CSS Past Paper 2021 Mercantile Law Descriptive

CSS | Past Paper | Group 6 | 2021 | Part 2 | Descriptive

Below is the solution to PART-II (COMPULSORY) of the CSS Past Paper 2021 Mercantile Law Descriptive (Part 2).

Question 2

All contracts are agreements but all agreements are not contracts. Discuss with reference to the essentials of a valid contract.

Introduction

In our daily life, we make many agreements. But not all of them are contracts. This sentence “All contracts are agreements, but all agreements are not contracts” means that to become a contract, an agreement must have certain conditions. Just a simple promise between two people is not always a contract.

Meaning of Agreement

According to Section 2(e) of the Contract Act, 1872,

“Every promise and every set of promises, forming the consideration for each other, is an agreement.”

So, if two people agree on something, and there is a promise in return for something, it’s an agreement.

Meaning of Contract

As per Section 2(h) of the same Act,

“An agreement enforceable by law is a contract”.

So, for an agreement to be called a contract, it must be enforceable by law. If it’s not, it’s just an agreement and nothing more.

Essentials of a Valid Contract

To make an agreement a valid contract, some legal essentials are required. These are:

1. Offer and Acceptance

There must be a lawful offer by one party and lawful acceptance by the other. Both must agree on the same thing in the same sense.

Example: A offers to sell his car to B for Rs. 5 lac. B accepts. This is valid.

2. Intention to Create Legal Relationship

Both parties must have an intention to create legal obligations. If it’s just a social agreement (like going to dinner), it’s not a contract.

Example: If A invites B to a party and then cancels it, B can’t go to court.

3. Lawful Consideration

There must be consideration (something in return). It should not be illegal or immoral.

Example: Selling drugs in return for money is not a contract because the object is illegal.

4. Capacity of Parties

The parties must be competent to contract, as per Section 11, which means:

Must be of sound mind
Must be major (above 18)
Not disqualified by law

If a minor signs a contract, it’s void.

5. Free Consent

As per Section 14, consent must be free from:

Coercion
Undue influence
Fraud
Misrepresentation
Mistake

If consent is not free, the contract is voidable.

6. Lawful Object

The purpose of the contract must be legal and not against public policy.

Example: A contract for smuggling goods is not valid.

7. Not Declared Void

The agreement must not be something that is declared void under the law, like a wagering agreement or marriage brokerage contract.

8. Possibility of Performance

The contract must be capable of being performed. If it’s impossible, it’s not valid.

Example: A agrees to bring moonlight in a bottle. This is not possible.

9. Legal Formalities

Sometimes the law requires written form, registration, or witnesses. If not fulfilled, it’s not a valid contract.

Conclusion

So, every contract is an agreement, because a contract starts with an agreement. But not every agreement is a contract, because it must fulfill the legal essentials to be valid. Just agreeing is not enough – the law must recognize and enforce it. That’s why this sentence is very important in contract law.

Question 3

“No one can transfer a better title than he himself possesses”. Discuss the exceptions to this rule?

Introduction

This rule is also known as the “Nemo dat quod non habet” rule, which means no one can give what he doesn’t have. In simple words, a person who is not the real owner of goods cannot give a better ownership to someone else.

Example: If A steals B’s car and sells it to C, C doesn’t become the owner because A was not the real owner.

This rule protects the true owner. But in some cases, even a non-owner can pass good title to the buyer. These are called exceptions to the rule.

Legal Provision

This rule is found in the Sale of Goods Act, 1930, under Section 27. It says a seller can’t transfer better title than he owns – except in certain cases.

Exceptions to the Rule

Here are the main exceptions where a non-owner can pass a good title:

1. Sale by Mercantile Agent (Section 27)

If a mercantile agent is in possession of goods with the owner’s consent and sells them in ordinary business, the buyer gets a good title.

Example: A car showroom sells a car without owner’s permission, but buyer buys it in good faith. The buyer gets good title.

2. Sale by a Co-owner (Section 28)

If one co-owner has possession of goods and sells them, the buyer gets good title if he buys in good faith and without knowing the seller has no full right.

