CSS Special Exam Past Paper 2023 Mercantile Law Descriptive (Part 2)
CSS | Past Paper | Group 6 | 2023 | Part 2 | Descriptive | Special Exam
Below is the solution to PART-II (COMPULSORY) of the CSS Special Exam Past Paper 2023 Mercantile Law Descriptive (Part 2).
Question 2
What is the procedure of alteration in Memorandum of Association and Articles of Association? Elaborate their distinctive features.
Introduction
In company law, Memorandum of Association (MOA) and Articles of Association (AOA) are two very important documents. MOA is like the company’s constitution, and AOA is the rule book for running the company’s internal matters. Sometimes, a company needs to make changes in them for legal or practical reasons. For that, there is a proper legal procedure that must be followed under the Companies Act.
Alteration in Memorandum of Association (MOA)
Meaning of MOA
MOA is the basic document that defines the company’s objectives, powers, and relationship with the outside world.
Clauses of MOA
- Name Clause
- Domicile Clause
- Object Clause
- Liability Clause
- Capital Clause
- Subscription Clause
Procedure for Alteration in MOA
i. Passing Special Resolution:
The company must pass a special resolution in the general meeting with at least 75% majority.
ii. Approval from SECP (if required):
In some cases like change of registered office from one province to another, approval is needed from the Securities and Exchange Commission of Pakistan (SECP).
iii. Filing with Registrar:
A certified copy of the resolution and altered MOA must be filed with the Registrar of Companies within a specific time.
iv. Approval and Registration:
Registrar will check the documents and if satisfied, he will approve and register the alteration.
v. Notification:
The change becomes effective after registration and must be notified to the stakeholders.
Alteration in Articles of Association (AOA)
Meaning of AOA
AOA contains the rules and regulations for managing the company’s internal affairs like meetings, powers of directors, dividends, etc.
Procedure for Alteration in AOA
i. Passing Special Resolution:
Just like MOA, AOA can also be changed by passing a special resolution in the general meeting.
ii. Filing with Registrar:
The resolution and updated AOA must be submitted to the Registrar within 15 days of passing the resolution.
iii. Registration:
Registrar registers the new AOA and the changes become valid.
iv. Limitations:
AOA alteration must not go against the Companies Act, or Memorandum, or harm minority shareholders unfairly.
Distinctive Features Between MOA and AOA
| Basis of Difference | MOA | AOA |
| Nature | Fundamental charter | Internal rule book |
| Objective | Defines company’s purpose | Regulates internal management |
| Alteration | Difficult, needs court/SECP approval | Easier, just special resolution |
| Binding Effect | Binds company with outsiders | Binds members internally |
| Legal Priority | MOA prevails over AOA | Cannot override MOA |
| Registration | Must be registered during formation | Must be registered too |
| Contents | Six main clauses | Rules and procedures |
Conclusion
Alteration in MOA and AOA is a legal process that needs to be done carefully. MOA is stricter and more formal because it defines what a company can do, while AOA is more flexible and deals with how a company is run. Both documents play a big role in company law and must be respected properly.
Question 3
Whether arbitration is more effective without intervention of court or with intervention of court? Substantiate your answer with valid evidence.
Introduction
Arbitration is a method of resolving disputes outside the courts. It is often quicker, cheaper, and less formal. But the question is: Is arbitration more effective with or without court’s intervention? The answer depends on the situation. Sometimes, court support helps in making arbitration smooth, but too much interference can reduce its effectiveness.
Understanding Arbitration
Arbitration is a process where the parties in a dispute agree to appoint a neutral third person (called arbitrator) to hear both sides and give a decision. This process is governed by the Arbitration Act, 1940 in Pakistan.
Arbitration Without Court’s Intervention (Independent Arbitration)
Advantages
- Fast Process:
No court procedures mean quick decision-making. - Privacy:
Proceedings are confidential. Businesses prefer this to keep matters private. - Less Expensive:
No long hearings or legal delays, so it’s cheaper. - Party Autonomy:
Parties can choose their own arbitrator and rules. - Finality of Award:
Usually, the decision is final with limited chances of appeal.
