INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

EXAMINERS’ COMMENTS

SUBJECT SESSION
Business Law Certificate in Accounting and Finance
– Autumn 2016

General Comments:

The paper consisted of ten questions comprising 100 marks. The first five questions,
totaling 50 marks, pertained to Mercantile Law whereas the rest of the questions
pertained to Company Law section. Out of the total number of candidates who wrote
Business Law paper, around 8.5% of the candidates appeared only in Company Law
section.

In contrast to immediately preceding examination, the overall performance of the

candidates improved by 5%. Again the candidates who wrote only Company Law section
comparatively performed well. Candidates’ performance in question number 8 was
exceptional whereas question numbers 2, 3, 7 and 10 exhibited poor performances. One
of the prime reasons for low performance in the above questions seems to be selective
studies and inability to implement theoretical knowledge to scenario based questions.
Candidates can overcome these weaknesses by concentrating on syllabus coverage with
particular emphasis on comprehending the concepts underlying the provisions of law. For
this purpose candidates can also refer to suggested answers on ICAP’s website.

Specific comments are as under:

Question 1

This question was based on the legal system in Pakistan and required candidates to
describe the process of legislation in case of money bill under both the conditions i.e.
when National assembly is in session or is not in session.

Approximately 21% of the candidates did not attempt to answer the question at all.
However, those who attempted performed satisfactorily with the exception of few who
could not deliberate on the process of legislation when the National assembly is not in
session. Few candidates ignoring the requirement of the question also pondered on the
approval of bills other than money bill.

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Question 2

This question was divided into two parts. Part (a) required candidates to describe their
understanding of the term ‘Privity of contract’ and the circumstances in which a stranger
to a contract may file suit against the party(ies) to the contract. Part (b) was a scenario
based question relating to the requirements of sections 27 and 28 of the Contract Act,
1872. It required candidates to describe the rights of the contracting parties under certain
situations as provided in the scenario and also their rights under certain exceptional
circumstances.

Question 2(a)

The performance in this part remained poor. Although majority of the candidates were
able to correctly describe the term ‘Privity of contract’, they completely failed to identify
all the situations in which a stranger to the contract may file suit against the contracting
parties. Most of the answers were confined to the arrangements made in connection with
marriage, partition or other family arrangements. Only few candidates managed to
correctly answer the question.

Question 2(b)

The performance in this part remained below average. Majority of the candidates
correctly described that a person cannot be restrained from conducting a lawful trade as
agreements in restraint of trade are void. They also deliberated on the exception to the
general rule that in case of sale of goodwill a person may be restrained from exercising
similar business. However, majority of them did not deliberate on all the conditions
subject to the fulfilment of which a person may be restrained from exercising the
business. Similarly, majority of the candidates correctly identified that agreements in
restrained of legal proceedings are void but they again failed to appreciate that the
contracting parties have a right to always resort to the Court of law if they are not
satisfied with the arbitration award.

Question 3

This question was divided into two parts. Part (a), a scenario based question, was related
to contract of agency and was sub-divided into three parts. Part(a)(i) required candidates
to identify the status of a person appointed by an agent and also to describe whether the
agent was justified in employing a person to facilitate him in the contract of agency.
Part(a)(ii) required to describe the responsibility of sub-agent towards the agent and the
principal in the contract of agency. Part (a)(iii) was related to the responsibilities of an
agent in respect of sub-agent’s acts if appointed without principal’s authority. Part (b)
was also scenario based and was related to the requirements of sections 25 of the
Contract Act, 1872 and its explanation.

Question 3(a)

The performance in this part remained below average as majority of the candidates only
managed to identify that the appointed person was a sub-agent. However, they failed to
deliberate on the circumstances in which an agent may appoint a sub-agent. Similarly
they also failed to appreciate that under the given scenario agent had all the rights of a

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principal towards his sub-agent and that agent was responsible for sub-agents acts to his
principal and also to third parties. Some candidates instead of describing sub-agents
responsibilities towards the principal and the agent, deliberated on the general duties of
the agent.

