0901 Business Law-II (MB2F2)

8/9/2019 0901 Business Law-II (MB2F2)

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Question Paper

Business Law - II (MB2F2): January 2009

Answer all 70 questions.

Marks are indicated against each question.

Total Marks : 100

1. Which of the following acquires NPA (Non Performing Asset) loans from banks and financial

institutions by issuing debentures, bonds or by entering into special arrangements under the SARFAESI

Act, 2002?

(a) Reserve Bank of India(b) Qualified Institutional Buyers

(c) Debt Recovery Tribunal

(d) Central Government

(e) Asset Reconstruction Company. (1 mark)

2. Which of the following is notconsidered as negotiable instrument under the Negotiable Instruments

Act, 1881?

(a) Bill of exchange

(b) Promissory note(c) Share certificate

(d) Cheque payable to bearer

(e) Cheque with not negotiable crossing. (1 mark)

3. Which of the following trade practices amounts to a restrictive trade practice under the CompetitionAct, 2002?

(a) Conduct of game of chance or skill directly promoting the sales of products

(b) Conduct of game of chance or skill indirectly promoting the sales of products

(c) Conduct of selling goods at such a price as would eliminate competition

(d) Conduct of contest directly promoting the sales of products(e) Conduct of contest indirectly promoting the sales of products. (1 mark)

4. Which of the following is classified as a common law remedy against environmental pollution?

(a) Damages

(b) Nuisance

(c) Negligence

(d) Trespass

(e) Strict liability. (1 mark)

5. Which of the following is nota type of arbitration?

(a) Statutory Arbitration

(b) Ad hoc Arbitration

(c) Mediation

(d) Domestic Arbitration

(e) Expedited Arbitration. (1 mark)

6. Stream Pharma Ltd., a leading manufacturer of medicines enjoys lions share in the market for

medicines for heart diseases. Vincent Pharma Ltd., another pharmaceuticals manufacturer succeeded in

discovering a cheaper alternative. On coming to know of the entry of Vincent Pharma Ltd., into the

market with a low cost medicine for heart disease, Stream Pharma Ltd., reduced the price of its

medicine to one-fifth of its current selling price which is much below its cost of production and also

that of Vincent Pharma Ltd. Under the Competition Act, 2002, the action of Stream Pharma Ltd.,

amounts to

(a) Bargain sale

(b) Refusal to sell

(c) Predatory pricing(d) Market sharing

(e) Tie-in arrangement. (2marks)


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7. Anderson Bank Ltd., (London) is licenced by the Reserve Bank of India (RBI) to carry-on business as a

banking company in India. Under the Banking Regulation Act, 1949, the RBI may cancel the licence of

the Anderson Bank Ltd., if it is found that

(a) Anderson Bank Ltd., is contracting for public loans and negotiating and issuing public loans

(b) Anderson Bank Ltd., is contracting for private loans and negotiating and issuing private loans

(c) Anderson Bank Ltd., is carrying on and transacting indemnity business

(d) Anderson Bank Ltd., is carrying on and transacting guarantee business(e) Anderson Bank Ltd., ceases to carry on business in India. (2marks)

8. Anand kept his goods in the warehouse maintained by Ramesh and insured the goods against loss by

fire. The goods were burnt in a fire in the warehouse and Anand filed a claim of Rs.50,000, being the

full value of the goods lost. The insurance company accepted the claim and made payment. Later,

Anand also recovered Rs.25,000 from Ramesh by filing a lawsuit against him. Which of the followingstatements is truein respect of these circumstances under the Insurance Act?

(a) The insurance company can claim the amount of Rs.25,000 recovered by Anand from Ramesh

by applying the doctrine of subrogation

(b) The insurance company can claim the amount of Rs.25,000 from Ramesh by filing a lawsuit

against him

(c) As the insurance company has already accepted the claim made by Anand and made payment, it

has no locus standi to claim anything from him(d) The insurance company cannot claim anything from Anand as the goods were fully lost

(e) The insurance company cannot claim anything from Anand or Ramesh. (2marks)

9. Which of the following is considered as a foreign bill under the Negotiable Instruments Act, 1881?

(a) A bill drawn in Mumbai upon a resident of New Delhi, endorsed in New York and payable inLondon

(b) A bill drawn in Chennai upon a resident of Bangalore, payable in Kuala Lumpur

(c) A bill drawn in Mumbai upon a resident of Lucknow, payable in Kolkata

(d) A bill drawn in Lucknow upon a resident of Bhopal, payable in Agra

(e) A bill drawn in Paris upon a resident of Kanpur, payable in Hyderabad. (2marks)

10.Which of the following is nota fire insurance policy?

(a) All risks policy

(b) Limited risk policy(c) No risk policy

(d) Valued policy

(e) Unvalued policy. (1 mark)

11.Which of the following is allowed as an exemption from the enforcement under the provisions of the

SARFAESI Act, 2002?

(a) Copyright(b) Patent

(c) Financial asset not exceeding Rs.1,00,000

(d) Trademark

(e) License. (1 mark)

12.Under the Negotiable Instruments Act, 1881, when a bill is drawn, accepted or indorsed for

consideration, it is called a/an

(a) Accommodation bill

(b) Genuine trade bill

(c) Escrow

(d) Ambiguous instrument

(e) Inchoate instrument. (1 mark)


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13.The provisions of the Information Technology Act, 2000 are applicable to a

(a) Will

(b) Trust

(c) Cheque

(d) Power-of-attorney(e) Contract for sale of conveyance of immoveable property. (1 mark)

14.Which of the following is false in respect of the broad objectives of the Central and State Councilsunder the Consumer Protection Act, 1986 regarding availing of services?

(a) Right of access to services at competitive prices

(b) Right of assurance to services at competitive prices(c) Right of protection against restrictive trade practices

(d) Right to look into the actual pricing of goods and services

(e) Right to consumer education. (1 mark)

15.Which of the following matters cannotbe referred to arbitration under the Arbitration and Conciliation

Act, 1996?

(a) All matters of civil nature(b) All matters of breach of contract

(c) Illegal transactions(d) Disputes of movable property

(e) Disputes of immovable property. (1 mark)

16.Sri Palaniappan Fireworks Ltd., Sivakasi was a manufacturer of fire crackers. The company was

located near Samypuram, a residential colony. One day a huge fire broke out in the godown of thecompany, due to which there were explosions that injured some of the residents of the colony and the

whole area was filled with smoke that choked breath of the people. It was discovered that, in view of

the expected heavy demand for Diwali and New Year, the company had stored its crackers under the

Sun, whereas it was required to store those in the shaded godowns. Which of the following statements

is truein respect of the criminal liability of the company under the Indian Penal Code, 1860?

(a) Sri Palaniappan Fireworks Ltd., can be held liable for negligent act likely to spread infection ofdisease dangerous to life

(b) Sri Palaniappan Fireworks Ltd., can be held liable for malignant act likely to spread infection ofdisease dangerous to life

(c) Sri Palaniappan Fireworks Ltd., can be held liable for negligent conduct with respect to

poisonous substance(d) Sri Palaniappan Fireworks Ltd., can be held liable for negligent conduct with respect to fire

(e) Sri Palaniappan Fireworks Ltd., can be held liable for negligent conduct with respect to

explosive substance. (2marks)

17.Sumant composed an electronic mail message (e-mail) on December 16, 2008 offering to sell his house

to Srikanth, for Rs.25,00,000 and saved the message as a draft on his computer. He sent the message to

Srikanth on December 18, 2008. Srikanth checked his e-mail account on December 19, 2008 and cameto know of the offer. He sent his reply by an e-mail on December 20, 2008. Under the Information

Technology Act, 2000, this e-mail becomes an electronic record for Sumant, when it

(a) Is composed by Sumant on December 16, 2008(b) Is sent by Sumant on December 18, 2008

(c) Enters the e-mail account of Srikanth on December 18, 2008

(d) Comes to the knowledge of Srikanth on December 19, 2008(e) The reply for it is sent by Srikanth on December 20, 2008. (2marks)


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18.Kamalkant insured goods which were in transit on board of a ship and sold the same goods to Upendra.

