Unit 9 Legal Aspects of Business PYQ’s 7th Dec 2023 Shift 1

Key Points

Additional Information

• The statement "Privity of contract exists between the principal and the sub-agent" is invalid because, typically, the sub-agent is appointed by the agent and works under the agent's direction.
• There is no direct contract between the principal and the sub-agent. The principal's contract is with the agent, and the agent's contract is with the sub-agent.
• This means the privity of contract exists between the principal and the agent, and separately, between the agent and the sub-agent. There is no direct legal contract between the principal and the sub-agent.

Correct answer is Skill-development services.

Key Points 

• Yoga Training and Coaching for Basketball: According to the GST regime in India, services provided by an entity registered under Section 12AB (which pertains to charitable organizations under the Income Tax Act, 1961) relating to education (including physical education and sports), health care, religion, spirituality, or yoga are generally exempt from GST, provided these services are part of achieving the entity's objectives and are not conducted with a profit motive. This is outlined under specific entries in the notification on GST exemptions for services.The rationale behind exempting yoga training is its recognition as promoting health, spirituality, or religion that aligns with charitable activities. Similarly, sports coaching, specifically for teenagers in this context, could potentially be aligned with educational or charitable activities aimed at the development of an individual, thereby possibly falling under exemptions if it fulfills certain criteria related to charitable objectives.
• Skill-development Services: The services provided related to skill development to individuals over the age of 65 do not specifically fall within the broad categories typically exempted—like healthcare, education, religious, or spiritual activities directly. The GST law and its exemptions primarily focus on services that directly contribute to education, healthcare, religion, or social welfare. While skill development can be a part of educational services, the specificity regarding the age group (persons over the age of 65 years) and the nature of these - not being explicitly educational (part of a curriculum) or for persons with disabilities - might not qualify for GST exemption under the typically recognized categories.

Key Points

• This assertion implies that anyone involved in the formation of a company is a promoter. However, this can be too broad because not everyone involved in the formation necessarily has the role of a promoter. For example, legal advisors or initial investors may not be considered promoters even if they contribute to the formation.
• Reason R: A promoter is the one who undertakes to form a company with reference to a given object and who takes the necessary steps to accomplish that purpose.
• This definition accurately describes a promoter as someone actively and deliberately involved in setting up the company with a specific goal and taking steps to achieve it. This is a precise and widely accepted definition of a promoter.

so,

• A is not entirely correct because the assertion that anyone associated with the formation of the company is a promoter is overly broad and not universally true.
• R is correct as it provides a more precise and universally accepted definition of what a promoter does.

Hence, The answer is A is not correct but R is correct.

The correct answer is 'Turquand Rule'

Key Points

• Turquand Rule:
  • The Turquand Rule, also known as the "Indoor Management Rule," states that outsiders dealing with a company are entitled to assume that internal company rules are observed.
  • This rule exempts outsiders from investigating whether the company's internal procedures have been properly followed, thus protecting them from the doctrine of constructive notice which implies that everyone is presumed to know the contents of a company's public documents.
  • The Turquand Rule provides a safeguard against the complexities that outsiders might face if they were required to verify that every internal procedure of the company was correctly followed.

Additional Information

• Doctrine of Subrogation:
  • This doctrine pertains to insurance and indemnity law, allowing one party (usually an insurance company) to "step into the shoes" of another by assuming their legal rights and claims.
  • It is unrelated to corporate internal management or the doctrine of constructive notice.
• Doctrine of Ultra Vires:
  • This doctrine states that actions taken by a company outside the scope of its charter or articles of association are void and cannot be ratified, even if approved by all shareholders.
  • While it concerns the limits of corporate power, it does not provide an exception to the doctrine of constructive notice.
• Corporate Veil:
  • The corporate veil separates the personality of a corporation from its shareholders, protecting them from being personally liable for the company’s debts and obligations.
  • This concept deals with liability and does not address the exceptions to the doctrine of constructive notice.

