Unit 9 Legal Aspects of Business PYQ’s 3rd January 2026 Shift 1

The correct answer is – Both (A) and (R) are correct and (R) is the correct explanation of (A)

Key Points

• Coercion in Legal Terms
  • As per Section 15 of the Indian Contract Act, 1872, coercion refers to committing or threatening to commit any act forbidden by the Indian Penal Code (IPC) or unlawful detention of property, with the intention of causing any person to enter into an agreement.
  • In this case, the relatives of the deceased threatened the widow, which constitutes coercion.
• Validity of Consent
  • The widow’s consent to adopt a boy was not free as it was obtained through coercion, making the adoption voidable at her discretion.
  • The court correctly held that the widow’s consent was invalid due to the coercion applied by the relatives.
• Reason Supports Assertion
  • The Reason (R) aligns with and explains the Assertion (A) because it establishes that the subsequent cancellation of the adoption was legally justified due to the coercion involved.

Additional Information

• Key Provisions of the Indian Contract Act, 1872
  • Section 14: A contract is said to be made with free consent when it is not caused by coercion, undue influence, fraud, misrepresentation, or mistake.
  • Section 19: When consent to an agreement is caused by coercion, the agreement is voidable at the option of the party whose consent was so caused.
• Legal Implications of Coercion
  • Coercion renders the agreement voidable, allowing the aggrieved party to either cancel the agreement or accept it.
  • The burden of proof lies on the party alleging coercion to demonstrate its occurrence.
• Adoption and Consent
  • Under Indian law, adoption must be made with the free and informed consent of the adopting party.
  • An adoption obtained through coercion can be challenged and declared invalid.

The correct answer is – 5%, 18%, and 40%

Key Points

• GST rates applicable after 22nd September 2025
  • The GST structure in India is categorized into multiple slabs: 5%, 12%, 18%, 28%, and 40%.
  • Based on the question, the applicable GST rates selected are 5%, 18%, and 40%.
  • 5%: This slab is generally applied to essential goods and services.
  • 18%: This is the standard rate for most goods and services in the GST structure.
  • 40%: This rate is typically reserved for luxury goods or goods considered non-essential.

Additional Information

• GST Overview
  • The Goods and Services Tax (GST) is an indirect tax implemented in India in July 2017 to replace multiple cascading taxes.
  • It is a destination-based tax system, meaning tax is collected at the point of consumption rather than production.
• GST Slabs
  • The GST Council determines the tax slabs based on the nature of goods and services.
  • Lower slabs like 5% are applied to necessities, while higher slabs like 28% or 40% are meant for luxury or sin goods.
• Impact of GST Rates
  • Higher GST rates (28% or 40%) discourage consumption of luxury goods.
  • Lower GST rates (5%) aim to make essential goods affordable for consumers.

The correct answer is – A-III, B-I, C-IV, D-II

Key Points

• Doctrine of Caveat Emptor
  • This principle is derived from the Sales of Goods Act and means “let the buyer beware.”
  • It implies that the buyer is responsible for checking the quality and suitability of goods before purchase.
• Bailment and Pledge
  • These are covered under Special Contracts as part of the Indian Contract Act, 1872.
  • Bailment involves the delivery of goods for a specific purpose under a contract, while pledge refers to a specific type of bailment where goods are delivered as security for a loan.
• Holder in Due Course
  • This concept is associated with the Negotiable Instruments Act, 1881.
  • A Holder in Due Course is a person who has obtained a negotiable instrument for value, in good faith, and without notice of any defect in the title of the person from whom it was obtained.
• DPIN
  • DPIN stands for Designated Partner Identification Number, which is a requirement under the Limited Liability Partnership Act, 2008.
  • It is a unique identifier for designated partners in an LLP.

Additional Information

• Sales of Goods Act
  • It governs contracts relating to the sale of goods, including the rights, duties, and liabilities of buyers and sellers.
  • The Doctrine of Caveat Emptor is a fundamental principle under this Act.
• Special Contracts
  • Part of the Indian Contract Act, 1872, they include contracts like bailment, pledge, indemnity, and guarantee.
  • These contracts specify special obligations and rights between parties.
• Negotiable Instruments Act
  • This Act provides the framework for instruments like cheques, promissory notes, and bills of exchange.
  • The concept of Holder in Due Course ensures the protection of good-faith holders of negotiable instruments.
• Limited Liability Partnership Act
  • This Act governs LLPs, which combine the benefits of partnerships and corporations.
  • DPIN is a mandatory identifier for designated partners under this Act.

