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CA IPCC : Question Paper (with Answers) - BUSINESS LAWS, ETHICS & COMMUNICATION Nov 2012

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DISCLAIMER The Suggested Answers hosted in the website do not constitute the basis for evaluation of the students answers in the examination. The answers are prepared by the Faculty of the Board of Studies with a view to assist the students in their education. While due care is taken in preparation of the answers, if any errors or omissions are noticed, the same may be brought to the attention of the Director of Studies. The Council of the Institute is not in anyway responsible for the correctness or otherwise of the answers published herein. The Institute of Chartered Accountants of India PAPER 2 : BUSINESS LAWS, ETHICS AND COMMUNICATION Question No. 1 is compulsory. Attempt any five questions from the remaining six questions. Question 1 (a) Ramesh, aged 16 years, was studying in an engineering college. On 1 March, 2011 he took a loan of ` 1 lakh from Suresh for the payment of his college fee and agreed to pay by 30th May, 2012. Ramesh possesses assets worth ` 10 lakhs. On due date, Ramesh fails to pay back the loan to Suresh. Suresh now wants to recover the loan from Ramesh out of his assets. Whether Suresh would succeed? Decide, referring to the provisions of the Indian Contract Act, 1872. (5 Marks) (b) Whether a company may issue shares at discount? State the conditions which must be fulfilled before issuing the shares at discount contained in the Companies Act, 1956.(5 Marks) (c) State with reasons whether the following statements are correct or incorrect: (i) There is no economic growth without ecological cost. (ii) The institution of business exists only if it fulfils the society's expectations. (5 Marks) (d) Explain clearly the different types of grapevine chains in an informal communication. (5 Marks) Answer (a) According to Section 11 of the Indian Contract Act, 1872, a person who is of the age of majority to the law to which he is subject is competent to enter into any contract. A person who has completed the age of 18 years is a major and otherwise he will be treated as minor. Thus, Ramesh who is a minor is incompetent to contract and any agreement with him is void [Mohori Bibi Vs Dharmodas Ghose 1903, 30 Cal, 539 (PC)]. Section 68 of the Indian Contract Act, 1872 however, prescribes the liability of a minor for the supply of the things which are the necessaries of life to him. It says that though minor is not personally liable to pay the price of necessaries supplied to him or money lent for the purpose, the supplier or lender will be entitled to claim the money/price of goods or services which are necessaries suited to his condition of life provided that the minor has a property. The liability of minor is only to the extent of the minor s property. This type of contract is called a Quasi-contract and the right of the supplier/lender is based on the principle of equity. Thus, according to the above provision, Suresh will be entitled to recover the amount of loan given to Ramesh for payment of the college fees from the property of the minor. (b) A company shall not issue shares at a discount disregarding the provisions of section 79 of the Companies Act, 1956. If a company issues the shares at a price less than the face value of the shares, it is called issue of shares at discount. The following conditions have to be fulfilled as stated in Section 79. The Institute of Chartered Accountants of India 26 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012 1. The issue of shares at discount should be authorized by a resolution, passed by the company in General Meeting and approved by the Company Law Board (CLB). 2. The issue must be of a class of shares already issued. 3. The maximum rate of discount must not exceed 10% or such higher rate as CLB may permit in a specified case. 4. Not less than one year has at the date of issue elapsed since the date on which the company was entitled to commence business. 5. The shares at a discount must be issued within two months of the sanction of CLB or within such extended time as it may allow. 6. Every prospectus at the date of issue must mention particulars of the discount allowed on the issue of shares or the exact amount of the discount as has not been written off. In default, the company and every officer of the company shall be punished with a fine up to ` 500/-. (c) (i) The given statement is Correct. Economic growth has to be environmentally sustainable. There is no economic growth without ecological costs. Industrialization and rapid development have affected the environment. Everybody should realize that such development is related to environmental damage and resource depletion. Therefore, an element of resource regeneration and positive approach to environment has to be incorporated in development programmes. Sustainable development refers to maintaining development over time. Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. A nation or society should satisfy its social, economic and other requirement without jeopardizing the interest of future generations. High economic growth means high rate of extraction, transformation and utilization of non-renewable resources. Therefore, the economic growth has to be environmentally sustainable because there is no economic growth without ecological cost. (ii) The given statement is Correct. It is the society which bestows upon businesses the authority to own and use land and natural resources. In return, society has the right to expect the productive organizations, enhancing the general interest of consumers, employees and community. Society may also expect that organizations to honour existing rights and limit their activities within the bounds of justice. So, under this social contract between society and business, Business ethics provide the guidance as to regulation of the behavior of business enterprises and the minimal duties of the business professionals, including the consequences and complications of their actions. Thus, business ethics is that set of principles or reasons which should govern the conduct of business whether at the individual or collective level by the application of ethical reasoning to specific business situations The Institute of Chartered Accountants of India PAPER 2 : BUSINESS LAWS, ETHICS AND COMMUNICATION 27 and activities. Thus, it can be said that the institution of business exists only if it fulfills the society s expectations. (d) Grapevine Chains: Specialists in this field have identified four types of grapevine chains in an informal communication:(1) Single Strand Chain: In this type of chain, A tells something to B who tells it to C and so on. This type of chain is least accurate in passing on the information or message. (2) Gossip Chain: In it, a person seeks out and tells everyone the information he has obtained. This chain is often used when information or a message regarding a noton-job nature is being conveyed. (3) Probability Chain: In it, individuals are indifferent to the persons, to whom they are passing some information. This chain is found when the information is somewhat interesting but not really significant. (4) Cluster Chain: In this type of chain, A tells something to a few selected individuals and then some of these individuals inform a few other selected individuals. In fact, cluster chain is the dominant grapevine pattern in an organisation. Only few persons are liaison individuals who pass on the information they have obtained and then they are likely to share it with the people they trust. Most informal communication flows through this chain. Question 2 (a) (i) Who, amongst the following, are eligible for bonus under the Payment of Bonus Act, 1965: (4 Marks) (1) An apprentice of a newly formed company. (2) A dismissed employee reinstated with back wages. (3) A temporary workman. (4) An employee employed through contractor of building operation. (ii) When an employee becomes disabled due to any accident or disease and is unable to do the same work and re-employed on the reduced wages, how the gratuity of such employee shall be, computed under the provisions of the Payment of Gratuity Act, 1972? (4 Marks) (b) Why is the 'critical thinking' important part of success and wisdom? What steps are required to make it effective in a business organisation? (4 Marks) (c) What is meant by 'Stakeholders'? Give the list of such stakeholders. The Institute of Chartered Accountants of India (4 Marks) 28 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012 Answer (a) (i) Following are the employees who are entitled/not entitled for bonus under the Payment of Bonus Act, 1965:1. An apprentice is not entitled to bonus (Wheel & RIM Co. Vs. Government of T.N.) 2. A dismissed employee reinstated with back wages is entitled to bonus (Gannon India Ltd. Vs Niranjan Das) 3. A temporary workman is entitled to bonus on the basis of total number of days worked by him 4. An employee employed through contractor on building operation is not entitled to bonus. Note: The answer can also be based on section 32 of the Payment of Bonus Act, 1965, as amended by the Payment of Bonus (Amendment) Act, 2007, which states that An employee employed through contractor on building operation is entitled to bonus . (ii) Computation of Gratuity of a disabled employee: According to Section 4 (4) of the Payment of Gratuity Act, 1972, when an employee becomes disabled due to any accident or disease and is not in a position to do the same work and re-employed on reduced wages on some other job, the gratuity will be calculated in two parts : For the period preceding the disablement: on the basis of wages last drawn by the employee at the time of his disablement. For the period subsequent to the disablement: On the basis of the reduced wages as drawn by him at the time of