Kamalkant also assigned the insurance policy in the name of Upendra. The goods were subsequently

lost as the ship was attacked and destroyed by sea pirates. As the goods were insured against the peril of

loss by piracy, Upendra filed a claim under the policy. The insurance company refused to accept the

claim, contending that Upendra did not have an insurable interest in the goods. Which of the following

statements is truein these circumstances?

(a) As the goods were originally insured by Kamalkant, he only can file a claim in respect of thosegoods

(b) As Upendra did not have any insurable interest in the goods at the time of conclusion of the

insurance contract, he cannot make a claim for the loss

(c) As Upendra has an insurable interest at the time the goods were lost he can make a claim for

the loss

(d) As Upendra is the assignee in a marine insurance contract, he cannot make any claim

(e) As Upendra is the assignee in a marine insurance contract, he can claim only through

Kamalkant. (2marks)

19.Akriti drew a bill upon Akansha and sent it for Akanshas acceptance. In which of the following

instances there is a valid acceptance of the bill by Akansha under the Negotiable Instruments Act,

1881?

(a) When she merely puts her signature on the bill and keeps it with her(b) When she writes accepted on the back of the instrument but does not put her signature on the

bill

(c) When she puts her signature on the face of the bill and delivers it back to the Akriti

(d) When she puts her signature on a copy of the bill(e) When she does not put her signature on the bill but only writes accepted on the face of the bill. (2marks)

20.Which of the following is nota characteristic of Over The Counter Exchange of India (OTCEI)?

(a) A ringless trading mechanism

(b) Creation of liquidity

(c) Computerized and transparent trading

(d) One way quote only for purchase

(e) Permission to trade in equity and debentures. (1 mark)

21.Who among the following persons is considered as an insurer under the Insurance Act?

(a) Principal Agent appointed under any Act

(b) Chief Agent appointed under any Act

(c) Special agent appointed under any Act

(d) Insurance agent recognized by the Act, undertaking the insurance business(e) An unincorporated body of individuals. (1 mark)

22.Which of the following is nota privilege of a holder in due course under the Negotiable Instruments

Act, 1881?

(a) If the negotiable instrument is lost, the defenses on the part of a person liable on a negotiable

instrument cannot be set up against a holder in due course

(b) Once negotiable instrument passes through the hands of a holder in due course, it gets cleansed

of all the defects even though the holder in due course is party to the fraud(c) Until the instrument is duly satisfied, every prior party to a negotiable instrument is liable to a

holder in due course

(d) The law presumes every holder as a holder in due course, although the presumption is rebuttable

(e) The validity of the instrument as originally made or drawn cannot be denied by the

maker/drawer/acceptor for honor in a suit initiated by a holder in due course. (1 mark)

23.Under the Information Technology Act, 2000, the term hacking means

(a) Publishing of Digital Signature Certificate with false particulars

(b) Failure to furnish information to the Controller of Certifying Authority

(c) Making Digital Signature Certificate available for unlawful purpose

(d) Causing wrongful loss to public by destroying any information residing in the computer(e) Suppression of material facts to obtain a Digital Signature Certificate. (1 mark)


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24.Under the Consumer Protection Act, 1986, the time period within which the complaint must be decided

by the appropriate forum is

(a) Three months from the date of receipt of the complaint

(b) Three months from the date opposite party is served the notice

(c) Six months from the date of receipt of the complaint(d) Six months from the date opposite party is served the notice

(e) One year from the date of receipt of the complaint. (1 mark)

25.The part of atmosphere that is associated with the prevention of the ultra violet (UV) radiations from

falling on the earth is known as

(a) Hydrosphere(b) Lithosphere

(c) Biosphere

(d) Stratosphere

(e) Thermosphere. (1 mark)

26.Suman Enterprises of Delhi and Sen Traders of Kolkata entered into a contract which provided that in

case of a dispute the parties will refer it to an arbitrator. Accordingly, when a dispute arose between the

two, it was referred to arbitration. However, midway through the arbitration the parties expressed their

willingness to terminate the proceedings. Which of the following statements is true in these

circumstances under the Arbitration and Conciliation Act, 1996?

(a) The parties cannot terminate the arbitral proceedings midway through the arbitration

(b) The arbitrator alone is empowered to terminate the arbitral proceedings midway through the

arbitration

(c) The Court alone is empowered to terminate the arbitral proceedings midway through the

arbitration

(d) The parties can terminate the arbitral proceedings midway through the arbitration by entering

into an agreement to that effect

(e) The parties can terminate the arbitral proceedings midway through the arbitration only after

obtaining the approval of both the arbitrator and the Court. (2marks)

27.Gyaneshwar Fabrications was a proprietary concern owned by Gyaneshwar Reddy. Gyaneshwar Reddy

had taken a loan of Rs.10 lakh from the Andhra Pradesh Small Scale Industries Development

Corporation under Self-employment Scheme and arranged the balance by way of loans from others and

bought one of the five fabricating machines, for an amount Rs.15 lakh from Apoorva Machines Ltd.

Within a week of its purchase, the machine developed defects and the company refused to attend the

machine. Gyaneshwar Fabrications is proposing to file a consumer complaint against Apoorva

Machines Ltd. Which of the following statements is true in respect of these circumstances under the

Consumer Protection Act, 1986?

(a) Gyaneshwar Fabrications cannot file a consumer complaint as the machine was purchased for

commercial use

(b) Gyaneshwar Fabrications cannot file a consumer complaint as the machine was bought by

raising loan

(c) Gyaneshwar Fabrications cannot file a consumer complaint as the machine was bought under

Self-employment Scheme for a commercial purpose

(d) Gyaneshwar Fabrications can file a consumer complaint as the machine was bought under Self-employment Scheme which is a non-commercial purpose

(e) Gyaneshwar Fabrications cannot file a consumer complaint as proprietary concerns are not

considered as consumers under the Act. (2marks)


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28.Mohan TMT Ltd., had borrowed an amount of Rs.20 lakh from Urban Bank. As the company has

continuously defaulted in the repayment of the loan, Urban Bank has classified the loan as non-

performing asset in its books, in accordance with Reserve Bank of India (RBI) guidelines and issued a

notice to Mohan TMT Ltd., for discharging full liabilities, specifying the details of amount payable and

secured assets to be enforced in the event of non-payment. After expiry of 60 days from the date of

notice, Urban Bank took possession of the secured property and sold it to a third party. Which of the

following statements is truein respect of above circumstances under SARFAESI Act, 2002?

(a) Urban Bank can only take possession of the secured property and appoint a person to manage it

until the loan is repaid

(b) Urban Bank can only transfer the secured property by way of lease to a third party

(c) Urban Bank can only transfer the secured property by way of assignment to a third party

(d) Urban Bank can transfer the secured property by sale/lease/assignment

(e) Urban Bank can transfer the secured property only with the approval of the Debt Recovery

Tribunal. (2marks)

29.Andrew, who already had an insurance cover for Rs.25 lakh on his life from LIC made a proposal to

Secure Life Insurance Ltd., for insurance on his life for Rs.5 lakh. He truthfully answered various

questions in the proposal form and disclosed all relevant facts and paid the initial premium. A few days

later, before the proposal was accepted by the company, Andrew was taken ill by pneumonia. One

week after the acceptance of the proposal by the company, Andrew died of Pneumonia and theinsurance company came to know of his illness for the first time. Which of the following statements is

truein respect of the liability of Secure Life Insurance Ltd., for payment of insurance claim under the

Insurance Act?

(a) Secure Life Insurance Ltd., is not liable as Andrew had failed to make adequate disclosure of

the disease in the proposal form

(b) Secure Life Insurance Ltd., is not liable as Andrew already had an insurance policy worth Rs.25

lakh from another insurer

(c) Secure Life Insurance Ltd., is not liable as the notice of illness amounting to non-disclosure of

the risk between proposal date and acceptance date was not given to it

(d) Secure Life Insurance Ltd., is liable as it had accepted the proposal form before the death of

Andrew

(e) Secure Life Insurance Ltd., is liable as Andrew had truthfully answered various questions in the

proposal form and disclosed all relevant facts in the proposal form. (2marks)

30.Which of the following is an example of restrictive crossing under the Negotiable Instruments Act,

1881?

