B Law

2020
BUSINESS LAW
ICAP past papers with solutions ,

Examiner comments & Marking plan
B L (AUTUMN-2014 to AUTUMN-2020)
By the Grace of Almighty Allah, I am pleased to present the questions and
answers of BUSINESS LAW also known as CAF-3. This volume contains ICAP
papers of last 13 attempts.
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ICAP
Certificate in Accounting and Finance Stage Examinations
The Institute of 10 September 2014
Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes
Business Law
Q.1 List the criteria which may be followed for determining the eligibility of a person(s) for
appointment as a judge of the High Court and Supreme Court. (05)
Q.2 Under the provisions of the Contract Act, 1872 describe the following:
(a) Undue influence (06)

(b) Fraud (06)
Q.3 (a) Two wrestlers Goga and Sheeda agreed to play a wrestling match on the condition
that if any of them would fail to appear for the match, he would have to pay Rs.
5,000 to the other party. The winner was to receive Rs. 20,000 out of the sale
proceeds of the tickets. Goga failed to appear in the match and Sheeda sued him for
Rs. 5,000. Goga however, refused to pay claiming that being wagering in nature, the
contract is not enforceable by law.
Under the provisions of the Contract Act, 1872 describe whether Sheeda can recover
the amount from Goga. (03)
(b) Arif was running a meat shop in Islamabad. He wanted to attend the wedding of his
sister in Peshawar so he asked his friend, Moiz, to look after his shop during his
absence. While managing the shop, Moiz noticed that the deep-freezer in the shop
was not working properly. In order to save the meat from being spoilt, he sold it at a
discount of 5% and had the freezer repaired the next morning. Looking at customers’
positive response, Moiz continued to offer the meat at 5% discount. Upon his return
from Peshawar, Arif, being unhappy with the situation, immediately discontinued the
discount and now wants to recover the loss from Moiz.
In view of the provisions of the Contract Act, 1872, analyse the above situation and
explain the rights and liabilities of Arif against Moiz. (10)
Q.4 (a) Rustum, Mahmood and Wali are partners in a firm. Wali wants to admit his sixteen
year old son Raghib as a new partner.
Under the provisions of the Partnership Act, 1932 can Raghib be admitted to the
partnership business? State the rights, liabilities and limitations of Raghib, if he is
admitted to the partnership business. (05)
(b) Sharing net profits usually creates a very strong inference that the parties have formed
a partnership. But in certain situations, the fact that the profits are shared or the
parties have agreed to share the profits will not by itself create a presumption that a
partnership was intended. List such situations as given in the Partnership Act, 1932. (05)
Business Law Page 2 of 3
Q.5 (a) What do you understand by the terms ‘Holder’, ‘Holder in due course’ and ‘Payment
in due course’ under the Negotiable Instruments Act, 1881? (08)
(b) Samina sold her car to Faiz for Rs. 800,000. Faiz draws a bill of exchange stating
“Pay to Samina or her order a sum of eight hundred thousand rupees”. In figures the
amount is stated as Rs. 80,000.
Under the Negotiable Instruments Act, 1881 explain whether it is a valid bill. (02)
Q.6 (a) Under the provisions of the Companies Ordinance, 1984 a company, without prior
approval of the Commission, cannot be registered by a name which contains certain
words or phrases suggesting certain attributes/affiliations. List those
attributes/affiliations. (04)
(b) Mrs. Raheel was a member of Nightmare (Guarantee) Limited. On 30 September

2013 she ceased to be the member of the company and on 31 July 2014 the company
went into the process of winding up.
Under the provisions of the Companies Ordinance, 1984 advise Mrs. Raheel of her
rights and liabilities as provided in the company’s memorandum of association. (06)
Q.7 (a) Baykarar Limited (BL), a listed company, wants to increase its production capacity
and is in the process of acquiring a new plant for its soda ash project. The company is
contemplating to finance the project by issuing ordinary shares to the general public.
In order to enhance the credibility of its expansion project, BL’s management has
decided to include a statement from Mr. Suleman, a mechanical engineer, in its
prospectus.
Under the provisions of the Companies Ordinance, 1984 describe the conditions
which must be satisfied for the inclusion of statement from Mr. Suleman in BL’s
prospectus. (05)
(b) On 1 July 2014, Big Ban Limited obtained a short term running finance facility from
Cool Bank by creating a floating charge on its book debts and stock-in-trade.
Under the provisions of the Companies Ordinance, 1984 explain the following:
(i) The procedure required to be followed to get the charge registered with the
registrar. (03)
(ii) The consequences of non-registration. (02)
Q.8 (a) Mazboot Limited (ML) is a newly incorporated company. ML has issued a
prospectus inviting offers from the general public for subscription to its shares and is
also intending to sign a musharika finance facility agreement with Top Bank Limited.
However, Mr. Baqir, who is the legal advisor of the company, is against the signing
of musharika finance facility agreement.
In view of the provisions of the Companies Ordinance, 1984 explain why ML should
not sign the finance facility agreement. List the condition(s), if any, which ML must
comply before exercising its borrowing powers. Also state the consequences if ML
signs the musharika finance facility without fulfilling the above condition(s). (07)
(b) Briefly describe the provisions relating to the restrictions imposed on directors’
remuneration with regard to performing extra services, attendance of meeting, etc. as
provided in the Companies Ordinance, 1984. (03)
Q.9 (a) ‘Every company is required to keep, at its registered office, proper books of account.’
Under the provisions of the Companies Ordinance, 1984 briefly explain the
following:
(i) When such books are NOT deemed to be proper. (02)

(ii) When a company is deemed to have kept proper books of account in case of a
branch office. (03)
(b) The Directors of Sigma Limited wish to recommend a final dividend. Under the
provisions of the Companies Ordinance, 1984 advise the directors about the
restrictions, if any, with regard to the declaration of dividend. (05)
Q.10 The Directors of Sunshine Limited, a listed company, intend to appoint the first auditors of
the company. In view of the provisions of the Companies Ordinance 1984, advise the
directors in respect of the following:
(i) The time frame within which the first auditors should be appointed.
(ii) The person(s) who may or may not be eligible for appointment as auditor(s). (10)
(THE END)
Business Law
Suggested Answers
Certificate in Accounting and Finance Stage Examinations – Autumn 2014
Ans.1 Criteria to be Judge of High Court:

Following is the list of criteria for a person(s) to be appointed as a judge of High Court:
 Ten years’ experience as an advocate of a High Court; or

 Ten years’ service as a civil servant including three years’ experience as a District
Judge; or
 Ten years’ experience in a judicial office.
Criteria to be Judge of Supreme Court:

Following is the list of criteria to be appointed as a judge of Supreme Court:
 A person with five years’ experience as a judge of a High Court; or

 Fifteen years standing as an advocate of a High Court.
Ans.2 (a) Undue Influence:

(i) A contract is said to be induced by “undue influence” where the relation
subsisting between the parties are such that one of the parties is in a position
to dominate the will of the other and uses that position to obtain unfair
advantage over the other.
(ii) In particular and without prejudice to the generality of the foregoing

principle, a person is deemed to be in a position to dominate the will of
another.
(a) Where he holds a real or apparent authority over the other or where he
stands in a fiduciary relation to the other; or
(b) Where he makes a contract with a person whose mental capacity is
temporarily or permanently affected by reason of age, illness, or mental
distress or bodily distress.
(b) Fraud:
“Fraud” means and includes any of the following acts committed by a party to a
contract, or with his connivance, or by his agent with intent to deceive another party
thereto or his agent, or to induce to enter into the contract.
(i) The suggestion, as a fact of that which is not true, by one who does not
believe it to be true;
(ii) The active concealment of a fact by one having knowledge or belief of the
fact;
(iii) A promise made without any intention of performing it;
(iv) Any other act fitted to deceive;
(v) Any such act or omission as the law specially declares to be fraudulent.
Explanation: Mere silence as to facts likely to affect the willingness of a
person to enter into a contract is not fraud, unless the circumstances of the
case are such that, regard being had to them, it is the duty of the person
keeping silence to speak, or unless his silence is in itself, equivalent to speech.
Page 1 of 7
Business Law
Suggested Answers
Ans.3 (a) Wagering Agreements:

All agreements knowingly made to further or assist the entering into, effecting or
carrying out, or to secure or guarantee the performance, of any agreement void
being in nature of wager, are void.
But in this case, Goga and Sheeda were not going to win or lose in terms of money
as a result of wrestling match (i.e. uncertain event). The winning amount had not to
be given out of their pockets, but had to be paid from the gate money which was
provided by the public. As for the condition of payment for non-appearance, no
uncertain event provided the equal chances of winning or losing.
Therefore, Sheeda is entitled to recover the amount from Goga as the agreement
between Goga and Sheeda is not a wagering agreement and therefore, it is
enforceable at law.
(b) Law of Agency:

The relationship between Arif and Moiz, in the above situation, is that of an agency
and presence of consideration is not necessary for creation of an agency. The request
by Arif to Moiz to look after Arif’s shop in his absence tantamount to an express
authority which may be given by words spoken or written.
Arif’s liability against Moiz as a principal:

Since Arif asked Moiz to look after his shop during his absence, he is bound to
indemnify Moiz against all expenses incurred by Moiz on the repair of deep-freezer.
The repair of deep-freezer was a lawful act done by Moiz in exercise of the authority
conferred on him.
Further, Arif is also bound to bear the discount of 5% which Moiz offered to the
customers on the first day, on the pretext that, an agent has the authority in an
emergency to do all such acts as a man of ordinary prudence would, for protecting
his principal from losses under similar circumstances.
Rights of Arif:
However, Moiz’s action of continuing the discount of 5% on sale of meat, following
the repair of deep-freezer, was beyond the authority bestowed upon him by Arif as
Arif had simply asked him to look after his shop in his absence.
Further, an agent is bound to conduct the business of his principal according to the
directions given by the principal, or in the absence of any such directions, according
to the custom which prevails in doing business of the same kind at the place where
the agent conducts such business. When the agent acts otherwise, if any loss is
sustained he must make it good to his principal and if any profit accrues he must
account for it.
In view of above, Moiz’s act of offering 5% discount after the first day cannot be
justified as a lawful act necessary for the purpose, or usually done in the course of
conducting such business.
Resultantly, Arif is entitled to recover the loss incurred as a result of this 5%

discount on the price that had been originally fixed by Arif.
Page 2 of 7
Business Law
Suggested Answers
Ans.4 (a) Minor’s admission to the partnership:

Partnership is created by a valid contract. Since a minor is not capable of entering
into a contract, a contract by or with a minor is void ab-initio. Accordingly, a minor
cannot be a partner in the firm.
However, a minor can be admitted to the benefits of partnership with the consent of
all the partners for the time being. i.e. before admission of a minor there must be an
existence of partnership.
Rights, liabilities/limitations of Raghib ( minor):

The rights, liabilities and limitations of Raghib who has been admitted to the
benefits of partnership are governed by the following rules:
Rights:
(i) Right to share property and profits of the firm as agreed by the partners.
(ii) Right of inspecting and taking copies of accounts of the firms ONLY.
(iii) Right not to be adjudged insolvent.
Liabilities:
(i) Personally not liable to third parties for the debts of the firm i.e. limited
liability.
(ii) His share is liable for the acts of the firm.
Limitations:
(i) No status of partner. The minor is not entitled to take part in the conduct of
the business of the firm.
(ii) No suit against partners for profit and property except after disconnecting his
relation with the firm.
(iii) Not entitled to have access to books other than accounts.
(b) Sharing profits is not a conclusive evidence of a partnership:
These situations are:
 The joint owners of a property who share profits or gross returns arising from
the property are not partners.
 Where the profits are received by a creditor in payment of a debt or as interest
on loan.
 Where the profits are received as wages by an employee.
 Where the profits are received as an annuity by a widow or child of a
deceased partner.
 Where the profits are received as consideration for the sale of
property/goodwill or share thereof.
 A transferee of a partner’s interest.
 A minor who is admitted to the benefits of an existing partnership.
Page 3 of 7
Business Law
Suggested Answers
Ans.5 (a) A person is called holder of a negotiable instrument if he satisfies the following two
conditions:
 He must be entitled to the possession of the instrument in his own name and
 He must be entitled to receive / recover the amount due on the instrument
from the parties liable under the instrument
Thus a holder is a bearer of the bearer instrument and the endorsee or payee of the
order instrument.
Explanation:
Where the note, bill or cheque is lost and not found again, or is destroyed, the
person in possession of it or the bearer thereof at the time of such loss or destruction
shall be deemed to continue to be its holder.
Holder in due course:

Holder in due course means any person who for consideration becomes the
possessor of a promissory note, bill of exchange or cheque if payable to bearer, or
the payee or indorsee thereof, if payable to order, before it became overdue, without
notice that the title of the person from whom he derived his own title was defective.
Explanation:
The title of a person to a promissory note, bill of exchange or cheque is defective
when he is not entitled to receive the amount due thereon.
Payment in due course:

Payment in due course means payment in accordance with the apparent tenor of the
instrument in good faith and without negligence to any person in possession thereof
under circumstances which do not afford a reasonable ground for believing that he is
not entitled to receive payment of the amount therein mentioned.
(b) Yes it is a valid bill. If the amount in words and figures is different in a negotiable
instrument, the amount stated in words is taken as final.
Ans.6 (a) Prohibition of certain names:

Except with the prior approval in writing of the [Commission] no company shall be
registered by a name which contains any words suggesting or calculated to suggest:
(i) The patronage of any, past or present, Pakistani or foreign Head of State;
(ii) Any connection with the Federal Government or a Provincial Government or
any department or authority of any such Government;
(iii) Any connection with any corporation set up by or under any Federal or
Provincial law; or
(iv) The patronage of, or any connection with, any foreign Government or any
international organization.
(b) Rights and liabilities of Mrs. Raheel as provided in the company’s memorandum
of association.
Mrs. Raheel will be liable to contribute towards the payment of such debts and
liabilities of the company as may be contracted before she ceases to be a member,
since the company is being wound up within one year after she ceases to be a
Page 4 of 7
Business Law
Suggested Answers
member.
She will also be liable for the payment of the costs, charges and expenses of winding
up. However, the total liability should not exceed the amount guaranteed by her as
the liability of the members is limited.
She also has a right of contribution from others if she has paid in excess of her
undertaking.
Ans.7 (a) Conditions which must be satisfied for the inclusion of a statement from Mr.
Suleman in BL’s prospectus.
A prospectus inviting persons to subscribe for shares in Baykarar Limited (BL) shall
not include a statement purporting to be made by an expert (Mr. Suleman), unless
he is a person who is not, and has not been, engaged or interested in the formation
or promotion, or in the management, of the company.
Such prospectus including a statement purporting to be made by Mr. Suleman shall

not be issued, unless-
(i) Mr. Suleman has given his written consent to the issue of the prospectus
containing his statement and has not withdrawn such consent before the
delivery of a copy of the prospectus to the registrar for registration; and
(ii) a statement that he has given and has not withdrawn his consent as aforesaid
appears in the prospectus.
(b) (i) The procedure required to be followed to get the charge registered with the
registrar.
The Big Ban Limited shall be required to file with the registrar for
registration, in the manner required by the Companies Ordinance, the
prescribed particulars of the charge by which the charge is created or is
evidenced together with a copy of the instrument, if any, verified in the
prescribed manner within twenty-one days after the date of its creation.
(ii) The consequences of non-registration.

The floating charge, created by Big Ban Limited on the book debts and stock-
in-trade of the company if not registered, shall be void against the liquidator
and any creditor of the company and the money secured thereby shall
immediately become payable.
The company and every officer of the company who is knowingly a party to
the default shall be liable to a fine not exceeding five hundred rupees for
every day during which the default continues.
Ans.8 (a) Why ML should not sign the finance facility agreement.
ML should not sign the musharika finance facility agreement before fulfilling certain
conditions (referred below). However, any contract made by ML after fulfilling
certain conditions but before the date at which it is entitled to commence business
shall be provisional only, and shall not be binding on the company until that date,
Page 5 of 7
Business Law
Suggested Answers
and on that date it shall become binding.
Conditions which ML must comply before exercising its borrowing powers.
ML shall not exercise any borrowing powers unless:
(i) shares held subject to the payment of the whole amount thereof in cash have
been allotted to an amount not less in the whole than the minimum
subscription;
(ii) every director of ML has paid to the company full amount on each of the
shares taken or contracted to be taken by him and for which he is liable to
pay in cash;
(iii) no money is or may become liable to be repaid to applicants for any shares
which have been offered for public subscription by reason of any failure to
apply for or to obtain permission for the shares to be dealt in on any stock
exchange;
(iv) there has been filed with the registrar a duly verified declaration by the chief
executive or one of the directors and the secretary in the prescribed form that
the aforesaid conditions have been complied with and the registrar has issued
a certificate to commence business;
If ML exercises borrowing powers in contravention of the above, every officer and

other person who is responsible for the contravention shall, without prejudice to any
other liability, be liable to a fine not exceeding one thousand rupees for every day
during which the contravention continues.
(b) Restrictions on director’s remuneration etc.:

The remuneration of a director for performing extra services, including the holding
of the office of chairman, shall be determined by the directors or the company in
general meeting in accordance with the provisions in the company's articles.
The remuneration to be paid to any director for attending the meetings of the
directors or a committee of directors shall not exceed the scale approved by the
company or the directors, as the case may be, in accordance with the provisions of
the articles.
Ans.9 (a) (i) Proper Books of Account:

The books of account are not deemed to be proper with respect to the matters
specified therein if there are not kept such books as are necessary to give a
true and fair view of the state of affairs of the company or the branch office,
as the case may be, and to explain its transactions.
(ii) Proper books of account in case of a branch office:

Where a company has a branch office, whether in or outside Pakistan, the
company shall be deemed to have complied with the provisions of
Companies Ordinance, 1984 relating to keeping of proper books of account,
if proper books of account relating to the transactions effected at the branch
office are kept at the branch office and proper summarised returns, made up
to date at intervals of not more than three months are sent by the branch
Page 6 of 7
Business Law
Suggested Answers
office to the company at its registered office or the other place in Pakistan as
the directors may decide.
(b) Restrictions imposed with regard to the declaration of dividend:

No dividend shall be paid by a company otherwise than out of profits of the
company.
No dividend shall be declared or paid by a company for any financial year,

 out of the profits of the company made from the sale or disposal of any
immovable property or
 assets of a capital nature comprised in the undertaking or any of the
undertaking of the company
unless the business of the company consists, whether wholly or partly, of selling and
purchasing any such property or assets, except after such profits are set off or
adjusted against losses arising from the sale of any such immovable property or
assets of a capital nature.
No dividend shall be declared or paid out of unrealized gain on investment property

credited to profit and loss account.
Ans.10 (i) Appointment of first auditor(s):
The first auditor or auditors of a company shall be appointed by the directors within
sixty days of the date of incorporation of the company.
(ii) The person(s) who may or may not be eligible for appointment as auditor(s).
A Chartered Accountant within the meaning of the Chartered Accountants
Ordinance, 1961 (X of 1961) is qualified to be appointed as an auditor of Sunshine
Limited (a listed company).
None of the following persons shall be appointed as auditor of a company:
(a) a person who is, or at any time during the preceding three years was, a director,
other officer or employee of the company;
(b) a person who is a partner of, or in the employment of, a director, officer or
employee of the company;
(c) the spouse of a director of the company;
(d) a person who is indebted to the company; (A person who owes a sum of money
not exceeding five hundred thousand rupees to a credit card issuer; or a sum to
a utility company in form of unpaid dues for a period not exceeding ninety days
is not deemed to be indebted to the company.)
(e) a body corporate; and
(f) a person or his spouse or minor children, or in case of a firm, all partners of
such firm who holds any shares of an audit client or any of its associated
companies
(g) A person shall also not be qualified for appointment as auditor of a company if
he is, by virtue of the above provisions, disqualified for appointment as auditor
of any other company which is that company’s subsidiary or holding company
or a subsidiary of that holding company.
(THE END)
Page 7 of 7
INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN
EXAMINERS’ COMMENTS
SUBJECT SESSION
Business Law Certificate in Accounting and Finance
– Autumn 2014
General:
The overall performance was average. The candidates performed well in theoretical
questions but failed to express themselves well in the scenario based questions mainly
because of rote learning and lack of proper understanding of the issues involved.
Question 1
This was a straightforward question requiring candidates to specify the criteria for the
appointment of the judges of High Court and Supreme Court. The performance remained
satisfactory as most of the students narrated the requirements correctly except the
requirement related to the number of years’ experience.
Question 2
The requirement was to describe the terms (i) Undue influence; and (ii) Fraud. Most of
the students gave partly correct answers. In case of undue influence, many students failed
to mention the relationship or authority, which may be considered to have caused such an
influence, for instance ‘real or apparent authority’ or a ‘fiduciary relationship’ between
the parties.
In the case of “Fraud” a very important condition was missed by most of the candidates
i.e. “Mere silence as to facts likely to affect the willingness of a person to enter into a
contract is not fraud, unless where it is the duty to speak or where silence itself is
equivalent to speech”.
Question 3(a)
According to the scenario given in the question, two wrestlers (Goga and Sheeda) had
agreed to contest a wrestling match. Goga did not appear for the match and according to
the terms of the agreement Sheeda demanded Rs. 5000 from him. According to the other
term of the agreement, the winner was to receive Rs. 20,000 out of the sale proceeds of
the tickets. Goga refused to pay the amount of Rs. 5,000 and to justify his point of view,
Goga claimed that the agreement being wagering in nature was not enforceable.
Page 1 of 5
Examiners’ Comments on Business Law - Autumn 2014
The key issue that was required to be addressed in this question was whether it was a
wagering agreement or not. In this respect, the following types of errors were observed:
 A number of students agreed that it was a wagering agreement. Many students who
gave the correct decisions i.e. that it was not a wagering agreement, failed to provide
any justification thereon.
 Many students gave inappropriate reasons. For example, a number of students stated
that since wrestling is a sport which requires technique, strength and expertise,
therefore it is not a wagering agreement.
 Many candidates gave very absurd reasons such as “it is a civil agreement which is
not enforceable under the law”.
Question 3(b)
According to the scenario given in this part of the question, Arif had requested his friend
Moiz to look after his meat shop in his absence. While Arif was away, Moiz found that
the deep freezer was not working and to avoid any loss to the business, he sold the meat
at a discount of 5%. However, in view of the customers overwhelming response, Moiz
continued to sell the meat at the same discount even after the deep freezer had been
repaired.
On his return, Arif wanted to recover the loss from Moiz. The candidates were required
to specify the rights and liabilities of Arif and Moiz, under the circumstances.
The performance in this part was good as majority of the students were able to specify
that offering of discount after the deep freezer had been repaired was not appropriate and
Arif can recover any loss that may have been incurred on account of such discount.
Question 4(a)
This was an easy question on the topic of admission of a minor as a partner and the rights
and liabilities of such a minor. Most of the students seemed to be well prepared and
performed well on this part of the question.
Question 4(b)
In this part the candidates were required to list the situations whereby despite the sharing
of profits, a partnership relation may not exist. It was quite apparent that the students had
not covered this aspect in their studies because a significant number of candidates did not
attempt the question and among those who attempted, the majority failed to quote more
than one or two such situations.
Question 5(a)
This question was based on the Negotiable Instrument Act, 1881 and required
explanations of the term ‘holder’, ‘holder in due course’ and ‘payment in due course’.
Interestingly, majority of the students were able to describe “holder in due course”
correctly but were unable to give proper explanation of the term “holder”. Presumably,
the reason for such performance was that holder in due course is a commonly tested item
and gets more attention of the students.
Page 2 of 5
Question 5(b)
In this part, the candidates were required to discuss the validity of a bill in case there is a
difference between the amount in words and amount in figures. This is not a commonly
known fact and it was pleasing to note that majority of the students knew that such
difference does not affect the validity of the bill and in such case the amount in words is
treated as correct.
Question 6(a)
The requirement was to specify the provisions of the Companies Ordinance, 1984,
whereby the companies are prohibited from using certain names. This question was well
attempted and a large number of students scored full marks by describing the relevant
provisions under Section 37(3) of the Companies Ordinance, 1984.
Question 6(b)
This part was based on the rights and liabilities of a person who had ceased to be a
member of a company limited by guarantee, prior to the winding up of such company.
Majority of the candidates explained the liability correctly but were unable to specify
rights of such a member as regards recovery of any amount paid in excess of his/her
liability under the Ordinance. Many students wasted time in writing about share capital
which was irrelevant in this question. Further, few students could not correctly
comprehend the requirement of the law and were of the impression that Mrs. Raheel has
given a guarantee in writing.
Question 7(a)
This part required the candidates to describe the conditions which should be fulfilled for
including an expert’s statement in a prospectus. Majority of the students correctly
identified the conditions as have been described in sections 54 and 55 of the Companies
Ordinance, 1984. However, some students wasted time in defining the term “Expert”
which was irrelevant.
Question 7(b)
This part required procedures for registration of a charge with the Registrar. Despite the
fact that this question has been repeated many times in the past, the performance was not
as per expectation. Many of those who knew the relevant provisions, omitted an
important point as while mentioning that the floating charge created by the company on
book debts and stock in trade, if not registered shall be void, they failed to write the
complete provisions i.e. “it shall be void against the liquidator and any creditor of the
company and the money secured thereby shall become immediately payable”.
Question 8(a)
It was a scenario based question and required the students to list down the conditions
which a company must comply with, before exercising its borrowing powers as mentioned
in Section 146(1) and (2) and also to state the consequences if it signs a musharika finance
facility agreement without fulfilling the said conditions, which are covered under Section
146(3) and (5) of the Companies Ordinance, 1984.
Page 3 of 5
The performance was below average. Majority of the students mentioned few conditions
but could not list all of them. Further, many students did not discuss the status of
borrowing agreement if signed before obtaining certificate of commencement of business.
Many students did not understand the question and the provision to which it was related
and narrated irrelevant conditions like approval by Directors/Members.
Question 8(b)
The requirement of this part of the question was to discuss the restrictions imposed on
director’s remuneration as per Section 191 of the Companies Ordinance, 1984. The
question was poorly attempted. Many students failed to get any mark as they were of the
opinion that directors shall not be paid remuneration for performing extra services and
attending the meetings or/and that such payment has to be approved by SECP. Many
students tried to give generalized answers making it obvious that they were not aware of
the relevant provisions of the law.
Question 9(a)(i)
In this part of the question, candidates were required to explain as to when books of
account are NOT deemed to be proper. Majority of the students listed the books of
account mentioned in Section 230(1). They did not know that under Section 230 (3) of the
Companies Ordinance, 1984, the books of account are not deemed to be proper, if they do
not give true and fair view of the state of affairs of the company or fail to explain the
transactions carried out by the company.
Question 9(a)(ii)
This part related to books of account to be maintained by a branch office as covered under
Section 230(2) of the Companies Ordinance 1984. The performance was good, as the
students were generally able to mention most of the requirements.
Question 9(b)
This question pertained to restrictions with regards to declaration of dividend as explained

in Section 248 and 249 of the Companies Ordinance, 1984. Majority of the students
attempted it well and many of them secured full marks. Few students got confused and
discussed irrelevant provisions like those relating to period of payment of dividend and
liability on the chief executive of the company in case of non-payment of dividend.
Further, a significant number of students narrated the provisions regarding approval and
mode of payment of dividend.
Question 10
This question required students to advise directors on following three issues relating to the
appointment of auditors:
 Time frame within which the first auditors should be appointed as given in Section
252 (3).
Page 4 of 5
 The persons who may be eligible for appointment as auditor as given in Section 254
(1) of the Companies Ordinance 1984; and
 The persons who may not be eligible for appointment as auditors as per Section 254
(3), (3A) and (4) of the Companies Ordinance 1984.
The performance remained very good and a large number of students were able to score
full marks as well. However, many errors were also observed which are enumerated
below:
 The time allowed for appointment of first auditor is 60 days from date of
incorporation. Many students, either mentioned 30 days or 60 days from the date of
commencement of business.
 Majority of the students did not specify an important provision that a person shall also
not be qualified to be an auditor of a company, if he/she is disqualified for
appointment as auditor of that company’s subsidiary, holding company or the
subsidiary of its holding company.
 Many students stated that “the first auditor(s) appointed by the company shall hold
office from the conclusion of that meeting until the conclusion of next annual general
meeting” whereas the first auditor(s) can only be appointed by the directors.
 Some students mixed up ineligibility of directors as stated in Section 187 with

ineligibility of auditors.
 In response to the eligibility criteria some of the students also mentioned that ‘Cost
and Management Accountants and MBA(s) etc. can also be appointed as auditor(s)
without realizing that the question is related to a listed company. It is, therefore, very
important to properly read the question.
THE END
Page 5 of 5
The Institute of 6 March 2015
Business Law
Q.1 What do you understand by delegated legislation? Give two advantages and disadvantages
of such legislation. (05)
Q.2 (a) Lalchi Traders agreed to supply cotton yarn to Farzi Textile Limited at a fixed price
for one year. Three months after the formation of the contract the price of yarn
increased sharply, making it commercially unviable for Lalchi Traders to continue the
supply at the agreed price. Therefore, they terminated the contract on the ground of
difficulty/impossibility of performance.
Under the provisions of the Contract Act, 1872 briefly describe:

(i) whether the contract would be discharged under the above circumstances. (05)
(ii) what would be your decision if Lalchi Traders were importing yarn and
Government has imposed a ban on its import. (02)
(b) In accordance with the contract entered into by Masoom and Mubarak, Masoom has
offered to deliver 300 Rolex watches to Mubarak on 1 March 2015. Under the
provisions of the Contract Act, 1872 advise Masoom about the conditions which must
be satisfied for constituting a valid offer of performance. (03)
Q.3 (a) Under the provisions of the Contract Act, 1872 describe the circumstances in which an
agent is presumed to be personally liable on the contract to third parties. (08)
(b) Basit and Rahim go into a shop. Basit says to the shopkeeper, ‘Let him (Rahim) have
the goods and if he does not pay you, I will’.
Under the provisions of the Contract Act, 1872 identify and describe:
(i) the type of the above contract and whether Basit would be liable in case of
Rahim’s default. (04)
(ii) what would be your answer, if Basit said to the shopkeeper, ‘Let him (Rahim)
have the goods, I will see you are paid’. (03)
Q.4 (a) Nomi, Sultan and Behram have decided to establish a partnership business to run a
departmental store. Under the provisions of the Partnership Act, 1932 advise them
about their mutual rights and liabilities towards each other. (05)
(b) The above partnership business was started in January 2015. In March 2015 Behram
received an overdraft of Rs. 100,000 from the partnership’s bank. He informed the
bank that the money would be used to construct a new cash counter in the
departmental store. However, he used the money to pay for his wife’s Dubai trip.
Advise Nomi, Sultan and Behram about their rights and liabilities and that of the firm
in relation to the above transaction. (05)
Q.5 (a) Under the provisions of the Negotiable Instruments Act, 1881 identify the person(s)
who may cross the cheque after its issue and the manner in which it may be crossed. (05)
(b) Sakhi drew a blank stamped promissory note in favour of Zarouratmand with an
intention to pay him Rs. 100,000 against the purchase of a laptop computer. The
stamp on the promissory note was sufficient to cover Rs. 200,000.
Briefly describe Sakhi’s liability on the promissory note in each of the following
independent cases:
(i) Zarouratmand filled Rs. 150,000 on the promissory note and transferred it to
Kallash for value. (1.5)
(ii) Zarouratmand filled Rs. 170,000 on the promissory note and gifted it to
Chaplousy. (1.5)
(iii) Zarouratmand filled Rs. 250,000 on the promissory note and transferred it to
Ayyash for value. (02)
Q.6 (a) Under the provisions of the Companies Ordinance, 1984 briefly describe the following:
(i) special resolution (04)

(ii) chief executive in relation to a company (03)
(b) Under the provisions of the Companies Ordinance, 1984 list the circumstances under
which Mehkoum Limited may be deemed to be the subsidiary of Hakim Limited. (03)
Q.7 (a) Under the provisions of the Companies Ordinance, 1984 answer each of the following:
(i) the subscription list of Mayanaz Limited (ML) is due to open on 20 March 2015.
ML is in the process of issuing a prospectus. Assuming ML has no subsidiaries,
specify the auditor’s reports which are required to be set out in the prospectus. (02)
(ii) ‘No one shall issue any form of application for shares in or debentures of a
company, unless the form is accompanied by a prospectus.’ What are the
exception(s) to this general rule? (04)
(b) Samjhota Limited (SL) has an authorised capital of Rs. 100,000,000 divided into
2,000,000 shares of Rs. 50 each. The directors have decided to alter the conditions of
the capital clause of SL’s memorandum of association. Advise the directors about the
provisions of the Companies Ordinance, 1984 applicable to such alteration. (04)
Q.8 (a) Karamad (Pvt) Limited was incorporated on 1 July 2014. Subsequently it was
converted into a public unlisted company on 1 March 2015.
Under the provisions of the Companies Ordinance, 1984:

(i) describe whether the company is required to hold its statutory meeting; if yes,
identify the time frame within which such a meeting must be convened. (03)
(ii) what would have been your decision, had the company been converted into a
listed company on 1 July 2015? (01)
(iii) identify those contents of the statutory report which are required to be certified
by the company’s auditor. Also specify the purpose of the auditor’s certificate. (02)
(iv) state the requirements of law regarding the certification and filing of statutory
report. (02)
(b) Under the provisions of the Companies Ordinance, 1984 state who may call an annual
general meeting of the company. (02)
Q.9 Mr. Khushkismat holds 10% shareholding in Basant Limited (BL), a company listed on
Karachi Stock Exchange. He wants to propose Mustaid and Company, Chartered
Accountants to be the new auditors of BL in place of the retiring auditors.
Under the provisions of the Companies Ordinance, 1984 explain the duty of
Mr. Khushkismat and the company in respect of the proposed appointment. Also explain
the rights of the retiring auditor under the above circumstances. (10)
Q.10 (a) The company’s annual financial statements are in the process of finalisation for
presentation at company’s AGM.
Being company secretary, you are required to advise the company regarding approval
and signing of financial statements under the provisions of the Companies Ordinance,
1984. (05)
(b) Munafa Limited (ML) is engaged in the business of leasing vehicles to corporate
customers. The Board of Directors of ML is considering to authorise one of its
directors, Mr. Farigh, to enter into a contract with Mrs. Laiqa, the Managing Director
of Taizraftar Limited, for the purchase of six delivery vans. Mrs. Laiqa is also the wife
of Mr. Farigh.
Under the provisions of the Companies Ordinance, 1984 analyse the above situation
and advise Mr. Farigh about his responsibilities towards the company with respect to
the above transaction. (05)
(THE END)
Business Law
Suggested Answers
Certificate in Accounting and Finance – Spring 2015
Section A (Mercantile Law)
Ans.1 Delegated Legislation:

In Delegated Legislation power is given to an Executive (a minister or public body to make
subordinate or delegated legislation for specified purposes only).
Advantages of delegated legislation:

 Time
Parliament does not have time to examine matters in detail
 Expert opinion
Much of the content of delegated legislation is technical and is better worked out in
consultation with professional, commercial or industrial groups outside Parliament.
 Flexible
Delegated legislation is more flexible than an Act of Parliament. It is far simpler to amend
a piece of delegated legislation than to amend an Act of Parliament.
Disadvantages of delegated legislation:

 The main criticism of delegated legislation is that it takes law making away from the
democratically elected members. Power to make law is given to unelected civil servants
and experts working under the supervision of a government minister.
 Because delegated legislation can be produced in large amounts the volume of such law
making becomes unmanageable and it is impossible to keep up-to-date.
Ans.2 (a) (i) Contract to do act afterwards becoming impossible or unlawful:

A contract to do an act which, after the contract is made, becomes impossible, or, by
reason of some event which the promisor could not prevent, becomes void when the
act becomes impossible, or unlawful.
However, events that make the contract extremely more difficult, costly or less
beneficial or commercially unviable or non-profitable then that agreed at the time of
its formation, but not impossible, are not accepted as an excuse for non-performance.
Therefore, in the given scenario, Lalchi Traders pleas shall not be acceptable and in
the event of non-performance they will be held liable for the breach of contract and
the consequential damages.
(ii) A contract is discharged, if after its formation, a law or regulation is adopted that
makes performance impossible/ illegal.
Therefore, due to the imposition of ban on the import of yarn by the Government,
Lalchi Traders would be discharged from their liability to perform the contract.
(b) Condition of Valid Offer

In order to constitute a valid offer, Masoom must fulfil the following conditions:
 The offer must be unconditional;
 It must be made at a proper time and place, and under such circumstance that
Mubarak may have a reasonable opportunity of ascertaining that Masoom is able and
willing there and then to deliver 300 Rolex watches;
 Mubarak (the promisee) must have a reasonable opportunity of satisfying himself that
the watches offered are the Rolex watches and are 300 in numbers which Masoom
(the promisor) was bound by his promise to deliver.
Page 1 of 7
Business Law
Suggested Answers
Ans.3 (a) Circumstances where an agent becomes personally liable to third parties:
Following are the circumstances under which an agent is personally liable to third parties:
(i) Foreign principal:

When an agent contracts for a principal resident abroad he is presumed to be
personally liable.
(ii) Principal cannot be sued:

An agent is also presumed to incur personal liability where he contracts on behalf of
a principal who though disclosed cannot be sued. E.g. where promoters contract for a
projected company, they are held liable personally as the company being non-existent
at the time of the contract cannot be sued.
(iii) Undisclosed Principal:

Where an agent acts for an undisclosed principal and contracts in his own name then
he is personally liable to the third parties.
(iv) Agency coupled with interest:

In case of agency coupled with interest, since the agent has himself an interest in the
property which forms the subject matter of the agency therefore the agent is
personally liable to the extent of his interest.
(v) Agent exceeding his authority:

Where an agent while acting in the course of business of agency exceeds his
authority, he is personally liable for the excess part if it is a separable transaction
otherwise for the entire transaction.
(vi) Improperly appointed sub-agent:

An agent is personally liable to third parties for the acts of an improperly appointed
sub-agent.
(vii) Agent incurring personal liability:

Where an agent, while acting in the course of business of agency incurs personal
liability he is personally liable on the contract.
(viii) Pretended agent:

A pretended agent, if the principal does not ratify his act, is personally liable to third
parties for the loss or damage incurred by them because of dealing with him.
(ix) Criminal act:
Where an agent has been employed to do a criminal act, the agent is not entitled to
indemnify himself against the consequences of that act and is personally liable for it.
(x) Special contract:
If an agent, while acting in the course of business of agency enters into a special
contract with the third party that he will be personally liable on the contract then the
agent is personally liable.
(xi) Unnamed principal:

If an agent declines to disclose the identity of his principal then he is personally liable
to the third party.
(xii) Custom:
An agent is personally liable on a contract if there is any usage or custom of a market
or trade to that effect. e.g. stock brokerage business.
Page 2 of 7
Business Law
Suggested Answers
(b) (i) Contract of guarantee:

The above contract is a contract of guarantee. Contract of guarantee is a contract to
perform the promise, or discharge the liability, of a third person in case of his default.
In this case, Basit is the surety whereas Rahim and shopkeeper are respectively the
‘principal debtor’ and ‘creditor’.
Since a guarantee may either be oral or written, in case of Rahim’s default, Basit
would be liable to pay to the shopkeeper.
(ii) Contract of Indemnity:

This is the case of indemnity. A contract of indemnity is a contract by which one
party promises to save the other from loss caused to him by the conduct of the
promisor himself or by conduct of any other person.
In this case, Basit is the indemnifier and shopkeeper is the indemnity holder.
Yes, Basit is liable to make good any loss which may have been caused to the
shopkeeper due to either his own default or the default of Rahim.
Ans.4 (a) Mutual rights and liabilities:
Subject to contract between the partners, following are their mutual rights and liabilities:
(i) Every partner has a right to take part in the conduct of the business;
(ii) Every partner is bound to attend diligently to his duties in the conduct of the
business;
(iii) Every partner shall have the right to express his opinion in case of difference arising
as to ordinary business matters;
(iv) Every partner has a right to have access to and to inspect and copy any of the books
of the firm;
(v) A partner is not entitled to receive remuneration for taking part in the conduct of the
business;
(vi) The partners are entitled to share equally in the profits earned, and shall contribute
equally to the losses sustained by the firm;
(vii) Where a partner is entitled to interest on the capital subscribed by him such interest
shall be payable only out of profits;
(viii) A partner making, for the purposes of the business, any payment or advance beyond
the amount of capital he has agreed to subscribe, is entitled to interest thereon at the
rate of six percent per annum;
(ix) The firm shall indemnify a partner in respect of payments made and liabilities
incurred by him:
 in the ordinary and proper conduct of the business, and

 in doing such act, in an emergency, for the purpose of protecting the firm from
loss, as would be done by a person of ordinary prudence, in his own case, under
similar circumstances; and
(x) A partner shall indemnify the firm for any loss caused to it by his wilful neglect in the
conduct of the business of the firm.
(b) Behram has clearly exceeded his authority. However, Nomi and Sultan cannot repudiate
Behram’s transaction with the bank. As a trading partnership, all the partners have the
implied authority to borrow money on the credit of the firm and the bank is under no
obligation to find out the purpose for which the loan has actually been used.
Page 3 of 7
Business Law
Suggested Answers
Further, where a partner acting within his apparent authority receives money from a third
party and misapplies it, the firm is liable to make good the loss. As a result, each of the
partners is jointly and severally liable to the bank for repayment.
However, Behram would be personally liable to the other partners for Rs. 100,000and shall
indemnify the firm for any loss caused to it by his wilful neglect in the conduct of the
business of the firm.
Further consequence of his breach of duty not to act in any way prejudicial to the
partnership business; the partnership could be wound up.
Ans.5 (a) Crossing after issue

 Where a cheque is uncrossed, the holder may cross it generally or specially.
 Where a cheque is crossed generally, the holder may cross it specially.
 Where a cheque is crossed generally or specially, the holder may add the words “not
negotiable”.
 Where a cheque is crossed specially, the banker to whom it is crossed may again cross
it specially to another banker, his agent, for collection.
 When an uncrossed cheque, or a cheque crossed generally, is sent to a banker for
collection, he may cross it specially to himself.
(b) Inchoate stamped instrument:

(i) In this case, since Kallash is a holder in due course, he can claim any amount
covered by the stamp on the promissory note irrespective of the amount
intended to be paid by Sakhi. Therefore, Sakhi is liable to pay Rs. 150,000 to
Kallash.
(ii) In this case, since Chaplousy is an ordinary holder of the promissory note, he
cannot claim anything more than what Sakhi intended to pay. Therefore, Sakhi
is only liable to pay Rs. 100,000 on the instrument.
(iii) In this case, although Ayyash is a holder in due course, he cannot recover Rs.
250,000 from Sakhi. Sakhi is liable to pay only Rs. 200,000 to Ayyash, being the
maximum amount covered by the stamp on the instrument.
Section B (Company Law)
Ans.6 (a) (i) Special resolution:

means a resolution which has been passed by a majority of not less than three-fourths
of such members entitled to vote as are present in person or by proxy at a general
meeting of which not less than twenty-one days notice specifying the intention to
propose the resolution as a special resolution has been duly given:
Provided that, if all the members entitled to attend and vote at any such meeting so
agree, a resolution may be proposed and passed as a special resolution at a meeting of
which less then twenty-one days notice has been given;
(ii) Chief executive:

Chief executive, in relation to a company means an individual who, subject to the
control and directions of the directors, is entrusted with the whole, or substantially the
whole, of the powers of management of the affairs of the company, and includes a
director or any other person occupying the position of a chief executive, by whatever
name called, and whether under a contract of service or otherwise;
Page 4 of 7
Business Law
Suggested Answers
(b) Subsidiary and holding company:

Under the following circumstances Mehkoum Limited shall be deemed to be the subsidiary
of Hakim Limited:
 If Hakim Limited directly or indirectly controls, beneficially owns or holds more than
fifty per cent of Mehkoum Limited’s voting securities or
 otherwise has power to elect and appoint more than fifty per cent of Mehkoum
Limited’s directors; or
 Mehkoum Limited is a subsidiary of a third company which is in turn the subsidiary
of Hakim Limited.
Ans.7 (a) (i) Reports to be set out in prospectus:

Following reports, by ML’s auditors shall be set out in the prospectus; namely
 A report on assets and liabilities of the company at the last date to which the
accounts were prepared and Profit and loss account of the company for each of
the five financial years immediately preceding the issue of the prospectus along
with any non-recurring item.
 Dividends paid by the company during last five financial years for all classes of
shares including when dividend was not paid and also on the matter when
accounts of the company were not prepared for any year during last five years.
(ii) Issuance of prospectus not required:

The form of application is not required to be accompanied by the prospectus, if it is
shown that the form of application was issued either:
 in connection with a bona fide invitation to a person to enter into an

underwriting agreement with respect to the shares or debentures; or
 in relation to shares or debentures which were not offered to the public.
Further the issuance of a form of application shall not be required if:
 the offer of shares or debentures is made to existing shareholders or debenture

holders or
 The offer is being made for such shares or debentures which are already in issue
and listed on an exchange.
(b) Power of company limited by shares to alter its share capital:

Samjhota Limited, if so authorised by its articles, may alter the conditions of the capital
clause of its memorandum so as to:
(i) increase its share capital by such amount as it thinks expedient;

(ii) consolidate and divide the whole or any part of its share capital into shares of larger
amount than its existing shares;
(iii) sub-divide its shares, or any of them, into shares of smaller amount than is fixed by
the memorandum; or
(iv) cancel shares which, at the date of the passing of the resolution in that behalf, have
not been taken or agreed to be taken by any person, and diminish the amount of its
share capital by the amount of the share so cancelled:
(v) For exercising the above power, Samjhota Limited is required to obtain approval of
members in a general meeting.
(vi) In the event of consolidation or sub-division of shares, the rights attaching to the new
shares shall be strictly proportional to the rights attaching to the previous shares so
consolidated or sub-divided.
(vii) The resolution along with the altered copy of the memorandum shall be filed with the
registrar within 15 days of passing the same.
Page 5 of 7
Business Law
Suggested Answers
Ans.8 (a) (i) Statutory meeting and the time frame for convening the meeting:
Since Karamad (Pvt) Limited has been converted into a public company within a
period of one year from the date of its incorporation, therefore, it is required to hold a
statutory meeting.
Time frame:
The meeting is required to be held within a period of not less than three months, nor
more than six months, from the date at which the company was converted into a
public company.
(ii) In case, if the company is converted into a public company, whether listed or unlisted,
after one year of its incorporation it is not required to hold a statutory meeting.
Therefore, in this case, since the date of conversion into public company is after one
year of its incorporation no statutory meeting is required to be held.
(iii) Contents of the statutory report which must be accompanied by auditor’s

certificate and the matter it must testify:
Following are the contents of the statutory report which are required to be certified by
the company’s auditor:
 Allotment of shares
 Cash received against share allotted and
 Receipts and payments of the company.

The auditor’s certificate is required to certify the correctness or otherwise of the above
matters.
(iv) Certification and filing of statutory report:

Report shall be certified by not less than three directors, one of whom shall be the
chief executive of the company.
The directors shall deliver five copies of the certified statutory report to the registrar
for registration forthwith after sending the report to the members.
(b) Calling of an annual general meeting:

Normally, the annual general meeting of the company is called by the board of directors of
the company.
However, if default is made in holding the annual general meeting, the Commission may,
either of its own motion or on the application of any director or member of the company,
call, or direct the calling of, the said meeting in such manner as the Commission may think
fit.
Ans.9 Duty of the member(s) and the company for the appointment of a new auditor in place of a
retiring auditor:
 Mr. Khushkismat is required to give a notice for a resolution to be passed at BL’s annual
general meeting appointing Mustaid and Company Chartered Accountants as auditor in
place of the retiring auditor.
 Such notice shall be given to BL not less than 14 days before the annual general meeting.
 BL shall forthwith send a copy of such notice to the retiring auditor.
 BL shall also give the notice thereof to its members not less than seven days before the date
fixed for the annual general meeting.
 The notice shall also be published by BL in one Urdu and one English newspaper in the
province in which the stock exchange on which BL is listed is situated.
Page 6 of 7
Business Law
Suggested Answers
 After receiving the notice, the retiring auditor has a right to make a representation in
writing, not exceeding a reasonable length, regarding the matter to the members of the
company.
 BL shall, unless the representation is received too late by it to do so,
 state the fact of the representation having been made in any notice of the resolution given
to members of the company; and
 send a copy of the representation to every member of the company to whom notice of the
meeting is sent whether before or after receipt of the representation by the company; and
 if a copy of the representation is not sent as aforesaid because it was received too late or
because of the company's default, the retiring auditor may, without prejudice to his right to
be heard in person, require that the representation shall be read out at the meeting.
 BL shall, within fourteen days from the date of appointment of Mustaid and Company
Chartered Accountants, send intimation thereof to the registrar together with the consent in
writing of the auditor concerned.
Ans.10 (a) Authentication of balance-sheet
(i) The balance-sheet and profit and loss account or income and expenditure account
shall be approved by the directors and shall be signed by the chief executive and at
least one director.
(ii) when the chief executive is for the time being not in Pakistan, then the balance-sheet
and profit and loss account or income and expenditure account of the company shall
be signed by not less than two directors for the time being in Pakistan, but in such a
case there shall be subjoined to the balance- sheet and profit and loss account or
income and expenditure account a statement signed by such directors explaining the
reasons for non-compliance with the above provisions.
(b) Disclosure of directors’ interest