The correct answer is – E, D, C, B, A

Key Points

• Indian Contract Act (E)
  • Enacted in 1872, it is one of the oldest laws governing contracts in India.
  • It defines the framework for contractual relationships and obligations.
• Negotiable Instruments Act (D)
  • Passed in 1881, this Act governs the use of negotiable instruments like cheques, promissory notes, and bills of exchange.
• Information Technology Act (C)
  • Enacted in 2000, it provides legal recognition to electronic commerce and digital signatures.
• Competition Act (B)
  • Introduced in 2002, it replaced the Monopolies and Restrictive Trade Practices (MRTP) Act to promote competition and prevent anti-competitive practices.
• Right to Information Act (A)
  • Enacted in 2005, this law empowers citizens to seek information from public authorities, promoting transparency and accountability.

Additional Information

• Indian Contract Act
  • The Act is divided into two parts: General Principles of the Law of Contracts and Special Kinds of Contracts such as Contracts Relating to Indemnity, Guarantee, Bailment, and Agency.
• Negotiable Instruments Act
  • This Act facilitates the use of negotiable instruments in commercial transactions by defining their legal framework.
• Information Technology Act
  • The IT Act also addresses cybercrimes and prescribes penalties for their violations.
• Competition Act
  • This Act aims to ensure a level playing field for businesses and prevent monopolistic practices in the market.
• Right to Information Act
  • RTI Act allows citizens to demand information from government bodies, making them more accountable to the public.

The correct answer is – C, B, A, D, E

Key Points

• Agreement with unlawful objects or consideration (Section 23)
  • Section 23 of the Indian Contract Act, 1872 states that agreements with unlawful objects or considerations are void.
  • Unlawful considerations include acts forbidden by law, fraudulent acts, or acts that oppose public policy.
• Agreement made without consideration (Section 25)
  • According to Section 25, an agreement made without consideration is void unless it falls under specific exceptions such as written and registered agreements or contracts based on natural love and affection.
• Agreement in restraint of marriage (Section 26)
  • Section 26 declares agreements that restrain the marriage of any individual, except minors, as void.
• Agreement in restraint of trade (Section 27)
  • Section 27 states that agreements that restrain an individual from carrying on any trade, business, or profession are void, except in certain cases such as partnerships.
• Agreement by way of wager (Section 30)
  • Section 30 declares wagering agreements void but does not make them illegal. This means no legal action can be taken to recover money won in a wager.

Additional Information

• Void Agreements under the Indian Contract Act, 1872
  • Void agreements are those that are not enforceable by law.
  • Examples include agreements made without consideration (Section 25), agreements in restraint of marriage (Section 26), and wagering agreements (Section 30).
• Public Policy in Contract Law
  • Sections such as 23 and 27 deal with agreements that are against public policy, making them void to protect societal interests.
  • Examples include agreements to commit a crime or those that restrict trade or personal freedoms.
• Exceptions to Void Agreements
  • Certain void agreements have exceptions, such as valid restraints in partnership agreements under Section 27.
  • Written and registered agreements made out of natural love and affection are exceptions to Section 25.

The correct answer is – Raj will be personally liable as for all pre-incorporation contracts, promotors are personally liable

Key Points

• Pre-incorporation Contracts
  • These are agreements entered into by promotors on behalf of a company before it is legally incorporated.
  • A company cannot be bound by such contracts as it does not exist at the time of agreement.
• Promotor’s Liability
  • As the company is not yet formed, the promotor personally assumes liability for the contract.
  • In this case, Raj, being the promotor, is personally liable for the payment to Pooja.
• Legal Principle
  • Under contract law, only parties to a contract can be held liable. Since the company was not a party at the time of agreement, it cannot be held liable.

Additional Information

• Post-Incorporation Contracts
  • Once a company is incorporated, it can adopt pre-incorporation contracts through a novation process.
  • Until such adoption, the promotor remains liable for the contract.
• Exceptions to Promotor’s Liability
  • If the contract explicitly states that the promotor will not be liable, they may not be held accountable.
  • The liability can also be waived if the company agrees to take on the obligations post-incorporation.
• Legal Framework
  • In most jurisdictions, pre-incorporation contracts are governed by corporate laws and general contract principles.
  • Courts often rely on the intention of parties and specific terms of the agreement to decide liability.