Example: A and B own a truck. A sells it to C without telling B. C doesn’t know this. He gets a good title.

3. Sale by Person in Possession Under Voidable Contract (Section 29)

If a person gets goods under a voidable contract (like through fraud) and sells them before the contract is canceled, the buyer gets good title.

Example: A tricks B into giving him a car and sells it to C. If C buys it in good faith before B cancels the contract, C becomes the owner.

4. Sale by Seller in Possession After Sale (Section 30(1))

If a seller sells goods again to another person after selling them, and the new buyer buys in good faith without knowing about the first sale, he gets good title.

Example: A sells a bike to B, but still keeps it. Then A sells the same bike to C. If C doesn’t know about the first sale, he gets a good title.

5. Sale by Buyer in Possession Before Ownership Passes (Section 30(2))

If a buyer gets possession of goods before ownership is fully transferred and sells them to someone else, the second buyer gets a good title if he buys in good faith.

Example: A buys goods on credit and sells them before paying. If the second buyer doesn’t know, he gets a good title.

6. Estoppel

If the true owner behaves in a way that makes the buyer believe that the seller is the real owner, then the owner can’t deny the seller’s right later.

Example: B lets A use his car and act like it’s his. A sells it to C. C believes A is the owner. B can’t take it back from C.

7. Sale by Finder of Goods (under certain conditions)

If someone finds goods and can’t find the owner, and sells them under specific conditions (e.g., perishable goods or no one claims them), the buyer gets good title.

8. Sale by Official Receiver or Liquidator

When a person goes bankrupt, the court-appointed officer can sell his goods. The buyer gets a good title even if the seller was not the owner anymore.

Conclusion

The general rule is simple: only the true owner can pass the ownership. But to protect innocent buyers and support business transactions, the law allows exceptions. These exceptions make sure that people who act in good faith and without any fraud are not punished. So, while the basic rule protects owners, the exceptions protect the market and innocent people.

Question 4

What are the mutual rights and liabilities of partners towards each other and the firm?

Introduction

A partnership is a type of business where two or more persons work together to earn profit. Their relationship is based on trust, agreement, and shared goals.

According to Section 4 of the Partnership Act, 1932,

“Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all”.

In a partnership, each partner has some rights and some duties towards other partners and the firm. These are called mutual rights and liabilities.

Mutual Rights of Partners

Here are the main rights that each partner enjoys:

1. Right to Take Part in Business (Section 12(a))

Every partner has the right to participate in the working and decision-making of the business.

2. Right to Access Books (Section 12(d))

Each partner can check books and accounts of the firm at any time.

3. Right to Share Profits (Section 13(b))

Partners have the right to equal share in profits unless agreed otherwise.

4. Right to Interest on Capital (Section 13(c))

If agreed, a partner can get interest on capital, usually from profits.

5. Right to Be Indemnified (Section 13(e))

If a partner spends money or suffers loss while doing firm’s work, the firm must repay him.

6. Right to Use Firm Property

Partners have the right to use the firm’s property only for business purposes, not for personal use.

7. Right to Act in Emergency (Section 13(d))

If there is an emergency, a partner can take actions to protect the firm, and the firm must pay him back.

8. Right to Stop New Partner

A new partner cannot be added without the consent of all existing partners.

9. Right to Retire

Any partner can retire by giving notice, depending on the agreement.

10. Right to Share in Firm’s Assets After Dissolution

After the firm ends, partners have the right to get their share from the leftover assets.

Mutual Liabilities or Duties of Partners

Now let’s look at what each partner is responsible for:

1. Duty to Work Honestly (Section 9)

Every partner must act with honesty and loyalty.

2. Duty to Share Losses (Section 13(b))

Just like profits, losses are also shared equally, unless agreed differently.

3. Duty Not to Compete (Section 11(2))

A partner can’t start a competing business or use firm’s name for personal gain.

4. Duty to Keep Accounts (Section 12(d))

Partners must maintain proper records and allow other partners to inspect them.

5. Duty to Act Diligently (Section 9)

Each partner must act with care and skill while doing business for the firm.

