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Question 5 (a) Sanjana joined a company named as Designers Cloths Ltd. as an Independent Director. In order to know more about the company, she wanted to inspect the books of account and minutes books of the Board Meetings held during the previous three years. The company is keeping the books of account and other records at its Registered Office, which is at Mumbai whereas Sanjana resides in Kolkata. Therefore, through power of attorney, Sanjana authorised her friend Avantika, who is a Chartered Accountant and does practice in Mumbai, to make an inspection of the books of accounts and minutes books of the meetings of the Board. Giving the relevant provisions of the Companies Act, 2013 and its Rules made thereunder, examine, whether Avantika can make inspection on behalf of Sanjana. (5 Marks) (b) A, B, C and D are the partners of Alpha LLP and have equal share in the profits and losses of the LLP. A has made an agreement to transfer 70% of his share in the profits of Alpha LLP to his daughter X. X wanted to access information about the trading transactions of Alpha LLP claiming that she is entitled to the information as she receives a percentage of profits from the LLP. The partners refused to grant her access. Does X have any remedy against the denial according to the provisions of the Limited Liability Partnership Act, 2008? Are the partners correct in denying access to X? (5 Marks) (c) (i) In a contract of sale, Mr. A fraudulently sold certain unmarketable goods to Mr. B. Now Mr. A is liable for the fraudulent activity under both the Indian Contract Act, 1872 and the Sale of Goods Act, 1930. State the provision as per the General Clauses Act, 1897 as to whether his offence is punishable under the both the Acts? (ii) Mr. P bought a car from Mr. G who was his friend. Mr. P did not check the car or test drive it. Whether the purchase made could be said to be made in good faith? Explain with reference to the provisions of the General Clauses Act, 1897. (4 Marks)

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Detailed Solution & Explanation

(a) In terms of section 128(3) of the Companies Act, 2013 the books of account and other books and papers maintained by the company within India shall be open for inspection at the registered office of the company or at such other place in India by any director during business hours and in the case of financial information, if any, maintained outside the country, copies of such financial information shall be maintained and produced for inspection by any director subject to such conditions as prescribed in **Rule 4** of the Companies (Accounts) Rules, 2014. The financial information shall be sought for by the director himself and not by or through his power of attorney holder or agent or representative. As per the facts of the question, the books of accounts and other records including minutes books are maintained at the registered office of Designer’s Cloths Ltd. in Mumbai i.e. within India. Sanjana as the director of the company can inspect the books of accounts and minutes books. But she cannot authorize Avantika to make an inspection on behalf of her. (b) Whether X has any remedy against the denial? According to section 42 of the Limited Liability Partnership Act, 2008, the rights of a partner to a share of the profits and losses of the limited liability partnership and to receive distributions in accordance with the limited liability partnership agreement are transferable either wholly or in part. The transfer of right pursuant to this section does not, by itself, entitle the transferee or assignee to participate in the management or conduct of the activities of the limited liability partnership, or access information concerning the transactions of the limited liability partnership. In the given question, the partners of Alpha LLP are correct in denying access of information about trading transactions to X (daughter of A). X does not have any remedy against the denial by the partners of Alpha LLP. (c) (i) Whether offence is punishable under both the Acts? According to section 26 of the General Clauses Act, 1897, where an act or omission constitutes an offence under two or more CORPORATE AND OTHER LAWS enactments, then the offender shall be liable to be prosecuted and punished under either or any of those enactments, but shall not be punished twice for the same offence. Thus, Mr. A who is liable for the fraudulent activity under both the Indian Contract Act, 1872 and the Sale of Goods Act, 1930, will be prosecuted and punished under either or both the enactments but shall not be liable to be punished twice for the same offence. (ii) Whether Purchases made could be said to be made in Good Faith? According to section 3(22) of the General Clauses Act, 1897, a thing shall be deemed to be done in ‘good faith’ where it is in fact done honestly, whether it is done negligently or not. The question of good faith under the General Clauses Act, 1897 is one of fact in Maung Aung Pu v. Maung Si Maung, it was pointed out that the expression ‘good faith’ is not defined in the Indian Contract Act, 1872 and the definition given here in the General Clauses Act, 1897 does not expressly apply the term on the Indian Contract Act. The definition of good faith as is generally understood in the civil law and which may be taken as a practical guide in understanding the expression in the Contract Act is that nothing is said to be done in good faith which is done without due care and attention as is expected with a man of ordinary prudence. An honest purchase made carelessly without making proper enquiries cannot be said to have been made in good faith so as to convey good title. Hence, in the given case, the purchase of car by Mr. P cannot be said to be made in good faith.

Key Concepts to Understand

Sale of Goods

A contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price (Section 4, Sale of Goods Act, 1930). In a 'Sale', property in goods passes immediately; in an 'Agreement to Sell', it passes in future.

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