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2 Meaning and Nature of Law Characteristics of law Law and morality Ignorance of law is no excuse 1.3 Sources of Indian Law Primary sources of Indian law Secondary sources of Indian law 1.4 Legal Environment of Business 1.5 Mercantile Law Meaning and nature Objectives Sources of Indian business law 1.6 Some Basic Legal Concepts Concept of legal entity Concept of legal rights Concept of property Intellectual Property Rights (IPR) Concept of ownership Concept of possession 1.7 Essentials of Law 1.8 Summary
1.9 Terminal Questions 1.10 Answers 1.1 Introduction This unit, you begin by answering the question, “What is law?” This involves the meaning and nature of law. The classification of law, such as civil law and criminal law; substantive and procedure law is illustrated. In this unit you also study the different sources of Indian law such as custom, precedents and the legislation. Objectives This introductory unit on law will help you get familiar with the concept of business law and other basic legal concepts related to law. After studying this unit, you should be able to: · Explain the nature of law · Describe sources of Indian law · Define business legal environment and mercantile law · Analyze the essentials of law 1.2 Meaning and Nature of Law The term ‘law’ is used in many senses: you may speak of the law of physics, mathematics, science, or the laws of the football or health. In its widest sense, ‘law’ means any rule of conduct, standard or pattern, to which actions are required to conform; if not conformed, sanctions are imposed. When we speak of the law of a State, we use the term ‘law’ in a special and strict sense. 1.2.1 Characteristics of law 1. Law is a body of rules. These rules prescribe the conduct, standard or pattern to which actions of the persons in the state are required to conform. However, all rules of conduct do not become law in the strict sense. We resort to various kinds of rules to guide our lives. For example, our conduct may be guided by a rule such as “do not be arrogant” or “do not be disrespectful to elders or women”. These are ethical or moral rules by which our daily lives are guided. If we do not follow them, we may lose our friends and their respect, but no legal action can be taken against us. 2. Law is for the guidance or conduct of persons – both human and artificial. The law is not made just for the sake of making it. The rules embodied in the law are made, so as to ensure that actions of the persons in the society conform to some predetermined standard or pattern. This is necessary so as to ensure continuance of the society. No doubt, if citizens are ‘self-enlightened’ or ‘self-controlled’, disputes may be minimized, but will not be eliminated. Rules are, therefore, drawn up to ensure that members of the society may live and work together in an orderly manner. Therefore, if the rules embodied in the law are broken, compulsion is used to enforce obedience, and certain consequences ensue. 3. Law is imposed. Law is imposed on the members to bring about an order in the group, enabling it to continue and prosper. It is not something which may or may not be obeyed at the sweet will of the members of society. If you cannot impose a rule it is better not to have it. Thus, law is made obligatory on the members of the society. 4. Law is enforced by the executive. Obviously, unless a law is enforced it ceases to be a law and those persons subject to it will regard it as dead. For example, if A steals B’s bicycle, he may be prosecuted by a court and may be punished. Also, the court may order the restitution of the bicycle to its rightful owner i.e., B. If the government passes many laws but does not attempt to enforce them, the citizens lose their respect for government and law, and society is greatly weakened. The force used is known as sanction which the state administers to secure obedience to its laws.
