Commercial Law MCQ Quiz - Objective Question with Answer for Commercial Law - Download Free PDF

The correct answer is '(D), (A), (C), (B), (E)'

Key Points

• Void Agreements under the Indian Contract Act:
  • The Indian Contract Act, 1872, specifies certain agreements that are considered void from the outset. These agreements are unenforceable in a court of law because they either violate public policy or lack essential elements of a valid contract.
  • Chronological arrangement of the provisions in the Act is important to understand the legislative intent and logical flow of the law.
• Chronological Order of Provisions:
  • (D) Agreement without consideration: Section 25 of the Indian Contract Act states that an agreement made without consideration is void unless it falls under specific exceptions (e.g., made on account of natural love and affection, is a gift, or is a promise to compensate for a past voluntary service).
  • (A) Agreement in restraint of marriage: Section 26 declares that any agreement in restraint of marriage, except for minors, is void as it opposes public policy.
  • (C) Agreement in restraint of trade: Section 27 makes agreements that restrain a person's lawful trade, profession, or business void, with certain exceptions (e.g., partnership agreements or trade secrets).
  • (B) Agreement in restraint of legal proceedings: Section 28 states that agreements restricting a party's right to enforce their legal rights in ordinary courts or limiting the time to enforce such rights are void.
  • (E) Agreement which is ambiguous and uncertain: Section 29 provides that agreements with terms that are vague, ambiguous, or uncertain, making them incapable of being understood or enforced, are void.

Additional Information

• Why Other Options Are Incorrect:
  • Option 2 (C, A, B, E, D): This option places "Agreement in restraint of trade" first, which is incorrect as the Act addresses "Agreement without consideration" (Section 25) earlier than the other provisions.
  • Option 3 (B, A, D, C, E): "Agreement in restraint of legal proceedings" is placed first here, which does not align with the actual sequence in the Act.
  • Option 4 (A, C, E, D, B): "Agreement in restraint of marriage" is placed first, which is incorrect as "Agreement without consideration" precedes it in the Act.
• Purpose of Void Agreements:
  • Void agreements are designed to protect public policy, fairness, and contractual freedom while preventing exploitation or restrictions on personal rights.
  • They ensure that certain foundational principles of contract law, such as free consent, lawful object, and consideration, are upheld.

Key Points

Here are the provisions given:
Let's break down each option in relation to the sections they correspond to in the Indian Contract Act, 1872:
(C) What agreements are contracts: This is covered in the very beginning of the Act, starting from Section 10 which deals with what agreements are contracts. It lays down that all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.
(A) Who are competent to contract: This is detailed in Section 11 of the Act. It states that every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind and is not disqualified from contracting by any law to which he is subject.
(B) Effect of mistakes as to law: This is covered under Section 21 of the Act. It explains that a contract is not voidable because it was caused by a mistake as to any law in force in India; but a mistake as to a law not in force in India has the same effect as a mistake of fact.
(D) Agreement in restraint of marriage is void: This is mentioned in Section 26 of the Act. It declares that every agreement in restraint of the marriage of any person, other than a minor, is void.
Given the above explanations, the provisions in chronological order according to their section numbers in the Indian Contract Act, 1872, are:
1. (C) What agreements are contracts
2. (A) Who are competent to contract
3. (B) Effect of mistakes as to law
4. (D) Agreement in restraint of marriage is void
Therefore, the correct answer is option 3: (C), (A), (B), (D).
- Hence, Statement (C) is correct as it is the starting point of contract formation.
- Statement (A) is correct as it immediately follows, defining the competency of parties to a contract.
- Statement (B) is correct as it deals with the effect of mistakes on the legality of a contract.
- Statement (D) is correct as it specifies a particular type of agreement that is void, coming later in the Act.

The correct answer is Option 1.

Key Points Section 147 of the Negotiable Instruments Act, 1881
 Offences to be compoundable.—
Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),every offence punishable under this Act shall be compoundable].

The correct answer is Option 3.

Key Points Section 147 of the Negotiable Instruments Act, 1881: Offences to be compoundable.—Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),every offence punishable under this Act shall be compoundable.

The correct answer is 'Section 16 of the Sale of Goods Act, 1930'

Key Points

• Implied conditions as to quality or fitness of goods (Section 16):
  • Under Section 16 of the Sale of Goods Act, 1930, there is an implied condition regarding the quality or fitness of goods for a particular purpose when the buyer relies on the seller's skill or judgment.
  • This section ensures that goods sold are of merchantable quality and fit for the purpose for which the buyer intends to use them, provided such purpose is made known to the seller.
  • However, the implied condition does not apply if the buyer examines the goods and the defect is apparent or if the buyer purchases goods under their own expertise without relying on the seller.
  • The provision protects buyers, especially when goods are purchased based on trust in the seller's knowledge or expertise.