Example
Two businesses include an arbitration clause in their contract. Later, a dispute arises. They appoint an arbitrator and solve the issue in 2 months without any court help. That saves time and money.
Arbitration With Court’s Intervention
Sometimes, court support becomes necessary. Arbitration law allows courts to help in:
1. Appointment of Arbitrator (Section 8):
If parties fail to appoint an arbitrator, court can step in.
2. Stay of Legal Proceedings (Section 34):
If one party goes to court despite arbitration agreement, the court can stop the case and refer them to arbitration.
3. Setting Aside Award (Section 30):
Court can cancel an arbitration award if there is misconduct or illegal procedure.
4. Enforcing the Award (Section 17):
Award becomes a court decree with court’s confirmation.
Is Court Intervention Good or Bad?
Effective with Court Support (when needed)
- Ensures fairness and justice.
- Helps in enforcing awards.
- Useful when one party is not cooperating.
Less Effective with Too Much Court Interference
- Causes delay.
- Increases cost.
- Reduces privacy.
- Weakens the purpose of arbitration.
Balanced Approach is Best
Arbitration should mostly be independent. Court should support only when necessary — like in enforcing awards or solving procedural deadlocks.
Judgment Example
In Messrs Friends Corporation vs. Federation of Pakistan, the court observed that court’s role in arbitration is supportive, not supervisory.
Conclusion
Arbitration works best when it is allowed to function freely, but limited court intervention is helpful to make sure the process is fair and enforceable. So, a balanced approach is the most effective — not complete freedom, and not full control by court.
Question 4
What is the procedure of disposal of claims and establishment of Consumer Courts under Consumer’s Protection Act, 2006?
Introduction
Consumer Protection Act, 2006 is a law made to protect the rights of consumers in Pakistan. It gives legal powers to consumers if they are cheated or harmed by any faulty product or bad service. This Act also allows setting up Consumer Courts for solving consumer complaints.
Aims of the Consumer Protection Act, 2006
- To protect consumers from fraud and unfair trade practices
- To give legal remedies to consumers
- To make sure that goods and services meet proper standards
- To create Consumer Courts for speedy justice
Procedure for Establishment of Consumer Courts
- Notification by Government:
The Provincial Government notifies the establishment of Consumer Courts under the Act. - Location and Jurisdiction:
Courts are set up in different districts. Each court handles cases within its local area. - Presiding Officer (Judge):
The government appoints a judge, usually someone who is already working in judiciary. - Staff and Office Setup:
Proper staff and office space are given to the court to handle complaints and maintain records. - Power of Civil Court:
Consumer Courts have the same powers as a regular civil court to call witnesses, demand evidence, issue orders, etc.
Procedure for Disposal of Claims in Consumer Courts
1. Filing of Complaint
- Any consumer who faces loss, damage, or cheating can file a complaint.
- The complaint must be in writing.
- It should include full details like name of the seller, date of transaction, description of product or service, receipt (if available), and what kind of loss was suffered.
2. Time Limit
- The complaint must be filed within 30 days from the date of cause of action.
3. Notice to Opposite Party
- After receiving the complaint, the court sends a notice to the seller/service provider asking them to reply.
4. Reply from Opposite Party
- The other party has to submit a written reply (usually within 15 days), explaining their side.
5. Evidence and Hearing
- Both sides give evidence (documents, witnesses, etc.).
- The court hears the case and checks all proofs.
6. Final Decision
- If the court finds the seller guilty, it can pass orders like:
- Refund the money
- Replace the product
- Pay compensation to the consumer
- Stop unfair trade practices
- Pay fine (in some cases)
7. Enforcement of Order
- The decision of the Consumer Court is binding.
- If the seller does not follow the order, the court can take action including fines or jail term.
Important Features of Consumer Courts
- Simple procedure (no need for a lawyer always)
- Less expensive
- Quick disposal (within 90 days usually)
- Special focus on consumer rights
Example Case
A person buys an electric iron from a shop, and it stops working in two days. He files a complaint in the Consumer Court. The court hears both sides, and if it finds the product was defective, it can order refund or replacement with compensation.
Conclusion
The Consumer Protection Act, 2006 is a strong step to safeguard ordinary people from fraud, cheating, and poor-quality services. The Act has made it easy for people to raise their voice and get justice. Consumer Courts play an important role by handling cases fast and fairly.
Question 5
How is the liability on Notes, Bills and Cheques discharged under the Negotiable Instrument Act, 1881?
Introduction
The Negotiable Instruments Act, 1881 is a law that deals with promissory notes, bills of exchange, and cheques. These instruments are used in trade to make payments in a legal and safe way. Every person who signs such instruments (like drawer, maker, acceptor) has some liability. But this liability is not permanent — it can be discharged (ended) by following certain ways under the law.
Types of Negotiable Instruments
- Promissory Note – A written promise to pay money.
- Bill of Exchange – An order to pay money from one person to another.
- Cheque – A bill of exchange drawn on a bank, payable on demand.
Meaning of Discharge
Discharge means the end of legal responsibility. When the person who is supposed to pay on the note, bill or cheque is released from the duty, it is called discharge of liability.
Ways to Discharge Liability
1. By Payment in Due Course (Sec. 78)
If the amount is paid at the proper time, to the proper person, and in the proper way, the instrument is discharged.
Example:
A cheque is given to a shopkeeper and he deposits it. The bank pays the amount. Now the drawer is discharged.
2. By Cancellation (Sec. 82a)
If the holder of the instrument cancels the name of the person who is liable (like crossing his name), the person is discharged.
Example:
If the holder crosses the acceptor’s name on a bill, he cannot later ask him for payment.
3. By Release (Sec. 82b)
If the holder makes an agreement to release a person from liability (either written or by words), then that person is no longer responsible.
Example:
Holder says to the drawer, “You don’t need to pay me now or ever”. That is a release.
4. By Allowing More Time (Sec. 135)
If the holder gives more time to the debtor without permission of other parties, then the other parties can be discharged.
5. By Material Alteration (Sec. 87)
If someone changes the instrument (like amount or date) without permission, it is called material alteration. This makes the instrument invalid and releases all parties who didn’t agree to the change.
Example:
If a cheque of Rs. 5,000 is changed to Rs. 50,000 without permission, it’s not valid.
6. By Non-Presentment of Cheque or Bill
If a cheque is not presented to the bank in time, and the bank fails, then the drawer may be discharged.
7. By Operation of Law
Sometimes law itself discharges liability, such as:
- Insolvency (bankruptcy) of the debtor
- Merger of rights
- Death of the liable party (in some cases)
8. By Acceptor Becoming Holder
If the acceptor of the bill becomes the holder at maturity, the bill is discharged.
9. By Compromise
When both parties agree to settle the matter outside court or through lesser amount, the original liability ends.
Important Case Example
Messrs Ali Traders vs. National Bank (2004)
The court held that once a cheque is cleared by the bank and payment is made to the holder, all liabilities are discharged.
Conclusion
Liability on promissory notes, bills, and cheques can end in many ways under the Negotiable Instruments Act, 1881. The most common way is through payment in due course, but the law also gives other methods like cancellation, release, or alteration. These rules protect both the payers and the holders by making trade safe and legal.
Question 6
What are the powers and functions of Certification Council under the Electronic Transactions Ordinance, 2002?
Introduction
In the modern age, business is not just done with paper. Now, emails, digital contracts, and online payments are common. To make electronic transactions legal and safe in Pakistan, the government introduced the Electronic Transactions Ordinance (ETO), 2002. Under this law, a special body was made called the Certification Council. Its job is to manage and regulate digital signatures, electronic documents, and certification authorities.
