Test Paper - Industrial Law and auditing - The Institute of Cost and Works Accountants Of India ICWAI - Group I -2010, Study notes of Tax Legislation and Financial Law

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REVISIONARY TEST PAPER

THE INSTITUTE OF

COST AND WORKS ACCOUNTANTS OF INDIA

12, SUDDER STREET, KOLKATA-700 016

GROUP I

DECEMBER 2010

DIRECTORATE OF STUDIES

60 Revisionary Test Paper (Revised Syllabus-2008)

Paper-6 : COMMERCIAL AND INDUSTRIAL LAW

AND AUDITING

GROUP - I

62 Revisionary Test Paper (Revised Syllabus-2008)

(d) The question was raised in a Bombay case of Shamji v. N. W. Rly.. The High Court, in the case, ruled that endorsing a railway receipt in favour of another does not by itself, pass property in the goods to the endorsee. It merely constitutes the endorsee the agent of the consignor, to receive the goods. Such an endorsement by itself, does not constitute the endorsee either a bona fide pledge or transferee for value of the goods represented by the railway receipt. (e) Caveat Emptor is the fundamental principle of the law of sale of goods. It means ’buyers beware’ or ‘caution buyer’ (i.e. let the buyer beware). In the other words, it is no part of the seller’s duty to point out defects of his own goods. The buyer must inspect the goods to find out if they will suit his purpose. He must buy goods after satisfying himself about quality, suitability etc. If he makes a bad choice, he cannot blame the seller. (f) No gratuity payable under the Act and no gratuity payable to an employee in any establishment, factory, mine, oilfield, plantation, port, railway company or shop exempted under Section 5 shall be liable to attachment in execution of any decree or order of any Civil, Revenue or Criminal Court. (g) Eligibility to Bonus amount depends on the actual period of service of an employee provided he has worked for a minimum number of 30 days in a year. Sanctioned leave is treated as actual service. (h) False, The Payment of Gratuity Act specifies the minimum amount of gratuity payable but the right of an employee to receive better terms of gratuity under any award, or agreement or contract with the employer is protected. (i) As per Industrial Disputes Act institutions owned or managed by organisations wholly or substantially engaged in any charitable, social or philanthropic service are not covered in the definitions of “Industry”. (j) False- The Payment of Bonus Act, 1965 provides for minimum bonus of 8.33% even if a unit makes loss. (k) In his claim to recover the amount from C, A will succeed if the cheque was an order cheque, but fall if the cheque was payable to bearer.

Indian Contract Act, 1872 :

Q. 2. (a) An employee agrees not to institute any legal proceedings against his employer. Can the agreement be enforced by the employer? (b) “A mere mental acceptance not evidenced by words or conduct is, in the eyes of the law, no acceptance.” Comment. (c) Write a note on ‘Counter Offer’. (d) Distinguish between an ‘agent’ and a ‘servant’.

Answer 2.

(a) No, such an agreement is void ab initio since it constitutes restraint of legal proceedings. Section 28 of the Indian Contract Act, in this regard, provides that every agreement by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals or which limits the time within which he may thus enforce his rights, is void to that extent. Thus, the agreement is question shall be void as per Section 28 and hence the employer will not be in a position to enforce the agreement. (b) One of the rules of valid acceptance is that it must be communicated to the offeror. The communication may, however, be express or implied. A mere, mental acceptance is no acceptance. A mere mental acceptance means that the offeree is assenting to an offer in his mind only and has not communicated it to the offeror.

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(c) Where the offeree, instead of unconditionally assenting to the terms of the offer, accepts subject to certain conditions, he is said to have made a counteroffer. Thus, where A offers his car to B for (^) 1,00,000 and B accepts to buy A’s car for (^) 80,000, B has made a counter offer. A counter offer has the effect of terminating the original offer. If in the aforesaid illustration, B later accepts to pay (^) ` 1,00,000 for the car, it shall amount to a fresh offer by B which A may or may not accept. Similarly, where an offeree agreed to accept half the quantity of goods offered by the offeror on the same terms and conditions as would have applied to the full contract, it was held that there was no contract as there was a counter offer to the original offer. (d) There is too much of similarity between an agent and a servant as both are employed to act for and on behalf of principal. However, there is a lot of difference between the two. An agent has the authority to create contractual relationship between the principal and a third party, but a servant ordinarily has no such authority. A servant usually serves only one master but an agent may work for several principals at the same time. A servant is generally paid salary or wages, whereas an agent may be paid on commission basis. Thus, we find that an agent is not a servant though a servant may be authorized to serve as an agent.

