SolvedScanner Appendix

CMA Inter Gr. I (New Syllabus)(Solution of June - 2016)

Paper - 6 : Laws, Ethics and Governance

Chapter -1: Contract-Basic Concepts & Important Terms2016 - June [2] (a) (i)(a) Acceptance must be absolute and unqualified; it must conform to

the offer:As per section 7 in order to convert a proposal into a promise, theacceptance must:1. Be absolute and unqualified; if the parties are not ad idem on all

matters concerning the offer and acceptance, there is no contract. An invitation with variation is no acceptance, it is simply a counterproposal, which must be accepted by the original proposer beforeany contract is made. A counter offer puts an end to the originaloffer and cannot be revived by subsequent acceptance unless it isrenewed. In Hyde vs Wrench 1840 3 Bear 334 an offer to sell a carfor $1000 was turned down by the plantiff who offered $950 for it.This was rejected by the offeror and then the plaintiff agreed to pay$ 1000. It was held that there would undoubtedly have been aperfect contract, instead of that the plaintiff made an offer of his ownto purchase the property for $950 and rejected the offer previouslymade by the defendant. He was not afterwards competent to revivethe proposal of the defendant, by tendering an acceptance for it.Thus, the suit of the plaintiff was dismissed.

2. Be expressed in some usual and reasonable manner, unless theproposal prescribes the manner in which it is to be accepted. If the

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proposal prescribes a manner in which it is to be accepted, and theacceptance is not made in such a manner, the proposer may, withina reasonable time after the acceptance is communicated to him,insist that his proposal shall be accepted in the prescribed manner,and not otherwise; but if he fails to do so, he accepts the acceptance. In Surender Natf Vs Kedar Nath AIR 1936 Cal 87 the Calcutta HighCourt held that where an offerer requires that the acceptance shouldbe sent to a particular person in writing, Section 7 was not violatedwhen the offeree instead of writing to the particular person, sent hisagent in person to communicate the acceptance.

(b) Specific offer can be accepted by the person to whom it is made,whereas general offer can be accepted by anyone competent to contractand meeting the conditions of offer. It was held in Boulton Vs Jones(1857)27 LJ ex 117 case that a specific offer can be accepted only bythe person to whom it is made. A general offer can be accepted by anyone as held in case of Carlill Vs carbolic Smoke ball Co, Harbans Lal VsHarbanslal, already discussed earlier in this study note.

(c) Acceptance may be express or implied: as per Section 9 in so far as theproposal or acceptance of any promise is made in words, the promiseis said to be express. In so far as such proposal or acceptance is madeotherwise than in words, the promise is said to be implied. It can beinferred from the conduct of the parties. When a person boards in MetroRail it is an implied acceptance.

(d) Acceptance should be of the whole proposal and not in part; acceptorshould accept the whole proposal in total and not in parts. Partacceptance is no acceptance binding upon the proposer.

(e) Acceptance should be according to the mode prescribed or usual andreasonable mode; acceptor cannot accept the proposal in a mannerdifferent from the manner prescribed in the offer. If no such mode isprescribed it should be usual and reasonable mode. Silence cannot bea mode of acceptance. In Surernder Nath Vs Kedar Nath, AIR 1936 cal 87, the CalcuttaHigh Court held that where an offeror requires that the acceptanceshould be sent in writing to a particular person, Section 7 of the contract

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act is not violated when the offeree instead of writing to particularperson, sent his agent in person to communicate the acceptance.

(f) Communication of acceptance is must; a mental determination to acceptunaccompanied by any external indication will not be sufficientacceptance. To constitute an acceptance such acceptance must becommunicated to the offeror or his authorized agent. Example: A makes an offer to B to supply certain goods at a certainprice. B writes the letter of acceptance and puts the letter in the drawerof his table and forgets all about it. Hence, putting the letter ofacceptance in the drawer does not amount to communication ofacceptance without any external manifestation of the intention to acceptthe offer (Brogden Vs Metropolitan Railway Co, 1877 AC 666). A mere mental assent is not a sufficient acceptance of an offer. Toconstitute an acceptance such assent must be communicated to theofferor or his authorised agent.