What is Certification Council?
The Certification Council is a regulatory body under the ETO 2002. It works under the Ministry of Information Technology and Telecommunication. Its main purpose is to:
- Supervise Certification Authorities (CAs)
- Promote secure electronic communication
- Make sure digital signatures and certificates are used properly
Main Powers and Functions of Certification Council
1. Licensing of Certification Authorities (CAs)
- Certification Authorities are organizations that issue digital certificates.
- No CA can operate without approval.
- The Council has power to issue, suspend, or cancel licenses of CAs.
2. Setting Standards
- Council makes rules for how CAs should work.
- It decides the security standards, procedures, and technology to be used.
- Helps ensure that digital signatures are safe and not misused.
3. Monitoring and Auditing
- The Council keeps a check on all licensed CAs.
- It can audit or inspect the records of any CA to make sure they are following rules.
4. Complaint Handling
- If anyone has a complaint against a CA or about a digital certificate, the Council can investigate and take action.
- It acts like a watchdog to protect public interest.
5. Promotion of E-Commerce and E-Governance
- Council helps in the growth of electronic transactions by creating trust in digital communication.
- It supports e-business, e-banking, and e-filing systems.
6. Revocation or Suspension of Certificates
- If a certificate is wrongly issued or misused, the Council can revoke or suspend it.
- This prevents fraud and cybercrimes.
7. Public Awareness and Training
- Council also works to create awareness about cyber laws and secure electronic systems.
- It arranges seminars, training, and campaigns.
8. Updating and Advising the Government
- The Council gives advice to the government on policy matters related to digital security.
- It also recommends new laws or amendments when needed.
9. Maintaining Repository of Certificates
- The Council may keep a database of all issued, suspended, and revoked certificates.
- This ensures transparency and easy verification.
10. International Coordination
- Council can work with foreign certification authorities and organizations.
- This helps Pakistan in following global digital standards.
Example
Let’s say a company issue fake digital certificates and scams people online. The Certification Council has the power to cancel its license, punish it under ETO rules, and protect the users.
Conclusion
The Certification Council under the ETO 2002 is like the digital police of Pakistan’s electronic world. It checks that only trusted digital certificates are used and that online business is done safely. In a growing digital economy, the Council’s role is very important for building trust, transparency, and cyber security.
Question 7
Write a detailed note on recognition and presumption of electronic transactions under Electronic Transactions Ordinance, 2002.
Introduction
In today’s digital age, businesses, banks, and even government departments are using computers and the internet to send and receive important documents. To make these electronic records legally accepted in Pakistan, the Electronic Transactions Ordinance (ETO), 2002 was passed. This law recognizes electronic documents, signatures, and transactions just like paper-based ones.
Purpose of ETO, 2002
- To give legal value to electronic transactions
- To recognize digital records and signatures
- To promote e-commerce, e-governance, and e-banking
- To ensure that electronic records can be used as evidence in court
Recognition of Electronic Transactions
The ETO 2002 clearly says that no transaction shall be denied legal effect just because it is in electronic form. This means that:
- Electronic contracts
- Online agreements
- Emails
- Scanned documents
- Online applications
— all are legally valid if they fulfill basic legal requirements.
Key Sections for Recognition
Section 3 – Legal Recognition of Electronic Records:
Any information in electronic form that is accessible and usable can be treated as a valid record.
Section 4 – Legal Recognition of Digital Signatures:
A digital signature is recognized as equal to a handwritten signature, if it is reliable and created under secure conditions.
Presumptions Regarding Electronic Records
The law gives certain presumptions (assumptions) in favor of electronic records, unless proven otherwise:
Section 5 – Presumption of Integrity:
If a record is generated and stored properly, it is presumed to be accurate.
Section 6 – Attribution of Electronic Records:
An electronic record is considered to be created by a person if it was sent by them or by someone authorized.
