The touchstone

When the great library of Alexandria burned, the story goes, one book was saved. But it was not a valuable book; and so a poor man, who could read a little, bought it for a few coppers. The book wasn't very interesting, but between its pages there was something very interesting indeed. It was a thin strip of vellum on which was written the secret of the "Touchstone"!


The touchstone was a small pebble that could turn any common metal into pure gold. The writing explained that it was lying among thousands and thousands of other pebbles that looked exactly like it. But the secret was this: The real stone would feel warm, while ordinary pebbles are cold. So the man sold his few belongings, bought some simple supplies, camped on the seashore, and began testing pebbles. He knew that if he picked up ordinary pebbles and threw them down again because they were cold, he might pick up the same pebble hundreds of times. So, when he felt one that was cold, he threw it into the sea.


He spent a whole day doing this but none of them was the touchstone. Yet he went on and on this way. Pick up a pebble. Cold - throw it into the sea. Pick up another. Throw it into the sea. The days stretched into weeks and the weeks into months. One day, however, about midafternoon, he picked up a pebble and it was warm. He threw it into the sea before he realized what he had done. He had formed such a strong habit of throwing each pebble into the sea that when the one he wanted came along, he still threw it away.


So it is with opportunity. Unless we are vigilant, it's asy to fail to recognize an opportunity when it is in hand and it's just as easy to throw it away.

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Do Dreams Count? By Byron Pulsifer

Did you ever have a dream? I'm not talking about a dream you have when you sleep. I'm talking about a conscious dream where you would like to see a new future, a different choice of employment, and a business of you own. How many times have you wished that you could be living a different existence than the one you are currently experiencing?

Dreams. No doubt we've all had them from time to time in our lives. Did you fulfill your dream? If not, why not? Did you start on your way to fulfilling a dream only to be derailed by letting other life's events get in the way? Did you make some initial first steps only to find roadblocks in your way that convinced you to give up? Or, if you fulfilled some aspects of your dream, did you find that you had limited success, and, therefore gave in to a negative view that you weren't meant to succeed?

Several years ago, I had a dream about inventing a board game that would change my life's fortunes. Along with a partner, who also had a similar dream, those dreams were turned into goals that were translated to action steps. After many long hours and many revisions, a board game was developed. Then came issues of financing. Not to be defeated by this obstacle, a plan was developed and carried out that saw shares being offered, all sold to a group of supporters, and a real live company created. Then, came marketing strategies, T.V. appearances, newspaper articles, trade show attendance, weekend promotional appearances, magazine advertising, and spot radio commercials.

It was an exciting time. The one time dream seemed to take off with sales starting to accumulate, a potential sale to a large and established game board company, and inroads to large chain stores. Then, it happened. Introduced to the board game market came one of the biggest hits never seen before. In short, their sales blew us out of the water, our distributor failed to pay us, and the business, once dreamed of, came to a screeching halt.

To make a long story short, the company was dissolved having dashed our dreams, and those of our shareholders. How devastating after all the hours of work, the hours of marketing, promotion, not to mention the loss of our own financial investment. It wasn't meant to be. The same old job, the same old daily grind loomed larger than ever.

Is that the end of the story? Well, it was for one of the game developers; the negative emotions, "it never was meant to be" thoughts dominated any future dreams of a different life. This person returned to the daily grind of a nine to five job always cynical, always jealous of those who had succeeded.

But, did it mean being unsuccessful to me? I didn't succeed to the level I wanted or desired, but, to me, at the very least I lived my dream by turning it into a reality. If I had never turned my dream into goals and then to action, I would have always wondered - what if. Was it then a failure? No, it wasn't. Was it the flaming success I'd hoped for - no. But, there were valuable lessons to be learned. After all, how many successful business people, inventors, authors, artists, etc. had immediate success in their first attempt? Probably none. Failure is our greatest teacher as long as the experience is viewed as lessons, and those lessons are internalized to provide fruits for greater achievements later.

It may take a few more attempts, or many attempts but success is only achieved once dreams are put into action, where failure becomes the launching pad for smarter choices, or better action plans in future endeavors. Will success come on the next adventure, or the next one after that, or will it take many more? Who is to say? The important point here is that success only comes by turning dreams into reality and realizing that obstacles are only stepping-stones to final success.

For those who are wondering about my own eventual success, I'll tell you this.
After many attempts, many failures, many lessons, and many false starts, success arrived but only through believing in what I've said earlier. Learn valuable lessons from failure; turn dreams into action plans, and don't let a dream only be that - a dream!

Law ethic & Comminication PCC Paper May 07

LAW, ETHICS AND COMMUNICATION

PART – I

Question Nos. 1 and 2 are compulsory. Attempt any eight questions from rest

Question 1.
(a) Mr. Ramaswamy of Chennai placed an order with Mr. Shah of Ahmedabad for supply of Urid Dhall on 10.11.2006 at a contracted price of Rs. 40 per kg. The order was for the supply of 10 tonnes within a month’s time viz. before 09.12.2006. On 04.12.2006 Mr. Shah wrote a letter to Mr. Ramashwmy stating that the price of Urid Dhall was sky rocketing to Rs. 20 Per. Kg. and he would not be able to supply as per original contract. The price of Urid Dhall rose to Rs. 53 on 09.12.06 Advise Mr. Ramaswamy citing the legal position. (5 Marks)

(b) Each subdivision carries one mark. Pick-up the correct answer from the following:
(i) In a contract of guarantee a person, who promises to discharge another’s liability is called
(a) Principal Debtor (b) Creditor
(c) Indemnifier (d) Surety.

(ii) The Delivery of goods by one person to another as security for the payment of a debt is called
(a) Bailment (b) Pledge
(d) Mortgage (e) Hypothecation.