5. The state. A state is a territorial division, with people therein subject to a uniform system of law administered by some authority of the state. Thus, law presupposes a state. 6. Content of law. The law is a living thing and changes throughout the course of history. Law responds to public opinion and changes accordingly. Law can never be static. Therefore, amendments are made in different laws from time to time. For example, the Monopolistic and Restrictive Trade Practices Act, 1969, has been subjected to many amendments since its inception in 1969. 7. Two basic ideas involved in law. The two basic ideas involved in any law are: (i) to maintain some form of social order in a group and (ii) to compel members of the group to be within that order. These basic ideas underlie formulation of any rules for the members of a group. A group is created because first, there is a social instinct in the people to live together and secondly, it helps them in self-preservation. Rules are made by the members of the group, so that the group doesn’t whither away. 8. Law is made to serve some purpose which may be social, economic or political. Some examples of ‘law’ in the widest sense of the term. ‘Law’ in its widest sense may include: (i) Moral rules or etiquettes, the non-observance of which may lead to public ridicule, (ii) Law of the Land the non-observance of which may lead to arrest, imprisonment, fines, etc., (iii) Rules of international law, the non-observance of which may lead to social boycott, trade-sanctions, cold war, hot war, proxy war, etc. 1.2.2 Law and morality It was stated earlier that one of the characteristics of law is that it is for the guidance or conduct of persons. This is so in the case of morality also as there is a close relationship between the two. In fact law not only has its origin in morality, but also is easier to enforce when people yield to government for moral reasons. However, a person may be morally bound but not legally. Thus, if a young person does not show respect for an elderly person on the street, the law will take no action, although he stands condemned by the moral judgment of people on the street. On the other hand, the law occasionally has to decide on a person who is not morally at fault. For example, X appoints Y as his agent. Y enters into contact with Z on behalf of X. Y commits fraud in the transaction and thereby injures Z. X is bound to compensate Z. Further, there are some actions in which both morality and legality are involved.
Figure 1.1 1.2.3 Ignorance of law is no excuse This is the literal translation of maxim “ignorantia juris non excusat”. Every member of the society is expected that his actions conform to a set pattern or standard as reflected in legal rules. For this purpose, he is presumed to know the legal rules. He cannot take the plea that he did not know them. No doubt, in practice, he cannot learn and know all the laws of the land, but he can obtain expert guidance from those who possess legal knowledge. Thus, he has access to books on law and to those persons who are experts in legal matters. Therefore, the maxim “ignorantia juris non excusat” places a burden on every member of the society with the knowledge of law. In other words, “Ignorance of law is not a good excuse”. Self Assessment Questions
which are adopted by the courts and applied as sources of law because they are generally followed by the political society as a whole or by some part of it”. may be divided into two broad categories: (i) Primary sources and. It is sometimes called ‘enacted law’ as it is brought into existence by getting Acts passed by the legislative body. ‘Customary Law’.1. (e) The Supreme Court. established by usage and regarded as legally binding by those to whom the rules are applicable. we follow the personal laws of Hindus. In simple words. Customary law Customs have played an important role in making the law and therefore is also known as customary law. made applicable.1 Primary sources of Indian law The primary sources of Indian law are: (a) customs. (c) statutes and (d) personal law. it becomes a custom. only such decisions which lay down some new rules or principles are treated as judicial precedents.3 Sources of Indian Law The main sources of modern Indian Law. 1. (d) The Parliament. “it is the uniformity of conduct of all persons under like circumstances”. 1. It is called Statute Law because it is the writ of the state and is in written form (jus scriptum). they cannot substitute their opinions for the established rule of law. as administered by Indian courts. A _______________ is a territorial division. However. (ii) Secondary sources. with people therein subject to a uniform system of law administered by some authority of the state. expressly or by implication. Thus. Which one of the following possess the power of supreme legislation in India: (a) The President. The literal meaning of this phrase is “stand by the decision”. it is the duty of the judges to follow the same. (b) The Lok Sabha. were there is a settled rule of law. (c) The Rajya Sabha. 1.3. the Constitution empowers the Parliament and state legislatures to promulgate law for the guidance or conduct of persons to whom the statute is. the courts are required to apply the personal law of the parties. Judicial precedents are an important source of law Judicial precedents are another important source of law. This law is created by legislation such as Parliament. Thus in certain matters.3. ‘Statute’ – an important source of law The statutes or the statutory law or the legislation is the main source of law. It is a generally observed course of conduct by people on a particular matter. (b) judicial precedents (stare decisis). This is known as the doctrine of ‘stare decisis’. Mohammedan and Christians. In such cases. a point of issue between the parties to a dispute is not covered by any statute or custom. When a particular course of conduct is followed again and again. Personal law Many times. in the words of Keeton.2 Secondary sources of Indian law . may be defined as “those rules of human action. It is based on the principle that a rule of law which has been settled by a series of decisions generally should be binding on the court and should be followed in similar cases. These rules of law are known as judicial precedents. 2. In India.
