CMA Inter Suggested Answers | Dec 24 Law & Ethics | ICMAI Suggested Answers

Table of contents

1. MCQs
2. 2 (a) What are different ingredients
3. 2 (b) Discuss the circumstances under
4. 3 (a) Demonstrate claims made under
5. 3 (b) Discuss the various types of
6. 4(a) Demonstrate claims made under
7. 4 (b) Describe the regulations relating
8. 5 (a) Analyse the relevance and the
9. 5 (b) Examine various aspects
10. 6 (a) Outline the provisions relating
11. 6 (b) Examine Cancellation or Surrender
12. 7 (a) Interpret the relationship
13. 7 (b) Describe the different kinds
14. 8 (a) Mr. X drew a cheque payable
15. 8 (b)  Mr. A is a director of PQR Ltd.,
16. CMA Inter Dec 24 Paper 5 : Business Laws and Ethics detailed analysis

CMA Inter Dec 24 Suggested Answer Other Subjects Blogs :

1. Suggested Answer Dec 24 Paper 6 : Financial Accounting
2. Suggested Answer Dec 24 Paper 7 : Direct and Indirect Taxation
3. Suggested Answer Dec 24 Paper 8 : Cost Accounting (CA)
4. Suggested Answer Dec 24 Paper 9 : Operations Management and Strategic Management
5. Suggested Answer Dec 24 Paper 10 : Corporate Accounting and Auditing
6. Suggested Answer Dec 24 Paper 11 : Financial Management and Business Data Analytics
7. Suggested Answer Dec 24 Paper 12 : Management Accounting
8. CMA Inter Syllabus (New Updates)

Section - A

MCQs

(i) The term 'Alternative Disputes Resolution' takes in its fold, various modes of settlement including ,________ , Arbitration , Conciliation and mediation.

1. Panchayat
2. Khaap
3. Lok Adalats
4. Lok Adalats

Answer :

(C) Lok Adalats

The term “Alternative Disputes Resolution” takes in its fold, various modes of settlement including, Lok Adalats, arbitration conciliation and Mediation. 

(Study Material Page 18 | This Question is also a part of konceptca.com question bank)

(ii) Under which of the following cases, a contract may not be discharged by operation of law?

1. Death 
2. Insolvency
3. Waiver
4. Merger

Answer :

(C) Waiver

A contract may be discharged by operation of law in the following cases

1) Death: In contracts involving personal skill or ability, death terminates the contracts. 2) Insolvency: The insolvency of the promisor discharges the contract. 3) Unauthorized material alteration: Material alteration in the terms of the contract without the consent of the other party discharges the contract. 4) Merger: When inferior rights of a person under a contract merge with superior rights under a new contract, the contract with inferior rights will come to an end.

(Study Material Page 59 | This Question is also a part of konceptca.com question bank)

(iii) In order to push up the sales generally there is a practice of sending goods to the customer with the clear cut understanding that he has option to approve or return the goods within a given period. This type of sales is known as__________.

1. Sample Goods
2. Sample Goods
3. Gift Goods
4. Approval or sale or return

Answer :

(D) Approval or Sale or Return

In order to push up the sales generally there is a practice of sending goods to the customer with the clear cut understanding that he has option to approve or return the goods within a given period. This type of sales is known as “approval or sale or return”. In such cases, the transaction does not culminate into sale until the goods are approved by the customer and the property in goods still remains with the seller.

(Study Material Page 100 | This Question is also a part of konceptca.com question bank)

(iv) In case the back of a negotiable instrument is full of indorsements, a slip of paper may be attached to the instrument for signing indorsements. Such a slip is legally known as

1. Allonge
2. Escrow
3. Zikri chit
4. Peth

Answer :

(A) Allonge

An allonge is a sheet of paper that is attached to a negotiable instrument, such as a bill of exchange. Its purpose is to provide space for additional endorsements when there is no longer sufficient space on the original instrument.

(We could not find this question in the ICMAI Study Material)

(v) An individual shall give his consent to become a designated partner in__________

1. Form – 8
2. Form – 9
3. Form – 10
4. Form – 11

Answer :

 (B) Form – 9

An individual shall give his consent to become a designated partner in Form – 9

(Study Material Page 192 | This Question is also a part of konceptca.com question bank)

(vi) According to Section shall 67 be of required the Factories or allowed Act, to 1948, a child who has completed his________shall be required or allowed to work in any factory.