Section 7 – Acknowledgment of Receipt:
If the sender gets an electronic acknowledgment (like a reply email or system message), it is taken as proof of delivery.
Use in Daily Life
- E-banking – Online fund transfers and account statements
- E-filing – Submitting tax forms or government applications online
- E-commerce – Buying/selling goods online with digital receipts
- Emails – Used in business contracts and legal communication
All these are valid under the ETO, 2002.
Importance in Legal Evidence
Courts can now accept electronic records as evidence if they are:
- Authentic
- Untampered
- Secure
- Produced in the original format
Example:
If someone signs a contract online using a verified digital signature, and later denies it, the electronic version will be accepted as evidence.
Limitations / Exceptions
Some documents still need to be in physical form, like:
- Wills
- Power of attorney
- Sale of immovable property
These are excluded from the ETO unless future laws allow them digitally.
Example Case
Suppose a company sends a digitally signed agreement through email. The receiver accepts it and starts work. If a dispute arises, the electronic version is valid in court under ETO 2002.
Conclusion
The Electronic Transactions Ordinance, 2002 is a modern and useful law that gives full recognition to electronic records and signatures. It helps in making business faster, cheaper, and more secure. It also supports digital Pakistan by making online contracts and documents legally valid.
Question 8
Write detailed notes on:
a. The powers of a court in terms of appointment and removal of an arbitrator.
b. Kinds of contract, under the Law of Contract, 1872.
a. Powers of a Court in Appointment and Removal of Arbitrator
Introduction
Arbitration is a way to settle disputes without going to regular courts. But sometimes, parties fight about who should be the arbitrator or if the arbitrator is unfair. In such cases, the court has some powers under the Arbitration Act, 1940.
Appointment of Arbitrator (Section 8)
- If the parties fail to agree on an arbitrator, or if the appointed arbitrator refuses to work, then court can appoint a new arbitrator.
- This happens when there is no clause in the contract about a substitute arbitrator.
Removal of Arbitrator (Section 11)
- The court has power to remove an arbitrator in the following cases:
- If he becomes incapable of acting
- If he shows bias or misconduct
- If he delays the award unnecessarily
- If he violates natural justice (e.g., doesn’t listen to one party)
Appointment of Umpire (Section 10)
- If two arbitrators are appointed and they do not agree, the court may appoint an umpire to decide the case.
Stay of Legal Proceedings (Section 34)
- If one party files a case in court instead of arbitration, the court may stay the legal suit and refer the parties back to arbitration.
Conclusion
The court does not interfere much in arbitration, but its role is important in fair appointment and removal of arbitrators to keep the process just and efficient.
b. Kinds of Contracts under the Law of Contract, 1872
Introduction
A contract is an agreement enforceable by law. The Contract Act, 1872 explains different kinds of contracts based on their formation, validity, and performance.
Based on Validity
Valid Contract:
A contract that follows all legal requirements (offer, acceptance, consideration, free consent, etc.)
Void Contract:
A contract that was valid once but now cannot be enforced by law.
Voidable Contract:
A contract that one party can cancel due to fraud, misrepresentation, or undue influence.
Void Agreement:
An agreement which is not enforceable from the beginning.
Based on Formation
Express Contract:
When the terms are clearly spoken or written.
Implied Contract:
Formed by conduct or actions of the parties.
Quasi Contract:
Not a real contract but imposed by law to avoid unjust benefit (like receiving goods by mistake).
Based on Performance
Executed Contract:
Both parties have performed their duties.
Executory Contract:
The contract is not yet fully performed.
Unilateral Contract:
Only one party has to do something (e.g., reward for finding lost item).
Bilateral Contract:
Both parties promise to perform duties (most business contracts are like this).
Conclusion
The Contract Act, 1872 provides a full framework for different types of contracts. Knowing these types helps parties understand their legal rights and duties in every kind of agreement.
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