(iii) Which of the following is not applicable to negotiable Instrument?
(a) It must be in writing
(b) It must be transferable
(c) It must be registered
(d) It must be signed.

Answer ‘Yes’ or ‘No’ to the following:
(iv) In case of joint promise, the liability to pay the promise will devolve on any one or more promisors.

(v) Deposit of money in a Bank Amounts to Bailment. (5 x 1=5 Marks)

Answer
(a) The stated problem falls under the head ‘anticipatory breach of contract’ defined in
Section 39 of the Indian Contract Act, 1872. In this type of case, the promisee will be
entitled to various damages namely:

1. Nominal damages
2. Special damages
3. Damages for deterioration due to delay in performance
4. Exemplary damages.

The case law applicable here in Fross vs. Knight. As per details in the problem, price as
contracted Rs. 40 per kg. on 10.11. 2006 rose to Rs. 50 per kg. as on 4.12.2006 and
finally to Rs. 53 per kg, on 09.12.2006.

The answer to the problem is that
1. Mr. Ramaswamy can repudiate the contract on 04.12.2006 and can claim damages
of Rs. 10 per kg viz. Rs. 1,00,000.
2. He could wait till 09.12.2006 and claim Rs. 1,30,000 i.e. Rs. 13 per kg.
3. If the Government imposes a ban on the movement of unit shall due to rise of
prices, the contract becomes void and Mr. Ramaswamy will not be able to recover
any damages whatsoever.

(b) (i) In a contract of guarantee, a person who promises to discharge another’s liability to
pay is called: (d) surety

(ii) The delivery of goods by one person to another as a security for the payment of a
debt is called: (b) pledge

(iii) The Negotiable Instrument need not to be registered
Option (c)

(iv) In case of joint promise, the liability to pay the promise will devolve on any one or
more promisors. Yes

(v) Deposit of money in a Bank amounts to bailment. No

Question 2
(a) German Pharmaceuticals Limited is a zero debt company having 10 lakhs Equity shares of Rs. 10 each. The Directors desire to buy back its own shares. Can it do so? If so, how? (5 Marks)

(b) Each subdivision carries one mark. Answer ‘Yes’ or ‘No’ to the following:
(5 x1= 5 Marks)
(i) A minor also can become a member of a Company.

(ii) New shares cannot be issued to outsiders without prior offer to the existing
shareholders.

Pick-up the correct answer from the following:
(iii) As per Companies Amendment Act, 2000 a Private Company and Public Company must have a minimum paid-up capital of
(a) Rs. 1 lakh and Rs. 2 lakhs respectively
(b) Rs. 3 lakhs and Rs. 5 lakhs respectively
(c) Rs. 2 lakhs and Rs. 3 lakhs respectively
(d) None of the above.

(iv) A model form of Articles contained in Table ‘A’ relates to a Company limited by
(a) Shares
(b) Guarantee
(c) Shares and Guarantee
(d) None of the above.

(v) Dividend can be declared out of
(a) Capital reserve
(b) Revaluation reserve
(c) Debenture Redemption reserve
(d) Earlier year’s reserve brought forward.

Answer
(a) Section 77A of the Companies Act, 1956 permits company to purchase its own securities.
Thus, directors can buy back its own shares subject to sub-section (2) of Section 77A
and 77B of the Act. The company can buy-back its own shares out of free reserve or
securities premium or proceeds of any shares or other specified securities.
No buy-back of any kind of shares or other specified securities shall be made out of the
proceeds of an earlier issue of the same mind of shares or shame kind of other specified
securities.

No company shall purchase its own shares or other specified securities under subsection
(1) unless –
(a) The buy-back is authorised by its articles
(b) A special resolution has been passed in general meeting of the company authorising the buy-back. But it is not necessary where the buy-back is or less than 10% of total paid-up equitable capital and free reserve of the company and such buy-back has been authorised by the Board by mans of a resolution passed at its meeting. N offer of buy-back is made within a period of 365 days reckoned from the date of the preceding offer of buy-back if any.
(c) The buy back is or less than 25% of the total paid-up capital and free reserve of the
company. The buy-back of equity share in any financial year shall not exceed 25% of its total
paid-up-equity capital in that financial year.
(d) The ratio of the debt owned by the company is not more than twice the capital and its free reserves after such buy-back.
(e) All the shares or other specified securities for buy-back are fully paid-up;
(f) The buy-back of the shares or other specified securities listed on any recognised stock exchange is in accordance with the regulations made by the Securities and Exchange Board of India in this behalf. Before making such buy-back, file with the Registrar and Securities and Exchange board of India, a declaration of solvency in the form as may be prescribed and
notified by an affidavit of the effect that the Board has made a full inquiry into the affairs of the Company that it is capable of meeting its liabilities and will not be rendered insolvent.

(b) (i) No, a minor can not become a member of a company.

(ii) Yes, new shares cannot be issued to outsides without prior offer to existing shareholder.

(iii) As per companies Amendment Act, 2000 a private company and public company
should have a paid up capital of 1 lac and 5 lacs respectively. Therefore option (d) is correct.

(iv) option (a) is correct.

(v) option (d) is correct.

Question 3
Mr. ‘E’ joined as supervisor on monthly salary of Rs. 3,400 on 1.02.2007 and resigned from his job on 28.022007. The company declared a bonus of 20% to all eligible employees and paid it on time. Mr. ‘E’ knowing the facts made a claim to HRD, which in turn rejected the claim. Examine the validity in the light of the provisions of the payment of Bonus Act, 1965. (5 Marks)

Answer
As per proviso of Section 2(13) of The Payment of Bonus Act, 1965 an employee means only
person on a salary or wage not exceeding three thousand and five hundred rupees per member.
Further, Section 8 provides that an employee to be entitled for bonus in the accounting year
should has worked in the establishment for not less than thirty working days in that year.