(a) Not Negotiable written between two parallel lines

(b) State Bank of India written between two parallel lines

(c) A/c payee written between two parallel lines

(d) & Company written between two parallel lines(e) Two transverse parallel lines simply drawn across the face of the cheque. (2marks)

31.Insurance of the same risk with more than one insurer whereby the total sum insured exceeds the value

of the subject matter, is known as

(a) Reinsurance

(b) Reassurance

(c) Self-insurance

(d) Multiple insurance

(e) Double indemnity. (1 mark)

32.Which of the following assets is not taken into account for the purpose of computation of Statutory

Liquidity Ratio required to be maintained by a bank?

(a) Cash in hand (India)(b) Balances held under Cash Reserve Ratio (CRR)

(c) Balance in current account with Reserve Bank of India (RBI)

(d) Balance with RBI over the minimum reserve requirement

(e) Investment in government securities and treasury bills. (1 mark)


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33.Which of the following is a prerequisite for transfer of a negotiable instrument under the Negotiable

Instruments Act, 1881?

(a) Crossing

(b) Acceptance

(c) Noting with a Notary(d) Blank indorsement only

(e) Mere delivery or indorsement and delivery. (1 mark)

34.The regulatory objectives of the Competition Law are notintended to serve the

(a) Safety and stability of domestic markets

(b) Prevention of abusive practices(c) Transparency of business practices

(d) Institutionalization of supervision over barriers to fair competition

(e) Sustained benefits to producers. (1 mark)

35.Which of the following is a condition for the applicability of the rule of strict liability?

(a) Plaintiffs own default

(b) Act of god(c) Non-natural use of land

(d) Consent of the plaintiff(e) Act of third party. (1 mark)

36.M/s Pooja & Co., and Nalanda Enterprises submitted their business dispute to conciliation.

Accordingly, Motilal Oswal was appointed as the conciliator. After, requesting each party to submit

their statement on the points of issue, Motilal Oswal orally proposed a settlement for which he refusedto give reasons. Which of the following statements is truein these circumstances under the Arbitration

and Conciliation Act, 1996?

(a) Motilal Oswal cannot propose a settlement between the parties to the dispute

(b) Motilal Oswal can propose a written settlement between the parties

(c) Motilal Oswal can propose an oral settlement between the parties, provided he gives reasons inwriting

(d) Motilal Oswal can propose a settlement between the parties only at the end of the proceedings

(e) Motilal Oswal can propose an oral settlement between the parties at any stage and he is not

required to give reasons for the proposal. (2marks)

37.Sushil had filed a consumer complaint against Home Needs Ltd., in the district forum of Sambalpur,

Odisha. A notice as required under the Consumer Protection Act, 1986 was served on the opposite

party, requiring it to be present before the District Forum on the date of hearing. Home Needs Ltd., didnot respond to the notice and failed to appear or represent its case. The District Forum passed an ex

parte order based on evidence offered by Sushil. Which of the following statements is truein respect of

the course of action available to Home Needs Ltd., under the Consumer Protection Act, 1986?

(a) It can file an appeal with the District Forum to set aside the ex parte order and fix another date

for hearing the case

(b) It can file an appeal with the State Commission to set aside the ex parte order passed by the

District Forum

(c) It can file an appeal with the National Commission to set aside the ex parte order passed by the

District Forum

(d) It cannot file any appeal as the order was passed upon its failure to appear before the District

Forum on the date fixed for hearing the complaint(e) It cannot file any appeal as no appeal is allowed against ex parte orders. (2marks)


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38.The Securities Exchange Board of India (SEBI) initiated an investigation against Jayantilal Securities

Ltd., an intermediary for violation of provisions of the SEBI Act, 1992. During the process of

investigation, SEBI attached the bank account of Jayantilal Securities Ltd., for a period of three weeks,

after due process. Which of the following statements is truein respect of the powers of SEBI during an

investigation into the affairs of a company?

(a) During investigation, the SEBI is empowered only to suspend the trading of a stock in a stock

exchange(b) During investigation, the SEBI is empowered only to restrain Jayantilal Securities Ltd., from

accessing the market

(c) The SEBI is empowered to attach the bank account of Jayantilal Securities Ltd., only after the

conclusion of the investigation

(d) The SEBI is empowered to attach the bank account of Jayantilal Securities Ltd., during an

investigation

(e) The SEBI is not empowered to attach the bank account of Jayantilal Securities Ltd., during the

course of an investigation. (2marks)

39.Shalini took a life insurance policy for Rs.2 lakh in the name of her husband, Siddharth, who was

employed with a bank. Shalini was paying the premium out of her salary. Unfortunately, Siddarth died

in a road accident. Shalini has filed a claim with the insurance company. Which of the followingstatements is truein respect of the above situation under the Insurance Act?

(a) Shalini can make a claim against the insurance company as she has an insurable interest in the

life of Siddharth, being his wife

(b) Shalini can make a claim against the insurance company as she was paying the premium out of

her salary(c) Shalini can make a claim against the insurance company as existence of insurable interest is not

required in case of life insurance

(d) Shalini cannot make a claim against the insurance company as she does not have an insurable

interest in the life of Siddharth

(e) Shalini cannot make a claim against the insurance company as Siddharth was employed with a

bank and not dependant upon her. (2marks)

40.Ram obtained the acceptance of Shyam to a bill for Rs.25,000 by fraud. Ram endorses the bill to Gopal

who takes it in good faith for a consideration. Gopal further endorses the bill to Gautam. In case the bill

is dishonoured, which of the following statements is true in respect of course of action available toGautam, under the Negotiable Instruments Act, 1881?

(a) Gautam, being a holder in due course, can recover the amount of Rs.25,000 from Shyam

(b) Gautam cannot recover the amount of Rs.25,000 from Shyam as Ram obtained the acceptanceby fraud

(c) Gautam can sue Ram for fraud

(d) Gautam cannot take any action on a bill accepted by fraud

(e) Gautam can recover the amount of Rs.25,000 only from Gopal. (2marks)

41.Ranjit purchased a laptop manufactured by Mony Consumer Electronics. On the back of the laptop a

sticker was pasted that read To be opened by authorized personnel only. On one occasion, when thelaptop developed a problem, Ranjit being a hardware engineer opened the laptop and repaired it.

However, after a week the laptop developed a serious hardware problem and exploded, due to which

Ranjit was injured. Ranjit proposes to file a product liability claim against Mony Consumer Electronics.Which of the following statements is truein respect of product liability claim that can be brought by

Ranjit against Mony Consumer Electronics?

(a) Ranjit can file a product liability claim for design defect in the laptop

(b) Ranjit can file a product liability claim for manufacturing defect in the laptop

(c) Ranjit can file a product liability claim for marketing defect in the laptop

(d) Ranjit can file a product liability claim for negligence in manufacturing the laptop

(e) Ranjit cannot file a product liability claim as Mony Consumer Electronics can put up the

defence of unauthorized alteration and modification in the laptop. (2marks)


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42.Poddar Plastics Ltd., with an issued capital of Rs.50 lakh has listed its shares under Over The Counter

Exchange of India (OTCEI). Which of the following is not true in respect of advantages that may be

available to an investor?

(a) Investors can trade through the counters of OTCEI set-up at several centres

(b) OTCEI removes illiquidity by introducing compulsory market makers to help the small

investors for sale of their securities

(c) Investors will display security prices online and hence, price blindness is removed

(d) Settlements are delayed in case of trading through OTCEI(e) OTCEI intends to provide the information relating to the companies to all its investors. (2marks)

43.Manjeet Singh insured his house at Ludhiana against loss by fire. Due to an electrical short circuit

arising out of faulty wiring, his neighbours house caught fire. The Fire Brigade used water to put out

the fire, which entered the house of Manjeet Singh and spoiled furniture and other household

appliances. Which of the following statements is truein respect of liability of the insurer to indemnify

the loss suffered by Manjeet Singh under the Insurance Act?