Additional Information

• Explanation of other sections:
  • Section 14: This section deals with the implied undertaking by the seller that they have the right to sell the goods and that the buyer shall enjoy quiet possession of the goods. It primarily focuses on the title of the goods and does not cover quality or fitness.
  • Section 15: It deals with the sale of goods by description. According to this section, when goods are sold based on a description, the goods must correspond with the description. It does not specifically address quality or fitness.
  • Section 17: This section pertains to sales by sample. It establishes an implied condition that the bulk of the goods must correspond with the sample provided and must be free from defects. It is distinct from quality or fitness under Section 16.
• Importance of Section 16:
  • Section 16 is crucial for protecting consumer rights by ensuring that the buyer receives goods that meet their intended purpose and are of acceptable quality.
  • It emphasizes the seller's responsibility to deliver goods that meet the buyer's expectations based on their reliance on the seller's expertise.

Key Points

Correct Answer: B. The rule that the company's public documents are assumed to be known to others

Explanation: The Doctrine of Constructive Notice is a legal concept in Company Law that implies that all persons dealing with a company are presumed to have knowledge of its public documents, such as the Memorandum of Association (MOA) and Articles of Association (AOA). This presumption arises because these documents are filed with the Registrar of Companies and are available for public inspection. The rationale behind this doctrine is to protect the company and its shareholders by assuming that individuals conducting business with the company have done their due diligence and are aware of the company's legal standing, powers, and limitations as laid out in its public documents. This doctrine plays a critical role in ensuring transparency and informed dealings with companies.

Key Points

Correct Answer: 3. The doctrine that states actions taken by a company beyond the scope of its constitutional powers are void.

Explanation: The doctrine of "Ultra Vires" is a fundamental principle in Company Law that limits the powers of a company to the objects outlined in its AOA (Articles of Association) and MOA (Memorandum of Association). If a company performs an act that is beyond these outlined objects, such an act is considered "Ultra Vires" (beyond the powers) and thus void. This doctrine ensures that shareholders' investments are used only for the purposes that the company was created for, providing a form of protection against the misuse of funds and ensuring that companies do not engage in activities unrelated to their stated objectives.

Key Points

Option 2: B, C, D, E, A

B. Punishment in case of repeated default - Section 451

This section discusses the punishment for a company or any officer of the company who repeats an offence previously penalized under the provisions of the Companies Act, 2013.
C. Annual reports on Government Companies - Section 394

Section 394 mandates the preparation of an annual report by the government on the working and affairs of any government company, which must be placed before both Houses of Parliament.
D. Petition for winding up - Section 272

This section deals with the circumstances and parties who may petition for the winding up of a company, including the company itself, creditors, contributors, or others.
E. Functions of Company Secretary - Section 205

Section 205 outlines the duties of a company secretary, including reporting to the Board about compliance with the provisions of this Act, keeping the minutes of the Board and general meetings, ensuring company compliance, and other duties as prescribed.
A. Execution of Bills of Exchange, etc. - Section 21

This section states that a bill of exchange, hundi, or promissory note shall be deemed to have been made, accepted, drawn, or endorsed on behalf of the company if done so in the company's name or on its behalf with proper authority.

Key Points

To match List I with List II and explain each pointer comprehensively, let's break down the correct option (option 4) and provide explanations for each match:
(A) Section 162  (III) Termination of gratuitous bailment by death - Section 162 does directly relate to termination of gratuitous bailment by death. —A gratuitous bailment is terminated by the death either of the bailor or of the bailee.
(B) Section 178 (I) Pledge by Mercantile Agent - Section 178 of the Indian Contract Act, 1872, specifically deals with the pledge of goods by a mercantile agent. It outlines the conditions under which a mercantile agent can pledge goods and the rights conferred upon the pledgee in such transactions. 
(C) Section 214  (IV) Agent’s duty to communicate with principal - It is the duty of an agent, in cases of difficulty,
to use all reasonable diligence in communicating with his principal, and in seeking to obtain his instructions.
(D) Section 150  (II) Bailor’s duty to disclose faults in goods bailed - Section 150 correctly addresses the bailor’s duty to disclose faults in the goods being bailed. It mandates that the bailor must make known to the bailee any faults in the goods bailed of which the bailor is aware, and which materially interfere with the use of them or expose the bailee to extraordinary risks.

According to section 13 of the Negotiable Instrument Act, 1881 - A 'negotiable instrument' means a promissory note, bill of exchange, or cheque payable either to order or to bearer. 

A Promissory Note:

• Section 13 of the Negotiable Act defines a promissory note as a financial instrument that includes a written agreement made by one party i.e. the issuer or maker to pay another party i.e. the payee a certain sum of money, either on-demand or at a specific date.
• A promissory note is an instrument containing an unconditional undertaking.
• It is signed by the maker to pay a certain sum of money only to a specific person or the bearer of the instrument. 
• A promissory note must be written and signed by the maker or else it is of no effect.
• If a promissory note does not have a date, it is assumed to have been made when it was delivered.
• Most importantly it must be stamped under the Indian Stamp Act and it is not stamped then that promissory note is considered null. 

Therefore, from the above explanation, it is clear that Statements (II), (III), and (IV) are correct.

The correct answer is option 4.