Being a director, Mr. Farigh is an agent of the shareholders of the company and stands in a
fiduciary relationship with them. So he is required to make all contracts and all
transactions in good faith and in best interest of the company.
If a director makes any transaction or enters into any contract on behalf of the company in
which he is interested by any means, he should give a complete disclosure of the nature of
his interest.
In this case, Mr. Farigh is deemed to be indirectly interested in the transaction as his wife is
the managing director in TL.
Therefore, Mr. Farigh should give a general notice to the effect to all other directors that he
should be regarded as concerned or interested in the transaction to be entered into with TL
and such notice shall be given:
 at the meeting of the directors at which the question of entering into the contract or
arrangement is first to be taken into consideration.
 after disclosing his interest in the transaction, Mr. Farigh should not be part of the
directors meetings in which such contract or transaction is to be discussed.
In case of failure to comply with the above requirements, Mr. Farigh would be liable to a
fine which may extend to Rs. 5,000.
(THE END)
Page 7 of 7
SUBJECT SESSION
– Spring 2015
General Comments:
The examination consisted of ten questions comprising 100 marks. The first five
questions, totaling 50 marks, were related to Mercantile Law whereas the rest of the
questions were from Company Law section. Out of the total number of candidates who
wrote Business Law paper, around 46.6% of the candidates appeared only in Company
Law section covering 50 marks. Overall it was a balanced paper; however, the
performance specially of those who wrote 100 marks paper was disappointing and
remained far below the general level of expectation. On the contrary, candidates who
prepared only for the Company Law section performed well, particularly in questions 6, 8
and 9. The poor performance of the candidates in the paper of Business Law was mainly
due to selective studies and failure to apply relevant knowledge of law to scenario based
questions. Another reason for the failure was lack of language skills and proper
presentation. Candidates are advised to pay particular attention to the suggested solutions
which are provided on ICAP’s website after each examination. They should also refrain
from answering the questions on the basis of general knowledge and perception instead
of the specific knowledge of law.
Specific comments are as under:
Q.1 This question with a potential 5 marks was related to the legal system in Pakistan
and required candidates to explain the concept of delegated legislation citing two
advantages and two disadvantages. Around 22% of the candidates did not attempt
the question at all. However, the performance of the candidates who attempted the
question remained average. Most of the candidates who though correctly explained
the meaning of delegated legislation, failed to state any advantage or disadvantage
in support of their answer.
Q.2 This question with a potential 10 marks was divided into two parts. Part (a) was
again sub-divided into (i) and (ii). It was a scenario based question relating to the
requirements of section 56 of the Contract Act, 1872, “Contract to do act
afterwards becoming impossible or unlawful”. Part (a)(i) required candidates to
identify the type of contract and explain whether the contract would be discharged
under the given circumstances. Part (a) (ii) invited candidates to give an opinion in
case of a changed condition. Part (b) was also scenario based and required
candidates to advise the conditions which must be fulfilled for constituting a valid
offer of performance as explained in section 38 of the Contract Act, 1872.
Page 1 of 6
Examiners’ Comments on Business Law - Spring 2015
(a) The performance in part (a) (i) was unsatisfactory. Majority of the candidates
failed to differentiate between the commercial unviability of the transaction
and an impossible event and incorrectly opined that under the given scenario
the contract was impossible to perform and therefore was discharged.
However, in part (a) (ii) most of the candidates correctly stated that owing to
Government restrictions on the import of yarn the contract would be
discharged due to impossibility of performance.
(b) The performance in this part remained average as majority of the candidates
were only able to mention either one or two conditions such as “the offer
must be unconditional” and that “it must be made at a proper time and
place”. They failed to appreciate that “the promisee may have a reasonable
opportunity of ascertaining that the promisor is able and willing there and
then to deliver the goods” and that the promisee must have a reasonable
opportunity of satisfying himself that the goods offered are the same which
the promisor was bound by his promise to deliver.
Q.3 This question with a potential 15 marks was divided into two parts. Part (a)
required candidates to describe the circumstances in which an agent is presumed to
be personally liable on the contract to third parties. Part (b) was a scenario based
question consisting of two sub-parts (i) and (ii). It required candidates to identify
the type of contract in each of the given situations and describe the liability of a
person who in part (b) (i) was the surety and in part (b) (ii) was the indemnifier.
(a) The performance in this part remained below average as majority of the
candidates were able to identify only one or two conditions in which an agent
is presumed to be personally liable. Most of the candidates also failed to
distinguish between an undisclosed and an un-named principal.
(b) The performance in part (b) (i) was satisfactory as majority of the candidates
correctly identified that the contract was a contract of guarantee. However, in
part (b) (ii) candidates failed to appreciate that the contract was a contract of
indemnity. Most of the candidates were of the opinion that there was no
contract between the concerned parties and therefore there was no question
of any liability in case of default.
Q.4 This question with a potential 10 marks was divided into two parts. Part (a) invited
candidates to narrate the mutual rights and liabilities of partners towards each
other. Part (b) consisted of a scenario which required candidates to advise the
partners about their rights and liabilities and also that of the firm in relation to the
transaction given in the scenario.
(a) Candidates’ performance in this part was average. Only few candidates were
able to describe all the mutual rights and liabilities of partners as provided in
section 12 and 13 of the Partnership Act, 1932.
Page 2 of 6
(b) The performance in this part was disappointing. Majority of the candidates
failed to analyse the situation correctly and were only able to write that
Behram would be personally liable to pay Rs. 100,000 to Nomi and Sultan.
Only few candidates were able to identify that due to breach of duty on the
part of Behram, the partnership could be wound up. Candidates were also
unable to describe the rights and liabilities of the firm under the given
circumstances. Most of the candidates just wrote that Behram would be
expelled from the firm.
required candidates to identify the person(s) who may cross the cheque after its
issue and the manner in which it may be crossed. Part (b) was a scenario inviting
candidates to describe the liability of the drawer of an inchoate stamped
instrument under various situations.
(a) The performance remained average in this part of the question. Only few
candidates were able to identify that a holder of a cheque or a banker to
whom a cheque is crossed may again cross it. Similarly, majority of the
candidates instead of describing the manner in which a cheque may be
crossed as envisaged under section 125 of the Negotiable Instruments Act,
1881, unnecessarily explained the generally or specially crossed cheques as
provided in sections 123 and 124 of the Negotiable Instruments Act, 1881.
Few candidates even drew the specimen of cheques in support of their
answer.
(b) The performance in this part remained poor as majority of the candidates
failed to identify that in situation (i) and (iii) the holder of the instrument
was a holder in due course whereas in situation (ii) the holder was an
ordinary holder. Moreover, most of the candidates were of the opinion that
Zarouratmand instead of Sakhi was liable on the instrument to the extent
written on the promissory note in each of the given situations.
invited candidates to briefly describe ‘Special resolution’ and ‘Chief executive in
relation to a company’. Part (b) required candidates to list the circumstances
under which a company may be deemed to be a subsidiary of another company.
In this question, the performance of those candidates who only wrote “Company
Law section” of the paper was satisfactory. However, performance of the
candidates who wrote both “Mercantile Law” and “Company Law” sections of
the paper remained average.
(a) While explaining “Special resolution” as provided under section 2(36) of

the Companies Ordinance, 1984, many candidates failed to mention that “If
all the members entitled to attend and vote at any such meeting so agree, a
resolution may be proposed and passed as a special resolution at a meeting
of which less then twenty-one days’ notice has been given”. Few
candidates also unnecessarily wasted their precious time in narrating
various decisions which require passing of a special resolution.
Page 3 of 6
While describing “Chief executive in relation to a company”, many

candidates also discussed the provisions relating to appointment of first and
subsequent chief executives, filling of casual vacancy and removal of chief
executives instead of defining the term “Chief Executive” as stated under
section 2(6) of the Companies Ordinance, 1984. This seems to be due to
reading the question in haste without considering the marks allocated to
each part of the question.
(b) The performance in this part was satisfactory. However, majority of the
candidates failed to specify that in order for a company to be a subsidiary
of another company, that other company should hold “more than 50%” of
the voting securities or otherwise should have power to elect and appoint
“more than 50%” of the directors. They instead wrote “50% or more”.
required candidates to specify the auditor’s reports which are required to be set
out in the prospectus and explain the exceptions to the norm ‘No one shall issue
any form of application for shares in or debentures of a company, unless the form
is accompanied by a prospectus.’ Part (b) invited candidates to advise the
directors about the provisions of the Companies Ordinance, 1984 regarding
alteration of the conditions of the capital clause of the memorandum of
association.
(a) The performance remained very poor. Many candidates instead of

specifying the reports to be set out by companies auditors in the prospectus,
deliberated on the contents of the statutory report which are required to be
certified by the company’s auditor. Few candidates wrote that since
Mayanaz Limited has no subsidiary, there is no need for auditor’s report.
Other irrelevant replies were also seen. Only few candidates were able to
correctly write the provisions stated in clause 28 of the second schedule to
the Companies Ordinance, 1984.
While explaining the exceptions to the above norm, most of the candidates
were only able to appreciate that the form of application is not required to
be accompanied by the prospectus in case of shares or debentures which
are not offered to the public. Few candidates were of the view that such
exemption is only available to a private limited company. Only handful of
candidates with good knowledge and preparation managed to narrate
complete exceptions as specified in section 53(5) and 8(a) and (b) of the
Companies Ordinance, 1984.
(b) The performance in this part also remained below average. Majority of the
candidates failed to highlight all the provisions relating to the powers of
company limited by shares to alter the conditions of its capital clause as
specified in section 92(1) of the Companies Ordinance, 1984.
Page 4 of 6
Q.8 This question with a potential 10 marks was divided into two parts. Part (a) was
further divided into four sub-parts. Sub-part (i) required candidates to describe
whether a company which was incorporated on 1 July 2014 and subsequently
converted into a public unlisted company on 1 March 2015 (i.e. within a year of
its incorporation) was required to hold a statutory meeting and the time frame
within which such meeting was to be held. Sub-part (ii) invited candidates to give
their opinion in case if the conversion had taken place on 1 July 2015 instead of 1
March 2015. Sub-part (iii) asked the candidates to identify those contents of the
statutory report which are required to be certified by the company’s auditor and to
specify the purpose of such report. Sub-part (iv) required to state the requirements
of law regarding the certification and filing of statutory report. Part (b) required
candidates to state the names of those who may call an annual general meeting
(AGM) of the company.
Again the candidates who wrote only Company Law section of the paper
performed exceptionally well in this question.
(a) The overall performance of the candidates who wrote the entire paper of
Business Law remained average. In sub-part (i) majority of the candidates
produced correct answers. However, some candidates wrote that a company
is required to hold its statutory meeting between three to six months from
the date of its incorporation rather than the date of conversion into public
company. In reply to sub-part (ii) most of the candidates produced a wrong
answer. Some of them were of the opinion that a company cannot be
converted into a listed company and others opined that statutory meeting
must be held within three to six months from the date of conversion,
irrespective of whether one year from the date of incorporation has elapsed
or not. Sub-part (iii) exhibited satisfactory performance. However, few
candidates unnecessarily narrated the contents of statutory report at length
and wasted precious time. While replying to sub-part (iv) many candidates
mixed up the requirements of section 241 relating to ‘Authentication of
balance sheet’ with the requirements of section 157(3) relating to
‘Certification of statutory report’. Majority of the candidates also ignored
the requirement of law relating to the filing of statutory report. Some of
them wrongly stated that the certified copy of the report shall be delivered
to the Commission and the Stock Exchange.
(b) The performance in this part remained average as majority of the

candidates failed to identify the requirement of section 158 of the
Companies Ordinance, 1984. Most of the candidates were only able to
appreciate that directors would call the AGM. Many candidates wrote that
an AGM would be called by the members / shareholders of the company
and unnecessarily deliberated on the time frame of calling first and
subsequent AGMs. Few candidates also discussed about the transactions to
be dealt with at AGM.
Q.9 This question with a potential 10 marks required candidates to explain the duty of
the shareholder who has proposed to appoint a new auditor in place of the retiring
auditor and of the company after receiving such proposal. It was also required to
explain the rights of the retiring auditor.
Page 5 of 6
The performance of the candidates who wrote only Company Law section of the
paper was very good. However, those candidates who wrote the entire paper of
Business Law remained below average. Some of the common mistakes observed
were as follows:
(i) Many candidates wrote that only the holder of 10% of the shareholding is
eligible to propose the name of a new auditor which is not true as law has
made no such restriction on the shareholders.
(ii) Many candidates were of the view that notice for a resolution to be passed
at the company’s AGM appointing new auditor in place of the retiring
auditor shall be sent by the new auditor to all the members and the retiring
auditor instead of the company.
(iii) Many candidates did not specify that consent of the new auditor is required
to be filed with the registrar.
(iv) Few candidates also wrote that an NOC is required to be filed with the
registrar.
required candidates to advise the company regarding approval and signing of
financial statements as provided in section 241 of the Companies Ordinance,
1984. Part (b) was a scenario based question inviting candidates to advise a
director of the company with regard to his responsibilities towards the company
for disclosing his interest in the transaction of the company.
(a) It was a simple and straight forward question but candidates performed
poorly in this part. Many candidates mixed up the requirement of section
241 with that of section 157(3) relating to certification of statutory report.
Some of the candidates were of the opinion that financial statements should
be signed either by all the directors or by the chief executive, CFO and the
company secretary. Few students also wrote that financial statements
should be approved by the auditors / members of the company. There were
only handful of candidates who knew that financial statements shall be
approved by the directors of the company. Most of the students also
ignored the fact that in case of non-signing of financial statements by the
chief executive, the subjoining statement explaining the reasons for non-
compliance with the provisions of law shall be signed by the directors.
(b) The performance in this part of the question was disappointing. Majority of
the candidates were only able to write that the director should disclose the
nature of his interest in the transaction as his wife is the managing director
in the company with whom the directors are contemplating to enter into a
transaction, ignoring the time frame and the manner of disclosure as
provided in sections 214 and 216 of the Companies Ordinance, 1984.
Almost all the candidates failed to state that failure of the director to
comply with the relevant provisions would attract a penalty of up to
Rs. 5,000.
THE END
Page 6 of 6
Business Law
Q.1 (a) Briefly describe the terms ‘Company court’ and ‘Company bench’. (03)
(b) The doctrine of binding precedent suggests that ‘a judge, subject to the fulfilment of
certain conditions, is bound to apply decisions from earlier cases to the facts of the
case before him’.
Identify the situation(s) in which a judge is not bound to follow the precedent. (02)
Q.2 (a) Sobia borrowed Rs. 300,000 from Meher against a gold necklace as security. She
agreed to return the amount to Meher after one month. However, on due date Sobia
defaulted in payment.
In view of the provisions of the Contract Act, 1872 identify and describe the type of
contract Sobia and Meher entered into. Also enumerate the rights available to Sobia
and Meher in the above circumstances. (08)
(b) Under certain special conditions, obligations resembling those created by a contract
are imposed by law although the parties have never entered into a contract. In view of
the provisions of the Contract Act, 1872 describe the conditions which must be
fulfilled for claiming the amount in each of the following cases:
(i) Baqir supplied a jacket to Sultan in order to save him from cold weather. Sultan
who was a minor agreed to pay Rs. 2,000 for the jacket although its market
price was Rs. 1,500. (03)
(ii) Rohi, who paid the electricity bill of Saulat without being asked, is now
demanding payment from Saulat. (01)
(iii) Sami, a coolie picked up the goods purchased by Nadia from the supermarket
and took them to her car. Nadia did not object to it. Sami demanded service
charges from Nadia. (02)
Q.3 (a) What is meant by discharge of a contract? Briefly describe the modes of discharging a
contract by mutual agreement under the provisions of the Contract Act, 1872. (08)
(b) Murad offered his car to Sanum for Rs. 400,000. Sanum accepted the offer and
enclosed a pay order of Rs. 150,000 with a promise to pay the balance in monthly
instalments of Rs. 62,500 each.
Under the provisions of the Contract Act, 1872 explain whether it is a valid contract. (03)
Q.4 (a) Munaf, a sole proprietor, engaged in the business of selling cooking oil to wholesalers
agreed to admit Lari in his business on the following terms:
That Lari shall not bring any capital and shall not be liable for any losses of the firm.
However, he shall be entitled to receive Rs. 150,000 on introducing any new client to
the business, share 40% of the profits and have the right to exercise all the powers of a
partner in the firm.
Analyse the above situation and advise whether a partnership is constituted between
Munaf and Lari under the provisions of the Partnership Act, 1932. (05)
(b) Meher, Abid, Rani and Azra were partners in Abid Associates, a firm of town
planners and consultants. Bari Builders supply goods to Abid Associates on credit.
Abid died on 5 January 2015. Meher, Rani and Azra decided to continue the business
in the old firm’s name. However, neither the surviving partners nor the representative
of Abid gave public notice to this effect.
Due to insolvency of a major client, Abid Associates was facing difficulty in making
payment to Bari Builders. When Bari Builders investigated the matter, they came to
know about the death of Abid. They have now filed suits for the recovery of
outstanding balance, severally against Abid’s estate and Meher, as the credit was
extended on the faith of Abid and Meher.
In view of the provisions of the Partnership Act, 1932 explain whether Bari Builders
are justified in filing the above suits and would they succeed in recovering the
outstanding amount under the above circumstances. (05)
Q.5 (a) Specimen of a Negotiable Instrument
Date: September 12, 2015

Rs. 100,000/- only
Please pay on demand to Tauseef or to his order the sum of Rupees One
Hundred Thousand only, for value received.
Accepted
Laila
To Sd/-
Laila Laeeq
Busy Road Saddar
Karachi Karachi
Identify the type of above negotiable instrument and briefly describe its essential
characteristics under the provisions of the Negotiable Instruments Act, 1881. (07)
(b) Salma drew a cheque for Rs. 50,000 in favour of her landlord Zoaib. The cheque was
not presented for payment by Zoaib within a reasonable time of its issue. Salma
suffered damage of Rs. 30,000 through the delay because the bank failed.
Under the provisions of the Negotiable Instruments Act, 1881 describe whether Zoaib
can recover the money in the above circumstances. (03)
Q.6 (a) Azad Limited (AL) is a listed company engaged in the business of manufacturing and
supply of electrical appliances. Mr. Majnou, a director of AL, has applied for an
interest free loan from the company to be repayable in five years.
In view of the provisions of the Companies Ordinance, 1984 describe the
circumstances under which AL may grant loan to Mr. Majnou. (04)
(b) The 21st annual general meeting (AGM) of NokeJhoke Limited was held on
20 August 2015. Two of the shareholders, Mateen and Ragib were not satisfied with
the conduct of the meeting. One week after the meeting, they submitted a complaint
to the chairman of the board of directors, requiring him to invalidate the proceedings
of the 21st AGM.
In view of the provisions of the Companies Ordinance, 1984 explain the
circumstances in which Mateen and Ragib would succeed in their contention. (06)
Q.7 (a) What is meant by the term ‘Member’ as described under the provisions of the
Companies Ordinance, 1984? (04)
(b) Paband Limited is in the process of incorporation and has filed an application with
the registrar’s office for registration of its memorandum of association. However, the
registrar has refused to register the memorandum.
Under the provisions of the Companies Ordinance, 1984 state the possible reasons for
such refusal. Also advise the options available to Paband Limited in the above
circumstances. (06)
Q.8 (a) Paid up capital of Sigma Limited comprises of two classes of ordinary shares, A and
B, having different rights. The directors approved a resolution in their meeting
granting the same rights to both the classes of shareholders. Later, the members in a
general meeting approved the resolution by altering the articles of association to give
effect to the variation in the rights of shareholders.

(i) What do you understand by variation of shareholders’ right? (01)
(ii) A small group of members holding class A shares is objecting to the variation in
their rights. Discuss how these aggrieved members can challenge the variation
of their rights and ask for its cancellation. (05)
(b) On 15 August 2015, Masoom Limited repaid the short-term running finance facility it
had obtained from AB Bank Limited against a floating charge on the stock-in-trade
and book debts of the company.
In view of the provisions of the Companies Ordinance, 1984 briefly describe the
duties of Masoom Limited and the registrar under the above circumstances. (04)
Q.9 On 31 July 2015, the Directors of Clove Engineering Limited (CEL), a listed company,
declared an interim dividend of Rs. 5 per share. However, before making payment of the
dividend, the company suffered huge losses due to a massive fire in the factory. The CFO
has informed the board of directors about CEL’s inability to pay the dividend in time.
Under the provisions of the Companies Ordinance, 1984 briefly describe:

(a) When an interim dividend is deemed to have been declared by CEL. (02)
(b) The consequences of non-payment of dividend within the stipulated time. (03)
(c) The circumstances under which CEL may not be responsible to pay dividend to
certain shareholders. (05)
Q.10 Tawana (Pvt.) Limited (TPL) was incorporated on 10 July 2015 with a paid up capital of
Rs. 5,000,000. TPL’s management intends to appoint Mr. Fakhir as the first auditor of the
company.
Under the provisions of the Companies Ordinance, 1984 advise the directors:
(a) Whether Mr. Fakhir can be appointed as the first auditor of TPL. (01)
(b) Who may appoint the first auditor and fix their remuneration. Also state the time
frame within which such auditor may be appointed. (05)
(c) About the powers and duties of the auditors. (04)
(THE END)
Business Law
Suggested Answers
Certificate in Accounting and Finance – Autumn 2015
Section A (Mercantile Law)
Ans.1 (a) Company court:

A company court is the High Court which has jurisdiction under the Companies
Ordinance, 1984. Its jurisdiction is in the place at which the registered office of the
company is situated.
Company bench:
Company bench(s) is/are one or more benches constituted in each High Court by the chief
justice of the High Court.
The Federal Government may empower any civil court to exercise all or any of the
jurisdictions by the Companies Ordinance, 1984.
(b) How can precedents be avoided?
A judge is not bound to follow the precedent under the following circumstances:
(i) Overruling a precedent:
A precedent established by a lower court can be overruled by a higher court. The
higher court sets aside the decision of the lower court, and the precedent ceases to
apply.
(ii) Making a distinction between cases:
A judge may avoid a precedent by identifying facts in the current case that make it
different from a previous case. If the facts are sufficiently different, the judge in the
current case does not have to follow the precedent of the previous case.
Ans.2 (a) Pledge:

The above contract is in the nature of pledge.
Pledge is the bailment of goods as a security for the payment of a debt or performance of a
promise.
Sobia in this case is the ‘Pawnor’ and Meher is the ‘Pawnee’.
Rights of Meher (Pawnee):
 Meher may bring a suit against Sobia for recovery of the debt.
 She can retain the necklace pledged as a collateral security.
 She may sell the necklace on giving a reasonable notice of the sale.
If the proceeds of such sale are less than Rs. 300,000 (i.e. the amount due in respect of the
debt), Sobia is still liable to pay the balance.
Rights of Sobia (Pawnor)
 Sobia was unable to pay in time but she may redeem the necklace pledged at any
subsequent time before its actual sale.
 But in such a case Sobia must pay, in addition, any expenses which have arisen from
her default.
 In case of sale of necklace by Meher, if the proceeds are greater than Rs. 300,000,
Sobia is entitled to receive the excess amount from Meher.
(b) (i) Claim for necessaries supplied to person incapable of contracting, or on his
account:
Baqir can recover the amount from Sultan if following conditions were satisfied:
(1) the jacket supplied was the necessity suited to Sultan’s condition in life.
(2) Baqir can recover the reasonable market value of Rs. 1,500 only from Sultan’s
property. He cannot recover Rs. 2,000 which Sultan had agreed to pay to Baqir
as Sultan, being an incompetent person was not in the capacity to contract.
Page 1 of 7
Business Law
Suggested Answers
(ii) Reimbursement of person paying money due by another in payment of which he is

interested:
Rohi can recover the amount of electricity bill from Saulat only if the following two
conditions were satisfied:
(1) Rohi who made the payment had interest in such payment.
(2) the payment must be such which Saulat was bound by law to pay.
(iii) Obligation of person enjoying benefit of non-gratuitous act:

Sami can recover the amount of service charges from Nadia if following conditions
were satisfied:
(1) Sami had lawfully done the service for Nadia, i.e. Nadia had the option to
accept or reject the services rendered by Sami.
(2) Sami did not have an intention to act gratuitously and Nadia had enjoyed the
benefits of the service so provided by Sami.
Ans.3 (a) Discharge of a contract:

A contract is said to be discharged when contractual relations between the parties to a
contract are terminated or come to an end.
Discharge by agreement:
A contract can be discharged by mutual agreement in any of the following ways:
(i) Novation:
 Novation means the substitution of a new contract for an existing one.
 This new contract may be between the same parties with new terms, or
 between new parties with old or new terms.
(ii) Rescission:
Rescission is the cancellation of a contract by mutual agreement.
(iii) Alteration:
Alteration means a variation made in the language or terms of a contract with
mutual agreement. When this occurs the original contract is discharged and a new
contract is created. The parties in alteration remain same.
(iv) Remission:
Remission means acceptance of a lesser amount or lesser degree of performance than
what was contracted for in full discharge of the contract. 0
(v) Waiver:
Waiver is a unilateral act of one person that results in the surrender of a legal right.
Thus, it amounts to releasing a person of certain legal obligation under a contract.
(vi) Promisee’s refusal/neglects:

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.
(b) Acceptance must be absolute:

An acceptance should be unconditional assent by the offeree to all the terms of the offer. In
this case, since the offer has been accepted with a variation it would be regarded as a
qualified acceptance. Therefore, a contract between Murad and Sanum has not been
formed.
However, if Murad accepts the counter offer made by Sanum then it would be a binding
contract.
Page 2 of 7
Business Law
Suggested Answers
Ans.4 (a) Mode of determining existence of partnership:

In determining whether Munaf and Lari constitute a partnership, regard shall be had to the
real relation between the parties, as shown by all relevant facts taken together.
The essentials of a partnership are:

(i) There should be a relationship by agreement between two or more persons;
(ii) They should run a business with the intention of sharing profits; and
(iii) The business should be run by all, or by any one of them acting for all.
The Partnership Act does not require that a partner must contribute money or capital.
Similarly the partners may also agree that any one of them shall not be liable for losses.
Thus, in the presence of the above essentials and the fact that Lari is entitled to exercise all
the powers of a partner Munaf and Lari are said to have constituted a partnership.
(b) Liability of a partner for acts of the firm:

Where after a partner’s death, the business is continued in the old firm name, the continued
use of that name or of the deceased partner’s name as a part thereof shall not of itself make
his legal representative or his estate liable for any act of the firm done after his death. Bari
Builders cannot sue Abid’s estate for the recovery of the outstanding amount of the credit
which was extended after Abid’s death.
However, Bari Builders can recover the outstanding amount from Abid’s estate only if the
credit was extended to the firm before Abid’s death.
Moreover, since every partner is liable, jointly with all the other partners and also severally,
for all acts of the firm done while he is a partner, Bari Builders may file a suit against Meher
for the recovery of outstanding balance and succeed, provided Meher was a partner in the
firm at the time when credit was extended to the firm.
Ans.5 (a) Bill of Exchange:

The above negotiable instrument is a bill of exchange.
Essential characteristics of a bill of exchange:

Following are the essential characteristics of a bill of exchange:
(i) In writing
A bill of exchange is required to be in writing.
(ii) Order to pay
The drawer orders the drawee to pay money to the payee. Mere request does not
constitute an order.
(iii) Definite and unconditional

The order to pay should not depend upon a condition or upon the happening of an
uncertain event.
(iv) Signed by drawer
The instrument must be signed by the maker (drawer) and accepted by the drawee.
(v) Certain parties
All the parties must be certain i.e. indicated in a bill of exchange with reasonable
certainty.
(vi) Sum payable must be legal tender
The order must be to pay money and money only.
Page 3 of 7
Business Law
Suggested Answers
(vii) Sum Payable must be certain

It is essential that sum of money ordered to be payable must be certain and definite.
However, it may include future interest or return in any other form or is payable at
an indicated rate of exchange, or is payable at the current rate of exchange or the
sum payable being subject to adjustment for profit or loss of the business of the
maker.
(viii) Time for payment
The time for payment may be on demand or at a fixed or determinable future time.
(ix) It must be delivered:
A bill of exchange is incomplete until it is delivered to the payee
(b) When cheque not duly presented and drawer damaged thereby:
It was the duty of Zoaib to present the cheque for payment within reasonable time of its
issue. But he failed to present it and in the meantime the bank failed causing an actual
damage of Rs. 30,000 to Salma due to this delay.
In this case, Salma is discharged from her liability to the extent of her damage i.e. Rs.
30,000.
However, Zoaib can still recover Rs. 20,000 from Salma.
Zoaib, after the discharge of Salma, is now the creditor of the bank in lieu of Salma to the
extent of Rs. 30,000 and can recover Rs. 30,000 from the bank.
Section B (Company Law)
Ans.6 (a) Loans to directors:

AL cannot, directly or indirectly, grant any loan to its director, Mr. Majnou.
However, with the approval of Commission, AL may make a loan to Mr. Majnou,
provided he is in the whole-time employment of AL. The loan may be granted:
 for the purpose of acquisition or construction of a dwelling house or land thereof; or
 for paying the cost of any conveyance for personal use or household effects; or
 For paying any expense on his medical treatment or the medical treatment of any
relative as are ordinarily made or provided by the company to its employees.
(b) Circumstances in which proceedings of a General Meeting may be declared invalid:

In the given scenario, Mateen and Ragib would not succeed in their contention as they have
filed the complaint with the chairman of the board of directors.
In order to succeed, Mateen and Ragib are required to file a petition in the Court and must
have 10% or more of the voting power in the company.
The petition must be made within thirty days of the impugned meeting.
The Court may declare the proceedings of a general meeting or part thereof invalid and
direct holding of a fresh meeting on the following grounds:
 By reason of any material defect or omission in the notice; or
 Irregularity in the proceedings of the meeting which prevented Mateen and Ragib
from using their rights.
Page 4 of 7
Business Law
Suggested Answers
Ans.7 (a) Member:

Member means, in relation to a company having share capital, a subscriber to the
memorandum of the company and every person to whom is allotted, or who becomes the
holder of, any share, scrip or other security which gives him a voting right in the company
and whose name is entered in the register of members, and, in relation to a company not
having a share capital, any person who has agreed to become a member of the company
and whose name is so entered;
(b) Registration of memorandum of association:

Grounds of refusal:
The registrar may refuse to register the memorandum of association of Paband Limited, if
he is of the opinion that:
(i) The company is being formed for unlawful purposes;
(ii) All or any of the objects stated in the memorandum are inappropriate or deceptive or
insufficiently expressive; and
(iii) All the requirements of the Companies Ordinance, 1984 and the Rules made
thereunder in respect of registration and matters precedent and incidental thereto have
not been complied with.
Options available to Paband Limited:

In case of refusal of registrar to register the memorandum, the subscribers of the
memorandum or any one of them authorised by them in writing may either
(i) Supply the deficiency and remove the defect pointed out by the registrar; or
(ii) Within 30 days of the order of refusal prefer an appeal-
 where the order of refusal has been passed by an additional registrar, a joint
registrar, a deputy registrar or an assistant registrar, to the registrar; and
 where the order of refusal has been passed, or up-held in appeal, by the registrar,
to the Commission.
An order of the Commission as stated above shall be final and shall not be called in
question before any Court or other authority.
Ans.8 (a) (i) Variation of shareholders’ rights:

Variation of shareholders’ rights means changing of the rights i.e. reducing, enhancing
or cancelling the rights of the shareholders.
(ii) Petition to cancel variation of rights:

The aggrieved members who are objecting to the variation in their rights must not be
less than 10% of the class of aggrieved members. i.e. members holding A class shares.
The aggrieved members may apply to the Court for an order cancelling the resolution
varying their rights.
The application shall be made within 30 days of the date of such resolution.
The aggrieved members shall have to show to the Court’s satisfaction, that:
 Some facts which would have had a bearing on the decision of the shareholders
were withheld by Sigma Limited in getting the special resolution passed, or
 The variation would unfairly prejudice the interest of the members.
The above application may also be made by any one or more of the aggrieved
members who are authorised in writing by the group of aggrieved members in this
behalf.
The decision of the Court on any such application shall be final.

Page 5 of 7
Business Law
Suggested Answers
(b) Registration of payment or satisfaction of charges:

It shall be the duty of Masoom Limited to inform the registrar about the full payment or
satisfaction of the charge created on the stock-in-trade and book debts of the company
within 21 days from the date of the payment or satisfaction of the charge in full.
The registrar shall register the satisfaction of charge only after verifying the repayment of
running finance facility from the holder of the charge.
The holder of the charge is required to inform the registrar about any objection within a
time not exceeding 14 days as specified by the registrar.
If no objection is filed by the holder of the charge, the registrar shall register the satisfaction
of the charge as requested by Masoom Limited.
In case of any objection from the holder of the charge, the registrar shall record a note to
that effect in the register and communicate it to Masoom Limited.
Ans.9 Period for payment of dividend:

(a) Declaration of interim dividend:
Interim dividend is deemed to have been declared:
 on the date of commencement of closing of share transfer for purposes of determination
of entitlement of dividend; and
 where register of members is not closed for such purpose, on the date on which such
dividend is approved by the directors.
(b) Consequences of non-payment of dividend:

 Where a dividend has been declared by a company but is not paid within the stipulated
time, the chief executive of the company shall be punishable with imprisonment for a
term which may extend to two years and with fine which may extend to one million
rupees.
 A chief executive convicted as above shall from the day of the conviction cease to hold
the office of chief executive of the company and shall not, for a period of five years
from that day, be eligible to be the chief executive or a director of that company or any
other company.
(c) Circumstances under which CEL may not be responsible to pay dividend to certain
shareholders:
CEL may withhold dividend after obtaining prior approval of Commission within 45 days
of declaration of dividend. The Commission may grant the permission after providing an
opportunity to the shareholder, entitled to receive the dividend, of making representation
against the proposed action.
CEL may not be responsible to pay dividend in the following cases, namely-
(i) where the dividend could not be paid by reason of the operation of any law;
(ii) where a shareholder has given directions to CEL regarding the payment of the
dividend and those directions cannot be complied with;
(iii) where there is a dispute regarding the right to receive the dividend;
(iv) where the dividend has been lawfully adjusted by CEL against any sum due to it
from the shareholder; or
(v) where, for any other reason, the failure to pay the dividend or to post the warrant
within the stipulated period was not due to any default on the part of CEL.
Page 6 of 7
Business Law
Suggested Answers
Ans.10 Appointment of first auditors:

(a) Yes Mr. Fakhir can be appointed as the first auditor of TPL, provided he is a Chartered
Accountant within the meaning of the Chartered Accountants Ordinance, 1961 (X of 1961).
(b) Who may appoint the first auditors and the time frame:
The first auditor of TPL shall be appointed by the directors within sixty days of the date of
incorporation of TPL.
If the directors fail to exercise their powers within the stipulated time, the company in the
general meeting may appoint the first auditor.
If the first auditors are not appointed by the company in the general meeting within 120
days of date of incorporation of TPL, the Commission may appoint a person to fill the
vacancy.
However, under such circumstances TPL shall inform the Commission within one week of
the Commission’s power becoming exercisable.
Who may fix auditor’s remuneration:

The remuneration of the first auditor of TPL shall be fixed by:
(i) By the directors if the auditor was appointed by the directors; or
(ii) By the Commission if the auditor was appointed by the Commission; and
(iii) In all other cases, by TPL in general meeting or in such manner as the general
meeting may determine.
(c) Powers and duties of the auditors:

Every auditor of a company shall have a right of access at all times to the books, papers,
accounts and vouchers of the company, whether kept at the registered office of the
company or elsewhere, and shall be entitled to require from the company and the directors
and other officers of the company such information and explanation as he thinks necessary
for the performance of the duties of the auditors.
The auditor shall make a report to the members of the company on the accounts and books
of accounts of the company and on the financial statements, which are laid before the
company in general meeting during his tenure of office,
It is the duty of the person appointed as auditor of the company to sign the auditor's report
or sign or authenticate any other documents of the company required by law to be signed or
authenticated by the auditor.
(THE END)
Page 7 of 7
SUBJECT SESSION
– Autumn 2015
General Comments:
The paper consisted of ten questions comprising of 100 marks. The first five questions,
totaling 50 marks, were related to Mercantile Law whereas the rest of the questions were
from Company Law section. Out of the total number of candidates who wrote Business
Law paper, around 25% of the candidates appeared only in Company Law section.
Although the question paper offered varied blend of questions, the overall performance of
the candidates particularly those who wrote 100 marks paper remained below
expectation. However, candidates who only appeared in the Company Law section
performed well, mainly in questions 6, 8 and 10. Once again the poor performance, with
special mention of question numbers 2, 3, 6 and 7, may largely be attributed to selective
studies, lack of presentation skills, poor expression, use of incorrect vocabulary and
failure to apply relevant knowledge of law to scenario based questions. To overcome
these weaknesses, candidates are strongly advised to cover the entire subject and refrain
from answering the questions using general knowledge and logics based on own
perception instead of the specific knowledge of law. The correct approach to answer
scenario based questions can be learnt by paying special attention to the suggested
answers which are provided on ICAP’s website after each examination.
Question 1
This question with a potential 5 marks was divided into two parts. Part (a) required
candidates to describe the terms Company court and Company bench. Part (b) required
candidates to identify the situations in which the judge is not bound to follow the
precedent.
Question 1(a)
The performance in this part remained poor as majority of the candidates failed to
properly define the terms. Majority of the candidates failed to comprehend that company
court is in fact a High Court which has jurisdiction under the Companies Ordinance,
1984. Candidates also failed to appreciate that Federal Government may empower any
civil court to exercise the jurisdictions under the Companies Ordinance, 1984.
Page 1 of 6
Question 1(b)
The performance in this part was satisfactory as most of the candidates were able to
describe at least one of the conditions in which a judge is not bound to follow the
precedent.
Question 2
This question with a potential 14 marks was divided into two parts. Part (a) was a scenario
based question relating to the requirements of section 172 through 177 of the Contract Act,
1872. It required candidates to identify and describe the type of contract the parties entered
into and also enumerate the rights available to the contracting parties. Part (b) was also
scenario based and comprised of three situations. The first situation related to provision of
necessities to a minor, the second situation to the payment made by interested person and
the third situation to provision of service under a non-gratuitous act. Candidates were
required to describe the condition(s) subject to the fulfillment of which the party providing
service in each of the given situations was entitled to claim the cost of service from the other
party (A case of quasi contract).
Question 2(a)
The performance in this part remained satisfactory as majority of the candidates correctly
identified the type of contract as a pledge. However, some of the candidates thought that it is
a case of bailment of goods while others were of the opinion that it is a contract of guarantee
or a mortgage. Many candidates who although correctly identified that it is a pledge, failed
to describe the pledge. While describing the rights of the contracting parties only a small
number of candidates were able to highlight all the rights available to the parties to the
contract.
Question 2(b)
The performance in this part remained below average. Some of the candidates were able to
partially describe the condition(s) in case of only one or two given situations where the party
providing service would have claimed the amount of service from the beneficiary. Majority
of the candidates failed to comprehend the requirement of the question and instead of
identifying the condition(s) which would have made each scenario a quasi-contract, they
opined whether the event in each of the given situations constituted a contract or not.
Question 3
candidates to state the meaning of ‘discharge of a contract’ and explain the modes of
discharging a contract by mutual agreement as provided in sections 62, 63 and 67 of the
Contract Act, 1872. Part (b) was a scenario based question relating to the requirements of
section7 of the Contract Act, 1872 (A case of qualified acceptance).
Question 3(a)
The performance in this part remained below average as majority of the candidates were
unable to describe the meaning of ‘discharge of a contract’. Similarly many candidates
instead of describing the modes of discharging the contract by mutual agreement, deliberated
on various modes by which a contract may be discharged for instance, discharge by
performance, discharge by operation of law or by lapse of time etc. Only few candidates
Page 2 of 6
were able to correctly identify and describe the modes by which a contract may be
discharged by mutual agreement.
Question 3(b)
The performance in part (b) was average. Majority of the candidates correctly identified that
the contract is not valid due to qualified acceptance. However, they failed to appreciate that
if the promisor accepts the counter offer of the promisee then it would become a binding
contract. On the other hand, many candidates wrongly thought that it is a binding contract
as all the elements of a contract were present in the situation.
Question 4
This question with a potential 10 marks was divided into two parts. Part (a) was scenario
based, inviting candidates to analyse the situation given in the scenario and advise whether
the person admitted by a sole trader into his business constituted partnership between them.
Part (b) was also scenario based in which one of the partners in the firm had died but the
firm had continued its business in the old firm’s name without giving public notice to this
effect. Candidates were required to advise whether one of the suppliers who had extended
credit to the firm would succeed in recovering the outstanding amount from the estate of the
deceased partner and one of the surviving partners. The situation was based on the
requirements of section 25 and 28(2) of the Partnership Act, 1932.
Question 4(a)
Candidates’ performance in this part was average as most of them produced only partial
replies. Many candidates thought that sharing of losses is mandatory for constituting a
partnership. Others were of the view that since the person who was admitted by the sole
proprietor is not bringing any capital to the business and is entitled to receive certain amount
of money from the firm in the nature of commission therefore he is not a partner in the firm.
Some candidates, without giving any reason, only gave their conclusion. Very few
candidates were able to write the complete answer and secure full marks.
Question 4(b)
The performance in this part was disappointing. In the case of liability of the deceased
partner, most of the candidates failed to appreciate that the estate of the deceased partner
would only be liable if the credit was extended by the supplier before his death and not
afterwards. Contrary to the fact, they made conclusions on the basis of whether public notice
of the death was given or not. As regards the liability of one of the surviving partners most of
the candidates answered correctly. However, many candidates did not explain the fact that
all the partners are jointly and severally liable for the acts of the firm while they are the
partners in the firm.
Question 5
candidates to identify the type of the Negotiable Instrument whose specimen was provided
in the question and describe the essential characteristics of that instrument. Part (b) was
based on a scenario pertaining to the requirements of section 84 of the Negotiable
Instruments Act, 1881. It invited candidates to describe whether the payee was entitled to
recover the amount of cheque under the given circumstances.
Page 3 of 6
Question 5(a)
The performance remained average. Majority of the candidates correctly identified the type
of the instrument as a Bill of Exchange but failed to write more than fifty percent of the
characteristics which a bill of exchange possesses. Many candidates wrongly identified the
instrument as a promissory note while there were few who thought that it was a cheque.
Question 5(b)
The performance in this part remained poor as majority of the candidates failed to appreciate
that it was the payee’s duty to deposit the cheque within reasonable time and in the given
situation the drawer is no more liable to pay the amount (Rs. 30,000) to the payee. Further,
they were also unable to explain that as a consequence of the above, the payee has become
the creditor of the bank.
Some students only managed to write the conclusion without any corroborative evidence.
Question 6
This question with a potential 10 marks was divided into two parts. Part (a) was based on the
requirements of section 195 of the Companies Ordinance, 1984. The scenario required
candidates to describe the circumstances under which a listed company may grant loan to its
directors. Part (b), a scenario based question, required candidates to describe the
circumstances under which the shareholder(s) may apply for the invalidation of the
proceedings of a general meeting.
In this question, the performance of those candidates who only wrote “Company Law
section” of the paper was satisfactory. However, performance of the candidates who wrote
both “Mercantile Law” and “Company Law” sections of the paper remained average.
Question 6(a)
The performance in this part was satisfactory. However, some candidates though correctly
stated the purpose(s) for which a loan may be granted, failed to appreciate that a listed
company can only grant loan to a whole time director of the company after getting
Commission’s approval.
Question 6(b)
The performance in this part remained below average. Majority of the candidates failed to
specify that in order to succeed, the concerned shareholders must have 10% or more of the
voting power and should apply to the Court within 30 days of the impugned meeting for the
declaration of its proceedings to be invalid. Further, the candidates were generally unaware
of the exact reasons on account of which the court may declare the proceedings of a general
meeting as invalid as they gave various reasons which have not been specified in the law.
Question 7
candidates to state the meaning of the term ‘Member’ as provided in section 2(21) of the
Companies Ordinance, 1984. Part (b) invited candidates to state the possible grounds of
refusal by the registrar to register the memorandum of association as provided in section
30(2) of the Companies Ordinance, 1984 and remedial measures available to the company
under the circumstances.
Page 4 of 6
Question 7(a)
The performance remained very poor. Hardly anyone was able to write the correct definition
of member. Majority of the candidates only wrote that member is a shareholder who has a
right to vote at the general meeting of the company.
Question 7(b)
The performance in this part remained average. Many students either did not understand the
requirement of the question or tried guesswork. For example, while narrating the possible
grounds of refusal by the registrar, they jotted down all the clauses of memorandum of
association with brief description of each. Many students stated the procedure for the
selection of name by the company. Some candidates even wrote the names which are
prohibited under the Companies Ordinance, 1984.
With regard to the remedial measures which may have been taken by the company in case of
refusal by registrar to register the memorandum of association, majority of the candidates
failed to appreciate that the subscribers of the memorandum or any one of them authorized
by them in writing may supply the deficiency.
Question 8
This question with a potential 10 marks was divided into two parts. Part (a), a scenario based
question, was further divided into two sub-parts. Sub-part (i) required candidates to state
their understanding of the term ‘Variation of shareholders’ right’. Sub-part (ii) invited
candidates to discuss the requirements of section 108 of the Companies Ordinance, 1984
with regard to the cancellation of variation in the shareholders’ rights. Part (b) required
candidates to state the provisions of section 132 of the Companies Ordinance, 1984 with
regard to registration of payment or satisfaction of charges.
Question 8(a)
In sub-part (i) majority of the candidates produced correct answers. However, some
candidates wrote that variation of shareholders’ rights means the voting rights available to
various classes of shareholders. In reply to sub-part (ii) most of the candidates secured more
than fifty percent marks. However, majority of the candidates mentioned that shareholders
who have ten percent or more voting rights may apply for the cancellation of variation in
their rights instead of the correct requirement of ten percent or more of the class of aggrieved
members.
Question 8(b)
The performance in this part remained satisfactory. However, some candidates did not read
the question carefully and narrated the procedure of registration of charges.
Question 9
This question with a potential 10 marks was scenario based and was divided into three parts.
Part (a) required candidates to describe when an interim dividend is deemed to have been
declared by the company as provided in explanation to section 251 of the Companies
Ordinance, 1984. Part (b) invited candidates to explain the consequences of non-payment of
dividend within the stipulated time. Part (c) required to explain the circumstances under
which the company may not be responsible to pay dividend to certain shareholders as
provided in the proviso to sub-section 2 of section 251 of the Companies Ordinance, 1984.
Page 5 of 6
Question 9(a)
The performance in this part remained poor. Majority of the candidates seemed to be
unaware of the timing of the declaration of interim dividend and gave answers based on
general perception. In many cases, they confused the declaration of interim dividend with
the payment of dividend. Some candidates wrote that interim dividend is deemed to be
declared on the last day of the quarter or half year as the case may be while many others
stated that interim dividend is paid in the middle of the financial year.
Question 9(b)
The performance in this part was satisfactory. However, some of the candidates were of the
opinion that directors of the company would be penalized for non-payment of dividend
whereas in this case the responsibility lies with the Chief Executive of the Company.
Question 9(c)
This part of the question was also answered well by majority of the candidates. However,
many candidates did not explain that prior approval of Commission is required for
withholding dividend and that the Commission may grant permission only after providing
an opportunity to the concerned shareholder to make a representation against the proposed
action.
Question 10
This scenario based question with a potential 10 marks was divided into three parts. Part (a)
required candidates to advise whether or not the person named in the question may be
appointed as the first auditor of a private limited company. Part (b) invited candidates to
state the authority who may appoint and fix the remuneration of the first auditor and the
time frame within which the first auditor may be appointed. Part (c) required candidates to
advise about the powers and duties of auditors as provided in sections 255 and 257(1) of the
Companies Ordinance, 1984.
The performance in part (a) and (b) was exceptionally good. In part (c), the performance
remained average as most of the candidates mixed up the powers and duties of auditors with
the rights of the auditors. For instance, they wrote that auditors are required to make
representation at general meeting of the company. Some candidates were of the opinion that
auditors are required to prepare the financial statements of the company. Most of the
candidates could not mention that it is the duty of the auditors to sign or authenticate any
other document of the company (other than the audit report) which is required by law to be
signed or authenticated by the auditor.
THE END
Page 6 of 6
Business Law
Summary of Marking Key
Note regarding marking scheme:

The marking scheme is given as a guide. However, markers were also advised to award marks for
alternative approaches to a question and relevant/well-reasoned comments/explanations.
A.1 (a) Mark(s)

 1.5 marks each for explanation of company court and company bench 3.0
Mark(s)
(b)  01 mark for identification of each situation 2.0
Mark(s)
A.2 (a)  Identification of the type of contract 0.5
 Description of the contract 2.5
 Up to 01 mark for enumerating each right of Sobia and Meher 5.0
(b) (i) Mark(s)

 Identification of the conditions on the fulfillment of which Baqir
can recover the amount of claim from Sultan 1.5
 Describing the basis of recovery and identification of the amount
which Baqir is entitled to recover from Sultan 1.5
Mark(s)
(ii)  0.5 mark for identification of each condition 1.0
Mark(s)
(iii)  Up to 01 mark for description of each condition 2.0
Mark(s)
A.3 (a)  Describing the meaning of discharge in relation to a contract 1.0
 Up to 1.5 marks for describing each mode of discharging a contract 7.0
Mark(s)
(b)  Explanation of the basis on which the contract may be regarded as a
valid contract 2.5
 Correct decision 0.5
Mark(s)
A.4 (a)  Analysis of the situation in accordance with Partnership Act, 1932 4.0
 Correct decision on the existence of partnership between Munaf and
Lari 1.0
Mark(s)
(b)  Explanation of the reason on the basis of which Bari builder may file
suit against Abid’s estate and Meher 4.0
 Correct decision as to the recoverability of the outstanding amount 1.0
Mark(s)
A.5 (a)  Identification of the type of Negotiable Instrument 1.0
 Between 0.5 to 02 marks for briefly describing each essential
characteristic of a bill of exchange 6.0
Page 1 of 3
Business Law
Mark(s)
(b)  Describing the reasons on the basis of which Zoaib may recover the
specific amount from Salma 2.0
 Describing the reasons on the basis of which Zoaib may recover the
specific amount from bank 1.0
Mark(s)
A.6 (a)  Key requirement for granting of loan to directors 1.0
 01 mark for discussion of each condition in which AL may grant loan to
its director 3.0
Mark(s)
(b)  Discussion as regards the authority who may declare the proceedings of
a general meeting invalid 2.0
 Explanation of the conditions which must be fulfilled in order to declare
the proceeding of a general meeting invalid 4.0
Mark(s)
A.7 (a)  Discussion of the term ‘Member’ in relation to a company having share
capital 2.5
 Discussion of the term ‘Member’ in relation to a company not having a
share capital 1.5
Mark(s)
(b)  01 mark for the explanation of each reason on the basis of which the
Registrar may refuse to register the memorandum 3.0
 Explanation of the option available to the company in case of above
refusal 3.0
Mark(s)
A.8 (a)  Describing the meaning of ‘Variation of shareholders’ right’ 1.0
 Explanation of the condition which must be fulfilled in order to
challenge the variation in shareholders’ rights and ask for its
cancellation 5.0
Mark(s)
(b)  Up to 01 mark for describing each duty of Masoom Limited and the
Registrar 4.0
Mark(s)
A.9 (a)  Identifying the date on which interim dividend is deemed to have been
declared 2.0
Mark(s)
(b)  1.5 marks for briefly describing each consequence for the non-payment
of dividend within stipulated time 3.0
Mark(s)
(c)  Explaining the condition which need to be fulfilled while seeking
Commission’s approval for withholding dividend payment to certain
shareholders 2.5
 Up to 0.5 mark for briefly describing each situation under which CEL
may not be responsible to pay dividend to certain shareholders 2.5
Page 2 of 3
Business Law
Mark(s)
A.10 (a)  Discussing whether Mr. Fakhir can be appointed as the first auditor of
the company 1.0
Mark(s)
(b)  Identifying the correct time frame within which the first auditor may be
appointed 2.0
 0.5 mark for identifying each person/authority who may appoint the
first auditor 1.5
 0.5 mark for stating each person/authority who may fix the
remuneration of auditor 1.5
Mark(s)
(c)  Explaining the extent of auditors authority regarding access to
company’s records and information 2.0
 Explaining the responsibility to report on the financial statements 1.0
 Duty/responsibility regarding signing of report and authentication of
documents 1.0
(THE END)
Page 3 of 3
Business Law
Q.1 Identify the basis of legal system and explain the main sources of law in Pakistan. (05)
Q.2 (a) Shafiq bought Abad’s motorcycle factory in Faisalabad on Abad’s representation that
fifty thousand motorcycles are assembled at his factory annually. Shafiq later found
that the factory has a capacity to manufacture thirty five thousand motorcycles only
per annum. Shafiq now wants to rescind the contract on the ground that his consent
was obtained by misrepresentation.
Under the provisions of the Contract Act, 1872 list the circumstances under which
Shafiq may not be able to rescind the contract. (05)
(b) What do you understand by the terms ‘Ordinary damages’, ‘Special damages’ and
‘Exemplary damages’? Briefly describe the rules relating to the award of each of the
above types of damages under the Contract Act, 1872. (08)
Q.3 (a) Bunny extended a credit of Rs. 500,000 to Sohail on the surety of Majid and Rahat.
On the date of payment, Sohail defaulted and Majid settled the debt.
Under the provisions of the Contract Act, 1872 briefly describe the rights available to
Majid and Rahat against Sohail and Bunny and also between themselves. (08)
(b) Bader, who is the owner of Mashoor Associates, sent one of his employees Aftab in
search of his pet horse which had been missing for 5 days. Bader advertised a reward
of Rs. 20,000 in a newspaper for anyone who finds his missing horse. Aftab, unaware
of the newspaper advertisement, traced the horse. Subsequently, on knowing about
the reward Aftab claimed it from Bader.
Under the provisions of the Contract Act, 1872 identify the type of offer which was
made by Bader. Also state whether Aftab would be able to claim the amount of
reward under the circumstances. (04)
Q.4 (a) Maqbool, Rufi and Sham are the partners in Zeeshan Builders (ZB), a firm engaged
in the business of constructing industrial and residential projects in Balochistan.
Sham is also the owner of a cottage industry in Quetta. Sham has obtained a long-
term loan for his cottage industry from Dostana Bank Limited by transferring his
interest in ZB to the bank by way of a mortgage.
Under the provisions of the Partnership Act, 1932 describe the rights and disabilities,
if any, of Dostana Bank Limited in the above circumstances. (06)
(b) In the above partnership business, Rufi intends to acquire a plot of land for the firm
with his own money. However, he is not certain whether the plot would be
considered as partnership property.
Under the provisions of the Partnership Act, 1932 advise Rufi as what is considered
to be included in the partnership property and how it is to be applied. (04)
Q.5 (a) Under the provisions of the Negotiable Instruments Act, 1881 briefly describe the
terms ‘Negotiation’ and ‘Indorsement’. (04)
(b) Sarwat owes Rs. 500,000 to Zain. The amount is payable on 11 August 2016. Sarwat
intends to issue a negotiable instrument to Zain in satisfaction of her debt.
Under the provisions of the Negotiable Instruments Act, 1881 advise Sarwat about
the type of negotiable instrument which may be issued to Zain, assuming that Sarwat
does not want to involve a third party in making the payment. Also prepare a draft of
the said instrument.
(You may make assumptions wherever you consider necessary) (04)
(c) Under the provisions of the Negotiable Instruments Act, 1881 describe the purpose of
crossing a cheque. Also state whether a cheque can be crossed specially more than
once. (02)
Q.6 (a) ‘Organizations working for useful objects of the society often need protection of
limited liability for such work.’ However, there are certain conditions subject to the
fulfilment of which an exemption may be granted to an entity from using the word
‘Limited’ to its name. Describe those conditions and also specify the authority who
may grant such exemption under the Companies Ordinance, 1984. (04)
(b) The Directors of Muntaqil Limited are considering to re-locate company’s registered
office from Karachi to Islamabad to carry on business more economically.
Advise Company Secretary about the steps which must be taken to re-locate the
registered office under the provisions of the Companies Ordinance, 1984. (06)
Q.7 (a) The Board of Directors of Tanveer Limited, a listed company, has decided to invite
general public for the subscription of its securities and therefore, intends to
issue/publish a prospectus.
Under the provisions of the Securities Act, 2015 advise the directors about:
(i) the time frame within which approval for the issuance of prospectus may be
obtained and the time for which the prospectus may remain valid after approval. (02)
(ii) the requirement(s) which must be satisfied before registration of the prospectus. (06)
(b) Briefly describe the term ‘Mortgage’ as stated in the Companies Ordinance, 1984. (02)
Q.8 (a) Tabdily (Pvt) Limited (TPL) has recently been converted into a public listed company
and the directors intend to appoint a new Chief Executive of the company.
Under the provisions of the Companies Ordinance, 1984 briefly explain the
requirement(s) for the appointment of a Chief Executive. Also state the restrictions, if
any, on the appointment of a Chief Executive. (04)
(b) One of the directors while retaining his directorship in TPL is contemplating to start
his own business which is likely to take most of his time for the next few years.
Under the provisions of the Companies Ordinance, 1984 the director is seeking your
advice on the matters due to which he may ipso facto cease to hold office of the
director of TPL. (06)
Q.9 (a) Ironside Limited (IL) owns 51% voting shares in Snow Storm Limited (SSL) and 52%
voting shares in Flipper (Pvt) Limited (FPL). SSL intends to make an investment of
Rs. 200 million in FPL.