6. Duty to Use Firm’s Property Properly

They must not use firm’s money or property for personal benefits.

7. Duty to Give True Information (Section 9)

Partners must share full and correct information with each other.

8. Duty Not to Earn Secret Profits (Section 16)

A partner can’t make secret profit from the firm’s business. If he does, he must pay it back.

9. Duty to Be Liable for Acts of the Firm (Section 18 & 25)

Every partner is the agent of the firm, so they are jointly and individually responsible for the firm’s actions.

10. Duty to Follow Agreement

Partners must follow the partnership deed or agreement. If they break it, they are responsible.

Conclusion

In partnership, partners must act like a team. Their mutual rights and liabilities are meant to build trust and smooth working. If everyone respects their duties and exercises their rights fairly, the partnership will grow and succeed. The law ensures balance between rights and duties so that no one takes unfair advantage of the others.

Question 5

What process is to be adopted for transfer of shares and other securities? What remedy is available with the aggrieved in case of refusal by the board of directors for registration of transfer?

Introduction

In a company, shares and securities represent ownership. Shareholders can transfer their shares to others. But this transfer is not automatic. It must follow a proper legal process, and the company’s Board of Directors has the right to approve or reject the transfer.

This question deals with two things:

Process of transfer of shares and securities, and
Remedy if board refuses to register the transfer.

1. Process of Transfer of Shares and Securities

The rules of share transfer are mostly given under the Companies Act, 2017 and SECP Regulations.

Step 1: Execution of Transfer Deed (Form CDC or SH-4)

The seller and buyer of shares must sign a share transfer deed.
For listed companies, shares are usually in electronic (CDC) form.
For unlisted companies, physical transfer deed is used.

Step 2: Payment of Stamp Duty

Proper stamp duty must be paid on the transfer deed, according to law.

Step 3: Submission to Company

The transferor (seller) or transferee (buyer) must send the documents to the company:
- Transfer deed
- Original share certificates (if any)
- Copy of CNIC or other ID

Step 4: Board Approval

The company’s Board of Directors will check the documents.
If everything is correct, the board approves the transfer in a meeting.

Step 5: Registration of Transfer

Once approved, the company registers the new owner’s name in the Register of Members.
A new share certificate is issued in the buyer’s name.

Time Limit

The transfer must be registered within 45 days after lodging the documents.

2. Refusal by Board and Remedy for Aggrieved Person

Sometimes, the Board refuses to register the transfer. It may happen due to:

Incomplete documents
Violation of company’s articles
Legal dispute
Transfer of partly paid shares
Other genuine reasons

But the refusal must be in good faith and not arbitrary.

Legal Remedy: Appeal to SECP (Securities and Exchange Commission of Pakistan)

If the person feels the refusal was unfair, he can appeal to SECP under the Companies Act, 2017 (Section 76 to 79).

Steps in Remedy

a. Appeal to SECP:

The aggrieved party can file a written complaint to SECP.
SECP will investigate the matter.

b. SECP’s Powers:

SECP can order the company to register the transfer.
It can also order compensation if any loss is suffered.
SECP can penalize the company if it acted wrongly.

c. Appeal to Court:

If still unsatisfied, the person can file a case in the High Court under civil procedure.

Important Case Law

In National Cement v. Junaid Ltd, the court said that the board must give valid reasons for refusing share transfers, otherwise it’s illegal.

Conclusion

Transfer of shares is a legal right, but it must follow a proper process. The Board has the power to approve or refuse, but not without just cause. If the refusal is wrong, the aggrieved person can complain to SECP or go to court for justice. This system protects both the company and the investors, and ensures transparency in shareholding.

Question 6

Who is an arbitrator? Write down in detail the comparison between section 8 and 9 of the Arbitration Act, 1940?

Introduction

Sometimes, instead of going to court, people solve their disputes through a process called arbitration. It is a type of private dispute resolution, where both parties agree to let a neutral person settle their issue.

Who is an Arbitrator?

An arbitrator is a person chosen by the parties (or by court) to settle their civil dispute outside the court. The decision made by the arbitrator is called an “award”, and it has legal value.