Question 3(b)

The performance in this part was below average. Majority of the candidates failed to
appreciate that in the stated scenario Mrs. Ikram would have recovered the amount from
her grandfather Nadeem either in case of completed gift or in case of a contract made out
of natural love and affection. Most of the answers were devoid of the conclusion with
regard to the recoverability of the amount promised by Nadeem. The answers were
mainly confined to the statement that amount can only be recovered on account of natural
love and affection. However, candidates failed to deliberate on the conditions necessary
for invoking the provisions of section 25(1) of the Contract Act, 1872 relating to natural
love and affection.

Question 4

This question was divided into two parts. Part (a) was scenario based and was sub-
divided into two parts. Part (a)(i) required candidates to list the general duties of partners
which cannot be modified by an agreement amongst themselves whereas part(a)(ii) was
related to the requirements of section 19(2) of the Partnership Act, 1932. It invited
candidates to list the restrictions imposed on the implied authority of a partner in the
absence of any usage or custom of trade. Part (b) was also scenario based and was related
to the requirements of sections 30 of the Partnership Act, 1932 and the candidates were
required to list the rights and disabilities of a minor before attaining majority.

Question 4(a)

Candidates’ performance in sub-parts (a)(i) and (ii) remained average. Many candidates
instead of listing the general duties of partners stated all the duties of partners. Few
candidates ignoring the requirement of the question also described such duties. In sub-
part (a)(ii) many answers lacked completeness. Some candidates confined their answers
only to short phrases such as submit a dispute, open a bank account, compromise,
withdraw a suit etc. expecting that the examiner would himself deduce the rest of the
statement.

Question 4(b)

The performance in this part remained satisfactory.

Question 5

This question was divided into two parts. Part (a) required candidates to describe the
terms ‘Acceptor for honour’ and ‘Material alteration’ as provided in sections 7 and 3(f)
respectively of the Negotiable Instruments Act, 1881. Part (b) required candidates to
briefly describe any five modes by which a party or parties to a negotiable instrument
is/are discharged from liability.

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Question 5(a)

The performance remained below average as majority of the candidates were only able to
explain either ‘Acceptor for honour’ or ‘Material alteration’. Many candidates mixed up
Acceptor for honour with Payment for honour whereas some of the candidates thought
that when bill of exchange is dishonoured for non-payment it is accepted for honour of
the drawer. Some candidates were of the view that it is accepted for the honour of the
drawee. With regard to material alteration many candidates stated partial answers. Few
candidates also discussed the alterations which may not be regarded as material
alteration.

Question 5(b)

The performance in this part remained average. Though, majority of the candidates
correctly identified the modes by which the party or parties to the negotiable instrument
is/are discharged from liability, they failed to describe all the required modes as required
by the question. Some candidates did not comprehend the question and described the
ways by which a negotiable instrument is discharged.

Question 6

This question was divided into two parts. Part (a) was based on the requirements of
section 21 of the Companies Ordinance, 1984 and was divided into two sub-parts (a)(i)
and (a)(ii). These parts required candidates to briefly describe the circumstances in which
the object clause of the memorandum of association can be altered and the conditions
which must be satisfied before the Commission may issue an order confirming the
alteration respectively. Part (b) required candidates to describe the term ‘Body corporate’
as provided in section 2(4) of the Companies Ordinance, 1984.

Candidates who only wrote Company Law section of the paper comparatively performed
well in this question.

Question 6(a)

The performance in (a)(i) was average. However, some candidates failed to understand
the requirement of the question and stated the procedure for alteration of the
memorandum of association. In part (a)(ii) most of the answers were incomplete. Some
candidates carelessly switched the answers of part (a)(i) and (ii).

Question 6(b)

The performance in this part remained unsatisfactory. Majority of the candidates were
unable to produce the complete answer. Some candidates were of the view that only those
companies which are incorporated outside Pakistan are regarded as body corporate.
Similarly, some candidates stated that body corporate includes a Corporation, sole and a
Co-operative society and a Corporation specified by the Federal Government in this
behalf.

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Question 7

This question was divided into two parts. Part (a), a scenario based question, was further
sub-divided into two parts. Part (a)(i) was based on the requirements of Second schedule
to the Companies Ordinance, 1984 and required candidates to state the particulars of the
amount of minimum subscription i.e. the minimum amount which must be raised by the
issue of shares. Part (a)(ii) was based on the provisions of section 88(3), (4) and (6) of the
Securities Act, 2015. It required candidates to advise with regard to the publication of
prospectus in case of a public limited company. Part (b) was scenario based and required
candidates to explain whether a private limited company which is a subsidiary of a public
limited company can grant financial assistance to its chief executive officer for the
purchase of shares in its holding company.