Thus, in view of the above Mr. ‘E’ is not entitled for Bonus, as he has not worked for 30 days
in the accounting year.

Question 4
PQR Limited received a cheque for Rs. 50,000 from its customer Mr. LML After a week company came to know that the proceeds were not credited to the account of PQR Limited due to some ‘defects’, as informed by the Banker. What according to you are the possible effects? (5 Marks)

Answer
A Cheque is a Bill of Exchange drawn on a specified banker and not expressed to be payable
otherwise than on demand and it includes the electronic image of a truncated cheque and a
cheque in electronic form. Possible defects are;
1. Cheque undated.
2. Cheque becomes stale
3. Instrument inchoate
4. Cheque may be post dated
5. inadequate funds position of the customer
6. Customer might have credit in one branch and cheque drawn on another branch.
7. Bank might have received insolvency/lunacy of customer.
8. Counter-manding / stop payment instruction of customer.
9. Bank receiving attachment order by a court
10. Bank receiving notice of customers death
11. Closure of account by customer.
12. Material alterations like irregular signature, difference of amount in words and figure etc.

Question 5
Define the term ‘Employer’ under the Provident Fund and Miscellaneous Provisions Act, 1952. (5 Marks)

Answer
Section 2(e) read with Section 2(k) of the Employees Provident Fund and Miscellaneous Provisions Act 1952 defines employer means –

(i) in relation to an establishment which is a factory, the owner or occupier of the factory, including the agent of such owner or occupier, the legal representative of a deceased owner or occupier and where a person has been named as a manager of the factory, and

(ii) in relation to any establishment, the person who, or the authority which has ultimate control over the affairs of the establishment, and where the said affairs are entrusted to a manager, Managing Director, managing agent, such manager, MD or Managing agent shall be treated employer.

Question 6
State the circumstances under which the drawer of a cheque will be liable for an offence relating to dishonour of the cheque under the Negotiable Instrument Act, 1881. Examine, whether there is an offence under the Negotiable Instrument Act, 1881, if a Drawer of a cheque after having issued the cheque, informs the Drawee not to present the cheque as well as informs the Bank to stop the payment. (5 Marks)

Answer
Dishonour of cheque: On dishonour of a cheque the drawer is punishable with imprisonment
for a term not exceeding two years or with a fine not exceeding twice the amount of a cheque
or with both of the following conditions are fulfilled:

(i) If the cheque is returned by the bank unpaid due to insufficiency of funds in the account
of drawer

(ii) If the cheque was drawn to discharge a legally enforceable debt or other liability.

(iii) If the cheque has been presented to the bank within a period of six months from the date
on which it is drawn on or within the period of its validity, whichever is earlier.

(iv) if the payee or the holder in due course of the cheque has given a written notice demanding payment within 30 days from the drawer on receipt of information of dishonour of cheque from the bank.

(v) If the drawer has failed to make payment within 15 days of the receipt of the said notice.
(Section 138)

(vi) If the payee or a holder in due course has made a complaint within one moth of cause of
action arising under Section 138 (Section 142)

Problem
The Supreme Court held in Modi Cements ltd. Vs. Kuchil Kumar Nandi held that once a
cheque is issued by the drawer, a presumption under Section 139 follows (i.e. the cheque has
been issued for the discharge of any debt or other liability) and merely because the drawer
issued a notice thereafter to the drawee as to the bank for stoppage of payment, it will not
preclude an action under Section 138. Hence, the drawer of the cheque will be liable for the
offence under Section 138 for dishonour of cheque.

Question 7
Explain the provisions of the Payment of Gratuity Act, 1972 relating to ‘forfeiture of the amount of Gratuity’ payable to an employee. (5 Marks)

Answer
Forfeiture of gratuity: Section 4(6) of Payment of Gratuity Act, 1972 deals with cases in which gratuity payable to an employee may be forfeited.

According to it, the gratuity of an employee whose service have been terminated for any act,
wilful omission or negligence causing any damage or loss to, or destruction of, property
belonging to the employer, shall be forfeited to the extent of the damage or loss so caused.

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, provided that such offence
is committed by him in the course of his employment.

Question 8
Briefly discuss the provisions relating to constitution of National Company Law Tribunal and National Company Law Appellate Tribunal. (5 Marks)

Answer
Part VI-A has been introduced into the Companies Act, 1956 by the Companies (Second
Amendment Act, 2002). Its enforcement will mean repeal of the Sick Industrial Companies
(Special provisions) Act, 1985 and also abolition of the Board of Industrial and Financial
Reconstruction (BIFR). Such cases will go before the National Company Law Tribunal.
Section 424A provides for such reference. The Board of Directors of a sick industrial company
have to make a reference to the Tribunal. They have to prepare a scheme for its revival and
rehabilitation and submit to the tribunal along with an application containing such particulars
as may be prescribed. The Tribunal thereafter has to enquire with working of sick industrial
companies. The Tribunal is empowered to make suitable orders on completion of the Enquiry.

The National Company Law Appellate Tribunals have been constituted by central Government
by notification with official gazette. Any person aggrieved by an order of the Tribunal, can
within 45 days file an appeal before the National Company Law Appellate Tribunal, which will
pass orders after giving opportunity of hearing to the aggrieved party.