1. 13th year
2. 14th year
3. 15th year
4. 18th year

Answer :

(B) 14th year 

Section 67 provides that no child who has not completed his 14th year shall be required or allowed to work in any factory.

(Study Material Page 252)

(vii) Withdrawal from the provident fund is not allowed for

1. purchase of a dwelling house
2. marriages of children
3. repayment of loans in special cases
4. withdrawal within one year before the retirement

Answer :

(B) Marriages of children as Withdrawal from the fund is allowed for the following purposes

1. For the purchase of a dwelling house/flat or for the construction of a dwelling house including the acquisition of a suitable site for this purpose;
2. For repayment of loans in special cases;
3. Withdrawal within one year before the retirement;
4. Withdrawal upto 75% of the balance, if not employed from one month or more, subject to approval of P.F. Commissioner or any officer authorised by him.

(Study Material Page 281 | This Question is also a part of konceptca.com question bank)

(viii) Which one of the following is not correct in regard to share certificate ?

1. The Company Secretary shall issue the share certificate.
2. The share certificate shall be issued in pursuance of a resolution of the Board.
3. Every share certificate shall be distinguished to its distinctive number.
4. The shares may be in the dematerialized form.

Answer :

 (A) The Company Secretary shall issue the share certificate

(Study Material Page 456 | This Question is also a part of konceptca.com question bank)

(ix) The One Person Company (OPC) gives the individual entrepreneurs all the benefits of ___________

1. a sole proprietorship
2. a partnership
3. an LLP
4. a company

Answer : 

(D) A company

The concept of One Person Company is quite revolutionary. It gives the individual entrepreneurs all the benefits of a company, which means they will get credit, bank loans, and access to market, limited liability, and legal protection available to companies.

(Study Material Page 345 | This Question is also a part of konceptca.com question bank)

(x) A poll demanded on any question shall be taken withinfrom the time when the demand was made.

1. 36 hours
2. 12 hours
3. 24 hours
4. 48 hours

Answer :

 (D) 48 hours 

A poll demanded on any other question shall be taken at such time, not being later than 48 hours from the time when the demand was made, as the Chairman of the meeting may direct.

(Study Material Page 457 | This Question is also a part of konceptca.com question bank)

(xi) Under Section 2(51) of the Companies Act, 2013, who is not defined as a part of Key Managerial Personnel?

1. Managing Director
2. Whole-time Director
3. Independent Director
4.  Company Secretary

Answer :

(C) Independent Director 

Section 2(51) of the Companies Act, 2013, key managerial personnel, in relation to a company has been defined as: 

1. i) the Chief Executive Officer or the managing director or the manager; 
2. ii) the company secretary; 

iii) the whole-time director;

1. iv) the Chief Financial Officer 
2. v) such other officer, not more than one level below the directors who is in whole-time employment, designated as key managerial personnel by the Board; and
3. vi) such other officer as may be prescribed.

(Study Material Page 455 | This Question is also a part of konceptca.com question bank)

(xii) If any inspection is refused or if any copy required is not furnished within the specified time, the company shall be liable to a penalty of __________.

1. ₹ 10,000
2. ₹ 25,000
3. ₹ 50,000
4. ₹ 1,00,000

Answer :

(B) ₹ 25,000

If any inspection is refused or if any copy required is not furnished within the specified time, the company shall be liable to a penalty of ₹ 25,000

(Study Material Page 436 | This Question is also a part of konceptca.com question bank)

(xiii) Which one of the following is not the criterion for the appointment of an independent director?

1. He shall not be a promoter of the company.
2. He shall relate to the promoters of the company.
3. He shall not have any pecuniary relationship with the company or their promoters or directors during two immediately preceding financial years.
4. His relatives have not held any pecuniary relationship with the company amounting to 2% or more of its gross turnover.

Answer :

(B) He shall relate to the promoters of the company.

(Study Material Page 458 | This Question is also a part of konceptca.com question bank)

(xiv) Almost every company now has a business ethics program, mostly because technology and digital communication have made it easier to identify and publicize __________.

1. Moral duties
2. Ethical missteps
3. Corporate behavior
4. Corporate duties

Answer :

(B) Ethical missteps

Almost every company now has a business ethics program, mostly because technology and digital communication have made it easier to identify and publicize ethical missteps.

(Study Material Page 473 | This Question is also a part of konceptca.com question bank)

(xv) A proper foundation of ethics requires a standard of __________ to which all goals and actions can be compared to.

1. Value
2. Living
3. Life
4. Speech

Answer :

(A) Value

A proper foundation of ethics requires a standard of value to which all goals and actions can be compared to.