. there is some doubt as to the interpretation of any provisions of these Acts or where certain branches of the Law Merchant have not been codified. supplement or override a narrow rigid system of existing law of the land. has to conform to the peculiar circumstances and conditions prevailing in this country. developed certain rules based upon customs and usages to govern their mercantile transactions. Where. yet in its application our courts have to be selective. 3. Equity and Good Conscience. The English law. 4. Thus. Nowadays. 1872. however. the Scale of Goods Act 1930 and the Negotiable Instruments Act. Therefore. The Indian Contract Act. the courts in India look to English decisions on the point. . the principles of equity come handy to the judges who exercise their discretion often on equitable considerations. is superior to and can override any rule of Common Law or equity. justice. Statute law. like the common law. Now we shall briefly describe the main sources of English law: 1. It can pass any law it pleases and can override its own previous Acts and the decisions of the courts. Equity. However. Justice.e. the ‘equity’ is unwritten and is a supplement to common law as a source of law. Even though the bulk of our law is based on and follows the English law. ‘equity’ means a body of legal doctrines and rules emanating from the administrations of justice. in its application to India. These rules were known as Lex Mercatoria or the Law Merchant. Its evolution like that of equity can be traced to unsuitability of Common Law so far as the commercial transactions were concerned. 2. English law is not very important source of Indian law. This source consists of all those unwritten legal doctrines embodying customs and traditions developed over centuries by the English courts. are the guiding force behind most of the statutes in our country and the decisions of the courts. The Common Law was found to be unsatisfactory in dealing with disputes between merchants. ‘public policy’. The Statute law consists of the law passed by the Parliament and therefore. in statutes and by the judges in their judgements is based on principles of equity. therefore. The development of equity as a source of law occurred due to rigours and hardships of the Common Law. It is another important source of law and is based to a great extent on customs and usages prevalent among merchants and traders of the middle ages. developed to enlarge. The literal meaning of the term ‘equity’ is ‘natural justice’. are some of the very important Acts relating to business transactions. equity and good conscience. It is only when the courts do not find a provision on a particular problem in the primary sources of Indian Law that it my look to subsidiary sources such as the English Law. the Indian Partnership Act.The secondary sources of Indian Law are English Law and Justice. ‘public interest’. The law merchant or lex mercatoria. the common law is found in the collected cases of the various courts of law and is sometimes known as ‘case law’. where law is silent on any point or there is some lacuna in a statute. therefore. the greater part of the Law Merchant has been codified in India. But the equitable principles of law. Especially. 1882. English law The chief sources of English Law are: (i) the Common Law (ii) Equity. The authority of parliament is supreme but is subject to natural limitations and those laid down by the Constitution. For example. equity and good conscience In India we do not have. Common law. is ‘written’ law. The merchants. 1932. for guidance. i. The frequent use of terms such as ’good faith’. no did we ever had separate courts (as in England) administering ‘equity’. (iii) The law Merchant and (iv) The Statute Law. in its technical and narrower sense. Statute law.