(i) State the type of relationship, if any, which exists between SSL and FPL. (01)
(ii) Describe the conditions which SSL must fulfil before making any investment in
FPL. (05)
(b) ‘Companies Ordinance, 1984 requires that all the investments of the company must
be made and held in the name of the company itself and not in someone else’s name.’
State the exception(s) to this general rule. (04)
Q.10 Under the provisions of the Companies Ordinance, 1984 explain the following:
(a) the rights/duties of an auditor with regard to the general meeting of the company. (04)
(b) how a casual vacancy in the office of the auditor may be filled. (3.5)
(c) provisions relating to the signing of an audit report. (2.5)
(THE END)
Business Law
Suggested Answers
Ans.1 Basis of legal system in Pakistan:

The legal system in Pakistan is based on the Constitution of Pakistan 1973 as well as Islamic law
(Sharia).
Main sources of law in Pakistan:

Following are the main sources of law in Pakistan:
(i) Legislation:
It is the law created by the Parliament of the country and other bodies to whom it has
delegated authority.
(ii) Precedent:
Precedent is a judgment or decision of a superior Court which are binding on the
subordinate Courts.
(iii) Custom:
Certain customs practices and beliefs are so vital and intrinsic part of a social and economic
system that they are treated as if they were laws.
(iv) Agreement:
Parties in their agreement stipulate terms for themselves which constitute law for the
contracting parties.
Ans.2 (a) Shafiq may not be able to rescind the contract under the following circumstances:
 If Shafiq had the means of discovering the truth with ordinary diligence; or
 Abad’s misrepresentation was not the basis for Shafiq’s consent; or
 After becoming aware of the misrepresentation Shafiq may have taken benefit under
the contract; or
 If an innocent third party had acquired for consideration and in good faith some
interest in the property; or
 Shafiq and Abad cannot be restored to their original positions.
(b) Ordinary damages:

Ordinary damages are those which arise naturally in the usual course of things from the
breach itself.
Special damages
Special damages are due to special losses which are in the reasonable contemplation of the
parties at the time of formation of contract.
Exemplary damages
Exemplary (vindictive) damages are those which are awarded with a view to punish the
wrong doer and not primarily with an idea of awarding compensation to the injured party.
Rules relating to award of above damages:

Ordinary Damages
These damages can be awarded if the following two conditions are fulfilled:
 The aggrieved party must suffer by breach of contract, and
 The damage must be a direct consequence of the breach of contract
Special damages
Special damages can be awarded for the special loss which the parties:
 Knew about
 At the time they made the contract
 As likely to result from such breach of contract
Page 1 of 7
Business Law
Suggested Answers
Exemplary damages
The court may award these damages in cases such as:
 a breach of promise to marry, where damages shall be calculated on the basis of
mental injury sustained by the aggrieved party.
 wrongful dishonour of a cheque by a banker. In case of wrongful dishonour of a
cheque, the smaller the amount of the cheque, larger will be the amount of damages
awarded. A trader may recover such damages as wrongful dishonour of cheque shall
adversely affect his goodwill but a non-trader whose cheque is wrongfully
dishonoured will have to prove the loss of goodwill before claiming such damages.
Ans.3 (a) Rights of surety ( Majid and Rahat) against principal debtor (Sohail):
Right to indemnity:
In every contract of guarantee there is an implied promise by the principal debtor to
indemnify the surety. Therefore, Majid and Rahat are entitled to recover from Sohail
whatever amount they have rightfully paid including the amount of interest.
Right to subrogation:
After making payment and discharging the liability of Sohail, Majid and Rahat are invested
with all the rights of creditor (Bunny), which he had against Sohail.
Rights of surety ( Majid and Rahat) against creditor (Bunny):

Rights to securities
Majid and Rahat are entitled to the benefit of every security which Bunny has against
Sohail at the time when the contract of suretyship is entered into, whether Majid and Rahat
are aware of the existence of such security or not and if Bunny loses, or, without the
consent of Majid and Rahat, parts with such security, Majid and Rahat are discharged to
the extent of the value of the security.
Right to claim set off

Majid and Rahat have a right to claim set off if any which Sohail had against Bunny.
Rights against co-sureties ( Majid and Rahat):

Right to claim contribution
Since Majid paid the full amount to Bunny in settlement of Sohail’s debt, he has a right to
claim contribution from the other co-surety Rahat. Following are the rules of contribution
between Majid and Rahat:
 In the absence of any contract, Majid and Rahat are liable to contribute equally in
case of Sohail’s default.
 If Majid and Rahat have agreed to guarantee different sums than they are liable to
contribute equally, subject to the maximum amount guaranteed by each one of them.
 If Bunny releases one of the co-sureties, for instance Majid, it does not discharge
Rahat, neither does it free Majid from his responsibility to Rahat.
(b) Offer and acceptance:

It is the case of a general offer as it was made to the public. A contract is made with the
person who having the knowledge of the offer comes forward and acts according to the
conditions of the offer.
However, under the given circumstances, Aftab cannot claim the amount of reward from
Bader as there was lack of communication of the offer and Aftab did not know about the
reward when he found the missing horse. Aftab could have accepted the offer only when he
knew about it because an offer accepted without its knowledge does not confer any legal
rights on the acceptor.
Page 2 of 7
Business Law
Suggested Answers
Ans.4 (a) Rights of Dostana Bank Limited:

Following rights are available to the bank:
(i) entitlement to receive the share of the profits of Sham (the transferring partner).
(ii) On the dissolution of the firm or on retirement of Sham the bank is entitled to receive:
 the share of the assets of the firm to which Sham is entitled.
 an account from the date of the dissolution for the purpose of ascertaining the
share.
Disabilities of Dostana Bank Limited:

The bank shall not be treated as a partner in the firm and during the continuance of the
partnership, shall not be entitled, to:-
 interfere in the conduct of the business of the firm.
 require accounts.
 inspect the books of the firm.
 challenge the accounts of profits agreed to by the partners.
 sue for dissolution of the firm.
(b) Property of the firm:

Subject to contract between the partners, the property of the firm includes:
 All property originally brought into the common stock of the firm;
 All rights or interest in the property originally so brought;
 All property acquired, by purchase or otherwise, by the firm or for the firm and all
rights and interest in any property so acquired; and
 Goodwill of the business of the firm;
 Unless, any contrary intention appears any property purchased with partnership
money with or without other partners consent will be deemed to be partnership
property.
Therefore, the plot of land which Rufi intends to acquire for the firm with his own money
shall become firm’s property only if partners intend to make it so.
Application of the property of the firm:

Subject to contract between the partners, the property of the firm shall be held and used by
the partners exclusively for the purposes of the business.
Page 3 of 7
Business Law
Suggested Answers
Ans.5 (a) Negotiation:

When a promissory note, bill of exchange or cheque is transferred to any person, so as to
constitute that person the holder of it, the instrument is said to be negotiated.
Indorsement:
When the maker or holder of a negotiable instrument signs the same, otherwise than as
maker, for the purpose of negotiation on the back or face of it or on a slip of paper annexed
thereto, or so signs for the same purpose a stamped paper intended to be completed as a
negotiable instrument he is said to indorse the same and is called the indorser.”
(b) Sarwat would issue a promissory note to Zain.
Draft of the promissory note

Date: March 12, 2016
Rs. 500,000/- only
Five months after date I promise to pay Zain or to his order the sum of Rupees Five
Hundred Thousand, for value received
To Sd/-
Zain Sarwat
ABC Road New Town
Karachi Karachi
(c) Purpose of crossing a cheque:

The purpose of crossing a cheque is to direct the drawee (banker) to pay the amount of the
cheque only to a banker so that the party who receives the payment can easily be traced.
Can a Cheque be Crossed Specially more than Once:

Yes. It is allowed when a banker in whose favour a crossing is made, once again crosses it
specially in favour of his agent (another banker) for collection.
Ans.6 (a) Associations not for profit:

The Securities and Exchange Commission of Pakistan, on such conditions and subject to
such regulations as it thinks fit allow an association which has been formed or is capable of
being formed as a limited liability company to register as a limited company without the
addition of word ‘Limited’ or (Guarantee) Limited or (Private) Limited etc. to its name,
subject to the following:
(i) Such association has been set up for promoting:

 commerce  art  science
 religion  sports  social services
 charity  any other useful object
(ii) Such association applies or intends to apply its profits, if any, or other income in
promoting its objects, and
(iii) Such association prohibits the payment of any dividend to its members.
Page 4 of 7
Business Law
Suggested Answers
(b) Alteration in registered office clause

For alteration in the registered office, Muntaqil Limited shall:
(i) pass a special resolution.
(ii) obtain approval of Commission within sixty days of the date of resolution.
(iii) forward a copy of the approval of Commission to the registrar of new and old
province within ninety days of receiving the order. If such alteration is not made
within ninety days, the alteration shall not be effective however, Commission may
extend this time period for another ninety days.
(iv) When Muntaqil Limited actually shifts its registered office, it shall inform the
registrar within 28 days of the date of such shifting.
Ans.7 (a) (i) Time frame within which approval may be obtained:
TL must apply to the Commission for approval of the issuance of prospectus to the
public, by submitting a copy of the prospectus not less than twenty one days before
the proposed date of publication of the prospectus.
Time for which the prospectus may remain valid after approval:
A prospectus approved by the Commission shall be valid for a period of sixty days
from the date of such approval. However, this time period may be extended by the
Commission for reasons to be recorded.
(ii) Requirement(s) which must be satisfied before registration of the prospectus:

The registrar shall not register a prospectus unless the following requirements have
been complied with:
 Prospectus is dated.
 Prospectus is signed by every person who is named therein as a director or
proposed director or by his agent authorised in writing.
 It shall state the matters and reports specified in the Second Schedule.
 Experts whose statements are included have not been connected with the
formation, promotion or management of the company.
 Experts whose statements are included in the prospectus have given written
consent for issue of such statements.
 All requirements regarding approval, issue and registration have been complied
with.
 The prospectus is accompanied by the written consent of the auditor, legal
adviser, attorney, solicitor, banker and the broker who have agreed to act in that
capacity.
(b) Mortgage:
A mortgage is the transfer of an interest in specific immovable property for the purpose of
securing the payment of money advanced or to be advanced by way of a loan or the
performance of an engagement which may give rise to a financial liability.
Page 5 of 7
Business Law
Suggested Answers
Ans.8 (a) Appointment of subsequent chief executive:

The requirements for the appointment of a Chief Executive are as under:
 Within fourteen days from the date of election of directors under the Ordinance or the
office of the chief executive falling vacant, as the case may be, the directors of TPL
shall appoint any person, including an elected director, to be the chief executive, but
such appointment shall not be for a period exceeding three years from the date of
appointment.
 On the expiry of his term of office under the Ordinance, a chief executive shall be
eligible for reappointment.
 The chief executive retiring under the Ordinance shall continue to perform his
functions until his successor is appointed unless non-appointment of his successor is
due to any fault on his part or his office is expressly terminated.
Restriction on appointment of chief executive:

No person who is ineligible to become a director of TPL under the Ordinance shall be
appointed or continue as the chief executive of TPL.
(b) Vacation of office by the directors:

The director shall ipso facto cease to hold office:
(i) if he or his spouse engages in the business of brokerage, or if he sponsors, or becomes
a director or officer of a corporate brokerage house or loses fiduciary behaviour.
(ii) if he absents himself from three consecutive meetings of the directors or from all the
meetings of the directors for a continuous period of three months, whichever is the
longer, without leave of absence from the directors;
(iii) if he or any firm of which he is a partner or any private company of which he is a
director:
 without the sanction of the company in general meeting accepts or holds any
office of profit under the company other than that of chief executive or a legal or
technical adviser or a banker; or
 accepts a loan or guarantee from the company in contravention of the provisions
of the Ordinance.
In addition to above, if TPL has provided any clause(s) in its Article to get the office of the
director vacated, and the director becomes subject to such clause(s).
Ans.9 (a) (i) SSL and FPL are associated companies as both of them are under common control of
IL.
(ii) SSL shall not make any investment in its associated company:
 except under the authority of a special resolution which shall indicate the nature,
period and amount of investment and terms and conditions attached thereto.
 provided that the return on investment in the form of loan shall not be less than
the borrowing cost of investing company (SSL).
 unless it complies with the regulations made by the Commission in this regard.
(b) Investments of company to be held in its own name - Exceptions

Following are exception to this general rule of keeping the investments of company in its
own name:
 If a company has made equity investments in any other company and due to this
investment it enjoys the right to appoint any person as director of the investee
company then the investor company is allowed to hold the qualification shares in the
name of that nominee of the investor company
 A holding company may hold any shares in its subsidiary company in the name of its
nominees if the number of members of the subsidiary company has reduced below
required minimum number of members for that company.
 An investment company whose principal business is the purchase and sale of
securities can make and keep its investments in someone else’s name.
Page 6 of 7
Business Law
Suggested Answers
Ans.10 (a) Auditors’ rights with regard to the general meeting of the company:
Following rights are available to the auditors of a company with regard to the general
meeting:
(i) The auditor is entitled to attend any general meeting of the company, and
(ii) Receive all notices of any general meeting which any member is entitled to receive,
and
(iii) Receive any communications relating to any general meeting which any member is
entitled to receive, and
(iv) To be heard at any general meeting which he attends on any part of the business
which concerns him as auditor.
(v) In the case of a listed company, the auditor or the person authorised by him in writing
shall be present in the general meeting in which the balance-sheet and profit and loss
account and the auditors’ report are to be considered.
(vi) the retiring auditor, subject to certain conditions, has a right to be heard at the general
meeting where new auditor is to be appointed or may require the company to read
out his representation at such meeting.
(b) Filling of casual vacancy:

Casual vacancy in the office of the auditor shall be filled in the following manner:
 the directors may fill any casual vacancy in the office of an auditor; but, while any
such vacancy continues, the surviving or continuing auditor or auditors, if any, may
act.
 if the directors fail to fill the casual vacancy within thirty days after the occurrence of
the vacancy, the commission may appoint a person to fill the vacancy.
 however, in the above case, the company shall within one week of the Commission’s
power becoming exercisable, give notice of that fact to the Commission.
(c) Signature of an audit report:

The person appointed as auditor shall sign the auditors’ report and if a firm is appointed in
the firm’s name as auditors, any of the partners practicing in Pakistan may sign the report.
The report shall carry a date and shall indicate the place at which it is signed.
(THE END)
Page 7 of 7
SUBJECT SESSION
– Spring 2016
General Comments:
The overall performance of the candidates remained unappealing, particularly those who
wrote 100 marks paper. Nevertheless, candidates who only appeared in the Company
Law section performed comparatively well, specially in questions 6 and 9. On the
contrary, question numbers 2, 4, 7 and 8 exhibited poor performances. To overcome the
weaknesses, candidates are advised to refrain from answering the questions on the basis
of own perception; particularly, while answering scenario based questions, attention
should be paid to specific knowledge of law.
Question 1
This question with a potential 5 marks was based on the legal system in Pakistan and
required candidates to identify the basis of legal system and explain the main sources of
law in Pakistan.
The overall performance remained good. Candidates were able to correctly explain the
sources of law in Pakistan; however, majority of them failed to identify the basis of legal
system in Pakistan.
Question 2
This question with a potential 13 marks was divided into two parts. Part (a) was a
scenario based question relating to the requirements of section 19 of the Contract Act,
1872. It required candidates to list the circumstances under which a contract cannot be
rescinded even if caused without free consent. Part (b) was based on the requirements of
section 73 of the Contract Act, 1872. Candidates were required to define Special,
Ordinary and Exemplary damages and describe the rules relating to the award of such
damages.
Question 2(a)
The performance in this part remained average as majority of the candidates were able to
list only one or two of such circumstances under which a contract cannot be rescinded.
Page 1 of 6
Question 2(b)
The performance in this part remained below average. Majority of the candidates failed to
correctly define the types of damages along with rules relating to the award of such
damages. The answers were varied in nature and in many cases based on pure
guesswork. For instance, in case of ‘Ordinary damages’ many candidates opined that
these are monetary compensation of nominal value or can be recovered in case of non-
performance of an agreement in the form of either cash or other performance. In case of
‘Special damages’ candidates were of the view that these damages are paid for the
defamation of aggrieved party or where monetary compensation would not be appropriate
and specific performance may be required from the convicts. In case of ‘Exemplary
damages’ few candidates wrote that these are the damages given to set an example for the
society.
Question 3
This question with a potential 12 marks was divided into two parts. Part (a), a scenario
based question, was related to contract of guarantee. It required candidates to describe the
rights of co-sureties against the principal debtor, creditor and among themselves as
provided under sections 138, 140, 141 and 145 through 147 of the Contract Act, 1872.
Part (b) was also scenario based and was related to the requirements of sections 2(a) and
4 of the Contract Act, 1872. It required candidates to identify the type of given offer and
the circumstances under which a person may be eligible to claim the reward under such
an offer.
Question 3(a)
The performance in this part remained below average as majority of the candidates only
managed to write partial answers. They either failed to deliberate on the rights of co-
sureties among themselves or could not explain the rights of co- sureties against the
creditor. Many candidates were of the opinion that only the surety who made the payment
to the creditor is entitled to recover the amount from the principal debtor. Similarly
majority of the candidates were unaware about the rights of co-sureties in the absence of
any contract for the sharing of liability between them or that what would be the quantum
of their contribution had they agreed to guarantee different sums.
Question 3(b)
The performance in part (b) was satisfactory. Majority of the candidates correctly
identified the type of offer. However, some candidates failed to appreciate that in case of
lack of communication of an offer the reward cannot be claimed by the performer. Some
candidates were of the view that since there was an employer and employee relationship
between the parties, the finder was ineligible to claim the reward.
Question 4
This question with a potential 10 marks was divided into two parts. Part (a) was scenario
based and was related to the requirements of section 29 of the Partnership Act, 1932. It
invited candidates to describe the rights and disabilities of the transferee of a partner’s
interest under the given situation. Part (b) was also scenario based and related to the
requirements of sections 14 and 15 of the Partnership Act, 1932. Candidates were
required to give opinion with regard to a plot of land which was purchased by one of the
Page 2 of 6
partners with his own money whether such plot of land would be considered to be a
partnership property and that what constitute partnership property. Candidates were also
required to advise how partnership property may be applied by the partners.
Question 4(a)
Candidates’ performance in this part remained below average. Many candidates instead
of explaining the rights and disabilities of the transferee of the partner’s interest started
deliberating on the implied authority of a partner. Few candidates were of the opinion
that a partner cannot transfer his/her interest in the firm to anyone else under any
circumstances.
Question 4(b)
The performance in this part was average. Majority of the answers lacked completeness.
Some candidates were of the opinion that since the partner who bought the plot of land
was not certain whether it would be considered to be the partnership property, it would
not be considered as a partnership property. Majority of the candidates failed to
appreciate that a property, although bought with partner’s own money, can be considered
to be firm’s property if other partners intend to make it so.
Question 5
This question with a potential 10 marks was divided into three parts. Part (a) required
candidates to describe the terms ‘Negotiation’ and ‘Indorsement’ as provided in sections
14 and 15 respectively of the Negotiable Instruments Act, 1881. Part (b) was a scenario
requiring the candidates to analyse the given situation and identify the type of negotiable
instrument which could be issued to a creditor in satisfaction of a debt. Candidates were
also required to draft the suggested instrument. Part (c) invited candidates to describe the
purpose of crossing a cheque. It also asked candidates to state whether a specially crossed
cheque can again be crossed specially under the Negotiable Instruments Act, 1881.
Question 5(a)
The performance remained average as majority of the candidates were only able to
explain either ‘Negotiation’ or ‘Indorsement’. Many candidates mixed up the two -
definitions. Some could only write that Negotiation means transferring the instrument
from one person to another.
Question 5(b)
The performance in this part surprisingly remained below average. Though, majority of
the candidates correctly identified the type of the instrument as a Promissory note, they
failed to correctly draft the instrument. Many candidates wrongly identified the
instrument as a bill of exchange while there were few who thought that it was a cheque.
Question 5(c)
The performance in this part was also disappointing. Majority of the candidates failed to
properly describe the purpose of crossing a cheque. They seemed to be completely
unaware of the fact that a specially crossed cheque may again be crossed by a banker to
its agent (another banker) for collection. Majority of the answers were in the form of
either yes or no.
Page 3 of 6
Question 6
This question with a potential 10 marks was divided into two parts. Part (a) was based on
the requirements of section 42 of the Companies Ordinance, 1984. The candidates were
required to specify the conditions subject to the fulfilment of which an exemption may be
granted to an entity from using the word limited to its name along with the specification
of the authority who may grant such exemption. Part (b), a scenario based question,
required candidates to identify the steps which must be taken to alter registered office
clause of the memorandum of association under the Companies Ordinance, 1984.
Question 6(a)
The performance in this part was satisfactory. However, some candidates produced
incomplete answers and thought that Registrar instead of the Commission may grant such
exemption.
Question 6(b)
The performance in this part remained satisfactory. Majority of the candidates produced
correct answers. However, some of the candidates failed to specify that copy of the
approval of Commission shall be forwarded to the registrar of both the new and old
provinces within ninety days of receiving Commission’s order. Some candidates also
mixed up the requirement of obtaining Commission’s approval for re-location of
company’s registered office with that of sending Commission’s approval to the registrar
of both new and old places.
Question 7
This question with a potential 10 marks was divided into two parts. Part (a) was sub-
divided into two parts. Part (a)(i) was based on the requirements of the provisions of
Securities Act, 2015. It required candidates to state the time frame within which approval
for the issuance of prospectus may be obtained and the time for which the prospectus
may remain valid after its approval. Part (a)(ii) invited candidates to state the
requirements which must be satisfied before registration of the prospectus. Part (b)
required candidates to describe the meaning of the term ‘Mortgage’.
Question 7(a)
The performance in both the sub-parts remained very poor. Majority of the candidates
mentioned the time frame for the issuance of prospectus instead of the time frame within
which approval for the issuance of prospectus may be obtained from the Commission. In
part (ii) majority of the candidates left this part un-answered. Those who answered either
mentioned the contents of the prospectus or the reports to be set out in the prospectus.
Question 7(b)
The performance in this part remained average. Some of the candidates were of the view
that mortgage is the transfer of rights of the assets or that it involves transfer of title of
possession of assets. Few candidates also wrote that it is created on the moveable
property of the company.
Page 4 of 6
Question 8
This question with a potential 10 marks was divided into two parts. Part (a), a scenario
based question required candidates to explain the requirements for the appointment of a
subsequent chief executive and the restrictions imposed on such appointment. Part (b)
required candidates to state the matters due to which a director may ipso facto cease to
hold office of the director.
Again the candidates who wrote only Company Law section of the paper comparatively
performed well in this question.
Question 8(a)
The overall performance of the candidates who wrote the entire paper of Business Law
was very disappointing. Most of the answers were incomplete. Majority of the candidates
completely failed to comprehend the requirement of the question and wrote the procedure
for the appointment of first chief executive of the company instead of the subsequent
chief executive. Many candidates listed the circumstances rendering a director ineligible
for appointment which was not required at all.
Question 8(b)
The performance in this part remained below average. Most of the answers were
incomplete and mainly focused on the failure of a director to attend the Board of
Directors meeting. Many candidates also failed to comprehend the requirement of the
question and narrated the ineligibilities which may render a person unfit for appointment
as a director of the company.
Question 9
This question with a potential 10 marks was scenario based and was divided into two
parts. Part (a) was further divided into two sub-parts. Sub-part (i) required candidates to
analyse the given scenario and identify the type of relationship which existed between the
two companies. Sub Part (ii) invited candidates to describe the conditions which a
company must fulfil before making investment in its associate. Part (b) required
candidates to explain the exceptions to the general rule under the Companies Ordinance,
1984 that ‘Investment of the company must be made and held in its own name’.
The performance of the candidates who wrote only Company Law section of the paper
was average. However, those candidates who wrote the entire paper of Business Law
remained below average.
Question 9(a)
Poor performance was observed in this part of the question. Majority of the candidates
though correctly identified the relationship between the two companies, failed to provide
the reason for such identification. In response to sub-part (ii) of the question, majority of
the answers produced were incomplete. Many candidates wrote that a company should
not borrow at a rate which is less than its return on investment instead of the borrowing
cost of the investing company.
Page 5 of 6
Question 9(b)
The performance in this part was satisfactory. However, few candidates while attempting
the question did not mention the requirement of transferring only qualification shares in
the name of its nominees.
Question 10
candidates to explain the rights and duties of auditor with regard to the general meeting
of the company. Part (b) invited candidates to state how a casual vacancy in the office of
the auditor may be filled. Part (c) required candidates to list the provisions relating to the
signing of an audit report as provided in the Companies Ordinance, 1984.
Question 10(a)
The performance in this part remained average. Majority of the candidates produced only
partial answers. On the other hand, many candidates instead of deliberating on the rights
and duties of auditors in relation to general meetings unnecessarily kept on writing all the
rights and duties of the auditors.
Question 10(b)
The performance in this part was below average. Many candidates instead of writing how
a casual vacancy in the office of the auditor may be filled deliberated on how the casual
vacancy may occur in the office of the auditor. Some candidates also wrote how first
auditor of the company may be appointed. Moreover, most of the answers were only
restricted to the point that casual vacancy in the office of the auditor will be filled by the
directors if appointed by the directors and by the company in the general meeting if
appointed by the members/ Commission. Few candidates were of the opinion that if the
auditor refuses to work then Commission may fill the casual vacancy. In case of
appointment of an auditor by the Commission most of the candidates failed to appreciate
that a notice to the Commission is required to be given by the company within one week
of Commission’s power becoming exercisable.
Question 10(c)
The performance in this part was also very poor. Surprisingly, most of the candidates
seemed to be unaware of the difference between an audit report and financial statements.
They mixed up the signing requirement of an audit report with that of financial
statements and narrated the procedure of signing the financial statements.
THE END
Page 6 of 6
Business Law

The marking scheme is given as a guide. However, markers also award marks for alternative
approaches to a question and relevant/well-reasoned comments/explanations.
Mark(s)
A.1  01 mark for identification of the basis of legal system in Pakistan 1.0
 01 mark each for explanation of the main sources of law in Pakistan 4.0
A.2 (a)  01 mark for listing each situation under which Shafiq may not be able to
rescind the contract 5.0
(b)  01 mark for correct explanation of each type of damage 3.0

 Describing the rules relating to the award of:
 Ordinary damages 2.0
 Special damages 1.5
 Exemplary damages 1.5
A.3 (a)  Describing the rights of surety against principal debtor 2.0
 Describing the rights of surety against creditor 3.0
 Describing the rights of co-sureties 3.0
(b)  Identification of the type of offer 1.0

 Describing the reason on the basis of which Aftab may or may not be
able to recover the amount of reward from Bader 2.0
 Correct decision under the given circumstances 1.0
A.4 (a)  Rights of Dostana Bank Limited 2.5

 Disabilities of Dostana Bank Limited 3.5
(b)  0.5 mark each for explanation of what may be considered to be included
in the partnership property 2.0
 Decision whether the plot of land acquired by Rufi would be considered
to be a partnership property 1.0
 Describing the application of the property of the firm 1.0
A.5 (a)  Explanation of the term ‘Negotiation’ 1.0

 Explanation of the term ‘Indorsement’ 3.0
(b)  Identification of the type of negotiable instrument 0.5

 Preparation of the draft of Promissory Note 3.5
(c)  Describing the purpose of crossing a cheque 1.0

 Describing whether a cheque can be specially crossed more than once 1.0
Page 1 of 2
Business Law
Mark(s)
A.6 (a)  Identification of the authority who may exempt an entity from using the
word ‘Limited’ to its name 1.0
 01 mark each for describing the conditions on the basis of which
exemption may be granted to an entity from using the word ‘Limited’ to
its name 3.0
(b)  01 to 02 mark for each correct step to be taken to re-locate company’s

registered office 6.0
A.7 (a) (i)  Identification of the time frame within which approval may be
obtained 1.0
 Identification of the time for which the prospectus may remain
valid after approval 1.0
(ii)  Up to 01 mark for identification of each correct requirement which

must be fulfilled before registration of the prospectus 6.0
(b)  Explanation of the term ‘Mortgage’ 2.0
A.8 (a)  Explanation of the requirements for the appointment of subsequent

chief executive 3.0
 Stating the restriction on the appointment of chief executive 1.0
(b)  Up to 02 mark for identifying each of the condition in which a director

may ipso facto cease to hold office of the director 6.0
A.9 (a) (i)  Identification of the type of relationship between SSL and FPL 1.0
(ii)  Describing the conditions which SSL must fulfil before making
any investment in FPL 5.0
(b)  Up to 02 mark for stating each exception 4.0
A.10 (a)  Up to 01 mark each for explanation of the rights/duties of an auditor

with regard to the general meeting of the company 4.0
(b)  Up to 1.5 mark for each of the various ways in which a casual vacancy
in the office of the auditor may be filled 3.5
(c)  Explanation of the provisions relating to the signing of an audit report 2.5
(THE END)
Page 2 of 2
Business Law
Q.1 Briefly describe the process of legislation in case of a money bill when:
(a) National assembly is in session (b) National assembly is not in session (05)
Q.2 (a) What do you understand by the doctrine of ‘Privity of contract’? Describe the
circumstances in which a stranger to a contract may file suit under the Contract Act,
1872. (05)
(b) Until recently Mansoor and Arif were independently engaged in the business of selling
sweets at Multan railway station. Mansoor incurred a loss due to competition. Arif, in
view of his friendship with Mansoor, agreed to move his business to the old city area.
They reached an agreement that Arif would not engage in any competing business
with Mansoor. It was also agreed that in case of a breach, none of them would have
recourse to a court of law for the enforcement of their rights.
Subsequently, due to economic downturn, Arif in addition to the old city area has also
started to sell sweets at Multan railway station. Mansoor, in order to restrain Arif from
selling sweets has filed a suit against him.
Under the provisions of the Contract Act, 1872 analyse the above situation and
explain the following:
(i) whether Arif is justified in starting sweets business at Multan railway station. (02)
(ii) what would be your answer in (i) above, if Mansoor had bought the goodwill of
Arif’s business. (03)
(iii) whether Mansoor is justified in filing a suit in the court of law. (02)
(iv) what would be your answer in (iii) above, if both Arif and Mansoor had agreed
to refer their disputes to arbitration and not to the court of law. (02)
Q.3 (a) Zeshan is engaged in the business of buying and selling town houses in Lahore for the
past many years and Inam is his agent. Due to the recent growth in construction
business, Zeshan has decided to buy a small cement factory in the outskirts of Lahore
and has asked Inam to negotiate the deal with the seller. Inam who has no technical
knowledge of the cement industry has employed Saqib for his assistance.
(i) the status of Saqib and whether Inam is justified in employing Saqib to perform
his work. (03)
(ii) Saqib’s responsibility towards Inam and Zeshan. (02)
(iii) Inam’s responsibility for Saqib’s acts, if employed without Zeshan’s authority. (02)
(b) Mrs. Ikram was searching for a house for her family in city’s posh locality. Her
grandfather Nadeem had promised to pay her Rs. 1.0 million by way of a gift for the
purchase of the house. After finalizing the deal with one of the estate brokers, Mrs.
Ikram asked Nadeem to pay her Rs. 1.0 million as promised. Nadeem, however,
refused to pay the amount. Mrs. Ikram filed a suit against her grandfather Nadeem for
the enforcement of the promise made by him.
Under the provisions of the Contract Act, 1872 advise under what circumstances
Mrs. Ikram would be able to recover the amount from Nadeem. (04)
Q.4 (a) Raheel, Samina and Umair have agreed to constitute a partnership for carrying on a
business of printing study text for CA students in Peshawar. Raheel wants to specify
the rights and duties of partners in the partnership agreement so that these can be
changed with mutual consent of all the partners whereas Samina and Umair do not
consider it necessary and believe that the implied authority may be extended to bind
the firm whenever required.
Under the provisions of the Partnership Act, 1932 list:
(i) the general duties of partners which cannot be modified by an agreement
amongst them. (03)
(ii) the restrictions imposed on the implied authority of a partner in the absence of
any usage or custom of trade. (04)
(b) In the above partnership business, assume Umair is a minor who has been admitted to
the benefits of the partnership with the consent of Raheel and Samina.
Under the provisions of the Partnership Act, 1932 list the rights and disabilities of
Umair before attaining majority. (03)
Q.5 (a) Under the provisions of the Negotiable Instruments Act, 1881 describe the following:
(i) Acceptor for honour (ii) Material alteration (05)
(b) Under the Negotiable Instruments Act, 1881 briefly describe any five modes by which
a party or parties to a negotiable instrument is/are discharged from liability. (05)
Q.6 (a) Yawar Limited (YL) is engaged in the business of manufacture and supply of watches
in urban areas of Sindh. However, due to rapidly changing consumer demand, YL has
decided to diversify its business and start assembly of smart phones at their factory in
Karachi. In order to alter the object clause of its memorandum for the purpose, YL has
passed a special resolution and has applied to the Commission for approval.
Under the provisions of the Companies Ordinance, 1984 briefly describe:

(i) the circumstances in which YL may alter the object clause of its memorandum. (04)
(ii) the conditions which must be satisfied before the Commission may issue an
order confirming the alteration. (04)
(b) Under the provisions of the Companies Ordinance, 1984 briefly describe the term
‘Body corporate’. (02)
Q.7 (a) Super Star Limited has recently been incorporated as a public limited company in
Islamabad. The directors are planning to make a public offer of its securities and are in
the process of finalizing the prospectus.
Under the provisions of the Securities Act, 2015 advise the directors with regard to the
following:
(i) particulars of the amount of minimum subscription i.e. the minimum amount
which must be raised by the issue of shares. (03)
(ii) publication of prospectus. (03)
(b) Jamal, who has recently been appointed as a Chief Executive Officer of Alibaba (Pvt.)
Limited (APL) has applied for financial assistance of Rs. 1.0 million to the Board of
Directors of APL for buying shares in Mujahid Limited, a public company, holding
75% voting rights in APL.
Under the provisions of the Companies Ordinance, 1984 explain whether APL may
grant financial assistance to Jamal under the above circumstances. (04)
Q.8 (a) Under the provisions of the Companies Ordinance, 1984 what do you understand by
the term ‘Extraordinary general meeting’? Who may call such meeting and what
should be the quorum of such meeting? (07)
(b) Golden Limited (GL), registered with a paid-up capital of Rs. 20,000,000 consisting of
ordinary shares of Rs. 50 each, has decided to remove one of its elected directors
Saleem due to poor performance. Saleem was elected on the board by securing
1,800,000 votes in a general meeting held on 1 January 2015. The least number of
votes casted for electing a director in the meeting was 1,200,000. GL has seven
directors on the board.
Under the provisions of the Companies Ordinance, 1984 enumerate:

(i) the number of votes required by Saleem to retain his directorship in GL.
(ii) what would be your answer in (i) above, if Saleem was elected to fill a casual
vacancy on the board. (03)
Q.9 (a) Aabshar Limited, a listed company, was incorporated on 1 April 2015. The directors
are in the process of finalizing the annual accounts of the company and have sought
your advice with regard to the directors’ report to be sent to the members along with
the annual accounts.
Under the provisions of the Companies Ordinance, 1984 advise the directors about the
particulars to be set out in their report for submission to the members of the company. (07)
(b) Faraz, a director in Green Lines Limited (GLL), is also a nominee director in Blue
Lines Limited (BLL) by virtue of GLL’s equity investment in BLL. GLL transferred
6,000 shares in BLL, being the qualification shares, in the name of Faraz for
appointing him on the Board of BLL.
Recently the Directors of GLL have shown their interest in entering into a joint
venture with BLL and have called a meeting of the board of directors for the purpose.
Under the provisions of the Companies Ordinance, 1984 advise whether Faraz can
participate in the above meeting. (03)
Q.10 Under the provisions of the Companies Ordinance, 1984 briefly describe whether Murad is
eligible to be appointed as an auditor of the company in each of the following independent
situations:
(i) Murad, a partner in Delta and Company, Chartered Accountants, is also a director in
Gama Limited (GL). His firm has received an offer for appointment as auditors of Star
Limited (SL). Both GL and SL are subsidiaries of Pluto Limited (PL). (03)
(ii) Murad is a sole proprietor in Murad and Company, Chartered Accountants. He has
received an offer for appointment as auditor of Super Energy Limited (SEL), a power
generation company in Multan. Murad has not paid his electricity bills to SEL for the
last two months. (02)
(iii) Murad is a partner in Beta & Company, Chartered Accountants (BCC). His firm has
accepted an offer for appointment as auditors of Panama Limited (PL). Rita, who is
Murad’s sister, is working as an internal auditor in PL. She also owns 20% shares in
PL. Rita disposed the shares to Murad’s wife, within 30 days of appointment of BCC
but continues to remain employed in PL. (05)
(THE END)
Business Law
Suggested Answers
Ans.1 (i) Legislation in case of a money bill when National assembly is in session:
A money bill shall originate in the National Assembly and after it has been passed by the
Assembly it shall, without being transmitted to the Senate, be presented to the President for
assent.
(ii) Legislation in case of a money bill when National assembly is not in session:
 When National assembly is not in session and President deems necessary to take
immediate action, he has the power to issue an Ordinance.
 Such Ordinance promulgated thus, shall have the same force and effect as an Act of
the parliament.
 However, the Ordinance shall stand repealed after 120 days if it is not presented or
passed by the National assembly.
Ans.2 (a) Privity of contract:

Generally a stranger to a contract cannot sue, while a stranger to consideration can sue.
This rule is known as the doctrine of privity of contract.
Exceptions to the above rule

The following are the exceptions to the rule that a stranger to a contract cannot sue:
 when an arrangement is made in connection with marriage, partition or other family
arrangements and a provision is made for the benefit of a person, he may sue although
he is not a party to the contract.
 the person who becomes an agent of third party by acknowledgement or estoppel,
may be sued by such third party.
 where a benefit under a contract has been assigned (other than one involving personal
skill), the assignee can enforce the contract subject to all equities between the original
parties to the contract.
 where a charge in favour of a person has been created on specific immovable property,
such charge is enforceable at the instance of the person beneficially interested, though
he may not be a party to the document creating the charge.
(b) (i) Agreement in restraint of trade:

Yes, Arif is justified in starting a sweets business at Multan railway station. As any
agreement by which anyone is restricted from exercising a lawful profession, trade or
business of any kind, is void to that extent.
(ii) Exception:
Arif in this case would not be justified to start similar business at Multan railway
station.
An agreement which restrains the seller of a goodwill from carrying on a business is
valid if all the following conditions are fulfilled:
 Such restriction must relate to a similar business.
 Such restriction must be within specified local limits.
 Such restriction must be for the time so long as the buyer or any person deriving
title to the goodwill from him carries on a like business in the specified local
limits.
 Such specified local limits must be reasonable to the Court having regard to the
nature of the business.
(iii) Agreement in restraint of legal proceedings:

Yes, Mansoor is justified in filing a suit against Arif.
Every agreement, by which any party is restricted absolutely from enforcing his rights
under or in respect of any contract, by the usual legal proceedings in the ordinary
tribunals, is void to that extent.
Page 1 of 8
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Suggested Answers
(iv) Exception: [S.28 of the Contract Act, 1872]

An agreement between Arif and Mansoor to refer to arbitration any dispute which
may arise between them is not void.
However, if Mansoor or Arif are not satisfied with the arbitration award, they cannot
be restricted to go to the court of law. This right cannot be excluded by the agreement.
Ans.3 (a) (i) Sub-agent:

Saqib may be regarded as a sub-agent as he is appointed by, and acting under the
control of Inam (original agent) in the business of agency.
When agent cannot delegate:

Inam cannot lawfully employ Saqib to perform acts which he has expressly or
impliedly undertaken to perform personally unless it is required by the ordinary
custom of trade or the work undertaken by Inam is of such nature that it requires
delegation.
In the above circumstances the appointment of a professional was necessary;
therefore, Inam is justified in Saqib’s appointment.
(ii) Sub-agents responsibility:

Saqib is responsible for his acts to Inam, but not to Zeshan, except in case of fraud or
wilful wrong.
(iii) Agent’s responsibility for sub-agent appointed without authority:

If Inam, without having authority to do so appoints Saqib to act as sub-agent, Then
Inam stands towards Saqib in the relation of a principal to an agent, and is responsible
for Saqib’s acts both to Zeshan and to third persons.
(b) Completed gift/love and affection:

An agreement made without consideration is void. However, Mrs. Ikram may claim the
amount of Rs. 1.0 million from her grandfather Nadeem, by proving either of the following
two conditions.
(i) Gift
(ii) love and affection
Completed gift:
In case of a gift it needs to be completed. The rule ‘No consideration no contract’ does not
apply to completed gifts.
Love and affection:

An agreement made on account of natural love and affection without consideration will be
valid if it is:
 expressed in writing,
 registered under the law,
 made on account of natural love and affection, and
 between parties standing in a near relation to each other.
However, in the given scenario, Nadeem only made a promise to pay Rs. 1.0 million by
way of a gift and did not actually pay the amount. Similarly, the promise was not made in
writing and was not registered, therefore, the promise cannot be enforced in both of the
above circumstances and Mrs. Ikram cannot recover anything from her grandfather
Nadeem.
Page 2 of 8
Business Law
Suggested Answers
Ans.4 (a) (i) General duties of partners:

Following are the mandatory duties of a partner that cannot be changed by an
agreement amongst the partners:
 Duty to be just and faithful.
 Duty to carry on business to the greatest common advantage.
 Duty to render true accounts.
 Duty to provide full information.
 Duty to indemnify for loss caused by fraud.
 Duty to be liable jointly and severally – unlimited liability.
 Duty to act within authority.
 Duty in case of emergency.
(ii) Restrictions on the implied authority:
In the absence of any usage or custom of trade to the contrary, the implied authority
of a partner does not empower him to:-
 submit a dispute relating to the business of the firm to arbitration,
 open a bank account on behalf of the firm in his own name,
 compromise or relinquish any claim or portion of a claim by the firm,
 withdraw a suit or proceeding filed on behalf of the firm,
 admit any liability in a suit or proceeding against the firm,
 acquire immovable property on behalf of the firm,
 transfer immovable property belonging to the firm, or
 enter into partnership on behalf of the firm.
(b) Position of a minor before attaining majority:
The rights and disabilities of Umair before attaining majority are as follows:
(i) Rights:
 right to share property and profits of the firm as agreed by the partners.
 right to have access to accounts of the firm and not to the secret books of the firm.
 right not to be adjudged insolvent
(ii) Disabilities:
 he will not be considered as a partner.
 cannot file suit against partners for profit and property except after disconnecting
his relation with the firm.
 not entitled to have access to books other than accounts.
Ans.5 (a) (i) Acceptor for honour:

When a bill of exchange has been noted or protested for non-acceptance or for better
security and any person accepts it supra protest for honour of the drawer or of any one
of the endorsers, such person is called an acceptor for honour.
(ii) Material alteration:
An alteration is material which:
 alters the character or identity of the instrument or which shakes the very
foundation of the instrument or
 changes the rights and liabilities of the parties or
 alters the operation of the instrument.
The following alterations are material:
 Date
 Sum payable,
 Time of payment,
 Place of payment,
 Addition of place of payment,
 Rate of interest.
Page 3 of 8
Business Law
Suggested Answers
(b) Discharge of party or parties:

A party or parties to a negotiable instrument is/are discharged in any one of the following
ways;
(i) Payment:
The party is discharged by payment made in due course by the party who is
secondary liable to pay.
(ii) Cancellation:
When the holder of a negotiable instrument or his agent cancels the name of a party
on the instrument with the intent to discharge him, such party and all subsequent
parties who have a right of action against the party whose name is so cancelled are
discharged from liability.
(iii) Release:
Where the holder of a negotiable instrument releases any party to the instrument by
any method other than cancellation, the party so released is discharged from the
liability.
(iv) Allowing drawee more than 48 hours:
If the holder of a bill of exchange allows the drawee more than 48 hours exclusive of
public holidays, for the purpose of acceptance then all previous parties not consenting
to such allowance are discharged from liability to such holder.
(v) Non-presentment of cheque:
Where a cheque is not presented by the holder for payment within a reasonable time
of its issue and the drawer suffers damage through the delay, because of the failure
(collapse or out of fund) of the bank, drawer is discharged from the liability to the
extent of such damage.
(vi) Qualified acceptance
If the holder of a bill agrees to a qualified acceptance all prior parties whose consent
is not obtained to such an acceptance are discharged from liability.
(vii) Operation of law
This includes discharge;
 By an order of insolvency court,
 By merger.
 By lapse of time
(viii) Material alteration
A material alteration of a negotiable instrument renders the same void as against
anyone who is a party to it at the time of alteration and does not consent to it, unless
it was made in order to carry out the common intention of the original parties.
(ix) Discharge by payment of altered instrument
When an instrument has been materially altered but does not appear to have been so
altered, payment on such an instrument discharges the party liable if payment is
according to the tenure of the instrument and in due course.
(x) Not giving notice of dishonour
Any party to a negotiable instrument to whom notice of dishonour is not sent by the
holder is discharged from liability as against the holder unless no notice of dishonour
is required to be sent.
(xi) Non-presentment for acceptance of a bill
When a bill of exchange is payable certain period after sight, and if the holder
defaults in making presentment for its acceptance to the drawee within a reasonable
time after it is drawn, the drawer and all endorsers who were liable towards such a
holder are discharged from their liability towards him.
Page 4 of 8
Business Law
Suggested Answers
(xii) Negotiation back

When a bill of exchange comes back to the drawer or endorser by process of
negotiation and he becomes its holder then all the parties in between are discharged
from the instrument.
Ans.6 (a) (i) Circumstances in which YL may alter the object clause of its memorandum:
Under following circumstances YL may alter the object clause:
 to carry on its business more economically or more efficiently; or
 to attain its main purpose by new or improved means; or
 to enlarge or change the local area of its operations; or
 to carry on some business, not being a business specified in its memorandum,
which may conveniently or advantageously be combined with the business of the
company; or
 to restrict or abandon any of the objects specified in the memorandum; or
 to sell or dispose of the whole or any part of the undertaking of the company; or
 to amalgamate with any other company or body of persons.
(ii) Conditions which must be satisfied before the Commission may issue an order
confirming the alteration
Before confirming the alteration, the Commission must be satisfied that:
 the circumstances, as discussed in (i) above for the alteration of object clauses of
the memorandum, exist and
 sufficient notice has been given by the company to every person who is a holder
of debentures of company or any other person whose interest might be affected by
the alteration.
 consent of every objecting creditor has been obtained or his debt or claim has
been discharged or determined, or has been secured to the satisfaction of the
Commission.
 The Commission may also order to purchase the interests of dissident members.
(b) Body corporate:

"Body corporate" or "corporation" includes a company incorporated outside Pakistan, but
does not include
 A corporation sole; or
 A co-operative society registered under any law relating to the registration of co-
operative societies; or
 Any other body corporate, which the Federal Government may specify in this behalf.
Ans.7 (a) (i) Minimum subscription:

The particulars as to the minimum amount which must be raised by the issue of shares
in order to provide the sums, required to be provided in respect of each of the
following:
 Purchase price of property to be purchased.
 Preliminary expenses including underwriting commissions etc.
 Repayment of any money borrowed for above matters.
 Working capital.
 Any other expenditure.
 If the company intends to meet all or any of the above needs from any source
other than the issue of shares, such source shall be disclosed.
(ii) Publication of prospectus:

Since Super Star Limited intends to make a public offer of its securities in Pakistan, it
is required to publish the prospectus in the following manner:
 obtain Commission’s approval for the publication of the prospectus.
Page 5 of 8
Business Law
Suggested Answers
 publish the prospectus in full text or in such abridged form as may be prescribed,
at least in one Urdu and one English daily newspaper.
 the prospectus shall not be published in the newspapers less than seven days or
more than thirty days before the commencement of the public subscription.
 the prospectus in full text and the shares subscription form shall be uploaded on
company’s website and shall remain there from the date of its publication in the
newspapers till the closing of the subscription.
(b) Restriction on grant of financial assistance by the company for purchase of its own or its
holding company’s shares:
According to the provisions of the Companies Ordinance, 1984 no company limited by
shares, other than a private company, not being a subsidiary of a public company, is
allowed to grant financial assistance of any sort, i.e. loan advance or credit etc., to any
person for buying its shares or the shares of its holding company.
In view of the above provision, APL, being subsidiary of public company (Mujahid
Limited) cannot grant financial assistance to Jamal its CEO.
However, under the following circumstances APL may grant financial assistance to its
CEO, Jamal:
 if he is a salaried employee and payment of such financial assistance is part of contract
of service; and that
 he was not a director of the company prior to his appointment as a chief executive of
the company.
Ans.8 (a) Extraordinary General Meeting (EGM):

Every general meeting of a company other than annual general meeting and the statutory
meeting is called extra-ordinary general meeting.
Calling of EGM:
The extraordinary general meeting may be called by:
 the directors of the company at any time on their own motion; or
 the directors on the requisition of member(s) representing not less than ten per cent of
the total voting power on the date of deposit of the requisition; or
 by the requisitionists themselves, if the directors do not proceed to call an
extraordinary general meeting on the requisition of the member(s); or
 the Commission either on its own motion, or on the application of any director or
member of the company, if default is made in holding the extraordinary general
meeting on the requisition of the member(s).
Quorum of an EGM:
The quorum of an extra ordinary general meeting shall be:
 in the case of a public listed company, unless the articles provide for a larger number,
not less than 10 members present personally who represent not less than twenty five
percent of the total voting power, either of their own account or as proxies;
 in the case of any other company, unless the articles provide for a larger number, 2
members present personally who represent not less than twenty-five percent of the
total voting power, either of their own account or as proxies;
 in the case of a single member company, single member present in person or by proxy.
 In case of a meeting called by the Commission, one member present in person or by
proxy, as the Commission may deem fit, in such meeting.
(b) Removal of a director:

(i) GL may remove Saleem from his office by passing a resolution in a general meeting.
In order for Saleem not to be removed from his office, he will have to secure at least
1,200,000 votes against the resolution which are the least number of votes secured by a
director for election in the last election of directors.
Page 6 of 8
Business Law
Suggested Answers
(ii) If Saleem was appointed to fill a casual vacancy on the board, he shall not be removed
from his office if the number of votes casted against the resolution equals or exceeds
the number of votes calculated as per the following formula:
Number of directors for the term × Number of shares

Number of directors for the time being
Or, 7 × (20,000,000÷50) ÷ 7 = 400,000
Therefore, Saleem would require at least 400,000 votes against the resolution to retain
his directorship in GL.
Ans.9 (a) Directors’ report:

The Directors of Aabshar Limited shall make out and attach to the accounts, a report
containing following particulars namely
(i) statements regarding the state of the affairs of the company.
(ii) any amount recommended as dividend.
(iii) any amount transferred or proposed to be transferred to any reserve account.
(iv) address any specific changes and commitments affecting the financial position of the
company, occurring between the financial year end date and the date of the report.
(v) The directors’ report of Aabshar Limited, being a public company, shall address all the
material changes occurred during the financial year which affect:
 the business of the company, or
 its holding company or
 any of its subsidiaries or
 any other company where it has made investments.
(vi) fullest information and explanation in regard to any reservation, observation,
qualification or any adverse remarks pointed out by the auditors.
(vii) circulate with it information about the pattern of shareholding.
(viii) state the name and country of incorporation of its holding company, if any, where
such holding company is incorporated outside Pakistan.
(ix) state the earnings per share.
(x) give reasons for incurring loss and a reasonable indication of future profit, if any; and
(xi) contain information regarding default in repayments of loans or interests on loans, if
any.
(b) Interested director not to vote:

According to the Companies Ordinance, 1984, when the director is a director on the board
of any public company on an appointment made by his present company and he has got
only that number of shares which are qualification shares. He shall not be considered as
interested director on the board of his original company for any transaction to be entered
into with that other public company.
Therefore, Faraz can attend directors’ meeting of GLL and can take part in discussions and
also vote if required on the joint venture with BLL.
Ans.10 Qualification and disqualification of auditors

(i) As per the Companies Ordinance, 1984 a person shall not be appointed as auditor of a
company, if he is disqualified for appointment of any other company, which is that
company’s subsidiary or a holding company or a subsidiary of that holding company.
Therefore, Delta & Co. cannot be appointed as an auditor of SL as Murad is a director in
GL which together with SL is a subsidiary of PL.
For appointment as the auditor of the company, Murad is required to resign from GL’s
directorship.
Page 7 of 8
Business Law
Suggested Answers
(ii) As per the Companies Ordinance, 1984 a person shall not be appointed as auditor of a
company, if he is indebted to the company. However, in case of a utility provider, an
auditor is not considered to be indebted if his bills for up to ninety days are pending.
In this case since Murad has not paid only two months electricity bills to SEL, therefore, he
can be appointed as auditor of SEL.
(iii) In accordance with the provisions of the Companies Ordinance, 1984 BCC’s appointment
as auditors of PL was valid as Rita’s holding of 20% shares in PL and her association with
PL as internal auditor was not in contravention of any of the provisions of law.
However, her subsequent disposal of shares in PL to Murad’s wife within 30 days of BCC’s
appointment as auditors rendered BCC’s appointment invalid. According to the provisions
of the Companies Ordinance, 1984 a person or his spouse or minor children, or in case of a
firm, all partners of such firm who holds any shares of an audit client or any of its
associated company is ineligible to be appointed as auditors of that company.
Moreover, if after his appointment, an auditor becomes subject to any of the

disqualifications, he should be deemed to have vacated his office as auditor with effect from
the date on which he becomes so disqualified.
Therefore, BCC shall be deemed to have vacated the office of the auditor with effect from
the date on which Murad’s wife acquired shares in PL.
(THE END)
Page 8 of 8
SUBJECT SESSION
– Autumn 2016
General Comments:
The paper consisted of ten questions comprising 100 marks. The first five questions,
totaling 50 marks, pertained to Mercantile Law whereas the rest of the questions
pertained to Company Law section. Out of the total number of candidates who wrote
Business Law paper, around 8.5% of the candidates appeared only in Company Law
section.
In contrast to immediately preceding examination, the overall performance of the

candidates improved by 5%. Again the candidates who wrote only Company Law section
comparatively performed well. Candidates’ performance in question number 8 was
exceptional whereas question numbers 2, 3, 7 and 10 exhibited poor performances. One
of the prime reasons for low performance in the above questions seems to be selective
studies and inability to implement theoretical knowledge to scenario based questions.
Candidates can overcome these weaknesses by concentrating on syllabus coverage with
particular emphasis on comprehending the concepts underlying the provisions of law. For
this purpose candidates can also refer to suggested answers on ICAP’s website.
Question 1
This question was based on the legal system in Pakistan and required candidates to
describe the process of legislation in case of money bill under both the conditions i.e.
when National assembly is in session or is not in session.
Approximately 21% of the candidates did not attempt to answer the question at all.
However, those who attempted performed satisfactorily with the exception of few who
could not deliberate on the process of legislation when the National assembly is not in
session. Few candidates ignoring the requirement of the question also pondered on the
approval of bills other than money bill.
Page 1 of 7
Question 2
This question was divided into two parts. Part (a) required candidates to describe their
understanding of the term ‘Privity of contract’ and the circumstances in which a stranger
to a contract may file suit against the party(ies) to the contract. Part (b) was a scenario
based question relating to the requirements of sections 27 and 28 of the Contract Act,
1872. It required candidates to describe the rights of the contracting parties under certain
situations as provided in the scenario and also their rights under certain exceptional
circumstances.
Question 2(a)
The performance in this part remained poor. Although majority of the candidates were
able to correctly describe the term ‘Privity of contract’, they completely failed to identify
all the situations in which a stranger to the contract may file suit against the contracting
parties. Most of the answers were confined to the arrangements made in connection with
marriage, partition or other family arrangements. Only few candidates managed to
correctly answer the question.
Question 2(b)
The performance in this part remained below average. Majority of the candidates
correctly described that a person cannot be restrained from conducting a lawful trade as
agreements in restraint of trade are void. They also deliberated on the exception to the
general rule that in case of sale of goodwill a person may be restrained from exercising
similar business. However, majority of them did not deliberate on all the conditions
subject to the fulfilment of which a person may be restrained from exercising the
business. Similarly, majority of the candidates correctly identified that agreements in
restrained of legal proceedings are void but they again failed to appreciate that the
contracting parties have a right to always resort to the Court of law if they are not
satisfied with the arbitration award.
Question 3
This question was divided into two parts. Part (a), a scenario based question, was related
to contract of agency and was sub-divided into three parts. Part(a)(i) required candidates
to identify the status of a person appointed by an agent and also to describe whether the
agent was justified in employing a person to facilitate him in the contract of agency.
Part(a)(ii) required to describe the responsibility of sub-agent towards the agent and the
principal in the contract of agency. Part (a)(iii) was related to the responsibilities of an
agent in respect of sub-agent’s acts if appointed without principal’s authority. Part (b)
was also scenario based and was related to the requirements of sections 25 of the
Contract Act, 1872 and its explanation.
Question 3(a)
The performance in this part remained below average as majority of the candidates only
managed to identify that the appointed person was a sub-agent. However, they failed to
deliberate on the circumstances in which an agent may appoint a sub-agent. Similarly
they also failed to appreciate that under the given scenario agent had all the rights of a
Page 2 of 7
principal towards his sub-agent and that agent was responsible for sub-agents acts to his
principal and also to third parties. Some candidates instead of describing sub-agents
responsibilities towards the principal and the agent, deliberated on the general duties of
the agent.
Question 3(b)
The performance in this part was below average. Majority of the candidates failed to
appreciate that in the stated scenario Mrs. Ikram would have recovered the amount from
her grandfather Nadeem either in case of completed gift or in case of a contract made out
of natural love and affection. Most of the answers were devoid of the conclusion with
regard to the recoverability of the amount promised by Nadeem. The answers were
mainly confined to the statement that amount can only be recovered on account of natural
love and affection. However, candidates failed to deliberate on the conditions necessary
for invoking the provisions of section 25(1) of the Contract Act, 1872 relating to natural
love and affection.
Question 4
This question was divided into two parts. Part (a) was scenario based and was sub-
divided into two parts. Part (a)(i) required candidates to list the general duties of partners
which cannot be modified by an agreement amongst themselves whereas part(a)(ii) was
related to the requirements of section 19(2) of the Partnership Act, 1932. It invited
candidates to list the restrictions imposed on the implied authority of a partner in the
absence of any usage or custom of trade. Part (b) was also scenario based and was related
to the requirements of sections 30 of the Partnership Act, 1932 and the candidates were
required to list the rights and disabilities of a minor before attaining majority.
Question 4(a)
Candidates’ performance in sub-parts (a)(i) and (ii) remained average. Many candidates
instead of listing the general duties of partners stated all the duties of partners. Few
candidates ignoring the requirement of the question also described such duties. In sub-
part (a)(ii) many answers lacked completeness. Some candidates confined their answers
only to short phrases such as submit a dispute, open a bank account, compromise,
withdraw a suit etc. expecting that the examiner would himself deduce the rest of the
statement.
Question 4(b)
The performance in this part remained satisfactory.
Question 5
This question was divided into two parts. Part (a) required candidates to describe the
terms ‘Acceptor for honour’ and ‘Material alteration’ as provided in sections 7 and 3(f)
respectively of the Negotiable Instruments Act, 1881. Part (b) required candidates to
briefly describe any five modes by which a party or parties to a negotiable instrument
is/are discharged from liability.
Page 3 of 7
Question 5(a)
The performance remained below average as majority of the candidates were only able to
explain either ‘Acceptor for honour’ or ‘Material alteration’. Many candidates mixed up
Acceptor for honour with Payment for honour whereas some of the candidates thought
that when bill of exchange is dishonoured for non-payment it is accepted for honour of
the drawer. Some candidates were of the view that it is accepted for the honour of the
drawee. With regard to material alteration many candidates stated partial answers. Few
candidates also discussed the alterations which may not be regarded as material
alteration.
Question 5(b)
The performance in this part remained average. Though, majority of the candidates
correctly identified the modes by which the party or parties to the negotiable instrument
is/are discharged from liability, they failed to describe all the required modes as required
by the question. Some candidates did not comprehend the question and described the
ways by which a negotiable instrument is discharged.
Question 6
This question was divided into two parts. Part (a) was based on the requirements of
section 21 of the Companies Ordinance, 1984 and was divided into two sub-parts (a)(i)
and (a)(ii). These parts required candidates to briefly describe the circumstances in which
the object clause of the memorandum of association can be altered and the conditions
which must be satisfied before the Commission may issue an order confirming the
alteration respectively. Part (b) required candidates to describe the term ‘Body corporate’
as provided in section 2(4) of the Companies Ordinance, 1984.
Candidates who only wrote Company Law section of the paper comparatively performed
well in this question.
Question 6(a)
The performance in (a)(i) was average. However, some candidates failed to understand
the requirement of the question and stated the procedure for alteration of the
memorandum of association. In part (a)(ii) most of the answers were incomplete. Some
candidates carelessly switched the answers of part (a)(i) and (ii).
Question 6(b)
The performance in this part remained unsatisfactory. Majority of the candidates were
unable to produce the complete answer. Some candidates were of the view that only those
companies which are incorporated outside Pakistan are regarded as body corporate.
Similarly, some candidates stated that body corporate includes a Corporation, sole and a
Co-operative society and a Corporation specified by the Federal Government in this
behalf.
Page 4 of 7
Question 7
This question was divided into two parts. Part (a), a scenario based question, was further
sub-divided into two parts. Part (a)(i) was based on the requirements of Second schedule
to the Companies Ordinance, 1984 and required candidates to state the particulars of the
amount of minimum subscription i.e. the minimum amount which must be raised by the
issue of shares. Part (a)(ii) was based on the provisions of section 88(3), (4) and (6) of the
Securities Act, 2015. It required candidates to advise with regard to the publication of
prospectus in case of a public limited company. Part (b) was scenario based and required
candidates to explain whether a private limited company which is a subsidiary of a public
limited company can grant financial assistance to its chief executive officer for the
purchase of shares in its holding company.
Question 7(a)
The performance in both the sub-parts remained very poor. Majority of the candidates
produced incomplete answers. Some candidates deliberated on what may be regarded as
minimum subscription if the amount was not mentioned in the prospectus. Few
candidates stated the contents of prospectus. In part (ii) also, majority of the candidates
produced incomplete answers. Most of the answers were limited to the extent of
publication of the prospectus in one English and one Urdu newspaper. Many candidates
deliberated on the availability of the prospectus at various places such as registered
office, bankers to the issue, branch offices etc.
Question 7(b)
The performance in this part also remained below average. Some of the candidates
without comprehending the question, discussed the conditions under which a company
may grant loan to the whole time director. Again most of the answers were confined to
the statement that a company cannot grant financial assistance to its chief executive
officer for the purchase of its own shares or the shares of its subsidiary or holding
company and the candidates seemed unaware of the exceptions to the above rule.
Question 8
This question was divided into two parts. Part (a), required candidates to explain the term
‘Extra ordinary general meeting’. Candidates were also required to state who may call
such meeting and the requirement of quorum for such meeting. Part (b), a scenario based
question, required candidates to enumerate the number of votes which an elected director
may require to retain his office in the company if the directors opt to remove him from
the board. Candidates were also required to enumerate the number of votes if the director
in question was appointed to fill the casual vacancy on the board.
Question 8(a)
The overall performance of the candidates was very good. Most of the answers were
correct and to the point. However, many candidates failed to write the quorum of the
meeting either in case of a public company or private company. Few candidates were also
of the view that the quorum for an extra ordinary general meeting is the same as for the
annual general meeting.
Page 5 of 7
Question 8(b)
The performance in this part remained average. Most of the candidates correctly stated
the number of votes required by an elected director to retain his directorship under the
given circumstances i.e. in sub-part (i). However, in sub-part (ii) they failed to appreciate
the number of votes a director may require to retain his office in case he had been
appointed to fill a casual vacancy on the board. Some of the candidates though correctly
quoted the provisions of law but failed to compute the correct number of votes under the
circumstances.
Question 9
This question was scenario based and was divided into two parts. Part (a) required
candidates to advise about the particulars to be set out in director’s report for submission
to the members of the company. Part (b) required candidates to explain whether a
nominee director can participate in the board meeting of the company.
Question 9(a)
Below average performance was observed in this part of the question. Majority of the
answers were incomplete. Some candidates failed to differentiate between the particulars
to be set out in a statutory report and director’s report. Candidates also discussed the
authentication and filing of directors’ report which was not required by the question.
Question 9(b)
The performance in this part remained average. Many candidates, without assigning any
reason, only concluded that a nominee director can attend the meeting but cannot vote or
that he cannot attend the meeting at all.
Question 10
This question was divided into three parts with each part reflecting an independent
situation. It required candidates to describe whether a person (Murad in this scenario) was
eligible to be appointed as an auditor of the company in each of the above three
independent situations.
(i) The performance in this part remained average. Majority of the candidates
produced only partial answers. With the exception of very few candidates none of
them mentioned that in order for Murad to be appointed as the auditor of Star
Limited he will first have to resign from the directorship of Gama Limited. Most
of the candidates only concluded that Murad can or cannot be appointed as an
auditor of Star Limited but did not assign any reason for the same.
(ii) The performance in this part was average. Many candidates were of the view that
a person is considered to be indebted to the utility provider if his bills for three
months are outstanding. Some candidates thought that irrespective of the amount
outstanding Murad can be appointed as the auditor of the company.
Page 6 of 7
(iii) The performance in this part remained poor. Majority of the candidates failed to
appreciate that the appointment of Beta and Company as the auditor of Panama
limited (PL) was valid and that Rita’s holding of 20% shares in PL was not in
contravention of any of the provisions of law. Most of the candidates also failed to
comprehend that if after his appointment an auditor becomes subject to any of the
disqualifications, he is deemed to have vacated his office as auditor with effect
from the date of his disqualification.
(THE END)
Page 7 of 7
Business Law

approaches to a question and relevant/well-reasoned comments/explanations.
Mark(s)
A.1 (a) 0.5 mark for describing each step of the legislation process when National
assembly is in session 2.0
(b) 01 mark for describing each step of the legislation process when National
assembly is not in session 3.0
A.2 (a) Explanation of the term ‘Privity of contract’ 1.0