the termination of services. In the case of Bharat Commerce and Industries Vs. Ram Prasad, it was decided that if for the purposes of computation of quantum of the amount of gratuity the terms of agreement or settlement are better than the Act, the employee is entitled for that benefit but the maximum statutory ceiling limit as providing under Sub-Section 3 of Section 4 of the Act cannot be reduced by mutual settlement or agreement. (b) Critical thinking is the discipline of rigorously and skillfully using information, experience, observation and reasoning to guide our decisions, actions and beliefs. By developing the skills of critical thinking and bringing rigour and discipline to the thinking processes, a person stands at a better chance of being right and likely to make good judgments, choices and decisions in all areas of the life. This kind of questioning is called Socratic questions based upon logic, originated by Greek Philosopher Socrates, founder of Critical Thinking. Thus, this forms an important part of success and wisdom . Steps required to make it effective: To do critical thinking effectively, following skills need to be developed:1. Analyze Cause and Effect: One must be able to separate the motive or reason for an action or even (the cause) from the result or outcome (the effect). The Institute of Chartered Accountants of India PAPER 2 : BUSINESS LAWS, ETHICS AND COMMUNICATION 29 2. Classify and Sequence: One must be able to group items or sort them according to similar characteristics. 3. Compare and Contrast: One must be able to determine how things are similar and how they are different. Infer: One must be skilled in reasoning and extending logic to come up with plausible options or outcomes. 4. 5. Evaluate: One must be able to determine sound criteria for making choices and decisions. 6. Observe: One must be skilled in attending to the details of what actually happened. 7. Predict: One must be able to find and analyze trends, and extend these to make sensible predictions about the future. Rationalize: One must be able to apply the laws of reason (induction, deduction, analogy) to judge an argument and determine its merits. 8. 9. Prioritize: One must be able to determine the importance of an event or situation and put it in the correct perspective. 10. Summarize: One must be able to distill a brief report of what happened or what has been learnt. 11. Synthesize: One must be able to identify new possible outcome by using pieces of information that is already known. (c) Meaning of Stakeholders: Initially the Corporate Management was only responsible and accountable to the investors and shareholders of the company. But now-a-days, it is felt that the constituents other than share holders are also affected by the corporate activities and the companies must also be answerable to them. Such constituents may be described as the stakeholders of an organization. The list of stakeholders will include:1. Employees 2. 3. Trade Unions Customers or Consumers 4. 5. Shareholders and Investors Suppliers or Distributors 6. 7. Local Communities Government or Local Statutory Bodies 8. Competitors Question 3 (a) State the essential elements of a contract of bailment. Distinguish between the 'contract of bailment' and 'contract of pledge'. (8 Marks) The Institute of Chartered Accountants of India 30 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012 (b) State the reasons for accepting the change in the present management set-up of the corporate culture in a business organisation. (4 Marks) (c) Differentiate between 'consumer interest' and 'public interest'. (4 Marks) Answer (a) Essential elements of a contract of bailment: Section 148 of the Indian Contract Act, 1872 defines the term Bailment . A bailment is the delivery of goods by one person to another for some purpose upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The essential elements of the contract of the bailment are :1. Delivery of goods The essence of bailment is delivery of goods by one person to another. 2. Bailment is a contract In bailment, the delivery of goods is upon a contract that when the purpose is accomplished, the goods shall be returned to the bailor. 3. Return of goods in specific - The goods are delivered for some purpose and it is agreed that the specific goods shall be returned. 4. Ownership of goods In a bailment, it is only the possession of goods which is transferred and the bailor continues to be the owner of the goods . 5. Property must be movable Bailment is only for movable goods and never for immovable goods or money. Difference between contract of bailment and contract of pledge:1. Right of sale In case of pledge, the pawnee (pledgee) can sell the goods and recover his debt, if pawnor (pledger) does not pay while in bailment the bailee can retain the goods and sue for damages, but he has no authority to sell the goods. 