Question 9
What is E filing? List at least five advantages of E filing under MCA 21. (5 Marks)

Answer
The term E-filing indicates the process of getting services electronically with a comprehensive
on-line portal. The advantages are:

1. Instant registration of companies;
2. Simplified and more facile method of filing documents;
3. Total transparency;
4. Easier and better compliance of regulations;
5. Utmost customer care
6. Authentic and reliable filling of forms / returns through professionals;
7. Centralised database management;
8. Better service availability;
9. Filing of and inspection of documents anywhere and anytime.
10. Quick redressal of investor grievances
11. Supervisor and monitoring of compliance made easier.

Question 10
Mr. Ram Lal and his friend desire to incorporate a Public Company and approach you for help. Advise. ( 5 Marks)

Answer
1. A name must got allotted out of a choice of three.
2. Seven members (minimum) must beready to sign as subscribers to the MOA and AOA.
3. MOA and AOA with necessary objects and clauses should be prepared on stamp paper
according to State Stamp Act.
4. Consent must be given in Form No. 32 for becoming a Director. List of directors must
also be filed.
5. Form No. 18 showing address of the registered office is also another document.
6. Form No. I – Declaration by a Professional or Director is also necessary on the requisite
stamp paper.
7. The name available letter should be filed in Original.
8. A power of attorney on non-judicial stamp paper for making corrections and receiving
Incorporation Certificate is necessary.
9. Fees for registration of a company depending upon the authorised capital must also be paid.
After satisfaction of the above requirements, the ROC issues a certificate staling that the public company has been incorporated.

Question 11
Explain the doctrine of ‘Indoor management’ in brief.
The Secretary of a Company issued a share certificate to ‘A’ under the Company’s seal with his own signature and the signature of a Director forged by him. ‘A’ borrowed money from ‘B’ on the strength of this certificate. ‘B’ wanted to realise the security and requested the company to register him as a holder of the shares. Explain whether ‘B’ will succeed in getting the share registered in his name. (5 Marks)

Answer
The doctrine of Indoor Management as discussed in the Royal British Bank vs. Turquand. In this case the directors of RBB also gave a bond to T. The Article empowered the directors to issue such bonds under the authority of a proper resolution. In fact no such resolution was passed. Notwithstanding that, it was held that T could sue on the bonds on the ground that he was entitled to assume that the resolution had been duly passed.

Thus the persons dealing with the company are entitled to assume that the acts of the directors or the officers of the company are validly performed, if they are within the scope of their apparent authority. But this doctrine is not applicable where the person dealing with the company has notice of irregularity or where the person dealing with the company is put upon
on inquiry or when an instrument purporting to be enacted on behalf of the company is a forgery.

In the instant problem the doctrine of indoor management can apply only in case of
irregularities which might otherwise affect the transaction, but it cannot apply to forgery which
must be regarded as nullity. Hence ‘B’ will not succeed in getting the share registered in his
name.

Question 12
Explain in brief ‘Equity Share Capital’ and ‘Preference Share Capital’. (5 Marks)

Answer
As per the Section 85 and 86 of the Companies Act 1956, there will now be two types of share
capital as under:

Share Capital:
The share capital of a company limited by shares shall be of two kinds only, namely –
(i) equity share capital and
(ii) preferential share capital.

Equity Share Capital shall be:
(i) with voting rights
(ii) with differential rights. The expression ‘Shares with differential voting rights” is defined
as a share that is issued in accordance with the provisions of Section 86.

Equity shares carry voting rights on the ground meetings of the company and have the
right to control the management of the company. They have right to share in the profits
of the company in the form of distribution of dividend and bonus shares. In the event of
winding up of the company, equity shares capital is repayable only after repayment of the
claims of the creditors and preference share capital.

Preference share capital means that part of share capital which fulfils both the following
requirements, namely

(a) as respects dividend it carries or will carry a preferential right to be paid a fixed
amount or an amount calculated at a fixed rate, and

(b) as respect, it carries or will carry on the winding up or repayment of capital, a preferential right to be repaid the amount of the capital paid up on demand to have been paid up whether or not there is a preferential right to the payment of either or both of the following amounts namely –
(i) any money remaining unpaid in respect of amount specified in clause (a), upto the
date of winding up or repayment of capital
(ii) any fixed premium, any fixed scale specified in the memorandum or article of the
company (see Section 85).

PART – II

Question No. 13. is compulsory. Attempt any two questions of the rest.

Question 13

(a) What is Corporate Social Responsibility? Why it is needed in Indian Business
environment? (5 Marks)

(b) Explain briefly the matters to be considered and the steps that may be taken by a Finance and Accounting professional when he is required to resolve an ethical conflict in the application of Fundamental principles. (5 Marks)

Answer
(a) The concept of Corporate Social Responsibility (CSR) focuses on the idea that beyond making profit, a business has social obligations. It is the responsibility of the companies to produce an overall positive impact on the society. CSR is pursued by business to balance their economic, environmental and social objectives which at the same time addressing stakeholder’s expectations and enhancing shareholders values.Shareholders, including shareholders, analysts, regulations, labour unions, employees, community organisations and mass media are assign companies to be accountable not only for their own performance but for the performance of their entire supply chain. Issues such as peace, sustainable development, security poverty allocation, environmental quality and human rights are having a performed effect on business and its environment.

Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.

Need for social responsibility:
1. The iron law of responsibility
2. To fulfil long term self-interest
3. To establish a better public image
4. To avoid government regulation and control
5. To avoid misuse of Nation al Resources and Economic Power
6. To convert Resistances into Resources
7. To minimise Environmental damage.