(g) Acceptance must be given before its lapse; Acceptance must be givenbefore the offer lapses by expiry of time fixed or by expiry of reasonabletime if no time is so fixed or before it is withdrawn or revoked by theofferor. In Ramasgate Victoria Hotel co Vs Montefoire (1866)LR 1 Exch 109 itwas held that a person who applied for shares in a company in June wasnot bound by any allotment made in November.

2016 - June [2] (e) (i)Mere promise to pay is not a contract. The Present Case does not satisfy allthe elements of a valid contract. Their should be valid offer acceptance andconsideration which is not present in the given case.Hence, Y cannot recover the amount from X.

Chapter -7: The Sale of Goods Act, 19302016 - June [2] (b) (iii) (a), (b)(a) One of the essential elements of a contract is consideration.

Consideration means something in return. When someone promises to

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do or not to do something for somebody else he also in turn needs somereciprocal gesture from other party in return which in common parlancewe mean consideration. It may be either some benefit conferred on oneparty or some detriment suffered by other. It may be an act orabstinence or promise. For Example, if A agrees to sell goods to B fora price of ` 20,000/-, the amount is the consideration for A for partingwith the goods similarly the cosideration for B to pay ` 20,000 is goodssold by A.

(b) Auction sale is way of marketing goods without a set price. Bids aretaken verbally on the spot, by phone, by mail, by telegram, etc., and theproperty is sold to the highest bidder. In other words, an auction sale isa public sale to any person bidding the highest price, upon terms andconditions previously announced. When goods are to be sold byauction, the auctioneer gives wide publicity regarding the time, date andplace of sale. The bidders are also given opportunity to inspect thegoods. It should however be remembered that advertisement to sellgoods by auction is not an offer but invitation to offer. The auctioneer isnot bound to sell on date and time and place announced earlier. He maypostpone or even cancel the same.

2016 - June [2] (e) (iii)Section 50, of Sale of Goods Act, states that, subject to the provisions of thisAct, when the buyer of goods becomes insolvent, the unpaid seller who hasparted with the possession of the goods has the right of stopping them intransit, that is to say, he may resume possession of the goods as long asthey are in course of transit and retain them until payment of tender of theprice. Hence the major rules applicable would be:(a) The seller must be unpaid(b) He must have parted with the possession of goods(c) The goods must be in transit(d) The buyer must have become insolvent

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Applying the above provisions in the given case, we may conclude that Rambeing unpaid, can stop the 100 bales of cloth sent by railway as these goodsare still in transit and Shyam has become insolvent.

Chapter - 9 : Industrial Disputes Act, 19472016 - June [2] (a) (ii)1. Strike:

(i) Strike can take place only when there is a cessation of work orrefusal to work by the workmen acting in combination or in aconcerted manner. Time factor or duration of the strike isimmaterial. The purpose behind the cessation of work is irrelevantin determining whether there is a strike or not. It is enough if thecessation of work is in defiance of the employers authority.

(ii) A concerted refusal or a refusal under a common understanding ofany number of persons to continue to work or to accept employmentwill amount to a strike. A general strike is one when there is aconcert of combination of workers stopping or refusing to resumework. Going on mass casual leave under a common understandingamounts to a strike.

(iii) The striking workman, must be employed in an “industry” which hasnot been closed down.

(iv) Even when workmen cease to work, the relationship of employerand employee is deemed to continue albeit in a state of belligerentsuspension.

2. Lock - Out: “Lock-out” means the temporary closing of a place ofemployment, or the suspension of work, or the refusal by an employer tocontinue to employ any number of persons employed by him. [Section 2(l)]

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Lock out is an antithesis to strike. Just as “strike” is a weaponavailable to the employees for enforcing their industrial demands,a “lock out” is a weapon available to the employer to persuade bya coercive process the employees to see his point of view and toaccept his demands (Express Newspapers (P) Ltd. v. TheirWorkers (1962) II L.L.J. 227 S.C.).In lock out, the employer refuses to continue to employ the workmanemployed by him even though there is no intention to close down theunit. The essence of lock out is the refusal of the employer to continueto employ workman. Even if suspension of work is ordered, it wouldconstitute lock out. But mere suspension of work, unless it isaccompanied by an intention on the part of employer as a retaliation, willnot amount to lock out.

