CMA Foundation Fundamentals of Laws and Ethics Syllabus

What is the effect of a bilateral mistake of fact on a contract?

A bilateral (mutual) mistake of essential fact makes the agreement void (Sec. 20). A unilateral mistake of fact generally does not affect the contract's validity. A mistake of law of the country is no excuse.

What is meant by lawful object and lawful consideration (Sec. 23)?

The consideration or object is unlawful if it is forbidden by law, defeats the provisions of any law, is fraudulent, involves injury to person/property, or is immoral or opposed to public policy. Such agreements are void.

List the agreements expressly declared void under the Indian Contract Act.

Agreements in restraint of marriage (Sec. 26), trade (Sec. 27), legal proceedings (Sec. 28); agreements that are uncertain (Sec. 29); wagering agreements (Sec. 30); and agreements to do impossible acts (Sec. 56).

What is a wagering agreement and its legal effect?

A wagering agreement is a bet on an uncertain future event where parties have no interest other than the stake; one wins and the other loses. It is void (Sec. 30), and collateral transactions are generally valid in India (except in some states).

What is a contract of sale under the Sale of Goods Act, 1930?

A contract of sale is a contract whereby the seller transfers or agrees to transfer the property (ownership) in goods to the buyer for a price (Sec. 4).

Distinguish between a sale and an agreement to sell.

In a sale, ownership transfers immediately (executed contract). In an agreement to sell, ownership transfers at a future time or on fulfilment of conditions (executory). Risk follows ownership in a sale; in agreement to sell the seller bears the risk.

What are the essentials of a contract of sale of goods?

Two parties (buyer & seller), goods as subject matter, transfer of property, price (money consideration), and all essentials of a valid contract.

Distinguish between a condition and a warranty under the Sale of Goods Act.

A condition is a stipulation essential to the main purpose of the contract; its breach gives the right to repudiate. A warranty is collateral/subsidiary; its breach only gives a right to claim damages, not to reject the goods.

What does the doctrine of 'Caveat Emptor' mean?

Caveat emptor means 'let the buyer beware' — the buyer is responsible for checking the suitability/quality of goods before purchase; the seller is not bound to disclose defects, subject to exceptions like fraud and implied conditions of fitness.

State the general rule on transfer of ownership in specific goods.

In a sale of specific or ascertained goods, property passes to the buyer when the parties intend it to pass (Sec. 19). In unascertained goods, property passes only when goods are ascertained (Sec. 18).

State the rule 'Nemo dat quod non habet' and its meaning.

It means 'no one can give what he does not have' — a seller cannot transfer a better title than he himself has. Exceptions include sale by a mercantile agent, estoppel, and sale by a person in possession under a voidable contract.

On whom does the risk of loss of goods fall (Sec. 26)?

Risk passes with property (ownership): 'Res perit domino.' Unless otherwise agreed, goods remain at the seller's risk until property is transferred, after which they are at the buyer's risk, irrespective of delivery.

What is meant by performance of a contract of sale?

Performance means the seller delivering the goods and the buyer accepting and paying for them. Delivery and payment are concurrent conditions unless otherwise agreed (Sec. 31-32).

Who is an 'unpaid seller' under the Sale of Goods Act (Sec. 45)?

A seller is unpaid when the whole price has not been paid/tendered, or a bill of exchange/negotiable instrument received as conditional payment has been dishonoured.

What are the rights of an unpaid seller against the goods?

Right of lien (retain possession), right of stoppage in transit (when buyer becomes insolvent), and right of resale. Where property has not passed, he also has a right to withhold delivery.

Define a negotiable instrument under the Negotiable Instruments Act, 1881.

A negotiable instrument is a written document transferable by delivery (or endorsement and delivery) that entitles the holder to receive money. The Act recognizes three types: promissory notes, bills of exchange, and cheques (Sec. 13).

Distinguish between a promissory note and a bill of exchange.

A promissory note is an unconditional written promise by the maker to pay (two parties: maker & payee). A bill of exchange is an unconditional written order by the drawer directing the drawee to pay (three parties: drawer, drawee, payee).

What is a cheque, and how does it differ from a bill of exchange?

A cheque is a bill of exchange drawn on a specified banker and payable on demand (includes electronic/truncated cheques). Unlike a general bill, a cheque is always drawn on a banker, payable on demand, and needs no acceptance.

Who are the parties to a bill of exchange?

Drawer (who makes/orders), Drawee (on whom it is drawn; acceptor once accepted), and Payee (to whom payment is to be made). Other parties may include holder, holder in due course, and endorser/endorsee.

Who is a 'holder in due course' under Sec. 9?

A holder in due course is a person who, for consideration, becomes the possessor/payee of a negotiable instrument before its maturity, in good faith and without notice of any defect in the title of the transferor.

What is negotiation under the Negotiable Instruments Act?

Negotiation (Sec. 14) is the transfer of an instrument to another person so as to constitute that person the holder. A bearer instrument is negotiated by delivery; an order instrument by endorsement and delivery.

What is an endorsement and what are its main kinds?

Endorsement is signing on the back/face of an instrument to transfer it. Kinds: blank (no endorsee named), full/special (endorsee named), restrictive, partial, conditional/qualified, and 'sans recourse' endorsement.

When is a negotiable instrument said to be dishonoured?

It is dishonoured by non-acceptance (only bills, when the drawee refuses to accept) or by non-payment (when the maker/acceptor/drawee fails to pay on maturity/presentment).

What is 'noting' of a negotiable instrument?

