods are sold to unregistered dealers, the rate of tax under the Central Sales Tax Act is
(d) Twice the rate applicable to the local sales
(e) 10% or twice the local sales tax rate, whichever is higher.
27. The value of the perquisite in respect of the credit card, provided by the employer to the employee
(including an add-on card) is taxable in the hands of
(a) An employee whose income is less than Rs.50,000
(b) All the employees
(c) An employee who has a substantial interest in the employer company
(d) An employee whose income is more than Rs.50,000
(e) An employee who is a director of the employer company.
28. Mr.Parasuram, a professional consultant furnishes the following information for the previous year
Income from the profession 75,000
Long term capital gains 12,000
Winnings from the lotteries (Gross) 15,000
Income from other sources 20,000
Interest from the bank 10,000
Medical insurance premium on self 4,000
Rent paid (per month) 3,000
What is the amount of deduction he can claim in respect of the rent paid for the assessment year 2005-
(a) Rs.26,500 (b) Rs.25,400 (c) Rs.24,000
(d) Rs.36,000 (e) Rs.29,500.
29. Rent paid under the Rent Control Act is called
(a) Municipal rent (b) Standard rent
(c) Ground rent (d) Expected rent (e) Fair rent.
30. Which of the following are not treated as assets for wealth tax purposes?
(a) Heavy motor vehicles (b) Gold biscuits
(c) Diamonds (d) Semi-precious stones (e) Motorcars.
END OF SECTION A
Section B : Problems (50 Marks)
This section consists of questions with serial number 1 – 5.
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. Mr.Dhananjay owns 3 houses. He furnished the following particulars for the previous year 2004 -05:
Self occupied (Rs.)
Self occupied (Rs.)
Municipal value 3,50,000 2,60,000 80,000
3,60,000 2,25,000 79,000
Standard rent 3,65,000 2,15,000 81,000
3,72,000 –– ––
Unrealized rent 31,000 –– ––
Repair expenses 60,000 20,000 5,000
Municipal taxes 24,000 12,000 2,000
Insurance premium 4,000 3,000 400
Interest on borrowed fund utilized for
construction of respective house property
Vacancy period 1 month –– ––
Date of completion of construction March 3, 1992 Jan. 1, 2001 June 6, 1989
Date of loan May 5, 1990 July 7, 1999 ––
On the basis of above particulars, you are required to compute the income chargeable to tax from house properties
in the hands of Mr. Dhananjay for the assessment year 2005-06.
2. ABC Ltd. owns the following assets on April 1, 2002
Written down value
Rate of depreciation
Assets Actual cost
on April 1, 2002 (Rs.)
A 30,00,000 13,50,000 10
B 6,00,000 2,25,000 10
C 8,00,000 40,000 5
A 1,70,000 45,100 25
B 3,10,000 68,000 25
C 30,000 7,000 40
D 50,000 31,000 40
The company acquires the following assets after April 1, 2002
Rs. Date of acquisit ion Date when the
asset is put to use
Building D 6,00,000 May 28, 2002 June 1, 2002 10
Building E 4,00,000 June 8, 2002 June 8, 2002 5
Plant E 4,90,000 July 1, 2002 July 1, 2002 25
Plant F 2,10,000 September 18, 2003 Sep tember 19, 2003 25
Plant G 90,000 September 19, 2003 October 30, 2003 40
Building F 2,00,000 May 10, 2004 May 10, 2004 10
Plant H 1,30,500 June 5, 2004 July 6, 2004 25
The company sells the following assets after April 1, 2002
Asset Date of sale Sale consideration
Building A May 11, 2002 13,00,000
Plant B May 16, 2002 20,000
Plant D December 18, 2002 1,15,000
Plant C December 8, 2003 32,000
Determine the amount of depreciation for the assessment years 2003-04, 2004-05 and 2005-06.
3. ABC Private Ltd., which has 50 members (not including the persons who are in the employment/having been
formerly in the employment of the company) and 5 directors with partly paid up capital of Rs.10 lakhs, intended to
convert itself into a public company and sought the advice of the company secretary. The company secretary
suggested that the company is required to pass a special resolution and file the altered memorandum and articles of association with the Registrar of Companies. The company accordingly converted itself into a public company and started carrying on its business. Later, the Registrar of Companies issued a notice treating the conversion as
invalid and inoperative. In this context, discuss whether the company violated any of the provisions of the
Companies Act. and also whether the notice issued by ROC is valid under the Act?
4. Kartik is a director in 20 companies as on 1st October 2004. The composition of his directorships is as detailed
I. Alternative director in a public limited company;
II. Director in 15 public limited companies;
III. Director in 2 private companies which are neither subsidiaries nor holding of other public companies;
IV. Director in a company registered as an association not carrying on business for profit.
V. Director in an unlimited company.
Wise Ltd., a public limited company, wants to induct Kartik as a director in its Board. Decide whether Kartik can
be appointed as director in Wise Ltd. in terms of Sections 275 and 278 of the Companies Act, 1956?
5. a. A cheque was issued by Mr. X payable to “Mr. Y or bearer” and crossed “Not Negotiable”. The cheque was
stolen and came into possession of Mr. Z who deposited the cheque into his bank and received the payment
of the same. Discuss the position of the parties to the instrument.
b. A, a minor, broke his right leg in a football match. He engaged B, a doctor, for the treatment. Does the
doctor has a valid claim for his services?
c. Arjun, a resident of Delhi, sent a letter of offer to Krishna of Hyderabad on March 01, 2005 relating to sale of
his house property in Hyderabad for Rs.500,000. In that letter of offer Arjun mentioned that he must inform
his acceptance on or before March 31, 2005. Krishna accepted the proposal and posted the letter of
acceptance properly addressed and duly stamped on March 29, 2005. The letter of acceptance sent by
Krishna was lost in transit. On April 30, 2005 Arjun sold his house for Rs.600,000 to another party in
Hyderabad. Krishna wants to sue Arjun for breach of contract. Advise Krishna, as regards the remedies
available to him under the Indian Contract Act, 1872.
(4 + 4 + 3 = 11 marks) < Answer >
END OF SECTION B
Section C : Applied Theory (20 Marks)
This section consists of questions with serial number 7 - 9.
Answer all questions.
Marks are indicated against each question.
Do not spend more than 25 -30 minutes on section C.
6. Discuss the following ‘terms’ by applying the provisions of the Income Tax Act, 1961.
(5 + 5 = 10 marks)
7. Discuss the essential elements of a valid contract by applying the provisions of the Indian Contract Act, 1872.
a. The doctrine of ‘caveat emptor’
b. The doctrine of ‘privity of contract’
(Apply the provisions of The Sale of Goods Act and Indian Contract Act, respectively).
(2 + 3 = 5 marks)