Question 7(a)

The performance in both the sub-parts remained very poor. Majority of the candidates
produced incomplete answers. Some candidates deliberated on what may be regarded as
minimum subscription if the amount was not mentioned in the prospectus. Few
candidates stated the contents of prospectus. In part (ii) also, majority of the candidates
produced incomplete answers. Most of the answers were limited to the extent of
publication of the prospectus in one English and one Urdu newspaper. Many candidates
deliberated on the availability of the prospectus at various places such as registered
office, bankers to the issue, branch offices etc.

Question 7(b)

The performance in this part also remained below average. Some of the candidates
without comprehending the question, discussed the conditions under which a company
may grant loan to the whole time director. Again most of the answers were confined to
the statement that a company cannot grant financial assistance to its chief executive
officer for the purchase of its own shares or the shares of its subsidiary or holding
company and the candidates seemed unaware of the exceptions to the above rule.

Question 8

This question was divided into two parts. Part (a), required candidates to explain the term
‘Extra ordinary general meeting’. Candidates were also required to state who may call
such meeting and the requirement of quorum for such meeting. Part (b), a scenario based
question, required candidates to enumerate the number of votes which an elected director
may require to retain his office in the company if the directors opt to remove him from
the board. Candidates were also required to enumerate the number of votes if the director
in question was appointed to fill the casual vacancy on the board.

Question 8(a)

The overall performance of the candidates was very good. Most of the answers were
correct and to the point. However, many candidates failed to write the quorum of the
meeting either in case of a public company or private company. Few candidates were also
of the view that the quorum for an extra ordinary general meeting is the same as for the
annual general meeting.

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Question 8(b)

The performance in this part remained average. Most of the candidates correctly stated
the number of votes required by an elected director to retain his directorship under the
given circumstances i.e. in sub-part (i). However, in sub-part (ii) they failed to appreciate
the number of votes a director may require to retain his office in case he had been
appointed to fill a casual vacancy on the board. Some of the candidates though correctly
quoted the provisions of law but failed to compute the correct number of votes under the
circumstances.

Question 9

This question was scenario based and was divided into two parts. Part (a) required
candidates to advise about the particulars to be set out in director’s report for submission
to the members of the company. Part (b) required candidates to explain whether a
nominee director can participate in the board meeting of the company.

Question 9(a)

Below average performance was observed in this part of the question. Majority of the
answers were incomplete. Some candidates failed to differentiate between the particulars
to be set out in a statutory report and director’s report. Candidates also discussed the
authentication and filing of directors’ report which was not required by the question.

Question 9(b)

The performance in this part remained average. Many candidates, without assigning any
reason, only concluded that a nominee director can attend the meeting but cannot vote or
that he cannot attend the meeting at all.

Question 10

This question was divided into three parts with each part reflecting an independent
situation. It required candidates to describe whether a person (Murad in this scenario) was
eligible to be appointed as an auditor of the company in each of the above three
independent situations.

(i) The performance in this part remained average. Majority of the candidates
produced only partial answers. With the exception of very few candidates none of
them mentioned that in order for Murad to be appointed as the auditor of Star
Limited he will first have to resign from the directorship of Gama Limited. Most
of the candidates only concluded that Murad can or cannot be appointed as an
auditor of Star Limited but did not assign any reason for the same.

(ii) The performance in this part was average. Many candidates were of the view that
a person is considered to be indebted to the utility provider if his bills for three
months are outstanding. Some candidates thought that irrespective of the amount
outstanding Murad can be appointed as the auditor of the company.

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(iii) The performance in this part remained poor. Majority of the candidates failed to
appreciate that the appointment of Beta and Company as the auditor of Panama
limited (PL) was valid and that Rita’s holding of 20% shares in PL was not in
contravention of any of the provisions of law. Most of the candidates also failed to
comprehend that if after his appointment an auditor becomes subject to any of the
disqualifications, he is deemed to have vacated his office as auditor with effect
from the date of his disqualification.

(THE END)

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