2. Purpose Pledge is specifically for securing a debt, while bailment may be for any purpose e.g. for repairs, safe custody etc., 3. Right to use the goods In case of pledge, pawnee cannot use the goods pledged but bailee can use the bailed goods if contract so provides. (b) Reasons for acceptance of change: In the business organizations the change in the policies and set up is preferred in cases like restructuring operations, new technologies, mergers etc., In such cases of change, a large part of the people do not prefer and they resist. But certainly there are persons who accept or welcome change. By knowing why people might accept or welcome change one is in a better position to formulate a communication plan to foster acceptance. The acceptance of change is due to the two following factors :1. Personal gain. The persons will accept only when they see the possibility of personal gain from the following areas :i. Increased security The Institute of Chartered Accountants of India PAPER 2 : BUSINESS LAWS, ETHICS AND COMMUNICATION ii. Money iii. More authority iv. Status / Prestige v. Better working conditions vi. 31 Self satisfaction vii. Better personal contacts viii. Less time and effort 2. Other factors i. Provides a new challenge ii. Likes / Respects to source iii. Likes the way change is being communicated iv. Reduces boredom v. Provides opportunity for input vi. Improves future vii. Perception that the change is necessary (c) Difference between Consumer interest and Public interest : Apparently it seems that public interest and consumer interest are synonymous, but it is not so. They may be differentiated as under:i. In the name of public interest, many Government policies are formulated which manifest themselves in anti-competitive behaviour. If the consumer is at the fulcrum, consumer interest and welfare should have primacy in all governmental policy formulations. ii. Consumer is a member of a broad class of people who purchase, use maintain and dispose of products and services. They are being affected by pricing policy, financing practice, quality of goods, services and trade practices. They are clearly distinguished from manufacturers who produce goods for wholesalers, retailers who sell goods in public interest. iii. Public interest is something in which the society as a whole has some interest, and is seen as an externality to competitive markets. There is also a justifiable apprehension that in the name of public interest, Governmental policies may be fashioned and introduced which may not be in the ultimate interest of the consumers. In fact, in such situations, there is the possibility that a conflict could arise between public interest and consumer interest. The Institute of Chartered Accountants of India 32 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012 Question 4 (a) Explain the provisions of law and procedure relating to alteration of object clause stated in the Memorandum of Association of a company under the Companies Act, 1956. (8 Marks) (b) State the ethical issues which are being faced by an individual at the workplace of an industrial organisation. (4 Marks) (c) State the types of groups in an organisation which play an important role in solving the difficult problems in an organisation. (4 Marks) Answer (a) Alteration of object clause stated in the Memorandum of Association: Section 17 of the Companies Act, 1956 permits a company to alter its objects for the under mentioned purposes :i. To carry on business more economically or more efficiently ii. To attain the main purpose of the company by new or more improved means iii. To carry on some business which under the existing circumstances may conveniently or advantageously be combined with the existing business iv. To change and enlarge the local areas of operations v. To restrict or abandon any of the existing objects vi. To sell or dispose of the whole or any part of the undertaking vii. To amalgamate with any other company or body of persons. Procedure: Object clause can be altered by passing a special resolution in a general meeting of members. The special resolution should be filed with the Registrar of Companies within one month from the date of passing the resolution along with a printed copy of the memorandum as altered. The Registrar will register the document and issue a certificate, which will be conclusive evidence that all the requirements with respect to alterations have been complied with and memorandum so altered shall be the memorandum of the company. (b) Ethical issues faced by an individual at work place: There are certain ethical issues which are being faced by an individual at the work place of an industrial organization. Some examples are as follows:1. Relationship with suppliers and business partners: (a) Bribery and immoral entertainment (b) Discrimination between suppliers (c) Dishonesty in making and keeping contracts The Institute of Chartered Accountants of India PAPER 2 : BUSINESS LAWS, ETHICS AND COMMUNICATION 2. 