(Study Material Page 474 | This Question is also a part of konceptca.com question bank)

Section - B

Question 2 (A)

What are different ingredients of the E-contracts?

Answer :

The following are ingredients of the E-contracts

• An offer is to be made;
• Offer is to be accepted;
• There shall be a lawful consideration;
• There shall be an intention to create legal relations;
• The parties must be competent to contract;
• There must be free and genuine consent;
• The object of the contract must be lawful;
• There must be certainty and possibility of performance.

(Study Material Page 44 | This Question is also a part of konceptca.com question bank)

Question 2 (B)

Discuss the circumstances under which the liability of the surety is considered to discharged and the liability of the surety is not considered to be discharged.

Answer :

The liability of the surety is discharged under the following circumstances

•  By giving notice to the creditor – Section 130;
• By the death of the surety – Section 131;
• By variance in terms of contract – Section 133;
• By release or discharge of principal debtor – Section 134;
• When creditor compounds with the principal debtor by giving time to, or agrees not to sue principal debtor – Section 135; 
• By creditor’ act or omission impairing surety’s eventual remedy – Section 139; 

However, in the following circumstances the liability of the surety is not considered to be discharged 

• Section 136 – Where a contract to give time to the principal debtor is made by the creditor with a third person, and not with the principal debtor, the surety is not discharged;
• Section 137 – Mere forbearance on the part of the creditor to sue the principal debtor or to enforce the other remedy against him, does not, in the absence of any provision in the guarantee to the contrary, discharge the surety; 
• Example: B owes to C a debt guaranteed by A. The debt becomes payable. C does not sue B for a year after the debt has become payable. A is not discharged from his suretyship.

(Study Material Page 73 | This Question is also a part of konceptca.com question bank)

Question 3 (A) 

Demonstrate claims made under The Code on Wages, 2019, and the procedure thereof.

Answer :

Appointment of auditor 

A Chartered Accountant in practice is qualified for appointment as an auditor. The auditor(s) shall be appointed for each financial year of the LLP for auditing its accounts. The designated partners may appoint an auditor(s)

• at any time for the first financial year but before the end of the first financial year; 
• at least 30 days prior to the end of each financial year (other than the first financial year);
• to fill a casual vacancy in the office of auditor, including in the case when the turnover or contribution of LLP exceeds the limits; or
• to fill up the vacancy caused by removal of an auditor.

 If the designated partners have failed to appoint auditor(s), the partners may appoint an auditor or auditors. An auditor appointed shall hold office in accordance with the terms of his or their appointment and shall continue to hold such office till the period

• the new auditors are appointed; or
• they are re-appointed.

 Rule 24 (14) provides that where no auditor has been appointed, any auditor in office shall be deemed to be re-appointed unless

• the LLP agreement requires actual reappointment; or
• the majority of partners have determined that he should be reappointed and have given a notice to this effect to the LLP. 

A notice may be in hard copy or electronic form and must be authenticated by the person or persons giving it

(Study Material Page 201 | This Question is also a part of konceptca.com question bank)

Question 3 (B)

Discuss the various types of instruments mentioned in the Negotiable Instruments Act, 1881.

Answer :

There are various types of instruments mentioned in this Act as follows:

• Inland instrument – a promissory note, bill of exchange or cheque drawn or made in India and made payable in, or drawn upon any person resident in, India shall be deemed to be an inland instrument.
• Foreign instrument – a promissory note, bill of exchange or cheque not drawn, made or made payable, in India, shall be deemed to be a foreign instrument. 
• Ambiguous instrument – where an instrument may be construed either as a promissory note or bill of exchange, the holder may at his election, treat it as either and the instrument shall be thenceforward treated accordingly. 
• Instruments payable on demand – A promissory note or bill of exchange, in which no time for payment is specified, and a cheque, are payable on demand.
• Inchoate stamped instruments – Where one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments for the time being in force in India and either wholly blank or having written thereon an incomplete negotiable instrument, he thereby gives prima facie authority to the holder thereof to make or complete, as the case may be, upon it a negotiable instrument, for any amount specified therein and not exceeding the amount covered by the stamp. The person so signing shall be liable upon such instrument, in the capacity in which he signed the same, to any holder in due course for such amount provided that no person other than a holder in due course shall recover from the person delivering the instrument anything in excess of the mount intended by him to be paid there under.

(Study Material Page 127  | This Question is also a part of konceptca.com question bank)

Question 4 (A)

Demonstrate claims made under The Code on Wages, 2019 and procedure thereof.