The agreement between a manufacturer and his dealers may defeat the provisions of some law or the other. There may be fines or imprisonment if the conduct is declared a crime. The doctrine of judicial precedent is also known as the doctrine of: (a) Stare decisis. Law and business are closely related disciplines. But all nationalized banks in India tried to keep the prime lending rate artificially high by resorting to cartelisation which is violative of the MRTP Act. precedent and legislation. business people must take decisions within the framework of law otherwise sanctions will be imposed. the law and legal sanctions may be used to prevent certain conduct or to require that certain acts be done or to make business to comply to some requirement. developed to enlarge. (b) Custom. Almost every aspect of business is regulated by law. 5. There may be deficiency in the service provided by business. in the case of a company. custom and legislation. That is why we regard rule of law as the essence of civilised society. It emphasizes that laws ought to be general in character so that there is no arbitrariness in their exercise. Almost every aspect of business is controlled by law. and business which commits acts or omissions declared to be illegal is subject to sanctions. The banks arrived at the particular interest rate at the behest of the Indian Banks Association (IBA) and not by taking into consideration the cost of raising funds. 4.4 Legal Environment of Business The law is almost a universal human need. _____________ means a body of legal doctrines and rules emanating from the administrations of justice. which was obviously aimed at triggering off competition in the Indian economy. custom and precedent. the various provisions of the Companies Act. the Central Government gave complete freedom to Banks to fix interest rates. For instance. Products supplied may be defective. No society can exist without a legal order. Law is a major factor in business decision making. Their appearance in the legal history has been in the following order: (a) Legislation. 1956 and other allied laws are to be complied with for incorporation and commencement of business. there would be complete anarchy in society. The sanctions may include liability for damage if the conduct amounts to a breach of contract. the provisions of labour welfare laws impose a legal obligation on employers to provide certain benefits to their workers. It also emphasizes complete equality before law and equal conformity to law by officials and individuals. the legal environment of business is one of the major factors in regulating its conduct though some of the laws may act as facilitators for some segment of the business at some time or the other. production. supplement or override a narrow rigid system of existing law of the land. Thus. For instance. right from its very inception. Self Assessment Questions . The buying and selling. Thus. Without law. (b) Obiter dicta. Sometimes even the nature of the business organization itself imposes legal fetters right from the time of its formation. precedent. 1. Certain conduct is illegal. even when the contract does not provide therefore. Sometimes the law may require business to provide certain facilities to its employees. They complement each other. law is the foundation for the regulation of all business conduct and decisions. Even the installation of a business unit itself may involve observance of some legal provision or the other. 1969. The important sources of law are custom.Self Assessment Questions 3. restrictive or unfair trade practices. marketing and other functions of the business enterprise are to be conducted within a certain framework of legal environment. (c) Precedent. and legislation. We need institutions and a framework of rules and regulations to provide firmness to our mutual relations. will be guided by law. It provides certainty to our relationships. The decision making process of business. The contracts entered into by business with others may be held to be void or may be against public policy. In this way. In addition. Sometime ago. Certain business practices may amount to monopolistic.
6. Law and business are ______________ other. 7. Every aspect of business is controlled by _________________. 1.5 Mercantile Law 1.5.1 Meaning and nature Business Law may be defined as that branch of law which prescribes a set of rules for the governance of certain transactions and relations between: (i) business persons themselves, (ii) business persons and their customers, dealers, suppliers, etc., and (iii) business persons and the state. In the context of Indian business some of these transactions and relations concern the following: · Regulation of restrictive and unfair business practices, · Foreign exchange management and regulation, · Insolvency of business persons, · Promotion of conciliation, and arbitration for settlement of business disputes, · Regulation of companies incorporated under the Companies Act, 1956, · Negotiable instruments, · Patents, trade marks and copyrights, · Actionable claims, factoring and forfaiting, · Import and export regulation, · Contracts, sale of goods, guarantee, indemnity, bailment, pledge, charge, mortgage, partnerships, insurance, carriage of goods, · Prevention of food adulteration, regulation of essential commodities, · Regulation of stock exchange and financial securities, · Regulation and development of industries, · Economic offences, · Conservation of foreign exchange and prevention of smuggling activities, · Regulation of foreign contributions, foreign capital, · Excise, import and export duties, tax on income, wealth, etc. 1.5.2 Objectives From the description of the nature and meaning of business law, it can be inferred that the subject has many objectives to achieve. Firstly, law lays down the framework within which business activities shall be carried out. For example, X company issues an advertisement disparaging the products of its rival – Y company. Further X company prohibits its dealers