(a) The insurance company need not pay the claim as the fire was caused due to an electrical short

circuit arising out of faulty wiring in neighbours house(b) The insurance company need not pay the claim as the insurance policy covered only loss by fire

and not any other loss

(c) The insurance company has to pay only the loss due to fire to the neighbours house

(d) The insurance company has to pay the loss caused by entry of water into Manjeet Singhshouse as it was proximate cause to the fire

(e) The insurance company need not pay the claim as loss caused by entry of water into ManjeetSinghs house cannot be considered proximate cause to the fire. (2marks)

44.Rajesh issued a cheque for Rs.11,116 to Blue Cross, a voluntary organization as donation. But the

cheque was returned unpaid with reason Insufficient funds. The remedy available to the payee, under

the Negotiable Instruments Act, 1881 is that

(a) The payee can recover the amount from Rajesh by filing a written complaint under section 138

of the Act

(b) The payee should issue a notice within 30 days of dishonour of cheque demanding the payment

from Rajesh

(c) The payee can compel Rajesh to issue a fresh cheque

(d) The payee cannot recover the amount as the cheque was not issued in partial or full discharge ofa legally enforceable debt

(e) The payee can recover the amount only from the estate of Rajesh. (2marks)

45.Which of the following statements is truein respect of general insurance contracts?

(a) They are long term contracts

(b) Insurable interest does not consist of pecuniary interest in the subject matter of insurance

(c) Insurable interest need not be present at the time of entering into the insurance contract

(d) Principle of indemnity applies in general insurance contracts

(e) Amount payable as compensation does not depend on availability or importance of assets. (1 mark)

46.Under SARFAESI Act, 2002, a borrower aggrieved by the notice of a bank intimating the details of

amount due and the security interest to be enforced in case dues are not recovered from 60 days from

the date of notice, has a right to appeal to

(a) Debt Recovery Tribunal (DRT)

(b) Debt Recovery Appellate Tribunal (DRAT)

(c) Chief Metropolitan Magistrate

(d) District Magistrate

(e) Reserve Bank of India. (1 mark)

47.Days of grace under the Negotiable Instruments Act, 1881 is available in the case of a

(a) Bill payable 30 days after sight

(b) Bearer demand draft(c) Crossed demand draft

(d) Crossed cheque

(e) Bearer cheque. (1 mark)


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48.Any liability of the manufacturer or vendor for the injury or damage caused by the use of the product

due to it being dangerous in nature is known as

(a) Product liability

(b) Public liability

(c) Public nuisance

(d) Public interest

(e) Product advisory. (1 mark)

49.In which of the following instances, the District Forum cannotrefuse to entertain a complaint under the

Consumer Protection Act, 1986?

(a) Lack of jurisdiction

(b) Complainant is a consumer association

(c) Dispute is not a consumer dispute

(d) Non-payment of prescribed fee

(e) Lapse of time i.e. bar of limitation. (1 mark)

50.Which of the following statements is true in respect of the disadvantages of Alternative Dispute

Resolution (ADR) mechanisms?

(a) They are not based on direct participation of disputants

(b) They are less cooperative and more competitive than court-based litigation(c) They tend to generate more ill will between the disputants

(d) The disputants cannot define the process they will use under ADR mechanisms

(e) It is believed that ADR mechanisms provide second class justice. (1 mark)

51.Anvesh bought a watch for Rs.80,000, sold under the brand name Illadro. The watch was

manufactured by an Italian Company, Illadro Watches, Milan and sold through its exclusive branchoffice in Delhi. Two weeks after the purchase, a serious defect was noticed in the watch and the branch

office refused to repair or replace the watch and asked Anvesh to send the watch to Italy at his own

expense and risk. Being aggrieved, Anvesh proposes to file a consumer complaint against Illadro

Watches, Milan. Which of the following statements is truein respect of the above circumstances under

the Consumer Protection Act, 1986?

(a) Anvesh has to approach the District forum of Delhi as the complaint is against a foreign concern

whose branch is in Delhi and the amount claimed is less than Rs.20 lakh(b) Anvesh has to approach the State Commission of Delhi as the complaint is against a foreign

concern

(c) Anvesh has to approach the National Commission as the complaint is against a foreign concern

(d) Anvesh has to approach the Supreme Court of India as the complaint is against a foreign

concern(e) Anvesh cannot file a consumer complaint against Illadro Watches, Milan, in India. (2marks)

52.Nitish bought a set of two watches through an e-shopping site. The sale was according to the terms and

conditions of sale as mentioned in the Website. After glancing through the terms and conditions, Nitish

accepted the contract by pressing the enter key for the option I Accept. He paid the purchase price

by using his credit card, through electronic payment system. Under the Information Technology Act,

2000, the contract entered into by Nitish is classified as

(a) Click-wrap agreement(b) Shrink-wrap agreement

(c) Icon-wrap agreement

(d) Press-wrap agreement

(e) Enter-wrap agreement. (2marks)


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53.Pranay has taken two mediclaim policies (Health Insurance) from two different insurers. The first

policy for Rs.50,000 was taken from Medfit Insurance and the second one for Rs.1,00,000 was taken

from Medplus Insurance. One day Pranay had to be hospitalized for a sudden heart attack and he had to

incur a medical expenditure of Rs.90,000 towards treatment and hospitalization. He is planning to file

for claim. Which of the following statements is truein respect of the claim to be filed by Pranay under

the Insurance Act?

(a) Pranay has to file a claim with Medplus Insurance as the amount of expenditure of Rs.90,000 ismore than the coverage of Rs.50,000 provided by Medfit Insurance

(b) Pranay has to file a claim of Rs.50,000 against Medfit Insurance and a claim of Rs.40,000

against Medplus Insurance(c) Pranay has to file two claims of Rs.45,000 each against Medfit Insurance and Medplus

Insurance

(d) Pranay has to file a claim of Rs.30,000 against Medfit Insurance and a claim of Rs.60,000

against Medplus Insurance, in the ratio of coverage provided by them

(e) Pranay can file claim in such order as he thinks fit and the loss has to be shared by the insurance

companies between themselves in the ratio of coverage provided by them. (2marks)

54.Arvind is the holder of a bill for Rs.5,000. He makes an indorsement stating that, pay Rs.3,000 to

Bandhan or order and pay Rs.2,000 to Chinmay or order. Which of the following statements is true

with respect to the indorsement under the Negotiable Instruments Act, 1881?

(a) The indorsement is invalid being a partial indorsement prohibited by the Act

(b) The indorsement to Bandhan is not valid as in case of partial indorsement only the subsequent

indorsement is valid(c) The indorsement to Chinmay is not valid as only Bandhan can indorse the balance in favour of

Arvind

(d) The indorsement is valid as partial indorsement is valid under the law

(e) For a partial indorsement to be valid, it must be in equal proportions. (2marks)

55.Which of the following statements is falsein respect of a marine insurance contract?

(a) It includes liability to a third party incurred by the owner of a ship

(b) It does not include the liability to a third party incurred by a person interested in the assured

property, on happening of the maritime event

(c) It provides indemnity against marine losses i.e., losses incidental to maritime adventure(d) The crew on board can also be insured against marine perils

(e) The premium is paid in one lump sum and for one time. (1 mark)

56.The consideration paid for the risk undertaken by the insurer in an insurance contract is known as

(a) Insurable interest

(b) Premium

(c) Double insurance

(d) Subrogation

(e) Contribution. (1 mark)

57.Which of the following statements is true in respect of the essentials of a promissory note under the

Negotiable Instruments Act, 1881?

(a) It need not be in writing(b) An implied promise is enough to constitute a valid promissory note

(c) The promise to pay must be definite and unconditional

(d) The name of the payee need not be mentioned(e) The payment can be in kind. (1 mark)

58.Under the Information Technology Act, 2000, the time of receipt of an electronic record when the

addressee has a designated computer resource is when the record

(a) Is sent to the designated computer resource

(b) Enters the designated computer resource

(c) Is retrieved from the designated computer resource by the addressee(d) Enters the computer resource of the sender

(e) Is retrieved by the sender. (1 mark)


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63.Surewealth Insurance Ltd., Mumbai commenced its insurance business by obtaining a certificate of

registration from the Insurance Regulatory and Development Authority (IRDA). Two years later, the

IRDA is proposing to conduct an audit of Surewealth Insurance Ltd., along with the intermediaries

associated with the insurance company. Which of the following statements is true in respect of the

powers of the IRDA?