Answer :

Section 45 deals with claims under Code and procedure thereof. 

1. The appropriate Government may, by notification, appoint one or more authorities, not below the rank of a Gazetted Officer, to hear and determine the claims which arises under the provisions of this Code. 
2. The authority appointed under sub-section (1), while deciding the claim under that sub-section, may order, having regard to the circumstances under which the claim arises, the payment of compensation in addition to the claim determined, which may extend to ten times of the claim determined and endeavour shall be made by the authority to decide the claim within a period of three months. 
3. If an employer fails to pay the claim determined and compensation ordered to be paid under sub-section (2), the authority shall issue a certificate of recovery to the Collector or District Magistrate of the district where the establishment is located who shall recover the same as arrears of land revenue and remit the same to the authority for payment to the concerned employee. 
4. Any application before the authority for claim referred to in sub-section (1) may be filed by: 
5. a) the employee concerned; or
6. b) any Trade Union registered under the Trade Unions Act, 1926 of which the employee is a member; or 
7. c) the Inspector-cum-Facilitator. 
8. Subject to such rules as may be made, a single application may be filed under this section on behalf or in respect of any number of employees employed in an establishment. 
9. The application under sub-section (4) may be filed within a period of three years from the date on which claims referred to in sub-section (1) arises: Provided that the authority referred to in sub-section (1) may, entertain the application after three years on sufficient cause being shown by the applicant for such delay. 
10. The authority appointed under sub-section (1) and the appellate authority appointed under sub-section (1) of section 49, shall have all the powers of a civil court under the Code of Civil Procedure, 1908, for the purpose of taking evidence and of enforcing the attendance of witnesses and compelling the production of documents, and every such authority or appellate authority shall be deemed to be a civil court for all the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973.
    
    

(Study Material Page 326  | This Question is also a part of konceptca.com question bank)

Question 4 (B)

Describe the regulations relating to the payment of gratuity and explain how the gratuity amount is calculated.

Answer :

Eligibility for Gratuity (Section 4(1)):

• Gratuity is payable to an employee on termination of employment after continuous service of at least 5 years, in the following cases:
• Superannuation
• Retirement or resignation
• Death or disablement due to accident or disease
• Exception: The 5-year requirement does not apply in cases of death or disablement. In the event of death, gratuity is paid to the nominee or legal heirs.

Rate of Gratuity (Section 4(2)):

• General Rule: For every completed year of service (or part thereof exceeding six months), gratuity is calculated at 15 days’ wages based on the last drawn wages.
• Piece-rated Employees: Daily wages are averaged over the last three months (excluding overtime wages).
• Seasonal Establishments: Gratuity is calculated at 7 days’ wages per season.

 Amount of gratuity payable 

Gratuity is calculated on the basis of the continuous service rendered by the employee, for every completed year of service or part in excess of six months at the rate of fifteen days wages last drawn. The maximum amount of gratuity allowed under the Act is ₹ 20 lakhs with effect from 29.03.2018. 

Formula for calculation of gratuity = Last wage drawn × 15/26 × completed years of service In calculation of gratuity one month is taken as 26 days.

(Study Material Page 263  | This Question is also a part of konceptca.com question bank)

Question 5 (A)

Analyse the relevance and the circumstances for 'Lifting of the Corporate Veil' under the Companies Act, 2013. 

Answer :

The separate personality of a company is a statutory privilege and it must be used for legitimate business purposes only. Where a fraudulent and dishonest use is made of the legal entity, the individuals concerned will not be allowed to take shelter behind the corporate personality. The Court will break through the corporate shell and apply the principle/doctrine of what is called as “lifting of or piercing the corporate veil”. The Court will look behind the corporate entity and take action as though no entity separates from the members existed and make the members or the controlling persons liable for debts and obligations of the company.

In the following circumstances, different courts found it necessary to lift the corporate veil and punish the actual persons who did wrong or unlawful acts under the name of the company.

•  Protection of Revenue
• Determination of enemy character of the Company
• Prevention of fraud
• Protection of public policy
• Company mere sham or cloak
• Where a Company acts as an agent of its shareholders
• Avoidance of Welfare Legislation
• To punish for contempt of Court

(Study Material Page 341  | This Question is also a part of konceptca.com question bank)

Question 5 (B)

Examine various aspects relating to Directors' remuneration as per the Companies Act, 2013.