The correct answer is C, A and E Only

Key Points

• The trademarks can be broadly classified into Generic, Descriptive and Invented categories.
• The three categories of trademarks Generic, Descriptive, and Invented represent different levels of distinctiveness and eligibility for trademark protection.
• Understanding these categories is essential for businesses and individuals seeking to develop and protect their brand identity.

Additional Information 

• Descriptive trademarks are those that directly describe the product or service being offered. These trademarks are often not distinctive and may not be eligible for trademark protection unless they acquire secondary meaning. For example, "The Shoe Store" for a shoe store would be considered descriptive.
• Generic terms are common names for products or services and cannot function as trademarks because they do not distinguish the goods or services of one provider from another. Using a generic term as a trademark would give one company exclusive rights to use that term, which would be unfair to competitors and against the purpose of trademark law. For example, "Computer" used as a trademark for computers would be considered generic.
• Invented trademarks are those that are coined or created solely for the purpose of functioning as a trademark. These trademarks are typically the strongest and most protectable because they are inherently distinctive and have no other meaning apart from identifying the source of the goods or services. For example, "Kodak" for cameras and film is an invented trademark.

The correct answer is E, B and A Only

Key Points 

• In India, under Goods and Services Tax (GST) Law, the threshold limit for compulsory registration is Rs. 20 lakh for suppliers of goods and/or services across most states.
• However, for certain special category states, the threshold limit for compulsory registration is Rs. 10 lakh. As of the time of my last update in September 2021, the states of Arunachal Pradesh (A), Meghalaya (B), and Sikkim (E) are not classified as special category states, which means the registration requirement threshold is Rs. 20 lakh for supply of goods and/or services in these states.

Additional Information 

• Sikkim is one of the states in India where every supplier of goods and/or services is required to obtain registration if their aggregate turnover exceeds the threshold limit of Rs. 20 lakh for the supply of goods and/or services. This means that businesses operating in Sikkim need to register for Goods and Services Tax (GST) if their turnover exceeds the specified threshold.
• Similar to Sikkim, Meghalaya also mandates registration for suppliers of goods and/or services whose aggregate turnover exceeds the threshold limit of Rs. 20 lakh. Therefore, businesses in Meghalaya need to obtain GST registration if their turnover crosses the specified limit.
• Arunachal Pradesh is another state where GST registration is required for suppliers of goods and/or services with an aggregate turnover exceeding Rs. 20 lakh. This aligns with the GST regulations applicable across India, ensuring uniformity in registration requirements.

Correct answer is A - IV, B - III, C - II, D - I

Key Points

• Breach of promise to marry = Breach of promise to marry means the to the legal concept in which one party fails to fulfill an agreement to marry the other, despite of making the promises to marry. In many jurisdictions this allows the aggrieved party seek the damages in terms of financial losses, emotional distress or harm suffered as a result of broken promise.
  • Remedy for breach of promise to marry is vindictive damage = Vindictive damage are awarded when one party in a contract breaches the contract and the other party is affected mentally such as emotional distress. It is to compensate the mental distress or injury cased to an aggrieved party.
• Part performance(as much as earned) = Part performance refers to the legal doctrine in contract law where one party has fulfilled some obligations but not all of the contractual obligations. This recognition often arises to prevent unjust and unfairness to the performing party. For example if some party has partly performed the contractual obligations under the contract, a court may enforce the to grant the equitable remedies.
  • Remedy for past performance is suit for quantum merit = A claim for the quantum merit is a quasi contract means there is no legal written contract between the two parties. It is made when one of the party has not performed all the contractual obligations under the contract then the aggrieved party may file a suit upon the quantum merit for the unfairness of the performing party.
• Absolvation from all obligations = It means a complete release or discharge from the duties, responsibilities, commitments and contractual obligations. This contract ensures that all the parties involved should agree to the clauses of the contract willingly for them to be legally binding.
  • Remedy for absolvation from all obligation is recession of contract = Recession of contract means the to rescind the contract or to cancel the contract at the option of the aggrieved or the affected party.
• Mode of securing the specific performance of negative terms of the contract = It includes any specific performance which will have a negative effect on the contract. It can be related to any mischief that is being played by a third party. If the defendant does something that he or she should not perform then the affected party can go to the court for the remedy.
  • Suit for Injunction =  An order from the court to restrain a person from doing anything is known as injunction. It is a legal action in which a party seeks a court order to prohibit another party from engaging in any act or certain actions.