Q. 3. Write short notes on :

(a) Bailee’s Lien (b) Essentials of a valid acceptance. (c) Position of the finder of lost goods. (d) Personal liability of agent.

Answer 3. (a)

Bailee’s right of lien is particular in certain cases whereas general in other cases.

Particular Lien is conferred upon a bailee by virtue of the provision of Section 170. It reads :

‘Where the bailee has, in accordance with the purpose of the bailment, rendered any service involving the exercise of labour or skill in respect of the goods bailed, he has, in the absence of a contract to the contrary, a right to retain such goods until he receives due remuneration for the service he has rendered in respect of them.’

General Lien : The provisions of Section 171 empower certain categories of bailees to exercise a general lien. These include : bankers, factors, wharfingers, attorneys of High Court and policy brokers. These bailees can retain all goods of the bailor so long as anything is due to them, unless there is a contract to the contrary.

Answer 3. (b)

Essentials of a valid acceptance :

(i) Acceptance must be absolute and unqualified. (ii) It must be communicated. (iii) It must be according to the mode prescribed. (iv) It must be given within the time prescribed or within reasonable time. (v) It must be in response to offer. (vi) It must be made before the offer lapses. (vii) It must be given by the person to whom the offer is made.

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8. Where he receives or pays money by mistake or fraud. Where an agent receives money from a third party by mistake or fraud, he is personally liable to the third party. Likewise, he has the right to sue the third party for the recovery of the money where he has paid it by by mistake or under fraud of the third party.
9. Where his authority is coupled with interest. When an agent has an interest in the subject matter of the contract entered into by him with a third party, his authority is coupled with interest. He has, in such a case, the right to sue, or be sued, but only to the extent of his interest in the subject-matter.
10. Where the trade usage or custom makes him personally liable. Where there is a trade usage or a custom making the agent personally liable, he is liable unless there is a contract to the contrary.

Q. 4. (a) A’s wife B paid (^) **500 to C to be given as a bribe to a jailor for procuring release for her husband from jail. The Jailor failed to procure the release. Can B recover the amount? (b) Mr. Pal of his own promised to subscribe to Indira Gandhi Memorial Fund by 30.04.2010, but did not pay. Under the circumstances, he can be enforced – Comment. (c) Mr.** **_X_** **forced Mr.** **_Y_** **to sale** **_Y_** **’s house to Mr.** **_Ex_** **at** (^) 5 lakhs, the market price of which was (^) ` 15 lakhs. (d) Distinguish between Indemnity and Guarantee.

Answer 4. (a)

An agreement will not be enforceable if its object or the consideration is unlawful. According to Section 23 of the Act, the consideration and the object of an agreement are unlawful if the court regards it as immoral or opposed to public policy, an agreement whose object or consideration is immoral or is opposed to the public policy, is void.

In the given case, as the agreement is unlawful, being opposed to public policy, is void. So, B cannot recover the amount.

Answer 4. (b)

False. Consideration is essential element of contract without which no promise can be enforced. Therefore a gratuitous promise to contribute to Indira Gandhi Memorial Fund can not be enforced. However if the promisor knew the purpose and also knew that on the faith of such promise, certain obligations are incurred, the promisor would be bound by the promise.

Answer 4. (c)

It is a case of voidabe contract. In this case Mr. Y at his option can avoid the contract. However if ‘ Y ’ wants he can enforce it against Mr. ‘ X ’.

Answer 4. (d)

A contract by which one party promises to another to compensate him for loss is a contract of Indemnity.

A contract to perform the promises or discharge the liability is a contract of Guarantee.

Basic points of differences are

Indemnity Guarantee There are two parties viz. the indemnifier and the indemnified.