(b) Conflict Resolution: While evaluating compliance with the fundamental principles, a finance and accounting profession may be required to resolve a conflict on the application of fundamental principles. The following needs to be considered, either individually or together with others, during a conflict resolution process

(a) Relevant facts
(b) Ethical issues involved
(c) Fundamental principles related to the mater in question
(d) Established internal proceedings and
(e) Alternative course of action

Having considered these issues, the professional should determine the appropriate course of action that is consistent with the fundamental principles identified. The professional should weigh the consequences of each possible course of action. If the matter remains unresolved, the professional should consult other appropriate persons within the firm or employing organization for help in obtaining resolution. During times where a matter involves a conflict with or within an organization, finance and accounting professional should also consider consulting with those charged with governance of the oganisation, such as the Board of Directors.

It may be in the best interests of the professional to document the substance of the issues and details of any discussions held or decisions taken, concerning that issue. If a significant conflict cannot be resolved, a professional may also obtain professional advice from the relevant professional body or legal advisors and thereby obtain guidance on ethical issues without breaching confidentiality.

If, after enhancing all strategies, if the ethical conflict remain unresolved, a professional should try to disassociate from the conflict resolution of the organisation concerned.

Question 14
What is meant by ‘Sustainable Development’? State the special responsibilities of the industries that are based on natural resources. How the adoption of Green Accounting System. helps in avoiding policy decisions which are non-sustainable for the country? (5 Marks)

Answer
SUSTAINABLE DEVELOPMENT: Literally sustainable development refers to maintaining
development over time. It may be defined as 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 requirements – social, economic and others – without
jeopardizing the interests of future generations.

Special responsibilities of industries base on mutual resources : Industries that are
based on natural resources, like minerals, timber, fibre, and foodstuffs etc. have a special
responsibility for :
(1) adopting practices that have built in environmental consideration
(2) introducing processes that minimize the use of natural resources and energy, reduce
waste, and prevent pollution.
(3) making products that are ‘environment-friendly’, with minimum impact on people and
ecosystem.

Green accounting systems: Conventional accounts may result on policy decisions which are
non-sustainable for the country. Green accounting on the other hand is, focused on addressing such deficiencies in convention accounts with respect to environment. If the environmental costs are properly reflected in the process paid for goods and services these companies and ultimately the consumer would adjust market behaviour in a way that would reduce damage to environment, pollution and waste production, price signed will influence behaviour to avoid exploitation or excessive utilization of natural resources. Such resources would facilitate the approach of ‘polluter pay principle’. Removing subsidies that encourage environment damage is another measure.

Question 15
Answer any two out of four in ‘yes’ or ‘no’ with brief reasons:
(a) Knowledge without morality is a social sin.
(b) Consumer purchases goods and health services for personal purposed only.
(c) Consumer and Public interest are both synonymous.
(d) Ethics are necessary in marketing to build Brand image only. (5 Marks)

Answer
(a) Yes, knowledge without morality is a social sin. The obvious reason is that a number of companies are emerging in various fields with sound technologies, but they are hurting the sentiments of the community at large. Therefore, new scientific and technological methods should be adopted keeping in mind the public sentiments and ethical values.

(b) No, The consumer do not purchases goods and health services for personal purposesonly, because in certain occasions various items are purchased for public welfare and development of the society as a whole.

(c) No, the consumer and public interest are not synonymous, because whatever is done inpublic interest is to protect the larger interest of the society that may or may not be a consumer.

(d) No, the ethics are not necessary in marketing only to build image, but ethics are necessary for sustainable development of business, and ultimately for transparency and
good corporate governance in the country.

Question 16
Explain in brief the measures to ensure ethics in the Work place. (5 Marks)

Answer
The focus on core values and sound ethics, the hallmark of ethical management, is being
recognized as an important way to ensure the long-term effectiveness of governance
structures and procedures and avoid the need for whistle-blowing. Employers who understand
the importance of work place ethics, provide their workforce with an effective framework and
guiding principles to identify and address ethics issues as they rise. Measures to ensure
ethics in the workplace :

1. code of conduct and ethics
2. establish open communication
3. make ethics decisions in group and make decision public as appropriate
4. integer ethics management with other management practices.
5. use of cross-functional terms when developing and implementing the ethics management
programme
6. Appointing an ombuds man.
7. Creating an atmosphere of trust
8. Regularly updating of policies and procedures
9. include a grievance policy for employees
10. set an example from the top.

PART – III

Question No. 17 is compulsory and attempt any tow question of the rest.

Question 17

(a) What is meant by ‘Emotional Intelligence’ and ‘Emotional Quotient’? State any six social competencies associated with Emotional Intelligence. (5 Marks)

(b) Draft a ‘Power of Attorney’ by subscribers of Memorandum of Association of the Company authorising a Chartered Accountant to appear before the Registrar of Companies to do the needful for the purpose of incorporation of the company.
(5 Marks)

Answer
(a) Emotional Intelligence: Emotional intelligence refers to the capacity to recognizing your own feelings and those of others, for motivating yourself, and for managing emotions well in yourself and in your relationships. It describes abilities distinct from but complementary to academic intelligence, the purely cognitive capabilities measured by IQ. Many people who are look smart but lack emotional intelligence end up working for people who have lower IQs than they but who excel in emotional intelligence skills.

Emotional quotient inventory is designed to measure a nature of constructs related to emotional intelligence. EQ is the ability to make and deeper connections at three levels: with ourselves (personal mastery), with another person (one-to-one) and within groups/teams. Our EQ or emotional intelligence is the capacity for effectively recognizing and managing our own emotions and those of others. The wonderful thing about EQ, unlike IQ which stabilizing when a person is around 18 years of age is that it can change. A person today with a low EQ score on ‘empathy’ can have a higher ‘empathy’ score in the future – if that person recognizes his/her limitation changes attitude, adopts a learning strategy, and practices key listening and empathy skills.

Social competencies associated with emotional intelligence are as follows:

Social Awareness:
1. Empathy: Sensing others emotions, understanding their perspective and taking active interest in their concerns .
2. Organizational awareness: Leading the currents decision, networks and politics at
the organizational level.
3. Service: Recognizing and meeting follower, client or customer needs.