3. Lay-off :“Lay-off” (with its grammatical variations and cognate expressions)means the failure, refusal or inability of an employer to give employmentdue to following reasons, to a workman whose name appears on themuster-rolls of his industrial establishment and who has not beenretrenched: (a) shortage of coal, power or raw materials, or (b) accumulation of stocks, or (c) break-down of machinery, or (d) natural calamity, or (e) for any other connected reason. [Section 2(kkk)]

4. Retrenchment :“Retrenchment” means the termination by the employer of the service ofa workman for any reason whatsoever, otherwise than as a punishmentinflicted by way of disciplinary action, but does not include: (a) voluntary retirement of the workman; or (b) retirement of the workman or reaching the age of superannuation

if the contract of employment between the employer and theworkman concerned contains a stipulation in that behalf; or

(bb) termination of the service of the workman as a result of thenon-renewal of the contract of employment between the employer

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and the workman concerned on its expiry or of such contract beingterminated under a stipulation in that behalf contained therein.

(c) termination of the service of workman on the ground of continuedill-health.

Chapter - 12 : Minimum Wages Act, 19482016 - June [2] (b) (ii)Section 11 of the Act provides that minimum wages payable under the Actshall be paid in cash. But where it has been the custom to pay wages whollyor partly in kind, the appropriate Government, on being satisfied, mayapprove and authorize such payments. Such Government can also authorizefor supply of essential commodities at concessional rates. Where paymentis to be made in kind, the cash value of the wages in kind or in the shape ofessential commodities on concessions shall be estimated in the prescribedmanner. Chapter - 13 : Payment of Bonus Act, 19652016 - June [2] (c) (i)Recovery of bonus from an employer: Where any money is due to an employee by way of bonus from his employerunder a settlement or an award or agreement, the employee himself or anyother person authorised by him in writing in this behalf, or in the case of thedeath of the employee, his assignee or heirs may, without prejudice to anyother mode of recovery, make an application to the appropriate Governmentfor the recovery of the money due to him, and if the appropriate Governmentor such authority as the appropriate Government may specify in this behalfis satisfied that any money is so due, it shall issue a certificate for thatamount to the Collector who shall proceed to recover the same in the samemanner as an arrear of land revenue: If may be noted that every such application shall be made within one yearfrom the date on which the money become due to the employee from theemployer. Any such application may be entertained after the expiry of thesaid period of one year, if the appropriate Government is satisfied that theapplicant had sufficient cause for not making the application within the saidperiod.

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Explanation: In this Section and in Sections 22, 23, 24 and 25, employeeincludes a person who is entitled to the payment of bonus under this Act butwho is no longer in employment. (Section 21) Mode of recovery prescribed in Section 21 would be available only if bonussought to be recovered is under settlement or an award or an agreement.Bonus payable under Bonus Act is not covered by Section 21 (1976-I LabourLaw Journal 511).

Chapter - 14 : Payment of Gratuity Act, 19722016 - June [2] (c) (ii)Forfeiture of Gratuity:The Act deals with this issue in two parts. Section 4(6)(a) provides that thegratuity of an employee whose services have been terminated for any act ofwillful omission or negligence causing any damage or loss to, or destructionof, property belonging to the employer, gratuity shall be forfeited to theextent of the damage or loss or caused. The right of forfeiture is limited tothe extent of damage. In absence of proof of the extent of damage, the rightof forfeiture is not available (LLJ- II-1996-515 MP). Section 4(6)(b) deals with a case where the services of an employee havebeen terminated:(a) for riotous and disorderly conduct or any other act of violence on his

part, or (b) for any act which constitutes an offence involving moral turpitude

provided that such offence is committed by him in the course of hisemployment.

In such cases, the gratuity payable to the employee may be wholly orpartially forfeited. Where the service has not been terminated on any of theabove grounds, the employer cannot withhold gratuity due to the employee.Where the land of the employer is not vacated by the employee, gratuitycannot be withheld (Travancore Plywood Ind. Vs. Regional JLC, Kerala,1996 LLJ-II-14 Ker.). Assignment of gratuity is prohibited, it cannot bewithheld for non vacation of service quarters by retiring employees (Air IndiaVs. Authority under the Act, 1999 CLA 34 Bom. 66).