33 Relationship with customers: (a) Unfair pricing (b) Cheating customers (c) Dishonest advertising (d) Research confidentiality 3. Relationship with employees (a) Discrimination in hiring and treatment of employees (b) Lack of good behaviour with employees 4. Management of resources (a) Misuse of organizational funds (b) Tax evasion (c) Types of Groups in an organization: There are four types of groups in an organization which play an important role in solving the difficult problems in an organization:1. Self directed teams: Autonomous and self regulated groups of employees empowered to make decisions. 2. Quality circles: Quality circle is a group of workers from the same area who usually meet for an hour each week to discuss their quality problems, investigate causes, recommend solutions and take corrective actions when authority is in their purview. In other words, quality circle is a small group to perform voluntarily quality control activities within their work area. This group plays an important role in the field of human relations and organizational behaviour to improve productivity and work life in organizational settings. 3. Committees: Such committees may be Standing Committee, Advisory Committee and Ad-hoc Committee. Standing Committee is permanent in nature and highly empowered, Advisory Committee comprises of experts in particular field. An Adhoc Committee is set up for a particular purpose and after the goal is achieved, it is dissolved. 4. Task Force: Task Force is also like a Committee but it is usually temporary. Task force has wide powers to take action and properly fix responsibility for investigation, results and proper implementation of decisions. Task force groups are very important in Government Organisation to tackle specific administrative problems. Question 5 (a) A draws and B accepts the bill payable to C or order, C endorses the bill to D and D to E, who is a holder-in-due course. From whom E can recover the amount? Examining the The Institute of Chartered Accountants of India 34 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012 right of E, state the privileges of the holder-in-due course provided under the Negotiable Instruments Act, 1881. (8 Marks) (b) Differentiate between 'Share Warrant' and 'Share Certificate' under the Companies Act, 1956. (4 Marks) (c) M/s. Assure Investments, a firm of partners A and B, appoint and authorize Mr. X giving powers to sell and sign transfer deeds for transfer of shares and debentures by executing an instrument of the "Power of Attorney". Draft such instrument of the "Power of Attorney" of the firm. (4 Marks) Answer (a) Section 36 of the Negotiable Instruments Act, 1881 describes the liabilities of prior parties to the holder in due course. This section says that a holder in due course has privilege to hold every prior party to a negotiable instrument liable on it until the instrument is duly satisfied. Here the holder in due course can hold all the prior parties liable jointly and severally. Prior parties includes the maker or drawer, the acceptor and endorsers. Accordingly in the given problem, E, a holder in due course can recover the amount from all the prior parties i.e., D & C (the endorsers), B (an acceptor) and A (the drawer). Privileges of a Holder in Due Course : According to the provisions of the Negotiable Instruments Act, 1881, a holder in due course has the following privileges:i. A person signing and delivering to another a stamped but otherwise inchoate instrument is debarred from asserting, as against a holder in due course, that the instrument has not been filled in accordance with the authority given by him, the stamp being sufficient to cover the amount (Section 20). ii. In case a bill of exchange is drawn payable to drawer s order in a fictitious name and is endorsed by the same hand as the drawer s signature, it is not permissible for acceptor to allege as against the holder in due course that such name is fictitious (Section 42). iii. In case a bill or note is negotiated to a holder in due course, the other parties to the bill or note cannot avoid liability on the ground that the delivery of the instrument was conditional or for a special purpose only (Sections 42 and 47). iv. The person liable in a negotiable instrument cannot set up against the holder in due course the defences that the instrument had been lost or obtained from the former by means of an offence or fraud or for an unlawful consideration (Section 58). v. No maker of a promissory note, and no drawer of a bill or cheque and no acceptor of a bill for the honour of the drawer shall, in a suit thereon by a holder in due course be permitted to deny the validity of the instrument as originally made or drawn (Section 120). The Institute of Chartered Accountants of India PAPER 2 : BUSINESS LAWS, ETHICS AND COMMUNICATION vi. 35 No maker of a promissory note and no acceptor of a bill payable to order shall, in a suit thereon by a holder in due course, be permitted to deny the payee