Relationship Management :
1. Inspirational leadership: Guiding and motivating with a compelling vision.
2. Influence: wielding a range of tactics for persuasions
3. Developing others: Bolstering others’ abilities through coaching, feedback and
guidance.
4. Change catalyst: Initiating managing and leading in a new direction.
5. Conflict management resolving disagreements.
6. Building bonds: Cultivating and maintaining a web of relationships.
7. Teamwork and collaboration: Cooperate and team building.

(b) Before Registrar of Companies: We the subscribers of the Memorandum and Article of
Association of the Proposed Company, hereby authorize to present the memorandum of
Article of Association and other connected documents for the registration of the said
company before the registrar of companies, Karnataka, Bangalore and to make such
corrections / Alterations/deletions/Additions as may be required to be done by the
Registrar in the documents and also to receive the certificate of incorporation.
General Power of Attorney: Know we all men by their present we do hereby appoint
and constitute ……… son of ………………(hereinafter called “chartered Accountant” who
has subscribed his signature hereunder in token of identification) presently residing ……
to my lawful Chartered Accountant in our name and on our behalf do it any one or all the
following acts, deeds, things namely

1. to give all particulars necessary for incorporation of company.
2. to give affidavit to the Registrar of Company for the purpose of incorporation.
3. to do needful acts necessary for incorporation of the company
4. He is authorized to include promissory notes letter of declaration and indemnity for
the purpose of incorporation.
5. to receive documents on behalf of the members of the company.
6. to sign forms, documents and papers required for the purpose of incorporation of
the company.

Dated ……….at this day ……………….of
(address)

Specimen signature of the Chartered Accountant above named

Notary Public

Question 18.
Draft a notice for ABC’s Annual General Meeting with four ordinary business. (5 Marks)

Answer
Notice is hereby given that the 15th Annual General Meeting of the members of ABC will be
held on Monday the 15th day of September 2006 at the registered office of the Company
………………. At 10 a.m. to present the following business:

Ordinary Business:

1. To Receive, consider and adopt the Audited Balance sheet of the company as on 31st
March, 2006 and the Profit and Loss account for the year ended on that date and Audit’s
and director’s response thereon.
2. To declare dividend for the year ended 31st March, 2006
3. To appoint a director in place of Mr. ……………………..
4. To appoint Statutory Auditors of the Company.

NOTE: A member entitled to attend and vote is entitled to appoint a proxy to attend and vote
instead of himself and proxy need not be a member of the company.

For and on behalf of the Board of Directors
Registered Office

Question 19
What do you understand by Group Dynamics? (5 Marks)

Answer
Groups are the basic building blocks of organizations. It is now very common for groups of
employers to make decisions to solve difficult problems that were once the domain of
authoritarian incentives. Given below are the characteristics of Group personality:
1. spirit of conformity
2. respect for group values
3. resistance to change
4. group prejudice
5. collective power

Question 20
Mr. A has not received a dividend warrant of Rs. 1,500 for 150 shares of XYZ Ltd. Draft an indemnity bond, to be given to the company for seeing release of Dividend. (5 Marks)

Answer
Indemnity Bond
Mr. A S/o ……………………….. resident ……………………… do hereby agree to indemnify
the XYZ Ltd. for any loss that may occur for seeking release of dividend for 150 shares of Rs.
1500. I further declare that personally I have not received the dividend warrant in question.

Mr. A
Dated: Signature
Place

NI Act_Practical Problems_52

A cheque is drawn upon Dena Bank. It is stolen by X who hands it over to Y who takes in good faith for valuable consideration. Y deposits the cheque into his own account in Canara Bank who presents it and obtains payment from Dena Bank. Discuss the legal position of paying banker, collecting banker, Y and true owner in each of the following alternative cases:

a. If the cheque is payable to bearer.

b. If the cheque is payable to bearer and is crossed generally.

c. If the cheque is payable to bearer and is crossed generally with words 'not negotiable’.

d. If the cheque is payable to bearer and is crossed specially with words 'Canara Bank'.

e. If the cheque is payable to bearer and is crossed specially with words 'Allahabad Bank’.

f. If the cheque is payable to B or order and X forges B's endorsement.

g. If the drawer's signatures were forged.

NI Act_Practical Problems_51

State with reasons whether each of the following instrument is an Ambiguous Instrument or Fictitious Instrument:

a. A bill is drawn by A, an agent, acting within the scope of his authority, upon his principle P.

b. X draws a bill on Y who is a fictitious person and negotiates it himself.

c. X draws a bill on Y who is a minor.

d. A bill is drawn by Delhi branch of Dena Bank upon its Bombay branch.

e. A bill is drawn upon Y who is a major person payable to Z who is a fictitious person.

f. A bill is drawn upon Y as payable to Z. The drawer is a fictitious person.