01 mark for describing each condition in which a stranger to a contract
may file suit for the enforcement of the contract 4.0
(b) (i) Describing the reason on the basis of which Arif may start sweet business
at Multan railway station 2.0
(ii) 01 mark for the correct decision and 0.5 mark for stating each condition in
which the decision would be valid 3.0
(iii) Correct decision along with the valid reason 2.0
(iv) Correct decision and the basis for such decision 2.0
A.3 (a) (i) Correct identification of Saqib’s status in the contract of agency 1.0
0.5 mark for describing each of the circumstances in which an agent
may employ a sub-agent 2.0
(ii) Describing Saqib’s responsibility towards Inam and Zeshan 2.0
(iii) Describing agent’s responsibility for sub-agent’s acts when appointed
without principal’s authority 2.0
(b) 01 mark for the identification of each of the circumstances under which
Mrs. Ikram may recover the amount promised by Nadeem 2.0
Correct decision whether Mrs. Ikram would be able to recover the amount
under the given circumstances 2.0
A.4 (a) (i) 0.5 mark for listing each general duty of partners which cannot be changed
by an agreement amongst them 3.0
(ii) 0.5 mark for listing each restriction imposed on the implied authority of a
partner in the absence of any usage of custom of trade 4.0
(b) 0.5 mark for each right of Umair before attaining majority 1.5
0.5 mark for each disability of Umair before attaining majority 1.5
A.5 (a) (i) Describing the term ‘Acceptor for honour’ 2.0
(ii) Describing the term ‘Material alteration’ 3.0
(b) 01 mark for describing each correct mode by which a party or parties to a
negotiable instrument is/are discharged from liability 5.0
Page 1 of 2
Business Law
Mark(s)
A.6 (a) (i) Upto 01 mark for describing each of the circumstances in which YL may
alter the object clause of its memorandum of association 4.0
(ii) Upto 1.5 marks for describing each condition subject to the fulfilment of
which the Commission may issue an order confirming the alteration in the
object clause of the memorandum 4.0
(b) Correct description of the term ‘ Body corporate’ 2.0
A.7 (a) (i) 0.5 mark for advising each of the particulars of the amount of minimum
subscription 3.0
(ii) 0.5 mark for advising each of the requirements for the publication of
prospectus 3.0
(b) Explanation of the restriction on grant of financial assistance by APL to

Jamal for the purchase of its own or its holding company’s shares 2.0
Explanation of the circumstances in which APL may grant financial
assistance to Jamal for the purchase of its own or its holding company’s
shares 2.0
A.8 (a) Explanation of the term ‘Extraordinary general meeting’ (EGM) 1.0
Identification of the persons/authority who may call EGM 3.0
Describing the requirement of quorum for EGM 3.0
(b) (i) Enumerating the correct number of votes required by Saleem to retain his
directorship in GL 1.5
(ii) Computation of the correct number of votes required by Saleem to retain
his directorship in GL when appointed to fill a casual vacancy on the
board 1.5
A.9 (a) Up to 01 mark for advising the particulars which are required to be stated in the
director’s report 7.0
(b) Correct decision 1.0

Reason for arriving at the above decision 2.0
A.10 (i) Correct decision 1.0

Reasons for the above decision 2.0
(ii) Correct decision 0.5

(iii) Correct decision 1.0

(THE END)
Page 2 of 2
Business Law
Mercantile Law Section
Q.1 (a) What do you understand by the term ‘Alternative Dispute Resolution’? Briefly
explain different types of alternative dispute resolution mechanisms. (05)
(b) Danish while buying a smart phone from one of the retailers, found a satellite phone
on the market floor. Danish in spite of considerable search could not find the owner
of the phone. He gave the phone to the retailer for safe custody till the real owner is
found. Under the provisions of the Contract Act, 1872 explain the following:
(i) the type(s) of contractual relationships, if any, between Danish, the retailer and
the real owner of the phone. (03)
(ii) the duties of retailer towards Danish. (04)
Q.2 (a) Under the provisions of the Contract Act, 1872 ‘Every person is competent to
contract who is of the age of majority according to the law to which he is subject,
and who is of sound mind, and is not disqualified from contracting by any law to
which he is subject.’
Describe the circumstances in which a person may not be able to enter into a
contract, despite meeting the above conditions. (04)
(b) Jamal threatened Rafia to murder her son Atif if she did not sell her house to
Mujahid. Rafia did as she was told.
Under the provisions of the Contract Act, 1872 comment on the validity of the
above contract. (02)
(c) Vazir said to Saulat, “I will buy speed boats worth Rs. 10,000,000 from you, if you
obtain the licence for me to operate the boats at Clifton beach”. Saulat agreed and
applied for the licence and deposited Rs. 100,000 as processing fee. However, before
the issuance of licence, the city government imposed ban on the issuance of new
licences. Saulat wants Vazir to buy the speed boats as he had made necessary efforts
to arrange for the licence. However, Vazir refuses to buy the speed boats from
Saulat.
Under the Contract Act, 1872 identify the type of contract between Vazir and Saulat.
Also state whether Vazir is now bound to purchase the speed boats from Saulat. (04)
Q.3 Faheem, Saleem and Jameel jointly borrowed Rs. 50 million for a business project from a
common friend Kamal. They jointly promised to repay the borrowed amount. Under the
provisions of the Contract Act, 1872 comment on the following:
(a) in the absence of express agreement, what would be the rights and liabilities of joint
promisors. Also explain their rights and liabilities if Kamal releases Jameel from the
joint liability. (06)
(b) how the liability would devolve in case of death of one or more of the joint
promisors. (02)
Q.4 (a) Amjad enjoys a very good credit standing in the market. Kashif, owner of Kashif
Electronics, represents Amjad as his partner. Kalim on the faith of such
representation supplied laptops to Kashif Electronics on credit. Kashif defaulted and
Kalim filed a suit for the recovery of the amount against both Amjad and Kashif.
Under the provisions of the Partnership Act, 1932 analyse the above situation and
explain whether Amjad would be liable to pay the outstanding amount to Kalim. (04)
(b) Asghar, Babar and Careem are carrying on agricultural business in partnership.
They have agreed to share the profits in the ratio of 4:3:2 respectively. Careem is not
liable for the losses of the firm. Under the provisions of the Partnership Act, 1932
analyse and comment on each of the following independent situations:
(i) Asghar, who is responsible for procurement, has suggested to buy seeds and
pesticides from Zubair Enterprises, a supplier of crop products, as the seeds
and pesticides offered by him are of good quality and at a very reasonable
price. However, Babar is not in agreement with Asghar. (03)
(ii) In February 2017, the partnership incurred substantial losses due to heavy
floods in the area and the partnership assets are not sufficient to meet the
firm’s liabilities. A number of creditors have filed a suit for recovery of the
amount from Careem. (03)
Q.5 (a) What do you understand by the term ‘Drawee in case of need’ under the provisions
of the Negotiable Instruments Act, 1881? (02)
(b) Aamna has received a bearer cheque from her uncle Shoaib as a gift. Shoaib’s title to
the cheque was defective and Aamna after receiving the cheque indorsed it to her
landlord on account of rent. Under the Negotiable Instruments Act, 1881 explain
whether the landlord would be able to recover the amount of the cheque. (03)
(c) Under the Negotiable Instruments Act, 1881 briefly describe the circumstances in
which acceptance of a bill of exchange would be regarded as a ‘qualified
acceptance’. Also state the liability, if any, of the prior parties to the instrument in
case of qualified acceptance. (05)
Company Law Section
Q.6 (a) Innovation Limited is a newly incorporated public limited company. Prior to the
issuance of certificate of commencement of business, the directors have entered into
a long-term contract with a foreign company for the supply of materials for use in
production.
(i) status of the long-term contract under the above circumstances. (02)
(ii) requirements for obtaining the certificate of commencement of business. (05)
(b) Saleem and Company, a partnership concern, is engaged in IT consulting business.

The partners intend to convert the partnership into a private limited company in the
name of Marhaba (Pvt.) Limited.
Under the provisions of the Companies Ordinance, 1984 advise the partners with
respect to the appointment of first directors of the company and the term for which
they may be appointed. (03)
Q.7 (a) Khush-haal Limited (KL) is engaged in the business of manufacturing garments in
Karachi. The directors, in order to expand KL’s business, are planning to acquire a
garment factory in Multan. In order to finance the acquisition cost, they intend to
issue 5 million ordinary shares to the general public. They have appointed Mr.
Sehgal as an expert to evaluate the above project and include his statement in KL’s
prospectus.
Under the provisions of the Securities Act, 2015 advise the directors about the
conditions to be fulfilled for including Mr. Sehgal’s statement in KL’s prospectus for
its issuance to the general public. (03)
(b) Expansion Limited (EL), a company incorporated in Quetta, has acquired a hotel in
Iran. On 1 March 2017, EL obtained a long term loan from ABC Bank Limited,
situated in Chaman, by creating a charge on its property in Iran.
Under the provisions of the Companies Ordinance, 1984 explain the procedure for
the registration of the above charge. (04)
(c) Holding Limited (HL), after obtaining necessary approvals, is in the process of
issuing shares to the general public. HL intends to use the proceeds of the issue to
acquire more than 50% shares in SF (Pvt.) Limited (SFL).
Under the provisions of the Companies Ordinance, 1984 briefly describe the
additional reports which the auditors are required to set out in the prospectus in view
of the above acquisition. Assume SFL has no subsidiary. (03)
Q.8 (a) Two companies may be regarded as associates of each other, ‘If a person who is a
director of the company or holder of shares carrying voting power of 20% or more in
that company is also the director or holder of shares carrying voting power of 20% or
more in the other company’.
Under the provisions of the Companies Ordinance, 1984 briefly describe the
circumstances under which the above relationship may not qualify the Companies to
be regarded as ‘Associated Companies’. (04)
(b) The Directors of Generous Limited (GL), a listed company, have recommended
dividend equal to 40% of GL’s undistributed profits. However, in the annual general
meeting, the shareholders demanded that 60% of the undistributed profits should be
distributed as dividend.
(i) whether the shareholders are justified in their demand. (02)

(ii) whether the directors’ recommendation is appropriate if 70% of the
undistributed profits comprise of unrealized gain on investment property. (02)
(iii) consequences if the directors fail to pay the dividend within the stipulated
time. (02)
Q.9 (a) Woodworks (Pvt.) Limited (WPL) was incorporated on 5 October 2016 with a paid
up capital of Rs. 10 million. On 15 January 2017, the directors appointed Murad &
Co., Chartered Accountants as first auditors of WPL.
Under the provisions of the Companies Ordinance, 1984 briefly discuss:
(i) the appointment of Murad & Co. as the first auditors of the Company. (03)
(ii) how the remuneration of the first auditors may be fixed. (02)
(b) Under the provisions of the Companies Ordinance, 1984 explain the circumstances
in which the Commission may appoint the auditors of the Company. (05)
Q.10 (a) Shafiq and Rahat intend to establish a limited liability company in Lahore for the
manufacture of edible oil. Under the provisions of the Companies Ordinance, 1984
advise them with regard to the following:
(i) factors to be considered while selecting the name of the Company. (02)
(ii) names which may require prior approval of the Commission. (04)
(b) The registrar, after registration of the memorandum of association, has issued the
certificate of incorporation to Anjaan Limited.
Under the provisions of the Companies Ordinance, 1984 briefly describe the effects
of incorporation. (04)
(THE END)
Business Law
Suggested Answer
Ans.1 (a) Alternate Dispute Resolution:

Alternate dispute resolution is a type of procedure or combination of procedures
which disputing parties use voluntarily to resolve issues in controversy, or
outside court.
Types of Alternative dispute resolution mechanisms:
(i) Negotiation:
In negotiation, the participation is voluntary and there is no third party to
facilitate the resolution process or impose a resolution.
(ii) Mediation:
In mediation, there is a third party known as mediator; who facilitates the
resolution process but does not impose a resolution on the parties.
(iii) Arbitration:
Arbitration is the process of settlement of a dispute by an independent
person usually chosen by the parties themselves.
(iv) Conciliation:
It is a process in which conciliator meets with the parties separately to
resolve the grievances.
(b) (i) Bailment, Bailor and Bailee:

The contract which exists between Danish and the retailer is a bailment
contract. Danish in this case is the bailor while the retailer is the bailee.
The contract which exists between Danish and the real owner is a
Quasi Contract, an obligation imposed by law in absence of any
agreement between the parties, and on taking the custody of the satellite
phone, as a finder of lost goods, Danish is subject to the same
responsibility as those of a bailee while the real owner is the bailor.
(ii) Duties of bailee:

The following are the duties of the retailer (Bailee) towards Danish:
 duty to take care of satellite phone bailed - retailer is bound to take
as much care of the phone as a man of ordinary prudence would,
under similar circumstances, take of his own goods;
 duty not to make any unauthorized use of the phone – if the bailee
(retailer) makes any use of the phone bailed which is not according
to the condition of the bailment; he is liable to make compensation to
the Danish (bailor) for any damage arising to the phone from or
during such use;
 duty not to mix the phone bailed with his phones – a bailee is bound
to keep the goods bailed separately.
 duty to return the phone – it is the duty of the retailer to return the
phone to Danish when so demanded by Danish.
Page 1 of 7
Business Law
Suggested Answer
Ans.2 (a) Disqualified persons:

Following persons are disqualified from entering into the contract though they
are major and of sound mind:
(i) Alien enemies

If a war is declared with the enemy country then alien enemy of Pakistan
can neither enter into a contract or be sued during the period of war.
(ii) Foreign sovereigns and ambassadors

As such persons have immunity. They have a right to enter into a contract
but can claim the privilege of not being sued.
(iii) Convicts
A convict while under imprisonment is incapable of contracting.
(iv) Insolvent
A person declared as insolvent cannot enter into contract as his property
is dealt with by official assignee or official receiver.
(v) Companies
A company is an artificial person and a contract entered into by a
company is invalid if it is not within the powers granted by the
Memorandum of Association.
(b) Coercion:
The contract in the above situation is voidable at the option of Rafia as her
consent is not free and has been obtained by coercion.
(c) Contingent Contract:

The contract between Vazir and Saulat is a contingent contract whose
performance is based on the happening of certain event collateral to the
contract, i.e. arranging of license for Vazir. If such event has not happened the
performance of the contract does not become due. It does not matter at all that
Saulat had applied for the license and also paid processing fee of Rs. 100,000
to the authorities. Thus Vazir is not bound to purchase the boats from Saulat.
Ans.3 (a) Any one of Joint promisors may be compelled to perform

In absence of express agreement to the contrary, Faheem, Saleem and
Jameel are jointly liable to fulfil the promise.
However, Kamal, may compel anyone (Faheem/Saleem/Jameel) or more of

them to perform whole of the promise.
Each joint promisor (Faheem/Saleem/Jameel) may compel every other joint

promisor to contribute equally with himself to the performance of the promise.
If anyone of joint promisor (Faheem/Saleem/Jameel) or more of them makes

default in such contribution, the remaining joint promisors must bear the loss
arising from such default in equal share.
Effect of release of one joint promisor

If Kamal releases Jameel, it will not discharge the other joint promisors
Faheem and Saleem; neither would it free Jameel from responsibility to
Faheem and Saleem.
Page 2 of 7
Business Law
Suggested Answer
(b) Devolution of Joint Liabilities

In case of death of one or more of joint promisors, the liability would devolve as
follows:
 to representatives of the deceased promisor jointly with the surviving
promisor(s) in case of death of any of the joint promisors; and
 to representatives of all of them jointly in case of death of all joint
promisors.
Ans.4 (a) Partner by Estoppel or Holding out:

Amjad would be regarded as partner by estoppel or holding out if:
 he knowingly permitted himself to be represented as a partner in the firm
by Kashif.
 Kalim on the faith of such representation extended credit to the firm.
It does not matter whether Amjad does or does not know that the
representation has reached Kalim.
Therefore, in such case, Amjad would be liable for the outstanding amount to
Kalim.
However, Amjad would not be considered as holding out partner if he has

denied Kashif’s representation in public holding him as a partner in the firm or if
he has no knowledge of Kashif’s representation.
(b) (i) Decision making:

Subject to contract between the partners, a partner can bind the firm by
his actions. However, in case of differences, decision should be made by
majority of the partners. Asghar cannot take decision without consultation
with other partners. Every partner has a right to express his opinion
before the matter is decided.
(ii) Liabilities of Partners towards third parties:

Every partner is liable jointly with all the other partners and also severally
to third parties for all acts of the firm done while he is a partner.
A partner may not share in the business losses, yet his liability towards
outsiders shall be unlimited.
If the partnership assets are insufficient to meet the firm’s liabilities,

Careem would have to repay the amount personally. However, Careem
can recover the amount which he is called upon to pay to the creditors
from Asghar and Babar.
Ans.5 (a) Drawee in case of need:

The person whose name is given in addition to the drawee to be referred in
case of need.
By whom the name is given:
 By the drawer while drawing the bill
 By the endorser while indorsing the bill.
(b) If the landlord has no knowledge of the defects in title of the previous holders
of the cheque, he would be regarded as holder in due course as he has
received the cheque against consideration (rent).
Page 3 of 7
Business Law
Suggested Answer
Therefore, he is entitled to recover the amount of the cheque.
However, if the landlord was aware of the defective title of the holder from
whom he derived his own title, then he would not be considered as holder in
due course and he would not be able to recover the amount of the cheque.
(c) Qualified Acceptance:

An acceptance is qualified in the following manner:
 Conditional: where acceptance is conditional i.e., payment dependent on

the happening of an event therein stated;
 Part Payment: where it undertakes part payment of the sum ordered to
be paid;
 Place of Payment: where no place of payment being specified in the
order it undertakes the payment at a specified place and not otherwise or
elsewhere; or where a place of payment being specified in the order it
undertakes the payment at some other place and not otherwise or
elsewhere;
 Time of Payment: where it undertakes the payment at a time other than
that at which under the order it would be legally due.
All prior parties whose consent was not obtained to qualified acceptance would
be discharged from liability.
Company Law Section
Ans.6 (a) (i) Provisional Contract:

Any contract entered by Innovation Limited (IL) before the date at which it
is entitled to commence business shall be provisional only, and shall not
be binding on the company until that date, and on that date, it shall
become binding.
(ii) Certificate of Commencement of Business:

IL has to comply with the following requirements for obtaining the
certificate of commencement of business:
 IL should have allotted shares against cash for an amount, which is
not less than the amount of minimum subscription;
 Directors of IL should have paid to the company full amount on each
of the shares taken or contracted to be taken by them and for which
they are liable to pay in cash;
 If IL decides not to issue prospectus-inviting public to subscribe its
shares, it shall have to file with the registrar a statement in lieu of
prospectus.
 If IL had issued a prospectus and could not get its shares listed on
stock exchange, IL shall not be given a certificate of commencement
of business until the date all money repayable on such a prospectus is
paid by IL and unless statement in lieu of prospectus is filed by the
company;
 IL has to file with the registrar a duly verified declaration by the chief
executive or one of the directors and the secretary in the prescribed
form, that the aforesaid conditions have been complied with; and
Page 4 of 7
Business Law
Suggested Answer
(b) First directors and their terms
 Marhaba (Pvt.) Limited (ML) shall have not less than two directors;
 The number of first directors and their names shall be determined in
writing by a majority of the subscribers of the memorandum;
 Until the names and number of directors is so determined, all the
subscribers of the memorandum who are natural persons shall be
considered as directors of the company; and
 The first directors shall retire at the date of the first annual general
meeting.
Ans.7 (a) Expert Report in Prospectus:

Prospectus of Khush-haal Limited (KL) cannot include a statement purporting
to be made by an expert (Mr. Sehgal), unless he is a person who is not, and
has not been, engaged or interested in the formation or promotion, or in the
management of KL.
A prospectus which contains a statement purporting to be made by Mr. Sehgal

cannot be issued unless:
(i) Mr. Sehgal has given his written consent to the issue of prospectus with
the statement in the form and context in which it is included; and
(ii) there appears in the prospectus a statement that the expert has given and
has not withdrawn his consent.
(b) Registration of Charge:

Expansion Limited (EL) shall be required to file with the registrar for registration
in the manner required by the Companies Ordinance, the prescribed
particulars of the charge together with a copy of the instrument, if any, verified
in the prescribed manner, by which the charge has been created or evidenced
within twenty-one days after the date of its creation, but without prejudice to
any contract or obligation for repayment of loan thereby secured.
In addition to above, as the charge has been created in Pakistan but comprises
property which is situated outside Pakistan (i.e. in Iran), further proceedings
may be necessary to make the charge valid or effectual according to the law of
the country (Iran) in which the property is situated.
(c) Additional Audit Reports:

Additional reports on the following, must be set out in the prospectus which
shall be made by the auditors named in the prospectus:
 the profits or losses of SFL for each of the five financial years immediately
preceding the issue of the prospectus;
 the assets and liabilities of SFL at the last date to which its accounts were
made up;
The above report shall also:

 indicate how the profits or losses of SFL dealt with by the report would, in
respect of the shares to be acquired, have concerned HL’s members and
what allowance would have fallen to be made, in relation to assets and
liabilities of SFL, for holders of HL’s shares, if HL had at all material times
held SFL’s shares (i.e. shares proposed to be acquired).
Page 5 of 7
Business Law
Suggested Answer
Ans.8 (a) Directorships or Shareholdings not to be taken into account:

The following directorships or shareholdings are not to be taken into account
for determining the status of a company as an associated company:
(i) directorship of a person or persons by virtue of nomination by the Federal

Government or a Provincial Government or a financial institution directly
or indirectly owned or controlled by such Government;
(ii) shares owned by the National Investment Trustor the Investment

Corporation of Pakistan or a financial institution directly or indirectly
owned or controlled by the Federal Government or a Provincial
Government; and
(iii) shares registered in the name of a central depository, where such shares
are beneficially owned by the central depository.
(b) (i) Shareholders’ Demand to increase Dividend:

According to Companies Ordinance, 1984, the shareholders may reduce,
accept or reject the dividend proposed by the directors, but shall not
approve an amount exceeding the amount recommended by the directors
of GL. In view of above, shareholders are not justified in their demand.
(ii) Declaration of dividend from sale of immovable property:

No dividend shall be declared or paid out of unrealized gain on
investment property credited to profit and loss account.
Therefore, 40% dividend recommended by the directors is inappropriate.
(iii) Consequences of non-payment of dividend:

Where a dividend has been declared by a company but is not paid within
the stipulated time, the chief executive of the company shall be
punishable with imprisonment for a term which may extend to two years
and with fine which may extend to one million rupees.
A chief executive convicted as above shall from the day of the conviction
cease to hold the office of chief executive of the company and shall not,
for a period of five years from that day, be eligible to be the chief
executive or a director of that company or any other company.
Ans.9 (a) (i) Appointment of first auditor:

The appointment of Murad is not valid as the directors of WPL failed to
appoint Murad within 60 days of the date of incorporation of WPL (i.e., by
4 December 2016). In case of failure of directors to appoint the first
auditors within the stipulated time, the members were required to appoint
first auditors within 120 days of the date of incorporation (i.e. by 02
February, 2017),instead of directors of WPL.
(ii) How auditor’s remuneration may be fixed:

The remuneration of the first auditor of WPL shall be fixed:
 by the directors if the auditor were appointed by the directors;
 by the Commission if the auditor was appointed by the Commission;
and
 in all other cases, by WPL in general meeting or in such manner as
the general meeting may determine.
Page 6 of 7
Business Law
Suggested Answer
(b) Appointment of auditor by the Commission:

In the following circumstances the Commission may appoint the auditors of a
company:
(i) the first auditors are not appointed within one hundred and twenty days of
the date of incorporation of the company; or
(ii) no auditors are appointed at an annual general meeting; or
(iii) auditors appointed at an annual general meeting are unwilling to act as
auditors of the company; or
(iv) a casual vacancy in the office of an auditor is not filled within thirty days
after the occurrence of the vacancy; or
(v) auditors are removed by the company before the expiry of their term.
Ans.10 (a) (i) Factors to be considered in selecting the name of the Company:
Shafiq and Rahat while selecting name for their company should consider
that the name:
 is not inappropriate or deceptive;

 is not designed to exploit or offend the religious sentiments of the
people; and
 is not identical and does not closely resemble with the name of a
company already registered, except where the company in existence
is in the course of being dissolved and signifies its consent in granting
its name to the new company in such manner as the registrar
requires.
(ii) Company names requiring prior approval:

Prior approval of the Commission is required if the proposed name
contains any words suggesting or calculated to suggest:
 the patronage of any past or present Pakistani or Foreign Head of

State.
 any connection with the Federal Government or a Provincial
Government or any department or authority of any such Government.
 any connection with any corporation set up by or under any Federal or
Provincial law.
 the patronage of, or any connection with, any Foreign Government or
any international organization.
(b) Effects of incorporation:

The effects of incorporation are as follows:
 from the date of incorporation mentioned in the certificate of incorporation,
the subscribers of memorandum, together with such other person as may
from time to time become members of the company shall be a body
corporate by the name contained in the memorandum; and
 the Company becomes capable of exercising all the functions of an
incorporated company and having perpetual succession and a common
seal, but with such liability on the part of the members to contribute to the
assets of the company in the event of its being wound upas is provided in
the Companies Ordinance, 1984.
(THE END)
Page 7 of 7
SUBJECT SESSION
– Spring 2017
General:
The overall performance in this attempt was similar to last attempt with passing
percentage of 25.1% as compared to 23.7% in the previous attempt. Very poor
performance was witnessed in Questions 4, 5 and 7. A large majority of the students
appeared to have been involved in selective studies and answered the remaining topics
based on guesswork or their general knowledge/logic which mostly lead them to incorrect
or at least incomplete answers. Besides selective studies, a prime reason for low
performance in the above questions was the inability to implement theoretical knowledge
to scenario based questions. Question 5 pertained to Negotiable instruments have
remained a low scoring area for quite some time and the candidates need to understand
the concepts involved as thorough knowledge of law is required to deal with the scenario
based questions. Moreover, the correct approach to answer scenario based question can
be learnt by paying special attention to the suggested answers which are provided on
ICAP’s website after each exam.
Question-wise comments
Question 1
This question having potential of 12 marks was divided into two parts. Part (a) required
candidates to define the term Alternate Dispute Resolution (ADR) and briefly explain the
ADR mechanisms. Part (b) was further divided into two parts. First sub-part required
examinees to identify the contractual relationships existing between the parties in the
given scenario whereas sub-part (ii) required candidates to explain the duties of the bailee
(retailer) towards the bailor (Danish).
Question 1(a)
Majority of the candidates were able to produce the definition of ADR but while
explaining the different ADR mechanisms, most of them got mixed up especially
between mediation and conciliation. A number of students ignored this aspect altogether.
Question 1(b)
Very few students were able to correctly identify the types of contractual relationships in
the given scenario. A number of students described the retailer as Sub-bailee. Duties of
bailee (retailer) were well answered in most of the cases.
Page 1 of 7
Question 2
students to define the persons who despite being major and of sound mind, are
disqualified from entering into a contract. Part (b) was a scenario based question
requiring candidates to comment on the validity of the contract in the given scenario. Part
(c) was also a scenario based question requiring students to identify the type of contract
and whether the contracting parties were bound by such contract after one of the parties
was unable to meet its responsibilities because of restrictions imposed by the
Government.
Question 2(a)
Only few candidates were able to identify the persons who even being major and of
sound mind are unable to enter into a contract. Many students repeated the conditions
which were already mentioned in the question which was obviously incorrect. Many
students wasted time in explaining who is of unsound mind or a minor, which was totally
irrelevant.
Question 2(b)
Many candidates seemed confused between void and voidable contracts. About 50% of
the students mentioned that the contract was void. Many candidates wrote that it was an
invalid contract and also wrote that it was a voidable contract. Many candidates
mentioned that it was a case of undue influence instead of coercion.
Question 2(c)
It was a poorly attempted question. Most of the students could not identify that the
contract between the parties was a contingent contract. Some of them also stated
incorrectly that the contract can be enforced since Saulat had made the necessary efforts.
Question 3
This question with a potential of 8 marks was divided into two parts. Part (a) comprising
of 6 marks was a scenario based question and required the candidates to describe the
rights & liabilities of joint promisors amongst themselves and towards the promisee and
also in case the promisee releases one of the joints promisors from his obligation. Part (b)
was based on the same scenario and required the candidates to highlight how the liability
will devolve in case of death of one or more or all the promisors.
Question 3(a)
The overall performance was average. Most candidates correctly mentioned that joint
promisors are jointly liable to the promisee but promisee's right to compel one or more
promisor to pay the entire debt was not stated by the majority. Further, joint promisors'
responsibility in case of default of one the joint promisor was also mentioned by few
candidates only. While commenting on the effect of the release of one joint promisor by
the promisee, majority of the students correctly explained that it will not discharge other
joint promisors but failed to mention that Jameel will be responsible to Faheem and
Saleem.
Page 2 of 7
Question 3(b)
The performance on this part was good as most of the students stated correctly that
liability of deceased promisor(s) would devolve to their legal representatives. However,
many students mixed up the situation with reference to Partnership Act and stated some
or all of the rights and liabilities of partners under the Partnership Act.
Question 4
This question with a potential 10 marks was divided into two parts. Part (a) required the
candidates to comment on a situation whereby a person (Kashif) represented himself as
partner of another person (Amjad) and relying on the good credit standing of Amjad,
Kalim sold goods to Kashif on credit. The candidates were required to analyse the
situation under Partnership Act, 1932 and explain whether Kalim can recover the amount
from Amjad. Part (b) was further divided into two sub parts. Part (b)(i) required the
candidates to elaborate the rights of partners in case of disagreement as regards conduct
of ordinary business. Part (b)(ii) required candidates to identify the extent of liability of a
partner who is a partner in profits only.
Question 4(a)
Majority of the students got passing marks on this part of the question but failed to secure
high marks as they failed to clarify that Amjad shall not be liable if he denied Kashif’s
representation in public or if he had no knowledge of such representation.
Question 4(b)(i)
Generally, the candidates were able to explain correctly that in case of disagreement,
such decisions are to be taken with the consent of the majority of partners. However, the
finer point that this right (like all other rights) is subject to agreement between the
partners, was mentioned by few candidates only. Some of the students mixed up the
situations with agency-principal relations.
Question 4(b)(ii)
Many candidates mentioned incorrectly that since Careem is not required to share in the
losses, he cannot be asked to meet the liabilities. In fact, all partners are liable to claims
of the third parties, both jointly and severally, irrespective of any mutual arrangement
between them.
Question 5
This question with a potential 10 marks pertained to Negotiable Instruments and was
divided into three parts. Part (a) required the candidates to define the term drawee in case
of need. Part (b) was based on a scenario requiring candidates to explain whether
recovery could be made on an instrument having defective title. Part (c) required
candidates to describe the circumstances/situations in which an acceptance is considered
as qualified acceptance and the liabilities of prior parties in case of such qualified
acceptance.
Page 3 of 7
Question 5(a)
Those who attempted, answered well. However, some mixed it up with the concept of
‘acceptance for honour’ whereas a number of students did not attempt it or produced
totally irrelevant material based on guesswork.
Question 5(b)
Most of the candidates answered it correctly. However, some candidates failed to identify
the landlord as holder in due course and mentioned Aamna as holder in due course which
was incorrect as a requirement to be holder in due course is to receive the negotiable
instrument against consideration which was missing in Aamna's case.
Question 5(c)
A large number of candidates did not attempt this part altogether. Most of those who did
attempt did not know that such qualification does not arise in case of the initial
acceptance of the instrument i.e. arises only in case of subsequent acceptance. Further,
only few students mentioned the rule that all prior parties whose consent is not obtained
to such qualified acceptance will be discharged from such obligation. Many students tried
to define the term qualified acceptance instead of mentioning the circumstances.
Question 6
This question with a potential 10 marks was divided into two parts. Part (a)(i) required
the candidates to explain the status of a contract made by a Company before issuance of
its certificate of commencement of business. Part (a)(ii) asked the candidates to list the
requirements necessary for a company to acquire certificate of commencement of
business. In part (b) the requirement was to describe the provisions related to
appointment of first directors and their tenure.
Question 6(a)(i)
Majority of the candidates stated incorrectly that the contract was invalid. In fact, in such
situation, the contract is provisional and becomes binding on the date the Company
becomes entitled to commence business.
Question 6(a)(ii)
This part of the question was very poorly attempted. A large number of students specified
the types of companies who are required to obtain certificate for commencement of
business instead of mentioning the requirements that have to be fulfilled for obtaining
such certificate. Some of the students narrated the formalities regarding incorporation of
the company which were not required/relevant.
Question 6(b)
The performance in this part remained average. Most of the candidates were able to
specify that the subscribers to memorandum shall be the first directors and that the
number of directors should be determined by them. However, while mentioning the
tenure, most students mentioned that tenure will be three years or one year whereas the
first directors are supposed to hold office till the first annual general meeting. Moreover,
Page 4 of 7
many students mentioned subscribers to the Articles instead of Memorandum. Only few
candidates mentioned that at minimum two directors need to be appointed for a private
limited company.
Question 7
This question with the potential of 10 marks was divided into three parts. In part (a) the
candidates were asked to specify the requirements contained in Section 90 and 91 of the
Securities Act 2015 with regard to statement by an expert, to be included in the
prospectus. Part (b) required the candidates to narrate the procedure for registration of
charge with respect to property situated outside Pakistan. According to the scenario in
part (c) a company had obtained necessary approvals and was in the process of issuing
shares to the general public where the proceeds were to be used to acquire majority
shares in another company. The candidates were required to describe the additional audit
reports which would be set out in the prospectus, in the given situation.
Question 7(a)
Low marks were secured by most of the students in this part of the question as they did
not mention that expert should not be interested in the formation, promotion and
management of the company. Majority of the students also failed to mention that
prospectus cannot be issued unless written consent of the expert is obtained and a
statement from the expert in this regard, also appears in the prospectus. Many students
tried to explain as to who may be appointed as expert, which was entirely irrelevant.
Question 7(b)
Majority of the students answered it correctly. However, some students did not mention
that requirement of law of Iran should also be complied. Further, with regard to time
allowed for filing the documents, some students mentioned 21 days from the date
documents are received from Iran instead of 21 days from the date of creation of the
charge.
Question 7(c)
This part of the question was very poorly attempted. Most of the students had no idea and
used guesswork without any success. They are advised to seek guidance from ICAP’s
suggested answers.
Question 8
candidates to explain the circumstances where two companies would not be regarded as
associated companies despite the fact that a person is a director in both the companies or
despite that he/she holds more than 20% shares in each company. According to the
scenario in part (b), a company (GL) had recommended dividend equal to 40% of its
undistributed profits whereas the shareholders had demanded dividend equal to 60% of
the undistributed profits. This part had three sub-parts and in each case the candidates
were asked to give their comments as mentioned below:
Page 5 of 7
Part (b)(i)
Demand of shareholders for increase in the dividend.
Part (b)(ii)
whether the declaration of dividend by directors is appropriate if 70% of the undistributed

profits represented un-realised gain on investment property.
Part (b)(iii)
Consequences of non-payment of dividend within the time specified in the Companies

Ordinance.
Question 8(a)
The overall performance was average. Most of the students correctly mentioned about the
exceptions related to directorship/holding on behalf of Federal and Provincial
Government; however, they failed to mention that financial institutions which are directly
or indirectly owned by such Governments are also excluded from the said list.
Question 8(b)(i)
This was perhaps the best attempted part as almost all the students knew the correct
answer.
Question 8(b)(ii)
The question was quite straight forward but majority of the candidates gave unrelated
answers such as the meaning of unrealised gain.
Question 8(b)(iii)
This part of the question was generally well attempted. However, some students made the
directors punishable instead of chief executive of the company. Many students did not
explain the future consequences of such failure whereby the penalized chief executive
ceases to hold the office of chief executive and is rendered ineligible from becoming
chief executive of any company for five years.
Question 9
This question with a potential 10 marks was divided into two parts. In part (a), the
candidates were required to discuss a scenario in which a company had been incorporated
on 5 October 2016, and its first auditors had been appointed by the company’s directors
on 15 January 2017 and also to specify how the remuneration of the company’s first
auditors shall be fixed. In part (b) the requirement was to explain the circumstances in
which Commission can appoint the auditors of the Company.
Page 6 of 7
Question 9(a)
The performance remained below average. Majority of the candidates were unable to
identify that the appointment of auditors was invalid as the directors failed to appoint
them within 60 days of the date of incorporation. However, as regards the fixation of
remuneration the answers were mostly correct. Some students discussed the qualification
of auditors of a private limited company which was entirely irrelevant.
Question 9(b)
The overall performance remained average as most of the candidates restricted their
answers to circumstances where Commission may appoint first auditors whereas question
requiring them to narrate all the circumstances when the Commission is required to
appoint the auditors of a company.
Question 10
candidates to explain the factors to be considered while selecting the name of a company
and to advise about names which may require prior approval of the Commission. Part (b)
required the candidates to state the effects of incorporation of a company.
Both parts of the question were well attempted.
THE END
Page 7 of 7
Business Law

approaches to a question and relevant/well-reasoned comments/explanations. Moreover, the
available marks in a question may exceed the total marks.
Mark(s)
A.1 (a) Explanation of the term ‘Alternative Dispute Resolution’ 1.0
01 mark for describing each type of alternative dispute resolution
mechanism 4.0
(b) (i) For describing the contractual relationship between:

Danish and the owner 1.5
Danish and the retailer 1.5
(ii) 01 mark for explaining each duty of retailer towards Danish 4.0
A.2 (a) Up to 01 mark for explaining each of the circumstances 4.0
(b) Comments on the validity of the contract 2.0
(c) Identifying the type of contract 1.0

Identifying the reasons whether Vazir was bound to purchase the speed
boats from Saulat 2.0
Conclusion 1.0
A.3 (a) Explaining the liabilities of joint promisors 3.5

Explaining the rights of joint promisors towards each other for settlement
of amount borrowed 0.5
In case if, Kamal releases Jameel from the joint liability:
Explaining the liability of remaining joint promisors 1.0
Explaining the rights of remaining joint promisors 1.0
(b) For explaining how the liability would devolve in case of death of one or more of
the joint promisors 2.0
A.4 (a) Analysing the situation and identifying whether Amjad would be regarded
as a partner in the firm 3.5
Conclusion 0.5
(b) (i) Explaining the provisions of law with regard to difference of opinion
among the partners during conduct of partnership business 3.0
(ii) Explaining the provisions of law with regard to partner(s) liability(ies)

towards third parties 3.0
Page 1 of 2
Business Law
Mark(s)
A.5 (a) Explanation of the term ‘Drawee in case of need’ 2.0
(b) Explaining the circumstances under which the landlord may recover the
amount of the cheque 1.5
Explaining the circumstances under which the landlord may not recover
the amount of the cheque 1.5
(c) 01 mark for explaining each of the circumstances 4.0

Stating the liability of prior parties in case of qualified acceptance 1.0
A.6 (a) (i) Explaining the status of the long term contract 2.0
(ii) Up to 1.5 marks for explaining each requirement for obtaining the
certificate of commencement of business 5.0
(b) Up to 01 mark for explaining each provision of law with regard to appointment
of first directors 3.0
A.7 (a) Up to 01 mark for explaining the conditions to be fulfilled for including expert’s
consent in company’s prospectus 3.0
(b) Up to 01 mark for each step in the procedure for registration of charge 4.0
(c) Describing the additional reports which the auditors are required to set out in the
prospectus 3.0
A.8 (a) Up to 01 mark for explaining each situation 4.0
(b) (i) Commenting on shareholders’ decision in view of the provisions of law 2.0
(ii) Commenting on the appropriateness of directors’ recommendation 2.0
(iii) Explaining the consequences of directors’ failure to pay the dividend

within stipulated time 2.0
A.9 (a) (i) Discussing the provisions of law regarding appointment of Murad and
Co. as the first auditors 2.5
Conclusion 0.5
(ii) Up to 01 mark for each point 2.0
(b) 01 mark for explaining each of the circumstances in which an auditor may be
appointed by the Commission 5.0
A.10 (a) (i) Up to 01 mark for each factor 2.0
(ii) Up to 01 mark for explaining each of the circumstances requiring

Commission’s prior approval 4.0
(b) Up to 01 mark for describing each effect of incorporation 4.0
(THE END)
Page 2 of 2
Certificate in Accounting and Finance Stage Examination
Business Law
Q.1 (a) Golden Foods (GF) agreed to supply 2,500 cans to Riaz Grocery Stores (RGS).
According to the agreement, the date of delivery was 31 August 2017. However, on
the due date GF refused to supply the cans.
Under the provisions of the Contract Act, 1872 discuss the rights of RGS in the
above situation assuming that time was the essence of the contract. (03)
(b) What would be your answer to (a) above, if GF supplied the cans on
12 September 2017 and RGS accepted the performance; but suffered a loss on
account of delayed supply? (02)
Q.2 (a) ‘Any material alteration to a negotiable instrument renders the instrument void’. List
the exceptions to this rule. (06)
(b) ‘The holder of a cheque has no right of action against the banker for refusing to pay
the cheque because there is no privity of contract between the holder and the
banker.’
Under the provisions of Negotiable Instruments Act, 1881 discuss the exceptions
under which holder becomes entitled to enforce payment from the banker. (04)
Q.3 (a) Ghaffar purchased a piece of land from Sharif who is an engineer by profession.
During the discussion prior to the purchase, Sharif had told Ghaffar that in his
opinion, the land would be able to support 2,500 mango trees. However, only 2300
trees could eventually be planted on the land.
Under the provisions of the Contract Act, 1872 discuss whether Ghaffar can claim
damages on the grounds of fraud. (03)
(b) Under the provisions of the Contract Act, 1872:

(i) list the essentials of a valid acceptance. (04)
(ii) explain the term ‘right of subrogation’. (03)
(c) Following is the statement of sums payable by Nisar to Mairaj on 4 March 2017:
Date of invoice Rupees Remarks

01/01/2016 200,000 Guaranteed by Imran.
08/06/2016 150,000
350,000
Nisar sent a cheque for Rs. 100,000 on 5 March 2017. As there were no instructions
from Nisar, Mairaj adjusted the payment against the amount of Rs. 150,000. The
guarantor (Imran) objected to such appropriation and claimed that adjustment
should be made in the order of the date of invoices.
Under the provisions of the Contract Act, 1872 discuss whether the objection of
Imran is justified. (03)
Q.4 (a) ‘The sharing of profit is a prima facie evidence but not a conclusive test of
partnership’.
Under the provisions of the Partnership Act, 1932 list the circumstances in which
receipt by a person of a share of profits of a business does not of itself make him a
partner with the persons carrying on the business. (03)
(b) On 1 July 2016 Abid, Rizwan and Salman started a partnership business and
contributed Rs. 200,000 each towards the firm’s capital. They also agreed to share
profits in equal proportion. Abid, in addition to his capital contribution, paid
Rs. 100,000 to one of the suppliers as a security deposit. All the partners are entitled
to interest at the rate of 8% on their capital. However, during the year, the firm
incurred a loss of Rs. 80,000.
Under the provisions of the Partnership Act, 1932 state the amount of interest, if
any, payable to each partner. (04)
(c) Wasim, Ahmed and Salman are partners in a firm. Salman died in a plane crash.
Wasim and Ahmed agreed to admit Salman’s minor son, Noman, to the benefits of
the Partnership. Noman attained majority on 6 June 2016. He became aware of the
fact that he had been admitted to the benefits of the Partnership on 16 July 2016.
Being undecided about joining the firm as a partner, he preferred to wait for some
time.
On 10 January 2017, the firm suffered heavy losses due to a fire in one of its
factories. Wasim and Ahmed informed Noman that on account of losses, his entire
capital has been wiped off and he is required to contribute Rs. 100,000 to enable the
firm to settle its liabilities.
advise whether Noman would be regarded as a partner in the firm. Also state his
liabilities towards the losses, if any. (05)
Q.5 (a) Discuss how High Court exercises supervisory role over the subordinate courts. Also
describe the three types of prerogative orders which High Court may issue in this
regard. (05)
(b) Kalim Real Estate (KRL) by misrepresenting themselves as an agent of Goofy

Builders (GB), negotiated and entered into a contract with Tameer Associates for
acquisition of a piece of land for GB.
Under the provisions of the Contract Act, 1872 explain the liability of KRL in the
above situation. (05)
Company Law Section
Q.6 (a) Malik and Azad, being the promoters of Masoom Limited, are in the process of
preparation of memorandum of association for filing with the registrar.
Under the provisions of the Companies Ordinance, 1984 advise them about the
conditions required to be fulfilled for registering the memorandum. Also state the
remedies available to them, if for any reason, the registration is refused. (05)
(b) Zeta Associates (ZA) intends to register as a limited liability company without
adding the word ‘Limited’ to its name.
Under the provisions of the Companies Ordinance, 1984 list the conditions which
ZA must satisfy for dispensing with the requirement of using ‘Limited’ to its name. (04)
Q.7 (a) Under the provisions of the Companies Ordinance, 1984 briefly describe:
(i) the provisions relating to the inspection of register of mortgages and charges
and where such register should be kept. (03)
(ii) the circumstances in which a company would be considered as a holding
company of another company. (02)
(b) Tafriq Textiles Limited has issued two classes of shares with Class A being entitled
to two votes per share and Class B having one vote per share. In a general meeting, a
resolution was placed to give the same rights to the shareholders of both the classes,
which was passed by the required majority. However, Gul & Sons holding Class 'A'
shares are not satisfied with the decision taken by the company.
Under the provisions of the Companies Ordinance 1984 discuss how Gul & Sons
can challenge the above resolution and have it revoked. (05)
Q.8 (a) Disneyland Limited is considering purchase of a new production house which is
currently owned by Marvels (Private) Limited. The Board of Directors of
Disneyland Limited is considering to give responsibility of negotiation and
finalization of the deal to two of its Directors, Moiz and Kareem. However,
Naghma the wife of Moiz and their 15 year old son Riaz jointly hold 15% shares of
Marvels (Private) Limited.
In the light of Companies Ordinance, 1984 discuss the duties and responsibilities of
Moiz under the above circumstances. (04)
(b) Pluto (Private) Limited (PPL), having paid-up capital of Rs. 7.5 million, has laid its
annual financial statements for approval at PPL’s annual general meeting.
Under the provisions of the Companies Ordinance, 1984 advise the company
secretary about the requirements for filing the financial statements with reports and
other documents, if any. (03)
(c) Karam Limited (KL), an unlisted public company, owns 30% shares in Jumma
(Private) Limited (JPL). In order to finance its working capital requirements, JPL
has asked for a loan of Rs. 1,000,000 from KL. Under the provisions of the
Companies Ordinance, 1984 briefly describe the conditions which are required to be
met, if KL agrees to grant the loan. (03)
Q.9 In the light of Companies Ordinance, 1984 comment on each of the following independent
scenarios:
(a) Partners of Ubaid & Co., Chartered Accountants have authorised Zehra, who is a
chartered accountant, to sign the audit report of Tufail Limited. Zehra is a manager
in the firm and has been managing the audit of Tufail Limited for a number of years. (02)
(b) Tariq Limited a listed company, is due to hold its annual general meeting on
15 September 2017. Discuss the rights and duties of the auditors of Tariq Limited in
relation to the meeting. (04)
(c) Fareed, a director of Tameer Limited, got married to Hira, a chartered accountant.
Hira is a senior employee of Salman & Co., Chartered Accountants who are also the
auditors of Tameer Limited. (02)
(d) Brass Limited wants to appoint Jafer & Co., Chartered Accountants as their
statutory auditor. One of the partners in Jafer & Co. had served on the Board of
Brass Limited for many years as a government nominee. (02)
Q.10 (a) The annual general meeting (AGM) of Kamyab Limited is due to be held on
12 September 2017 at 10:00 am at company’s registered office.
Being the company secretary, comment on the following situations under the
provisions of the Companies Ordinance, 1984:
(i) Shafiq lodged a proxy form on 10 September 2017 at 5:00 pm. (01)
(ii) Anwar appointed Amjad as his proxy by depositing the proxy form on
8 September 2017. On the next day, Anwar came to know that Amjad has
gone abroad, so he deposited a proxy form in favour of Waqas. (01)
(iii) Sajid appointed Javed as his proxy. Javed’s name is not in the members’
register. (1.5)
(iv) One of the members, Asaan Limited has inquired about who may attend the
AGM on its behalf and what would be the right(s) of such attendee. (2.5)
(b) Sunshine Limited, an unlisted company, had three directors A, B and C. After two
and half years of their appointment, A died in a car crash. B and C are of the
opinion that since the election of directors are due in six months time, there is no
need to fill the casual vacancy.
Discuss the above situation in the light of the Companies Ordinance, 1984. (02)
(c) Farhan Limited, a listed company, has received a request from a shareholder who
holds 9% shares of the company, to inspect the register containing the minutes of
proceedings of general meetings.
Discuss the rights of the shareholder to inspect the above register. (03)
(THE END)
Business Law
Suggested Answers
Ans.1 (a) Time being essence of the contract, following would be the rights of Riaz Grocery
Stores (RGS) under the circumstances:
 Contract would be voidable at the option of RGS (promisee);
 RGS may insist that Golden Foods (GF) should deliver the product and to claim
compensation on account of the delayed supply;
 RGS may decide not to accept performance beyond the stipulated time and
claim compensation for any damages which it may have sustained due to
non-fulfillment of the contract by GF.
(b) Effect of acceptance of performance at a time other than that agreed upon:
Riaz Grocery Stores (RGS) is not entitled to claim compensation for any damages
which it may have sustained through the non-fulfillment of the contract where
performance beyond the stipulated time is accepted, unless at the time of acceptance
RGS gives notice to GF of its intention to claim damages.
Ans.2 (a) In the following situations, the alteration does not render the negotiable instrument
void:
(i) Alteration made for the purpose of correcting a mistake or a clerical error.
(ii) Alteration made to carry out the common intention of the original parties.
(iii) Alteration made with the consent of the parties liable on the instrument.
(iv) Conversion of bearer cheque into an order cheque.
(v) Crossing of an uncrossed cheque.
(vi) Filling blanks in the case of inchoate or incomplete instruments.
(vii) Conversion of blank endorsement into an endorsement in full.
(viii) Making qualified acceptance.
(ix) Alteration which is the result of an accident, e.g., mutilation by washing,
ravages by white ants, document torn by a child, document burnt in part by
the hot end of a cigarette.
(x) Alternation made before the instrument is issued.
(b) The holder is entitled to enforce payment from the banker in the following two
cases:
 the holder does not present the cheque within reasonable time of its issue and
in the meantime the bank fails. The drawer is discharged to the extent of the
loss suffered by the drawer due to the non-presentation of the cheque in time.
For the remaining amount, the bank becomes liable to the holder.
 where a banker pays a cheque crossed generally over the counter or a cheque
crossed specially otherwise than to the banker to whom the same is crossed, he
is liable to the true owner of the cheque for any loss he may sustain owing to the
cheque having been so paid.
Ans.3 (a) Fraud:

Sharif’s statement that in his opinion the land could support 2,500 mango trees
clearly indicated that he was not sure about it and was just giving an opinion.
Therefore, unless Ghaffar can show that the statement was made with the intention
to deceive him, he cannot claim damages on the grounds of fraud.
Page 1 of 7
Business Law
Suggested Answers
(b) (i) Under the Contract Act, 1872 essentials of a valid acceptance are as follows:
 acceptance must be absolute and unqualified;
 its must be communicated either in writing or by word of mouth or by
performance of some act;
 acceptance must be in the prescribed mode/reasonable mode;
 the acceptance must be given within the time specified or within a
reasonable time when no time is specified;
 mere silence is not acceptance. It cannot be in the form of a negative
confirmation. The acceptor should expressly accept the offer;
 acceptance must be given only by that person to whom the offer has been
made;
 the acceptor must be aware of the proposal at the time of acceptance of the
proposal;
 the acceptance must be given before the offer lapses or is withdrawn.
(ii) Right of subrogation

When the surety pays off the debt on default of the principal debtor or
performs a guaranteed duty, he is invested with all the rights and remedies
which the creditor had against the principal debtor. This is called the right of
subrogation.
(c) Application of payment:

Imran’s objection is not valid. In the absence of any intimation from the debtor or
circumstances indicating to which debt payment is to be applied, the creditor is free
to use his discretion and apply it to any lawful debt actually due and payable to him
from the debtor.
Ans.4 (a) Under the following circumstances the receipt by a person of a share of profits of a
business does not of itself make him a partner with the persons carrying on the
business:
where profit or payment is received
(i) by a lender of money from persons engaged or about to engage in any business
(ii) by a servant or agent as a remuneration
(iii) by the widow or child of a deceased partner, as annuity
(iv) by the previous owner or part owner of the business, as consideration for the
sale of goodwill or share thereof
(v) by a transferee of a partner’s interest
(vi) by the persons holding a joint or a common interest in any property
(vii) by the minor who is admitted to the benefits of existing partnership
(viii) by a sub partner from a partner in the firm.
(b) Interest to be received by each partner:

Where a partner is entitled to interest on capital such interest is required to be paid
only out of profits of the firm. During the year, since the firm has incurred a loss, all
the partners are not entitled to receive any interest on their capital.
However, any partner making any payment, for the purpose of the business, beyond
the amount of his capital contribution, is entitled to interest thereon at the rate of 6%
per annum. Therefore, Abid is entitled to receive Rs. 6,000 on the amount paid as a
security deposit.
Page 2 of 7
Business Law
Suggested Answers
(c) Noman would only be considered a partner in the firm when either he gives public
notice of becoming a partner, at any time within six months of the later of following
dates:
 the date of his attaining majority; or
 the date of his obtaining knowledge that he had been admitted to the benefits of
partnership; or
If Noman fails to give such notice he shall become a partner on the expiry of the
above six months. i.e. 15 January 2017 in the given case.
Since up to 10 January 2017, when the firm suffered heavy losses, Noman’s status in
the firm had not been determined, i.e. whether he is or is not a partner in the firm,
Noman would not be liable to pay additional Rs. 100,000 and would only be liable
up to the extent of his share in the firm.
Ans.5 (a) The High Court exercises its supervisory role in the following manner:
(i) It may issue a writ of habeas corpus.
(ii) It may issue prerogative orders against sub-ordinate courts, tribunals and other
bodies such as local authorities in so far as they have a duty to exercise a
decision fairly.
There are three types of prerogative orders:
Mandamus: requires the court or other body to carry out a public duty (mandatory
duty) e.g., if the subordinate court wrongfully rejects an application. High Court
may through a writ of mandamus order subordinate courts to accept that
application.
Prohibition: prevents a court or tribunal from exceeding its jurisdiction e.g., a High
Court may through writ of prohibition direct the judge and parties to cease the
litigation because the subordinate court does not have proper jurisdiction to hear or
determine the matters before it.
Certiorari: orders a court or tribunal which has taken any action, to submit the
record of its proceedings to the High Court for review. The High Court may then
quash the decision but cannot substitute its own decision.
(b) Since Kalim Real Estate (KRL) acquired a piece of land on behalf of Goofy Builders
(GB), without their knowledge or authority, KRL’s liability would be analysed
under the following two circumstances:
(i) When GB elects to ratify KRL’s acts:

If GB ratifies KRL’s acts, the same effects will follow as if the acts had been
performed by GB’s authority.
Being agent, KRL is bound to conduct the business according to the custom
which prevails in doing business of the same kind at the place where the agent
conducts such business. If KRL acts otherwise, in case of any loss, KRL would
be responsible to make good the loss to GB and if any profit accrues, account
for such profit to GB.
Page 3 of 7
Business Law
Suggested Answers
Similarly, KRL would be liable to compensate GB in respect of the direct

consequences of their negligence, want of skill or misconduct.
However, if KRL without the knowledge of GB deals in the business of

agency on KRL’s own account, GB is entitled to claim any benefit which may
have resulted to KRL from the transaction.
When GB disown KRL’s acts:

If GB does not ratify the agency, the contract would be between KRL and
Tameer Associates (TA). If TA suffers a loss due to breach of contract, KRL
would be responsible to make good the loss.
Ans.6 (a) Malik and Azad need to file with the registrar a declaration of compliance with
the requirements of the Ordinance and show to the satisfaction of the registrar
that:
(i) the company is being formed for lawful purposes;

(ii) all or any of the objects stated in the memorandum are appropriate or not
deceptive or sufficiently expressive; and
(iii) all the requirements of the Companies Ordinance, 1984 and the rules
made thereunder in respect of registration and matters precedent and
incidental thereto have been complied with.
Options available to the promoters:

In case of refusal of registrar to register the memorandum, the subscribers of the
Memorandum or any one of them authorized by them in writing may either
(i) Supply the deficiency and remove the defect pointed out by the registrar; or
(ii) Within 30 days of the order of refusal prefer an appeal-
 where the order of refusal has been passed by an additional registrar, a
joint registrar, a deputy registrar or an assistant registrar, to the registrar;
and
 where the order of refusal has been passed, or up-held in appeal, by the
registrar, to the Commission.
An order of the Commission as stated above shall be final and shall not be called in
question before any Court or other authority.
(b) Association of Persons:

The Commission may allow Zeta Associates (ZA) to be registered as a
company with limited liability, without addition of the words “Limited”, to its
name, if ZA satisfies the following conditions:
(i) it should be capable of being formed as a limited company;

(ii) it should be formed for promoting commerce, art, science, religion, sports,
social services, charity or any other useful object;
(iii) it applies or intends to apply its profits/income in promoting its objects;
(iv) it prohibits the payment of any dividend to its members; and
(v) such other conditions and regulations as the Commission thinks fit and, if
the Commission so directs, these should be inserted in the memorandum
and/or articles.
Page 4 of 7
Business Law
Suggested Answers
Ans.7 (a) (i) Company is required to keep the register of mortgages and charges at its
registered office.
Any creditor or member of the company can inspect the copies of the
instruments so placed and the register of mortgages or charges of the company
free of cost at all reasonable times. The register of mortgage or charges is also
open to inspection of any person other than members or creditors against
payment of fee.
(ii) Meaning of Holding Company:

A company would be a holding company of another company if:
 the company directly or indirectly controls, beneficially owns or holds more

than fifty per cent of the voting securities in such other company; or
 has power to elect and appoint more than fifty per cent of the directors in
such other company.
(b) Variation of shareholders’ rights:

Gul & Sons, member of the affected class (Class A shares), either by themselves or
in combination with other shareholders, must hold at least 10% shares of that class,
for making an application to the Court for an Order against the resolution varying
their rights. The Court has powers to cancel the resolution, if it is satisfied that:
(i) the company withheld certain facts while getting the resolution passed and
had the members been aware of those facts, they would not have passed the
resolution varying the rights of a particular class; or
(ii) the variation or change is prejudicial to the interest of the members.
The application by Gul & Sons to get an Order against the resolution must be filed
within 30 days of the date of passing of resolution.
Ans.8 (a) Duties and responsibilities of interested directors:

Being a director, Moiz is an agent of the shareholders of the company and stands in
a fiduciary relationship with them. So he is required to make all contracts and all
transactions in good faith and in best interest of the company.
In this case, Moiz is deemed to be indirectly interested in the transaction as his wife
and son (relatives) jointly own 15% shares of Marvels (Private) Limited (MPL).
If a director makes any transaction or enters into any contract on behalf of the
company in which he is interested by any means, he should give a complete
disclosure of the nature of his interest.
Therefore, Moiz should give a general notice to the effect to all other directors that
he should be regarded as concerned or interested in the transaction to be entered
into with MPL and such notice shall be given:
 at the meeting of the directors at which the question of entering into the contract
or arrangement is to be taken into consideration.
 after disclosing his interest in the transaction, Moiz should not be part of the
directors meetings when such contract or transaction is to be discussed.
Page 5 of 7
Business Law
Suggested Answers
(b) Filing of accounts:

Pluto (Pvt) Limited (PPL) is required to send at least two copies of its accounts as
well as auditors and directors report to the registrar within 30 days of the date of
annual general meeting in which these accounts were approved. These accounts
shall be duly signed.
(c) Investment in associated companies and undertakings:

KL may grant loan to JPL if the following conditions are satisfied:
(i) a special resolution has been passed indicating the nature, period and amount
of loan and terms and conditions attached thereto; and
(ii) the return on loan should not be less than KL’s borrowing cost
Ans.9 (a) Signing of Auditors’ Report:

Zehra cannot sign the audit report of Tufail Limited only a partner of Ubaid & Co.
practicing in Pakistan can sign the auditors’ report.
(b) Rights and duties of auditors’:
Duty of the auditors

Since Tariq Limited is a listed Company, auditors’ or a person authorized by them
in writing must be present in the general meeting in which the balance sheet and
profit and loss account and the auditors’ report are to be considered.
Rights of the auditors

The auditor has a right to receive all notices of and any communications relating to
AGM which any member of Tariq Limited is entitled to receive and to be heard at
the AGM which he attends on any part of the business which concerns him as
auditor.
(c) The spouse of the director of a company cannot be appointed as auditors if the
spouse (Hira) is a partner in the firm. Since Hira is an employee of the auditors’ of
the company so it will not affect the appointment of Salman & Co.
(d) Jafer & Co. is not qualified for appointment as auditor of BL if any of its partners
has been a director of BL during the past three years.
Jafer & Co. should not accept the appointment except if the partner resigns from the
firm.
Ans.10 (a) (i) Proxy form lodged by Shafiq is invalid as it was not submitted at least 48
hours before the meeting.
(ii) Both the proxy forms submitted by Anwar would be considered invalid as a
member is entitled to appoint only one proxy to attend the meeting and not
more.
(iii) Proxy of Sajid is invalid as Javed is not a member. However, if articles of

association of Kamyab Limited permit appointment of non-members as proxy
then proxy of Sajid is valid.
Page 6 of 7
Business Law
Suggested Answers
(iv) Asaan Limited may, by resolution of its directors, authorize any of its officials
or any other person to act as its representative at the annual general meeting.
The person so authorized shall be entitled to exercise the same powers on

behalf of Asaan Limited as if he was shareholder of Kamyab Limited.
(b) Casual vacancy:

Sunshine Limited, an unlisted company, shall have a minimum of three directors at
all times on the board. As due to the death of director A, a casual vacancy has
occurred on the board, the existing directors are required to appoint a person to fill
the casual vacancy and such person shall hold office for the remainder of the term of
director A in whose place he is appointed.
(c) Minutes of proceedings of general meeting:

The shareholder, irrespective of the amount of shareholding, has the right to inspect
the minutes of proceedings of the general meetings without charge during business
hours, subject to such reasonable restrictions as Farhan Limited may by its articles
or in general meeting impose so that not less than two hours in each day be allowed
for inspection.
(THE END)
Page 7 of 7
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN
Examiners’ comments
Business Law
Certificate in Accounting and Finance
Autumn 2017 Examinations
Overall General Comments:
19.88% candidates passed as compared to 25.08% in the previous attempt. Following the
previous trend, the performance in Mercantile Law portion remained much below the standard
achieved in the Company Law portion. The main reason for failure was the lack of knowledge.
Further, the failure to cover all aspects of the issues raised in the scenario based questions was
another major reason for poor performance.
Question-wise Comments:
Question 1
The question consisted of two parts. 22.43% candidates secured passing marks in this
question. Common errors are discussed below:
Question 1(a)
According to the given scenario, a supplier of goods was unable to give timely delivery of
goods. The candidates were required to discuss the rights of the purchaser/(promisee) when
time is of essence in the contract.
Two remedies were available to the purchaser in the given situation i.e. accept delayed supply
and claim compensation for damages or do not accept supply and claim compensation for non-
performance. Generally, only one of the above aspects was stated.
Question 1(b)
In this part, the candidates were required to explain the rights of the purchaser if he accepts
delayed supply and suffers a loss when time is of essence of the contract. The performance
remained below average as the following types of errors were commonly observed:
 It was stated that the purchaser has no right to claim damages if delayed supply is
accepted.
 It was stated that purchaser can claim damages but the condition thereof was not stated i.e.
damages can only be claimed if at the time of acceptance of goods the purchaser gives
notice to the supplier of its intention to claim damages.
Question 2
The question consisted of two parts. 33% candidates secured passing marks in this question.
Common errors are discussed below:
Page 1 of 8
Examiners’ comments on Business Law,
CAF Examination Autumn 2017
Question 2(a)
In this part, the candidates were required to list the situations in which a negotiable instrument
does not become void despite material alterations therein. The performance remained above
average as some of the exceptions were commonly mentioned but very few could mention all
the situations. It was observed that mostly the exceptions relating to correction of mistakes,
endorsement and crossing of cheque were mentioned.
Question 2(b)
In this part, the candidates were required to discuss the situations where holder of a cheque
becomes entitled to enforce payment from the banker. The overall performance remained
average. Many candidates did not attempt this part altogether. Many candidates narrated
provisions related to a holder in due course which were totally irrelevant. Moreover, those
candidates who had resorted to rote learning made major errors when they missed a word or
two or when they failed to use the appropriate word, which distorted the entire meanings.
Question 3
The question consisted of three parts whereas part (b) contained two sub-parts. Only 17.09%
candidates could secure passing marks in this question. Common errors are discussed below:
Question 3(a)
According to the given scenario Ghaffar had purchased agricultural land from Sharif who was
an engineer and at the time of purchase, Sharif had expressed the opinion that the land would
support 2500 mango trees whereas only 2300 trees could eventually be planted.
The answers were evenly distributed among those who were of the opinion that damages can
be claimed and those who believed that damages cannot be claimed. However, the
reasons/justifications for the same were not given. The important point was that damages can
be claimed if Ghaffar can show that the statement was made by Sharif with the intention to
deceive Ghaffar.
Question 3b(i)
Essentials of valid acceptance were required to be listed. The performance remained poor as
most of the students seemed to have ignored this area in their studies. Many candidates
mentioned essentials of a valid contract instead of essentials of valid acceptance or mixed up
the two.
Question 3b(ii)
The requirement in this part was to explain the term ‘right of subrogation’. The performance
remained poor and many candidates did not attempt it altogether. Even in case of students who
secured marks, most of the answers remained focused on the financial aspect only whereas
performance of any other guaranteed duty was ignored.
Page 2 of 8
Question 3(c)
This part was based on a scenario according to which Nisar owed Rs. 350,000 to Mairaj. Out
of the above, Rs. 200,000 pertained to an invoice issued in January and was guaranteed by
Imran. The remaining amount pertained to invoice issued in June. When Nisar paid
Rs. 100,000 Mairaj adjusted it against the latter invoice. Imran objected and claimed that
adjustment should be made in the order of the date of invoices. The candidates were required
to comment on whether Imran’s objection was valid under the Contract Act, 1872.
The performance remained below average as most students supported Imran’s point of view.
Most others could not argue convincingly and missed the most important point that in the
absence of circumstances indicating to which debt a payment is to be applied, the creditor is
free to use his discretion and apply it to any lawful debt actually due and payable to him from
the debtor.
Question 4
This question was based on Partnership Act, 1932 and consisted of three parts. 30.10%
candidates secured passing marks in this question. Common errors are discussed below:
Question 4(a)
In this part, the candidates were required to list the circumstances under which a person does
not become a partner despite sharing of profits of a business. The performance remained
average. Generally, the answers were partially correct as some of the points were mentioned
but all the points could not be stated.
Question 4(b)
In this part the candidates were required to explain whether interest on partners’ capital would
be allowed in case of loss and whether the decision would be any different in case of amount
contributed by a partner in addition to his capital contribution.
The performance remained above average. Though the students were almost equally divided
with regard to the issue of interest on capital, almost all of them mentioned correctly that
interest on additional contribution would be paid in case of loss also. Most of them quoted the
correct percentage also i.e.6%.
Question 4(c)
This part of the question pertained to the issue of a minor joining as partner on attaining
majority. Three key dates were given in the question i.e. the date on which Noman (the minor)
attained majority i.e. 6 June 2016, the date on which Noman became aware that he admitted to
the benefits of the partnership i.e. 16 July 2016 and the date when the loss occurred i.e. 10
January 2017.
The requirement was to assess whether Noman would be considered as partner in the firm and
his liability as regards the loss.
Page 3 of 8
The overall performance was below average as majority of the candidates did not respond
properly. Majority of the candidates concluded incorrectly that Noman was a partner because
six months have passed after his attainment of majority. In fact, the period of six months is to
be counted from the date of attainment of majority or the date when the minor obtains
knowledge of being admitted to the benefits of the partnership, whichever is later. Some
students could not explain the issue fully and gave partially correct answer; especially the
condition of giving public notice and/or the time frame was not fully discussed. Some students
who otherwise did well were of the opinion that Noman being a minor is not liable without
clarifying that Noman is liable to the extent of his share in the partnership but is not personally
liable.
Question 5
11.87% candidates secured passing marks in this question. Common errors are discussed
below:
Question 5(a)
The overall performance was very poor. Most of those who did have some idea seemed to lack
conceptual understanding and appeared to have resorted to rote learning. As a result, in many
cases they produced meaningless sentences or portrayed incorrect meanings, whenever the
candidates’ memory failed.
Question 5(b)
The overall performance was very poor. Generally the candidates restricted themselves to
explaining that Tameer Associates can claim damages from Kalim Real Estates (KRL) if
Tameer Associates sustains a loss because of KRL’s act. The fact that GB may ratify KRL’s
act and what would be the liabilities of KRL in that situation were rarely discussed. Many of
the students wrongly applied the concept of partnership by holding out.
Question 6
39.13% candidates secured passing marks in this question. Common errors are discussed
below:
This question with a potential 9 marks was divided into two parts. The overall performance
remained average as 39% candidates secured passing marks. Part wise comments are given
below:
Question 6(a)
The requirement of this part was to mention the conditions required to be fulfilled for
registration of the Memorandum of Association and the remedies available to the promoters, if
registration is refused by the registrar.
Generally, the candidates were able to correctly state the requirements of getting the
Memorandum of Association registered. However, while specifying the remedies available to
the promoters if registration is refused, most of the candidates only discussed filing of appeal
but did not say anything about removing of deficiencies. Moreover, many candidates
mentioned about filing of appeal with the court which was incorrect.
Page 4 of 8
Question 6(b)
This part required the candidates to list the conditions which a company was required to satisfy
for dispensing with the requirement of using ‘Limited’ at the end of its name.
The performance remained average. Many candidates were able to secure full marks and many
were totally unprepared and resorted to guesswork.
Question 7
This question with a potential 10 marks was divided into two parts. The overall performance
was good as more than 50% candidates secured passing marks. Common errors are discussed
below:
Question 7(a)
The requirement of this part was to mention the provisions relating to the inspection of register
of mortgages and charges and where such register should be kept and the circumstances in
which a company would be considered as a holding company of another company.
Though the overall performance remained good, many candidates only mentioned about the
right of members to inspect the register and did not include creditors. Moreover, the rights of
any other person to inspect the register was not mentioned by the majority.
While discussing the conditions for becoming the holding company, majority of the candidates
mentioned shares instead of voting powers. In the law paper, use of appropriate words/terms is
very important as use of inappropriate terms results in changing the entire meaning.
Question 7(b)
In this part the candidates were required to mention the provisions of Companies Ordinance,
1984 under which aggrieved members can challenge a resolution varying their rights and have
it revoked.
In this part, most of the candidates made a mistake which clearly indicated that they had
merely memorized the law rather than having real understanding of the law. There were two
conditions which were required to be mentioned but fulfilling any one of them was enough to
have the resolution revoked but the candidates used the word ‘and’ in between the two
conditions instead of ‘or’. Moreover, many candidates suggested filing appeal with the
Commission instead of the court.
Question 8
This question with a potential 10 marks consisted of three parts. The overall performance
remained below average as only 26% of the candidates could secure passing marks. Common
errors are discussed below:
Page 5 of 8
Question 8(a)
According to the scenario given in this part of the question, Moiz was on the Board of
Directors of Disney Land Limited (DL) and his wife and minor son jointly held 15% shares of
Marvels (Private) Limited (MPL). Further, DL wanted Moiz to negotiate a deal with MPL so
as to buy a new production house from MPL. The requirement was to discuss the duties and
responsibilities of Moiz in the given situation.
The performance on this part remained below average. Majority of the candidates failed to
apprehend that Moiz was an interested director and the resulting responsibilities. A lot of the
candidates mentioned that he should prioritize the interests of Disney Land Limited and
remain prudent while negotiating with Marvels (Private) Limited, which was totally incorrect
as Moiz was not allowed to negotiate in the first place. Moreover, some candidates went into a
totally different aspect and concluded that since DSL was not an associated company there
were no responsibilities on Moiz.
Question 8(b)
In this part of the question, the candidates were required to mention the requirements of filing
the financial statements with reports and other documents after Annual General Meeting, by a
private company having paid-up capital of less than PKR 7.5 Million.
The performance in this part was average as very few students were able to give a completely
correct answer. Some of the students discussed the requirement of presentation of financial
statements in the AGM instead of filing with the registrar.
Question 8(c)
The requirement in this part was to describe the conditions required to be met for an unlisted
public company to give loan to its associated undertaking which was a private company.
The performance in this part was below average. Majority of the candidates mentioned
correctly that the company would be required to pass a special resolution but did not state as to
what that resolution would approve. Moreover, the requirement that the return on loan should
not be less than the borrowing cost of the company who was giving the loan was mentioned by
only about 25% of the candidates.
Question 9
This question with a potential 10 marks was divided into four parts. Each part contained a
scenario and the candidates were required to comment thereon. The overall performance was
very poor as only 9% of the candidates secured passing marks. Common errors are discussed
below:
Question 9(a)
In this part the candidates were required to comment on whether Zehra who was the manager
of a chartered accountant firm can sign an audit report. Most of the candidates mentioned
correctly that Zehra cannot sign the audit report but lacked clarity while explaining the reason
thereof. Most of them only stated that she cannot sign because she was an employee. This
lacked clarity as the candidates should have stated that only a partner of the firm can sign the
audit report.
Page 6 of 8
Question 9(b)
In this part of the question, the candidates were required to discuss the rights and duties of the
auditors in relation to the Annual General Meeting of a listed Company. The performance on
this question was below average as many candidates seemed confused between rights and
duties. Majority of the students did not realize that attendance at the annual general meeting is
the duty of the auditor rather than a right. Further, an important right i.e. the right of auditor to
receive any communication relating to Annual General Meeting which any member is entitled
to receive was also not mentioned. Moreover, only few students were able to give complete
answers.
Question 9(c)
According to the scenario in this part of the question, Fareed the director of Tameer Limited
got married to Hira who was a chartered accountant and employed in a firm which was the
auditor of Tameer Limited. This part was poorly attempted as majority of the candidates failed
to conclude that since Hira is only an employee of the audit firm and not partner in the firm,
therefore, this relationship will not affect the appointment of Salman & Co. as auditors of
Tameer Limited.
Question 9(d)
In this part of the question candidates were required to explain whether an audit firm can be
appointed as auditors of a company when one of the partners in the firm had served on the
Board of the Company for many years as a government nominee.
This part was also poorly attempted by majority of the candidates who considered Jafer & Co.
eligible to be appointed as the auditor as according to them being a government nominee was
an exception. In fact, Jafer & Co. was not eligible for appointment as auditor of BL if any of
the partners had been a director of BL during the preceding three years.
Question 10
This question with a potential 11 marks was divided into three independent parts. The overall
performance was average as 34% of the candidates secured passing marks. Common errors are
discussed below:
Question 10(a)
This part of the question consisted of four sub-parts each of which contained a situation
relating to the appointment of proxy on which the candidates were required to comment. The
overall performance remained above average, however, many candidates quoted the relevant
provisions rather than giving opinion on the situation.
Sub-part (i) was satisfactory attempted by the candidates and many of the students correctly
mentioned that the proxy form would be invalid as it was not submitted at least 48 hours
before the meeting. However, many candidates mentioned two days instead of 48 hours which
was not appropriate. Sub-part (ii) was also satisfactorily attempted where the candidates were
able to decipher that both proxy forms would be invalid as member is entitled to appoint one
proxy to attend the meeting and not more. Performance on Sub-part (iii) was average where
Page 7 of 8
candidates correctly comprehended that proxy of Sajid is invalid as Javed is not a member.
However, the point that if Articles of Association permit appointment of non-member as proxy
then proxy would be valid was missed by majority of the candidates. Sub-part (iv) was the
most poorly attempted part of the question where candidates failed to note that the proxy could
have been appointed only by passing resolution of directors and Asaan Limited may authorize
any of its officials or any other person. Most of the candidates mentioned that only another
member can be appointed as proxy which is incorrect.
Question 10(b)
The performance on this part of the question was satisfactory where candidates accurately
determined that the casual vacancy had to be filled by the remaining directors as an unlisted
company is required to have at least three directors. Majority of the candidates were able to
score full marks in this part. However, a number of examinees expressed the view that there is
no need to fill the casual vacancy since the election of directors is due in six month, which was
incorrect. Moreover, many students failed to mention the minimum number of directors
required for unlisted company, whereas many of them mentioned two directors.
Question 10(c)
The performance on this part of the question remained satisfactory and candidates correctly
mentioned that the minute register can be inspected by any shareholder irrespective of the
amount of shareholding without charge and during the business hours such that not less than
two hours each day are allowed for inspection. Many of the candidates, however, missed
mentioning that such inspection would be subject to reasonable restrictions as the Company’s
articles may have imposed or which may have been imposed by the company in the general
meeting.
(THE END)
Page 8 of 8
Business Law

approaches to a question and relevant/well-reasoned comments/explanations. Moreover, the
available marks in answer may exceed the total marks of a question.
Mark(s)
A.1 (a) 01 mark for explaining each right of Riaz Grocery Stores 3.0
(b) Brief discussion on the rights of Riaz Grocery Stores in the revised scenario 2.0
A.2 (a) 01 mark for listing each exception 6.0
(b) 02 marks for discussing each exception 4.0
A.3 (a) Discussion on whether Ghaffar can claim damages on the grounds of fraud
by Sharif 2.0
Conclusion 1.0
(b) (i) Up to 01 mark for listing each essential of a valid acceptance 4.0
(ii) Explanation of the term ‘Right of subrogation’ 3.0
(c) Discussion on the objection raised by guarantor with regard to

appropriation 2.5
Conclusion 0.5
A.4 (a) 0.5 mark for listing each of the circumstances 3.0
(b) State the entitlement of interest on capital 1.5

State the entitlement of interest on amount contributed in addition to
capital 2.5
(c) Analysis of the situation 3.0

Comment on Noman’s status as partner 0.5
Comment on the liability of Noman towards the losses 1.5
A.5 (a) Explaining how High Court exercises supervisory role over the subordinate
courts 2.0
01 mark for explaining each type of prerogative order 3.0
(b) Identifying that Goofy Brothers has option to ratify or disown Kalim Real
Estate (KRL)’s acts 1.0
Explanation of liability of KRL in case of ratification 3.0
Explanation of liability of KRL in case of non-ratification 1.0
A.6 (a) Explaining conditions to be fulfilled for registering the memorandum 2.0
Explaining remedies available to promoters if the registration is refused 3.0
(b) 01 mark for listing each condition 4.0

Page 1 of 2
Business Law
Mark(s)
A.7 (a) (i) Brief discussion on the provisions regarding where register of
mortgages and charges should be kept 0.5
Explanation of the provisions relating to the inspection of register of
mortgages and charges 2.5
(ii) 01 mark for brief explanation of each of the circumstances 2.0
(b) Explanation of the provisions relating to challenging the resolution 2.0

Discussion on the circumstances in which the Court has the power to
cancel the resolution 3.0
A.8 (a) Up to 02 marks for explaining each duty/responsibility of interested directors 4.0
(b) Explanation of the provisions relating to requirements for filing the financial
statements with reports and other documents by a private company 3.0
(c) Up to 02 marks for explaining each condition to be fulfilled for granting the loan 3.0
A.9 (a) Discussion on whether Zehra can sign the audit report 2.0
(b) Discussion on the duties of the auditors of a listed company 2.0

Discussion on the rights of the auditors of a listed company 2.0
(c) Discussion on whether Salman & Co. can act as an auditor in the given situation 2.0
(d) Discussion on whether Jafer & Co. can act as statutory auditor of Brass Limited 2.0
A.10 (a) (i) Comment on the validity of proxy form submitted with the company 1.0
(ii) Comment on depositing the multiple proxy forms for one meeting 1.0
(iii) Comment on the appointment of non-member as proxy 1.5
(iv) Comment on how Asaan Limited can appoint it’s representative 1.5
Stating the right of such representative 1.0
(b) List the minimum number of directors for public unlisted company 1.0
Discuss the provisions relating to casual vacancy 1.0
(c) Explanation of the rights of the shareholder for inspection of register of minutes
of proceedings of general meetings 3.0
(THE END)
Page 2 of 2
Business Law
Q.1 (a) Briefly describe how delegated legislation takes place and also describe how control is
exercised over delegated legislation. (04)
(b) What is the process of legislation in case of a money bill when National Assembly is
in session? (02)
(c) Under the provisions of the Contract Act, 1872 analyse the following situations and
comment on the type and validity of the contracts:
(i) Arif is the sole proprietor and deals in sale of product X. On 1 January 2018,
Arif entered into two months’ contract with Abbas for the promotion and sale
of product X on commission basis. On 4 February 2018, Arif died in a car
accident. Abbas came to know about it on 15 February 2018. However, Abbas
continued selling the product as per the contract. (03)
(ii) Pawan owed Rs. 5 million to Ghafoor but was unable to pay due to liquidity
constraints. However, Pawan owned a property and on 1 November 2017 he
authorised Ghafoor to collect rent of the property until he recovers his dues.
On 1 March 2018 Pawan terminated the authority of Ghafoor to collect rent
although his dues were not fully satisfied. (04)
Q.2 (a) Saleem entered into a contract for the purchase of 5 vehicles from Phony (Pvt.)
Limited (PL) which were to be delivered in the month of February. Saleem also
entered into another contract for onward sale of these vehicles to Jabbar Limited
(JL). However, PL refused to deliver the vehicles as contracted. Saleem had to buy
the vehicles from another supplier at an extra cost of Rs. 2 million for supplying these
to JL. Saleem also had to pay compensation of Rs. 0.6 million to JL due to delay in
supply.
Under the provisions of the Contract Act, 1872 analyse the above situation and
comment whether Saleem is entitled to receive any compensation from PL. (04)
(i) describe co-agent (02)
(ii) briefly describe various types of quasi-contracts. (05)
Q.3 Under the provisions of the Contract Act, 1872 analyse and comment on the following
situations:
(a) Abid has obtained a loan of Rs. 800,000 from Saqib. Loan was given on the surety of
Munib, Hamid and Suleman with maximum limits of Rs. 150,000, Rs. 250,000 and
Rs. 400,000 respectively. Abid repaid Rs. 200,000 and defaulted. Comment and
compute the amount payable by each surety. (03)
(b) Shafiq obtained a loan from Qasim on the surety of Anwar. Qasim also obtained a
charge over Shafiq’s car at the time of disbursement of loan. However, Anwar was
unaware of this security. Qasim gave up the charge over the car and Shafiq defaulted.
Comment on the position of Anwar. (03)
Q.4 (a) Gul, Raza and Sami are partners in GRS Garments. Raza discovered that a supplier
MP offers reasonable rates for consumables stores and put forth a resolution that MP
should be included in the firm’s list of suppliers. MP is owned by Gul and managed
by his brother but Gul did not disclose this fact. When Raza and Sami became aware
of the fact, they asked Gul to share with them the profits earned by MP on
transactions with GRS.
Under the provisions of the Partnership Act, 1932 discuss whether Gul is bound to
share the profits as demanded by Raza and Sami. (2.5)
(b) In 2014, Majid and Ebad started a business of sale and repair of vehicles under the
name of ME Motors (MEM). Majid sold one of the vehicles which came for repair to
Zahid for Rs.10 million. Zahid on finding out that Majid did not have the legal title
of the car sued MEM.
Under the provisions of the Partnership Act, 1932 discuss who would be liable for
damages in the above situation. (2.5)
(c) X has been carrying on textile business for the past few years. He has recently met Y
who is an expert in textile designing. X and Y have agreed that Y would advise X on
various technical issues and use his contacts for the benefit of the business. Y would
be entitled to 35% of the profits of the business. However, Y will not be required to
bring any capital and will not take part in the day to day affairs of the business.
advise whether partnership exists between X and Y. (05)
Q.5 Under the provisions of the Negotiable Instruments Act, 1881 briefly explain:
(a) the term endorsement. (03)

(b) any seven ways in which the maker of a negotiable instrument is discharged from
liability. (07)
Company Law Section
Q.6 (a) Printing (Pvt.) Limited (PL) wants to change its name to Printing and Marketing
(Pvt.) Limited.
Under the provisions of the Companies Act, 2017 describe the steps to be followed by
PL for changing its name and matters to be complied with after the change of name. (05)
(b) Under the provisions of the Companies Act, 2017 explain the term ‘body corporate
or corporation’. (04)
Q.7 (a) On 25 February 2018 Badar Limited (BL), in a move to list its shares on Pakistan
Stock Exchange, received approval from the Commission for the publication of
prospectus.
Under the provisions of the Securities Act, 2015 advise BL with regard to the
publication of the prospectus in the newspaper and its placement on the company’s
website. (06)
(b) Under the provisions of the Companies Act, 2017 describe the circumstances in
which the registrar has the power to make entries of satisfaction and release of charge
in the register of mortgages and charges without intimation from the company. (03)
Q.8 (a) Under the provisions of the Companies Act, 2017 comment on each of the following
independent situations:
(i) Opticians Limited (OL), a listed company, plans to appoint Yameen as an

independent director of OL. Yameen was Head of Operations of Glasses
Limited till December 2016. Glasses Limited is a subsidiary of Opticians
Limited. (02)
(ii) Zafar was recently appointed as a Director of HP Limited, a listed company.

In March 2018 the board of directors came to know that Zafar had been
declared a defaulter by the High Court. (02)
(iii) Kalim is a director of Behaal Limited. On 1 October 2017 Kalim went abroad
on a personal trip and returned back on 15 February 2018. He was unable to
attend five board meetings which were held during this period. (02)
(b) Unique Limited is due to hold its first annual general meeting on 20 April 2018.
Under the provisions of the Companies Act, 2017 advise the directors with regard to
the types of businesses which would be deemed to be special business and also
discuss additional formalities which are required to be complied with in respect of
notice containing special business. (06)
Q.9 Under the provision of the Companies Act, 2017 briefly describe the following:
(a) the requirements of a private limited company for presenting its first financial
statements in the annual general meeting and whether the financial statements are
required to be audited. (05)
(b) the restrictions, if any, with regard to the declaration of final dividend by a company
listed on stock exchange. (05)
Q.10 (a) Under the provisions of the Companies Act, 2017 state the qualification of the
person(s) who may be appointed as external auditor of a company limited by shares. (05)
(b) Dildar & Co. (DC) has recently been appointed as the external auditor of Zee
Limited (ZL). At the time of appointment, Kashif who is the son of a partner of DC,
was employed as Head of HR in Sabir Limited (SL), which is ZL’s subsidiary. Kashif
also owned 5% shares in SL. Within 30 days of DC’s appointment, Kashif left the job
and gifted SL’s shares to his mother.
Under the provisions of the Companies Act, 2017 analyse and comment on the
above situation. (05)
(THE END)
Business Law
Suggested Answers
Ans.1 (a) In delegated legislation power is given to an executive (a minister or public body to
make subordinate or delegated legislation) for specified purpose only. For example,
local authorities are given statutory powers to make bye-laws which apply within a
specific locality.
Control over delegated legislation is exercised in following ways:
(i) Parliament exercises control over delegated legislation by restricting or

defining power to make rules
(ii) Rules made under delegated power to move legislation may be challenged in
the courts on the grounds of being ultra vires.
(b) Legislation in case of a money bill when National assembly is in session:

A money bill shall originate in the National Assembly and after it has been passed
by the Assembly it shall, without being transmitted to the Senate, be presented to
the President for assent.
(c) (i) Termination of agent’s authority:

It’s a contract of agency. The termination of the authority of Abbas as an
agent takes effect when the death of Arif becomes known to Abbas i.e. 15
February 2018. Therefore, Arif’s estate will be liable for any sale made and
commission earned until 15 February 2018. For the sale made after 15
February 2018 Abbas will be personally liable.
(ii) Termination of agency where agent has an interest in subject matter:

It’s a contract of agency. Pawan cannot terminate the authority of Ghafoor to
collect rent as the agency is coupled with interest and is therefore irrevocable.
However, agency coupled with interest can be revoked if the contract of

agency contains an express provision for the revocation of agency.
Ans.2 (a) Compensation for loss or damage caused by breach of contract:

Saleem is entitled to receive from Phony (Pvt.) Limited (PL), compensation for any
loss or damage caused to him which naturally arose in the usual course of things
from such breach i.e. Rs. 2 million. However, such compensation can not be
claimed for any remote and indirect loss or damage sustained by reason of the
breach unless the parties knew about such consequences when they made the
contract. Hence, PL would only be liable to pay the amount of Rs. 0.6 million
claimed by JL if PL knew about this arrangement at the time of entering into the
contract.
(b) (i) Co-agent:

Where an agent, holding an express or implied authority to name another
person to act for the principal in the business of the agency, has named
another person accordingly, such person is not a sub-agent but an agent of the
principal for such part of the business of the agency as is entrusted to him.
(ii) Different types of quasi contract

 Supply of necessaries:
If a person incapable to enter into contract or his dependent is supplied
by another person necessities suited to his conditions in life, the person
supplying such necessities is entitled to be reimbursed the price from the
property of such incompetent person.
Page 1 of 7
Business Law
Suggested Answers
 Payment by interested person:

A person, who is interested in the payment of money which another is
bound by law to pay, and who therefore pays it, is entitled to be
reimbursed by the other.
 Person enjoying benefit of non-gratuitous act/goods:

Where a person lawfully does anything for another person, or delivers
anything to him, not intending to do so gratuitously and such other
person enjoys the benefit thereof, the latter is bound to make
compensation to the former in respect of, or to restore, the thing so
done or delivered.
 Finder of goods:
A person who finds goods belonging to another, and takes them into his
custody, is subject to the same responsibility as a bailee.
 Payment by mistake or under coercion:

A person to whom money has been paid, or anything delivered by
mistake or under coercion, must repay or return it.
Ans.3 (a) Liabilities of co-sureties bound in different sums:

Co-sureties who are bound in different sums are liable to pay equally as far as the
limits of their respective obligations permit. Hence the remaining amount would be
payable as follows:
Munib Rs. 150,000

Hamid Rs. 225,000
Suleman Rs. 225,000
Total Rs. 600,000
(b) Surety’s right to benefit of creditor’s securities

Anwar is entitled to the benefit of every security which Qasim has against Shafiq at
the time when the contract of suretyship is entered into, whether Anwar knows of
the existence of such security or not. However, if Qasim obtained charge over
Shafiq’s car after the contract of suretyship was entered into then giving up the
charge will not discharge/reduce Anwar’s liability.
Ans.4 (a) Personal profits earned by partners

Gul has a duty to give full information to other partners, in relation to everything
affecting the partnership. Subject to contract between the partners, if Gul had
derived any profit for himself from any transactions with the firm then Gul shall
account for that profit and pay it to the firm.
(b) The act of a partner which is done to carry on, in the usual way, business of the
kind carried on by the firm, binds the firm. Further, in case a loss is sustained by a
third party ME Motors (MEM) would be liable even for the wrongful acts of Majid.
Therefore, Zahid can recover the amount from MEM or any of the partners.
However, Majid shall indemnify MEM or Ebad for any loss caused to them by his
fraud in the conduct of the firm’s business.
Page 2 of 7
Business Law
Suggested Answers
(c) Mode of determining existence of partnership:

In determining whether X and Y are partners, regard shall be had to the real
relationship between the partners, as shown by all the relevant facts taken together.
A partnership exists where following conditions are complied with:

(i) There is an agreement between two or more persons;
(ii) They run a business with the intention of sharing profits; and
(iii) The business is run by all, or by any one of them acting for all.
The Partnership Act, does not require that a partner must contribute money or
capital in the partnership.
Therefore, since both X and Y have a common interest in the same business in
which they are sharing profit and have a mutual agency relationship between them,
partnership does exist in the above situation unless it can be proved that the real
relationship of being partners does not exist.
Ans.5 (a) Endorsement

When the maker or holder of a negotiable instrument signs the same, otherwise
than as such maker, for the purpose of negotiation, on the back or face thereof or on
a slip of paper annexed thereto, or so signs for the same purpose a stamped paper
intended to be completed as a negotiable instrument such act is called endorsement.
(b) Discharge of a negotiable instrument

The maker of a negotiable instrument can be discharged from liability in the
following ways:
(i) Payment:
If payment has been made in due course.
(ii) Negotiation in favour of the maker:

If the maker is liable as a principal debtor and then becomes the holder
thereof at or after its maturity.
(iii) Cancellation:
When the holder of a negotiable instrument or his agent cancels the name of
maker on the instrument with the intent to discharge him.
(iv) Release:
Where the holder of a negotiable instrument releases maker to the instrument
by any method other than cancellation, the party so released is discharged
from the liability.
(v) Qualified Acceptance:

If the holder of a bill agrees to a qualified acceptance all prior parties
including the maker whose consent is not obtained to such an acceptance is
discharged from liability.
(vi) Non-presentment of cheques:

Where a cheque is not presented by the holder for payment within a
reasonable time of its issue and the drawer/maker suffers damage because of
the failure (collapse or out of fund) of the bank, maker is discharged from the
liability to the extent of such damage.
Page 3 of 7
Business Law
Suggested Answers
(vii) Allowing drawee more than 48 hours:

If the holder of a bill of exchange allows the drawee more than 48 hours
exclusive of public holidays, for the purpose of acceptance then maker not
consenting to such allowance is discharged from liability to such holder.
(viii) Operation of law

This includes discharge;
 By an order of insolvency court,
 By merger,
 By lapse of time
(ix) Material alteration:

A material alteration of a negotiable instrument renders the same void for the
maker if his consent was not obtained unless it was made in order to carry out
the common intention of original parties.
(x) Non-presentment for acceptance of a bill:

When a bill of exchange is payable certain period after sight, and if the holder
defaults in making presentment for its acceptance to the drawee within a
reasonable time after it is drawn, the maker who was liable towards such a
holder is discharged from his liability towards such holder.
Ans.6 (a) Change of name by a company

The steps required for change of names are as follows:
(i) Pass special resolution and obtain written permission of the registrar for new
name
(ii) Obtain certificate of incorporation bearing the new name
After the change of its name PL shall for a period of ninety days from the date of
issue of a certificate by the registrar continue to mention its former name along with
its new name on the outside of every office or place in which its business is carried
on and in every document or notice.
(b) Body corporate or corporation includes:

(i) a company incorporated under Companies Act, 2017 or company law; or
(ii) a company incorporated outside Pakistan; or
(iii) a statutory body declared as body corporate in the relevant statue, but does
not include;
 a cooperative society registered under any law relating to cooperative
societies.
 any other entity, not being a company as defined in this Act or any other
law for the time being in force, which the concerned Minister-in-Charge of
the Federal Government may, by notification, specify in this behalf.
Page 4 of 7
Business Law
Suggested Answers
Ans.7 (a) Publication of prospectus:

BL’s prospectus, approved by the Commission, shall be published within
60 days from the date of Commission’s approval (25 February 2018) i.e., 26 April
2018 unless the period of 60 days has been extended by the Commission by reasons
to be recorded in writing.
BL Limited shall publish the prospectus in full text or in such abridged form as may
be prescribed, at least in one Urdu and one English daily newspaper.
The prospectus shall be published in the newspaper not less than seven days or not
The prospectus shall be uploaded on the website of the issuer and shall remain there
from the date of its publication in the newspapers till the closing of the subscription.
(b) Power of registrar to make entries of satisfaction and release in absence of

intimation from company:
The registrar can enter in the register of mortgages and charges a memorandum of
satisfaction or release of charge without receiving any intimation from the
Company, on evidence being given to his satisfaction with respect to any registered
charge, that:
(i) debt for which the charge was given has been paid or satisfied in whole or in
part, or
(ii) part of the property or undertaking charged has been released from the charge
or has ceased to form part of the company's property or undertaking;
Ans.8 (a) (i) Yameen will not be considered as independent director as he was an
employee in subsidiary Glasses Limited up till December 2016 which is
within the last three years.
(ii) Zafar will become ineligible from being a director only if he had defaulted in
repayment of a loan to financial institution. If he has been declared a
defaulter for any other reason, he would still be eligible for appointment as
director.
(iii) Kalim shall ipso facto cease to hold office if he was absent for at least three
consecutive board meetings unless he has obtained leave of absence.
(b) Special Business:

In case of an annual general meeting, all businesses to be transacted shall be
deemed special other than:
(i) the consideration of financial statements and the reports of the board and
auditors;
(ii) the declaration of any dividend;
(iii) the election and appointment of directors in place of those retiring; and
(iv) the appointment of the auditors and fixation of their remuneration.
Where any special business is to be transacted at a general meeting, there shall be

annexed to the notice of the meeting a statement setting out all material facts
concerning such business, including, in particular, the nature and extent of the
interest, if any, therein of every director, whether directly or indirectly. Where any
item of business consists of according of an approval to any document by the
meeting, the statement shall specify the time and the place for the inspection of such
document.
Page 5 of 7
Business Law
Suggested Answers
Ans.9 (a) Financial statements:

The first financial statements of a private limited company must be laid before the
general meeting not later than sixteen months after the date of incorporation of the
company.
In addition to above, the financial statements must be laid within a period of one
hundred and twenty days following the close of the financial year. However, for any
special reason, the registrar may extend the period for a term not exceeding thirty
days.
The first financial statements of a private limited company shall be audited by its
auditor and auditor’s report shall be attached thereto. However if the paid up
capital of the private company does not exceed one million the audit is not
mandatory.
(b) Restrictions imposed with regard to the declaration of dividend:

Dividend shall be declared by a company only out of profits of the company.
Dividend declared shall not exceed the amount recommended by the board of
directors.
No dividend shall be declared by a company for any financial year out of the profits
of the company made from the sale or disposal of any immovable property or assets
of a capital nature or any of the undertaking of the company unless the business of
the company consists, whether wholly or partly, of selling and purchasing any such
property or assets, and except after such profits are set off or adjusted against losses
arising from the sale of any immovable property or assets of a capital nature.
No dividend shall be declared out of unrealized gain on investment property

credited to profit and loss account.
Ans.10 (a) Qualification of auditors:

In the case of public company or a A person who is a chartered accountant
private company which is subsidiary of a having valid certificate of practice from
public company or a private company the Institute of Chartered Accountants
having paid up capital of three million of Pakistan or a firm of chartered
rupees or more accountants;
In the case of a company other than A person who is a chartered accountant
those mentioned above or cost and management accountant
having valid certificate of practice from
the respective institute or a firm of
chartered accountants or cost and
management accountants, meeting such
criteria as may be specified;
(b) Under the provisions of Companies Act, 2017, none of the following persons shall
be appointed as the auditor of a company:
(i) A person who is, or at any time during the preceding three years was, a
director, other officer or employee of the company.
(ii) A person or his spouse or minor children who holds any shares of an audit
client or any of its associated companies.
Page 6 of 7
Business Law
Suggested Answers
In view of the above provisions, appointment of DC is valid as:

 Kashif is not a minor child; and
 There is no bar on his association with SL as head of HR.
However, Kashif’s subsequent disposal of shares to his mother would disqualify DC

as the auditor and DC would be deemed to have vacated the office as auditor with
effect from the date on which it becomes so disqualified.
(THE END)
Page 7 of 7
SUBJECT SESSION
– Spring 2018
General:
The overall performance in this paper was almost the same as in the previous attempt as
passing percentage remained low at 18%. Following the previous trend, the performance
in Company Law section was much better than Mercantile Law section. One of the prime
reasons for low performance seems to be selective studies and inability to implement
theoretical knowledge to scenario based questions. Candidates can overcome these
weaknesses by concentrating on syllabus coverage and practicing the previous attempts’
questions and seeking guidance thereon from ICAP’s suggested answers.
Question-wise comments:
Question 1
This question was divided into three parts whereas part (c) was further sub-divided into
two parts. The overall performance was quite poor as only 13% candidates secured
passing marks. Part-wise comments are given below:
Question 1(a)
This part required the candidates to describe how delegated legislation takes place and
how control is exercised over delegated legislation. The performance in this part was
average as majority of the candidates correctly identified that in delegated legislation,
power is given to an executive for specified purpose but very few could explain how
control is exercised over such legislation. Some students mentioned the advantages and
disadvantages of delegated legislation which was totally irrelevant.
Question 1(b)
This part required the candidates to define the process of legislation in case of money bill
when National Assembly is in session. This was one of the most well attempted parts of
the entire question paper where candidates were successfully able to convey that a money
bill after being passed by the National Assembly is presented to the President for assent,
without being transmitted to the Senate. However, some students incorrectly mentioned
that the approval of Senate was also required.
Page 1 of 8
Question 1(c)
This part consisted of two sub-parts. Each part contained a scenario and the candidates
were required to comment on the type and validity of the given contract.
Question 1(c)(i)
This sub-part tested the concept of termination of agent’s authority. According to the
given scenario, an agent continued to sell a product even after the death of the principal.
Apparently it was an easy question, however, most of the students failed to elaborate the
simple principle that termination of authority of the agent takes effect when the death of
the principal becomes known to the agent and the impact thereof on the principal’s estate
and the agent.
Some of the students stated that the contract would continue irrespective of death till the
end of the contract period which was totally incorrect.
Question 1(c)(ii)
This sub-part tested the concept of termination of agency where an agent had an interest
in the subject matter. The performance in this part of the question was poor as less than
5% of the candidates correctly identified that the Pawan (the principal) did not have the
authority to terminate the authority of Ghafoor (the agent) to collect rent as the agency
was coupled with interest and was therefore irrevocable and could only be revoked if the
contract of agency contained an express provision for the revocation of agency.
Question 2
This question consisted of two parts and part (b) was further sub-divided into two sub-
parts. The overall performance was quite poor as only 13% candidates secured passing
marks. Part-wise comments are given below:
Question 2(a)
In this part the candidates were required to analyze the given scenario and determine
whether a party would be liable for compensation for loss / damage caused by a breach of
contract. The performance remained poor as most of the students were unable to
distinguish between loss / damage which arose in the usual course of things and any
remote and indirect loss / damage sustained because of the breach. Consequently, they
claimed incorrectly that the entire amount i.e. Rs. 2.6 million was payable as
compensation. Moreover, even among those who did understood the difference, very few
could explain that compensation for indirect loss can also be claimed if the parties knew
about such consequences when they made the contract.
Question 2(b)(i)
This part required the candidates to define co-agent. The performance was below
average. Most students only mentioned that the co-agent is appointed by the agent but
failed to mention the critical point that such appointment is based on express or implied
authority granted to the agent by the principal, for such purpose. Many students were of
the view that two or more agents appointed by the principle for the same purpose and
working together are co-agents, which was totally incorrect.
Page 2 of 8
Question 2(b)(ii)
In this part the candidates were required to list down the 5 different types of quasi-
contracts. Most of the students answered it satisfactorily.
Question 3
This question consisted of two parts. Each part contained a scenario and the candidates
were required to comment on it in the light of Contract Act, 1872. The overall
performance was poor as only 21% candidates secured passing marks. Part-wise
comments are given below:
Question 3(a)
The requirement was to compute the amount payable by each of the three co-sureties who
have agreed to pay a certain maximum amount. The key point was that though the
maximum amount guaranteed by each surety was different, all of them were bound to pay
equally as far as the limits of their respective obligations permit. The performance on this
part of the question was below average as only some of the students correctly determined
the respective obligations of each surety whereas the remaining students tried different
variations mostly attempting to compute the amount payable by each surety according to
ratio of the amounts guaranteed by them.
Question 3(b)
According to the scenario in this part of the question the creditor had obtained a charge
over the principal debtor’s car at the time of disbursement of the loan but the surety did
not know about it. Later, the creditor gave up the security without informing the surety
and the principal debtor defaulted.
The performance in this part was very poor as most of the candidates were not able to
conclude that the surety would be entitled to the benefit of every security which the
creditor had against the principal debtor when the contract of suretyship is entered into,
whether the surety knows about the existence of such security or not. Moreover, hardly
any one discussed an important issue i.e. whether the creditor had obtained charge over
the car after the contract of suretyship was entered into or before that. Accordingly, they
concluded that since it was not in the knowledge of the surety, therefore release of such
security does not affect the surety’s obligation which was incorrect unless the contract of
suretyship was entered into after the disbursement of the loan.
Question 4
This question based on Partnership Act, 1932 consisted of three parts. The overall
performance was below average as only 33% of the candidates secured passing marks.
Part-wise comments are given below:
Question 4(a)
This part required the candidates to determine whether a partner has to share profits with
other partners if he derives any profits from transactions with the firm. Though the
situation was quite simple yet only about 50% of students were able to give correct
answers.
Page 3 of 8
Question 4(b)
This part tested the liability of partners / firm in case of wrongful act done by one of the
partners. The performance remained average. Though most of the students concluded
correctly that the other partners as well as the firm would become liable but many of
them failed to provide proper justification. Further, only few students were able to clarify
that the erring partner would be liable to indemnify the firm and the other partner for any
loss caused to them by his fraud.
Question 4(c)
This part required the students to analyze and determine whether the relationship between
two persons as in the given scenario represented a partnership or not. The performance
was below average as generally the students were unable to justify the conclusion they
reached. Some students stated that it was an agency contract which was totally incorrect.
Question 5
This question consisted of 2 parts. The overall performance was average as 37% of the
candidates secured passing marks. Part-wise comments are given below:
Question 5(a)
This part required the students to explain the term endorsement. A mixed performance
was witnessed in this part of the question. While a number of candidates gave a
comprehensive definition yet most of the students could only mention that endorsement
means signing of the negotiable instrument without explaining the purpose thereof.
Question 5(b)
This part required the candidates to mention any 7 ways in which the maker of a
negotiable instrument is discharged from liability. The overall performance remained
average. It appeared from the responses that students had tried to memorize only the
prominent wordings or headings without actually understanding the gist of the matter.
Some of the students did not understand the question correctly and discussed the ways in
which a contract is discharged.
Question 6
This question consisted of 2 parts. The overall performance was good as 59% of the
candidates secured passing marks and about 8% secured full marks. Part-wise comments
are given below:
Question 6(a)
In this part the candidates were required to mention the steps to be followed for changing
the name of a company and matters to be complied with after the change of name. The
performance in this part was good. However, the following issues were observed in most
of the answer scripts:
 After the change of name, registrar issues the new certificate of incorporation, instead
it was mentioned that he will issue certificate of change of name.
Page 4 of 8
 It was stated that the old name of the company is required to be mentioned along with
the new name but where and for how long it has to be done was not mentioned. Some
of the students mentioned it as 1 year which was the requirement as per Companies
Ordinance, 1984.
 It was wrongly mentioned that Company has to publish new name and old names in
an Urdu and English newspaper.
Question 6(b)
This part required explanation of the term ‘body corporate or corporation’. Performance
in this part was average. Majority of the students were rightly able to highlight that body
corporate includes a company incorporated under Companies Act 2017 and a company
incorporated outside Pakistan but they were not at all clear about the remaining part of
the definition.
Question 7
This question consisted of 2 parts. The overall performance was satisfactory as 42% of
the candidates secured passing marks. Part-wise comments are given below:
Question 7(a)
This part required the candidates to advise a company under the Securities Act, 2015
regarding publication of prospectus in the newspaper and its placement on the company’s
website.
The candidates responded in an average manner as most of them scored around passing
marks but very few could score full marks. It was observed that most of them reproduced
the law whereas in scenario based questions they were expected to advise on the basis of
the given scenario. Most of the students struggled in explaining the time frame for
publication of prospectus in a comprehensive manner.
Question 7(b)
This part required the candidates to describe the circumstances in which the registrar has
the power to make entries of satisfaction and release of charge in the register of
mortgages and charges without intimation from the company.
Average performance was witnessed in this part. About 50% of the students were able to
give correct answers but the remaining 50% were confused and mentioned the procedure
for release of charge on intimation by the company, which was totally irrelevant.
Moreover, many students used guesswork and only stated that the registrar may release
the charge after communicating with the company’s creditors or lenders on his own
initiative.
Page 5 of 8
Question 8
This question consisted of two parts and part (a) was further sub-divided into three sub-
parts. The overall performance was poor as only 21% candidates secured passing marks.
Part-wise comments are given below:
Question 8(a)
Each sub-part of this part of the question consisted of a scenario and the candidates were
required to comment on them in the light of Companies Act 2017. The performance in
each sub-part is discussed below:
Question 8(a)(i)
It was an easy questioned and attempted well. Majority of the students were able to
correctly explain why Yameen was ineligible to be appointed as an independent director.
However, many students failed to mention the correct time period which should elapse
before an employee could be treated as independent director as they mentioned 2 years
instead of 3 years. Further, some of the students held the incorrect view that since
Yameen was employed in the subsidiary, the restriction of time limit did not apply on
him.
Question 8(a)(ii)
This situation proved too difficult as hardly few students knew that default in making
repayment of loan disqualifies a person from being a director. Being declared a defaulter
for any other reason does not result in such disqualification.
Question 8(a)(iii)
Generally the candidates were able to explain that a director ceases to hold office if he
fails to attend three consecutive board meetings. However, a number of candidates failed
to mention the exception where he obtains leave of absence from the board of directors.
Question 8(b)
This was a straight-forward question requiring the candidates to mention the types of
businesses that can be carried out in an Annual General Meeting of a company. It further
required the candidates to discuss additional formalities which are required to be
complied with in respect of notice containing special business.
The performance in this part was average as generally the students were able to identify
types of businesses which are termed as ordinary business. However, most of them could
not state the additional formalities which are required to be complied with in respect of
notice containing special business.
Page 6 of 8
Question 9
This question consisted of 2 parts. The overall performance was poor as only 24% of the
candidates were able to secure passing marks. Part-wise comments are given below:
Question 9(a)
This part required the candidates to briefly describe the requirements applicable on
private limited companies regarding presentation of its financial statements in the first
annual general meeting.
Most of the students failed to answer this question correctly due to lack of knowledge
regarding placement of financial statements in the annual general meeting. Many students
were also not aware of the fact that audit is not mandatory where the paid up capital of
the company does not exceed Rupees one million, whereas some students mentioned
Rupees three million instead of Rupees one million.
Question 9(b)
This part required the candidates to describe the restrictions with regards to declaration of
final dividend by a company listed on stock exchange. Majority of the students attempted
it in an average manner was they produced incomplete/partly correct answers.
Question 10
This question consisted of 2 parts. The overall performance was quite poor as only 16%
of the candidates were able to secure passing marks. Part-wise comments are given
below:
Question 10(a)
In this part the candidates were required to specify the qualification of the person(s) who
may be appointed as external auditor of a company limited by shares. Though it was an
easy question, most of the answers were either incomplete or contained errors such as the
following:
 Only public and private companies were covered, nothing was stated with regard to
private companies which are subsidiaries of public companies or whose share capital
exceeds Rs. 3 million.
 Share capital exceeding Rs. 1 million was mentioned instead of Rs. 3 million.
 Requirement to hold certificate of practice was missed.
 Some of the students could not understand the question and instead of qualification of
auditors, they discussed the disqualification of auditors.
Question 10(b)
This part required the students to analyze the given situation and comment on the
eligibility of a chartered accountant firm to act as external auditors of a company at two
given points of time i.e. at the time of appointment when one of the partners’ son (Kashif)
was employed in the subsidiary of the company and also held shares thereof and one
month after the appointment when Kashif resigned but gifted the shares in the subsidiary
to his mother i.e. the wife of the partner.
Page 7 of 8
The overall performance remained poor as the following mistakes / issues were
commonly observed:
 Most of the candidates stated incorrectly that the appointment was invalid as they
failed to notice that Kashif was not a minor child and the invalidity arises if the shares
are held by minor child. Moreover there is no bar on his association as head of HR.
 Some candidates concluded that the appointment will remain valid irrespective of
transfer of shareholding whereas Kashif’s subsequent gift of shares to his mother
would actually disqualify the firm.
 Some of the students concluded that 5% shareholding is insignificant and would have
no effect on the appointment of firm or auditors.
THE END
Page 8 of 8
Business Law

The marking scheme is given as a guide. Markers also award marks for alternative approaches to
a question and relevant/well-reasoned comments/explanations. Moreover, the available marks in
answer may exceed the total marks of a question.
Mark(s)
A.1 (a) Description of how delegated legislation takes place 2.0
Description of how control is exercised over delegated legislation 2.0
(b) Description of process of approval of money bill when National Assembly is in

session 2.0
(c) (i) Identification of contract of agency 0.5

Identifying the effective date of termination of contract of agency 1.0
Comment on the liabilities for any sale made before and after
termination of agency 1.5
(ii) Identification of contract of agency 0.5

Identification that agency is coupled with interest and cannot be
revoked 2.0
Description of the circumstances when agency coupled with interest
can be revoked 1.5
A.2 (a) Comment on ordinary damages which are payable under the situation 1.5
Describing special damages and the circumstances in which these become
payable 2.5
(b) (i) Describing ‘Co-agent’ 2.0
(ii) 01 mark for describing each type of quasi contract 5.0
A.3 (a) Brief comment on the rule applicable in the situation 1.5
Computation of amount payable by each surety 1.5
(b) Comment on the surety’s right to the security 3.0
A.4 (a) Discussion on whether Gul is bound to share the profit 1.5
Conclusion with reasoning 1.0
(b) Discussion on who would be liable for damages 2.5
(c) Analysis of the situation 3.5