s capacity to endorse the same (Section 121). (b) Distinction between a share warrant and a share certificate: Sl. No. (i) SHARE CERTIFICATE A share certificate is a prima facie evidence of document of title, stating that the holder is entitled to specified number of shares (ii) Share certificate can be issued by a public and private company (iii) A share certificate can be issued for a fully paid and partly paid up shares (iv) The holder of a share certificate is normally a member of the company (v) A share certificate is not a negotiable instrument (vi) The shares can be transferred by execution of a transfer deed and its delivery along with the share certificate. The transfer is complete when it is registered by the company. (vii) Stamps duty is payable on transfer of shares specified in a share certificate (viii) In order to qualify as a Director, the person should acquire shares in his own name. SHARE WARRANT A share warrant is a bearer document stating that the holder is entitled to certain number of shares specified therein. Share warrant can be issued only by public companies. A share warrant can be issued only with respect of fully paid up shares The bearer of a share warrant can be a member only if the articles provide. A share warrant is by mercantile usage a negotiable instrument A share warrant can be transferred by mere delivery and no registration of transfer with the company is required. No stamp duty is payable on transfer of a share warrant This is not applicable to share warrants. (c) Power of Attorney to execute a deed for the transfer of shares & debentures:BY THIS POWER OF ATTORNEY, M/s. Assure Investments (full details), the firm hereby appoints Mr. X (full details) as Attorney of the firm, to act in his name and on his behalf and to do or execute all or any of the acts or things relating to transfer of shares and debentures, that is to say : 1. To receive from (Full details), the transferee the sum of Rs .(Rupees . .. only) being the price agreed to be paid to the firm by the said transferee for the purchase of (full description of shares and debentures) under an agreement dated and to give proper receipt and discharge for the same. 2. To execute a transfer deed of the said shares and debentures The Institute of Chartered Accountants of India 36 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012 3. To present the said transfer deed for registration before the proper registration authority, to admit the execution thereof, to do all acts, deeds and things which may be necessary for registering the said transfer deed. 4. To execute or to do all acts, things or deeds or assurance for the completion of the transfer of the said shares and debentures. AND, the firm DO HEREBY AGREE to ratify all acts, things, deeds or proceedings lawfully done by the said Attorney on behalf of the firm and in the name of the firm by virtue of this power of attorney and the same shall be binding on firm in full force or effect. IN WITNESS WHEREOF the firm have executed this power at ..this ..day of ..20 . Witness: 1 ______ 2 _______ Question 6 (a) State the liability of an 'Expert' in case of misrepresentation in the prospectus. When an expert will not be liable for his untrue statements made in the prospectus? (8 Marks) (b) State the important components required in writing a "Partnership Deed" of a business firm. (4 Marks) (c) State whether the following statements are correct or incorrect: (i) (4 Marks) A proposal may be revoked by the proposer before the posting of the letter of acceptance by the acceptor. (ii) A private company is required to hold statutory meeting. (iii) The validity period of a cheque is three months. (iv) Every shareholder is a member, but every member may not be a shareholder of the company. Answer (a) Liability of an Expert in case of misrepresentation in the prospectus Sometimes an expert s opinion in the form of expert report, may also be published in the prospectus of the company. Expert is a person who may be an engineer, a valuer, an accountant and any other person whose profession gives authority to a statement made by him. If untrue statement has been made in the prospectus, the liability of an expert stands but his liability is limited only to the extent of untrue statement made by him. The Institute of Chartered Accountants of India PAPER 2 : BUSINESS LAWS, ETHICS AND COMMUNICATION 37 i. Compensation for mis-statement: Expert who is responsible for the issue of the prospectus containing false or untrue information is liable to compensate all those persons who subscribe to the shares on the faith of the prospectus. ii. Criminal Liability for mis-statements: Expert who is responsible for the issue of the prospectus may also render himself punishable with imprisonment for a term which may extend to two years or with fine up to fifty thousand rupees, or with both. When an expert is not liable: An expert who would be liable by reason of having given his