Key PointsCases where the doctrine of supervening impossibility applies:

• Difficulty of performance
  • This generally does not apply under supervening impossibility as it usually requires absolute impossibility. Hence statement A is incorrect.
• Commercial impossibility
  • Commercial difficulties or losses are typically not enough to invoke supervening impossibility. Hence statement B is incorrect.
• Strikes and Lock-outs
  • These are usually considered as foreseeable events and do not typically fall under supervening impossibility. Hence statement C is incorrect.
• Outbreak of war
  • An outbreak of war can render the performance of a contract impossible due to legal or physical reasons, and it is recognized under supervening impossibility. Hence statement D is correct.
• Destruction of Subject-matter
  • If the subject matter of a contract is destroyed without any fault of the parties, it can invoke the doctrine of supervening impossibility. Hence statement E is correct.

Additional Information

• Supervening Impossibility
  • This legal doctrine applies when an unforeseen event occurs after the formation of a contract, making performance impossible.
  • It is also known as 'frustration of contract' in some jurisdictions.

Key Points

Correct Answer: 2. Both A and R are true, but R is not the correct explanation of A.

Explanation: The assertion that a contract entered into by a person under the influence of alcohol can be ratified upon sobering up is true. The Indian Contract Act, 1872, provides that a contract is voidable if one of the parties was incapable of understanding the nature and consequences of the agreement at the time of its formation due to intoxication. Upon regaining capacity, the intoxicated person has the option to ratify (confirm) the contract. The reason, while true regarding the general principle on capacity to contract, does not directly explain the specific process of ratification of contracts entered under the influence of alcohol but rather speaks to the broader requirement of capacity for entering into contracts.

The correct answer is  An offer made jestingly

Key PointsExplanation: Under the Indian Contract Act, 1872, a valid offer must be made with the intention to create legal relations. An offer made in jest or without a sincere intention to be bound is not considered a valid offer since it lacks the serious intent necessary for forming a legally binding contract. Offers made to the general public, conditional offers, and those made through agents can all be considered valid, provided they meet the other essentials of a valid contract.

The task involves matching entities from List I (column 1) with their correct descriptions from List II (column 2). Here's the explanation in a comprehensive tabular form:

Key Points 
(A) Producer companies (III) Formed to convert cooperative into a company-

Producer companies are a special type of company in India, designed for agricultural producers or certain types of producers (artisans, etc.), aiming to facilitate their formation and operation, including converting cooperatives into companies.
(B) Statutory companies (I) Do not necessarily require Memorandum of Association-

Statutory companies are created by a special act of the parliament or a state legislature. They might not require a Memorandum of Association because they are governed by statutory laws rather than the Companies Act. 
(C) Section 8 company (II) Association not for profit-

Section 8 companies are established 'for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object', provided the profits, if any, or other income is applied for promoting only the objectives of the company and no dividend is paid to its members. Thus, they are essentially associations not for profit. 
(D) Small company (IV) Paid up share capital is between 50 lakh-5 crore and turnover is between 2 crore - 20 crore-

As per the Companies Act, a small company is defined based on its paid-up share capital and turnover. This definition helps in providing certain exemptions and benefits to companies falling under these criteria, making compliance easier for them. 
The correct matching, as specified in the original question, is option 2, which aligns with the explanations provided above. This matching helps in understanding the specific characteristics and legal requirements of different types of companies or associations within the Indian legal framework.

Section 145 of the Negotiable Instrument Act, 1881: Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), the evidence of the complainant may be given by him on affidavit and may, subject to all just exceptions be read in evidence in any enquiry, trial or other proceeding under the said Code. 

HintStatement (A) "dispenses with the procedure under section 200 of CrPC": This statement is correct. The Non-Obstante Clause in section 145 of the Negotiable Instruments Act, 1881, indeed allows for the dispensation of the normal procedure outlined under section 200 of the Criminal Procedure Code (CrPC), which typically involves the magistrate examining the complainant and the witnesses present.
Statement (B) "procedure of examination of complainant and witness on oath is done": This statement is correct in the context of what section 145 of the Negotiable Instruments Act, 1881, aims to achieve. The section states essentially simplifies the process and does not necessarily require the examination of the complainant and witnesses on oath in the manner traditionally done under section 200 of CrPC.
Statement (C) "away affidavit of complainant and witness can be accepted": This statement is correct. Section 145 of the Negotiable Instruments Act, 1881, allows for the acceptance of affidavits from the complainant and witnesses. This provision makes the process more efficient by not mandatorily requiring the physical presence of the complainant or witnesses for the initial examination.
Statement (D) "sworn statement recording by the magistrate is dispensed with": This statement is correct. The introduction of section 145 of the Negotiable Instruments Act was to streamline the process and make it less cumbersome, which includes dispensing with the requirement for the magistrate to record sworn statements, thus expediting the proceedings.
Therefore, the correct answer is option 4 - (A), (B), (C), (D), as all these provisions are encapsulated within the Non-Obstante Clause of section 145 of the Negotiable Instruments Act, 1881, to streamline and simplify the process involved.