(a) The IRDA can only call for information from insurance undertakings and their intermediaries

(b) The IRDA can only conduct an inspection of the insurance undertakings and their intermediaries(c) The IRDA can only conduct an enquiry into the affairs of the insurance undertakings and their

intermediaries

(d) The IRDA can only conduct an investigation of the insurance undertakings but not theirintermediaries

(e) The IRDA can conduct an investigation including an audit of the insurers, intermediaries and

other organizations connected with insurance business. (2marks)

64.Madhuri Technologies Ltd., has an account in City Bank. Rohit, an executive of the company, had

committed forgeries for over two years and withdrew some amounts from the company account.

However, the company did not raise any objection to the entries made by the banker in the account

during that period. The banker provided statement of account to the company regularly, mentioning by

way of note that any discrepancies noticed should be immediately brought to the notice of the bank,

failing which the transactions are assumed to be final. There was no ratification of the entries by the

company. After some time, on knowing the facts, Madhuri Technologies Ltd., wants to sue the CityBank for loss caused to the company. Which of the following statements is truein respect of the course

of action available to Madhuri Technologies Ltd., under the Negotiable Instruments Act, 1881?

(a) City Bank cannot escape its liability even though the company did not raise any objection to the

entries in the statement of accounts

(b) Madhuri Technologies Ltd., cannot sue the City Bank as it had not raised any objections to the

entries made by the bank in its account

(c) Madhuri Technologies Ltd., cannot sue City Bank as the bank is absolved of its liabilities by

virtue of the note in its statements

(d) Madhuri Technologies Ltd., cannot recover the amount from City Bank as the bank had been

regular in sending the statement of account

(e) Madhuri Technologies Ltd., cannot recover the amount from City Bank as the bank had made

payment in good faith without negligence. (2marks)

65.Every stock exchange desirous of being recognized for the purpose of the Securities Contracts

(Regulation) Act, 1956 has to make an application to

(a) Central Government

(b) National Stock Exchange (NSE)

(c) Controller of Capital Issues

(d) Securities Exchange Board of India (SEBI)

(e) Ministry of Finance. (1 mark)

66.In which of the following situations a person has unlimited insurable interest under the Insurance Act?

(a) Policy on ones own life

(b) Policy in spouses name

(c) Policy in the name of children(d) Policy taken by a creditor in the name of his debtor

(e) Policy taken by an employer in the name of his employees. (1 mark)

67.Under the Negotiable Instruments Act, 1881, a banker cannotrefuse to honour the customers cheques

when

(a) A post dated cheque is presented for payment prior to the date it bears

(b) The customer does not have sufficient funds to his credit

(c) The funds of the customer are subject to a lien by the banker

(d) A bearer cheque containing restrictive indorsement is presented for payment(e) The customer has countermanded the payment of the cheque. (1 mark)


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68.Under the Information Technology Act, 2000, tampering with computer source document by

concealing, destroying or altering it is punishable with

(a) A fine of Rs.2 lakh only

(b) A fine of Rs.1.5 lakh only

(c) Compensation up to Rs.1 crore to the person affected

(d) Imprisonment for a period of 5 years or a fine of Rs.5 lakh

(e) Imprisonment up to 3 years or a fine up to Rs.2 lakh or both. (1 mark)

69.Which of the following anti-competitive agreements amounts to vertical agreement in relevant markets?

(a) Refusal to deal

(b) Market sharing

(c) Prices

(d) Exclusive distribution agreements

(e) Bids. (1 mark)

70.Which of the following is nota direct cause of water pollution?

(a) Discharge of domestic waste

(b) Discharge of industrial waste

(c) Discharge of agricultural waste

(d) Discharge of fluorides(e) Discharge of smoke from industries. (1 mark)

END OF QUESTION PAPER


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Suggested Answers

Business Law - II (MB2F2): January 2009

Answer Reason

1. E ARC (Assets Reconstruction Company) acquires NPA (Non Performing Asset)

loans from banks and financial institutions by issuing debentures, bonds or by

entering into special arrangements under the SARFAESI Act, 2002.

ARC will have to be registered with Reserve Bank of India (RBI).

ARC will formulate a separate scheme for each set of assets and invites QIB

(Qualified Institutional Buyers) for investment in the scheme.

Hence, option E is correct answer.

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2. C The Negotiable Instruments Act, 1881 recognizes only three kinds of instruments

under Section 13 promissory notes, bills of exchange and cheques that are

considered negotiable by statute.

Certain instruments have acquired the character of negotiability by the usage orcustom of trade. In India, Government promissory notes, bankers drafts and pay

orders, hundies, delivery orders and railway receipts for goods have been held to

be negotiable by usage or custom.Share certificates are not considered as negotiable instruments. Hence, option C

is correct answer.

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3. C Unfair Trade Practices include conduct of any contest, lottery, game of chance orskill for the purpose of promoting directly or indirectly the sale, use or supply of

any product or any business interest.

Any agreement to sell goods at such prices as would have the effect of

eliminating competition or competitor is a Restrictive Trade Practice. Hence,

option C is correct answer.

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4. A The common law remedies against environmental pollution are available underthe Law of Torts. The liability of the polluter under the Law of Torts is one of the

major legal remedies to abate pollution. The important tortuous liabilities for

environmental pollution are nuisance, negligence, trespass and strict liability. The

common law remedies are damages, injunctions and abatement. Hence, option

A is correct answer.

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5. C Types of Arbitration:

Domestic Arbitration

International Arbitration

Ad hoc Arbitration

Institutional Arbitration

Statutory Arbitration

Expedited Arbitration

Hybrid Arbitration

Flip-flop Arbitration.Mediation is generally conducted before a single mediator who does not judge the

case but helps to facilitate a discussion and eventual resolution of the dispute.Hence, option C is correct answer.

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6. C Any agreement to sell goods at such prices as would have the effect of

eliminating competition or competitor is considered a restrictive trade practice

and is classified as predatory pricing.

Therefore, in the given instance, under the Competition Act, 2002, the action of

Stream Pharma Ltd., amounts to predatory pricing. Hence, option C is correctanswer.

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Answer Reason

7. E The RBI can cancel the licence of the bank if it finds the following:

If the company ceases to carry on banking business in India,

If the company at any time fails to comply with any of the conditions

imposed upon it under Subsection (1) of Section 22 of the Banking

Regulation Act, 1949,

If at any time, any of the conditions referred to in Subsection (3)2 andSubsection 3A is not fulfilled.

Therefore, in the given instance, the RBI may cancel the licence of the Anderson

Bank Ltd., if it is found that Anderson Bank Ltd., ceases to carry on business in

India. Hence, option E is correct answer.

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8. A Subrogation is defined as the transfer of rights and remedies from the insured tothe insurer who has indemnified the insured in respect of the loss. This doctrine is

applicable to fire and marine insurances. In such cases, the insured has the right

to subrogation when the insurer pays for a total loss.

Therefore, in the given instance, the insurance company can claim the amount of

Rs.25,000 recovered by Anand from Ramesh by applying the doctrine of

subrogation. Hence, option A is correct answer.

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9. E According to Section 11 of the Negotiable Instruments Act, a promissory note,

bill of exchange or cheque which is both drawn or made in India and made

payable in India, is deemed to be an inland instrument.

A foreign instrument is one, which is not an inland instrument. A foreign

instrument must be drawn outside India and made payable outside or inside India

or it must be drawn in India and made payable outside India and drawn on a

person resident outside India.

Therefore, in the given instance, a bill drawn in Paris upon a resident of Kanpur,

payable in Hyderabad is considered as a foreign bill. Hence, option E is correct

answer.

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10. C The following are some of the fire insurance policies:

Valued policies. Unvalued or open policies.

Long-term, mid-term and short-term policies.

All risk policies.

Limited risk policies.

An insurance policy cannot exist without risk. Therefore, there cannot be

anything as a no risk policy. Hence, option C is correct answer.

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11. C Property under the SARFAESI Act, 2002 means immoveable property, movable

property, any debt or right to receive payment of money (whether secured or

unsecured), receivables, whether existing or future, intangible assets such as

knowledge, patent, copyright, trademark, license, franchise or any other businessor commercial right.