consent to the issue of the prospectus containing a statement made by him would not be liable if he can prove : i. that having given his consent to the issue of the prospectus, he withdrew it in writing before the delivery of a copy of the prospectus for registration; or ii. that after the delivery of a copy of the prospectus for registration but before allotment, he on becoming aware of the untrue statement withdrew his consent in writing and gave reasonable public notice thereof and the reasons there for; or iii. that he was competent to make the statement and he had reasonable ground to believe, and did up to the time of allotment of the shares or debentures believe, that the statement was true. (b) Components of the Partnership Deed: A Partnership Deed is divided into different paragraphs. Each paragraph deals with relevant and related information in simple and intelligible language. If a particular part is not applicable in a particular case that part is omitted from the document. The important components in general are as following: Heading of the document Date and place of execution of the document Names & description of Parties Recitals Terms and condition Special rules Jurisdiction Signature of the parties Signature of the witnesses The Deed must be executed on a stamp paper of prescribed value. The copy of the deed must be sent to the Registrar of Partnership Firms along with the prescribed form duly completed for issue of acknowledgement by the Registrar of Firms. All subsequent changes must be notified to the Registrar. The Institute of Chartered Accountants of India 38 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012 (c) i. A proposal may be revoked by the proposer before the posting of the letter of acceptance by the acceptor. This statement is correct ii. A private company is required to hold statutory meeting. This statement is incorrect iii. The validity period of a cheque is three months. This statement is correct iv. Every share holder is a member, but every member may not be a share holder of the company. This statement is correct Question 7 Answer any four of the following: (4x4=16 Marks) (a) Explain the provisions of the Employee's Provident Funds and Miscellaneous Provisions Act, 1952, relating to the protection of the credited amount in the provident fund against attachment. (4 Marks) (b) Mr. DP, Secretary, of City Handicrafts Ltd. called an extraordinary general meeting of the company on the requisition of some members. Mr. DP, Secretary of the Company, issued notice of the meeting without the authority of the Board of Directors. Discuss on the validity of the notice issued by Mr. DP, Secretary of the City Handicrafts Ltd. (4 Marks) (c) Discuss the provisions of law contained in the Companies Act, 1956 as regards to the service of documents. (4 Marks) (d) State the advantages of formal communication. (4 Marks) (e) Explain the objects of the Consumer Protection Councils in India. (4 Marks) Answer (a) Protection of the credited amount in the provident fund against attachment: As per Section 10 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952, the amount standing to the credit of any member in the fund or credit of any exempted employee in a provident fund shall not in any way be capable of, being assigned or charged and shall not be liable to attachment under any decree or order of any court in respect of any debt or liability incurred by the member or exempted employee. Neither the Official Assignee appointed under the Presidency Town Insolvency Act, 1909, nor any Receiver appointed under the Provincial Insolvency Act, 1920, shall be entitled to or have any claim on, any such amount. The amount standing to the credit of the aforesaid categories of person at the time of their death is payable to their nominee under the scheme or the rules vest in nominees. And the amount shall be free from any debt or other liability incurred by the deceased or the nominee before the death of the member or of the exempted employee and shall also not be liable to attachment under any decree or order of any Court. The Institute of Chartered Accountants of India PAPER 2 : BUSINESS LAWS, ETHICS AND COMMUNICATION 39 (b) Validity of the notice of extra ordinary general meeting issued by secretary : The Annual General Meeting or Extra-ordinary General Meeting can be called only with authority of Board of Directors i.e. by passing necessary resolution in the Board Meeting or by Circular resolution. An Annual General Meeting or Extra-ordinary General Meeting cannot be called by an individual director or some of the directors or by secretary. Now, in the instant case, Mr. DP, Secretary of City Handicrafts Ltd., called an extraordinary general meeting on requisition of some members. He issued notice of the meeting without the authority of the Board of Directors. The Secretary of the company does not have the power to call the meeting by himself by issuing notices. Unless the Secretary