BUSINESS LAW

PROF ANANT AMDEKAR

6TH SEPTEMBER 2007

INDIAN CONTRACT ACT

2 a – When one person signifies his willingness to another to do or

abstain from doing with a view to obtaining the assent of such
other person then to such an act, promise or abstinence the first
person is said to have made an offer or proposal.

5 statements with explanation and examples:

1. to another – a person other than me
2. ensure that there are two or more parties
3. one party must break the silence
4. abstain from doing – to not do something
Egs: came together to not copy ans papers for students coming
together NOT to use nuclear weapons
International contract between 2 countries, therefore law says
coming together not to do something is good LOC – indo pak
line of control
5. Accent in English is a positive response, in law it could be a
negative response

Mere statement or mere wishful thinking is not an offer as it

doesn’t include a response

Offerer must communicate his offer to the offerree in a manner the

offerree wants the Offerer to explain it to the offerree
“Same sense”

2 b – acceptance: when the person to whom the offer is made

signifies his accent there to the other person is said to have
accepted the offer
The meaning of the word accent includes the word decent

Essentials of a Valid Acceptance:

1) Acceptance must be “Absolute” and “ Unqualified”

2) Acceptance must be communicated in the normal , usual,
customary or prescribed manner

Absolute means it must be the full offer, complete offer .Partial

acceptance is not acceptance of offer

Unqualified means as it is

Or both results into a counter offer one pen instead of the whole set
or price negotiation
No counter offer can be defined from time to time, place to place it
differs

Difference between “offer “and “counter offer”

Offerer and offerree change places

Acceptance will always lie with the offerree

Always identify the offerree

In law the commercial sense and legal sense might be different

INVITATION TO OFFER

I invite you tot give me an offer. I am not bound by my own

invitation. Giving of an advertisement does not bind anyone to get
married for sure to someone who responds to an advertisement egs
IPO
CONSIDERATION

When at the desire , offerree or any other person has done or

abstained from doing , does or abstains form doing, promises to do
or abstains from doing then to such n act, promise or abstinence
there is said to have been consideration between parties
3rd party to a contract – any party who is not a direct party, anyone
can be a 3rd party as long as both the parties mutually agree upon it.
The English contract act doesn’t consider a 3rd party

Agent / Dealer (Eureka Forbes)

Past, present, future or a combination of either, it is still a

consideration

Past: I start working form the 1st but the salary is next month which
is a future consideration for the services rendered in the past

ADDITIONAL REQUIREMENTS FOR A VALID

CONSIDERATION

1) For a consideration to be valid it must be a lawful

consideration for example: 2 parties enter into a contract for
killing then it is not a lawful consideration there fore in the
eyes of the law it cannot be considered a valid contract.
Giving and taking of bribe is unlawful.
2) No where in the law it is said that for a consideration to be
valid it must be consideration in terms of money i.e. barter
exchange is a valid consideration under the Indian Contract
Act .Love and appreciation is valid considerations.
3) What is an adequate consideration , is not a question of law
and it is best left to the parties to decide however if there is a
dispute between the parties and the matter reaches to the
court of law then the court can look into anything and
everything with respect to the consideration
ESSENTIALS OF A VALID CONTRACT:

1) There must be competent parties to the contract. Parties to the

contract must be competent.
2) Free consent from the parties to the contract
3) Object , consideration in the contract must be lawful
consideration and lawful object
Objective to earn is a noble cause but pick pocketing so as to earn
is illegal, she wants to pass her objective is legal but if she copies
the means are illegal
An act right from inception, through out its execution until
execution should be legitimate, even if somewhere down the line
0.001% is illegal then the whole thing is considered to be illegal
4) The act should not be expressly declared as void under any
other law which is enforced
Example: Indian penal code 302 killing is a legal wrong
Goods in India under the customs act payment of customs duty is
contra band, smuggling – Indian customs act and Indian penal code
is illegal
DJ Akeel – Dubai
Sanjay Dutt – Arms and destructions Act, processing arms is
illegal
Keeping dollars – foreign exchange act, max 90 days u can keep
foreign currency
Excise and salt act – pay excise duty
Hindu Marriage Act girl < 18, Boy < 21