to deal in the products of Y company. These acts of X company are not in conformity with some legal rules prescribed by some statute or the other. Thus Y company can enforce its right which have been infringed by the X company. Secondly, a businessperson can resort to various judicial and quasi-judicial authorities against the government in case his legal rights have been violated. Thirdly, some laws are made to facilitate the business persons to achieve their goals smoothly. For example, business has been extended the facility of doing business by getting a company incorporated, deriving all the advantages of incorporation, such as separate legal entity, limited liability, etc. Fourthly, business law has social objectives too. The anti-competition laws, the pollution control laws, etc., are some of the examples. Further, laws concerning regulation of essential commodities and prevention of food adulteration in the interest of the consumers go a long way in serving social objectives. Lastly, business laws aim to prevent concentration of economic power and help in the adjustment of claims of individuals against each other. 1.5.3 Sources of Indian business law The sources of Indian business law are: 1. Statutes such as the Indian Contract Act, 1872, the Sale of Goods Act, 1930, the Partnership Act, 1932, the Negotiable Instruments Act, 1881, the Insurance Act, 1938. 2. Common law: In the absence of a legal provision on a subject, the Indian courts apply English Common Law. Even in interpreting Indian law, the Indian courts refer to English decisions. 3. Custom and usages: The Indian business customs and trade usages, unless excluded by a statute, are allowed to govern business transactions. The Negotiable Instruments Act, 1881, has not excluded the trade usage of ‘hundis’ as negotiable instruments. 4. Precedents: Courts make law too. Their main contribution comes in the form of decisions in law suits. The cases decided by the Supreme Court and other courts have served as precedents to follow by the lower courts. 5. Justice, equity and good conscience: The equitable principles of law developed by the English ‘equity’ courts are the guiding force behind most of the Indian statutes on business laws. Also as and when necessary, the Indian courts make use of these principles of equity in interpreting the Indian law.
Self Assessment Questions 8. Statutes, common law, precedents, etc. are ______________ of Indian business law. 9. Business law prescribes a set of rules for the governance of transactions and relations between ____________________. 1.6 Some Basic Legal Concepts 1.6.1 Concept of legal entity
Law applies only to persons. Thus, persons are the subjects of law. A person is an entity which is clothed with rights and duties. There are two kinds of persons. A person may be a natural or an artificial person. All human beings are natural persons. They are tangible and visible. On the other hand, an artificial person is a metaphysical body, intangible and invisible. An artificial person is brought into existence by following a procedure given in some law. For example, a public company is an artificial person and is brought into existence by following the procedure given in the Companies Act, 1956. Thus there must be at least seven persons for bringing a public company into existence. In this way, an artificial person comes into existence when law confers such a status upon a group of persons or any object or institution. An artificial person is also known as a legal entity when it comes into existence. It has one ‘corpus’ or ‘body’ in law, distinct from the members who constitute it. In addition to Companies Act, 1956, there are some other laws under which artificial persons can be brought into existence. Some such laws are: Societies Registration Act, 1860; Co-operative Societies Act, 1912. 1.6.2 Concept of legal rights We have mentioned earlier that a person is an entity clothed with certain rights and duties. The sources of different rights may be customary, statutory, contractual, personal laws, etc. Some of the rights, which a person has, are interest in life, or liberty or property or extending over domestic relations and even to contractual relations. Some of these interests are not recognised or protected by law. The rights recognised or protected by law alone are enforceable. These rights have their origin in some source or the other, such as custom, statutes, personal law, law of tort. 1.6.3 Concept of property There could be no such thing as business law, or even business, if there were no such thing as property. Thus the concept of property is very important in business law. In a layman’s restricted sense property means movable (personal property such as furniture) or immovable assets (real property such as land and buildings.) This is what is known as ‘tangible property’. Legally, however, the term ‘property’ refers neither to objects nor to land alone. In its legal sense, property refers to legally protected rights to use, possess, enjoy and dispose of a thing. Land and other physical objects can exist where there is no law, for example, rocks on the moon. However, property rights can exist only where there is some law to define and enforce them. Law protects people in the exercise of property rights. In this way, the law contributes to the value of things. 