Conclusion whether partnership exists between X and Y 1.5
A.5 (a) Explanation of the term ‘endorsement’ 3.0
(b) 01 mark for explaining each way in which maker of negotiable instrument is
discharged 7.0
Page 1 of 2
Business Law
Mark(s)
A.6 (a) Description of the steps required for changing the name 2.0
Description of the matters to be complied with after the change of name 3.0
(b) Explanation of the term ‘body corporate’ 4.0
A.7 (a) Advice on:

the period within which prospectus is to be published 2.0
the provisions for publication of prospectus in the newspaper 3.0
the provisions for uploading of prospectus on the website 1.0
(b) Description of circumstances in which registrar has the power to make entries of
satisfaction and release of charge without receiving intimation from the
company 3.0
A.8 (a) (i) Discussion on the relevant provision of the Companies Act, 2017 and the
conclusion on the basis thereof 2.0
(ii) Discussion on the relevant provision of the Companies Act, 2017 and the
(iii) Discussion on the relevant provision of the Companies Act, 2017 and the
(b) Advice on the types of businesses which would be deemed to be special

business 2.5
Discussion on additional formalities to be complied with in respect of
notices containing special business 3.5
A.9 (a) Description of the requirements for a private limited company regarding
presentation of its first financial statements in the annual general meeting 3.0
Description of the requirements of audit of financial statements for a
private limited company 2.0
(b) Discussing restrictions with regard to declaration of dividend by a company

listed on stock exchange 5.0
A.10 (a) Identification of persons who may be appointed as external auditor of:
a public company / a private company which is subsidiary of a public
company / a private limited company having paid up capital of
Rs. 3 million or more 2.5
a company other than those mentioned above 2.5
(b) Analysis of the situation in the light of relevant provisions of

Companies Act, 2017 2.0
Comment on the:
− validity of DC’s appointment as external auditor 1.0
− impact of Kashif’s transfer of shares to his mother 2.0
(THE END)
Page 2 of 2
Business Law
Q.1 Specify Pakistan’s system of government and identify Senate’s role in the legislation
process. (05)
Q.2 (a) Mughal and Dawood are trading in rice. Dawood entered into a contract with
Mughal for the purchase of 50 tons of rice. Dawood had private information of
change in prices which would have affected Mughal’s willingness to enter into the
contract. When Mughal, through his own resources, came to know about the prices,
he accused Dawood of fraud and repudiated the contract.
Under the provisions of the Contract Act, 1872 explain whether Mughal is justified in
repudiating the contract. (04)

(i) List any five circumstances in which the parties to the contract are not absolved
from the performance of their contractual obligations on the ground of
supervening impossibility. (05)
(ii) Briefly describe the conditions in which a pledge made by a mercantile agent is
considered to be a valid pledge. (03)
(c) Zubair agrees to construct a bungalow for Ubaid for Rs. 20 million on the condition
that payment will only be made after Muneer, an architect, certifies that the bungalow
has been constructed in accordance with the layout plan.
Under the provisions of the Contract Act, 1872 describe the nature and validity of the
above contract. (02)
Q.3 (a) In view of the provisions of the Negotiable Instruments Act, 1881 comment on the
type and validity of each of the following instruments signed by Rahul:
(i) Nauman please pay to Mahreen Rs. 100,000.
(ii) Nauman, I shall be highly obliged if you make it convenient to pay Rs. 100,000
to Mahreen.
(iii) I acknowledge myself to be indebted to Nauman in Rs. 100,000 to be paid on
demand, for value received.
(iv) I promise to pay Mahreen or order Rs. 100,000 six days after Nauman’s death. (04)
(b) Under the provisions of the Negotiable Instruments Act, 1881 discuss the effect(s) of
the words ‘Not negotiable’ on a cheque crossed specially. (03)
(c) Under the provisions of the Negotiable Instruments Act, 1881 calculate the maturity
of the instrument in each of the following cases:
(i) A bill of exchange dated 30 January 2018 is made payable at one month after
date.
(ii) A promissory note dated 6 August 2018 is made payable 15 days after date.
(iii) A bill of exchange dated 30 August 2018 is made payable three months after
date. Assume the date on which the instrument is at maturity is Sunday. (03)
Q.4 (a) Mujeeb obtained a generator on lease for a period of six years from Munaf at an
annual rent of Rs. 120,000. Fareed executed a contract of guarantee in favour of
Munaf guaranteeing due payment of rent by Mujeeb. In the third year, Mujeeb
defaulted in payment. Munaf sued Fareed and got a decree. Fareed, thereafter, gave a
notice to Munaf revoking his guarantee for the remaining period of lease.
Under the provisions of the Contract Act, 1872 identify the nature of Fareed’s
guarantee and explain whether Fareed would be discharged under the above
circumstances. (04)
(b) On 3 September 2018 Saleem offered, by a letter, to sell his laptop to Ghazi for
Rs. 50,000. Ghazi received the letter on 5 September 2018.
On 6 September 2018 Ghazi posted the letter of acceptance to Saleem. The letter
reached Saleem on 8 September 2018.
Saleem wrote a letter of revocation of his offer and posted it to Ghazi on

5 September 2018. The letter reached Ghazi on 7 September 2018.
Required:
(i) When the communication of the offer and acceptance and the revocation of the
offer was completed as against Saleem and Ghazi under the above
circumstances. (2.5)
(ii) Whether a binding contract was created between Saleem and Ghazi. (2.5)
(c) On 1 July 2018 Basit agreed to buy 500 grams of silver from Taimure after two
months at a price of Rs. 65 per gram. On the due date the price of silver was
Rs. 62 per gram.
Under the provisions of the Contract Act, 1872 discuss the validity of the above
contract if both Basit and Taimure had an intention to settle the transaction by paying
the difference between the contract price and the market price without making any
delivery. (02)
Q.5 (a) Taqi, Saqib and Abrar are partners in a trading firm. By an agreement among
themselves they decided that no partner shall have the authority to buy or sell goods
beyond the limit of Rs. 20,000 without the consent of other partners. Ignorant of this
restriction, Wajid sold goods worth Rs. 45,000 to Saqib who did not consult with the
other partners.
In view of the provisions of the Partnership Act, 1932 explain whether the firm and
its partners are liable to Wajid under the above circumstances. (04)
(b) Bader and Yaseen established a distribution agency for supplying low cost medicines
to hospitals. Yaseen, by way of a verbal agreement, allowed the agency to use his
ancestral land for the business of the agency. Bader purchased a delivery van in his
own name with partnership money. Bader wants to repay the amount to the
partnership and therefore a receivable has been recorded in the partnership books.
Under the provisions of the Partnership Act, 1932 describe whether the above assets
would be considered to be the partnership property. (04)
(c) The sharing of profit is a prima facie evidence of partnership. Under the provisions of
the Partnership Act, 1932 list any four circumstances in which a non-partner could
benefit from the profits of a partnership. (02)
Company Law Section
Q.6 (a) Under the provisions of the Companies Act, 2017 briefly describe the term ‘Special
resolution’. (04)
(b) Saga Limited (SL), a listed company, has two classes of ordinary shares i.e. Class A
and Class B. In order to attract foreign investors, the directors intend to issue a new
class of ordinary shares i.e. Class C, with no voting rights. Currently SL’s
memorandum and articles of association do not contain such class of shares.
Under the provisions of the Companies Act, 2017 briefly describe the steps which the
directors should take prior to issuance of Class C shares. (Procedure for issuance of
shares is not required) (06)
Q.7 (a) Under the provisions of the Companies Act, 2017 briefly describe the provisions
relating to granting of loan by a company for the purchase of its own shares. (05)
(b) The Directors of Solar Limited (SL), want to arrange finances for their factory
expansion project and have decided to issue 1,000,000 ordinary shares to general
public. The directors want the public subscription to commence not later than
7 October 2018. Mobeen, who is the company secretary, has proposed the following
schedule for the purpose:
(i) On 12 September 2018, a copy of the prospectus shall be submitted to the

Registrar Joint Stock Companies for approval.
(ii) For ease of access, the copies of the prospectus shall be available for members’
inspection at SL’s main showroom. The prospectus shall remain open for
inspection from 28 September 2018 till 4 October 2018 at a fee of Rs. 50.
(iii) The prospectus would be published in a popular fortnightly Urdu magazine on
30 September 2018.
(iv) Public subscription would commence on 5 October 2018.
Suggest appropriate revision in the above proposal to bring it in line with the
provisions of the Securities Act, 2015. (05)
Q.8 (a) The director of a company shall not take any part in the discussion of, or vote on, any
contract or arrangement entered into, or to be entered into, by or on behalf of the
company, if he is in any way, whether directly or indirectly, concerned or interested
in such contract or arrangement.
Under the provisions of the Companies Act, 2017 briefly describe the exceptions to
the above rule, if any. (03)
(b) On 8 September 2018, the directors of Ashanti Limited (AL), a listed company,
declared an interim dividend of Rs. 5 per share and announced book closure from
28 September 2018 to 3 October 2018, both days inclusive.
Under the provisions of the Companies Act, 2017 briefly describe when AL should
pay the above dividend. Also state any four circumstances in which AL may not be
considered to have committed an offence for non-payment of dividend. (07)
Q.9 (a) Joint Limited (JL) was incorporated as a public company on 1 February 2018 and
was authorized by the registrar to commence business from 1 April 2018. The board
of directors is divided on the issue of holding first general meeting of its members.
Two directors are of the view that the meeting should be held on 30 September 2018
whereas majority of the directors want to hold it on 30 October 2018.
In the light of the provisions of the Companies Act, 2017:

(i) Explain whether you agree with the proposal of the majority of the directors or
the other two directors. (03)
(ii) What would be your opinion in (i) above if the directors want to hold first
annual general meeting on 25 September 2018? (01)
(b) Baalbek Limited is an unlisted public company and has eight directors. Its paid-up
capital is Rs. 50,000,000 divided into ordinary shares of Rs. 500 each. The directors
have decided to remove Aga Kirmani from the board due to his dismal performance.
Aga Kirmani was elected unopposed on the board.
In the light of the provisions of the Companies Act, 2017 briefly describe how
Aga Kirmani can be removed from the board. (02)
(c) Faraya Limited (FL), an unlisted public company, is engaged in the business of
manufacturing and sale of plastic bottles in Lahore. FL is planning to appoint Gul
Maher as the chief executive officer (CEO) of the company. During an interview with
Gul Maher, he disclosed to the board that his wife Mona is running a corporate
brokerage house in Lahore and that his son Sultan, who is a business graduate, is
engaged in the business of selling plastic bottles in Multan. Gul Maher also disclosed
to the board that he sometimes provides technical assistance to Sultan without any
charge.
Under the provisions of the Companies Act, 2017 explain whether FL can appoint
Gul Maher as the CEO of the company. (04)
Q.10 Under the provisions of the Companies Act, 2017 analyse and comment on each of the
following independent situations:
(a) On 1 January 2017 Rahat and Company, Chartered Accountants (RC) appointed
Rao Bashir as a Director in assurance department, with a commitment to promote
him as a partner in due course. RC is the auditor of Clove Limited (CL). Prior to
joining RC, Rao Bashir was a director in CL. He left his job in 2016 but still holds
500,000 shares in CL. (03)
(b) Tarkwa (Pvt) Limited (TPL) has a paid-up capital of Rs. 2,800,000. It was a 90%
owned subsidiary of Niger Limited (NL). However, NL recently disposed of 70% of
its holding in TPL to a partnership firm, Abad Associates (AA). All the partners in
AA are also the directors in NL. TPL is now planning to appoint Mugabe, who is a
member of the Institute of Cost and Management Accountants of Pakistan, as its
auditor. Mugabe’s brother is also a partner in AA. (04)
(c) Dushanbe Limited (DL) intends to appoint Sonu and Company, Chartered
Accountants, as its auditor. DL has a paid up capital of Rs. 850 million which
includes ordinary share capital of Rs. 180 million.
Anjum, the wife of a partner in Sonu and Company, is a director in Jabal Limited
(JL). JL holds 30 million non-voting preference shares and 3 million ordinary shares
in DL. The par value of both the preference and ordinary shares is Rs. 10 each. (03)
(THE END)
Business Law
Suggested Answers
Note:
The suggested answers are provided for the guidance of the students. However, there are alternative solution(s)
to the questions which are also considered by the Examination Department while marking the answer scripts.
Ans.1 System of government:

Pakistan has a Federal Parliamentary System of government, with the President as the Head of
State and Prime Minister as Head of Government. The Federal Legislature is a bicameral Majlis-
e-Shoora(Parliament), composed of the President, National Assembly(Lower House) and Senate
(Upper House).
Role of Senate:
The role of the Senate is to approve all statutes passed by the National Assembly with the
exception of money bills.
Ans.2 (a) Fraud:

No, Mughal is not justified in repudiating the contract. Dawood is not bound to disclose the
information to Mughal as the relationship existing between them is not that of ‘utmost good
faith’ (i.e. fiduciary relationship). Mere silence as to facts likely to affect the willingness of a
person to enter into a contract is not fraud, unless there is a duty to disclose such fact or
where silence is equivalent to speech.
(b) (i) Supervening impossibility:

Following are the circumstances under which the parties to the contract are not
absolved from the performance of their contractual obligations on the ground of
supervening impossibility:
 Difficulty of performance due to some uncontemplated events or delays.

 Commercial impossibility like non-realisation of higher profits, increase in prices
of raw material or other inputs due to any reason, or a sudden depreciation of
currency.
 Default by a third person on whose work the promisor relied.
 Strikes, lock-outs and civil disturbances unless the parties have specifically agreed
in this regard at the time of the contract.
 Failure of one of the objects in a contract with several objects.
 Self-induced impossibility.
(ii) Pledge by a mercantile agent (non-owners):

Under the following conditions a valid pledge may be created by the mercantile agent:
 the agent is in possession of the goods or documents of title to the goods with the
consent of the owner
 the agent pledges the goods while acting in the ordinary course of business of a
mercantile agent provided:
– the pawnee acts in good faith and
– the pawnee has not at the time of the pledge, notice that the agent has no
authority to pledge.
(c) Contingent contract:

It is a contingent contract as the condition i.e. certification of the construction in accordance
with the layout plan by a third party is collateral to the contract. Although it is a valid
contract, the performance can only be enforced by Zubair after happening of the collateral
event. i.e. certification by Muneer.
Page 1 of 6
Business Law
Suggested Answers
Ans.3 (a) (i) It is a valid bill of exchange as it contains an unconditional order to pay.
(ii) It is in the nature of bill of exchange but it is not a valid bill of exchange as it contains
only request to pay and not an order to pay.
(iii) It is a valid promissory note containing all the essential elements.
(iv) It is a valid promissory note. It is not considered to be conditional, for it is certain that
Nauman will die, though the exact time of his death is uncertain.
(b) Effect(s) of the words ‘Not negotiable’ on a cheque crossed specially.

The effect of the words “not negotiable” on a crossed cheque is that the title of the transferee
of such a cheque cannot be better than that of its transferor. The addition of the words not
negotiable does not restrict the further transferability of the cheque. It only takes away the
main feature of negotiability, which is transferability free from defects.
(c) Calculating maturity:

(i) The bill of exchange is at maturity on the third day after 28 February 2018. i.e. 3
March 2018.
(ii) The note will be at maturity on 24 August 2018.
(iii) The bill of exchange is at maturity on 2 December 2018.
Ans.4 (a) Revocation of a Continuing guarantee:

The guarantee provided by Fareed is in the nature of ‘Specific guarantee’ and not a
‘Continuing guarantee’ because “lease for six years” is an entire or indivisible consideration
and not a fragmented one.
Fareed therefore is not competent to revoke his guarantee. His liability would come to an
end with the duly discharge of guaranteed debt/performance of the promise.
(b) Communication of offer, acceptance and revocation:

(i) Communication of offer was completed on 5 September 2018 i.e. when it came to the
knowledge of Ghazi.
Communication of acceptance was completed as against Saleem when the letter was
posted i.e. on 6 September 2018 and as against Ghazi it was completed when the letter
of acceptance reached Saleem i.e. on 8 September 2018.
The communication of revocation of offer was completed as against Saleem on 5

September 2018 i.e. when the letter of revocation was posted, and as against Ghazi on 7
September 2018, when the letter of revocation was received by him.
(ii) Since Ghazi had posted his letter of acceptance on 6 September 2018 and revocation of
offer was communicated to him on 7 September 2018, his acceptance was valid Saleem
cannot revoke his offer after 6 September 2018, when the communication of acceptance
was completed as against him. Therefore, a binding contract had been created between
Saleem and Ghazi.
(c) The contract being wagering in nature, is not a valid contract. As both Basit and Taimure
had no intention of giving or taking delivery of goods and were only interested in earning
profit by way of fluctuations in silver prices.
Page 2 of 6
Business Law
Suggested Answers
Ans.5 (a) Restriction of partner’s implied authority:

Any act done by a partner on behalf of the firm which falls within his implied authority
binds the firm unless, the person with whom he is dealing knows about the restriction.
Under the given scenario, the firm and all the partners are jointly and severally liable to pay
the entire amount to Wajid as he was unaware of any such restriction on partners authority.
(b) Partnership property:

Land provided by Yaseen:
Subject to contract between the partners, the land would not be treated as the partnership
property. It will become the partnership property only if the partners show an intention to
make it so.
But since Yaseen, by way of an agreement, brought the property only for the use of the
partnership, the mere use of such land by the partnership would not make the land part of
the partnership property.
Delivery van:
In this case, van does not constitute partnership property because recording of receivable in
partnership books shows that the van was not acquired for the partnership.
(c) Circumstances in which a non-partner could benefit from the profits of a partnership.
Following are the circumstances in which a non-partner could benefit from the profits of a
partnership:
(i) Lender of money to persons engaged or about to engage in any business
(ii) Servant or agent as remuneration
(iii) Widow or child of a deceased partner as annuity
(iv) Transferee of a partner’s interest
(v) A minor who is admitted to the benefits of partnership
(vi) Previous owner or part owner as consideration for the sale of goodwill or share
thereof.
Ans.6 (a) Special resolution:

Special resolution is a resolution which is passed by a majority of not less than three-fourths
of such members of the company entitled to vote as are present in person or by proxy or vote
through postal ballot at a general meeting of which not less than twenty-one days‘ notice has
been given specifying the intention to propose the resolution as a special resolution:
Provided that if all the members entitled to attend and vote at any such meeting so agree, a
resolution may be proposed and passed as a special resolution at a meeting of which less
than twenty-one days notice has been given;
(b) Issue of Class C shares:

SL can issue new class C shares only if it is permitted by the memorandum and articles of
association.
Since SL’s articles and memorandum lack any such classification, the directors are first
required to alter the provisions of SL’s articles of association and memorandum of
association by passing a special resolution.
Page 3 of 6
Business Law
Suggested Answers
It should however be noted that where such alteration affects the substantive rights or
liabilities of members or of a class of members, it shall be carried out only if a majority of at
least three-fourths (3/4) of the members or of the class of members affected by such
alteration, as the case may be, exercise the option through vote either personally or through
proxy.
An altered copy of the articles of association shall be filed with the registrar, within thirty
days from the date of passing of the resolution. The registrar shall register the same and
thenceforth the alteration shall be effective.
Ans.7 (a) Prohibition of giving loan by a company for the purchase of its own shares:
A public company or a private company which is the subsidiary of a public company cannot
provide financial assistance, whether directly or indirectly, for the purpose of or in
connection with purchase of its own shares.
However, under the following circumstances such financial assistance may be granted:
 If the purchase of shares in the company are in accordance with any scheme approved
by the company through special resolution and in accordance with the specified
requirements, provided such shares are held by a trust for the benefit of the employees or
are held by the employee(s) of the company.
 To the employees including a chief executive who, before his appointment as such, was
not a director of the company but excluding all directors of the company.
(b) Approval and publication of prospectus:

The prospectus is required to be approved by the Commission and not by the Registrar Joint
Stock Companies.
A copy of the prospectus shall be submitted to the Commission for approval, not less than
21 days before the proposed date of its publication. Therefore, a copy shall be submitted to
the Commission on or before 9 September 2018 OR (8 September 2018) OR (7 September
2018) but not afterwards.
The prospectus shall be published in at least one Urdu and one English daily newspaper and
not in an Urdu fortnightly magazine.
The date of newspaper publication of the prospectus shall not be less than 7 days before the
commencement of the public subscription. Therefore, public subscription shall not
commence any time before 7 October 2018 OR (6 October 2018) OR (5 October 2018).
Lastly, Sufficient number of copies of the prospectus shall be made available for inspection
of general public, free of charge, from the date of its publication i.e. 30 September 2018 OR
(29 September 2018) OR (28 September 2018) till the closing of the subscription. i.e. 7
October 2018 OR (6 October 2018) OR (5 October 2018) at SL’s registered office and not at
its showroom. Further, the copies shall also be made available with all the securities
exchanges of the country, with all the bankers to the issue, the concerned share registrar, the
concerned balloter and the concerned credit rating agency, if any, and should also be
uploaded on SL’s website.
Page 4 of 6
Business Law
Suggested Answers
Ans.8 (a) Interested director not to participate or vote in proceedings of board:

The above rule shall not be applicable under the following circumstances:
(i) If the person is a director of a private company which is neither a subsidiary nor a
holding company of a public company;
(ii) when the director has acted as surety of the company and the resolution under
consideration relates to the indemnification or insurance coverage of the surety
director against any loss incurred by the director for becoming surety of the company.
(b) Payment of interim dividend:

An interim dividend must be paid within 30 days of its declaration and in the given scenario,
the dividend shall be deemed to have been declared on 28 September 2018 i.e. the date of
commencement of closing of share transfer for determination of entitlement of dividend.
Hence, AL should pay dividend latest by 28 October 2018.
The circumstances in which non-payment of dividend by AL shall not constitute an

offence are as under:
(i) where the dividend could not be paid by reason of the operation of any law;
(ii) where a shareholder has given directions to the company regarding the payment of the
(iii) where there is a dispute regarding the right to receive the dividend;
(iv) where the dividend has been lawfully adjusted by the company against any sum due to
it from the shareholder; or
(v) where, for any other reason, the failure to pay the dividend or to post the warrant
within the period aforesaid was not due to any default on the part of the company;
AL may also withhold the payment of dividend of a member where the member has not
provided the complete information or documents as specified by the Commission.
Ans.9 (a) (i) Statutory meeting:

JL is required to hold its first general meeting (Statutory meeting) within a period of
180 days from the date at which it was entitled to commence business or within nine
months from the date of its incorporation whichever is earlier.
Therefore, in view of the above, JL is required to hold its statutory meeting not later
than 27 September 2018.
(ii) If the directors decides to hold its first AGM on 25 September 2018 than no statutory
meeting shall be required.
(b) Removal of a director:

Aga Kirmani may be removed from the board by passing a resolution in a general meeting.
However, since he was appointed unopposed, he shall not be removed from his office if the
number of votes casted against the resolution equals or exceeds the number of votes
calculated as per the following formula:
(Number of directors for the term × Number of shares)÷ Number of directors for the time being
i.e. 8 × (50,000,000÷500) ÷ 8 = 100,000 votes
Therefore, Aga Kirmani would be removed from the board if less than 100,000 votes are
casted against the resolution.
Page 5 of 6
Business Law
Suggested Answers
(c) Appointment of chief executive:

A person who is ineligible to become a director of a company or has been disqualified to be
a director of the company shall not be appointed as a CEO of any company.
A person shall not be eligible to be appointed as a director of the company if the person
himself or the spouse of such person is engaged in the brokerage business. However, this
condition shall be applicable only in case of a listed company.
Similarly, a chief executive of a public company shall not directly or indirectly engage in any
competing business with the business carried on by the company of which he is a CEO.
A business shall be deemed to be carried on indirectly by the chief executive if the same is
carried on by his spouse or any of his minor children.
In the given scenario, FL is not a listed company and Sultan is not a minor son of Gul
Maher. Therefore, both the above conditions are not applicable and Gul Maher is eligible to
be appointed as the CEO of FL.
Ans.10 (a) Since Rao Bashir presently is not a partner in RC, the firm can be the auditor of CL.
However, RC at the time of admitting Rao Bashir as a partner, would need to ensure that:
 the period of three years has lapsed from the date when Rao Bashir resigned from the
directorship of CL.
 The shareholding of Rao Bashir in CL is disposed of.
(b) TPL is a private company, and is not a subsidiary of any public company and its paid-up
capital is less than Rs.3 million. Therefore, Mugabe can be appointed as TPL’s auditor
provided he holds a certificate of practice from ICMAP.
Further, holding of interest by Mugabe’s brother or his brother being a director of NL, does
not make Mugabe ineligible for becoming the auditor of TPL.
(c) DL is not an associated company of Jabal Limited (JL) as JL only holds 16.7% voting
shares in DL.
Holding of non-voting shares is not relevant in determining the status of the company.
Hence, Sonu and Company, Chartered Accountants are eligible to be appointed as the
auditors of Dushanbe Limited (DL).
(THE END)
Page 6 of 6
SUBJECT SESSION
– Autumn 2018
General:
The overall performance in this paper exhibited a declining trend as only 13.5% of the
candidates managed to secure passing marks in contrast to 18% in the previous attempt.
However, the performance in Company Law section remained decent as compared to
Mercantile Law section probably because candidates give relatively more importance to
the Company Law than to the Mercantile Law. Candidates are advised to give equal
importance to the entire syllabus contents and specifically practice the application of
concepts to scenario based questions, the area where they lack most.
Question-wise comments:
Question 1
This question was related to the Legal System and required candidates to specify
Pakistan’s system of government and identify Senate’s role in the legislation process. The
overall performance was very good as about 58% of the candidates secured passing
marks. Some of the candidates were confused as they deliberated on the composition of
National Assembly and Senate which was not required by the question.
Question 2
This question consisted of 3 parts and part (b) was further sub-divided into two sub-parts.
The overall performance was poor as only 11% candidates secured passing marks. Part-
wise comments are given below:
Question 2(a)
It was a scenario based question and required candidates to explain whether a person
(Mughal) was justified in repudiating the contract where the seller (Dawood) who had
private information of change in prices remained silent as it could have affected
Mughal’s willingness to enter into the contract. The performance remained poor as most
of the candidates failed to comprehend that the situation in the scenario did not lead to
any fraud. The important matter to consider in the situation was whether there was any
fiduciary relationship between the contracting parties. In the absence of such relationship,
Dawood had no obligation to disclose the information to Mughal. Consequently, the
students incorrectly concluded that due to fraud on part of Dawood, Mughal was justified
in repudiating the contract. Many of those candidates who rightly claimed that Mughal
cannot repudiate the contract failed to provide any reason in support of their claim.
Page 1 of 7
Question 2(b)(i)
This part required the candidates to list any five circumstances in which the parties to the
contract are not absolved from the performance of their contractual obligations on the
ground of supervening impossibility. The performance remained average as most of the
candidates were able to list only two or three circumstances. Many candidates resorted to
guess work and wrote that death, insanity or impossibility to perform are the
circumstances in which the parties to the contract are absolved from their contractual
obligations.
Question 2(b)(ii)
In this part the candidates were required to briefly describe the conditions in which a
pledge made by a mercantile agent was considered to be a valid pledge. Most of the
candidates answered it satisfactorily. However, some candidates thought that the pledge
is valid only when it is made with owner’s express authority.
Question 2(c)
In this part the candidates were required to describe the nature and validity of the contract
provided in the scenario. The performance remained very poor. Majority of the
candidates could not identify that it was a contingent contract. Most of them considered it
a wagering agreement, a quasi-contract or a conditional contract. Many among those who
identified it correctly, failed to clearly elaborate that though it was a valid contract,
condition of certification was collateral to the contract and that the performance could
only be enforced by Zubair after the happening of the collateral event and not before.
Question 3
This question consisted of 3 parts and was related to the Negotiable Instruments Act,
1881. The overall performance remained satisfactory as 36% candidates secured passing
marks. Part-wise comments are given below:
Question 3(a)
The requirement was to comment on the type and validity of each of the four instruments
provided in the question. The performance remained satisfactory. However, many
candidates either did not mention the type of the instrument or only wrote that the
instrument is valid or invalid without giving any reason(s) to justify their conclusions.
Question 3(b)
This part required candidates to discuss the effect(s) of the words ‘Not negotiable’ on a
cheque crossed specially. The performance remained average. Most of the candidates
could not elaborate that the words ‘not negotiable’ do not restrict the transferability of the
cheque but only take away the feature of transferability without any defect.
Page 2 of 7
Question 3(c)
This part required the candidates to compute the maturity of the instruments in each of
the three given cases. The performance remained average. Most of the candidates were
able to correctly calculate the maturity in first two cases. However, in the third instance,
many candidates thought that due to public holiday on Sunday, the maturity date of the
instrument would fall on the succeeding day i.e. Monday instead of the preceding day i.e.
Saturday. Some candidates instead of computing the maturity dates only quoted the
relevant law.
Question 4
This question based on Contract Act, 1872 consisted of 3 parts. The overall performance
was poor as only 10% of the candidates secured passing marks. Part-wise comments are
given below:
Question 4(a)
This part pertained to revocation of guarantee and required the candidates to identify the
nature of guarantee provided by the guarantor (Fareed) and explain whether Fareed was
to be discharged under the circumstances provided in the scenario. The performance
remained below average as majority of the candidates wrongly considered it to be a
continuing guarantee which could be revoked by giving notice for all future transactions.
Some candidates who although correctly identified it to be a specific guarantee failed to
give appropriate reasons to justify their conclusion.
Question 4(b)
This part pertained to communication and revocation of offer and acceptance. Candidates
were required to show when the communication of offer and acceptance and the
revocation of the offer was complete against the two prospective parties to the contract
i.e. Saleem and Ghazi. They were also required to describe whether a binding contract
was created between Saleem and Ghazi under the given circumstances.
The performance remained average. Mostly, the candidates did not comprehend that
Saleem cannot revoke his offer after 6 September 2018 when the communication of
acceptance was completed as against him. Further, only a handful of candidates correctly
concluded that a binding contract was formed between Saleem and Ghazi in the given
circumstances based on valid justification.
Question 4(c)
This part required the candidates to identify and discuss the validity of the given contract
if the parties to the contract had an intention to settle the transaction by paying the price
differential without making delivery of goods. The performance was very poor as
majority of the candidates could not identify the contract to be wagering in nature. Most
students considered it a future contract and many concluded incorrectly that it was a valid
contract as it falls under novation due to difference in prices, which was absolutely
incorrect.
Page 3 of 7
Question 5
This question consisted of 3 parts. The overall performance was not satisfactory as only
17% of the candidates secured passing marks. Part-wise comments are given below:
Question 5(a)
This part was related to the Partnership Act, 1932. According to the situation given in the
question, there was a limit on the implied authority of a partner and one of the partners
purchased goods beyond that limit, from a trader who was ignorant of this restriction.
Candidates were required to explain whether the firm and its partners were liable to the
trader under the circumstances. The performance in this part was very disappointing.
Most of the candidates ignored the fact that the trader was unaware of the restriction.
Consequently, they concluded incorrectly that since the partner ignored the restriction
and entered into a contract with the trader, he was personally liable for any loss and the
firm was not liable.
Question 5(b)
This part required the candidates to describe whether the assets used for the business of
the partnership or purchased with partnership money were to be considered as partnership
property.
The overall performance remained average as the opinions were almost equally divided
(please refer to suggested answer). Many candidates ignored the scenario and only
deliberated on what is considered to be a partnership property.
Question 5(c)
This part required the candidates to list any four circumstances in which a non-partner
could benefit from the profits of a partnership. This was quite easy and majority of the
candidates secured passing marks whereas a significant number of students scored full
marks as well.
Question 6
This question consisted of 2 parts. The overall performance was reasonable as 27% of the
Question 6(a)
In this part the candidates were required to briefly describe the term ‘Special resolution’.
The performance in this part was satisfactory. However, some candidates instead of
describing special resolution, listed down the items which require special resolution for
its approval. Most of the candidates did not identify that votes on special resolution may
also be casted through postal ballot.
Page 4 of 7
Question 6(b)
This part required the candidates to briefly describe the steps which the directors should
take prior to issuance of class C shares with no voting rights. Performance in this part
was below average. Majority of the answers were only confined to the statement that
SL’s memorandum and articles of association needs to be amended and that an altered
copy of memorandum is required to be filed with the registrar. Majority of the candidates
failed to specify that if alteration affects substantive rights or liabilities of members or a
class of members, then it can be carried out only if majority of at least three-fourth of
such members exercise the option through vote either personally or through proxy.
Further, in spite of clear instructions in the question that procedure of issuance of shares
is not required, many candidates wasted their time writing procedure for issuance of
shares.
Question 7
This question consisted of 2 parts. The overall performance was reasonable as 26% of the
Question 7(a)
This part required the candidates to briefly describe the provisions relating to granting of
loan by a company for the purchase of its own shares.
The candidates responded in an average manner as most of them scored around passing
marks but very few could score full marks. Many candidates deliberated on the buyback
of own shares by the company which was not required by the question.
Question 7(b)
This part required the candidates to propose appropriate revision in the time schedule
provided in the question for the issuance of shares to general public.
Average performance was witnessed in this part. Many candidates thought that
prospectus would be approved by the Registrar Joint Stock Companies instead of
Commission. Similarly, many candidates, being unaware of the requirements for
inspection of prospectus by general public, stated that prospectus shall be kept at SL’s
showroom, Registrar office and Commission’s office for inspection of general public.
Question 8
This question consisted of 2 parts. The overall performance was good as 59% candidates
secured passing marks and about 7% secured full marks. Part-wise comments are given
below:
Question 8(a)
This part required the candidates to briefly describe the exceptions to the general rule that
‘Interested directors are not allowed to take part in the discussion or vote on any contract
or arrangement in which they are in any way interested’. The performance was average as
majority of the answers lacked completeness. Many candidates were of the view that
directors after disclosing their interest in the contract can attend the meeting where such
contracts are to be discussed. Similarly, many candidates thought that nominee directors,
regardless of their interest in the contract or arrangement, can participate in the meeting.
Page 5 of 7
Question 8(b)
This part was based on the provisions of sections 242 and 243 of the Companies Act,
2017. It required candidates to briefly describe when interim dividend should be paid and
to state any four circumstances in which non-payment of dividend would not be
considered to be an offence on the part of the company.
The performance in this part was very good and most of the candidates scored high/full
marks.
Question 9
This question consisted of 3 parts. The overall performance was poor as only 15% of the
Question 9(a)
This part required the candidates to state their views with regard to the holding of first
general meeting (statutory meeting) of the company, under the given scenario.
Most of the candidates failed to answer this question correctly due to lack of knowledge
regarding the time prescribed for holding of statutory meeting. Most candidates stated
that the views expressed by majority of the directors as well as the other two directors
were correct i.e. that the first general meeting (statutory meeting) can be held on either of
the two given dates. In fact, it was the other way round i.e. the statutory meeting had to
be held not later than 27 September 2018. Moreover, majority of the candidates were
unaware of the fact that where an annual general meeting is held prior to the statutory
meeting than in that case statutory meeting is not required.
Question 9(b)
This part required the candidates to briefly describe how a director, who was appointed
unopposed on the board, could be removed from the board. The performance remained
below average. Most of the answers were incomplete and confined to the statement that
the director can be removed from his office if the number of votes casted against the
resolution are less than the minimum number of votes casted in the immediately
preceding election of directors; whereas this rule pertains to the removal of directors
appointed under sub-section 5 of section 159 and not to the directors who were appointed
unopposed. Many candidates thought that a director can be removed by passing a
resolution in the board meeting.
Question 9(c)
It was a scenario based question and required the candidates to explain whether a person
(Gul Maher) was eligible for appointment as the CEO of an unlisted public company (FL)
under the circumstances provided in the scenario. The performance remained average as
majority of the answers were incomplete and focused more on the requirements of a
listed company. Most of the candidates also failed to appreciate that a competing business
is deemed to be indirectly carried on by the CEO if such business is carried on by his/her
spouse or minor children. Consequently, candidates could not comprehend that FL was
not a listed company and Sultan (Gul Maher’s son) was not a minor son of Gul Maher
and therefore he was eligible for appointment as FL’s CEO.
Page 6 of 7
Question 10
It was a scenario based question, consisting of 3 parts. It contained three independent

situations and candidates were required to analyse and comment on the appointment of
auditors in each case. The overall performance was very poor as only 5% of the
Question 10(a)
According to the scenario given in this part, a person Rao Bashir was appointed as
director in the assurance department of a firm of Chartered Accountants (RC). Prior to
joining RC, Rao Bashir was a director in one of RC’s audit clients CL.
The performance was very poor as majority of the candidates wrongly perceived Rao
Bashir as a partner in the audit firm instead of a director in the assurance department of
the audit firm and deliberated on the ineligibilities of a person to be appointed as a
partner.
Question 10(b)
According to the scenario given in this part, a private limited company (TPL) was
considering to appoint a person (Mugabe), who was a member of the Institute of Cost and
Management Accountants of Pakistan, as the company’s auditor. The performance on
this part remained below average. Majority of the candidates failed to comprehend that
the fact that Mugabe’s brother had interest in one of TPL’s associated companies (NL)
had no bearing on Mugabe’s appointment as auditor of TPL as the law holds only when
the spouse or minor child of such person holds such interest. Similarly, majority of the
candidates did not appreciate that Mugabe must holds a certificate of practice from
ICMAP before being appointed as the auditor of the company.
Question 10(c)
According to the scenario given in this part a firm of chartered accountants, Sonu and
Company was being considered for appointment as auditor of a public limited company
(DL) whereas the wife of one of the partners in the audit firm was a director in another
company (JL) and JL had some investment in DL.
The performance remained very poor as majority of the candidates failed to realize that
JL’s investment in DL did not qualify it to be considered as an associated company of DL
as majority of the shares held by JL in DL were non-voting preference shares and the
number of voting shares held by JL were less than 20%. Consequently, such candidates
wrongly concluded that Sonu and Company cannot be appointed as auditor of DL.
THE END
Page 7 of 7
Business Law

Mark(s)
A.1 Specification of Pakistan’s system of government 3.0
Identification of Senate’s role in the legislation process 2.0
A.2 (a) Up to 01 mark for explaining each relevant provision to justify

repudiation/non-repudiation of contract due to fraud 3.5
Conclusion 0.5
(b) (i) 01 mark for each situation 5.0
(ii) 1.5 marks for describing each condition in which a pledge made by a
mercantile agent is considered to be a valid pledge 3.0
(c) Identification of the nature of the contract 0.5

Explanation of the validity of the contract 1.5
A.3 (a) 0.5 mark for identification of each type of negotiable instrument 2.0
0.5 mark for giving comment on the validity of each type of negotiable
instrument 2.0
(b) Discussion on the effect(s) of the words ‘Not negotiable’ on a cheque crossed
specially 3.0
(c) 01 mark for mentioning the correct maturity date of each instrument 3.0
A.4 (a) Identification of the nature of guarantee 1.5

Explanation of whether Fareed would be discharged from his liability 2.5
(b) (i) Describing when the communication of offer was completed 0.5
Describing when the communication of acceptance was completed as
against Saleem and Ghazi 1.0
Describing when the communication of revocation of offer was
completed as against Saleem and Ghazi 1.0
(ii) Describing the relevant provisions 2.0

Conclusion 0.5
(c) Discussion on the validity of the contract 1.5

Conclusion 0.5
A.5 (a) Explanation of the relevant provisions of the Partnership Act, 1932 2.0
Conclusion 2.0
(b) Explanation of relevant provisions of the Partnership Act, 1932 2.5

Conclusion 1.5
(c) 0.5 mark for listing each situation 2.0

Page 1 of 2
Business Law
Mark(s)
A.6 (a) Explanation of the term ‘Special resolution’ 4.0
(b) Describing the steps which the directors should take prior to issuance of Class C
shares 6.0
A.7 (a) Identification of companies which cannot provide financial assistance for
the purchase of its own shares 1.5
Discussion on exceptions to the above 3.5
(b) 0.25 to 0.5 mark for suggesting each revision in the proposal 5.0
A.8 (a) 1.5 marks for describing each exception 3.0
(b) Brief explanation of the time period within which Ashanti Limited should
pay the interim dividend 3.0
01 mark for stating each circumstance 4.0
A.9 (a) (i) Discussion on the relevant provisions with regard to the conduct of
the first general meeting of the company 2.5
Conclusion 0.5
(ii) Opinion on the given situation 1.0
(b) Discussion on number of votes required for removal of a director who was
elected unopposed 1.5
Conclusion 0.5
(c) Mentioning the relevant provisions for the appointment of company’s

CEO 3.0
Conclusion 1.0
A.10 (a) Comment on the appointment of Rao Bashir as a director in assurance

department 1.0
Matters which the firms would need to consider in case Rao Bashir is to be
promoted as a partner 2.0
(b) Comment on the appointment of Mugabe as auditor of TPL 3.0

Conclusion 1.0
(c) Comment on the appointment of Sonu and Company, Chartered

Accountants as DL’s auditor 2.5
Conclusion 0.5
(THE END)
Page 2 of 2
Business Law
Q.1 (a) Briefly explain five rules regarding performance of reciprocal promises under the
provisions of Contract Act, 1872. (05)
(b) Respond to the following scenarios, under the provisions of Contract Act, 1872:
(i) On 11 February 2019, Isfandyar agreed to sell his house to Javed for
Rs. 15 million. On 19 February 2019, Javed came to know that Isfandyar has
finalized a deal for the same house with Jenny. Discuss the option(s), if any,
available to Javed. (02)
(ii) Ahmed being interested in purchasing Adil’s DHA property sent him this letter
on 01 March 2019, “I have heard that you are selling your DHA property. I am very
much interested in purchasing it. Will you please consider selling the same to me? What is
the highest price you have been offered so far?” Adil replied, “The highest quote for the
property till now is Rs. 35 million.” Ahmed replied, “I agree to buy your DHA property
for Rs. 36 million.” Subsequently, Adil received an offer from Hamid quoting
Rs. 38 million for the said property. What will be Adil’s liability towards Ahmed if
he wishes to make the sale to Hamid? (02)
(iii) Noman rented his house to Ahsan under a contract terminable on three months’
notice. Noman’s wife without discussing with Noman, sent a termination notice
to Ahsan. When Noman came to know of the situation, he ratified the act of
sending of notice to Ahsan. Discuss whether the notice given by Noman’s wife is
valid. (02)
(iv) While attending a seminar, Khizar told a group of people on his table that he is
the agent of Lucky. Lucky smiled considering it a joke. Later, Moiz who was
sitting on the table sold security cameras and surveillance system to Khizar on
credit believing him to be agent of Lucky. Comment on whether a contract of
agency is established between Khizar and Lucky. (02)
Q.2 (a) Under the provisions of Negotiable Instruments Act, 1881 define ‘Holder in due
course’ and ‘Acceptor for honour’. (05)
(b) Umair drew a duly stamped promissory note favouring Vazir, intending to pay
Rs. 500,000 against the purchase of office equipment. No amount was mentioned on
the instrument and Umair told Vazir to fill it himself. The stamp affixed could cover
amount up to Rs. 700,000.
Under the Negotiable Instruments Act, 1881:

(i) identify the nature of the instrument and describe when Umair’s liability will
arise on the instrument. (02)
(ii) specify Umair’s liability where Vazir filled in Rs. 600,000 on the promissory
note. (1.5)
(iii) specify Umair’s liability where Vazir filled in Rs. 600,000 on the promissory note
and transferred it to Waris for value. (1.5)
Q.3 (a) Yasmin stayed at Hotel Fragrance, during the exhibition of her famous jewellery
brand. After she left, the house-keeping staff found a precious branded ring from a
drawer which was handed over to the hotel manager. Meanwhile, Ahmed who was
staying at the hotel, stole the ring and escaped. Hotel manager tried to contact Yasmin
but she had already proceeded on a year long tour at an unknown destination.
Under the provisions of Contract Act, 1872 discuss what action(s) can be taken by the
hotel management in this scenario and what would be their rights when the ring is
recovered. (06)
(b) Salim gave a loan of Rs. 100,000 to Ahmed carrying a mark-up of 10% per annum.
Amir and Rehan agreed to act as Ahmed’s sureties. In the light of Contract Act, 1872
determine, along with reasons, how much each surety would be liable (in Rupees) in the
following independent scenarios:
(i) Ahmed defaulted and Salim being aware of weak financial position of Rehan,
asked Amir and Rehan to pay 75% and 25% of the default respectively. (02)
(ii) Salim without discussing with Rehan released Amir from the suretyship. Ahmed
defaulted and Salim asked Rehan to pay the entire amount. (02)
(c) Under the Contract Act, 1872 state an agent’s responsibility in case he appoints a
sub-agent without having the principal’s authority. (02)
Q.4 (a) Respond to the following scenarios, under the provisions of Partnership Act, 1932:
(i) Tehram, Rahil and Zain are partners in TRZ Associates. Zain, after obtaining
mutual consent of all the partners, transferred his share of interest to Hatim.
Hatim now wants to discuss the future business strategy of the firm with Tehram
and Rahil. In this regard, he has asked the partners to provide him the firm’s
cash flow forecast so that he can determine firm’s growth potential for the next
five years. Comment on Hatim’s entitlement to do the same. (03)
(ii) Sahir and Sarim are lawyers who have entered into a partnership namely
SS Associates. Noreen approached SS Associates for a property dispute case.
However, after seeing Sarim’s capabilities, Noreen gave Rs. 250,000 to Sarim for
investment in stocks and bonds at his discretion on her behalf. Sarim hid the said
fact from Sahir and used the money to meet his personal needs. Subsequently,
Noreen filed a suit on the firm for the recovery of Rs. 250,000. Reason out the
validity of suit filed by Noreen. (02)
(iii) Faizan and Mehran are partners in a trading firm and have decided that no
partner shall have the right to buy or sell goods beyond the value of Rs. 100,000
without consent of the other partner. Due to a sudden crisis in the market, prices
of a product started falling sharply. Faizan without consulting Mehran sold all
the perishable stock worth Rs. 950,000 in order to restrict the firm’s loss. Can
Mehran hold Faizan responsible for misconduct? (02)
(b) Define principle of ‘holding out’ under the Partnership Act, 1932 and state its
exception, if any. (03)
Q.5 List respective jurisdiction of the following:

(a) Three classes of Judicial Magistrates under the Magistrates Court; and (03)
(b) Three classes of Civil Judges under the Family Court. (02)
Company Law Section
Q.6 (a) In the light of Companies Act, 2017 identify six circumstances under which a director
shall not be considered as an independent director. (06)
(b) Following is the composition of board of directors of Faisal Limited, a listed company:
Independent directors Khalid, Dawood, Rehmat

Non-executive directors Salman, Arif, Ashraf
Executive directors Fasih (CEO), Kashif (Director Finance)
Under the Companies Act, 2017 advise which of the above directors are eligible to be
appointed as Chairman of the board. Also state the time frame for his appointment,
duration of office and his responsibilities. (06)
Q.7 (a) List six types of charges which a company is mandatorily required to get registered
with the registrar under the Companies Act, 2017. Also state the effect of
non-registration of a charge created in favour of a company. (04)
(b) Sepham Limited is in process of raising money through issuance of shares and intends
to issue a prospectus.
Advise the management as to who would be liable under the Securities Act, 2015 to
compensate the investors in case there is any deficiency in the prospectus and under
what circumstances this liability would arise. (04)
Q.8 Xiam Limited (XL) is due to conduct its first annual general meeting in March 2019. XL
wants to propose Rehan Hameed & Co., Chartered Accountants, as the auditors of the
company for the next term, in place of the existing auditors, Jamil Behram & Co., Chartered
Accountants.
Under the Companies Act, 2017:

(a) identify who has the right to propose auditors and state the conditions which are
required to be fulfilled before presenting any such proposal in the annual general
meeting. (05)
(b) what will be the term of the auditors appointed in the first annual general meeting?
Briefly state the situations under which the auditors may cease to hold office before
expiry of the above term. (03)
(c) what are the rights of Jamil Behram & Co., Chartered Accountants, where Rehan
Hameed & Co., Chartered Accountants, are proposed to be appointed as the auditors
in the annual general meeting? (03)
Q.9 (a) Masters Limited (ML) has made equity investment in Abbas Limited (AL). In the light
of Companies Act, 2017 state under what circumstances ML may classify AL as its
subsidiary. (04)
(b) Describe the provisions contained in the Companies Act, 2017 relating to ‘principal
line of business’ of a company. (05)
Q.10 (a) Zaigham Limited (ZL) having share capital of Rs. 100 million was incorporated on
01 January 2014 when its shares were issued at a face value of Rs. 10 each. ZL
announced cash dividend of Rs. 10 million in its first year. Thereafter, the cash
dividend kept on increasing by Rs. 2 million each year till 31 December 2018.
In a recent board meeting, it was noted that 8% of the company’s shares and the
related dividend has remained unclaimed till 28 February 2019. Hence, the board
advised the management to take immediate steps to comply with the
Companies Act, 2017.
Narrate the procedures that the management should follow in order to comply with the
board’s advice. Also determine the amount of company’s liability in respect of the
above. Assume that market value of the shares is Rs. 22 per share and dividends for each
year become due on 28 February of the next year. (06)
(b) Under the provisions of Companies Act, 2017 it is the responsibility of the board to
prepare directors’ report for each financial year. The Act has further prescribed the
minimum contents of such report.
In the above context, list the matters which are required to be included in the business
review section of the directors’ report of a listed company. (04)
(THE END)
Business Law
Suggested Answers
Ans.1 (a) Rules regarding performance of reciprocal promises under the Contract Act, 1872
(i) Simultaneous performance

When a contract consists of reciprocal promises to be simultaneously performed, the
promisor need not perform his promise unless the promisee is ready and willing to
perform his reciprocal promise.
(ii) Order of performance

Where the order in which reciprocal promises are to be performed is expressly fixed
by the contract, they must be performed in that order, and where the order is not
expressly fixed by the contract, they must be performed in that order which the
nature of the transaction requires.
(iii) Preventing the performance

When a contract contains reciprocal promises, and one party to the contract prevents
the other from performing his promise, the contract becomes voidable at the option
of the party so prevented; and he is entitled to compensation from the other party for
any loss which he may sustain in consequence of the non-performance of the
contract.
(iv) Mutual and dependent reciprocal promises

Where the performance of one party depends on the prior performance of the other
party and party who is liable to perform first, fails to perform it, then such party
cannot claim the performance from the other party and must make compensation to
the other party for any loss which the other party may sustain by non-performance of
the contract.
(v) Promise to do legal & illegal things

Where persons reciprocally promise, firstly, to do certain things which are legal, and
secondly, under specified circumstances, to do certain other things which are illegal,
the first set of promises is a contract, but the second is a void agreement.
(b) (i) Isfandyar has committed anticipatory breach of contract so Javed has following
options:
 He may either treat the contract as rescinded and claim damages from Isfandyar
for breach of contract immediately without waiting until the due date of
performance, or
 He may elect not to rescind but to treat the contract as still operative and wait for
the time of performance and then hold Isfandyar responsible for the
consequences of non-performance.
(ii) The first letter from Ahmed and Adil’s response on it were merely ‘asking for
information’ and ‘providing information’ respectively and not offer and acceptance.
The second letter from Ahmed sent as a reply to Adil was itself an offer and not the
acceptance of an offer. Since this offer had not been accepted by Adil, there is no
binding contract between the parties. Accordingly, there is no liability if Adil sells his
bungalow to Hamid.
Page 1 of 6
Business Law
Suggested Answers
(iii) An act done by one person on behalf of another, without such other person's
authority, which, if done with authority, would have the effect of terminating any
right or interest of a third person, cannot be ratified.
Considering the above, notice served by Noman’s wife is not valid. If Noman wants, he
will have to give fresh notice.
(iv) Khizar in this situation has become agent of Lucky by estoppel. Lucky is bound by this
transaction and he is stopped from denying the existence of the agency since he gave
out clear representation to others by smiling and keeping quiet.
Moiz relied on representation of existence of agency. Thus, if he suffers a loss from

the transaction, he may hold Lucky liable as principal.
Ans.2 (a) Holder in due course - means any person who for consideration becomes the possessor
(holder) of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or
endorsee thereof, if payable to order, before it became overdue, without notice that the title
of the person from whom he derived his own title was defective.
Acceptor for honour - when a bill of exchange has been noted or protested for non-acceptance
or for better security, and any person accepts it supra protest for honour of the drawer or of
any one of the endorsers, such person is called an "acceptor for honour."
(b) (i) An incomplete or blank negotiable instrument which is properly stamped and signed
but where the name or amount is missing is an ‘Inchoate Instrument’.
Umair is liable to pay when blank (i.e. amount) is filled in which makes the
instrument complete.
(ii) Vazir being holder can only recover the amount intended to be paid by Umair i.e. Rs.
500,000.
(iii) Waris being holder in due course can recover the amount of Rs. 600,000 from Umair.
Ans.3 (a) Responsibility of Hotel Management as finder of goods

The contract which exists between Yasmin and the Hotel Management is a bailment contract.
Yasmin in this case is the bailor while the Hotel Management is the bailee, being finder of lost
goods.
Ahmed has wrongfully deprived the Hotel Staff of the possession of the goods bailed. Now, the
Hotel Management may use such remedies as the owner, might have used as if no bailment
had been made and may bring a suit against Ahmed.
Rights of Hotel Management in case ring is recovered
(i) Repayment by Yasmin of necessary expenses

Under the conditions of bailment, where the goods are to be kept or carried, and the
Hotel Management is to receive no remuneration, Yasmin shall repay to the Hotel
Management the necessary expenses incurred by them for the purpose of the
bailment.
(ii) Right to lien

The Hotel Management has no right to sue Yasmin for compensation for the trouble
Page 2 of 6
Business Law
Suggested Answers
and expense voluntarily incurred by them to preserve the ring, but they may retain
the ring against Yasmin until they receive such compensation.
(iii) Right of sale
If Yasmin after returning from the tour refuses to pay the lawful charges to the Hotel
Management in respect of the ring; Hotel Management may sell the ring, being
commonly a subject of sale, if the lawful charges in this respect amount to two third
of the ring’s value.
(b) (i) When two or more persons are co-sureties for the same debt, either jointly or
severally, in the absence of any contract to the contrary, they are liable, as between
themselves, to pay an equal share of the whole debt, or of that part of it which
remains unpaid by the principal debtor.
Accordingly, the liability will be divided in ratio of 50:50 and not 75:25 and Amir and
Rehan would be liable for Rs. 55,000 each.
(ii) Where there are co-sureties, a release by the creditor of one of them does not
discharge the other; neither does it free the surety so released from his responsibility
to the other sureties. Accordingly, Amir and Rehan will still be liable for Rs. 55,000
each.
(c) Where an agent, without having authority to do so, has appointed a person to act as a sub-
agent, the agent stands towards such person in the relation of a principal to an agent, and is
responsible for the acts of the sub-agent, both to the principal and to third persons.
Ans.4 (a) (i) A transfer by a partner of his interest in the firm does not entitle Hatim to interfere in
the conduct of the business, or to require accounts, or to inspect the books of the firm,
but entitles Hatim only to receive the share of profits of Zain, and Hatim shall accept
the account of profits agreed to by the partners.
(ii) The firm cannot be made liable since the receiving of money by Sarim for investment
purposes is not in ordinary course of a lawyer’s business and accordingly, is beyond
the scope of his implied authority as a partner.
(iii) A partner has authority, in an emergency, to do all such acts for the purpose of
protecting the firm from loss as would be done by a person of ordinary prudence, in
his own case, acting under similar circumstances, and such acts bind the firm. Hence,
Faizan cannot be held responsible for misconduct.
(b) Holding out

Anyone, who by words spoken or written or by conduct represents himself, or knowingly
permits himself to be represented, to be a partner in a firm, is liable as a partner in that firm
to anyone who has on the faith of any such representation given credit to the firm, whether
the person representing himself or represented to be a partner does or does not know that
the representation has reached the person so giving credit.
Exceptions of holding out partner

After a partner’s death if the business of the firm is continued in the old firm’s name, the
continued use of that name or of the deceased partner will not itself make legal
representatives of the deceased partner liable for any act of the firm done after his death.
Page 3 of 6
Business Law
Suggested Answers
Ans.5 (a) Magistrates Court
Staff Jurisdiction
Judicial Magistrate Offences with punishment of imprisonment for a term not exceeding
1st Class three years, fine not exceeding Rs. 15,000 and whipping.
2nd Class one year, fine not exceeding Rs. 5,000.
3rd Class one month, fine not exceeding Rs. 100.
(b) Family Court

Civil Judge 1st Class Suit of unlimited value of subject matter.
Civil Judge 2nd Class Suit having value of subject matter not exceeding Rs. 50,000.
Civil Judge 3rd Class Suit having value of subject matter not exceeding Rs. 5,000.
Company Law Section
Ans.6 (a) No director shall be considered independent if following circumstances exist:
(a) he has been an employee of the company, any of its subsidiaries or holding company
within the last three years or two years in case of public sector companies;
(b) he is or has been the chief executive officer of subsidiaries, associated company,
associated undertaking or holding company in the last three years or two years in case
of public sector companies;
(c) he has, or has had within the last three years or within the last two years in case of
public sector companies; a material business relationship with the company either
directly, or indirectly as partner, major shareholder or director of a body that has such
a relationship with company.
(d) he has received remuneration in the three years preceding his/her appointment as a
director or receives additional remuneration, excluding retirement benefits from the
company apart from director’s fee or has participated in the company’s stock option or
a performance-related pay scheme;
(e) he is a close relative of the company’s promoters, directors or major shareholders;
(f) he holds cross-directorships or has significant links with other directors through
involvement in other companies or bodies not being the associations licenced under
section 42.
(b) Any of the non-executive directors (i.e. Khalid, Dawood, Rehmat, Salman, Arif, Ashraf) may be
appointed as Chairman. The board of Faisal Limited shall within fourteen days from the date
of election of directors appoint a chairman who shall hold office for a period of three years
unless he earlier resigns, becomes ineligible or disqualified under the Companies Act, 2017 or
is removed by the directors.
The responsibilities of the Chairman are defined by the board. Chairman shall be responsible
for leadership of the board and ensure that the board plays an effective role in fulfilling its
responsibilities.
Page 4 of 6
Business Law
Suggested Answers
The Chairman is required to issue a review report in every annual financial statement of the
company which shall contain a review on overall performance of the board and effectiveness
of the role played by the board in achieving the company’s objectives.
Ans.7 (a) (i) a charge on any immovable property wherever situated, or any interest therein;
(ii) a charge on any movable property of the company;
(iii) a charge for the purposes of securing any issue of debentures;
(iv) a charge on book debts of the company;
(v) a floating charge on undertaking or property of the company, including stock-in trade;
(vi) a charge on a ship or aircraft, or any share in a ship or aircraft;
Effect of non-registration
Charge created by a company shall not be taken into account by the liquidator or any other
creditor unless it is duly registered under the Companies Act, 2017.
(b) Every issuer, director of an issuer or any person who has signed the prospectus shall be liable
to pay compensation to any person who acquires any of the securities, in reliance upon the
prospectus, to which the prospectus relates and suffers loss in respect of them as a result of
any incorrect, untrue or misleading statement in the prospectus or the omission from it of any
matter required to be included under the Securities Act, 2015.
Ans.8 (a) Following have the right to propose auditors:
(i) The board of directors

Auditors shall be appointed by the company in the annual general meeting on the
recommendation of the board after obtaining consent of the proposed auditors. A
notice shall be given to the members about proposed change in auditors with notice of
general meeting.
(ii) Member(s) having at least ten percent shareholdings

A member / member(s) having not less than ten percent shareholdings of the company
shall also be entitled to propose any auditor or auditors for appointment whose
consent has been obtained by him/them and a notice in this regard has been given to
the company not less than seven days before the date of the annual general meeting.
The company shall forthwith send a copy of such notice to the retiring auditors and
shall also post it on its website.
(b) The auditors appointed in the first annual general meeting shall retire on the conclusion of
the next annual general meeting. Unless, the auditors appointed in an annual general meeting
becomes disqualified, vacates office due to resignation or death, or is removed through a
members’ special resolution.
(c) Jamil Bahram & Co., Chartered Accountants being the retiring auditors shall have a right to
make a representation in writing to the company at least two days before the date of general
meeting. Such representation shall be read out at the meeting before taking up the agenda for
appointment of the auditors.
Ans.9 (a) AL may be considered as a subsidiary company of ML if:
 ML controls composition of the board of AL. The composition shall be deemed to be

controlled by ML if it can appoint or remove all or a majority of AL’s directors; or
 ML exercises or controls more than one-half of its voting securities either by itself or
Page 5 of 6
Business Law
Suggested Answers
together with one or more of its subsidiary companies.
(b) Principal line of business means the business in which substantial assets are held or likely to
be held or substantial revenue is earned or likely to be earned by a company, whichever is
higher.
Principal line of business of the company shall be mentioned in the memorandum of

association of the company which shall always commensurate with name of the company.
Any change in the principal line of business shall be reported to the registrar within thirty
days from the date of change, on the form as may be specified and registrar may give direction
of change of name if the name does not commensurate with the principle line of business of
the company.
Ans.10 (a) In respect of all shares and dividend which remain unclaimed for a period of three years, the
company shall give a 90 days’ notice to shareholders to file a claim by a registered post
acknowledgement due on his last known address. After expiry of 90 days, final notice in
specified form shall be published in 2 daily newspapers, one in Urdu and one in English
having wide circulation.
If no claim is made by the shareholders, the company shall after 90 days from date of
publication of 2nd notice, deposit the unclaimed amount with the Federal Government. In the
given case, Rs. 1,760,000 [(Rs. 10,000,000×8%)+(12,000,000×8%)] worth of unclaimed
dividend will be deposited i.e. the dividend becoming due on 28 February 2015 and 28
February 2016.
Further, the management shall report and deliver 800,000 shares to the Commission and the
Commission shall, after selling these shares in specified manner and period, deposit the
proceeds to the credit of Federal Government.
(b) In the case of a listed company, the business review section must, to the extent necessary for
understanding the development, performance or position of the company’s business, include:
(i) the main trends and factors likely to affect the future development, performance and
position of the company’s business;
(ii) the impact of the company’s business on the environment;
(iii) the activities undertaken by the company with regard to corporate social
responsibility during the year; and
(iv) directors’ responsibility in respect of adequacy of internal financial controls as may
be specified.
(THE END)
Page 6 of 6
CERTIFICATE IN ACCOUNTING AND FINANCE (CAF) EXAMINATIONS
SUBJECT SESSION
– Spring 2019
Passing %
Question-wise
Overall
1 2 3 4 5 6 7 8 9 10
10% 41% 11% 46% 15% 21% 49% 47% 6% 26% 21%
General comments:
Better performance was observed in this session as compared to previous session.