Chapter - 16 : Employees’ Provident Funds and Miscellaneous Act, 1952

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2016 - June [2] (d) (ii)Protection against attachment: Statutory protection is provided to the amount of contribution to ProvidentFund under Section 10 from attachment to any Court decree. Sub-section (1)of Section 10 provides that the amount standing to the credit of any memberin the Fund or any exempted employee in a Provident fund shall not in anyway, be capable of being assigned or charged and shall not be liable toattachment under any decree or order or any Court in respect of any debt orliability incurred by the member or the exempted employee and neither theofficial assignee appointed under the Presidency Towns Insolvency Act,1909 nor any receiver appointed under the Provincial Insolvency Act, 1920shall be entitled to or have any claim on any such amount.It is further provided in sub-section (2) that any amount standing to the creditof a member in the Fund or of an exempted employee in a Provident Fundat the time of his death and payable to his nominee under the Scheme or therules of the Provident Fund shall, subject to any deduction authorised by thesaid scheme or rules, vest in the nominee and shall be free from any debt orother liability incurred by the deceased or the nominee before the death ofthe member or of the exempted employee and shall also not be liable toattachment under any decree or order of any Court. There is a statutoryvesting of the fund on dependents after the death of the subscriber which onsuch vesting becomes absolute property of dependent and cannot be heldto have inherited by dependent.The above provision shall apply in relation to the Employees’ PensionScheme or any other amount payable under the Insurance Scheme as theyapply in relation to any amount payable out of the fund.

Chapter - 18 : The Negotiable Instruments Act, 18812016 - June [2] (d) (i)A banker must dishonor a customer’s cheque under followingcircumstances:

(i) The customer becomes insolvent. (ii) The customer becomes insane. (iii) The customer countermands payment.

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(iv) On receiving the notice of death of a customer. (v) The customer gives notice of closure of account.

(vii) The customer gives notice of assignment of credit balance of hisaccount.

(viii) When the banker has reason to believe that the title of the personpresenting the cheque is defective.

(ix) When the banker receives notice of loss of cheque by customer. Apartfrom above circumstances a banker may dishonour a customer’scheque in the following circumstances.

Chapter - 19 : Indian Partnership Act, 19322016 - June [2] (b) (iii)(c) The relation of the partners of a firm to one another arises through an

agreement between them. Such an agreement can be express or maybe implied from the course of dealing between them. It may be variedwith the consent of all the partners. Such consent may be expressed ormay be implied from the course of dealing. If there is no specificagreement or the agreement is silent on a certain point, or where noagreement exists, the relations of the partners to one another as regardtheir rights and duties are governed by Section 9 to 17 of the Act. Since partners are mutual agent, they must act in good faith. They arefree to determine their mutual rights, duties and liabilities subject to theprovisions of the Act.

2016 - June [2] (e) (ii)Expulsion of a partner (Sec. 33):Expulsion of a partner is another event necessitating reconstitution of a firm.A partner may be expelled from a firm if the following conditions aresatisfied:(a) expulsion should be as per the express provisions in the agreement;(b) power of expulsion should be exercised by majority of partners;(c) expulsion should be in good faith.Only when all the above three conditions are satisfied a partner can beexpelled from a firm.

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As stated above expulsion should be in good faith. The test of good faithmay be:

(i) expulsion is in the interest of the firm(ii) expelled partner has been given notice(iii) an opportunity of being heard has been afforded to the partner.

If expulsion of a partner is not in accordance with above the expulsion istreated irregular expulsion and the expelled partner has any of these tworights (a) to claim reinstatement or (b) to sue for his share of profit and shareof capital in the firm.

Chapter - 20 : The Limited Liability Partnership Act, 20082016 - June [2] (b) (i)Limited liability partnership to be body corporate:(1) A limited liability partnership is a body corporate formed and

incorporated under this Act and is a legal entity separate from that of itspartners.

(2) A limited liability partnership shall have perpetual succession. (3) Any change in the partners of a limited liability partnership shall not

affect the existence, rights or liabilities of the limited liability partnership.