Any financial assets not exceeding Rs.1.00 lakh is exempt from enforcementunder the SARFAESI Act, 2002.

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Answer Reason

12. B Under the Negotiable Instruments Act, 1881, when a bill is drawn, accepted

or indorsed for consideration, it is called a genuine trade bill.

A bill, which is drawn, accepted or indorsed without consideration, is called

an accommodation bill.

When a negotiable instrument is delivered conditionally or for a special

purpose as a collateral security or for safe custody only, and not for the

purpose of transferring absolutely property therein, it is called an escrow.

An instrument which in form is such that it may either be treated by its

holder as a bill or as a promissory note is known as an ambiguous

instrument.

An instrument, which is incomplete in some respects, is called Inchoate

instrument. When one person signs and delivers to another, a stamped

instrument which is either wholly blank or incomplete, he thereby gives a

prima facie authority to the holder thereof to make or complete, as the case

may be, upon it a negotiable instrument, for any amount not exceeding theamount, covered by the stamp. Such instrument is called an inchoate

instrument.

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13. C The provisions of the Information Technology Act, 2000 are not applicable to the

following set of documents: A negotiable instrument as defined in Section 13 of the Negotiable

Instruments Act, 1881 (excluding cheques as amended);

A power-of-attorney as defined in Section 1A of the Power of Attorney Act,

1882;

A trust as defined in Section 3 of the Indian Trusts Act, 1882;

A will as defined in clause (h) of Section 2 of the Indian Succession Act,

1925 including any other testamentary instrument ;

Any contract for sale of conveyance of immoveable property or any interest

in such property.

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14. D The broad objectives of the Central and State Councils under the Consumer

Protection Act, 1986 regarding availing of services include:

Right of protection against unfair trade practices and restrictive tradepractices.

Right of assurance and access to services at competitive prices.

Right to consumer education.

A claim also lies against the trader who charges in excess of the price fixed by or

under any law, displayed on the goods or package containing goods, displayed on

price list exhibited by him or agreed between the parties. There is nothing to

exclude bargain prices (or reasonable price advertisements, etc). However, the

consumer courts will not look into the actual pricing of the goods and services.

Hence, option D is correct answer.

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15. C Broadly, all disputes involving Civil Rights, which fall within the jurisdiction of

Civil Courts, are referable to Arbitration.

No arbitration agreement can validly be executed which calls for the adjudicationof the following matters:

Matrimonial matters and matters connected with conjugal rights.

Industrial Disputes and Revenue matters.

Testamentary Matters under the Succession Act.

Insolvency, Dissolution and Winding-up Proceedings under Companies Act.

Criminal Proceedings.

Matters under Indian Trust Act, Trusteeship of Charitable Institutions, Public

charity, matters falling within the purview of Monopolies and Restrictive

Trade Practices Act.

Determination of guardianship or Wards.

Therefore, illegal transactions cannot be referred to arbitration. Hence, C is

correct answer.

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Answer Reason

16. E Negligent conduct with respect to explosive substance (Section 286): Whoever

does, with any explosive substance, any act to rashly or negligently as to

endanger human life, or to be likely to cause hurt or injury to any other person, or

knowingly or negligently omits to take such order with any explosive substance

in his possession as is sufficient to guard against any probable danger to humanlife from that substance, shall be punished with imprisonment, of either

description for a term which may extend to six months, or with fine which mayextend to one thousand rupees, or with both.

Therefore, in the given instance, Sri Palaniappan Fireworks Ltd., can be held

liable for negligent conduct with respect to explosive substance. Hence, option

E is correct answer.

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17. B One creates a document when one composes an electronic mail message; it

becomes a record when one sends it.

Therefore, in the given instance, under the Information Technology Act, 2000,

this e-mail becomes an electronic record for Sumant, when it is sent by Sumant

on December 18, 2008. Hence, option B is correct answer.

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18. C The policy of marine insurance can be assigned or transferred to the persons

having the insurable interest in the subject matter of the insurance contract, unlessprohibited by the contract itself. The assignment may be made either earlier or

after happening of the event and suffering the loss. The assignment of the policy

can be made either by an endorsement or by any other method, which is approved

and established by the law.

The presence of insurable interest in the marine insurance contract makes the

contract valid. Insurable interest need not be present at the time of conclusion of a

contract, but it must be present at the time of happening of the event.

Therefore, in the given instance, as Upendra has an insurable interest at the time

the goods were lost he can make a claim for the loss. Hence, option C is correct

answer.

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19. C When the drawee of a bill of exchange signifies his consent in writing to the

drawers order in the bill, by signing across the face of the bill with or without theword accepted and delivers back the bill to the holder, the bill is said to have

been accepted.

Therefore, in the given instance, there is a valid acceptance of the bill by Akansha

under the Negotiable Instruments Act, 1881, when she puts her signature on theface of the bill and delivers it back to the Akriti. Hence, option C is correct

answer.

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20. D Following are the characteristics of Over The Counter Exchange of India

(OTCEI):

A ringless trading mechanism

Creation of liquidity

Computerized and transparent trading

Two way quotes, one for sale and the other for purchase

Permission to trade in equity and debentures.


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21. E The definition of insurer under section 2(a) of the Insurance Act includes an

unincorporated body of individuals.

The definition of insurer under section 2(a) of the Insurance Act does not include

a Principal Agent, Chief Agent, Special Agent or an Insurance agent either

appointed under any Act or recognized by the Act undertaking insurance

business.

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Answer Reason

22. B Privileges of a holder in due course under the Negotiable Instruments Act, 1881

include:

If the negotiable instrument is lost, the defenses on the part of a person liable

on a negotiable instrument cannot be set up against a holder in due course.

Once negotiable instrument passes through the hands of a holder in due

course, it gets cleansed of all the defects provided the holder in due course isnot party to the fraud.

Until the instrument is duly satisfied, every prior party to a negotiable

instrument is liable to a holder in due course.

The law presumes every holder as a holder in due course, although the

presumption is rebuttable.

The validity of the instrument as originally made or drawn cannot be denied

by the maker/drawer/acceptor for honor in a suit initiated by a holder in due

course.

Hence, option B is correct answer.

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23. D Causing wrongful loss or damage to public or any person by deleting, altering or

destroying any information residing in the computer is known as hacking. Hence,

option D is correct answer.

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24. A The complaint must be decided within 3 months of its receipt. Previously the

complaint was acted upon on its receipt; now it is only after the complaint is

admitted that a copy is served on the opposite party. The admissibility of the

complaint must be decided within 21 days of its receipt. If the opposite party on

receipt of a complaint denies or disputes the allegations contained in the

complaint, or omits or fails to take any action to represent his case within the time

given by the District, State or National Forum, the respective forum proceeds to

settle the consumer dispute. It may either dismiss the complaint or decide it onmerits.

Hence, option A is correct answer.

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25. D The part of atmosphere that is associated with the prevention of the ultra

violet (UV) radiations from falling on the earth is known as Stratosphere. The part of atmosphere that is associated with the maintenance of heat

balance is known as Troposphere.

The part of atmosphere that is associated with the non-propagation of sound

waves is known as Mesosphere.

The part of atmosphere that is associated with the ionization of gases in

known as Thermosphere.

Water that occupies four-fifths of the earths surface is called thehydrosphere.

The rest of the earths surface that is in the form of land is known as

Lithosphere.

All living organisms like plants, animals and human beings constitute the

Biosphere.


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Answer Reason

26. D To terminate the arbitration agreement, there must be an agreement to that effect.

A valid agreement to terminate an arbitration agreement prevents either part from

commencing fresh arbitration proceedings on the same issues. Subsection 2(a) of

Section 32 of the Act contains the provision that if the claimant withdraws his

claim and the respondent does not object to that, the arbitral tribunal shall ordertermination of the arbitral proceedings because the parties, by a tacit agreement,

have terminated the arbitration agreement. Moreover, under section 2(b) ofSection 32 of the Act, the parties, by agreement, may terminate the arbitration

agreement and consequently, the arbitral tribunal shall order the termination of

the arbitration proceedings.

Therefore, in the given instance, the parties can terminate the arbitral proceedings

midway through the arbitration by entering into an agreement to that effect.