FREE CONSENT:
Consent is said to be free unless it is caused by (obtained by) either
of the following:
i. Coercion
Is explained as:
1. An act forbidden under IPC – Indian Penal Code
2. use of force
 3. threatening
IPC – deals with criminal offenses, wrong mind, guilty mind broad
parameter, Intension matters the most
Physical assault – jail for 3 years
INTENTION MATTERS A LOT
Use of Force: physical force is a force for sure, mental force is
called DURESS
A lady who lost her husband was adamant to perform the last rites,
people said she can’t so she was suggested to adopt a male child
and under the given situation she did so in order to perform the last
rites of her husband .After the ritual the lady disowned the child,
and the organization forced her to raise the child
Judgment: The given circumstances amounted to mental pressure
therefore the lady was not bound to groom the child , mental force
is difficult to prove therefore there is no free consent and the law
cannot bind the lady to raise the child.

ii. Undue influence: It can be explained as :When one person I

in such a dominant position with respect to the other person
that the other person will do exactly the way the first person
wants him to do and while doing so he wont even counter the
basic question : Why should I do it? Etc Example : party
leader : party worker, religious leader : devotee
iii. Fraud :
iv. Misrepresentation
v. Mistake :
1) Mistake of Identity: export – import, shopping dos –
ownership – Indian importer, ship – Pearless, ship sank
in a hurricane – news after 15 days of search – total
complete loss. Indian importer submitted claim to the
insurance company , 15 days after that the goods
reached Mr. D’souza .He had already got the claims
.Insurance company claimed mistake of identity since
we have paid the insurance you pay us back and take
 your goods .Two ships with the same name “Pearless”
caused the mistake of Identity.
Transport and courier Industry, Airlines

Parties to the contract must be competent parties

2) Mistake Of Facts:

Parties to the contract must be competent parties.

Parameters for competency of parties:

1. Parties should be major
2. Party should be of sound mind
3. party should not be expressly disqualified under any
other law
Parameters for competency of the parties:
1) Party should be major

The age criteria for commercial contracts is 18 years and above

Hindu Marriage Act: 21 years for a boy but election age is 35 to
stand or fight for elections
Exception: when the court appoints a guardian for a child then in
that case the child turns major not at 18 but at 21 years of age
Why 3 more years? What are the situations?
Earthquake, homeless children without adoption , NGOs’ legal
responsibility to guardian as these children don’t have the tender
love and care of their natural parents they are granted 3 more years
to mature
2) Party should be of sound mind: (tough criteria):
unless you have a doubt you should take it for
granted the person is of sound mind .Law entitles
you to take this for granted the other person is of a
sound mind. Law entitles you to take this for granted
 the person is of a sound mind unless you have a
doubt , suspicion or proof
When ever there is regularity in unusual behavior – unsound mind
Sources of events – consistency in irregular behavior

3) Party should not be expressly disqualified under any

law:
Mr. Thakrey was disqualified to vote for his speeches / behavior in
the society
Mr. Arun Gaun – was sent outside municipal limits
While playing international matches if you have a red card given
then you are disqualified from playing international matches
SEBI takes action against rigging in the stock market etc
Students unqualified from giving exams

INSOLVENT PERSON CAN HE ENTER INTO A CONTRACT?

WHAT IS INSOLVENCY? When a person is not able to pay his
debts which are due for payment then only there is a question of
insolvency of a person example the day harshad Mehta died
conservatively known assets were more than his liabilities. An
administrator was handling all his assets and liabilities, 2nd or 3rd
floor of the high court building. All assets were under the
custodian. He had to continue the custodian for his monthly
expenses. He had a big flat in worli .His icon building value was
high when he got arrested he couldn’t pay related bills .Society
office cooperated until he fell ill so they filled a case for Rs 14 lacs
recovery of money form harshad Mehta judge declared him
insolvent. Assets were sold to pay his liabilities. When it mattered
he couldn’t pay.
Insolvency is not a permanent disease. Insolvency is a passing
phase. Example: Amitabh Bacchan couldn’t pay ABCL dues ,
banks cooperated ultimately the bank attached his bungalow Rs 60
– 65 crores .His brand value was Rs 100 crores .First payment for
KBC was Rs 75 crores .
Inheritance in a joint family is big but as on date one can’t sell
your family assets and raise cash.