Chapter - 22 : Basic Concepts of Company Law2016 - June [3] (a) (i), (ii)

(i) Formation of Companies with Charitable Objects, etc. [Section 8]:(1) Where it is proved to the satisfaction of the Central Government

that a person or an association of persons proposed to beregistered under this Act as a limited company:(a) has in its objects the promotion of commerce, art, science,

sports, education, research, social welfare, religion, charity,protection of environment or any such other object;

(b) intends to apply its profits, if any, or other income inpromoting its objects; and

(c) intends to prohibit the payment of any dividend to itsmembers, the Central Government may, by licence issued insuch manner as may be prescribed, and on such conditions

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as it deems fit, allow that person or association of persons tobe registered as a limited company under this section withoutthe addition to its name of the word “Limited”, or as the casemay be, the words “Private Limited” , and thereupon theRegistrar shall, on application, in the prescribed form, registersuch person or association of persons as a company underthis section.

(2) The company registered under this section shall enjoy all theprivileges and be subject to all the obligations of limitedcompanies.

(3) A firm may be a member of the company registered under thissection.

(4) (i) A company registered under this section shall not alter theprovisions of its memorandum or articles except with theprevious approval of the Central Government.

(ii) A company registered under this section may convert itself intocompany of any other kind only after complying with suchconditions as may be prescribed.

(5) Where it is proved to the satisfaction of the Central Governmentthat a limited company registered under this Act or under anyprevious company law has been formed with any of the objectsspecified in clause (a) of sub-section (1) and with the restrictionsand prohibitions as mentioned respectively in clauses (b) and (c)of that sub-section, it may, by licence, allow the company to beregistered under this section subject to such conditions as theCentral Government deems fit and to change its name by omittingthe word “Limited”, or as the case may be, the words “PrivateLimited” from its name and thereupon the Registrar shall, onapplication, in the prescribed form, register such company underthis section and all the provisions of this section shall apply to thatcompany.

(6) The Central Government may, by order, revoke the licencegranted to a company registered under this section if the companycontravenes any of the requirements of this section or any of the

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conditions subject to which a licence is issued or the affairs of thecompany are conducted fraudulently or in a manner violative ofthe objects of the company or prejudicial to public interest, andwithout prejudice to any other action against the company underthis Act, direct the company to convert its status and change itsname to add the word “Limited” or the words “Private Limited”, asthe case may be, to its name and thereupon the Registrar shall,without prejudice to any action that may be taken undersub-section (7), on application, in the prescribed form, register thecompany accordingly.Provided that no such order shall be made unless the company is given a reasonable opportunity of being heard.Provided further that a copy of every such order shall be given tothe Registrar.

(7) Where a licence is revoked under sub-section (6), the CentralGovernment may, by order, if it is satisfied that it is essential inthe public interest, direct that the company be wound up underthis Act or amalgamated with another company registered underthis section.Provided that no such order shall be made unless the company isgiven a reasonable opportunity of being heard.

(8) Where a licence is revoked under sub-section (6) and where theCentral Government is satisfied that it is essential in the publicinterest that the company registered under this section should beamalgamated with another company registered under this sectionand having similar objects, then, notwithstanding anything to thecontrary contained in this Act, the Central Government may, byorder, provide for such amalgamation to form a single companywith such constitution, properties, powers, rights, interest,authorities and privileges and with such liabilities, duties andobligations as may be specified in the order.

(9) If on the winding up or dissolution of a company registered underthis section, there remains, after the satisfaction of its debts andliabilities, any asset, they may be transferred to another company

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registered under this section and having similar objects, subjectto such conditions as the Tribunal may impose, or may be soldand proceeds thereof credited to the Rehabilitation andInsolvency Fund formed under section 269.

(10) A company registered under this section shall amalgamate only with another company registered under this section and having similar objects.

(ii) Sources:According to Section 68(1) of the Companies Act, 2013 a companymay purchase its own shares or other specified securities (hereinafterreferred to as “buy-back”) out of:(i) its free reserves; or(ii) the securities premium account; or(iii) the proceeds of any shares or other specified securities.

However, no buy-back of any kind of shares or other specified securitiescan be made out of the proceeds of an earlier issue of the same kind ofshares or same kind of other specified securities.Thus, the company must have at the time of buy-back, sufficient balancein any one or more of these accounts to accommodate the total value ofthe buy-back.