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27. A Consumers do not include persons who obtained goods and services for

commercial purposes. The persons who buy goods avail services for resale or for

commercial purpose fall outside the scope of consumers under the Consumer

Protection Act, 1986. The purchase of magnetic crack detector by a limitedcompany and the purchase of bearings were held to be purchased for commercial

purpose.

Therefore, in the given instance, Gyaneshwar Fabrications cannot file a consumer

complaint as the machine was purchased for commercial use. Hence, option A

is correct answer.

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28. D After the expiry of 60 days period, secured creditor can select any or all the

options to recover his dues Section 13(4) such as:

Possession/appointment a person to manage the assets under possession.

Take over of management.

Transfer by sale/lease/assignment.

Demand the payment from any person who has acquired the secured assets.

Therefore, in the given instance, Urban Bank can transfer the secured property by

sale/lease/assignment. Hence, option D is correct answer.

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29. C The principle of Uberrimae Fide (Good Faith) is the foundation on which the

insurance policy is constituted. The product and subject matter i.e. risks are

intangible assets in the hands of the insured and the insurer. The insured, by

knowing the quality and quantity of the risk, proposes for a contract and the

insurer by knowing the facts and conditions laid down in the standard form of

proposal and after considering the proposal of the insured sells the insurance

product to him.

Thus, the duty of disclosure forms an important part of the contract and

disclosure of facts is presumed with good faith.

A proposer should disclose all material facts at the time of making the proposal

for insurance and must continue to do so till the negotiations are completed.

Therefore, in the given instance, Secure Life Insurance Ltd., is not liable as thenotice of illness amounting to material alteration in the risk between proposal

date and acceptance date was not given to it. Hence, option C is correct answer.

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30. C A/c payee is an example of restrictive crossing.

Not Negotiable, & Company and two transverse parallel lines simply drawn

across the face of the cheque are examples of general crossing.

State Bank of India is an example of special crossing. Hence, option C is correct

answer.

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Answer Reason

31. D Double or multiple insurance is insurance of the same risk with more than one

insurer. This happens when the insured insures the same risk with two or more

independent insurers, and the total sum insured exceeds the value of the subject

matter, the insured is said to be over-insured by double insurance. Both over-insurance and double insurance are perfectly lawful, unless the policy otherwise

provides.


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32. B For the purpose of computation of Statutory Liquidity Ratio, the following assets

are takein into account:

Cash in hand (India)

Balance in current account with Reserve Bank of India (RBI)

Balance with RBI over the minimum reserve requirement

Investment in government securities, treasury bills and other approved

securities in India, excluding borrowings from RBI against approved

securities.


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33. E A negotiable instrument is freely transferable. It can be transferred by meredelivery or by indorsement and delivery. The former is known as payable to

bearer and the latter is known as payable to order. Hence, option E; is correct

answer.

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34. E The regulatory objectives of the Competition Law are intended to serve the

Safety and stability of domestic markets

Transparency of business practices

Prevention of abusive practices

Institutionalization of supervision over barriers to fair competition

Sustained benefits to consumers.


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35. C For the application of the rule of strict liability, there must be:

Dangerous thing.

Escape.

Non-natural use of land.

Exceptions to the rule of strict liability:

Plaintiff own default

Act of god

Consent of the plaintiff

Act of third party

Statutory authority.

Hence, option C is correct answer.

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36. E The conciliator may, at any stage, propose a settlement even orally, and without

stating the reasons for the proposal.

Therefore, in the given instance, Motilal Oswal can propose an oral settlement

between the parties at any stage and he is not required to give reasons for theproposal. Hence, option E is correct answer.

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Answer Reason

37. B It is obligatory on the complainant or appellant or their authorized agents and the

opposite parties to appear before the Forum/Commission on the date of hearing or

any other date to which hearing could be adjourned. An ex parte order based on

complainants evidence may be granted where the defendant fails or omits to

appear or represent his case.

Appeal against the decision of a District Forum can be filed before the StateCommission.

Therefore, in the given instance, Home Needs Ltd., can file an appeal with the

State Commission to set aside the ex parte order passed by the District Forum.


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38. D During an investigation or pending enquiry, in order to protect the interests ofinvestors or the securities market, the Securities Exchange Board of India (SEBI)

may:

Suspend trading of a stock in a stock exchange.

Restrain persons from accessing the securities market and prohibit any

person associated with the securities market to buy, sell or deal in securities.

Suspend any office bearer of any stock exchange or self regulatory authority.

Impound and retain the proceeds or securities of any transaction underinvestigation.

Attach after the specified process, for a period not exceeding one month, the

bank account(s) of any intermediary or any person associated with the

securities market in a matter involving violation of the provisions of theSEBI Act.

Therefore, in the given instance, the SEBI is empowered to attach the bank

account of an intermediary for violation of provisions of the SEBI Act, 1992,

during an investigation. Hence, option D is correct answer.

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39. A The law recognizes the existence of insurable interest in the life of ones spouse.

Therefore, in the given instance, Shalini can make an insurance claim against thecompany as she has an insurable interest in the life of Siddharth, being his wife.


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40. A Gautam can recover the amount from Shyam as he got the title from Gopal who is

a holder in due course. More over Gautam is not a party to the fraud. Once the

title has been cleansed of the defect the subsequent parties get a good title. ThusGautam gets a good title.

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41. E Every injury or damage will have some act or omission as reasons. Sometimes,

when the seller has sold the product to the buyer or the consumer, there are

chances that the buyer has altered it substantially after it passes from the

manufacturers control and if such alteration has become the proximate cause of

the injury to the plaintiff, then the manufacturer can plead such alteration as adefence to surface his liability.

In the same way if the plaintiff makes some modifications, which were not

known to the manufacturer, and such modifications have changed the product to a

superseding extent, and has become the cause of the injury, then also the

manufacturer cannot be made liable, as he can plead the defence of remote cause.

These instances of alterations and modifications provide an opportunity for themanufacturer to plead the defence, that the safe product sold by him was made

unsafe by the buyer, due to the subsequent changes brought by the injured party,

i.e. plaintiff or the consumer.

Therefore, in the given instance, Ranjit cannot file a product liability claim as

Mony Consumer Electronics can put up the defence of unauthorized alteration

and modification in the laptop. Hence. Option E is correct answer.

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Answer Reason

49. B The District Forum may refuse to entertain a complaint on the following grounds:

Lack of jurisdiction;

Non-payment of prescribed fee;

Frivolous or vexatious complaints;

Complainant is not a consumer;

Dispute is not a consumer dispute; Lapse of time (bar of limitation);

Other forum is seized of the same matter.

Therefore, the District Forum cannot refuse to entertain a complaint in case the

complainant is a consumer association. Hence, option B is correct answer.

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50. E Advantages of ADR:

Dispute resolution through ADR mechanism is generally faster and less

expensive. The disputants, rather than being run by lawyers, judges and the

State base it on more direct participation. In most ADR processes, the

disputants outline the processes they will use and define the substance of the

agreements. This type of involvement is believed to increase peoples

satisfaction with the outcomes, as well as their compliance with the

agreements reached. Most ADR processes are based on an integrative approach. They are more

cooperative and less comparative than adversarial Court-based methods like

litigation. For this reason, ADR tends to generate less ill will between

parties.

In fact, participating in an ADR process will often ultimately improve, rather

than worsen, the relationship between the disputing parties. This is a key

advantage in situations where the parties must continue to interact after the

settlement is reached.

One of the disadvantages of ADR is that the critics of ADR mechanism have

concerns about the legitimacy of ADR outcomes, charging that ADR provides

second class justice. Hence, option E is correct answer.

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51. A Complaints against foreign concerns are admissible before the redressal agencies,if such foreign concerns have a branch office within the local jurisdiction of the

ageny.

Therefore, in the given case, the watch was manufactured by an Italian Company,

Illadro Watches, Milan and sold through its exclusive branch office in New

Delhi. As the foreign concern has a branch office in New Delhi and the

compensation claimed is less than Rs.20 lakh, Anvesh has to approach the

District forum of Delhi as the complaint is against a foreign concern whose

branch is in Delhi. Hence, option A is correct answer.