PCC_NOV_07 PAPER _ ETHICS_COMMUNICATION

PART-II
Question No. 13 is compulsory. Attempt any two questions of the rest.
Q~13
(a)
What is meant by 'Corporate Governance'? State the major 'characteristics' of good
corporate governance. (5 marks)

Ans : Refer Q- 9 of Chapter 2

(b)
Finance and accounting professional working as an employee in an organisation have to face various threats which make it difficult for them to comply with fundamental principles relating to ethics. Explain the safeguards in the work environment which may be created by a business enterprise to overcome such threats. (5 marks)

Ans : Refer Q-11, Point No. B on page no 55 of Chapter no 6

Q~14
Explain the meaning of the terms 'ethics' and 'business ethics' and also state the requirements of 'business ethics' (5 marks)

Ans : Refer Q-1 & 2, Chapter no 1

Q~15
Answer any two out of four. You are required to state whether the statement is correct or
incorrect with brief reasons:
(a) Company management has responsibility only towards its shareholders.-No
(b) Window-dressing of financial statements will not be useful in the long run.-Yes
(c) Ethics and morals are synonymous.-No
(d) Competition Act, 2002 protects the interest of consumers.-Yes (5 marks)

Q~16
What is meant by 'Environmental ethics'? How does it's non-adoption leads to 3 Ps viz., Polluter, Pay and Principles? Explain. (5 marks)

Ans : Refer Q-12, Chapter no 4

PART-III
Question No. 17 is compulsory and attempt any two questions of the rest

Q~17
(a)
What is meant by 'Critical thinking? How shall you develop critical thinking? (5 marks)

Ans : Refer Q-9 & 10, Chapter no 8

(b)
J desires to gift out her flat to Mumbai in City Cooperative Society registered under the Maharashtra Cooperative Societies Act, 1960, to her brother A. Stating the legal requirements to be complied with, draft a Gift Deed. Take your own data regarding date, flat no., floor area etc. (5 marks)

Q~18
Third Annual General Meeting of ABC Limited was held on 28th September, 2007. Several business was transacted at the meeting including the adoption of annual accounts for the year ended 31st March, 2007. The meeting was attended by 30 members in person and 5 members in proxy. Draft the minutes of the Annual General meeting indicating how shall the adoption of accounts, being one of the business transacted at the meeting, be recorded. (5 marks)

Q~19
What do you understand by `Group conflicts'? How shall these be managed effectively? Explain. (5 marks)

Ans : Refer Q-10 & 11, Chapter no 9

Q~20
You have been assigned the job of composing business messages. What check-list would you prepare for organizing the message?

Ans : While composing business messages i would like to check following things:

1. The background and educational level of receiver
2. The understanding level of receiver
3. The urgency or importance involved with message
4. The level of secrecy to be maintained with message
5. The length, fact & figure involves in message
6. Selection of channel
7. The amount of noise or barrier present in the channel or path of communication.
8. Cost & time involved in transmission of message
9. Custom and culture of organisation and receiver (audience)

What is innominate Terms ?

Innominate terms - (intermediate terms) Terms of a contract that cannot be classified as conditions or warranties. The parties to a contract may label the terms of the contract as either conditions or warranties and those labels will usually be respected by the courts provided that the result is reasonable. Similarly, certain terms have traditionally been treated as conditions or warranties even though they have not been labelled as such (for example, time clauses in mercantile contracts are to be treated as conditions). Innominate terms are those that will not fit the above categories. The remedy for breach of an innominate term will depend on whether or not the breach is of a fundamental nature, i.e. that the injured party has been deprived of substantially the whole of the benefit of the contract. If the injured party has been so deprived, he will be entitled to treat the contract as repudiated and claim damages. If not, he will be entitled to damages only.

NI Act_Practicle Problems_50

B signs the following endorsements on different negotiable instruments pay­able to bearer. Classify the endorsements with reasons as Blank Endorsement or Full Endorsement or Restrictive Endorsement or Partial Endorsement or Conditional Endorsement. Also, state whether the following Endorsements are valid or invalid.

a. No other words except B's signature.
b. Pay C.
c. Pay C or order.
d. Pay C only.
e. Pay C or order for the account of B.
f. Pay C or order Rs 500 out of Rs.1,000.
g. Pay C or order being the unpaid residue of the bill.
h. Pay C or order on safe receipt of goods.
i. Pay C sans Recourse.
j. Pay C sans Frais.
k. Pay C, notice of dishonour dispensed with.

NI Act_Practicle Problems_49

P, the holder of a bill of exchange, transfers it to Q without consideration. Q also transfers it to R without consideration. R transfers it to X for consideration. X transfers it to Y without consideration. State whether Y can recover the amount of such instrument from X or P.

NI Act_Practicle Problems_48

X obtains Y’s acceptance to bill by fraud. X endorses it to Z who takes it as holder in due course. Z endorses the bill to F who knows of the fraud. Can F recover from X?

NI Act_Practicle Problems_47

H is the holder in due course of a bill of which A is the acceptor. D, the drawer of the bill, is fictitious. Can A escape from his liability to H?

NI Act_Practicle Problems_46

A draws a cheque for Rs. 100 and hands it over to B by way of gift. Is B a holder in due course? Explain the nature of his title, interest and rights to receive the proceeds of the cheque.

One of the requirements of Section 9 of the Negotiable Instruments Act to constitute a holder, as holder in due course is that he must have received the instrument for consideration. There are no exceptions to this condition. Thus B can’t be treated as holder in due course. But he is certainly a holder with good title thereto and hence he will have every right to claim payment upon instrument.

Contract Act_Practical Problems_63

A’ stands surety for ‘B’ for any amount which ‘C’ may lend to B from time to time during the next three months subject to a maximum of Rs. 50,000. One month later A revokes the guarantee, when C had lent to B Rs. 5,000. Referring to the provisions of the Indian Contract Act, 1872 decide whether ‘A’ is discharged from all the liabilities to ‘C’ for any subsequent loan. What would be your answer in case ‘B’ makes a default in paying back to ‘C’ the money already borrowed i.e. Rs. 5,000?

The problem as asked in the question is based on the provisions of the Indian Contract Act 1872,
as contained in Section 130 relating to the revocation of a continuing guarantee as to future
transactions which can be done mainly in the following two ways:

1. By Notice: A continuing guarantee may at any time be revoked by the surety as to future
transactions, by notice to the creditor.