WHETHER LUNETIC PERSON IS COMETENT TO ENTER

INTO A CONTRACT?

1. What is lunacy of a person? mental toughness , regularity of

irregular behavior
2. normal phase in the life of a lunatic is called as “LUCID
INTERVALS”
3. If a contract is entered into in which the person passes
through lucid intervals it is a valid contract OPTIONS U
HAVE :
4. alternatively get a court order to prove he is insane and attach
his property to make good your loss
5. wait until the person passes through lucid intervals again
6. Forget it!

WHETHER A DRUNKEN PERSON IS COMETENT TO

ENTER INTO A CONTRACT?
1) When is a person considered to be drunk? A person
who under the influence of alcohol cannot take rational
decisions
2) Law says , contract with a drunkard is a avoidable
contract at the option of the drunkard

WHETHER MARRIED WOMEN IS COPETENT TO ENTER

INTO A CONTRACT?
After marriage wife becomes the property of the husband so if then
the property owner should decide how the wife behaves
WHETHER MINOR IS COMPETENT TO ENTER INTO A
CONTRACT?
 Because law says minor can enter into a contract but he can only
enjoy profits and benefits but he cannot be liable for losses or
liabilities

1965 – Minors were exploited wanton mark research results are

stunning:
Kalbadevi – business hub had 3 – 4 storied buildings, tea maker
contract, he employs minors at the age of 9, 10, 11. On any given
day a child climbs 1000 stairs. He gets one meal and a small area.
A case reached a court, chief justice of India decided to make a
law. Minor is not competent to enter into any contract, it continued
to 4 – 4.5 yrs. Again a similar case reappeared, another judge
realized the plight of minors has not changed so in 1989 the law
was amended as minor can enter into a contract, can enjoy benefits
but will not suffer losses. A servant below the age of 14 is
employed the owner can be jailed

HISTORIC CASE 40 YEARS BACK

A minor girl child contracted with a film maker with father .After
3 – 4 shoots she refuted to shoot .Producer suffered losses .He filed
a case against her father, shooting must be completed. Judgment:
Minor cannot bed forced to undergo for a liability. Father cannot
also be held responsible
When you are dealing with a minor, the law will put more
responsibility on a major. Child marriage, parents can be jailed.

TYPES OF CONTRACTS:

1. CONTRACTS OF UBERRIMAE FIDI : means

contract entered into on the basis of utmost good faith

Elements of contract are eon good faith examples:

1. contract of delegation of authority
2. contract between trustee and beneficiary
 3. dean of the institute , principal of school and
director of a company
4. contract of guarantee
5. contract of marriage

2. WAGER CONTRACTS: It can be explained as a

contract to give money or money’s worth upon
ascertainment of some uncertain event
Features of a Wager Contract
1) Event must be uncertain : when you know or you
don’t know if it will happen
2) Knowing in my heart that it is uncertain I still try
to ascertain it either way
3) I don’t stop , go a step forward , put my money ,
claim , put my stake there at Example : it will rain
heavily at 10 am SV Road , winner wins Rs 1000
Therefore all contracts of the nature of betting and
gambling are called wager contracts. All wager
contracts are illegal .Void – Abs – Initial i.e. they are
wrong right from the beginning.
There are a few contracts that look like wager
contracts they have the color of wager contracts but
they are not really wager contracts – are called Valid
Wager Contracts. Example
1. Horse races conducted at recognized centers and
betting done there at central government has
recognized it at mahalaxmi race course pune etc
2. Lottery business recognized by state government,
union territories, therefore even all the online
recognize versions of lottery are legal.