There are three parties viz. the creditor, the principal debtor and the surety (or Guarantor) Indemnifier’s liability is primary and independent. Surety’s liability is secondary i.e. it arises only on default of principal debtor. Indemnifier’s right is contingent. Surety’s liability is subsisting. It is a simple contract i.e. one contract. It is composite in nature i.e. 3 contracts.

66 Revisionary Test Paper (Revised Syllabus-2008)

Q. 5. (a) A sells his grocery business, including goodwill, to B for a sum of (^) **50,000. It is agreed that A is not to open another grocery store in the whole of India for the next ten years. A opens another store in the same city two months later. What are the rights of A? (b) A made a contract with B supplying to him certain goods at a place outside the State when there was no prohibition against sending the goods outside the State. Subsequently prohibition was imposed on the sending on those goods to that place and the railway booking was consequently closed. A failed to supply the goods. B sued A for damages for non-supply of goods. A, inter alia, pleaded that the contract becomes impossible of performance and so he was absolved from performing it. Will A succeed in his said defense? (c) A, B and C jointly promise to pay D** (^) 5,000. A and B are untraceable. Can D compel C to pay him in full? (d) A promises to sell and deliver on the 5th of January a lorry to B. The parties have stipulated that time should be the essence of the contract. A delivers the lorry only on the 5th of February. Explain what are the rights of B against A in this case. Suppose B desires to accept the belated delivery and also to claim compensation for loss occasioned by the non-performance of promise at the time agreed. Advise B as to whether he can achieve these two objectives.

Answer 5. (a)

As per Section 27 of The Indian Contract Act, every agreement, by which anyone is retained from exercising a lawful profession, trade or business of any kind, is to that extent void. Exception to Section 27 provides that the seller of the goodwill of a business may agree with the buyer to refrain from carrying on a similar business, within local limits, so long as the buyer or any one deriving title to the goodwill from him carries on alike business, provided that such limits are reasonable.

In the given case, as the limits agreed regarding place as well as time is not reasonable, the agreement is void. So, B cannot take any legal action against A.

Answer 5. (b)

According to Section 56, impossibility of performance may fall into either at the time of agreement or arising subsequent to the formation of contract. Impossibility which arises subsequent to the formation of a contract (which could be performed at the time when the contract was entered into) is called post- contractual or supervening impossibility. In such a case, the contract becomes void when the act becomes impossible or unlawful. Impossibility of performance of a contract, as a general rule, is no excuse for the non-performance of the contract, but where this impossibility is caused by the circumstances beyond the control of the parties, the parties are discharged from further performance of the obligation under the contract.

In the given case, the contract is void and A is absolved from performing it.

It is for the reimbursement of the loss if any on the happening of a contingency.

Indemnity Guarantee It is for the security of the creditor, Guaranteed by the surety of an existing debt. The indemnifier cannot sue the third party in his own name unless there is an assignment in indemnifier’s favour. If there is no such assignment, the idemnifier must bring the suit in the name of indemnified.

The surely can proceed against the principal debtor in his own right.

68 Revisionary Test Paper (Revised Syllabus-2008)

i. The mistake must be mutual ii. The mistake must relate to a matter of fact essential to the agreement.

As Sec 20 is applicable on the given case, the agreement is void.

Answer 6. (c)

Consideration means “something in return”. This something in return need not necessarily be equal in value to “something given”. So long as consideration exists, the Courts are not concerned as to its adequacy, provided it is of some value. The adequacy of the consideration is for the parties to consider at the time of making the agreement, not for the Court when it is sought to be enforced. Consideration must, however be something to which the law attaches value though it need not be equal in value to the promise made.

In the given case, H is liable to pay damages to C for failure to carry out his part of the contract though the consideration is inadequate.

Answer 6. (d)

The communication of a proposal (offer) is complete when it comes to the knowledge of the person to whom it is made (Sec. 4). The communication of an acceptance is complete – as against the proposer when it is put into a course of transmission to him, so as to be out of the power of the acceptor.

In the given case, as B receives the letter sent by A the next day, the offer is complete. And as B posts his letter of acceptance immediately, the acceptance is complete as against A. So, there is contract between A and B.