is specifically authorized either by the board of directors or by the articles, any meeting called by him and the business done there at it would be null and void (Al Amin Seatrans Ltd. Vs. Owners and Party Interested in Vessel M V Loyal Bird ). However, the notice of the meeting may be ratified by the Board of Directors of the company before the meeting is held to make it good (Hooper Vs. Kerr. Stuart & Co.). Thus, the notice issued by Mr. DP may be ratified by the Board of Directors of City Handicrafts Ltd., to make it valid. (c) Service of documents: Under section 51 of the Companies Act, 1956, a document may be served on a company or on its officer at the registered office of the company. It may be sent either by post or by leaving it at its registered office. If it is sent by post, it must be either by post under a certificate of posting or by registered post. When a notice has been addressed to the company and served on directors, it constitutes a good service. The articles of a company which contains the provisions contrary to section 51 cannot be enforced nor can they limit the mode of service to only one of the modes provided by the statute [Sadasiv Vs. Gandhi Seva Samaj (1958) Bombay 247]. When the securities are held within a depository, the records of beneficial ownership may be served by such depository on the company by means of electronic mode or by delivery of floppies or discs [Amendment in section 51 through deposit or IES related laws (Amendment) Act, 1997]. A document may be served on the Registrar by sending it to him at his office by post under a certificate or posting or by registered post, or by delivering it to or leaving it for his office (section 52). Under section 53 of the Companies Act, 1956, a company may serve a document on its member either personally or by sending it by post to him to his registered address; or if he has no registered address in India, to the address (if any) within India supplied by him to the company for giving notice to him. Recently, the Ministry of Corporate Affairs through Circular No. 17/2011 has clarified that a company would have complied with section 53 of the Companies Act, 1956, if the service of document has been made through electronic mode provided the company has obtained e-mail addresses of its members by giving an advance opportunity to every share holders to register their e-mail address. The Institute of Chartered Accountants of India 40 INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION: NOVEMBER, 2012 In cases where any member has not registered his e-mail address with the company, the service of document etc., will be effected by other modes of service as provided under section 53 of the Companies Act, 1956. (d) Advantages of formal communication: A formal communication flows along prescribed channels which all organizational members desirous of communicating with one another are obliged to follow. Following are the advantages of formal communication: (a) The formal channels account for most of the effectiveness of communication. Due care must be taken in sending across any letter or report through the proper formal channel. (b) Formal channels cover an ever widening distance as organizations grow. Through them, it is easier to reach out to the branches of an organization spread far and wide. (c) The formal channels keep the higher level managers from getting bogged down, because of their tendency to filter information. (d) Formal channels of communication consolidate the organization and satisfy the people in managerial position. (e) Objects of the Consumer Protection Councils in India: Under the provisions of the Consumer Protection Act, the Consumer Protection Councils have been constituted at Central, State and District level. The objects of the Central Council regarding consumer protection shall be to promote and protect the rights of consumers as follows:(a) The right to be protected against the marketing of goods and services which are hazardous to life and property. (b) The right to be informed about the quality, quantity, potency, purity, standard and price of goods or services so as to protect the consumer against unfair trade practices. (c) The right to be assured, access to a variety of goods and services at competitive prices. (d) The right to be heard and to be assured that the consumer s interest will receive due consideration at appropriate terms. (e) The right to seek redressal against unfair trade practices or restrictive trade practices or unscrupulous exploitation of consumers; and (f) The right to consumer education The working of the State Consumer Protection Council shall be to promote the objects within the State and the objects of every District Consumer Protection Council shall be to promote within the District the rights of the consumers as mentioned aforesaid from point (a) to (f). The Institute of Chartered Accountants of India

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