Key Points About Arbitrator

Must be impartial and independent
Can be one or more persons
Can be appointed by agreement or by court
Works under the Arbitration Act, 1940
Decision (award) is binding on both parties

Arbitration Act, 1940

This law gives rules for arbitration in Pakistan. The main purpose is to reduce the burden on courts and give people a fast way to solve disputes.

Comparison Between Section 8 and Section 9 of the Arbitration Act, 1940

Let’s compare Section 8 and Section 9 clearly:

Point	Section 8	Section 9
Title	Appointment of arbitrator by the parties	Appointment by the court
When Used	When parties already agreed on arbitration	When parties didn’t agree, or can’t decide on arbitrator
Appointment Made By	The parties themselves	The civil court
Reason for Use	Parties want to use arbitration clause in contract	Parties failed to appoint arbitrator or there is no agreement
Procedure	– Written agreement – Arbitrator is chosen – Case is referred to him	– One party applies to court – Court appoints arbitrator
Example	A and B have an agreement that if a dispute arises, they will go to arbitration. Now they appoint Mr. X.	A and B have a dispute but cannot agree who should be arbitrator, so they go to court
Court’s Role	Not involved directly	Court actively appoints arbitrator
Type of Arbitration	Voluntary	Compulsory by court order
Legal Power	Based on Section 8 of Arbitration Act	Based on Section 9 of Arbitration Act

Explanation with Examples

Section 8 Example:
A and B have a written contract which says, “If any dispute arises, we will appoint an arbitrator.” A dispute comes, and both agree to appoint Mr. Ali as arbitrator. This is under Section 8.
Section 9 Example:
A and B have a dispute, but they can’t agree on who the arbitrator should be. A applies to the court, and the court appoints Mr. Kamran as arbitrator. This is Section 9.

Important Points

Both sections help start the arbitration process
Section 8 shows agreement-based arbitration
Section 9 is for disputes in appointment
Court steps in only when parties fail to agree

Conclusion

An arbitrator is a trusted third party who helps settle disputes without court trials. The Arbitration Act, 1940, especially Sections 8 and 9, gives legal ways to appoint arbitrators. While Section 8 is about mutual agreement, Section 9 is about court help when there’s no agreement. Both are useful to ensure justice is served in a smooth and private way.

Question 7

What presumptions of law, as a special rule of evidence, are attached with respect to negotiable instruments of consideration?

Introduction

A negotiable instrument is a written document that promises payment of money, like a cheque, promissory note, or bill of exchange. These documents are used in business and banking.

The law gives some presumptions (assumptions considered true unless proved otherwise) to make it easy to trust and use these instruments. These presumptions are found in the Negotiable Instruments Act, 1881, especially in Section 118.

What is a Presumption of Law?

A presumption is a rule where the court assumes something is true, even without full proof, unless someone proves the opposite.

These are used to protect innocent parties and support smooth transactions in business.

Presumptions Attached to Negotiable Instruments (Section 118)

Here are the main legal presumptions:

1. Presumption of Consideration

“Every negotiable instrument is presumed to be made or drawn for consideration”.

This means that the court will assume that the instrument was given in return for something valuable, like money, goods, or services.

If someone says there was no consideration, he has to prove it.

2. Presumption of Date

“The date on the instrument is presumed to be the actual date of making”.

This helps avoid confusion in business. The law assumes the date written is correct.

3. Presumption of Time of Acceptance

For a bill of exchange, it is presumed that the bill was accepted within a reasonable time after it was made and before it was due.

4. Presumption of Time of Transfer

The law assumes that a negotiable instrument was transferred before it became overdue, unless proved otherwise.

This helps protect holders who take the instrument in good faith.

5. Presumption of Order of Endorsements

If there are multiple endorsements, the court presumes that they were made in the order in which they appear on the document.

6. Presumption of Stamp

If an instrument needs a stamp, it is presumed to be properly stamped, unless someone proves otherwise.

7. Presumption of Holder in Due Course

The person who holds the instrument is assumed to be a holder in due course (someone who received it for value and in good faith).

This means the law protects the holder unless it’s proved that he knew something was wrong.