Sale of Goods Act, 1930 :

Q. 7. (a) Rama bought a refrigerator from M/s. Ananda Enterprises for a sum of (^) ` 12,000. The Refrigerator was defective right from the beginning and it did not work inspite of repairs by the expert mechanics. Rama wants to return the refrigerator to M/s. Ananda Enterprises and claim refund. Explain. (b) A purchased a car from B who had no title to it. A used the car for several months. After that, the true owner spotted the car and demanded it from A – Discuss the remedies available to A. (c) X of Delhi orders Y of Madras, to deliver certain goods to him at Delhi. While the goods are lying at the Delhi Railway Station, the Station Master informs X that the goods are held at the Station at X’s risk. But X has become insolvent. Has Y any right over the goods as an unpaid seller? (d) What are the exceptions to the doctrine of Caveat Emptor?

Answer 7. (a)

Rama shall be entitled to return the refrigerator and claim refund. According to Section 16(2) of the Sale of Goods Act, unless otherwise agreed upon, every contract of sale of goods is subject to the condition as to merchantability, i.e., the goods must be capable of being used as the goods of that description. Thus, a refrigerator is expected to function as a refrigerator. Where it fails to, as in the present case, there is deemed to be breach of that condition and as such, return of price shall have to be made.

Answer 7. (b)

As per Section 14(a) of The Sale of Goods Act, 1930 in a contract of sale unless the circumstances of the contract are such as to show a different intention is an implied condition on the part of the seller that in the case of a sale, he has a right to sell the goods.

In the given case, A was bound to hand over the car to its true owner and A could successfully sue B, the seller without title, for the recovery of the purchase price even though several months had passed.

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Answer 7. (c)

Y, in the given case, has lost his right of stoppage in transit, the intimation by the Station Master that the goods are held at the station at X’s risk, has transformed the positions of the Station Master into a bailee of X instead of Y. the transit has thus come to an end [Sec. 51(31)]. An unpaid seller can stop the goods in transit in the event of buyer’s insolvency. The transit being over, the right is thus lost.

Answer 7. (d)

The doctrine of “ Caveat Emptor ” is subject to the following exceptions :

1. Where the seller makes a false representation and buyer relies on that representation. The rule of “Caveat Emptor” will not apply and the buyer will be entitled to the goods according to that representation.
2. Where the seller actively conceals a defect in the goods, so that on a reasonable examination the same could not be discovered.
3. Where the buyer makes known to the seller the prupose for which he is buying the goods, and the seller happens to be a person whose business is to sell goods of that description, then there is an implied condition that the goods shall be reasonably fit for such purpose. The rule Caveat Emptor will not apply.
4. In case of sale by description, there is implied condition as to thier being of merchantable quality. However, if the buyer has examined the goods, this condition of “merchantability” extends only to hidden or latent defects. The defects which examination ought to have revealed are not covered, i.e., the rule of Caveat Emptor will be applicable.

Q. 8. (a) “Only the owner of goods can transfer a good title”. What are the exceptions to this rule?

(b) B selects certain furniture in a shop. The price is settled. He arranges to take delivery of the furniture the next day and agrees to pay on the first of the next month. The furniture was destroyed by fire the same evening. Is B liable to pay the price? Give reasons. (c) A agrees to sell to B his two second-hand cars on the terms that the price was to be fixed by C. B takes delivery of one car immediately. C, however, refuses to fix the price. A asks for the return of the car already delivered whereas B insists on the delivery of the second car to him for a reasonable price of both the cars. Decide. (d) When an unpaid seller’s lien is lost?

Answer 8. (a)

There are several exceptions to the said rule. They are laid down by Sections 27 to 30 and are as follows :

Sale by Mercantile Agent. In case of sale by a mercantile agent who is in possession of either the goods or documents of title to the goods with the consent of the owner and sells the goods in the ordinary course of business as a mercantile agent, the buyer gets a good title to the goods provided he buys them in good faith and for value.