Noting is the authenticated minute recorded by a notary public on a dishonoured instrument stating the fact, date, and reason of dishonour. It is a preliminary step to protest (Sec. 99).

What is a 'protest' under the Negotiable Instruments Act?

A protest is a formal certificate issued by a notary public attesting the dishonour of a bill/note (Sec. 100). It serves as legal evidence of dishonour, especially for foreign bills where protest is compulsory.

Define a company under the Companies Act, 2013.

A company is an association of persons incorporated under the Companies Act (Sec. 2(20)) having a separate legal entity, perpetual succession, common seal, and limited liability of members.

What are the key features of a company as a separate legal entity?

Separate legal personality (Salomon v Salomon), perpetual succession, limited liability, transferability of shares, common seal, capacity to sue and be sued, and ownership of property in its own name.

Distinguish between a private company and a public company.

A private company restricts share transfer, limits members to 200, prohibits public invitation for shares, and needs minimum 2 members/2 directors. A public company has minimum 7 members/3 directors, no transfer restriction, and can invite the public.

What is a One Person Company (OPC)?

An OPC (Sec. 2(62)) is a private company with only one member. It must nominate a nominee who becomes member on the death/incapacity of the sole member, and needs a minimum of one director.

What are the stages in the formation of a company?

Promotion, Incorporation (registration with Registrar and obtaining Certificate of Incorporation), Capital subscription, and Commencement of business (filing declaration before starting business/borrowing).

What is the Memorandum of Association (MOA) and what are its clauses?

The MOA is the charter defining the company's constitution and scope. Clauses: Name, Registered Office (situation), Objects, Liability, Capital, and Subscription/Association clause.

Distinguish between the Memorandum and Articles of Association.

The MOA is the charter defining the company's powers and external relations; the AOA contains internal rules and regulations for management. MOA is supreme; AOA is subordinate to MOA and the Act.

What is the doctrine of 'ultra vires' in company law?

Acts beyond the powers/objects stated in the MOA are ultra vires (beyond the powers) and void; they cannot be ratified even by all shareholders, protecting creditors and investors.

What is a prospectus under the Companies Act?

A prospectus (Sec. 2(70)) is any document inviting offers from the public for the subscription or purchase of shares/debentures of a company or for any securities (includes red herring, shelf, and abridged prospectus).

Distinguish between shares and debentures.

A share represents ownership/capital; shareholders are owners earning dividends and have voting rights. A debenture is a loan/debt; debenture holders are creditors earning fixed interest with no voting rights, often secured against assets.

What are the main types of share capital?

Authorised (nominal) capital, Issued capital, Subscribed capital, Called-up capital, Paid-up capital, and Reserve capital. Shares are mainly of two types: equity shares and preference shares.

What is the minimum quorum and notice for a company general meeting?

Notice of at least 21 clear days must be given for a general meeting. Quorum for a private company is 2 members; for a public company it is 5, 15, or 30 members depending on the number of members.

Distinguish between an ordinary resolution and a special resolution.

An ordinary resolution is passed by a simple majority (votes in favour exceed votes against). A special resolution requires votes in favour to be at least three times (75%) the votes against, with notice specifying the intention.

What is ethics and how does it relate to business?

Ethics is the branch of philosophy dealing with moral principles distinguishing right from wrong conduct. Business ethics applies these moral principles and standards to business behaviour and decision-making.

Why is ethics important in business?

It builds trust and reputation, ensures legal compliance, improves employee commitment and customer loyalty, protects stakeholders, reduces risk, and contributes to long-term sustainability and profitability.

What is corporate governance?

Corporate governance is the system of rules, practices, and processes by which a company is directed and controlled, balancing the interests of stakeholders such as shareholders, management, customers, and the community.

What are the key principles of good corporate governance?

Transparency, Accountability, Fairness (equitable treatment), Responsibility, and Independence. These ensure ethical conduct and protection of stakeholder interests.

What is Corporate Social Responsibility (CSR)?

CSR is a company's commitment to operate ethically and contribute to economic development while improving the quality of life of the workforce, their families, the local community, and society at large.

What is the statutory CSR requirement under Sec. 135 of the Companies Act, 2013?

Companies meeting thresholds (net worth ≥ Rs.500 crore, or turnover ≥ Rs.1000 crore, or net profit ≥ Rs.5 crore) must spend at least 2% of their average net profit of the preceding three financial years on CSR activities.

What is the difference between a contingent contract and a wagering agreement?

A contingent contract (Sec. 31) depends on a collateral uncertain event and parties have a real interest; it is valid. A wagering agreement is a bet where parties have no interest beyond the stake; it is void.

What is 'consensus ad idem' and why is it essential?

Consensus ad idem means 'meeting of minds' — both parties agree on the same thing in the same sense. It is essential for valid consent; absence of it (as in mutual mistake) makes the agreement void.

What is the difference between existing goods, future goods, and contingent goods?

Existing goods are owned/possessed by the seller at the time of contract; future goods are to be manufactured/acquired after making the contract; contingent goods are a type of future goods whose acquisition depends on an uncertain event.

What is meant by 'days of grace' for a negotiable instrument?

When an instrument is not payable on demand, three days of grace are added to the due date to calculate the date of maturity. Instruments payable on demand have no days of grace.

What is the doctrine of 'lifting/piercing the corporate veil'?

It is disregarding the separate legal entity of a company to hold the members/directors personally liable, applied in cases of fraud, improper conduct, tax evasion, or where the company is a sham/facade.