Authorisation Section 68(2):The primary requirement is that the articles of association of thecompany should authorise buyback. In case, such a provision is notavailable, it would be necessary to alter the articles of association toauthorise buyback. Buy-back can be made with the approval of theBoard of Directors at a board meeting and/or by a special resolutionpassed by shareholders in a general meeting, depending on thequantum of buy back. In case of a listed company, approval ofshareholders shall be obtained only by postal ballot.

2016 - June [3] (b) (ii)‘‘Small company’’ means a company, other than a public company,:

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(i) paid-up share capital of which does not exceed fifty lakh rupees orsuch higher amount as may be prescribed which shall not be morethan five crore rupees; or

(ii) turnover of which as per its last profit and loss account does notexceed two crore rupees or such higher amount as may be prescribedwhich shall not be more than twenty crore rupees.

Provided that nothing in this clause shall apply to:(A) a holding company or a subsidiary company;(B) a company registered under section 8; or(C) a company or body corporate governed by any special Act;

Chapter - 24 : Audit and Auditors2016 - June [3] (a) (iii)Cost Records & Audit – Section 148:Section 148(1) states that notwithstanding anything contained in Chapter Xof Companies Act, 2013 the Central Government may, by order, in respectof such class of companies engaged in the production of such goods orproviding such services as may be prescribed, direct that particulars relatingto the utilisation of material or labour or to other items of cost as may beprescribed shall also be included in the books of account kept by that classof companies.However the Central Government shall, before issuing such order in respectof any class of companies regulated under a special Act, consult theregulatory body constituted or established under such special Act.Section 148(2) states that if the Central Government is of the opinion, thatit is necessary to do so, it may, by order, direct that the audit of cost recordsof class of companies, which are covered under sub-section (1) and whichhave a net worth of such amount as may be prescribed or a turnover of suchamount as may be prescribed, shall be conducted in the manner specifiedin the order.Section 148(3) states that the audit under sub-section (2) shall be conductedby a Cost Accountant in practice who shall be appointed by the Board onsuch remuneration as may be determined by the members in such manneras may be prescribed.

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Further that no person appointed under section 139 as an auditor of thecompany shall be appointed for conducting the audit of cost records and theauditor conducting the cost audit shall comply with the cost auditingstandards.For the purposes of this sub-section, the expression “cost auditingstandards” mean such standards as are issued by the Institute of Cost andWorks Accountants of India, constituted under the Cost and WorksAccountants Act, 1959, with the approval of the Central Government. Section 148(4) states that an audit conducted under this section shall be inaddition to the audit conducted under section 143.Section 148(5) states the qualifications, disqualifications, rights, duties andobligations applicable to auditors under this Chapter shall, so far as may beapplicable, apply to a cost auditor appointed under this section and it shallbe the duty of the company to give all assistance and facilities to the costauditor appointed under this section for auditing the cost records of thecompany.Further, the report on the audit of cost records shall be submitted by the costaccountant in practice to the Board of Directors of the company.Section 148(6) states that a company shall within thirty days from the dateof receipt of a copy of the cost audit report prepared in pursuance of adirection under sub-section (2) furnish the Central Government with suchreport along with full information and explanation on every reservation orqualification contained therein.

Section 148(7) states that if, after considering the cost audit report referredto under this section and the information and explanation furnished by thecompany under sub-section (6), the Central Government is of the opinionthat any further information or explanation is necessary, it may call for suchfurther information and explanation and the company shall furnish the samewithin such time as may be specified by that Government.Section 148(8) states that if any default is made in complying with theprovisions of this section,:(a) the company and every officer of the company who is in default shall be

punishable in the manner as provided in sub-section (1) of Section 147;

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(b) the cost auditor of the company who is in default shall be punishable inthe manner as provided in sub-sections (2) to (4) of Section 147.

The Companies (Cost Records and Cost Audit) Rules, 2014 as amendedhas following highlights:• Applicability for cost audit: Section 148(2) read with Rule 4 of the

Companies (Cost Records and Cost Audit) Rules, 2014 provides theCentral Government, by order, may direct for the audit of cost recordsof class of companies, as mentioned in Rule 4 of the Companies (CostRecords and Cost Audit) Rules, 2014.