Sale by a Joint-owner. Where one of several joint owners of goods has the sole possession thereof, with the consent of the others, any purchaser from such person, for value without notice at the time, of the seller’s want of authority to sell, acquires a good title thereto against the other joint-owners.

Sale by a Person in Possession under a Voidable Contract. A person who has obtained possession of goods under a contract which is voidable on the ground of fraud, misrepresentation, coercion, or under influence, can convey a good title, provided the sale takes place before the voidable contract is avoided (Section 29).

Sale by the Seller in Posssession of Goods after Sale. Where a seller having sold goods, continues in possession thereof or of documents or title to the goods, the delivery or transfer by such person or by a mercantile agent acting for such person, of the same, by way of sale, pledge or other disposition, will pass

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(c) A to sell a horse to B who tells A that he (B) needs the horse for riding to Mumbai immediately. The horse is ill at the time of agreement. What are the rights of A and B? (d) A seller agrees to supply to the buyer timber of ½” thickness for being made into cement barrels. The timber actually supplied varies in thickness from ½” to 5/8". The timber is merchantable and commercially fit for the purpose for which it was ordered. The buyer rejects the timber. Is his action justified?

Answer 9. (a)

The unpaid seller, who has retained possession of the goods in exercise of his right of lien or who has resumed possession from the carrier upon insolvency of the buyer, can resell the goods :

(i) If the goods are of a perishable nature, without any notice to the buyer; and (ii) In other cases, after notice to buyer calling upon him to pay or tender the price within reasonable time, and upon failure of the buyer to do so.

The seller is entitled to recover from the original buyer damages caused to him by the resale. But if any profit accrues from the resale, such profit shall go to the unpaid seller and not to the buyer. The seller does not act as the agent of the buyer.

Answer 9. (b)

As per Section 64 of The Sale of Goods Act where goods are destroyed or damaged before the completion of sale, the loss will fall on the seller. The sale is complete when the auctioneer announces its completion by the fall of the hammer or in some other customary manner. Until such announcement any bidder may retract (withdraw, revoke) his bid.

In the given case, as the auctioneer did not announce the completion of sale by the fall of the hammer or any other customary manner, the sale is not complete. So in both the cases the loss is to be borne by the owner of the vase.

Answer 9. (c)

As per Section 8 of the Sale of Goods Act, an agreement to sell specific goods become void if subsequently the goods, without any fault on the part of the seller or buyer, perish or become so damaged as no longer to answer to their description in the agreement before the risk passes to the buyer.

In the given case B needs the horse for riding to Mumbai immediately. But the horse is ill and not able to perform the agreement. As per the above cited explanation the horse being a specific good the agreement becomes void.

Answer 9. (d)

Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description. The rule of law contained in Section 15 of the Sale of Goods Act summarized in the following maxim : “If you contract to sell peas, you cannot oblige a party to take beans. If the description of the article tendered is different in any respect, it is not the article bargained for and the other party is not bound to take it”.

In the given case the buyer can reject the timber even if the timber is merchantable and commercially fit for the purpose for which it was ordered.

Industrial Laws :

Q. 10. (a) A is the owner of a concern manufacturing cigars. 20 persons are employed in the concern. Of these 20 employees, one is a graduate for supervising the work and another an apprentice learning work. The remaining 18 are employed not on the time wage system, but on the piece work system. Is the concern a factory within the meaning of the term under the Factories Act, 1948?

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(b) The services of a woman worker who had completed 4 months’ continuous service in a factory were terminated. i. To what leave is she entitled? ii. To what leave will she be entitled if she were below 15 years of age? (c) What are rules relating to recovery of Gratuity under the Payment of Gratuity Act, 1972? (d) Life Insurance Corporation (LIC) formulated a scheme called ‘salary saving scheme’ under which employees of an organisation could buy an insurance policy. Premium due on each policy was collected by the employer from the salary of the employees nor did it issue any premium notice. When the widow of the deceased employee made a claim to LIC on the death of her husband, the LIC repudiated the claim on the ground that four instalments of premium had not been paid. The widow was approached the consumer forum for redressal. Is the LIC liable for deficiency in service?

Answer 10. (a)

As per Section 2 (m) factory means any premises including the precincts thereof - i. Whereon 10 or more workers are working or were working on any day of the preceding 12 months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on, or ii. Whereon 20 or more workers are working or were working on any day of the preceding 12 months, and in any part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on. For computing the number of workers, all the workers in different groups in a day shall be taken into account. So, in the given case, as per section 2(m) the concern is a factory within the meaning of that term under the Factories Act, 1948.

Answer 10. (b)

As per section 79 every worker who has worked for a period of 240 days or more in a factory during a calendar year shall be allowed during the subsequent calendar year leave with wages for a certain number of days. These days of leave shall be calculated at the rate of –

i. If an adult, one day for every 20 days of work performed by him during the previous calendar year. ii. If a child, one day for every 15 days of work performed by him during the previous calendar year.

So, in the given case, she is entitled to

i. 6 day’s leave, and ii. 8 day’s leave.

Answer 10. (c)

No gratuity payable under the Act and no gratuity payable to an employee in any establishment, factory, mine, oilfield, plantation, port, railway company or shop exempted under Section 5 shall be liable to attachment in execution of any decree or order of any Civil, Revenue or Criminal Court.

Section 8 deals with the recovery of gratuity. It the employer fails to pay gratuity within the prescribed time to the person entitled therto, the controlling authorities are authorised to issue a certificate to the Collector to recover the amount. The amount will carry compound interest at such rate as the Central Government may, by notification, specify (Persently 10 per cent) from the date of expiry of the prescribed time. This amount has to be recovered as arrears of land revenue. However, the amount of interest payable shall in no case exceed the amount of the gratuity payable under the Act.

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Answer 12. (a)

An employer is not liable to pay compensation for personal injury caused to a workman by accident arising out of and in the course of employment—

(a) if the injury does not result in the total or partial disablement of the workman for a period exceeding 3 days; (b) if the injury, not resulting in death, is caused by an accident which is directly attributable to— (i) the workman having been at the time of the accident under the influence of drink or drugs; or (ii) the wilful disobedience of the workman to an order expressly given, or to a rule expressly framed, for the purpose of securing the safety of workmen; or (iii) the wilful removal or disregard by the workman of any safety guard or other device (which is an offence under the Factories Act, 1948) which he knew to have been provided for the purpose of securing the safety of the workmen [Proviso (a) to Sec. 3 (1)].

The exceptions, namely (i) intoxication by drink or drugs, (ii) wilful disobedience of certain rules and orders, (iii) wilful removal of safety devices, are not applicable in case of a fatal accident [Proviso (b) to Sec. 3 (1)]. The reason is that where a workman has died as a result of personal injury it is extremely difficult for the dependants to rebut evidence that the accident was caused by the deceased’s misconduct.

As per the above explanation, in the given case, the employer is liable to give compensation.

Answer 12. (b)

The gratuity payable to an employee may be wholly or partially forfeited if the services of such employee have been terminated for—

(i) his riotous or disorderly conduct or any other act of violence on his part, or, (ii) any act which constitutes an offence involving moral turpitude, provide that such offences is committed by him in the course of his employment [Sec. 4 (6) (b)]. Any decision to forfeit royalty can however be taken only after affording opportunity of hearing to the employee [ Bharat Gold Mines Ltd. v Regional Labour Commr. (1986) Lab. I.C. 1976 (Kant). (D.B.)].

Answer 12. (c)

According to Section 18 of the Payment of Bonus Act, 1965, when in any accounting year, an employee is found guilty of misconduct causing financial loss to the employer, then, it shall be lawful for the employer to deduct the amount of loss from the amount of bonus payable by him to the employee under the Act in respect of that accounting year only and the employee shall be entitled to receive the balances, if any. Thus, the provision of Section 18 suggests that there can be no other deductions from the bonus except in respect of a financial loss directly attributable to the employee’s misconduct.

Answer 12. (d)

If, 10 or more employed persons, acting in concert, absent themselves without due notice and without reasonable cause, the deduction for absence from duty from any such person may include such amount not exceeding his wages for 8 days as may be due to the employer in lieu of notice [Proviso to Sec. 9 (2)].

So, in the given case, wages for 10 days, i.e. two days’ wages for absence plus 8 days’ wages for not giving due notice may be deducted.

Q. 13. (a) A, a medical practitioner purchased an ultrasound scanner and the same stopped functioning within a short period of time. A claimed refund of the price from the supplier. The supplier pleaded that the complainant was not a consumer as the scanner was used for the professional purpose and A was making profit out of it. The complainant claimed that it was being run by his personal skill and to earn his livelihood. Decide.

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(b) “Deficiency in service is a ground for preferring a complaint to the Consumer Protection Forum”. Comment. (c) Write short notes on – Rights of a consumer under the Consumer Protection Act, 1986? (d) A person has worked only for 35 days in an accounting year. Is he eligible or entitled to be paid bonus by his employer for that year?

Answer 13. (a)

As per the definition of the ‘Consumer’, the goods purchased or services availed should not be meant for re-sale or for a commercial purpose. Commercial purpose does not include use by a consumer of goods bought and used by him and services availed by him exclusively for the purpose of earning his livelihood, by means of self-employment.

In the given case, the question of profit is not relevant. The question to be seen is whether the goods purchased by consumer were being used by himself. From the affidavit of the complainant, it is clear that the scanner was used by him by his skill for earning his livelihood. Hence, he is a consumer. The supplier is bound to refund the price.

Answer 13. (b)

Deficiency in service complained of could be in respect of the service hired or availed or agreed to be hired or availed of by the complainant who suffered from deficiency in any respect. Deficiency must pertain to performance. Whenever there is a deficiency arising out of negligence of a party, the consumer can approach the Forum for redressal. Negligence is sine qua non regarding deficiency of service.

Answer 13. (c)

Section 6 of the Act recognises the following six rights of consumers :

1. Right to satefy , i.e. , the right to be protected against the marketing of goods and services which are hazardous to life and property.
2. Right to be informed , i.e. , the right to be informed about the quality, quantity, potency, purity, standard and price of goods or services, as the case may be, so as to protect the consumer against unfair trade practices.
3. Right to choose. It means right to be assured, wherever possible, access to a variety of goods and services at competitive prices. In case of monopolies, say, railways, telephones, etc., it means right to be assured of satisfactory quality and service at a fair price.
4. Right to be heard , i.e. , the consumers’ interests will receive due consideration at appropriate forums. It also includes right to be represented in various forums formed to consider the consumers’ welfare.
5. Right to seek redressal. It means the right to seek redressal against unfair practices or restrictive trade practices or unscrupulous exploitation of consumers. It also includes right to fair settlement of the genuine grievances of the consumers.
6. Right to consumer education. It means the right to acquire the knowledge and skill to be an informed consumer.

Answer 13. (d)

Section 8 of the Payment of Bonus Act, 1965 provides that every employee shall be entitled to be paid by his employer in an accounting year, bonus in accordance with the provisions of this Act, provided he has worked in the establishment for not less than 30 working days in the year.

However, since the employee in the given case has not worked for all the working days in an accounting year, the provisions of Section 13 also become relevant which provide for proportionate reduction of bunus in such cases.

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(i) to cease manufacture of hazardous goods and to desist from offering, services which are hazardous in nature; (j) to pay such sum as may be determined by it if it is of the opinion that loss or injury has been suffered by a large number of consumers who are not identifiable conveniently; (k) to issue corrective advertisement to neutralize the effect of misleading advertisement at the cost of the opposite party responsible for issuing such misleading advertisement; (l) to provide for adequate costs to parties.

Answer 14. (d)

The points of difference between a lock-out and closure are as follows :

(1) In the case of lock-out it is only the place of business which is closed (and not the business itself), while in the case of closure of a business not only the place of business but the business itself is closed [ Express Newspapers (Pvt.) Ltd. v. Their Workmen, A.I.R. (1963) S.C. 569]. The closure of a business indicates the final and irrevocable termination of the business itself. Lock-out, on the other hand, indicates the closure of the place of business or the place of employment and not the closure of the business itself. (2) Lock-out is a weapon of coercion in the hands of employer; closure is generally for trade reasons. (3) In closure there is severance of employment relationship whereas in lock-out there is no severance but only suspension of such relationship. (4) A lock-out is caused by the existence or apprehension of an industrial dispute whereas a closure need not be in consequence of an industrial dispute.

Q. 15. (a) What is the time limit for payment of bonus under the Payment of Bonus Act, 1965?

(b) An employee committed an act in respect of which a fine was imposed. No prior notice specifying this particular act in respect of which fine could be imposed had been exhibited. The employer deducted the fine in 4 installments from the wages of the employee. What provisions of the Act does the employer violates? (c) A watchman whose duty was to guard the property of the premises of a rest house, had his quarters within the premises of the rest house. His duty ended at 11 p.m. At 2.30 a.m. (i.e. within 3.5 hours of the said 11 p.m.) he was found murdered near his quarters. Is the employer liable to pay compensation? (d) Who are exempted from the provisions of Employees’ Provident Fund Scheme?

Answer 15. (a)

As per Section 19 of the Payment of Bonus Act, 1965, the employer is bound to pay to his employees bonus in cash within a period of 8 months from close of the accounting year. However, this period of 8 months may be extended up to a maximum of 2 years by the appropriate Government or by any authority specified by the appropriate Government. But in case of a dispute regarding payment of bonus, it must be paid within one month from the date on which the award or settlement, effected by the relevant authority, comes into operation.

Answer 15. (b)

An employer can deduct the fine imposed on any employee from the wages of the same. But as per Section 8(2) the notice specifying the acts and omissions for which fines may be imposed shall be exhibited in the prescribed manner on the premises (and in case of persons employed upon a railway, at the prescribed place or places) in which employment is carried on. Similarly section 8(6) provides that such a fine shall not be recovered from the employed person by installments or after expiry of 90 days from the day on which it was imposed.

78 Revisionary Test Paper (Revised Syllabus-2008)

Answer 15. (c)

Yes, as the accident arise out of and in the course of employment. When a person is employed on a duty of this kind his actual employment does not cease within the specified hours of duty but he is in a way in constant employment since it can by no means be said that if a watchman detected a thief at a time he was not actually on duty, he would not be required to resist and obstruct the thief and that it would be no part of his duty to do so.

Answer 15. (d)

The Employees’ Provident Fund Scheme may make provision for exemption of any person or class of persons employed in any establishment to which this Scheme applies from the operation of all or any of the provisions of this Scheme, if

(i) such person or class of persons is entitled to benefits in the nature of provident fund, gratuity or old-age pension, and (ii) such benefits, separately or jointly, are on the whole not less favourable than the benefits provided under the Act or the Employees’ Provident Fund Scheme [Sec. 17(2)]. But no such exemption shall be granted in respect of a class of persons unless the appropriate Government is of opinion that the majority of persons constituting such class desire to continue to be entitled to such benefits [Proviso to Sec. 17(2)].

Other Laws :

Q. 16. (a) A bill of exchange is payable to Shyam on order. At maturity another person of the same name wrongfully gets possession of the bill and presents it to the acceptor for payment. After being satisfied that the person presenting is Shyam, the acceptor makes payment on it in due course. Is the acceptor discharged? (b) Define the followings as per The Competition Act, 2002 i. Dominant Position ii. Predatory Price. (c) What are the documents required for a limited liability partnership to be incorporated? (d) A draws for his own accommodation a bill for (^) **1,000 on B, and after acceptance by B, endorses it to C as security for** (^) 500. B is adjudged insolvent. Discuss the rights of C.

Answer 16. (a)

“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 the payment to the person in possession of the instrument must be under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount mentioned in the instrument. If, under suspicious circumstances, the person making the payment does not make the necessary inquiry, the payment is not a payment in due course.

In the given case, if the acceptor does not make the necessary inquiry before making the payment, it is not a payment in due course. So, he is not discharged.

Answer 16. (b)

(i) Dominant Position : It means a position of strength, enjoyed by an enterprise, in the relevant market, whether in India or outside India, which enables it to—

(a) operate independently of competitive forces prevailing in the relevant market; or (b) affect its competitors or consumers or the relevant market in its favour.