However, the result was still not upto the mark. Prime reasons for below average
performance seemed to be selective studies as well as an inability of candidates to
implement theoretical knowledge to scenario based questions. Candidates are advised
to give equal importance to the entire contents of the syllabus and practice the
application of concepts to scenario based questions. In context of answering practical
questions, candidates are advised to refrain from giving answers on the basis of their
perception and emphasize on comprehending the concepts underlying the respective
provisions of law.
Question-wise common mistakes observed
Question 1(a)
(i) Candidates were able to list only two or three rules correctly.
(ii) Some candidates answered this question by mentioning the essentials of valid
contract which were totally irrelevant here.
Question 1(b)(i)
 Candidates were not able to identify that the question pertained to anticipatory
breach of contract.
 Similarly, they were also not able to identify that Javed could either rescind the
contract immediately and claim damages or choose to treat the contract as operative
and hold Isfandyar responsible for the consequences of non-performance at the
time of performance itself.
 Candidates only accounted for the fact that Javed on becoming aware of the deal
with Jenny was entitled to claim damages from Isfandyar.
Question 1(b)(ii)
Good performance was observed in this part of the question.
Page 1 of 4
Examiners’ Comments on Business Law Spring 2019
Question 1(b)(iii)
Good performance was observed in this part of the question. However, few candidates
failed to explain the reasons rendering the notice invalid due to which they were not
able to secure full marks.
Question 1(b)(iv)
Candidates correctly determined that the agency relationship was formed but failed to
explain the grounds for the same. In the given question, Lucky was bound by the
transaction between Khizar and Moiz because earlier in the seminar, he gave out clear
representation of the existence of agency by smiling and keeping quiet.
Question 2(a)
The performance was satisfactory with the exception of few candidates who gave
incomplete or irrelevant answers.
Question 2(b)(i)
Question 2(b)(ii)
Few candidates were not able to determine that Vazir in capacity of being holder of
instrument could only recover an amount of Rs. 500,000 from Umair.
Question 2(b)(iii)
Few candidates were not able to determine that Waris in capacity of being holder in
due course was able to recover an amount of Rs. 600,000 from Umair.
Question 3(a)
 Candidates were unable to identify the nature of contract as a bailment contract.

 Many candidates wrote lengthy answers mostly reproducing the information given
in the question itself.
Question 3(b)(i)
While determining the liability of the co-sureties in rupee terms, the candidates did not
consider the element of interest accrued and payable on the debt.
Question 3(b)(ii)
 Candidates failed to determine that liability of Amir and Rehan will remain the
same (i.e. Rs. 55,000) irrespective of the fact that Salim had released Amir from the
suretyship.
 Many candidates did not seem to have the concept that release of Amir by Salim
would not discharge Rehan from his liability towards Salim, neither would it free
Amir from his responsibility as co-surety towards Rehan.
 Some candidates expressed an incorrect view that as creditor released Amir without
discussing with Rehan, so either both co-sureties will not be liable now or that only
Rehan will be liable to pay the whole amount.
Page 2 of 4
Question 3(c)
Question 4(a)(i)
Question 4(a)(ii)
 Candidates failed to realize that investment in stocks and bonds was not in ordinary
course of a law firm’s business and that receiving of such funds was beyond the
scope of Sarim’s implied authority as a partner.
 Many candidates concluded that firm would be liable towards Noreen since the
partner had misapplied the funds received for the firm’s business which was not
correct.
Question 4(a)(iii)
Question 4(b)
Many candidates gave incomplete answers and also were not able to state the
exceptions correctly.
Question 5(a) & (b)
Candidates either did not attempt this question or gave irrelevant answers on account of
selective study. Candidates are advised to seek guidance from ICAP’s suggested
answers.
Question 6(a)
Candidates were not able to identify the circumstances laid down under the law and
only a handful were able to score full marks.
Question 6(b)
Candidates faced difficulty in determining that all the directors were eligible to be
appointed as Chairman with the exception of Fasih and Kashif, since they were the
only executive directors of the company.
Question 7(a)
Question 7(b)
 Candidates correctly determined that investors would have to be compensated for

untrue or misleading statement in the prospectus but did not mention that investor
must have suffered loss due to such misstatement.
 Many candidates overlooked that any omission from the prospectus of a matter
required to be included in the prospectus under the law would likewise trigger the
liability to compensate.
Page 3 of 4
Question 8(a)
Instead of mentioning who has the right to propose subsequent auditors and stating the
attached conditions which must be fulfilled before presenting such proposal at the
annual general meeting, some of the candidates simply mentioned that the first auditors
of the company are appointed by the first directors of the company which was
irrelevant.
Question 8(b)
Good performance was observed in this part of the question. However, there were a
few candidates who continued to list the disqualifications of auditors in detail which
was not required and thus did not carry any weightage.
Question 8(c)
Question 9(a)
Candidates ignored the fact that control would be established where a company holds
more than one-half of voting securities of another company either on its own or
together with one or more of its subsidiary companies.
Question 9(b)
Candidates seemed to be completely unaware of the provisions relating to principal line

of business as well as the concept itself. Candidates are advised to refer ICAP’s
suggested answer for this part of the question.
Question 10(a)
 Candidates were not able to calculate the liability in respect of unclaimed dividends
as Rs. 1,760,000 i.e. dividend becoming due on 28 February 2015 and 28 February
2016.
 Candidates were also not able to determine that the liability in respect of unclaimed
shares was to the extent of 800,000 shares only which were required to be
submitted to the Commission and not to the Federal Government.
Question 10(b)
Instead of mentioning the matters required to be included in the business review

section of the directors’ report, candidates listed all contents of a directors’ report.
THE END
Page 4 of 4
Business Law

Mark(s)
A.1 (a) 01 mark for briefly explaining each rule regarding performance of reciprocal
promises 5.0
(b) (i) 01 mark for identifying each option available to Javed 2.0
(ii) Discussing whether Adil will incur any liability in the given situation 1.5
Conclusion 0.5
(iii) Discussing whether notice given by Noman’s wife to Ahsan is invalid

or not 1.0
Conclusion 1.0
(iv) Discussing whether contract of agency exists between Khizar and

Lucky 1.5
Conclusion 0.5
A.2 (a) 2.5 marks each for explanation of ‘holder in due course’ and ‘acceptor for
honour’ 5.0
(b) (i) Identifying nature of issued promissory note as ‘Inchoate Instrument’ 1.0
Determining that Umair’s liability will arise when amount is filled in 1.0
(ii) Specification of Umair’s liability towards Vazir, holder of the instrument

as Rs. 500,000 1.5
(iii) Specification of Umair’s liability towards Waris, holder in due course as

Rs. 600,000 1.5
A.3 (a) Identifying Yasmin as bailor and hotel management as bailee 1.0
Comment on the action which hotel management can take against Ahmed 1.0
Up to 02 marks for identification of each right of hotel management as
bailor of the precious ring 4.0
(b) (i) Explaining that in absence of any contract to the contrary, the liability
of both sureties shall be equal 1.0
Calculating respective liabilities of Amir and Rehan in the given
scenario 1.0
(ii) Describing that release of Amir (co-surety) by Salim, does not:

− discharge Rehan of his responsibility towards Salim 1.0
− free Amir from his responsibility towards Rehan 0.5
Calculating respective liabilities of Amir and Rehan in the given
scenario 0.5
(c) Mentioning an agent’s responsibilities if he appoints a sub-agent without having

the principal’s authority 2.0
Page 1 of 3
Business Law
Mark(s)
A.4 (a) (i) Comment on Hatim’s entitlement 1.0
Comment on Hatim’s limitation as a transferee of partner’s interest 2.0
(ii) Discussing the validity of the suit filed by Noreen against the firm 1.5
Conclusion 0.5
(iii) Discussing whether Faizan can be held responsible for the

misconduct or not 1.5
Conclusion 0.5
(b) Explaining the principle of ‘holding out’ 2.0

Mentioning an exception to the above principle 1.0
A.5 (a) Listing respective jurisdiction of each class of Judicial Magistrates under the
Magistrates Court 3.0
(b) Listing respective jurisdiction of each class of Civil Judges under the Family
Court 2.0
A.6 (a) 01 mark for identifying each circumstance under which director shall not be
considered as an independent director under the Companies Act, 2017 6.0
(b) Identifying the directors who are eligible to be appointed as the Chairman 1.0
Specifying the prescribed time frame for Chairman’s appointment 1.0
Comment on duration of Chairman’s office 1.0
Describing the Chairman’s responsibilities 3.0
A.7 (a) 0.5 mark for listing each type of charge required to be registered 3.0
Stating the effect of non-registration of any charge 1.0
(b) Identifying the persons who are liable to compensate investors in case of
deficiency in prospectus 2.0
Stating prescribed circumstances under which the above liability will arise 2.0
A.8 (a) Identifying who has the right to propose auditors for the appointment 1.5
Specifying the conditions which must be fulfilled before presenting a
proposal for appointment of auditor in the annual general meeting 3.5
(b) Specifying the term of auditor appointed in the first annual general meeting 1.0
Briefly discussing the situations under which an auditor shall cease to hold
office before expiry of the above term 2.0
(c) Brief discussion on the rights of retiring auditor in the given situation 3.0
Page 2 of 3
Business Law
Mark(s)
A.9 (a) Up to 02 marks for describing each condition which must be met in order to
establish AL as a subsidiary company of ML 4.0
(b) Describing the relevant provisions of the Companies Act, 2017 pertaining to
‘principal line of business’ 5.0
A.10 (a) Narrating the prescribed procedures which ZL should follow in respect of
unclaimed shares and dividends 4.0
Determining ZL’s liability in respect of unclaimed shares and dividends 2.0
(b) 0.75 mark for identifying each matter required to be included in the
business review section of the director’s report of a listed company 3.0
Explaining the extent to which above matters are required to be included 1.0
(THE END)
Page 3 of 3
Business Law
Q.1 (a) Briefly describe the composition of Federal Shariat Court. (03)
(b) What do you understand by ‘Persuasive precedent’ and ‘Declaratory precedent’? (02)
Q.2 (a) Fauzia is working as a sales girl for a pottery store, owned by Mirza Baig, in a famous
mall. Fauzia, in the absence of Mirza Baig, often displays her own pottery items on the
shelves and uses her employer’s time, resources and facilities to sell her own items.
Recently, on a surprise visit to the store, Mirza Baig caught Fauzia selling her own
items in the store. Upon investigation, it was also revealed that on certain instances
Fauzia had sold Mirza Baig’s pottery wares at a higher rate than recommended and
pocketed the difference.
Under the provisions of the Contract Act, 1872 identify the nature of contractual
relationship between Fauzia and Mirza Baig. Discuss the duties breached by Fauzia
and the rights available to Mirza Baig under the above circumstances. (05)
(b) Under the provisions of the Contract Act, 1872 define pledge. Also describe the
conditions in which a pledge made by a non-owner is considered to be a valid pledge. (05)
Q.3 Respond to the following scenarios, under the provisions of the Contract Act, 1872:
(a) Shoaib, aged 15, is the son of a billionaire businessman, Ijaz Munsif. Last month
Shoaib drove his father’s 2018 Model BMW to a vintage car exhibition arranged by
Volkswagon Club of Pakistan. At the exhibition he saw a vintage Mercedes-Benz and
entered into a contract with the seller for the purchase of the car.
The seller, knowing Ijaz Munsif’s status, delivered the car to Shoaib at his house. The
seller requested for payment for the car but Shoaib refused to pay. The seller is now
requesting for full payment by Ijaz Munsif. Discuss whether the seller would succeed in
recovering the payment from Shoaib or Ijaz Munsif. (05)
(b) Haroon was engaged to be married to Ghazala. Haroon wanted to establish his own
business and therefore he entered into a contract with Ghazala for providing him all
her jewellery and apartment by way of a gift and in return Haroon agreed to give her a
small share in business profit. After some time, Ghazala filed a suit against Haroon,
requesting for setting aside the gift deed as it was not made with her free will. Discuss
whether Ghazala would succeed in her contention. (04)
(c) Sultan bought electronic appliances worth Rs. 700,000 from Zameer on thirty days’
credit. At the time of purchase, Sultan knew that he was in insolvent circumstances.
Discuss the validity of the contract. (03)
(d) Majid and Soomro went to a money lender. Majid said to the money lender, ‘Let
Soomro have a loan of Rs. 50,000, I ensure that you will be paid’. Identify and describe
the type of contract and state Majid’s responsibility in the contract. (03)
Q.4 (a) Under the provisions of the Partnership Act, 1932 state the mandatory duties of
partners which cannot be modified by an agreement amongst them. (03)
(b) Masoom, Rahul and Naila are partners in a trading firm. In 2016, they borrowed
Rs. 500,000 from Ishtiaq for purchasing a shop in Multan. The loan was agreed to be
repaid in two years’ time. However, due to financial crises the loan could not be
re-paid in time. For the purpose of settling the loan, Ishtiaq has offered Naila to admit
his seventeen-year-old son Muneer to the partnership business.
Under the provisions of the Partnership Act, 1932 discuss whether Muneer can be
admitted to the partnership business. State Muneer’s rights and liabilities if he is so
admitted. (04)
(c) Aftab, Rehan and Bali were partners in a law firm. The partnership deed, among other
things, provided that the profits or losses of the firm would be shared equally among
the partners. The firm continued its business for many years with Aftab receiving fifty
percent share in the net profit and Rehan and Bali each sharing twenty-five percent of
the net profit. Rehan and Bali never objected to this arrangement. Later on, partners
developed some differences and Rehan and Bali filed a suit against Aftab for the
recovery of their share in profits on the basis of partnership deed.
Under the provisions of the Partnership Act, 1932 discuss whether Aftab would
succeed in defending the suit filed against him by Rehan and Bali. (03)
Q.5 (a) Respond to the following independent situations, under the provisions of the
Negotiable Instruments Act, 1881:
(i) Talat Mir, acting within the scope of his authority as an agent, draws a bill upon
his principal, Mirza Nadir. Discuss what kind of a negotiable instrument it may be
regarded. (03)
(ii) Samad drew a cheque which was payable to ‘Munaf or order’. Saleem after
forging Munaf’s endorsement on the cheque received payment from the banker.
Discuss whether the banker would be liable on the cheque to Samad. (02)
(b) Under the provisions of the Negotiable Instruments Act, 1881 briefly describe:
(i) When an acceptance is said to be qualified (03)
(ii) Payment in due course (02)
Company Law Section
Q.6 (a) Under the provisions of the Companies Act, 2017 discuss how a person may become a
member of the company. (03)
(b) The Registrar, after registering the memorandum and articles of association, has issued
the certificate of incorporation to Shahbaz Limited, a company with an authorized
share capital of Rs. 300 million.
Under the Companies Act, 2017 briefly describe the effects of such registration. (05)
Q.7 Respond to the following scenarios, under the provisions of the Companies Act, 2017:
(a) On 31 August 2019, Easy Life Limited (ELL) paid the last installment of its long-term
finance which was obtained from a commercial bank against the mortgage of factory
building.
Briefly describe the duties of both ELL and the Registrar for the release of mortgage
after the payment. (04)
(b) Fancy Works Limited (FWL) is in process of finalizing the prerequisites of holding its
first Annual General Meeting (AGM) to be held on 31 October 2019.
(i) Advise FWL about the matters relating to proxies which must be included in the
notice of AGM. (02)
(ii) Arbaz Limited (AL) is a member of FWL. How would AL represent itself in the
AGM? (02)
(c) The Board of Directors of Hassam Textiles Limited (HTL) is not satisfied with the
performance of its chief executive officer (CEO) and wants to remove him from his
office before the expiry of his term on 31 August 2020.
Briefly explain the options available to HTL for removal of CEO under the above
situation. (02)
Q.8 (a) Kalaam Limited (KL) is considering the following options to invest its excess funds:
(i) Acquire 8% shareholdings in Lighter Oil Limited (LOL) for Rs. 120 million.
LOL is a growing company and is expected to fetch higher returns in futures.
(ii) Grant a loan of Rs. 100 million to Monsoon (Private) Limited (MPL) for
launching a new product. The loan would carry interest at the rate prevailing in
the market. KL currently holds 25% of MPL’s paid-up capital.
Under the provisions of the Companies Act, 2017 specify the condition(s) which KL
must fulfill before opting for any of the above investment options. (07)
(b) Faraz Limited (FL) is considering to enter into a contract with Bari Limited (BL) for
the construction of its new manufacturing facility. The Board of Directors of FL has
authorized Hasan Ali, an executive director, to negotiate the final price with BL.
Sara Ali, who is a chief executive in BL, is the spouse of Hasan Ali.
In view of the provisions of the Companies Act, 2017 briefly explain the
responsibilities of Hasan Ali towards FL under the above circumstances. (05)
Q.9 Under the provisions of the Companies Act, 2017 briefly explain the exception(s) to the
following general rules:
(a) No public company shall give financial assistance to anyone whether directly or
indirectly for the purchase of its own shares. (03)
(b) No subsidiary company shall, either by itself or through its nominees, hold any shares
in its holding company. (02)
(c) Companies can commence the business only after obtaining certificate of
commencement of business from the registrar. (02)
Q.10 (a) Zeeshan Limited (ZL) has recently acquired the majority shareholdings in Ghaffar
Limited (GL). ZL has decided to replace the existing auditor of GL in the next annual
general meeting and has recommended to appoint Javed and Company, Chartered
Accountants, as GL’s auditor for the next year.
Under the provisions of the Companies Act, 2017 explain the procedure(s) to be
followed and formalities to be complied with for the appointment of Javed and
Company as the auditor of GL. Also explain the rights of the retiring auditor in this
regard. (09)
(b) Under the provisions of the Companies Act, 2017 explain the term ‘Independent
director’. Discuss the provisions relating to the payment of remuneration to any of the
directors for attending the board meeting and performing extra services. (04)
(THE END)
Business Law
Suggested Answers
Ans.1 (a) Composition of Federal Shariat Court:

The Federal Shariat Court consists of not more than eight Muslim Judges including
the Chief Justice who are appointed by the President. Out of the number of judges
not more than three shall be Ulema having at least fifteen years’ experience in
Islamic law, research or instruction and not more than four judges each one of them
is or has been or is qualified to be a judge of High Court.
(b) Persuasive precedent:

It is the type of the precedent which is not required to be followed e.g. a decision by
lower court, decision by courts of other countries.
Declaratory precedent:
It is the application of an already existing rule of law.
Ans.2 (a) Agency:

The question deals with the law of agency and the relationship between Fauzia and
Mirza Baig is that of agent and principal.
Duties breached by Fauzia (agent’s duties towards principal)

In the given scenario, Fauzia breached following duties:
(i) Duty to follow principal’s directions or customs:

Fauzia’s first duty was to act within the scope of her authority and perform the
agency work according to the directions given by the principal. Fauzia’s selling
her principal’s items at a higher rate than recommended rate without his
consent amounts to acting beyond her authority.
(ii) Duty to carry out work with reasonable diligence and in good faith:
Fauzia’s act of using her principal’s time, resources and facilities to sell her
own items in place of her principal’s items tantamount to breach of application
of reasonable diligence and good faith.
(iii) Duty not to deal on her own account (conflict of interest):

The action of Fauzia in placing her own items on the shelves indicates that her
own personal interest was allowed to conflict with the interest of her principal.
(iv) Duty not to make any secret profit out of agency:

Fauzia’s act of selling her principal’s items at a higher rate and keeping the
price difference into her own pocket amounts to making secret profit.
Rights of Mirza Baig:

Following are the rights available to Mirza Baig under the given circumstances:
(i) Right to proper account:

Mirza Baig is entitled to get proper accounts of his money from Fauzia.
(ii) Right to receive benefits gained by agent (secret profit):

Since Fauzia was dealing on her own account in the business of agency, Mirza Baig
has the right to ask Fauzia for surrendering all the benefits which may have
resulted from the transactions (secret profit) to him. He is also entitled for the
compensation of any loss caused to him due to Fauzia’s misconduct.
(iii) Right not to pay remuneration:
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Since Fauzia is guilty of misconduct, Mirza Baig is not required to pay any
remuneration to Fauzia for that part of the business which she has misconducted.
(iv) Terminate the agency:

Mirza Baig has a right to terminate the agency relationship with Fauzia.
(b) Pledge:
The bailment of goods as security for payment of a debt or performance of a promise is
called “Pledge”. The bailor in this case is called “Pawnor”. The bailee is called the
“Pawnee”.
Following are the conditions in which a valid pledge can be made by non-owners:
(i) Pledge by a mercantile agent:

If the agent is in possession of the goods or documents of title to the goods with
the consent of the owner, any pledge made by him while acting in the ordinary
course of business of a mercantile agent shall be valid provided:
 the pawnee acts in good faith and
 the pawnee has not at the time of the pledge, notice that the agent has no
authority to pledge.
(ii) Pledge by person in possession under voidable contract

When the pawnor has obtained possession of the goods pledged by him under a
voidable contract but the contract has not been rescinded at the time of pledge, he
can make a valid pledge provided the pledgee acts in good faith and without notice
of the pawnor’s defect of title.
(iii) Pledge where pawnor has only a limited interest

Where a person pledges goods in which he has only a limited interest, the pledge is
valid to the extent of that interest.
Ans.3 (a) Contract with minor:

Shoaib, being a minor, lacks the capacity to enter into a legally binding contract
with the seller. Therefore, Shoaib is not bound by the contract and the contract is
void ab-initio.
A minor can only be bound by a contract, if he has been supplied with necessaries
suited to his condition in life. His liability in such a case would be limited to the
extent of his property, if any.
In this case, the vintage car cannot be regarded as a necessary good. Therefore, the
seller cannot enforce payment for the vintage car against Shoaib.
The seller can only claim for the return of his car through an order of restitution.
Similarly, Ijaz Munsif cannot be held liable for the price of the car which his son
Shoaib bought. He would have been held liable if his son had either entered into a
contract jointly with him or the contract was for the supply of necessaries to
Shoaib.
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(b) Undue influence:

Ghazala may succeed to recover her jewellery and apartment from Haroon on the
presumption of undue influence.
A contract is said to be induced by undue influence where the relation subsisting

between the parties is such that one of the parties is in a position to dominate the
will of the other and uses that position to obtain unfair advantage over the other.
Haroon in this case is a fiancé of Ghazala and is in a position to dominate her will.
When the consent to an agreement is caused by undue influence, the agreement is

voidable at the option of the party whose consent is so caused. Therefore, the
contract is voidable at the option of Ghazala.
The Court may set aside the contract either absolutely or, in case if Ghazala has
received any benefit under the contract, upon such terms and conditions as the
Court may seem just.
The burden of prove that the above contract, which on the face of it appears to be
unconscionable, was not induced by undue influence lies on Haroon, as he is the
one who is in a position to dominate Ghazala’s will.
(c) Fraud:
A promise made without any intention of performing it tantamount to fraud.
Therefore, in this case since Sultan had no intention of performing the contract, he
committed a fraud and the contract is voidable at the option of Zameer.
(d) Contract of indemnity:

This is the case of indemnity. A contract of indemnity is a contract by which one
party promises to save the other from loss caused to him by the conduct of the
promisor himself or by conduct of any other person.
In this case, Majid is the indemnifier and money lender is the indemnity holder.
Majid is responsible to make good any loss which may have been caused to the
money lender due to either his own default or the default of Soomro.
Ans.4 (a) Mandatory duties of partners:

Following are the mandatory duties of a partner that cannot be changed by an
agreement amongst the partners:
 Duty to be just and faithful.
 Duty to carry on business to the greatest common advantage.
 Duty to render true accounts.
 Duty to provide full information.
 Duty to indemnify for loss caused by fraud.
 Duty to be liable jointly and severally – unlimited liability.
 Duty to act within authority.
 Duty in case of emergency.
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(b) Minor’s admission to the partnership:

Partnership is created by a valid contract. Since a minor is not capable of entering
into a contract, a contract by or with a minor is void ab-initio. Accordingly, Muneer
cannot be a partner in the firm.
However, Muneer can be admitted to the benefits of partnership with the consent
of all the partners and not only by Naila alone.
Rights and liabilities of Muneer (minor):

The rights and liabilities of Muneer, who has been admitted to the benefits of
partnership are governed by the following rules:
Rights:
(i) Right to share property and profits of the firm as agreed by the partners.
(ii) Right of inspecting and taking copies of accounts of the firms ONLY.
(iii) Right not to be adjudged insolvent.
Liabilities:
(i) Personally not liable to third parties for the debts of the firm i.e. limited
liability.
(ii) His share is liable for the acts of the firm.
(c) Determination of rights and duties of partners by contract between them:

The contract between the partners may be varied by consent of all the partners,
and such consent may be expressed or may be implied by a course of dealing.
In view of above, the suit filed by Rehan and Bali against Aftab is not maintainable
because by accepting profits for the past many years in a ratio different from the
agreed ratio they have impliedly consented to the variation in the contract. i.e.
partnership deed.
Ans.5 (a) (i) Ambiguous instrument:

It is an ambiguous instrument as both the drawer and the drawee are the same
person. In this case, Mirza Nadir may either treat it as a bill of exchange or a
promissory note, but once he has made his choice the instrument shall
henceforth be treated accordingly.
(ii) Payment in due course of crossed cheque:

The banker in this case would not be liable to Samad and can debit Samad’s
account with the amount of the cheque provided the payment was made in due
course without negligence and in accordance with the apparent tenor of the
cheque. The banker is not expected to verify the signatures of the payees and
the endorsees in an order cheque. The banker would only be liable to Samad if
he can prove that payment was not made in due course.
(b) (i) Qualified Acceptance:

An acceptance is qualified in the following manner:
 Conditional: where acceptance is conditional i.e., payment dependent on
the happening of an event therein stated;
 Part Payment: where it undertakes part payment of the sum ordered to be
paid;
 Place of Payment: where no place of payment being specified in the order
it undertakes the payment at a specified place and not otherwise or
elsewhere; or where a place of payment being specified in the order it
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undertakes the payment at some other place and not otherwise or

elsewhere;
 Time of Payment: where it undertakes the payment at a time other than
that at which under the order it would be legally due.
(ii) Payment in due course:
Payment in due course means payment in accordance with the apparent tenor
of the instrument in good faith and without negligence to any person in
possession thereof under circumstances which do not afford a reasonable
ground for believing that he is not entitled to receive payment of the amount
therein mentioned.
Company Law Section
Ans.6 (a) A person may become the member of the company in any of the following ways:
 The subscribers to the memorandum of association are deemed to have agreed
to become members of the company and become members on its registration.
and in other cases:
 A person to whom shares of any kind are allotted, or who becomes the holder
of any class or kind of shares; become the member of the company or
 in relation to a company not having a share capital, any person who has agreed
to become a member of the company;
and whose names are entered; in the register of members, are members of the
company.
(b) Effects of registration:
The registration of Shahbaz Limited has the following effects as from the date of
incorporation:
(i) The subscribers to the memorandum, together with such other persons as
may from time to time become members of the company, are a body
corporate by the name stated in certificate of incorporation;
(ii) The body corporate is capable of exercising all the functions of an
incorporated company having perpetual succession and a common seal;
(iii) The status and registered office of the company are as stated in, or in
connection with, the application for registration;
(iv) The subscribers to the memorandum become holders of the initial shares;
(v) The persons named in the articles of association as proposed directors, are
deemed to have been appointed to that office.
Ans.7 (a) Duty of ELL

ELL shall give intimation to the registrar in the manner specified, of the payment, in
full, of mortgage by it within thirty days from the date of such payment.
Duty of registrar
The registrar shall, on receipt of such intimation, issue a notice to the bank to show
cause within a time limit not exceeding fourteen days, as may be specified in such
notice, as to why payment in full, shall not be recorded. If no cause is shown by the
bank, the registrar shall make an entry in the register of mortgages and charges.
If any cause is shown, the registrar shall record a note to that effect in the register
of charges and shall inform the company.
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The above mentioned notice by the registrar shall not be required if a no objection
certificate on behalf of the bank is furnished along with the intimation of payment
in full of loan.
(b) (i) The Notice of AGM of FWL shall prominently set out the member’s right to
appoint a proxy and the right of such proxy to attend, speak and vote in the
place of the member at the meeting and such notice shall be accompanied
by a proxy form.
(ii) AL may by resolution of its board authorize an individual to act as its
representative at any meeting of FWL. The instrument of proxy for such
individual be under AL’s seal or be signed by an officer or an attorney duly
authorized by AL in this behalf.
(c) The Chief Executive may be removed before the expiration of his term of office
notwithstanding anything contained in the article of the company or any
agreement between the company and such chief executive by:
 board resolution passed by not less than three fourths of the total number
of directors for the time being or
 the company by a special resolution.
Ans.8 (a) (i) The directors can make investment in its shares by passing a resolution in
their meeting.
(ii) MPL is an associated undertaking of KL as it holds 25% shareholdings in
MPL. Therefore, KL can make investment in MPL only under the authority
of a special resolution passed by the members in the general meeting.
The special resolution shall be supported by an agreement in writing
which shall include the terms and conditions specifying the nature,
purpose, period of loan, rate of return, fees or commission, repayment
schedule for principal and return, penalty clause in case of default or late
repayments and security, if any, for the loan in accordance with the
approval of the members in the general meeting.
The rate of return on such investment shall not be less than the borrowing
cost of KL (investing company) or the rate as may be specified by the
Commission whichever is higher and shall be recovered on regular basis in
accordance with the terms of agreement, failing which the directors shall
be personally liable to make the payment.
Further, the directors of KL (investing company) shall certify that
investment is made after due diligence and that the borrower has the
ability to repay the loan as per the agreement.
(b) Disclosure of directors’ interest
Being a director, Hassan Ali is an agent of the shareholders of the company and
stands in a fiduciary relationship with them so he is required to make all
contracts and all transactions in good faith and in best interest of the company.
In this case, Hassan Ali is deemed to be indirectly interested in the transaction as
his wife is the chief executive in BL.
Therefore, Hassan Ali should give a general notice to the effect to all other
directors that he should be regarded as concerned or interested in the
transaction to be entered into with BL and such notice shall be given at the
meeting of the directors at which the question of entering into the contract or
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arrangement is first to be taken into consideration.

After disclosing his interest in the transaction, Hassan Ali should not be part of
the directors’ meeting in which such contract or transaction is to be discussed.
Ans.9 (a) Exceptions to the given rule are as under:
(i) The lending of money by a banking company in the ordinary course of its
business;
(ii) The provision of money in accordance with any scheme approved through
special resolution and in accordance with such requirements as may be
specified, for the purchase of, or subscription for shares in the company, if
the purchase of, or the subscription for, the shares held by a trust for the
benefit of the employees or such shares held by the employee of the
company.
(iii) The provision or securing an advance to any of its employees, including a
chief executive who, before his appointment as such, was not a director of
the company, but excluding all directors of the company, for purchase of
shares of the company.
(b) No subsidiary can hold any shares in its holding company. However, a subsidiary
is not barred:
(i) from acting as a trustee, and
(ii) from dealing in shares of its holding company in the ordinary course of its
business, on behalf of its clients only subject to non-provision of any
financial assistance where such subsidiary carries on a bona fide business
of brokerage:
(iii) from holding shares by operation of law
(c) Following companies can commence business without obtaining certificate of

commencement of business:
(i) A private company
(ii) A company converted from private to public
(iii) A company limited by guarantee and not having a share capital
Ans.10 (a) Procedures to be followed and formalities to be complied with for appointment of
new auditors:
 ZL shall obtain the consent of Javed and Company, Chartered Accountants
(JCC) for acting as GL’s auditor.
 ZL shall give a notice not less than 7 days before the date of the annual
general meeting to the company, for a resolution for appointment of JCC as
auditors at a company’s annual general meeting.
 GL shall forthwith send a copy of such notice to the retiring auditor and shall
also be posted on its website.
 GL shall, within fourteen days from the date of appointment of JCC, send to
the registrar intimation thereof, together with the new auditor’s consent in
writing.
 GL shall, within fourteen days from the date of removal of the existing
auditor, send intimation thereof to the registrar.
Rights of the existing auditor:

 The retiring auditor shall have a right to make a representation in writing to
the company at least two days before the date of general meeting. Such
representation shall be read out at the meeting before taking up the agenda
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for appointment of the auditor.

 Provided that where such representation is made, it shall be mandatory for
the auditor or a person authorised by him in writing to attend the general
meeting in person.
(b) Independent director is a director who is not connected or does not have any
other relationship, whether pecuniary or other, with the company, its associated
companies, subsidiaries, holding company or directors; and he can be reasonably
perceived as being able to exercise independent business judgment without
being subservient to any conflict of interest.
The remuneration to be paid to any director for attending the meetings of the
directors or a committee of directors shall not exceed the scale approved by the
company or the directors, as the case may be, in accordance with the provisions
of the articles.
The remuneration of a director for performing extra services, including the office
of the chairman, is determined by the directors or the company in general
meeting in accordance with the provisions in the company's articles.
(THE END)
Page 8 of 8
SUBJECT SESSION
– Autumn 2019
Passing %
Question-wise
Overall
1 2 3 4 5 6 7 8 9 10
62% 20% 2% 48% 14% 25% 45% 25% 44% 33% 23%
General comments:
The overall performance has gradually improved over the past few attempts mainly due
to increased focus on company law section. The performance in mercantile law has
however remained unsatisfactory. Examinees are therefore, advised to study all topics
of the subjects and refrain from selective study. They must strive to improve their
communication skills and learn / practice to apply theoretical knowledge of law to
scenario based questions.
Question 1(a)
Question 1(b)
Majority of the examinees correctly defined the persuasive precedent. However, they
failed to define declaratory precedent as most of the answers were confined to the
statement that declaratory precedents are binding on lower Courts.
Question 2(a)
 The answers mostly revolved around Fauzia’s duty to work with reasonable
diligence and to render secret profits to her principal.
 Examinees could not deliberate on the duties breached by Fauzia in performance of
her responsibilities as an agent.
 With regard to the rights available to Mirza Baig, only handful of examinees
identified Mirza Baig’s right not to pay remuneration to Fauzia for that part of the
business which she had misconducted.
Page 1 of 5
Examiners’ Comments on Business Law Autumn 2019
Question 2(b)
Examinees were able to define the term pledge. However, with regard to the conditions
in which a pledge made by non-owner is considered to be valid, many examinees failed
to identify that pledge made by a person who is in possession of goods under voidable
contract and pledge where pawnor has only a limited interest are also considered to be
valid pledges.
Question 3(a)
 Most of the answers were incomplete and examinees were unable to differentiate
void and voidable contracts.
 Examinees failed to identify the situations in which Shoaib would have been liable
to pay and the extent of his liability under the contract.
 Only handful of examinees acknowledged the right of seller to claim for the return
of his car through an order of restitution.
 Some examinees considered Shoaib as an agent of Ijaz Munsif (His father).
Question 3(b)
 Examinees failed to identify the presence of undue influence and thought that
Ghazala may not succeed as she received a share in business profit.
 Many examinees opined that a gift deed once made cannot be cancelled.
 In view of many examinees, the contract was made under coercion and the burden
of prove was on Ghazala.
Question 3(c)
 Examinees failed to identify that a promise made without any intention of

performing is equivalent to fraud.
 Examinees also failed to identify whether it was a void or voidable contract.
Question 3(d)
Majority of the examinees thought it to be the contract of guarantee.
Question 4(a)
Question 4(b)
Question 4(c)
Examinees could not appreciate that a contract between partners may be varied by
consent of all the partners, whether express or implied in a course of dealing. They
thought that conditions mentioned in the partnership agreement prevail under all
circumstances and those conditions cannot be changed.
Page 2 of 5
Question 5(a)(i)
Examinees failed to identify that it was an ambiguous instrument. They either thought
it to be a promissory note or a bill of exchange and discussed it accordingly.
Question 5(a)(ii)
 Majority of the examinees correctly deliberated that the banker would not be liable
on the cheque to Samad. However, they failed to provide any justification in
support of their decision.
 Examinees did not comprehend that it is not banker’s liability to verify payees and
endorsees signature in case of an order cheque.
 Some examinees also opined that there is no such thing as ‘Order cheque’. The
cheques are either bearer or crossed.
Question 5(b)(i)
Examinees either did not answer this part or their answers were incomplete. Only
handful of candidates were able to identify and discuss the conditions in which an
acceptance is said to be qualified.
Question 5(b)(ii)
Majority of the answers were incomplete and limited to the statement that a payment
made in good faith and without negligence to a person who is in possession of the
instrument is called payment in due course.
Question 6(a)
 Examinees either ignored or forgot to write that subscriber to the memorandum

becomes member only upon its registration. Similarly, a person to whom shares are
allotted becomes member only when his name is entered in the register of
members.
 In some cases, examinees also stated that purchasing shares is the only way of
becoming a member in a company.
Question 6(b)
 Most of the answers were incomplete as majority of the examinees covered only
two or three points.
 Some of the examinees also discussed the provisions of obtaining certificate of
commencement of business.
Question 7(a)
 Some examinees were of the view that Registrar can release the mortgage even in
absence of information from either party.
 Examinees were unable to identify the time limit within which ELL was required to
send intimation to the Registrar.
 Examinees were also not able to appreciate that Registrar was not required to send
the notice to the bank if no objection certificate was furnished by the bank along
with intimation of payment of loan in full.
Page 3 of 5
Question 7(b)(i)
 Examinees failed to discuss the basic rights of proxy i.e. to attend, speak and vote
at the meeting.
 Instead of mentioning the matters relating to proxies which must be included in
notice of AGM, few examinees explained the matter to be included in the proxy
form.
Question 7(b)(ii)
 Few examinees rightly identified the need for a company to pass a board resolution
and authorize an individual who could represent them in the AGM of FWL.
 Examinees could not specify the proxy requirement in this regard.
Question 7(c)
Examinees were not able to identify the condition that ‘notwithstanding anything
contained in Articles or Agreement between the company and chief executive, chief
executive may be removed before expiration of his term of office’.
Question 8(a)
(i) Good performance was observed in this part.
(ii) Majority of the answers were incomplete and were confined to the statement that
KL can make investment in MPL by passing a Special Resolution and that the
rate of return on such investment shall not be less than KL’s borrowing cost.
Question 8(b)
Many examinees, though identified Hasan Ali’s interest in the contract, failed to
discuss that Hasan Ali was required to give the notice of his interest to the directors at
their meeting where the question of entering into the contract was first to be taken into
consideration.
Question 9(a)
 Most examinees were able to identify only one instance (i.e. lending of money by a
banking company) in which the company could provide financial assistance to its
own employees.
 Few examinees were able to mention the exception related to provision of money in
accordance with the scheme approved by the special resolution.
Question 9(b)
Good performance was seen in this part of the question.
Question 9(c)
Private company was correctly mentioned by most of the examinees. However, other
two exceptions were not found in most of the answer scripts.
Page 4 of 5
Question 10(a)
 Many examinees mixed up the rights of existing auditors with the rights of auditor
whose name was proposed for appointment.
 Few examinees discussed the procedure for appointment of auditor proposed by a
shareholder holding 10% shareholdings in the company.
 Majority of examinees missed the requirements of intimation to registrar and
timing of sharing the notice for appointment of new auditor with members.
 Some examinees were of the view that acquirer company is responsible for issuing
notice of appointment of new auditor to the members of acquiree company and its
uploading on website.
 Many examinees did not mention the number of days within which notice of
appointment would send to the members.
 Disqualifications of auditors were discussed which was not required.
Question 10(b)
 Examinees failed to explain the basic concept of independent director. Instead, they
listed the scenarios where a director shall not be deemed to be independent, which
was not required.
 Most of the examinees were unable to discuss the remuneration payable to directors
for attending board meeting, performing extra services and the authority who may
approve such remuneration.
 Many examinees suggested that independent directors are not allowed to be paid
any sort of remuneration as it would impair their independence.
(THE END)
Page 5 of 5
Business Law

Mark(s)
A.1 (a) Briefly describing the composition of Federal Shariat Court 3.0
(b) Definition of Persuasive precedent 1.0

Definition of Declaratory precedent 1.0
A.2 (a) Identification of the nature of contractual relationship 0.5

Discussing breach of duties by Fauzia 2.5
Discussing the rights of Mirza Baig 2.0
(b) Definition of pledge 2.0

Describing the conditions in which a valid pledge can be made by
non-owners 3.0
A.3 (a) Decision with regard to the success of seller in recovering the amount from
Shoaib or Ijaz Munsif 1.0
Discussing the reasons for the above decision 4.0
(b) Identification of the nature of consent given by Ghazala 1.0

Consequences of undue influence with regard to both Haroon and Ghazala 2.0
Decision whether Ghazala would succeed in her contention in the light of
above discussion 1.0
(c) Identification of the presence of fraud in the contract 1.0

Discussing the nature of contract and decision with regard to the validity of
the contract 2.0
(d) Identification of the type of contract 1.0

Brief description of the type of contract 1.0
Stating Majid’s responsibility in the contract 1.0
A.4 (a) 0.5 mark for each mandatory duty of the partner 3.0
(b) Decision with regard to Muneer’s admittance to the partnership 0.5

Discussing the reasons for such decision 1.5
Discussing the rights of Muneer 1.0
Discussing the liabilities of Muneer 1.0
(c) Decision as to whether Aftab would be able to defend the suit filed against
him by Rehan and Bali 0.5
Discussing the reasons for the above decision 2.5
A.5 (a) (i) Identification of the instrument 1.0

Discussing the reasons for the identification 2.0
(ii) Discussion on banker’s liability 2.0

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Business Law
Mark(s)
(b) (i) Up to 01 mark for describing each situation when an acceptance is said to
be qualified 3.0
(ii) Describing payment in due course 2.0
A.6 (a) Up to 01 mark for stating each mode by which a person may become a member
of the company 3.0
(b) Up to 01 mark for stating each effect after registration of the certificate of
incorporation of Shahbaz Limited 5.0
A.7 (a) Up to 01 mark for stating each duty, in respect of the release of the mortgage, of:
the company 1.0
the registrar 3.0
(b) (i) Briefly discussing the matters relating to proxies which must be included in
the notice of AGM 2.0
(ii) Description of the procedure which AL should follow in order to represent

itself in the AGM of FWL 2.0
(c) Explaining the options available for the removal of CEO before the expiry of his
term 2.0
A.8 (a) Specifying the conditions which KL must comply before making investment in:
an associated company 6.0
a company which is not an associate 1.0
(b) Briefly discussing the responsibilities of Hasan Ali regarding the disclosure of his
interest in the contract 5.0
A.9 (a) Up to 01 mark for stating each exception relating to the financial assistance for
the purchase of its own shares by a public company 3.0
(b) Up to 01 mark for stating each exception relating to the holding of shares by a
subsidiary in its holding company 2.0
(c) Up to 0.75 mark for stating each exception under which a company can
commence the business without obtaining the certificate of commencement of
business 2.0
A.10 (a) Explaining the procedure to be followed and formalities to be complied

with 5.0
Discussing the rights of retiring auditor 4.0
(b) Definition of ‘Independent director’ 2.0

Discussing the provisions relating to the remuneration of the directors for
attending the board meeting and performing extra services 2.0
(THE END)
Page 2 of 2

Business Law
Instructions to examinees:
(i) Answer all TEN questions.
(ii) Answer in black pen only.
Q.1 (a) Discuss why and to whom prerogative orders may be issued by the High Court. Briefly
describe any two types of prerogative orders. (03)
(b) What is a delegated legislation? State one disadvantage of a delegated legislation. (02)
Q.2 (a) Mohsin acquired a piece of agricultural land in Moro, Sindh from a local landlord,
Qasim Soomro, on a lease term of twenty years. The revenue payable by Qasim
Soomro on his land to the Provincial Government was in arrears. As a result, the land
was advertised for sale by the Provincial Government. Mohsin, in order to prevent the
sale of land, paid the sum due by Qasim Soomro to the Provincial Government.
Under the provisions of Contract Act, 1872 explain whether Mohsin can recover such
amount from Qasim Soomro. (02)
(b) Naeem was a treasury manager in Raheel Associates (RA). Naeem robbed
Rs. 100,000 cash from the business. Raheel, the owner of the business, instituted legal
proceedings against Naeem. Naeem agreed to return the cash and Raheel agreed to
withdraw the proceedings against him. Naeem fulfilled his part of the promise.
Under the provisions of the Contract Act, 1872 explain whether Raheel is bound to
withdraw the proceedings against Naeem. (02)
(c) What is meant by ‘Assignment of contracts’ under the Contract Act, 1872? State any
four rules subject to which a contract may be assigned by act of parties. (05)
Q.3 Respond to the following independent scenarios, under the provisions of the
Contract Act, 1872:
(a) Four Wheels Limited (FWL), misrepresenting themselves to be the agents of

Big Motors (BM), persuaded Motor Manufacturers (MM) to sell them 10 luxury Jeeps
customised for BM. Discuss FWL’s liability under the above situation. (05)
(b) Muneer wanted to complete his bachelor’s degree from Europe. His paternal uncle
Furqan Butt had promised him to pay Rs. 2 million by way of a gift, at the time of his
admission to a college in Europe. After getting admission to one of the renowned
colleges in Europe, Muneer asked Furqan Butt to pay him Rs. 2 million as promised.
However, Furqan Butt refused to pay the amount and Muneer filed a suit against
Furqan Butt for the enforcement of his promise. Discuss the circumstances in which
Muneer may be able to recover the amount from Furqan Butt. (04)
(c) Batool offered to sell her flat to Saqib for Rs. 4,200,000. Saqib accepted the offer and
sent a cheque of Rs. 1,500,000 with a stipulation to pay the balance in 24 equal
monthly instalments of Rs. 112,500 each. Explain whether it is a valid contract. (03)
(d) Imran Traders entered into a one-year contract with Minhas Oils Limited for the
supply of gravels for their extraction project in Badin at a fixed price of Rs. 30,000 per
dumper. Six months after the contract, the diesel prices increased sharply, making it
non-profitable for Imran Traders to continue the supply at the agreed price. Therefore,
they terminated the contract on the ground of impossibility of performance. Describe
whether the contract is discharged in the above situation. (04)
Q.4 (a) Respond to the following independent scenarios, under the provisions of the
Partnership Act, 1932:
(i) Moiz, Adeeb and Mumtaz were partners in a firm. Adeeb died. Moiz and
Mumtaz continued the business and agreed to give 10% share of profits of
business to the widow of Adeeb as annuity. Discuss whether Adeeb’s widow would
be deemed to be a partner in the firm. (02)
(ii) Saima, Ahsan and Bari are partners in a law firm. Bari received an advance of
Rs. 150,000 from one of firm’s clients for defending a law suit. Bari, without
proceeding on client’s request and informing other partners about the receipt of
the amount, utilised the money for personal use. Discuss the rights and liabilities of
partners and that of the firm with regard to Bari’s act. (06)
(b) Under the provisions of the Partnership Act, 1932 list down any four restrictions
imposed on the implied authority of a partner. (02)
Q.5 (a) List any five situations in which an alteration made to the negotiable instrument does
not render the instrument void. (05)
(b) Rahat received a cheque of Rs. 75,000 from one of his customers, Jahanara. Rahat
however, failed to present the cheque for payment within a reasonable time of its issue
and the bank failed in the meanwhile. Jahanara suffered a damage of Rs. 40,000
through the delay in presenting the cheque.
In view of the provisions of the Negotiable Instruments Act, 1881 discuss whether
Rahat can recover the money in the above situation. (03)
(c) Sultan drew a bill of exchange on Amjad and made it payable to Bukhari or order. On
maturity another person of the same name wrongfully acquired possession of the bill
and presented it to Amjad for payment. Amjad after making due inquires and being
satisfied that the presenter is Bukhari, made payment on the bill.
Under the provisions of the Negotiable Instruments Act, 1881 discuss whether Amjad
is discharged from his liability. (02)
Company Law Section
Q.6 A team of young engineers is planning to incorporate a private limited company which
would provide machine maintenance services to large companies. The company would
initially be incorporated with a share capital of Rs. 20 million.
However, the engineers are not certain about the following matters:
(a) Registration and signing of articles of association. (03)
(b) Appointment of the first and subsequent directors and chief executive and terms of their
office. (07)
Advise the team of engineers in respect of the above matters in the light of the
Companies Act, 2017.
Q.7 (a) The licence of Cancer Research Association (CRA), issued under section 42 of the
Companies Act, 2017, was revoked by the Commission as the affairs of CRA were
conducted in a manner prejudicial to public interest.
Under the Companies Act, 2017 briefly discuss the effect of revocation of licence on
CRA, its members and officers. (05)
(b) Under the provisions of the Securities Act, 2015 no person shall make a public offer of
securities unless the Commission has approved the prospectus submitted by the issuer
or offeror of the securities.
Discuss the exceptions to the above provision of the Securities Act, 2015. (04)
(c) On 4 February 2020, the Commission approved the prospectus of Victory Limited (VL)
for public offer of its securities. The directors intend to publish the prospectus on
10 April 2020.
Under the provisions of the Securities Act, 2015 advise the directors with regard to the
following:
(i) The time frame within which the prospectus may be published. (02)
(ii) The requirements for publication of prospectus. (03)
Q.8 The Board of Directors of Giant Industries Limited (GIL), a listed company, in their
meeting held on 25 February 2020 had approved 30% interim cash dividend for the
shareholders. While approving the dividend payment, the board had authorised to adjust
dividend payable to one of the shareholders, Kamran Ahmed, against the amount due from
him.
Under the provisions of the Companies Act, 2017:

(a) state when an interim dividend is deemed to have been declared and the
responsibilities of GIL regarding its payment. (04)
(b) identify the circumstances under which the directors may withhold/adjust the payment
of dividend. (02)
(c) list the steps which GIL would be required to take, for adjustment of dividend payable
to Kamran Ahmed against the amount due from him. (02)
Q.9 The annual general meeting of Alpha Limited (AL), a listed company, is scheduled to be
held in March 2020 to transact several ordinary and special businesses such as election of
directors including independent directors.
Under the provisions of the Companies Act, 2017 list the information which must be
included in AL’s notice of annual general meeting to be published in the newspapers. Your
answer should cover all aspects which must either be included in or be annexed to notice of
annual general meeting. (10)
Q.10 (a) Liaquat Munira & Co., Chartered Accountants (LMC) is the auditor of Noor Holdings
Limited (NHL) and its two subsidiaries. On 6 March 2020, the spouse of one of the
partners of LMC got elected as director of NHL.
Briefly discuss the effect(s) of appointment of partner’s spouse as director of NHL. (03)
(b) Briefly discuss the rights of the auditor with regard to access to company’s records.
Also identify the persons from whom an auditor may require to provide him any
information or explanations as he may think necessary for the performance of his
duties. (05)
(THE END)
Business Law
Suggested Answers
Ans.1 (a) Prerogative orders:

In order to discharge its supervisory role, the High Court issues prerogative orders against
sub-ordinate courts, tribunals and other bodies such as local authorities in so far as they
have a duty to exercise a discretion fairly.
The three types of prerogative orders are:

Mandamus: requires the court or other body to carry out a public duty (mandatory duty)
e.g., if the subordinate court wrongfully rejects an application. High Court may through a
writ of mandamus order subordinate courts to accept that application.
Prohibition: prevents a court or tribunal from exceeding its jurisdiction e.g., a High Court
may through writ of prohibition direct the judge and parties to cease the litigation because
the subordinate court does not have proper jurisdiction to hear or determine the matters
before it.
(b) Delegated Legislation:

In Delegated Legislation power is given to an Executive (a minister or public body to make
subordinate or delegated legislation for specified purposes only).
Disadvantages of delegated legislation:

 The main criticism of delegated legislation is that it takes law making away from the
democratically elected members. Power to make law is given to unelected civil
servants and experts working under the supervision of a government minister.
Ans.2 (a) Payment by interested person:

To constitute a quasi-contract and be entitled for reimbursement, following conditions
must be satisfied:
(i) the person who made the payment must have his own interest in the payment; and
(ii) the other person must be bound by law to pay.
In the given scenario, Qasim Soomro was legally bound to pay the land revenue to the
Provincial Government and Mohsin, being interested in such payment, as his lease would
have been annulled upon sale of land by the provincial government, is entitled to recover
the amount from Qasim Soomro.
(b) The agreement between Naeem and Raheel is void as its object is unlawful. Raheel,
therefore, is not bound to fulfil his part of the promise.
(c) Assignment of contracts:

Assignment of contracts means transfer of contractual rights and liabilities to a third party.
Assignment by act of parties

Assignment by act of parties takes place when the parties to a contract themselves make
the assignment. Such an assignment is subject to the following rules:
(i) If it is a contractual obligation/right involving personal skill or ability than it cannot
be assigned.
(ii) If the contract expressly or impliedly provides that the contract shall be performed
by the promisor only then such obligation cannot be assigned.
(iii) If the contract does not expressly or impliedly provides that the contract shall be
performed by the promisor only then the promisor or his representative may
employ a competent person to perform such obligation but even than the promisor
remains liable to the promisee for proper performance.
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(iv) By Novation the promisor may transfer his liability to a third party with the consent
of the promisee and the transferee.
Ans.3 (a) Since Four Wheels Limited (FWL) acquired 10 luxury Jeeps, customised for BM, on behalf of
Big Motors (BM), without their knowledge or authority, FWL’s liability would be analysed
under the following two circumstances:
(i) When BM elects to ratify FWL’s acts:

If BM ratifies FWL’s act, the same effects will follow as if the act had been performed
by BM’s authority.
Being agent, FWL is bound to conduct the business according to the custom which
prevails in doing business of the same kind at the place where the agent conducts
such business. If FWL acts otherwise, in case of any loss, FWL would be responsible to
make good the loss to BM and if any profit accrues, account for such profit to BM.
Similarly, FWL would be liable to compensate BM in respect of the direct

consequences of their negligence, want of skill or misconduct.
However, if FWL without the knowledge of BM deals in the business of agency on

FWL’s own account, BM is entitled to claim any benefit which may have resulted to
FWL from the transaction.
(ii) When BM disown FWL’s act:

If BM does not ratify the agency, the contract would be between FWL and Motor
Manufacturers (MM). If MM suffers a loss due to breach of contract, FWL would be
responsible to make good the loss.
(b) Completed gift/love and affection:

An agreement made without consideration is void. However, Muneer may claim the amount
of Rs. 2 million from his uncle Furqan Butt, by proving either of the following two
conditions.
(i) gift
(ii) love and affection
Completed gift:
In case of a gift it needs to be completed. The rule ‘No consideration no contract’ does not
apply to completed gifts.
Love and affection:

An agreement made on account of natural love and affection without consideration will be
valid if it is:
 expressed in writing,
 registered under the law,
 made on account of natural love and affection, and
 between parties standing in a near relation to each other.
However, in the given scenario, Furqan Butt only made a promise to pay
Rs. 2 million by way of a gift and did not actually pay the amount. Similarly, the promise
was not made in writing and was not registered, therefore, the promise cannot be enforced
in both of the above circumstances and Muneer cannot recover anything from his uncle
Furqan Butt.
Page 2 of 8
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Suggested Answers
(c) Acceptance must be absolute:

An acceptance should be unconditional assent by the offeree to all the terms of the offer. In
this case, since the offer has been accepted with a variation it would be regarded as a
qualified acceptance. Therefore, a contract between Batool and Saqib has not been formed.
However, if Batool accepts the counter offer made by Saqib then it would be a binding
contract.
(d) Contract to do act afterwards becoming impossible or unlawful:

A contract to do an act which, after the contract is made, becomes impossible, or, by reason
of some event which the promisor could not prevent, becomes void when the act becomes
impossible, or unlawful.
However, events that make the contract extremely difficult, costly or less beneficial or
commercially unviable or non-profitable then that agreed at the time of its formation, but
not impossible, are not accepted as an excuse for non-performance.
Therefore, in the given scenario, Imran Traders excuses shall not be acceptable and in the
event of non-performance they will be held liable for the breach of contract and the
consequential damages.
Ans.4 (a) (i) Existence of partnership:

No, Adeeb’s widow is not a partner in the firm. The receipt by a person of a share of
the profits of a business, is a prima facie evidence of the existence of partnership.
However, the receipt by the widow of a deceased partner, as annuity, does not of itself
make the receiver a partner with the persons carrying on the business. In
determining whether Adeeb’s widow is a partner in the firm regard shall be had to
the presence of mutual agency relationship among Moiz, Mumtaz and Adeeb’s widow,
which is a conclusive evidence, of the presence of partnership, and which in this case
does not exist.
(ii) Mutual rights and liabilities of partners and the firm:

Bari has clearly exceeded his authority. However, Saima and Ahsan cannot repudiate
Bari’s transaction with the client. Bari’s act of receiving Rs. 150,000 from the client,
for defending them against a law suit, was done to carry on, in the usual way, business
of the kind carried on by the firm and such act binds the firm.
Further, where a partner acting within his apparent authority receives money from a
third party and misapplies it, the firm is liable to make good the loss. As a result, each
of the partners is jointly and severally liable to the client for all the acts of the firm
done while they are the partners.
Similarly, where by the wrongful act or omission of Bari (not defending the client
against the law suit), a loss or injury is caused to the client or any penalty is incurred,
the firm is liable to the same extent as the partners are liable.
However, Bari would be personally liable to the other partners for Rs. 150,000 and
shall indemnify the firm for any loss caused to it by his wilful neglect in the conduct of
the business of the firm.
Further consequence of his breach of duty not to act in any way prejudicial to the
partnership business; the partnership could be wound up.
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(b) Restrictions imposed on the implied authority of a partner:

In the absence of any usage or custom of trade to the contrary, the implied authority of a
partner does not empower him to:
(i) submit a dispute relating to the business of the firm to arbitration,
(ii) open a banking account on behalf of the firm in his own name,
(iii) compromise or relinquish any claim or portion of a claim by the firm,
(iv) withdraw a suit or proceeding filed on behalf of the firm,
Ans.5 (a) In the following situations, the alteration does not render the negotiable instrument void:
(i) Alteration made for the purpose of correcting a mistake or a clerical error.
(ii) Alteration made to carry out the common intention of the original parties.
(iii) Alteration made with the consent of the parties liable on the instrument.
(iv) Conversion of bearer cheque into an order cheque.
(v) Crossing of an uncrossed cheque.
(b) When cheque not duly presented and drawer damaged there by:
It was the duty of Rahat to present the cheque for payment within reasonable time of its
issue. But he failed to present it and in the meantime the bank failed causing an actual
damage of Rs. 40,000 to Jahanara due to this delay.
In this case, Jahanara is discharged from her liability to the extent of her damage
i.e. Rs. 40,000.
However, Rahat can still recover Rs. 35,000 from Jahanara.
Rahat, after the discharge of Jahanara, is now the creditor of the bank in lieu of Jahanara to
the extent of Rs. 40,000 and can recover Rs. 40,000 from the bank.
(c) Payment in due course:

Yes, Amjad is discharged from his liability on the bill.
Amjad made payment to the presenter, who was in possession of the bill, according to the
apparent tenor of the instrument, in good faith and without negligence, after making due
inquiry as to his identity.
It is therefore, a payment in due course and the acceptor is discharged.
Company Law Section
Ans.6 (a) Registration of articles

 The company limited by shares has the option to set out its own regulations for the
company and get it registered with the memorandum of association, or adopt Table A
as its Article of association.
 If articles are not registered, or, if articles are registered, in so far as the articles do
not exclude or modify the regulations in Table A in the First Schedule to the
Companies Act, those regulations shall, so far as applicable, be the regulations of the
company in the same manner and to the same extent as if they were contained in duly
registered articles.
 The article shall be signed by each subscriber, in the presence of a witness who shall
attest the signature of the subscriber.
Page 4 of 8
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Suggested Answers
(b) First directors

The number of directors and the names of the first directors shall be determined by the
subscribers of the memorandum. The number of first directors may be increased by appointing
additional directors by the members in a general meeting.
The first directors shall hold office until the election of directors in the first annual general
meeting.
Subsequent directors are elected in the first general meeting of the company. The directors so
elected, hold office for a period of three years.
First Chief executive

The name of the first chief executive shall be determined by the subscribers of the
memorandum of association of the company. The first chief executive shall, unless he
earlier resigns or otherwise ceases to hold office, hold office up to the first annual general
meeting of the company or, if a shorter period is fixed by the subscriber at the time of his
appointment, for such period.
Subsequent Chief Executive

Within fourteen days from the date of election of directors or the office of the chief
executive falling vacant, as the case may be, the board shall appoint any person, including
an elected director, to be the chief executive but such appointment shall not be for a period
exceeding three years from the date of appointment.
Ans.7 (a) Effect of revocation of licence

On revocation of licence of CRA issued under section 42, by the Commission:
(i) the company shall stop all its activities except the recovery of money owed to it, if
any;
(ii) the company shall not solicit or receive donations from any source; and
(iii) all the assets of the company after satisfaction of all debts and liabilities shall be
transferred to another company licensed under section 42, preferably having similar
or identical objects to those of the company, within ninety days from the revocation
of the licence or such extended period as may be allowed by the Commission:
Provided that a reasonable amount to meet the expenses of voluntary winding up or

making an application to the registrar for striking the name of the company off the
register may be retained by the company.
(iv) The members and officers of the first mentioned company (whose assets have been
transferred) or any of their family members shall not be eligible to hold any office in
the later company (the company to whom such assets have been transferred) for a
period of five years from the date of transfer of such assets.
(b) The requirement of submission of prospectus for public offering of securities to the
Commission and its approval is not required in the following circumstances:
 securities offered by the State Bank of Pakistan.
 securities offered in connection with a private offering or private placement and
 issue of shares of a subsidiary to the members of a listed holding company by way of
specie dividend or any other distribution in the prescribed manner.
 securities are offered by the issuer to:
 members or employees of the issuer; or
 members of the families of any such members or employees; and
 securities are shares and are offered as bonus shares to any or all of the members of
Page 5 of 8
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the issuer.
(c) (i) Since a prospectus approved by the Commission shall be valid for a period of sixty
days from the date of such approval. Victory Limited must publish the prospectus by
3 April 2020.
However, as the directors intends to publish it on 10 April 2020 they must apply to
the Commission for extension in time limit. The application for extension must
contain the reasons for extension in time.
(ii) Publication of the prospectus

In Newspapers
The prospectus shall be published in full text or in such abridged form as may be
prescribed, at least in one Urdu and one English daily newspaper.
The prospectus shall not be published in the newspapers less than seven days or
On Website
The prospectus in full text shall be uploaded on the website of the issuer and shall
remain there from the date of its publication in the newspapers till the closing of the
subscription.
Ans.8 (a) Declaration of interim dividend:

Interim dividend is deemed to have been declared:
 on the date of commencement of closing of share transfer for purposes of
determination of entitlement of dividend; and
 where register of members is not closed for such purpose, on the date on which such
dividend is approved by the board.
Responsibilities of GIL for the payment of dividend:

The dividend shall only be paid out of the profits. The chief executive of GIL is responsible
to make the payment of dividend to registered shareholders or to their order within such
period and in such manner as may be specified.
Moreover, since dividend is payable in cash, it shall only be paid through electronic mode
directly into the bank account designated by the entitled shareholders.
(b) Circumstances under which GIL may withhold the payment of dividend to certain
shareholders:
 where the dividend could not be paid by reason of the operation of any law;
 where a shareholder has given directions to GIL regarding the payment of the
 where there is a dispute regarding the right to receive the dividend;
 where the dividend has been lawfully adjusted by GIL against any sum due to it from
the shareholder; or
 where, for any other reason, the failure to pay the dividend or to post the warrant
within the stipulated period was not due to any default on the part of GIL.
 where the member has not provided the complete information or documents, as
specified by the commission.
(c) Declaration of dividend

GIL is not required to make an application to the Commission for the adjustment of the
dividend. The dividend can be adjusted after obtaining permission of the concerned
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Suggested Answers
shareholder for the adjustment of the dividend against any sum due to GIL from the
shareholder.
Ans.9 Information to be included in the notice of general meeting

Notice of AL’s annual general meeting should:
For normal business

 specify the place, day and hour of the meeting;
 include a statement of the business to be transacted at the meeting;
 specify availability of a option of video-link facility to those members on demand who hold
10% of the total paid up capital or such other percentage as may be specified, and who
reside in a city;
 prominently set out member’s right to appoint a proxy and the right of such proxy to
attend, speak and vote in the place of the member at the meeting;
 be accompanied by a proxy form;
For special business
 the special resolution, shall be accompanied by the draft resolution;
 a statement shall be annexed to the notice of the meeting setting out all material facts
concerning such special business, including, in particular, the nature and extent of the
interest, if any, therein of every director, whether directly or indirectly, and where any item
of business consists of the according of an approval to any document by the meeting, the
time when and the place where the document may be inspected, shall be specified in the
statement;
In case of election of directors

 expressly state the number of directors fixed for election and names of the retiring
directors.
In case of election of independent directors

 indicate the justification for choosing the appointee for appointment as independent
director in the statement of material facts.
Ans.10 (a)  The LMC becomes disqualified as auditor of the NHL because of appointment of a
partner’s spouse as director of NHL.
 Consequently, the LMC is deemed to have vacated its office as auditors with effect
from the date on which partner’s spouse becomes the director of NHL.
i.e. 6 March 2020.
 A casual vacancy is created for auditor in NHL which should be filled by its board of
directors within thirty days from 6 March 2020.
 LMC would also be deemed to have vacated its office as auditor from companies
which are NHL’s subsidiaries.
(b) An auditor of a company has a right:

(i) of access at all times to the company’s books, accounts and vouchers (in whatever
form they are held); and
(ii) of access to such copies of, an extracts from, the books and accounts of the branch
as have been transmitted to the principal office of the company;
(iii) to require any of the following persons to provide him with such information or
explanations as he thinks necessary for the performance of his duties:
 any director, officer or employee of the company;
 any person holding or accountable for any of the company’s books, accounts
or vouchers;
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 any subsidiary undertaking of the company; and

 any officer, employee or auditor of any such subsidiary undertaking of the
company or any person holding or accountable for any books, accounts or
vouchers of any such subsidiary undertaking of the company.
(THE END)
Page 8 of 8
SUBJECT SESSION

– Spring 2020
Passing %
Question-wise
Overall
1 2 3 4 5 6 7 8 9 10
60% 20% 7% 32% 63% 33% 37% 17% 6% 57% 28%
General comments:
The trend of gradual increase in overall performance continued in spring 2020

examinations as the pass percentage increased from 23% in the previous attempt to
28% in the current attempt. As opposed to the historical trend, a significant
improvement was also witnessed in the mercantile law section of the paper.
However, poor performance was observed in question number 2, 3, 8 and 9 which may
largely be attributed to selective studies, lack of presentation skills, poor expression,
use of incorrect vocabulary and failure to identify and apply relevant knowledge of law
to scenario based questions. To overcome these weaknesses, examinees are advised to
cover the entire syllabus and while answering the scenario based questions always
remember the following basic steps:
 Determine the factual issues important to the decision;

 Identify the relevant law that can be applied to the issue; and
 Finally apply the law and draw a conclusion.
Examinees are also recommended to pay special attention to the suggested answers
which are provided on ICAP’s website after each examination.
Question 1(a)
Few examinees erroneously considered habeas corpus as a type of prerogative order.
Question 1(b)
Few examines instead of writing the disadvantage wrote down the advantages of
delegated legislation.
Page 1 of 6
Question 2(a)
 Majority of the answers were incomplete and confined to the statement that since
Mohsin was interested in the payment he can recover it back from Qasim Soomro.
 Examinees failed to appreciate the other condition which was necessary for the
constitution of quasi-contract that Qasim Soomro was legally bound to pay the land
revenue to the Provincial Government.
Question 2(b)
 Examinees were of the opinion that Raheel was bound to withdraw the case against
Naeem as he fulfilled his part of the promise.
 Some examinees expressed their opinion without expressing any reason for the
decision.
Question 2(c)
 Examinees were unaware of the definition of assignment of contracts. They simply

replicated the words from the question that assignment of contract means assigning
the contract to some other person. Where in fact, it is the transfer of contractual
rights and liabilities to a third party.
 With regard to the rules of assignment, only few examinees were able to state all
four rules.
 Many examinees opined that a contract can only be assigned when one of the
contracting parties becomes incompetent such as after the death of promisor.
Question 3(a)
 Majority of the answers were incomplete.

 Examinees failed to comprehend that FWL’s liability would be different in case, if
BM elects to ratify FWL’s acts as their agents.
 Some examinees deliberated on the scenario considering it to be the case of fraud.
Question 3(b)
 Majority of the answers were incomplete and except for very few examinees, no
one had any idea that a gift needs to be completed for making a binding contract.
 Examinees wrote about the condition of ‘Love and affection’ as described in
section 25 of the Contract Act, 1872, however, they failed to appreciate all the
conditions which are necessary for making a valid agreement on account of love
and affection.
 Some of the examinees were of the opinion that Furqan Butt is liable to pay Rs. 2
million to Muneer as he fulfilled his part of the promise by getting admission into a
European college.
Question 3(c)
Examinees failed to appreciate that Batool’s acceptance of the counter offer would
have made a binding contract.
Page 2 of 6
Question 3(d)
 Examinees failed to identify the conditions of law in which a contract becomes

impossible to perform.
 Majority of the answers were confined to the statement that events which make the
contract commercially unviable or non-profitable do not repudiate the contract.
 Examinees also failed to state that in case of non-performance of contract due to
difficulty of performance, Imran Traders would be liable for consequential
damages.
Question 4(a)i
 Majority of the answers were incomplete. Examinees failed to appreciate that

presence of mutual agency relationship is a conclusive evidence of the existence of
partnership.
 The answers were limited to the fact that receipt of annuity by Adeeb’s widow does
not make her a partner in the firm.
Question 4(a)ii
 Most of the answers were incomplete and examinees failed to identify that Bari had
exceeded his authority however, Saima and Ahsan had no right to repudiate the
transaction as it was entered in the usual course of business and had bound the firm.
 Many examinees did not comprehend that the liability of the partners was joint and
several. They thought that it was only Bari who was responsible to make good the
loss.
 Few examinees also opined that Bari was responsible to share the profit of Rs.
150,000 with other partners.
Question 4(b)
 Some of the examinees wrongly considered the conditions that a partner cannot
assign his partnership interest without approval of other partners and that in case of
a fixed partnership a partner cannot leave the firm without the consent of other
partners.
 Many examinees stated that a partner cannot open a bank account without
mentioning the fact that such account cannot be opened in partner’s own name.
 Similarly, most of the examinees wrote that a partner cannot admit any liability
without specifying that such liability would be in a suit or proceeding against the
firm.
Question 5(a)
Question 5(b)
Majority of the examinees failed to comprehend that Rahat was only entitled to receive
Rs. 35,000 from Jahanara.
Page 3 of 6
Question 5(c)
 Many examinees thought that Amjad is not discharged from his liability as it was
his duty to pay the amount to the real owner of the bill.
 Examinees failed to identify that the payment made by Amjad under the
circumstances was the payment in due course and that when payment is made
according to the apparent tenor of the instrument, in good faith and without
negligence it discharges the acceptor of the bill.
Question 6(a)
 Examinees could not appreciate that a private company limited by share has the
option to set out its own regulations for the company or adopt Table A in the First
Schedule to the Companies Act, 2017 as its articles of association.
 Examinees failed to identify that the articles were required to be signed by each of
the subscribers in the presence of witnesses who shall attest the signature of the
subscribers.
 Examinees did not mention about the implication(s) if articles are not registered or
the registered articles do not exclude or modify the regulations in Table A.
Question 6(b)
 Many examinees explained the entire process for election of directors which was
not asked.
 Examinees failed to mention that the number of first directors may be increased by
appointing additional directors by the members in a general meeting.
 Examinees did not specify the requirements related to First Chief Executive.
Question 7(a)
 Examinees did not know that the transfer of assets takes place only after paying-off
the liabilities by the subject company.
 Only few examinees were aware of the fact that CRA can apply for extension to the
Commission for transfer of its assets.
 Few examinees were not able to identify that funds may be retained to meet the
expenses of voluntary winding up and making an application to the Registrar for
striking the name of the company off the register.
 Examinees knew that members and officers of transferor organization will not be
eligible to hold office in the transferee organization but did not mention the time
period of five years.
 Some of the examinees erroneously mentioned steps related to company’s winding
up which were not required.
Question 7(b)
 Examinees should learn the elementary difference between “securities” and

“shares”.
 Instead of mentioning issue of these shares to the members of listed holding
company, examinees mentioned issue of shares of a subsidiary company to its
listed holding company.
Page 4 of 6
Question 7(c)i
Majority of the examinees did not mention that company can apply to the Commission
for extension in initial period of sixty days along with reason(s) for such extension.
Question 7(c)ii
Some of the examinees did not mention that company is also required to publish the
prospectus on its website. Those who mentioned about the website publication, failed
to appreciate the timing of its publication on the web.
Question 8(a)
 Most of the examinees, without paying any heed to the requirement of the question,
mixed up the provisions of declaration of interim dividend with the payment of
dividend.
 With regard to the responsibilities of GIL for the payment of interim dividend,
examinees failed to mention that since dividend was payable in cash, it was to be
paid through electronic mode, directly into the bank account designated by the
entitled shareholder.
Question 8(b)
This part was well attempted.
Question 8(c)
Examinees incorrectly mentioned that the company was required to obtain approval of
the Commission for the adjustment of the dividend against any sum due from the
shareholder.
Question 9
 Some of the examinees produced the list of normal and special businesses usually
transacted at the general meeting.
 Many examinees deliberated on the complete procedure of election of directors and
appointment of independent director, which was not required.
 Few examinees unnecessarily wrote about the procedure of fixing the number of
directors before election at the general meeting.
 Examinees failed to appreciate member’s right to appoint proxy and rights of such
proxy holders.
 Majority of the examinees did not mention that a statement is required to be
annexed to the notice of the meeting setting out all material facts concerning such
special business, including, in particular, the nature and extent of the direct or
indirect interest, if any, therein of every director and where any item of business
consists of the according of an approval to any document by the meeting, the time
when and the place where the document may be inspected.
 Some examinees discussed the provision relating to the publication of notice in the
newspaper which had no relevance to the requirement of the question.
Page 5 of 6
Question 10(a)
 Many examinees were not aware of the fact that in case a partner’s spouse is
elected as a director at client’s office, not only the partner but the firm itself
becomes disqualified to be appointed as an auditor at that client.
 Examinees did not appreciate the time frame when LMC had deemed to have
vacated the office as auditor. They also failed to discuss how casual vacancy in the
office of the auditor would have been filled by NHL.
Question 10(b)
This part was well attempted.
The End
Page 6 of 6
Business Law

Mark(s)
A.1 (a) Describing why and to whom the prerogative orders are issued by the High
Court 1.0
01 mark each for describing any two types of prerogative orders 2.0
(b) Definition of delegated legislation 1.0

For stating one disadvantage of delegated legislation 1.0
A.2 (a) Up to 01 mark for explaining each condition required to be fulfilled by

Mohsin for the reimbursement of the amount under the quasi contract 1.5
Conclusion 0.5
(b) Explanation of the decision whether Raheel was bound to withdraw the
legal proceedings against Naeem based on agreement against public policy 1.5
Conclusion 0.5
(c) Definition of assignment of contracts 1.0

01 mark for stating each rule subject to which a contract may be assigned 4.0
A.3 (a) Discussing FWL’s liability in case if BM ratifies FWL’s acts 3.5
Discussing FWL’s liability if BM disowns FWL’s acts 1.5
(b) Discussing the provisions with regard to completed gift 2.0

Discussing the agreements made on account of natural love and affection 2.0
(c) Explaining the validity of the contract 2.0

Conclusion 1.0
(d) Describing the conditions of supervening impossibility in which the

contract is discharged with reference to the given situation 3.0
Conclusion 1.0
A.4 (a) (i) Discussing the conditions necessary for the existence of partnership
with reference to the given situation 1.5
Conclusion 0.5
(ii) Discussing mutual rights and liabilities of partners and firm under
the Partnership Act, 1932 6.0
(b) 0.5 mark for listing each restriction 2.0
Page 1 of 3
Business Law
Mark(s)
A.5 (a) 01 mark for listing each situation 5.0
(b) Discussing the situation when cheque is not duly presented and drawer
suffers damages 1.0
Discussion with regard to payee’s right to recover the amount under the
circumstances 2.0
(c) Discussing drawee’s liability in case of payment in due course 2.0
A.6 (a) Discussing the provisions related to the registration of articles of

association in the given situation 2.0
Discussing the provisions related to the signing of articles of association in
the given situation 1.0
(b) Discussing the provisions related to the appointment of:

First directors 1.5
Subsequent directors 1.0
First chief executive 2.5
Subsequent chief executive 2.0
A.7 (a) Discussing the effects of revocation of license on:

CRA 3.5
its members and officers 1.5
(b) Up to 01 mark for identifying each exception 4.0
(c) (i) Discussing the provisions relating to time frame within which the
prospectus may be published 1.5
Conclusion 0.5
(ii) Explaining the requirement for publication of prospectus:

in newspaper 2.0
on website 1.0
A.8 (a) Stating the provisions related to:

declaration of interim dividend 2.0
the responsibilities of the company regarding its payment 2.0
(b) Up to 0.5 mark for identifying each situation under which the company may
withhold the payment of dividend 2.0
(c) Up to 01 mark for mentioning each step required to take for adjustment of
dividend payable to Kamran Ahmed 2.0
A.9 Identifying information which must be included in the notice of annual general
meeting in respect of:
normal business 4.0
special business 4.0
election of directors including independent director(s) 2.0
Page 2 of 3
Business Law
Mark(s)
A.10 (a) Up to 01 mark for identifying each effect of appointment of partner’s spouse as
director of NHL 3.0
(b) Up to 01 mark for mentioning each right of auditor in the given situation 5.0
(THE END)
Page 3 of 3

Business Law
Instructions to examinees:
(i) Answer all ELEVEN questions.
(ii) Answer using black pen only.
(iii) Multiple Choice Questions must be answered in answer script only.
Section A – Multiple Choice Questions
Q.1 Select the most appropriate answer from the options available for each of the following
Multiple Choice Questions (MCQs). Each MCQ carries ONE mark.
(i) Tipu provided a loan to Wasi against the guarantees of Iqbal, Meher and Baqir. It
was agreed that in the event of Wasi’s default, Iqbal, Meher and Baqir would
contribute to the extent of Rs. 5,000, Rs. 8,000 and Rs. 12,000 respectively. Wasi has
defaulted to the extent of Rs. 15,000.
(a) All the three sureties are liable to pay Rs. 5,000 each
(b) Iqbal is liable for Rs. 3,000, Meher for Rs. 4,800 and Baqir for Rs. 7,200
(c) Iqbal is liable for Rs. 5,000, Meher for Rs. 8,000 and Baqir for Rs. 2,000
(d) Iqbal and Meher are liable for Rs. 1,500 each and Baqir is liable for Rs. 12,000
(ii) The term ‘Quid pro quo’ means:

(a) something in return (b) something important
(c) something of value (d) something relevant
(iii) To constitute a wager, which of the following elements should NOT be present in the
agreement?
(a) Uncertain event
(b) Each party must be in a win or lose situation
(c) Neither party should have any control over the event
(d) There should be a promise to pay money only
(iv) Ibrahim directs his attorney to acquire a piece of land in Hyderabad by employing an
estate agent for the purpose. Attorney appoints Bukhari, an estate agent, for the
acquisition of the land. Bukhari in this case is a:
(a) general agent (b) co-agent
(c) sub-agent (d) pretended agent
(v) Saleem owns 20 acres of land in district Badin, part of which is woodland. He sells
the land to Malik Bashir with a covenant in the contract that he will not cut down the
trees. Six months later, Malik Bashir prepares to cut down the trees. What remedy
can Saleem seek?
(a) Damages (b) Specific performance
(c) Injunction (d) Rescission
(vi) The banker wrongfully dishonoured the cheque issued by Mir Atif, a renowned
trader, to one of his major suppliers. Mir Atif in this case is entitled to claim:
(a) special damages (b) liquidated damages
(c) nominal damages (d) exemplary damages
(vii) Which of the following is NOT considered to be a source of law in Pakistan?

(a) Legislation
(b) Sharia
(c) Precedent
(d) International treaties and conventions
(viii) Which of the following statements is correct under the Contract Act, 1872?
(a) Fraud means the suggestion, as a fact of that which is not true, by one who
believes it to be true
(b) A proposal is revoked by the death of the acceptor
(c) An agreement by Ali, who deals in oils, to sell hundred tons of oil to Vakeel is a
void agreement
(d) A pawnee may retain the goods pledged only for the payment of the debt
(ix) Paramount Furniture wrote a letter to Baber Naeem stating, “We have received
exquisite bedside tables which we will sell to you at a very favourable price.”
Which of the following statements with respect to the above is correct?

(a) The letter is an offer to sell
(b) The letter lacks the essential element of an offer
(c) The letter contains a valid offer which will terminate within a reasonable time
(d) An offer made by a letter must be accepted by a letter
(x) Akram, Minhas and Bali are partners, Bali is a sleeping partner. Bali retires without
giving public notice of his retirement.
Is Bali liable for subsequent debts incurred by Akram and Minhas?
(a) Bali is liable only to the extent of his estate
(b) Bali is fully liable, as he did not give public notice of his retirement
(c) Bali is liable for the amount left after contribution from Akram and Minhas
(d) Bali is not liable as he was a sleeping partner
(xi) Sohail and Fida purchased a yacht, renovated it and sold it to Qasim for
Rs. 10 million. They shared the proceeds equally. Both Sohail and Fida are:
(a) co-owners (b) co-venturers
(c) partners (d) mutual agents
(xii) Under the provisions of the Partnership Act, 1932, which of the following statements
is NOT correct?
(a) The relation of partnership arises from contract and not from status
(b) Goodwill of the business is regarded as the property of the firm
(c) Nature of business can be changed with the consent of majority of the partners
(d) A dormant partner has a right to inspect and copy any of the books of the firm
(xiii) Which of the following may be regarded as a valid promissory note (duly signed)
under the provisions of the Negotiable Instruments Act, 1881?
(a) I promise to pay Zubair on demand Rs. 6,000 at my convenience
(b) I promise to pay Ali or order Rs. 6,000 with interest charged at quarterly rests
(c) I promise to pay you or your successors on demand Rs. 11,000
(d) I promise to pay Khalid or order Rs. 12,000 six days after Saad’s death
(xiv) While drawing a bill of exchange, a person whose name is given in addition to the
drawee to be resorted to when the requirement arises, is called:
(a) drawer
(b) acceptor
(c) drawee in case of need
(d) acceptor for honour
(xv) Under the provisions of the Negotiable Instruments Act, 1881, which of the following
statements is NOT correct?
(a) Where a cheque is crossed specially the banker on whom it is drawn shall not
pay it to his agent for collection
(b) It is a presumption of law that every holder of a cheque is a holder in due
course
(c) Where a cheque contains the name of a banker without two parallel transverse
lines, it is a valid special crossing
(d) Where a generally crossed cheque bears across its face the addition of the words
‘account payee’, it shall cease to be negotiable
(xvi) Mega Stars Limited (MSL) shall be deemed to be the holding company of Little Stars
(Private) Limited (LSPL) if:
(a) MSL owns 50% shares of LSPL and by virtue of such investment, MSL has
nominated three directors out of six directors on board of LSPL
(b) MSL and one of its associated companies own 45% and 10% voting shares of
LSPL respectively
(c) MSL and one of its associated companies own 30% and 35% voting securities
of LSPL and by virtue of such investments, both companies have nominated
two directors each out of six directors on the board of LSPL
(d) MSL owns 5% voting shares in LSPL; however, LSPL’s other shareholders
having 60% voting shares have empowered MSL to appoint four directors out
of six directors of LSPL
(xvii) Which of the following information does NOT form part of ‘Certificate of
incorporation’?
(a) The name and registration number of the company
(b) The date of commencement of business
(c) Whether it is a private or a public company
(d) Whether it is a limited or unlimited company
(xviii) A prospectus is required to be duly signed by:

(a) the chief executive and a director
(b) every person who is named therein as a director or proposed director
(c) the chief executive, a director and the chief financial officer
(d) every director including the chief executive
(xix) Candid Oils Limited has class A and class B ordinary shares of Rs. 10 each, carrying
voting right of one and two votes per share respectively. A special resolution was
passed to bring the voting rights of class B shareholders equal to class A shareholders.
However, two shareholders of class B are not satisfied with this resolution and
intends to apply for its cancellation. They can do so if:
(a) they hold more than 10% shares of class B and apply to the Court
(b) they hold 10% or more shares of class B and apply to the Court
(c) they hold at least 10% shares of class B and apply to the Commission
(d) they hold at least 20% shares of class B and apply to the Commission
(xx) Minimum subscription is:

(a) the total authorised share capital of a company as stated in the prospectus
(b) the whole amount of the share capital other than that issued or agreed to be
issued as paid up otherwise than in cash, if no amount of minimum
subscription is so fixed
(c) the whole amount of the subscription received from applicants, if no amount of
minimum subscription is so fixed
(d) the amount to be generated from public for which prospectus is issued
(xxi) Toys & Toys Limited (TTL) resolved to shift its registered office from Gujranwala to
Lahore i.e. within the province of Punjab. For this purpose, TTL must:
(a) obtain consent of creditors who are entitled to object and obtain prior approval
of the Commission
(b) give notice of change to the Commission within a period of fifteen days after
the change
(c) obtain approval of the registrar prior to shifting of its registered office
(d) give notice of change in situation of the registered office to the registrar within a
period of fifteen days after the date of change
(xxii) Anas, Asadullah, Ameen and Arqam are founder partners of Fast Movers
Forwarders (FMF). In January 2020, all partners had purchased shares of Quality
Tiles Limited (QTL), a listed company. In June 2020, they contested the election of
directors of QTL and got elected as directors out of seven positions. Being majority
directors of QTL, they cancelled the contract of existing logistics service provider and
awarded the contract to FMF.
Whether the aforesaid contract is valid?

(a) Yes, because it is approved by the majority of the directors and the board is
fully empowered to manage the affairs of the company
(b) No, the contract need to be approved by majority of such directors who are not
interested in the said contract
(c) No, the contract must be laid before the general meeting for approval
(d) No, the contract must be approved by the general meeting as well as by the
Commission
(xxiii) Abid is the chairman of the board of directors of Innovative Technologies Limited
(ITL) and is present in ITL’s 25th Annual General Meeting (AGM). However, due to
difference of opinion with ITL’s chief executive on few agenda items, Abid is
unwilling to chair the AGM. In such a situation:
(a) the chief executive shall have to preside the AGM as chairman
(b) the members present in the AGM shall choose one of the members to be the
chairman
(c) the member holding highest number of shares and present shall preside the
AGM as chairman
(d) one of the directors present may be elected to be the chairman of the said AGM
(xxiv) Casual vacancy on the board of directors of a listed company must be filled:
(a) by calling an extra ordinary general meeting within ninety days from the date of
such vacancy
(b) by the directors not later than ninety days from the date of such vacancy
(c) by the directors or the members in general meeting, as the case may be, in
accordance with the provisions contained in the articles of association
(d) by the members in the upcoming annual general meeting
(xxv) Afridi, Bader, Dawood and Iffat owns 45%, 25%, 10% and 5% shares respectively
of Splendid Mills Limited (SML), a public unlisted company. They were elected as
SML’s director in the last election of directors as unopposed. The board appointed
Anas as the chief executive of SML; however, due to Anas’s unsatisfactory
performance, the board has decided to remove him in the next board of directors
meeting.
Anas will stand removed as chief executive if:

(a) directors having more than 50% shareholdings in SML’s share capital will vote
against him
(b) directors having more than 75% shareholdings in SML’s share capital will vote
against him
(c) any four directors will vote against him
(d) all the directors will vote against him
(xxvi) Under the provisions of the Companies Act, 2017, the composition of a company’s
board shall be deemed to be controlled by another company if that other company
by exercise of power exercisable by it at its discretion can:
(a) appoint all or a majority of the directors
(b) appoint or remove majority of the directors
(c) appoint or remove all or a majority of the directors
(d) appoint majority of the directors
(xxvii) Which of the following statements is correct regarding chairman of a listed

company?
(a) Chairman must be from amongst the non-executive directors
(b) Chairman can only be removed by passing a special resolution
(c) Chairman must be from amongst the independent director
(d) Chairman is appointed by the shareholders within fourteen days from the date
of election of directors
(xxviii) Which of the following officers are mandatorily required to be appointed to manage
the affairs of a listed company under the provisions of the Companies Act, 2017?
(a) Chairman, chief executive, company secretary, sole purchase agent
(b) Chairman, chief executive, company secretary, share registrar
(c) Chairman, chief executive, company secretary, chief financial officer
(d) Chairman, chief executive, company secretary, chief financial officer, head of
audit
(xxix) Which of the following clauses is NOT covered in Table A of the First Schedule?
(a) Proceedings of directors
(b) Votes of members
(c) Instrument of proxy
(d) Annual return
(xxx) Any dividend payable in cash by a listed company may be paid:

(a) only through electronic mode directly into the bank account designated by the
entitled shareholders
(b) by cross cheques issued in the name of the entitled shareholders
(c) by dividend warrant at the registered address of entitled shareholders
(d) in any of the above manner at the discretion of the distributing company
Section B – Mercantile Law
Q.2 Briefly describe how an Ordinance is promulgated in Pakistan and what is the effect of such
Ordinance. (04)
Q.3 (a) Under the provisions of the Contract Act, 1872 list any three circumstances in which a
party whose consent was obtained by misrepresentation cannot rescind the contract. (03)
(b) Sarya Traders (ST) agreed to supply building materials to Khwaja Contractors (KC)
on 10 September 2020 for the construction of a charitable hospital in District Malir.
However, on due date, ST failed to fulfil their obligation.
Under the provisions of the Contract Act, 1872 explain the rights available to KC
under the above situation. Assume time was the essence of the contract. (03)
(c) What would be your answer in (b) above if KC had to procure building material from
another supplier at a price higher than the price agreed with ST and also had to pay a
penalty of Rs. 50,000 to the owner of the hospital for construction delay? (03)
Q.4 (a) Under the provisions of the Contract Act, 1872 list the essentials of a valid acceptance. (04)
(b) Sulman’s son was missing. Mehmood, one of the bodyguards of Sulman, volunteered
to find Sulman’s son. Meanwhile, Sulman gave an advertisement in the newspaper
announcing an award of Rs. 25,000 to anyone who finds the missing boy. Mehmood
found the boy and brought him home. Sulman refused to pay the reward and
Mehmood filed a suit against him.
Under the provisions of the Contract Act, 1872 briefly describe whether Mehmood is
entitled to the reward. (02)
(c) Mohsin and Jaleel jointly borrowed a sum of Rs. 300,000 from Muslim and Munaf
jointly. On due date, Mohsin and Jaleel defaulted in making the payment. Munaf,
without Muslim’s knowledge, filed a suit against Mohsin and Jaleel for the recovery of
the amount due.
Under the provisions of the Contract Act, 1872 briefly describe whether Munaf would
succeed in his case. (02)
Q.5 (a) Under the provisions of the Partnership Act, 1932 what are the general duties of a
partner which cannot be altered by an agreement amongst themselves? (03)
(b) Saeed, Mona and Burhan are engaged in a partnership business. On 26 March 2019,
they admitted Laila, on her seventeenth birthday, to the benefits of partnership. Laila
is Mona’s niece. On 20 April 2020, Laila became aware of her admittance to the
benefits of partnership. On acquiring the knowledge, she immediately gave notice to
Saeed, Mona and Burhan that she intends to be their partner.
Under the provisions of the Partnership Act, 1932 discuss whether Laila would be
regarded as a partner in the firm with effect from the date of her notice. i.e.
20 April 2020. Also describe Laila’s liability with regard to firm’s debts once she
becomes a partner. (04)
Q.6 (a) Under the provisions of the Negotiable Instruments Act, 1881 what would be the
effect(s) of the words ‘Not negotiable’ on a cheque crossed generally? (03)
(b) Mujahid bought readymade garments worth Rs. 600,000 from Shoaib on credit. The
amount is payable on 25 December 2020. Mujahid wants to issue a negotiable
instrument in satisfaction of his debt to Shoaib without involving a third party for the
payment.
Under the provisions of the Negotiable Instruments Act, 1881 identify the type of
negotiable instrument which Mujahid may issue to Shoaib in satisfaction of his debt.
Also prepare a draft of the said instrument. (04)
(You may assume necessary details for the preparation of the negotiable instrument)
Section C – Company Law
Q.7 A group of persons intends to form a limited liability company, with the objective to provide
research related services to pharmaceutical companies. In this respect, one of the promoters
proposed ‘Pharma Research Authority’ as a name of the proposed company which was liked
by all the promoters.
Under the provisions of the Companies Act, 2017 comment on the validity of the name
proposed by the promoters and suggest how they can overcome the deficiencies, if any, in it. (06)
Q.8 (a) The directors of Jhelum Limited (JL) intends to make a public offer of its securities
and are in the process of preparing the prospectus. They wish to include a statement
made by an expert in JL’s prospectus.
Under the provisions of the Securities Act, 2015 advise the directors about:
(i) the matters that must be considered before including the statement made by an
expert in JL’s prospectus. (02)
(ii) the conditions that must be complied with before issuing, circulating or
publishing JL’s prospectus containing the expert’s statement. (02)
(b) Explain the term ‘shelf registration’ in the context of a prospectus as defined in the
Securities Act, 2015. (02)
Q.9 On 26 September 2020, the board of directors of Duck Fertilizers Limited (DFL), a public
unlisted company, in its recent board meeting has approved a short term loan to Kitten
Limited, one of the associated companies, to meet its working capital requirement, for
which shareholders’ approval is required. DFL’s annual general meeting is scheduled to be
held in March 2021.
Under the provisions of the Companies Act, 2017:

(a) briefly discuss the options available to DFL for obtaining shareholders’ approval. (03)
(b) state the procedure(s) to be followed for obtaining the approval in each option
identified in (a) above. (Ignore procedures relating to voting) (06)
Q.10 Election of directors of Excellent Technologies Limited (ETL), a listed company, is

scheduled to be held on 15 October 2020. The board of directors has requested Mohsin, one
of the leading engineers, to contest the upcoming election as non-executive director for
adding value to the board.
Before responding to the offer of ETL’s board, Mohsin has sought your advice on the
following concerns:
(i) Since he has no relationship with ETL either pecuniary or otherwise, can he contest
the election as non-executive director?
(ii) Would he be subjected to unforeseen liability that may arise due to adverse action of
other directors?
Under the provisions of the Companies Act, 2017, advise Mohsin with regard to the above
concerns. (06)
Q.11 (a) Naseer, a non-executive director of Oliver Travels Limited (OTL), while reviewing
details of investments made by OTL, has shown his concerns on the following shares
that are not held in the name of OTL:
(i) 500 shares in Pak Travels (Private) Limited (PTPL) are held in the name of
Rahim who is an employee of OTL. PTPL is a wholly owned subsidiary of
OTL. (02)
(ii) 5,000 shares of Tours & Tours (Private) Limited (TTPL) are held in the name of
Sami, who is a non-executive director in TTPL by virtue of OTL’s nomination.
OTL owns 30% voting shares in TTPL. (02)
Under the provisions of the Companies Act, 2017 briefly explain the possible reasons
for holding investment of OTL in the name of Rahim and Sami.
(b) Under the provisions of the Companies Act, 2017 briefly discuss:
(i) the time frame within which quarterly financial statements should be prepared
and the requirement, if any, for its review (02)
(ii) the filing requirement of the quarterly financial statements. (02)
(THE END)
Business Law
Suggested Answers
Section A – Multiple Choice Questions
Ans.1 (i) (a) (xi) (a) (xxi) (d)

(ii) (a) (xii) (c) (xxii) (c)
(iii) (d) (xiii) (d) (xxiii) (d)
(iv) (b) (xiv) (c) (xxiv) (b)
(v) (c) (xv) (a) (xxv) (c)
(vi) (d) (xvi) (d) (xxvi) (c)
(vii) (d) (xvii) (b) (xxvii) (a)
(viii) (c) (xviii) (b) (xxviii) (c)
(ix) (b) (xix) (b) (xxix) (d)
(x) (d) (xx) (b) (xxx) (a)
Section B – Mercantile Law
Ans.2 Promulgation of an Ordinance in Pakistan:

In terms of the constitution, the President has power to promulgate Ordinances only if the Senate
or National Assembly is not in session and the President is satisfied that circumstances exist
which render it necessary to take immediate action.
The Ordinance as promulgated by the President has the same force and effect as an Act of the
Parliament.
However, within 120 days of its issuance, such Ordinance is required to be presented or passed by
the National Assembly in case of money bill and by both the houses in case of all other bills,
otherwise the Ordinance stands repealed.
Ans.3 (a) Exceptions to rescind the contract under misrepresentation:

A party cannot rescind the contract where:
(i) the party whose consent was caused by misrepresentation had the means of
discovering the truth with ordinary diligence
(ii) the party gave the consent in ignorance of misrepresentation
(iii) the party after becoming aware of the misrepresentation takes a benefit under the
contract
(b) Time being essence of the contract, following would be the rights of Khwaja Contractors
(KC) under the circumstances:
 Contract would be voidable at the option of KC (promisee).
 KC may insist that Sarya Traders (ST) should deliver building material. However, in
order to claim compensation on account of the delayed supply, KC shall have to give
notice to ST of their intention to do so at the time of acceptance of performance at
any time other than earlier agreed.
 KC may decide not to accept performance beyond the stipulated time and rescind the
contract and claim compensation for any damages which it may have sustained due
to non-fulfillment of the contract by ST.
(c) In this case, ST is liable to pay by way of compensation to KC, the difference between the
contract price and the price which KC had to pay for procuring building material.
However, if ST was aware about the penalty, which KC had to pay to the third party due to
delay in construction of hospital, at the time of contract with KC, ST would be liable to
compensate the amount of Rs. 50,000 to KC.
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Suggested Answers
On the contrary, if ST was not aware of any such penalty at the time of contract with KC,
then KC cannot recover the amount of Rs. 50,000 from ST.
Ans.4 (a) Essentials of a valid acceptance:

Following are the essentials of a valid acceptance:
(i) acceptance must be absolute and unqualified;
(ii) it must be communicated either in writing or by word of mouth or by performance of
some act;
(iii) acceptance must be in the prescribed mode/reasonable mode;
(iv) the acceptance must be given within the time specified or within a reasonable time
when no time is specified;
(v) mere silence is not acceptance. It cannot be in the form of a negative confirmation. The
acceptor should expressly accept the offer;
(vi) acceptance must be given only by that person to whom the offer has been made;
(vii) the acceptor must be aware of the proposal at the time of acceptance of the proposal;
(viii) the acceptance must be given before the offer lapses or is withdrawn.
(b) In order for Mehmood to claim the reward from Sulman, it is necessary for him to prove
that he was aware of Sulman’s proposal before finding the missing boy.
As the communication of the proposal is complete when it comes to the knowledge of the
person to whom it is made.
Under the given circumstances, since Mehmood acted in ignorance of the offer, he is not
entitled to claim the reward from Sulman.
(c) Munaf will not succeed in his case. He must be joined by Muslim as the right to claim
performance rests with all the promisees (i.e. Munaf and Muslim) jointly and a single
promisee (i.e. Munaf) cannot claim performance.
Ans.5 (a) General duties of partners:

Following are the mandatory duties of a partner that cannot be changed by an agreement
amongst the partners:
(i) Duty to be just and faithful.
(ii) Duty to carry on business to the greatest common advantage.
(iii) Duty to render true accounts.
(iv) Duty to provide full information.
(v) Duty to indemnify for loss caused by fraud.
(vi) Duty to be liable jointly and severally – unlimited liability.
(vii) Duty to act within authority.
(viii) Duty in case of emergency.
(b) Admittance of minor as a partner:

By giving notice of her willingness to be a partner in the firm to the existing partners, Laila
would not become a partner in the firm.
In order to be a partner, Laila may give a public notice that she has elected to become a
partner in the firm and such notice may be given at any time within six months of her
attaining majority i.e. up to 26 September 2020, or her obtaining knowledge that she has
been admitted to the benefits of partnership i.e. 20 October 2020, whichever date is later.
And such public notice shall determine her position as regards the firm.
If Laila fails to give public notice till 20 October 2020, she will become a partner in the firm
Page 2 of 5
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Suggested Answers
on the expiry of the said six months.
Laila’s liability with regard to firm’s debts:

Laila would be personally liable to third parties for all debts of the firm from the date she
was admitted to the benefits of partnership i.e. 26 March 2019.
Ans.6 (a) Effect(s) of the words ‘Not negotiable’ on a cheque crossed generally
The effect of the words “not negotiable” on a crossed cheque is that the title of the
transferee of such a cheque cannot be better than that of its transferor. The addition of the
words not negotiable does not restrict the further transferability of the cheque. It only
takes away the main feature of negotiability, which is transferability, free from defects.
(b) Mujahid would issue a promissory note as time instrument to Shoaib in satisfaction of his
debt.
Draft of the promissory note
Date: September 26, 2020
Rs. 600,000/- only
Three months after date I promise to pay Shoaib or to his order the sum of Rupees Six
Hundred Thousand, for value received.
To Sd/-
Shoaib Mujahid
XYZ Street Down Town
Karachi Karachi
Section C – Company Law
Ans.7 The name proposed by the promoters is not valid under the provisions of the Companies Act,
2017 due to following two reasons:
(i) The word “Authority” cannot be used as it implies connection with a Government.
According to the Companies Act, 2017 “no company shall be registered by a name which
contains any word suggesting or calculated to suggest any connection with a Government.”
However, in order to overcome this the promoters with the prior approval in writing of the
Commission may be able to get the company registered with such word.
(ii) The word “Limited” is missing from the name of the company. According to the Companies
Act, 2017 the word limited is required to be written at the end of the name of a company.
However, if the group of persons intend to form a limited liability company with charitable
and not for profit objects then they have to apply to the Commission for a licence and the
Commission, if satisfied, may allow them to be registered as a limited liability company
without addition of the word “Limited” to its name.
Moreover, it should also be ensured that the proposed name is not identical with or resemble or
similar to the name of already registered company or inappropriate or deceptive.
Ans.8 (a) (i) Jhelum Limited must ensure that the expert is a person who has the power or
authority to issue a certificate in pursuance of any law for the time being in force
and who is not and has not been engaged or interested in the formation or
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Business Law
Suggested Answers
promotion or in the management of the company.
(ii) Before issuing, circulating or publishing prospectus containing expert’s statement, it

must be ensured that the following conditions have been complied with:
 the expert has given written consent to the issue of the prospectus with the
statement in the form and context in which it is included; and
 there appears in the prospectus a statement that the expert has given and has
not withdrawn his consent.
(b) ‘Shelf registration’ means an arrangement that allows a single offering document allowing
companies to make multiple offerings as disclosed in the offering document within a
prescribed time and subject to prescribed conditions.
Ans.9 (a) Following options are available to DFL for obtaining shareholders’ approval:
(i) The board of directors of DFL may obtain approval of its shareholders by calling an
extraordinary general meeting (EGM). As the board is entitled to call EGM at any
time to consider any matter which requires shareholders’ approval.
(ii) Nonetheless, as the approval required for matter that is special business, and being a
public unlisted company, if DFL’s number of members are not more than fifty then
DFL’s board of directors has another option to get the shareholders’ approval by
passing resolution by circulation.
(b) The procedures to be followed for obtaining shareholders’ approval:
(i) Holding Extra Ordinary General Meeting

 Twenty-one days’ notice of the meeting shall be given to every member in the
manner required by the Act.
 However, DFL being a public unlisted company, if all the members entitled to
attend and vote at the said EGM so agree, a meeting may be held at a shorter
notice.
 Notice of the meeting shall specify the place, the day and hour of the meeting
along with a statement of the business to be transacted at the meeting and a draft
resolution.
 A statement shall be annexed to the notice of the meeting setting out all the
material facts concerning the short term loan, including the nature and extent of
interest, if any, of the directors.
 Members may participate in the meeting personally, through video-link or by
proxy.
 Every member shall have votes proportionate to the paid-up value of the shares
held by him and no such member shall be debarred from casting his vote.
(ii) Passing of resolution by the members through circulation

 The resolution shall be circulated together with the necessary papers, if any, to
all the members.
 The resolution passed by circulation must be signed by all the members for the
time being entitled to receive notice of a meeting.
 The said resolution shall be noted at the subsequent meeting of members and
made part of the minutes of such meeting.
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Suggested Answers
Ans.10 (i) It is pertinent to note that pecuniary or other relationship with company are not the only
criteria to establish eligibility of a person to be a non-executive director. Rather, in order
to be a non-executive director of ETL, Mohsin shall have to ensure that he:
 is not from among the executive management team and may or may not be
independent;
 is expected to lend an outside viewpoint to ETL’s board;
 does not undertake to devote his whole working time to ETL and will not involve in
managing the affairs of the ETL;
 is not a beneficial owner of ETL or any of its associated companies or undertakings;
 does not draw any remuneration from ETL except the meeting fee.
(ii) As far as the unforeseen liability due to adverse action of ETL’s other directors are
concerned Mohsin if elected as non-executive director, shall be held liable, only in respect
of such acts of omission or commission by ETL which had occurred with his knowledge,
attributable through board processes, and with his consent or connivance or where he had
not acted diligently.
Ans.11 (a) (i) PTPL is wholly owned subsidiary company of OTL means it has one shareholder.
Whereas, PTPL being a private company must have at least two members, hence OTL
may hold any shares in the name of any of its nominee to ensure that the number of
members of PTPL is not reduced below the statutory limit.
(ii) OTL has nominated Sami as non-executive director by virtue of its investment in
TTPL. It means OTL have right to appoint or get elected any person as director of
TTPL, therefore, in the light of the provisions of Companies Act, 2017 OTL have the
right to transfer TTPL’s shares in the name of Sami up to an amount not exceeding
the nominal value of the qualification shares which are required to be held by TTPL’s
director. Such shares may be registered or held by OTL jointly with Sami or in the
name of Sami alone.
(b) (i) Time frame for preparation of quarterly financial statements

Every listed company shall prepare the quarterly financial statements within the
period of:
 thirty days of the close of first and third quarters of its year of accounts; and
 sixty days of the close of its second quarter of its year of accounts.
Requirement of review of second quarter financial statements

The cumulative figures for the half year presented in the second quarter accounts
shall be subjected to a limited scope review by the statutory auditors of the
company in such manner and according to such terms and conditions as may be
determined by the Institute of Chartered Accountants of Pakistan and approved by
the Commission.
(ii) Filing of quarterly financial statements

The quarterly financial statements must be transmitted electronically to the
Commission, Securities Exchange and with the Registrar within the period as
specified above.
However, upon an application by the company, the Commission may, extend the
period of filing in case of accounts of the first quarter for a period not exceeding
thirty days, if the company was allowed extension in respect of its previous financial
statements.
(THE END)
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2020

ICAP past papers with solutions ,

suggested answers of past ICAP examinations.

commenting or printing of these answers is strictly prohibited.

(a) Undue influence (06)

(b) Mrs. Raheel was a member of Nightmare (Guarantee) Limited. On 30 September

(i) When such books are NOT deemed to be proper. (02)

Ans.1 Criteria to be Judge of High Court:

 Ten years’ experience as an advocate of a High Court; or

Criteria to be Judge of Supreme Court:

 A person with five years’ experience as a judge of a High Court; or

Ans.2 (a) Undue Influence:

(ii) In particular and without prejudice to the generality of the foregoing

Ans.3 (a) Wagering Agreements:

(b) Law of Agency:

Arif’s liability against Moiz as a principal:

Resultantly, Arif is entitled to recover the loss incurred as a result of this 5%

Ans.4 (a) Minor’s admission to the partnership:

Rights, liabilities/limitations of Raghib ( minor):

(b) Sharing profits is not a conclusive evidence of a partnership:

These situations are:

Holder in due course:

Payment in due course:

Ans.6 (a) Prohibition of certain names:

Such prospectus including a statement purporting to be made by Mr. Suleman shall

(ii) The consequences of non-registration.

and on that date it shall become binding.

Conditions which ML must comply before exercising its borrowing powers.

ML shall not exercise any borrowing powers unless:

If ML exercises borrowing powers in contravention of the above, every officer and

(b) Restrictions on director’s remuneration etc.:

Ans.9 (a) (i) Proper Books of Account:

(ii) Proper books of account in case of a branch office:

(b) Restrictions imposed with regard to the declaration of dividend:

No dividend shall be declared or paid by a company for any financial year,

No dividend shall be declared or paid out of unrealized gain on investment property

None of the following persons shall be appointed as auditor of a company:

This question pertained to restrictions with regards to declaration of dividend as explained

 Some students mixed up ineligibility of directors as stated in Section 187 with

Under the provisions of the Contract Act, 1872 briefly describe:

(i) special resolution (04)

Under the provisions of the Companies Ordinance, 1984:

Section A (Mercantile Law)

Ans.1 Delegated Legislation:

Advantages of delegated legislation:

Disadvantages of delegated legislation:

Ans.2 (a) (i) Contract to do act afterwards becoming impossible or unlawful:

(b) Condition of Valid Offer

(i) Foreign principal:

(ii) Principal cannot be sued:

(iii) Undisclosed Principal:

(iv) Agency coupled with interest:

(v) Agent exceeding his authority:

(vi) Improperly appointed sub-agent:

(vii) Agent incurring personal liability:

(viii) Pretended agent:

(xi) Unnamed principal:

(b) (i) Contract of guarantee:

(ii) Contract of Indemnity: