CSS Past Paper 2018 Mercantile Law Descriptive (Part 2)
CSS | Past Paper | Group 6 | 2018 | Part 2 | Descriptive
Below is the solution to PART-II (COMPULSORY) of the CSS Past Paper 2018 Mercantile Law Descriptive (Part 2).
Question 2
What do you know about the issuance of prospectus of a company? What matters are to be stated in it and what is the civil and criminal liability for mis-statement in prospectus?
Introduction
A prospectus is an important document which a company issue when it wants to raise money from the public by offering shares or debentures. It gives all the needed information to the people who might be interested to invest in the company. This document helps people decide whether they should invest or not.
Issuance of Prospectus
According to company law, a public company must issue a prospectus before offering its shares to the general public. A private company is not allowed to invite public for shares so it doesn’t issue a prospectus.
The prospectus must be issued after being registered with SECP (Securities and Exchange Commission of Pakistan). Also, it must be dated and signed by all directors or proposed directors.
There are two types of prospectuses:
- Deemed Prospectus – When a company allots shares through an agent or issuing house.
- Shelf Prospectus – When a company issues more than one offer of securities over time.
Matters to be Stated in a Prospectus
The Companies Act gives a full list of what must be written in the prospectus. Important things are:
- Name and address of company and directors
- Details of shares offered (type, amount, price)
- Purpose of the issue (why money is being raised)
- Details about company’s business
- Financial statements and auditor’s report
- Minimum subscription amount required
- Disclosure about past losses or legal cases
- Underwriting details, if any
- Statement from directors about responsibility
If any of these are not mentioned or are written wrongly, it can mislead the public.
Civil Liability for Misstatement in Prospectus
If a person buys shares because of wrong or false information in the prospectus, he can claim for loss. The law says that the following people can be held liable in civil case:
- Directors
- Promoters
- Experts who approved the false statement
- Any person who authorized the issue
The shareholder can claim for damages or rescission, which means cancel the contract and get his money back.
Criminal Liability for Misstatement in Prospectus
Making false or misleading statement in a prospectus is also a crime. If the false information was given knowingly or willfully, then the persons responsible can be punished.
Punishment includes:
- Fine
- Imprisonment (which can be up to 2 years or more in serious cases)
- Or both
The main idea is to protect the investors and keep trust in the corporate system.
Exceptions to Liability
Sometimes, a person is not held responsible, like:
- If he proves he withdrew consent before issue
- If he proves he didn’t authorize the issue
- If he had reasonable ground to believe statement was true
- If the statement was made by expert and he trusted it honestly
Conclusion
A prospectus is a legal and financial commitment. It must be written honestly and clearly. Any false information can bring serious legal troubles both in civil and criminal court. So the company and its directors must be careful and follow the rules strictly when issuing the prospectus.
Question 3
Elaborate the conditions and procedures for the registration of mortgages and charges under company law.
Introduction
When a company takes a loan or gets credit, it often gives some security to the lender. This security is called charge or mortgage. Under the Companies Act, it is important to register these charges with the SECP so everything stays legal and public record is clear.
What is a Charge?
A charge means a right which a lender gets on a company’s asset as a security for a loan. It can be fixed or floating.
- Fixed charge – on a specific asset like land or building
- Floating charge – on changing assets like stock or debtors
Importance of Registration
Registering the charge is necessary because:
- It informs the public and other creditors
- Gives legal proof of lender’s security
- In case of company winding up, registered charges are given priority
- If not registered, the charge is void against liquidator and creditors
Charges That Must Be Registered
As per the law, these charges must be registered:
- Charge on company’s property or assets
- Charge on uncalled share capital
- Floating charge on the whole undertaking
- Charge on book debts
- Mortgage on immovable property
- Charge on ships or aircraft
- Charge on intellectual property (like patents)
Time Limit for Registration
- The charge must be registered within 30 days from the date of creation
- The company or charge-holder (creditor) can file the application
- SECP may allow late registration with extra fee and valid reason
Procedure of Registration
- Preparation of documents
- Form (usually Form 10) must be filled
- Instrument of charge (like loan agreement or deed) must be attached
- Filing with SECP
- Submit documents online or in person
- Pay prescribed fee
- Certificate of Registration
- SECP will check and if satisfied, issue a Certificate of Registration of Charge
- This certificate is conclusive proof that the charge is registered
- Entry in Register
- Company must enter the charge in its own Register of Charges
- SECP also keeps public record
Consequences of Non-Registration
If a charge is not registered:
- It becomes void against the liquidator and other creditors
- The debt is still valid, but lender becomes unsecured creditor
- Company may face penalty for non-compliance
- Directors may also be held responsible
Satisfaction of Charge
- When the loan is repaid, the charge is said to be satisfied
- Company must inform SECP within 30 days
- SECP will record the satisfaction and update the register
Conclusion
The registration of mortgages and charges is very important for transparency and legal protection. It helps creditors feel secure and keeps company records clean. Every company must follow the proper procedure and timeline, or else face serious consequences.
Question 4
What do you know about the meetings and proceedings of company? Explain in detail.
Introduction
In company law, meetings are very important because they help members and directors to take official decisions. A company is an artificial person, so it acts through resolutions passed in meetings. There are different types of meetings, and all of them have proper legal procedures to follow.
Types of Company Meetings
- Statutory Meeting
- Only held once by public company limited by shares
- Held within 3 to 6 months after company starts business
- Discuss matters like share allotment, contracts, etc.
- Statutory report must be sent to members before meeting
- Annual General Meeting (AGM)
- Every company (except one-person company) must hold AGM once a year
- First AGM must be held within 18 months of incorporation
- After that, within 15 months gap from last AGM
- Discuss company accounts, dividend, directors appointment etc.
- Extraordinary General Meeting (EGM)
- Called for urgent or special matters which cannot wait till AGM
- Called by Board of Directors or on request by members holding 10% shares
- Board of Directors Meeting
- Held regularly for internal management
- Directors take decisions like investment, finance, policy etc.
- First board meeting must be held within 30 days of incorporation
- Normally held every 3 months
Procedure of Holding Meetings
- Notice of Meeting
- Proper notice must be given to all members and directors
- Usually 21 days before for general meetings
- Notice must mention date, time, place and agenda
- Quorum
- Minimum number of members required to hold meeting
- Usually 2 for private company and 3 for public company
- If quorum not present, meeting is postponed
- Chairman of Meeting
- Presides over the meeting
- Maintains order and conducts the meeting properly
- Agenda
- List of topics or issues to be discussed
- Helps members to prepare in advance
- Passing of Resolutions
- Decision in meeting is called a Resolution
- Types:
a. Ordinary Resolution – passed by simple majority
b. Special Resolution – needs 3/4th majority and notice
c. Resolution by Circulation – for board matters, passed without meeting
Minutes of Meeting
- Company must prepare minutes, which is written record of discussions and resolutions passed
- Signed by chairman and kept in minute book
- Useful for future reference and legal proof
Legal Requirements
- Companies Act requires proper maintenance of meeting records
- Failing to hold AGM or keeping minutes can lead to penalties
- SECP may take action against defaulting companies or directors
Conclusion
Meetings and proceedings are backbone of company decisions. They ensure that everything is done with proper discussion and lawfully. Companies must follow legal process to avoid penalties and to maintain transparency with shareholders.
Question 5
What is the difference between contract and agreement? Explain in detail the performance of reciprocal promises.
Introduction
In our daily life, we make many promises and agreements, but not all of them are legally binding. In business and law, it is very important to know the difference between an agreement and a contract. Also, when both parties promise something to each other, that is called reciprocal promise, and the performance of these promises is governed by law.
Difference Between Agreement and Contract
| Agreement | Contract |
| It is a promise between two or more people. | It is a legally enforceable agreement. |
| Not all agreements are contracts. | All contracts are agreements. |
| May or may not have legal obligation. | Always creates legal obligation. |
| Based on mutual understanding. | Based on offer, acceptance, consideration, and intention to create legal relations. |
| Example: Promise to meet a friend. | Example: Sale of goods with payment terms. |
Section 2(e) of Contract Act defines agreement as:
“Every promise and every set of promises, forming the consideration for each other, is an agreement.”
Section 2(h) defines contract as:
“An agreement enforceable by law is a contract.”
So, the main difference is that contract is legally binding, while agreement may not be.
Reciprocal Promises
Definition
When two parties make promises to each other, these are called reciprocal promises. Each party is both a promisor and a promisee.
Example
A agrees to deliver goods, and B agrees to pay money. These are reciprocal promises.
Types of Reciprocal Promises
- Mutual and Dependent
- One promise depends on the other.
- Example: A will deliver goods only if B pays in advance.
- Law says the person who has to perform first must do it. If not, the other party is excused.
- Mutual and Independent
- Promises are not connected. Each must perform even if the other doesn’t.
- Example: A promises to paint B’s house and B promises to pay after 10 days, no matter what.
- Mutual and Concurrent
- Promises are to be performed at the same time.
- Example: Delivery of goods and payment at same time.
Performance of Reciprocal Promises
The performance is explained under Sections 51 to 54 of Contract Act.
- Section 51 – When promises are to be performed simultaneously, then each party must be ready to perform their part.
- Section 52 – When order of performance is fixed by contract, then it must be followed.
- Section 53 – If one party prevents the other from performing, then the party at fault cannot demand performance.
- Section 54 – If one party fails to perform in proper order, the other party can refuse to perform their part and can also claim damages.
Example Cases
- If A promises to deliver rice to B, and B promises to pay after delivery, then A must deliver first.
- If A prevents B from entering the shop to deliver goods, then A is at fault and cannot sue B.
Conclusion
Every contract is an agreement but not every agreement is a contract. Agreement becomes a contract only when it has legal value. Reciprocal promises are the base of most contracts. Their performance must be clear, timely, and as per contract terms, or else the contract can be broken and damages claimed.
Question 6
Define arbitration agreement and elaborate what are the powers of court in appointing and removing arbitrator(s) as well as to modify and remit the award?
Introduction
In business and civil matters, parties don’t always want to go to court. They prefer to solve disputes privately and quickly. Arbitration is one of those methods. It is less expensive and saves time. The law allows parties to choose an arbitrator who gives a final decision, called an award.
What is Arbitration Agreement?
According to Section 2(a) of the Arbitration Act, 1940,
“Arbitration agreement means a written agreement to submit present or future disputes to arbitration, whether an arbitrator is named in the agreement or not.”
So, it is a written contract where both parties agree that if a dispute arises, it will be solved by arbitration instead of going to court.
Types of Arbitration Agreements
- Clause in a Contract
- Arbitration clause is included in the main contract.
- Example: “Any dispute arising shall be referred to arbitration.”
- Separate Agreement
- Parties sign a different document for arbitration.
Essentials of Arbitration Agreement
- Must be in writing
- Must show clear intention to settle disputes through arbitration
- Parties must agree voluntarily
- Should mention number and name of arbitrators (optional)
Powers of Court in Appointing Arbitrator(s)
If parties fail to appoint an arbitrator or there is disagreement, then the court can step in. Under Section 8 of the Arbitration Act:
- Appointment of Arbitrator
- Court can appoint one or more arbitrators on request of parties
- Useful when parties don’t agree or one party avoids selection
- Filling Vacancy
- If an arbitrator dies, resigns, or becomes unable to act, court can appoint another
- Multiple Arbitrators
- If more than one arbitrator is required and they don’t agree, court can appoint an umpire
Powers of Court to Remove Arbitrator
Under Section 11 and 12, court can remove arbitrator in following cases:
- Misconduct
- If arbitrator is found guilty of misconduct (bias, corruption, etc.), court can remove him
- Delay
- If arbitrator does not use reasonable time or delays without reason, court can remove him
- Failure to Act
- If arbitrator neglects his duties or becomes incapable, court can replace him
Court Powers to Modify or Remit Award
After award is made, court can:
- Modify or Correct Award – (Section 15)
- If there is a mistake in award like name, amount, or calculation error
- Court can make correction without changing the whole decision
- Remit Award – (Section 16)
- Court can send the award back to arbitrator for reconsideration
- Reasons: unclear decision, incomplete matters, legal error, etc.
- Arbitrator must submit revised award within time given by court
- Set Aside Award – (Section 30)
- In case of serious misconduct or illegal award, court can cancel it
Conclusion
Arbitration is a peaceful and fast method to settle disputes. It saves court time and party money. But if problems arise in appointment, removal, or decision by arbitrators, courts have power to interfere. This balance ensures fairness and justice in the arbitration process.
Question 7
Define negotiable instrument and also explain the special rules of evidence under the Negotiable Instrument Act, 1881.
Introduction
In commercial and business activities, it is very common to use written documents for payment. These documents are known as negotiable instruments. They are easy to transfer and act like money in many cases. The law that deals with them is called The Negotiable Instruments Act, 1881.
Definition of Negotiable Instrument
According to Section 13(1) of the Act:
“A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.”
So, it is a document that can be transferred from one person to another and the new person gets full rights to receive the money written on it.
Types of Negotiable Instruments
- Promissory Note (Section 4)
- A written promise by one person to pay another person a fixed amount.
- Example: “I promise to pay Ali Rs. 10,000 on 1st Jan 2026.”
- Bill of Exchange (Section 5)
- A written order from one person to another to pay a third person.
- Involves 3 parties: Drawer, Drawee, and Payee.
- Example: A tells B to pay Rs. 20,000 to C.
- Cheque (Section 6)
- A type of bill of exchange drawn on a bank and payable on demand.
- Very commonly used in banks for payments.
Characteristics of Negotiable Instruments
- Transferable – Can be easily passed from one person to another.
- Holder in Due Course – A person who gets the instrument for value and in good faith gets full legal rights.
- Presumption of Consideration – It is assumed that something was given in return.
- Written and Signed – Must be in writing and signed by maker.
Special Rules of Evidence under the Act
The Act provides some special legal rules which are different from normal evidence rules in civil courts. These help in faster justice and protect rights of the holder.
1. Presumption as to Negotiable Instruments (Section 118)
The court shall presume the following unless proven otherwise:
- Consideration – That the instrument was made for legal consideration.
- Date – It was made on the date written on it.
- Time of Acceptance – Accepted within reasonable time.
- Transfer – Properly transferred before maturity.
- Stamp – It was duly stamped.
- Holder in Due Course – The person holding it got it legally.
These presumptions help the holder so they don’t have to prove everything in court.
2. Presumption as to Dishonour (Section 119)
When the instrument is dishonoured (not paid), and a notice is given, court will believe the dishonour happened, unless proven wrong.
3. Proof of Protest Not Necessary (Section 120)
Once the drawer has accepted the instrument, he cannot later deny the legality of it.
4. No Denial Against Holder in Due Course (Section 121-122)
- The maker, acceptor, or drawer cannot deny the validity of instrument when it comes into hands of holder in due course.
- Even if something was wrong before, the holder is protected if he received it in good faith and gave value.
Importance of Special Evidence Rules
- Helps in quick settlement of cases.
- Protects honest holders from fraud or misuse.
- Reduces burden of proof.
- Encourages use of negotiable instruments in business.
Conclusion
Negotiable instruments like cheques, bills, and notes are very important for modern trade. The Negotiable Instruments Act gives strong protection to holders through special rules of evidence. These rules save time and increase trust in using such documents for payment and credit.
Question 8
What do you know about the composition and functions of Competition Commission of Pakistan under the Competition Commission Act, 2010?
Introduction
In every country, fair competition is important for a healthy economy. If one company tries to destroy others unfairly, it creates monopoly and harm consumers. To stop this, Pakistan has made Competition Commission of Pakistan (CCP) under the Competition Act, 2010. This body controls and checks unfair business practices.
Establishment of CCP
- CCP is an independent and quasi-regulatory body.
- It works under the Ministry of Finance but is not directly controlled by government.
- The Act came into force to replace the earlier law called Monopolies and Restrictive Trade Practices Ordinance, 1970.
Composition of the Commission
According to the Act:
- Chairperson – Appointed by the Federal Government
- Members – Minimum of 2 and maximum of 6
- Members must have experience in law, business, finance, economics, etc.
- At least one member must be a woman (for gender representation)
Commission forms Benches to decide cases, usually with 2 or more members.
Main Functions of Competition Commission
- Prevent Abuse of Dominant Position
- CCP stops big companies from misusing their market power
- Example: Selling below cost to kill small businesses
- Prohibit Anti-Competitive Agreements
- Agreements between companies to fix prices, limit supply, divide market are banned
- These practices reduce competition and harm consumers
- Control Mergers & Acquisitions
- CCP checks if two big companies merging will create monopoly
- If it harms competition, CCP can stop or put conditions
- Stop Deceptive Marketing
- Companies giving false information in ads or packaging can be fined
- Protects consumers from fraud
- Promote Competition Advocacy
- CCP educates businesses, government departments, and public about benefits of competition
- Conducts seminars and publishes reports
- Enforcement Powers
- CCP can investigate, enter business premises, and collect evidence
- It can impose heavy penalties on violators
- Issue Guidelines and Regulations
- It gives rules to industries so they know what is allowed and what is not
- Also explains how to do mergers legally
- International Cooperation
- CCP can work with foreign competition agencies
- Helps in dealing with global companies or cross-border issues
Powers of the Commission
- Power to inquire and investigate
- Power to call for information and documents
- Power to search and seize records with warrant
- Power to penalize (up to millions in fines)
- Power to pass orders and directions
Important Sections of the Act
- Section 3 – Anti-competitive agreements prohibited
- Section 4 – Abuse of dominant position prohibited
- Section 10 – Deceptive marketing practices banned
- Section 11-14 – Rules for mergers
Conclusion
The Competition Commission of Pakistan plays a very important role in protecting free market. It helps to stop monopoly, protects consumers and encourages fair trade. By promoting healthy competition, CCP supports business growth and protects the economy of the country.
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