• Maintenance of records: Every company under these rules includingall units and branches thereof, shall, in respect of each of its financialyear commencing on or after the 1st day of April, 2014, maintain costrecords in form CRA-1.

• Cost audit: The categories of companies specified in Rule 3 and thethreshold limits laid down in Rule 4, shall within 180 days of thecommencement of every financial year, appoint a cost auditor.

• Every cost auditor, who conducts an audit of the cost records of acompany, shall submit the cost audit report along with his or itsreservations or qualifications or observations or suggestion, if any inform CRA-3.

2016 - June [3] (b) (iii)Every private company having:

(i) turnover of two hundred crore rupees or more during the precedingfinancial year; or

(ii) outstanding loans or borrowings from banks or public financialinstitutions exceeding one hundred crore rupees or more at any pointof time during the preceding financial year.

Who can be an Internal Auditor:(a) a Chartered Accountant or;(b) a Cost Accountant or;(c) such other professional as may be decided by the Board to conduct

internal audit of the functions and activities of the Company.For this sub-section, Chartered Accountant means a Chartered Accountant,

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Who is a member of the Institute of Chartered Accountants of India and hasa valid certificate of practice and Cost Accountant means a member of TheInstitute of Cost Accountants of India. Other professionals, as may bedecided by the company's board, may also be appointed as an internalauditor.For carrying out internal audit smoothly and effectively, it would be desirableon the part of internal auditor to: (a) Obtain knowledge of legal and regulatory framework within which the

auditee entity operates.(b) Obtain knowledge of the entity’s accounting, internal control systems

and procedure alongwith accounting policies.(c) Determine the effectiveness of internal control and check procedures

adopted by the entity.(d) Understand the business and other technical details of the auditee

entity.(e) Determine nature, timing and extent of procedures to be carried out or

performed.

Chapter - 26 : Governance2016 - June [3] (b) (i)Corporate governance is…• The process of supervision and control intended to ensure that the

company’s management acts in accordance with the interests ofshareholders (Parkinson, 1994). – Strongly agree

• The governance role is not concerned with the running of the businessof the company per se, but with giving overall direction to the enterprise,with overseeing and controlling the executive actions of managementand with satisfying legitimate expectations of accountability andregulation by interests beyond the corporate boundaries (Tricker, 1984).– Agree

• The governance of an enterprise is the sum of those activities that makeup the internal regulation of the business in compliance with theobligations placed on the firm by legislation, ownership trusteeship ofassets, their management and their deployment (cannon, 1994). – Agree

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• The relationship between shareholders and their companies and theway in which shareholders act to encourage best practice (e.g., byvoting at AMs and by regular meetings with companies’ seniormanagement). Increasingly, this includes shareholder ‘activism’ whichinvolves a campaign by a shareholder or a group of shareholders toachieve change in companies (the Corporate Governance Handbook,1996). – Some agreement

• The structures, process, cultures and systems that engender thesuccessful operation of the Organization (Keasey and Wright, 1993). –Some agreement

• The system by which companies are directed and controlled (TheCadbury Report, 1992). – Slight agreement

Chapter - 27 : Ethics and Business2016 - June [4] (a) (i)Business Ethics:According to Andrew Crane “ Business Ethics is the study of businesssituations, activities and decisions where issues of right and wrong areaddressed.Raymond C. Baumhart contend – “The ethics of business is the ethics ofresponsibility. The businessman must promise that he will not harmknowingly”.Thus, Business Ethics (also called Corporate Ethics) is a form of appliedethics or professional ethics that examines ethical principles and moral orethical problems that arise in a business environment. It applies to allaspects of business conduct and is relevant to the conduct of individuals andthe entire organizations.Business ethics concerns itself with adhering to the social principles of thesituations in which business takes place. The analysis of this definition leadsus to the following discussion.

Chapter - 28 : Ethical Conflict2016 - June [4] (a) (ii)Threats to Ethical Behaviour:

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The following types of threats may affect the business environment andinfluence Finance and Accounting professionals.(a) Self-Interest Threats: Occur as a result of the financial or other interest

of Finance and Accounting professional or personal interest of keypersonnel.