2. By death of surety: The death of the surety operates, in the absence of any contract to the
contrary, as a revocation of a continuing guarantee, so far as regards future transactions.
(Section 131).

The liability of the surety for previous transactions however remains.
Thus applying the above provisions in the given case, A is discharged from all the liabilities
to C for any subsequent loan.

Answer in the second case would differ i.e. A Is liable to C for Rs. 5,000 on default of B
since the loan was taken before the notice of revocation was given to C.

Contract Act_Practical Problems_62

‘A’ applies to a banker for a loan at a time where there is stringency in the money market. The banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on these terms. Whether the contract is induced by undue influence? Decide.

In the given problem, A applies to the banker for a loan at a time when there is stringency in the money market. The banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on these terms. This is a transaction in the ordinary course of business, and the contract is not induced by undue influence. As between parties on an equal footing, the court will not hold a bargain to be unconscionable merely on the ground of high interest. Only where the lender is in a position to dominate the will of the borrower, the relief is granted on the ground of undue influence. But this is not the situation in this problem, and therefore, there is no undue influence.

Contract Act_Practical Problems_61

Mr. Dubious textile enters into a contract with Retail Garments Show Room for supply of 1,000 pieces of Cotton Shirts at Rs. 300 per shirt to be supplied on or before 31st December, 2006. However, on 1st November, 2006 Dubious Textiles informs the Retail Garments Show Room that he is not willing to supply the goods as the price of Cotton shirts in the meantime has gone upto Rs. 350 per shirt. Examine the rights of the Retail Garments Show Room in this regard.

In the given problem Dubious Textiles has indicated its unwillingness to supply the cotton shirts
on 1st November 2006 itself when it has time upto 31st December 2006 for performance of the
contract of supply of goods. It is therefore called anticipatory breach of contract. Thus Retail
Garments show room can claim damages from Dubious Textiles immediately after 1st November, 2006, without waiting upto 31st December 2006. The damages will be calculated at the rate of Rs.50 per shirt i.e. the difference between Rs. 350/- (the price prevailing on 1st November) and Rs. 300/- the contracted price.

NI Act_Practicle Problems_45

M a broker draws a cheque in favour of N, a minor. N indorses the cheque in favour of O, who in turn indorses it in favour of P. Subsequently, the bank dishonoured the cheque. State the rights of O and P and whether N, can be made liable?

According to section 26 of the Negotiable Instruments Act, 1881 a minor may draw, indorse,
deliver and negotiate a negotiable instrument to bind all parties except himself. Therefore, O and P cannot claim from B, who being a minor does not incur any liability on the cheque. O can claim payment from M, the Drawer, only and P can claim against O, the indorser and M, the drawer.

Contract Act_Practical Problems_60

Ram, Rahim and Robert are partners of software business and jointly promises to pay Rs.30, 000 to Raheja. Over a period of time Rahim became insolvent, but his assets are sufficient to pay one-forth of his debts. Robert is compelled to pay the whole. Decide whether Robert is required to pay whole amount himself to Raheja in discharging joint promise.

According Section 43 of Indian Contract Act, 1872 when two or more persons make a joint
promise, the promisee may, in absence of express agreement to the contrary, compel any one or
more of such joint promisers or perform the whole of the promise. Further, if any one of two or
more joint promisers makes default in such contribution, the remaining joint promisors must bear the loss arising from such default in equal shares. Therefore, in this case, Robert is entitled to receive 2,500 from Rahims assets and 13,750 from Ram.

Contract Act_Practical Problems_59

Miss.Chitra, a singer, enters in to a contract with the manager of Bangalore Gate Club, to sing in the Club for two concerts every week during the next two months and the club agrees to pay her at the rate of Rs.2000 for each concert. On the seventh concert Miss.Chitra willfully absents herself. With the assent of the manager of the club, Miss.Chitra sings for the eighth concert. But on the following day, the club, puts an end to the contract. Can Miss.Chitra claim damages for breach of contract? Advise .

On the seventh Concert when Miss.Chitra willfully absents herself, the club is at liberty to put an end to the contract. If Miss.Chitra sings on the eighth Concert with the consent of the club. The club has signified its acquiescence in the continuance of the contract and cannot now put an end to it. The club is entitled to compensation for the damage sustained because of Miss.Chitra’s
failure to sing on the seventh concert. If the club puts an end to the contract, Miss.Chitra can
claim damages for breach of contract [Section 39 of The Indian Contract Act, 1872)].

Contract Act_Practical Problems_58

Mr. X, is employed as a cashier on a monthly salary of Rs.2,000 by ABC bank for a period of three years. Y gave surety for X’s good conduct. After nine months, the financial position of the bank deteriorates. Then X agrees to accept a lower salary of Rs.1,500/- per month from Bank. Two months later, it was found that X has misappropriated cash since the time of his appointment. What is the liability of Y?

If the creditor makes any variance (i.e. change in terms) without the consent of the surety, then
surety is discharged as to the transactions subsequent to the change. In the instant case Y is
liable as a surety for the loss suffered by the bank due to misappropriation of cash by X during the first nine months but not for misappropriations committed after the reduction in salary. [Section 133, Indian Contract Act, 1872].

NI Act_Practicle Problems_44

Can an acceptor of a bill avoid his liability against a person who is a holder in due course or who derives his title from a holder in due course, on the following grounds:

a. That the instrument has not been filled in accordance with the authority given by him.

b. That the other parties to the bill were fictitious.

c. That the instrument was drawn without consideration.

d. That the delivery of the instrument was conditional.

e. That the instrument had been lost.

f. That the instrument was obtained from him by means of fraud.

g. That the instrument was obtained from him for an unlawful consideration.

h. That his signature was forged.That payee had no capacity to endorse.