The correct answer is – Valid, even if irregular, cannot be cancelled

Key Points

• Certificate of incorporation
  • Once a certificate of incorporation is issued by the Registrar of Companies, it becomes conclusive evidence that all requirements of the Companies Act have been complied with.
  • Even if there are irregularities, the certificate cannot be challenged in court or declared void.
• Irregularities in incorporation
  • The inclusion of minor promoters or submission of incorrect details does not render the certificate invalid.
  • Legal protection is provided to the company and its operations once the certificate is issued.

Additional Information

• Legal validity of a company
  • The company comes into existence from the date mentioned on the certificate of incorporation.
  • This certificate acts as a legal shield for the company, protecting it from disputes regarding its formation.
• Exceptions to the rule
  • The certificate may be questioned in cases of fraud or illegal activities during the incorporation process.
  • Such cases require explicit court intervention to declare the certificate void.

The correct answer is – Provisional Contract

Key Points

• Provisional Contract
  • A Provisional Contract is an agreement entered into by a company that is yet to be formally incorporated or has not yet commenced business operations.
  • Such contracts are typically made prior to the company’s official incorporation and remain subject to ratification by the company once it is formally established.
  • In the context of the question, the agreement to buy the building for ₹ 1,00,00,000 from Prakash qualifies as a Provisional Contract.
  • The term “Provisional” signifies that the agreement is conditional and may require further confirmation or execution after incorporation of the entity.

Additional Information

• Pre-incorporation Contracts
  • These are agreements made by the promoters of a company before the company is legally formed.
  • Such contracts are not automatically binding on the company unless they are ratified after incorporation.
• Preliminary Contracts
  • Preliminary contracts refer to agreements that prepare the groundwork for forming a formal contract later.
  • They are not legally enforceable until finalized into a formal agreement.
• Void Contracts
  • A void contract is one that cannot be enforced by law from the very beginning.
  • These occur when the agreement is made without fulfilling the essential conditions required for a valid contract.

The correct answer is – Pre-incorporation Contract

Key Points

• Pre-incorporation Contracts
  • A Pre-incorporation Contract refers to an agreement entered into by a company before it is legally formed or incorporated.
  • Such contracts are typically made by promoters on behalf of the company, which does not yet have legal existence at the time of the agreement.
  • These contracts are essential for setting up the groundwork for the company’s operations, such as acquiring property, entering into supply agreements, or securing resources.
  • Once the company is incorporated, it may choose to adopt or ratify the contract, making it binding on the company.

Additional Information

• Legal Status of Pre-incorporation Contracts
  • Since the company does not legally exist at the time of the contract, it cannot directly be a party to the agreement.
  • Promoters who enter into such contracts are personally liable for fulfilling the obligations unless the company formally adopts the contract after incorporation.
• Key Elements of Pre-incorporation Contracts
  • These contracts must clearly mention that they are being entered into on behalf of a company that is yet to be formed.
  • The terms and conditions should be precise, as they may later require formal ratification by the company.
• Other Types of Contracts for Companies
  • Provisional Contracts: Contracts made after incorporation but before the company receives its certificate to commence business (for public companies).
  • Preliminary Contracts: A broader term that may include pre-incorporation contracts but also covers other agreements made during the initial stages of setting up a business.
  • Standard Contracts: Routine contracts that follow a standardized format and are unrelated to the company’s incorporation stage.

The correct answer is – The allotment of shares is valid as it is made after obtaining the certificate of incorporation

Key Points

• Certificate of Incorporation
  • The certificate of incorporation is a conclusive legal document issued to a company, confirming its registration under the Companies Act.
  • Once issued, the certificate of incorporation validates that the company legally exists as a separate legal entity.
• Validity of Share Allotment
  • Under the Companies Act, shares can only be allotted after the company has been legally incorporated.
  • In this case, since the allotment was made after obtaining the certificate of incorporation, it is deemed valid.

Additional Information

• Legal Effect of Certificate of Incorporation
  • The issuance of the certificate is conclusive evidence that all requirements related to the incorporation have been complied with.
  • Even if there were procedural irregularities, the certificate’s issuance provides legal protection to the company.
• Impact of Forged or Invalid Certificates
  • If the certificate is obtained through fraudulent means (e.g., forged documents), the incorporation may be challenged in court.
  • However, unless proven fraudulent, the certificate remains valid and binding for all purposes.
• Section Reference
  • Provisions governing the certificate of incorporation and share allotment are covered under the Companies Act.