(b) Self-Review Threats: When a previous judgment of the Finance andAccounting Professional is to be re-evaluated.

(c) Advocacy Threats: When a professional promotes a position o ropinion to such extent that some objectivity may have to becompromised.

(d) Familiarity Threats: When a professional has close relationships with thework environment which may impair his selfless attitude towards work.

(e) Intimidation Threats: When a professional may be prohibited fromacting objectively by actual or perceived threat.

2016 - June [4] (b) (i), (ii)(i) Fundamental Principles of Ethical Behaviour:

A. Integrity: The principle calls upon all accounting and financeprofessional adhere to honesty and firmness while dischargingtheir respective professional duties:- Avoid being involved in activities which would impair the

goodwill of the organization.- Communicate adverse as well as favorable information with

those concerned.- Refuse any favour which could influence his actions in a

negative way.- Refuse to get involved in any activity which would adversely

affect objectivity.- Avoid conflicts and advise related parties on imminent

conflicts.B. Objectivity: Communicate information fairly and objectively in

a transparent manner.C. Confidentiality: Accounting and financial management should

refrain from disclosing confidential information acquired duringtheir work. When such information are to be disclosed to their

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subordinates in course of their normal work, care should betaken that ultimate confidentiality is maintained. However, anorganization must to submit information required under a legalobligation or statutory ruling.

D. Professional competence: Finance and accountingprofessionals need to update their professional skills from timeto time. It has to be ensured that the client or employer receivescompetent professional services based upon current andcontemporary developments in the related areas.

E. Obedience to Rules: Accounting and finance professionalsshould comply with relevant laws and regulations and avoidsuch actions which may result into discrediting the profession.

(ii) Unethical Behaviour:Reasons for Unethical Behaviour:The reasons for which unethical behavior might arise in theorganization are:A. Over Emphasis on Short Term Profitability: Manipulating

accounting entries to show better profitability (window dressing) toraise further capital from the market.

B. Ignoring small unethical issues: Companies need to develop anenvironment where small ethical lapses are taken seriously so thatthey do not recur in the future.

C. Economic Cycles: When the company is doing well, no one isbothered to understand its actual financial position. However, whenthe economy takes a downward turn, finance and accountingmanagers may take decisions by compromising over theestablished principles . To prevent disclosure of unethicalproblems in times of depression, companies need to be careful andvigilant also during prosperous time periods.

D. Market Complexity: In the era of globalization and massive crossborder flow of capital, accounting rules have become morecomplex. The complexity of principles and rules and the difficultyassociated with identifying abuse are reasons which may promoteunethical behavior.

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E. Money - Mindedness: Most business organizations try to displaybetter financial condition by window dressing. Following such aprinciple towards “showing profits” rather than “earning profits”leads to unethical accounting and financial practices.

Chapter - 29 : Objective Questions2016 - June [1] (a) (i)(c) agreement and enforceability.

2016 - June [1] (a) (ii)(b) The Companies Act.

2016 - June [1] (a) (iii)(c) lawful.

2016 - June [1] (a) (iv)(c) 500 workers for any time.

2016 - June [1] (a) (v)(b) As per Section 4(2) of the Act, no wage period can exceed 30 days. So

the company would be advised accordingly.

2016 - June [1] (a) (vi)(d) a Banking Company.

2016 - June [1] (a) (vii)(c) Freedom to speech.

2016 - June [1] (a) (viii)(a) Preceding day.

2016 - June [1] (a) (ix)(b) ` 60 or 8.33% of salary or wages whichever is higher.

2016 - June [1] (a) (x)(a) two.2016 - June [1] (b) (i)Unlimited.

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2016 - June [1] (b) (ii)Board.2016 - June [1] (b) (iii)10%.2016 - June [1] (b) (iv)Armes Forces.2016 - June [1] (b) (v)50.2016 - June [1] (c)

(i) True.(ii) True.(iii) True.(iv) False.(v) False.

2016 - June [1] (d)1. (F) Contract Act.2. (G) Sale of Goods Act.3. (A) Factory Act.4. (B) Minimum Wages Act.5. (C) Solomon vs Solomon & Co. Ltd.6. (D) Corporate Governance.7. (E) Ethical Conflict.

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