Correct answer is A, E and B only

Key Points

• LLP = LLP is Limited Liability Partnership is a partnership where each partner's liability is limited to the extent of the amount they put in the business. Limited liability means if the partnership fails the creditors cannot go after the partner's personal assets.
• Features of LLP
  • LLP is a body corporate = LLP is a body corporate formed and incorporated under the Limited Liability Partnership Act 2008. It is a legal entity separate from its owners.
  • Perpetual succession = Unlike in partnership firm the LLP can continue its business operations even after the death, retirement, insanity or insolvency of one or more partners. It can enter into contracts and hold property in its name.
  • Separate legal entity = LLP is a separate legal entity means the owners and the business are separate from each other. The liability of the partner has certain limitations in their contribution to the LLP.
  • Mutual agency = All the partners in the LLP are agents of the LLP and not of the partners. It means that the partners are not bound by any acts done by the other partner. Every partner is independent and unauthorized by the actions done by the other partner.
  • LLP agreement = Agreement between all the partners governs the rights and duties of all the partners. If there is no agreement then the act governs the mutual rights and duties of the partners.
  • Limited liability = This is the most important feature of the LLP that it has limited liability. Limited liability means the liability to the extent of the amount that they put in the business. The partners are not liable to pay for the liabilities to the creditors from there personal assets.
  • Minimum and maximum number of partners = The minimum number of partners that an LLP should have is at least 2 partners and at least two designated partners out of which one should be resident of India. There is no maximum limit on the number of partners in the entity.
• Who can be members of an LLP
  • Resident Indians = Any resident of India who is competent to enter into the contract can become a member of an LLP. To form an LLP at least two designated partners are to be appointment one of whom shall be resident of India.
  • Limited Liability Partnership = An LLP can also become a member of an LLP  in India.
  • Companies including foreign companies = Foreign companies can also become a member of an LLP in India. However they must comply with the specific rules such as obtaining digital signatures and a director identification number. In addition to this it needs to take necessary approvals from RBI.

The correct answer is C, D, B, A, E.

Key Points

• The book building process for the public issue of shares in India generally follows a well-defined sequence.
  • First, a merchant banker and syndicate members need to be appointed as underwriters. This is the team that will manage the issuance of the new shares (C).
  • Once the team is in place, the next step is the preparation and filing of the red herring prospectus with the Securities and Exchange Board of India (SEBI) for approval (D). This document provides details about the planned share issue.
  • After receiving approval from SEBI, the next step involves promoting the issue and generating demand for the shares. This is done through 'book running', where the book runner and syndicate members generate awareness, and create and manage demand (B).
  • These leads to the next step which is the determination of the issue price or market clearing price, a process known as 'price discovery' (A).
  • Finally, once the shares have been priced and the book is closed, the issued shares get allotted and listed on stock exchange(s) (E).
  • So, the correct sequence is C, D, B, A, E which matches with option:

Additional Information

• Issue Price: The price at which a company's shares are initially sold to the public.
• Market Clearing Price: The price of a good or a service at which quantity supplied is equal to quantity demanded.
• Price Discovery: The process by which buyers and sellers determine the price of a security.
• Book Runner: The main underwriter or lead manager in the issuance of new equity, debt, or securities instruments.
• Syndicate Members: A group of investment banks that work together to sell new security offerings to investors.
• Merchant Banker: An individual or a financial institution providing capital to firms, often in exchange for an ownership stake.
• Underwriters: Entities that administer the public issuance and distribution of securities from a corporation.
• Red Herring Prospectus: A preliminary registration statement or prospectus filed by a company with SEBI in anticipation of a public offering.
• Allotment: The process of allocating or distributing a certain number of shares to prospective shareholders.
• Stock Exchange: A market in which securities are bought and sold.