Extra Presumption (Section 119): Dishonour of Instrument

If a negotiable instrument is dishonoured (not paid), and the holder gives notice, the court presumes that it was properly delivered, unless there is proof to the contrary.

Why Are These Presumptions Important?

They make negotiable instruments trustworthy
They reduce court delays by assuming facts
They protect honest people who deal in good faith
They help in business and banking transactions

Example to Understand

Suppose A gives a cheque to B. B gives it to C. C goes to the bank, but the cheque bounces. If A claims he didn’t get anything in return, law assumes the cheque had consideration — unless A proves there was no consideration.

Conclusion

The Negotiable Instruments Act gives special legal presumptions to make these documents reliable and easy to use. These presumptions, especially under Section 118, are based on trust and good faith. They help in quick transactions and protect the rights of innocent parties unless someone proves otherwise. This legal support helps in the smooth running of business and finance.

Question 8

Write a comprehensive note on establishment, functions and powers of the Competition Commission of Pakistan.

Introduction

The Competition Commission of Pakistan (CCP) is an independent body that promotes fair competition in business. It was established to stop monopolies, price fixing, cartel making, and unfair practices in the market.

It works under the Competition Act, 2010 and ensures that companies compete honestly, so that consumers, businesses, and the economy benefit.

Establishment of CCP

The CCP was established in October 2007.
It replaced the older Monopolies and Restrictive Trade Practices Authority (MRTPA).
It is a statutory body, meaning it was made under a law (Competition Act, 2010).
It works under the control of the Ministry of Finance, but it is independent in its working.

Structure of CCP

The CCP has a Chairperson and 4 to 6 Members.
They are appointed by the Federal Government.
The CCP has its head office in Islamabad, and regional offices in other cities.

Objectives of CCP

To create a business environment where all companies have an equal chance.
To protect consumer rights.
To prevent abuse of dominant position by big businesses.
To stop anti-competitive agreements and deceptive marketing.
To ensure that mergers and acquisitions don’t harm the market.

Functions of CCP (As per Competition Act, 2010)

1. Prevent Anti-Competitive Practices

CCP stops agreements between businesses that try to fix prices, divide markets, or limit production.
These are called cartels, and they are illegal.

2. Control Abuse of Dominance

CCP stops big companies from using their market power to crush small competitors, like:
- Charging unfair prices
- Limiting supply
- Forcing people to buy extra goods

3. Monitor Mergers and Acquisitions

CCP checks all big mergers or takeovers.
If a merger creates a monopoly or harms competition, CCP can stop it.

4. Stop Deceptive Marketing

CCP takes action against companies that lie in their ads, labels, or marketing.
This protects consumers from being misled.

5. Conduct Market Research

CCP studies different industries to find out if there is unfair competition.
It issues guidelines for businesses to follow the law.

6. Awareness and Education

CCP also spreads awareness among consumers, students, and businesses.
It arranges seminars, training, and publications to promote competition culture.

Powers of CCP

1. Power to Investigate

CCP can start inquiries on its own or after receiving complaints.
It can inspect offices, collect evidence, and interview people.

2. Power to Penalize

CCP can impose heavy fines (up to Rs. 75 million or more) on companies breaking the law.
It can also cancel agreements or stop companies from doing harmful practices.

3. Power to Approve or Stop Mergers

No big merger can happen without CCP’s clearance.
If a merger harms market competition, CCP can reject it.

4. Power to Pass Orders and Give Directions

CCP can issue orders, like asking a company to stop anti-competitive behaviour.
Its decisions are binding.

5. Power to Make Rules

CCP can make rules and regulations for better working of competition laws.

Important Case Example

In 2011, CCP fined 5 cement companies for price fixing.
This shows CCP actively takes action to protect fair competition.

Conclusion

The Competition Commission of Pakistan (CCP) plays a big role in protecting fair business practices. It ensures that no company abuses power and the consumer is treated fairly. With proper laws and powers, CCP helps in building a strong and transparent economy in Pakistan. Its work improves quality, pricing, and choices for the public and encourages healthy competition in the market.

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