King is always right Long live the king, therefore the

government is always right
3. Practically , denoted the wager contracts harshness, it
is used as a loop hole
 4. whenever you require an element of shell or knowledge
then such contracts are capable of being termed as valid
wager contracts
It is at the discretion of the judge
Intension for noble contracts, tournament quiz, crosswords, KBC –
3rd provision was for these. 9 / 10 times it has been misused in the
following ways:
1 scratches a card and wins a martin
2 radio fm question answers prize 4 options 3 r definitely wrong
like where is tag meal
Located in India
3 options and futures are valid contracts as they are recognized by
SEBI – securities and exchange Board of India.
It has the color of a wager contract but the government has
recognize dot the commodity market as recognized it

Lottery is major revenue for the state

WAGER: means ascertaining something which is uncertain. Law

has not defined what is betting and gambling – whenever the
outcome of an event is disproportionate then
1. Whether casino wager or valid wager? only if it is
government recognized like in USA , LA wager – In India ,
soon it will be legal not wager even in India
2. casino – wager contract but last 5 yrs young dynamic
politicians to give Casio the industry status
3. temporary license – economy of area is under tourism to get
for gain exchange – goat , Mumbai , japer
4. Whether cock fights and bull fights are wager?
5. serpent etc are involved , collector but not legal
6. entertainment goes to the extent of injury or death
7. betting is an integral part of these events
8. whether pool parlors – keep your eyes and ears open
 1. shops and establishment act – pool parlor
2. entertainment license
3. only for the sake of entertainment
4. for this municipality charges Rs 5000 per table per month
5. 5 tables maximum 12 hrs – 9 am to 9 pm not late nights one
frame – 10 – 15 minutes Rs 20 per frame , Rs 7000 per day
6. statutory + illegal costs + imported tables + maintenance coat
is high + VAT + Police + AC therefore betting at pool parlors
is encouraged
7. Hotel – murder – owner questioned Hotel BAWA
International – custody for questioning
8. Flat empty – owner arrested for disposing drugs

CONTRACT OF GAURANTEE
A contract to perform promise or discharge liability of a 3rd person
in case of his default

FEATURES OF CONTRACT OF GAURANTEE

rd
1. The words of a 3 person suggest , you require minimum 3
parties
2. A person who gives guarantee is called as SURETY
3. A person with respect to whom the guarantee is given is
called a principal debtor
4. person to whom the guarantee is given is called as creditor
5. It is also termed as a multi party contract
6. The role of the surety is: dormant or inactive or passive until
the time there is a default on the part of the principle debtor.
7. But the moment there is a default on the part of the principle
debtor the role of surety becomes immediately active as if it
was always there (OMNIPRESENT )
8. all the parties to the contract of guarantee must give their
consent simultaneously i.e. at the same time it is called as a
concurrent consent

9. One single contract – all agree at the same time.

 10. Not all conditions are for al parties.
Eg :- IIPM, Students, visiting faculty,

11. common goal – IIPM does’nt provide the infrastructure

so the professor is not responsible for this.
12. When professor is not paid, if students don’t pay fees,
IIPM has to pay professor his fees.
13. Liabilty against surety must be “ legally enforceable “.

REMEDIES FOR BREACH OF CONTRACT

Criteria for damages as remedy:-

1. Party must have suffered as loss is quantifiable in monetary

terms.
2. Even if party has not suffered any material or monetory loss,
still it may be entitled for nominal damages as remedy.
3. In India, damages are given as a matter of compensation and
generally not as a matter of punishment.

Eg:- Family of husband , wife & kid go for an outing., kid is

happy, makes a list of demands. Parents try to take maximum care
but inspite of this the child wants pepsi , parents say no , not good
for health. @ nd demand , I m hungry , I want to eat peppy, parents
say no, not good for health, child is unhappy , restless, loses his
patience, child sees wada pav, steals food, gets his pray, vendor
shouts “ chor chor chor”, i.e thief, people run behind child at the
mid point of the junction parents realize this . they solve the
situation to get back the custody of the child. People around are
gossiping, commenting, parents loose their patience. Parents feel
good to be able to handle the situation . but the child learns a
lesson of a life i.e. to rob. Parents are there to protect me so next
time wen the child is wit his parents he will run to grab the things.
He is happy to get the attention , thus this becomes a habit, parents
think that the child’s company is wrong. Parents must explain or
punish the child mildly to teach him law and how to behave in the
society.