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52. A Click-wrap or web-wrap agreements are commonly used in connection with e-

commerce transactions. These agreements are typically used to specify the terms

and conditions applicable to the use of website as well as to the products and

services purchased over the Internet. With these agreements, the buyer or userexplicitly assents to these terms by clicking on a button stating I agree or I

accept after having had an opportunity to review the terms. An act by the buyeraffirmatively assenting to the terms of the click-wrap agreement significantly

enhances its enforceability.

Therefore, in the given instance, the contract entered into by Nitish is classified as

Click-wrap agreement. Hence, option A is correct answer.

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Answer Reason

53. E Both double insurance and over-insurance are perfectly lawful, unless the policy

otherwise provides. For example, a man may insure with as many insurers as he

pleases and up to the full value of his interest with each of them. If a loss occurs,

he may claim payment from the insurers in such order as he thinks fit. But in anyevent, he shall not be entitled to recover more than his loss.

Where the assured is over insured by different policies, each insurer is tocontribute ratably to the loss in proportion to the amount for which he is liable

under his contract. If any insurer has already paid the loss to the assured

irrespective of his share, the said insurer in entitled to receive the contributionfrom other co-insurers or joint insurers.

Therefore, in the given instance, Pranay can file claim in such order as he thinks

fit and the loss has to be shared by the insurance companies between themselves

in the ratio of coverage provided by them. Hence, option E is correct answer.

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54. A According to section 56 of the Negotiable Instruments Act, 1881, no writing on a

negotiable instrument is valid for the purpose of negotiation if such writingpurports to transfer only a part of the amount appearing to be due on the

instrument; but where such amount has been partly paid, a note to that to that

effect may be endorsed on the instrument, which may then be negotiated for the

balance.

According to the later part of Section 56, a bill which has been endorsed pay A

or order Rs.500 being unpaid residue of the bill is a valid endorsement.

Therefore, in the given instance, even though the total amount of the bill has been

negotiated Bandhan and Chinmay are endorsees for only a part of the amount, the

indorsement is invalid as it is a partial indorsement prohibited by the Negotiable

Instruments Act, 1881. Hence, option A is correct answer.

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55. B It includes liability to a third party incurred by the owner of a ship

It includes liability to a third party incurred by a person interested in the

assured property, on happening of the maritime event

It provides indemnity against marine losses i.e., losses incidental to maritime

adventure The vessel, the crew and other cargo on board can be insured against marine

perils

The premium is paid in one lump sum and for one time.


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56. B The price paid for the risk undertaken by the insurer in an insurance contract is

known as premium.

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57. C Following are the essentials of a valid promissory note :

It must be in writing.

It must contain an express promise to pay. An implied promise is not enough

to constitute a promissory note.

The promise or undertaking to pay must be definite and unconditional.

The maker must sign the promissory note without which it is taken as

incomplete and ineffective.

It must clearly point out the maker.

It may be made either jointly or jointly and severally.

The sum payable must be certain without any scope of contingent additionsor subtractions.

The payment must be in money and not in kind.

It should clearly point out the person who is to receive payment on the note.

Hence, option C is correct answer.

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58. B Under the Information Technology Act, 2000, the time of receipt of an electronic

record when the addressee has a designated computer resource is when the recordenters the designated computer resource. Hence, option B is correct answer.

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Answer Reason

59. E Section 27 of the Parent Act dealt with the penalty provision and provided for

imprisonment for a term of one month that may extend up to three years and fine

of Rs.2,000 that may extend to Rs.10,000 for disobeying an order of the

Redressal Agencies. It was not clear as to who should impose this penalty. Now,

Section 27(2) clearly states that the District Forum, the State Commission and theNational Commission shall have the power of a Judicial Magistrate of First Class

for the trial of offence under the Consumer Protection Act, 1986. The forumshave the power to try the offences summarily. The Parent Act had provided for

discretion to the redressal forums to impose lesser punishment than the minimum

prescribed. Such discretion no longer exists.


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60. B The natural causes of pollution include floods, cyclones, earthquakes and molten

lava from volcanoes. Since, they are the agents of nature and the man has no

control over them, they are known as natural causes.

Man-made causes include:

Population growth and Industrialization

Poverty and unhygienic settlements

Urbanization Depleting natural resources and rising population

Deforestation.


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61. D In the given instance, the residents can file a suit under the pollution control lawsas playing songs at a high volume over loudspeakers amounts to noise pollution.


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62. E Misleading advertisement and false representation emanating from statements

made orally or in writing by the visual representation amounts to unfair trade

practice.

Therefore, in the given instance, the company has resorted to an unfair trade

practice as the mileage claimed by the company in its advertisement was factuallyincorrect. Hence, option E is correct answer.

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63. E The IRDA is empowered to call information from insurance undertakings,

inspection of, conducting enquiries and investigations including audit of the

insurers, intermediaries and other organizations connected with the insurancebusiness.


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64. A The facts in the given instance are similar to the decided case of Canara Bank vs.

Canara Sales Corporation, wherein one of the officials of the company had

committed forgeries for over a decade. However, the company did not raise any

objection to the entries made in the pass-sheets during that period. It wasobserved that the bank cannot escape its liability keeping in view the fact that the

contract between the banker and the customer did not specify that discrepanciesshould be brought to the notice of the banker. Also, there was no ratification of

the same by the customer.

Therefore, in the given instance, Madhuri Technologies Ltd can sue the bank to

recover the amount from the City Bank which cannot escape its liability even

though the company did not raise any objection to the entries in the statement of

accounts. Hence, option A is correct answer.

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65. D Every stock exchange desirous of being recognized for the purpose of the

Securities Contracts (Regulation) Act, 1956 has to make an application in the

prescribed form to the Securities Exchange Board of India (SEBI).


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Answer Reason

66. A In a life insurance policy a person need not prove the insurable interest when the

policy is on ones own life. A person has insurable interest in his own life to an

unlimited extent.

The law recognizes the existence of insurable interest in the life of ones spouse.

Insurable interest is also recognised in the policies where ceditor has purchsed the

policy in the name of the debtor and by an employer in the name of an employee.A business partner has the insurable interest in the life of his business co-partner

to the extent of the partners share in the business.


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67. D Following are some of the instances, where a banker may refuse to honour the

customers cheques:

Where a post dated cheque is presented for payment prior to the date it bears,

then the banker will be justified in refusing to honour the cheque.

Where a customer does not have sufficient funds to his credit (i.e. there are

no funds or funds available are not enough to cover the amount of the

cheque), then the banker may dishonour the cheque.

If the funds of the customer are subject to a lien by the banker, the

customers cheque is likely to be dishonoured. A banker will also be justified in dishonouring a cheque that is ambiguous,

unclear or contains a material alteration.

The cheques of a customer who has been declared insolvent are also liable to

be dishonoured.

Similarly, where the customer has countermanded the payment, the banker is

justified in refusing payment of the customers cheques.

Where the banker receives notice of either the customers death or insanity,

he may refuse payment. However, any payment made before notice of deathwill be valid.

According to Section 85 of the Negotiable Instruments Act, 1881, when a cheque

is originally drawn payable to bearer, the drawee bank is discharged by making

payment of that cheque in due course to the bearer of that instrument irrespectiveof the nature of indorsement that appears on it whether it may be in full, or in

blank, or even if the indorsement purports to restrict or exclude further

negotiation. Hence, option D is correct answer.

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68. E Under the Information Technology Act, 2000, tampering with computer source

document by concealing, destroying or altering it is punishable with

imprisonment up to 3 years or a fine up to Rs.2 lakh or both. Hence, option E is

correct answer.

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69. D Anti-competitive agreements are classified into:

Vertical agreements that include Tie-in arrangements, Exclusive supply

agreements, Exclusive distribution agreements and Resale maintenance.

Horizontal agreements (in relevant markets) that include Prices, Quantities,

Bids, Market sharing and Refusal to deal.


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70. E The water pollutants can be classified into:

Inorganic pollutants

Organic pollutants

Sediments and oils

Domestic waste

Industrial and agricultural waste

Fluorides.

Discharge of smoke from industries is a cause of air pollution. Hence, option E

is correct answer.

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Documents

0901 Business Law-II (MB2F2)