Answer :

Remuneration of Directors

1. Determination of Remuneration:
   • By the articles of the company or,
   • By a resolution passed at a general meeting (special resolution if required by the articles).
• The remuneration of directors, including managing and whole-time directors, is determined:
• Directors cannot fix their own remuneration.
2. Inclusion of Remuneration from Other Capacities:
• Remuneration includes any amount paid for services rendered in other capacities, except professional services meeting specific conditions.
3. Maximum Remuneration (Section 197):
   • If profits are inadequate or non-existent, the company can pay minimum remuneration with prior approval from the Central Government.
   • With members' approval via an ordinary resolution, the limit of 11% can be exceeded.
• Total remuneration for directors and managers in a public company or its subsidiary cannot exceed 11% of the net profits of the company.
• Exceptions:
4. Remuneration for Managing/Whole-Time Directors:
   • On a monthly basis, or
   • As a percentage of net profits, or
   • A combination of both.
   • A single managing/whole-time director cannot receive more than 5% of net profits.
   • If there are multiple managing/whole-time directors, the total limit is 10% of net profits.
• They may be paid:
• Limitations:
5. Professional Services Exception:
   • The services are of a professional nature.
   • The director possesses the necessary qualifications for the profession.
   • This is confirmed by the Nomination and Remuneration Committee or the Board (if the committee is not required).
• Remuneration for professional services is excluded from the 11% limit if:
6. Definition of Remuneration (Section 2(78)):
• Includes all payments (monetary or equivalent) for services rendered, as well as perquisites defined under the Income Tax Act, 1961.
7. Key Points on Limits:
• Any remuneration, including for special services, must be included in the total remuneration to adhere to the 11% limit.
• Exceptions apply only when professional services meet the defined criteria.

(Study Material Page 443  | This Question is also a part of konceptca.com question bank)

Question 6 (A)

Outline the provisions relating to Board's report as per the Companies Act, 2013.

Answer :

Provisions Relating to Board’s Report (Section 134, Companies Act, 2013)

1. Approval and Signing of Financial Statements:
   • Chairperson (if authorized), or
   • Two directors (one managing director) along with CEO, CFO, and Company Secretary, if appointed.
• Approved by the Board and signed by:
• For a One Person Company, signed by one director.
2. Key Contents of Board’s Report:
• Number of Board meetings and web address of the company.
• Directors’ Responsibility Statement.
• Details of frauds reported under Section 143(12).
• Independent directors’ declaration under Section 149(6).
• Policy on directors’ appointment and remuneration under Section 178(3).
• Explanations for qualifications in the auditors' or secretarial audit report.
• Loans, guarantees, and investments under Section 186.
• Related party transactions under Section 188(1).
• State of affairs, reserves, and recommended dividends.
3. Additional Requirements:
• Material changes affecting the financial position after year-end.
• Policies on conservation of energy, technology absorption, and foreign exchange.
• Risk management and Corporate Social Responsibility (CSR) initiatives.
• Performance evaluation of the Board and its Committees (for listed and certain public companies).

(Study Material Page 446  | This Question is also a part of konceptca.com question bank)

Question 6 (B)

Examine Cancellation or Surrender or Deactivation of DIN.

Answer :

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Question 7 (A)

Interpret the relationship between ethics and law.      

Answer :

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Question 7 (B)

Describe the different kinds of business ethics.

Answer :

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Question 8 (A)

Mr. X drew a cheque payable to Mr. Y on order. Mr. Y lost the cheque and was not aware of the loss of the cheque. The person who found the cheque forged the signature of Mr. Y and endorsed it to Mr. Z as the consideration for goods bought by him from Mr. Z. Mr. Z encashed the cheque, on the very same day from the drawee bank. Mr. Y intimated the drawee bank about the theft of the cheque after three days. Review the liability of the drawee bank.

Answer :

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Question 8 (B)

 Mr. A is a director of PQR Ltd., appointed by its shareholders by passing an ordinary resolution. Only after six months of his appointment, a news was published in a local daily mentioning his name. As per the news, Mr. A asked for a bribe of a huge amount from a supplier of the company. Following this, a month later, shareholders of the company removed Mr. A from the office of the director and appointed Mr. B in his place for the time being at the said meeting.

Now, Mr. A is arguing that his removal before completion of his tenure on the basis of media reports is not only unfortunate but also illegal as the allegation has not yet been proved.

Present your view on the removal of Mr. A and also state whether the temporary appointment of Mr. B is valid or not.

Answer :

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Business Laws and Ethics detailed analysis