4. Book written by the 1st lady IPS officer, Kiran Bedi –

Childhood has laid petty crime foundation to make criminals.
5. In India damages are given as a matter of compensation and
generally not as a matter of punishment. The very word
“compensation” means nearly equal to the loss , but never
more.
Eg:- Monsoon Konkan Accidents , ministerval sympathise, family
will get Rs. 50,000 if loss of members but it hardly gets executed ,
physically handicapped gets 10,000 .
Exemption from tax Eg. Salman Khan hit and run case who ever
goes to the court has to prove his case. Bills given by the sufferer
loss of job and sufferings for months

6. Philip Morris , cigarette company paid 60 yr old lady in USA

for cancer , as damages for smoking their cigarette for the
last 40 yrs under the pretext for not educating her for the
same. That there is a possibility of her getting cancer if she
smokes their cigarettes.
7. Reliance did rigging, SEBI put only Rs. 5,00,000 as penalty.
 SALE OF GOODS ACT 1980

As the very name suggests this law deals with the sale & purchase
of goods. Therefore the seller , purchaser , and goods all of the
contract act is related to the sale of goods are as applicable:-

Before 1930, Section 150 and beyod in the contract act

were governed by the Indian contract Act .

But the Britishers realized it requires a differenta act ,

section 120 and beyond, amended it and made the sale of goods
act. The roots of this act are in The Indian Contract Act.
SELLER:-
Seller is a person who sells or agrees to sell similarly purchaser is a
person who purchases or agrees to purchase.

Sold & purchase suger – so sale of goods act governs it,

grosser delivers paste, present and future consideration not only
completed, executed and even incomplete contracts even executary
contracts are under the sale of goods act.

Executary Contracts:-
Which are agreed upon but yet to be completed are called
executary contracts.
If credit sells are greater then cash sells 180 % future
contracts

GOODS:-

Section 2(o) define goods – Every kind of movable property

( excluding actionable claims and money And includes shares ,
stocks, growing crops and anything which is attached to earth or
forming part of land which has been agreed to be served ( to cut)
before sale or under the agreement of sale.
INTERPRETATION IN THE GIVEN CONTEXT:-

1. Movable property:- All immovable property is governed by

transfer of property act – not the sale of goods act. It should
be movable so intangible goods are governed by the contract
act.
2. Later, at the end of the learning the meaning of goods.
3. And includes any such expression means there is no
exhaustive definition so the better way is to give examples.
4. There wud be more such eg.
Eg:- Shres include security, debentures, bonds, deposit,
stock, raw materials, services, finished goods, steel it comes
under the definition of good, by dealears of TV for a dealer it
stock of the goods . For reliance it’s a finished product, for
me it is raw material – steel good, chair manufacturing
goods.

1. Hire purchase contract.

2. Sale by sample:- can be explined as it is either that very
product or representatiove version thereof. Is shown to
you. And I is not only shown to you but you also get an
opportunity to use the product and then decide whether
to buy or not to buy. Wheras , in sale by description,
whenever u don’t get an opportunity to use a product it
is all sale by description.
3. TSN:- Tele shopping Network – sale by description not
sale by sample..
4. Use of a product shows the difference.
5. TBZ- Tribhuvandas Bhimji Zaveri – Sale by sample.

MONEY:-
1. Medium of exchange:- RBI act 1934
2. All banks under foreign exchange
3. Money is not included in moveble goods.
 4. Actionable claims – it can be explained as claims which arise
coz of action or in action on the part of one of the parties
wherein there is no intended transfer of ownership and
intended sale and purchase of goods

ESSENTIALS OF A VALID SALE:-

1. Competent parties
2. There must be a mutual consent
3. there must be a transfer of ownership of both the types –
physical and legal or written
4. Buyer must pay or agree to pay the price.
5. Mutual consent = free consent + intention to sell + intention
to purchase
6. Job Work.