1.6.4 Intellectual Property Rights (IPR) A trademark, a copyright, or a patent right are incorporeal assets. These are known as IPR. For instance, musical copyright in respect of songs, tunes and literary and artistic copyright belong to the author as his property. Thus, in this case of IPR, the subject matter of proprietary interest is not the product (such as a book, a cassette), but the exclusive right of the author or singer or inventor to publish a book, record music, or manufacture a particular thing or allow others to do so only at his behest. 1.6.5 Concept of ownership The term ownership may be described as a bundle of rights in rem (against the whole world), having certain characteristics namely the right of unspecified duration, and use, and generally being inheritable and transferable. 1.6.6 Concept of possession It is said that law attaches great importance to mere possession even without ownership. Even a wrongful possession is protected. For example, an owner of property (say X) dispossess an occupant (say Y) without Y’s consent. X is liable to restore possession even though the occupant is unable to show any right to be in possession. Thus, even a trespasser, if allowed to be in occupation by negligence, cannot be disturbed even by the true owner. This is so as the trespasser is treated as a person having settled position. A wrong possession of property for a period of 12 years is known as adverse possession. It destroys the right of the owner vis-à-vis the occupant. A person acquires title to anything which is previously unowned. It is known as res-nullius. Self Assessment Questions 10. Custom is: (a) Neither written nor unwritten law;
These are: (i) Predictability. Law must be flexible enough to meet changing conditions. they would have certain remedies under the law. For example. which one is not the source of English law? (a) Common law (b) Business law (c) Equity (d) Statute law 1. The world is changing. As regards reasonableness of law’s coverage. Out of the following. the subject matter thereof must be considered reasonable by the people at large. Law must be reasonable both in its application and coverage. it is found that the existing law is incapable of tackling certain changes. Wide publicity should be given to the law enacted so as to give an opportunity to those affected by it to know its requirements. business people enter into contracts on the premise that if the other party fails to keep its promise. Law must be flexible in the sense that it must not be so rigid and unchanging as to be impossible to mould to the present. Therefore.(b) Both written and unwritten law. the old doctrine of “ignorance of law is no excuse” stands on its own feet. Law must be such that one is enabled to predict with some accuracy the legal consequences of an action. The rights which pertain to the realm of status which indicates the proposition of person in the eye of law in the society is known as. (c) Unwritten law (d) Written law. (a) Property rights (b) Information rights (c) Personal rights (d) None 12. then it must accommodate them by amendments thereto.7 Essentials of Law There are certain essentials which must be present in law in order to make it effective. a law that a large number of persons consider to be unreasonable will soon become ineffective. or in a customs. Self Assessment Questions 13. or in natural law”. The Indian Legal System handles cases in two separate ways _______________ and criminal. (ii) Flexibility and (iii) Reasonable application and coverage. 11. New inventions are being made. Activity 3: Suggest your overview on “The right has a source either in a contract. And. if at a later stage. However. . and consequences for non-compliance of those requirements.
What form of business organization is the best under a particular set of conditions? What advantage or disadvantage does it have over other forms of business? Glossary . This subject introduces some of the common forms of business organizations. Different types of organizations like Sole Ownership. Private Limited Company.8 Summary Business laws are essential for the students of management to understand the legal rules and aspects of business. Therefore. Just like any other study even business management is incomplete without a proper study of its laws. Partnership. Private law include (a) Family laws (b) Law of property (c) Law of contract (d) All of the above 15. Any form of business needs legal sanction.(a) Business law (b) Personal law (c) Substantive law (d) Civil law 14. including some forms unique to India like the Joint Hindu Undivided Family firm. Public Limited Company. Joint Stock Company along with the rationale for adopting these forms are explored. All the following laws include in public law EXCEPT a) Criminal law b) Constitutional law c) Law of tort d) Municipal law 16. it is imperative that a manager understands the various ways in which businesses can be organized. IPR stands for (a) Intellectual Promising Rights (b) Intellectual Property Rights (c) Indian Property Rights (d) International Property Rights 1.
sources 9. with people therein subject to a uniform system of law administered by some authority of the state.” Explain 6.10 Answers Answers to Self Assessment Questions 1. The legal constraints tend to control or limit the discretion of the business on the grounds that. Describe its (i) Objectives (ii) Legal provisions (iii) Impact on business and society. Complement 7. 1. knowledge of the legal environment of business is very necessary”. You must have come across some law or the other which has either been amended or enacted recently. 4. Comment. Statute Law: The statute law refers to the law laid down in the Acts of Parliament. usages and traditions which were developed over centuries by the English Courts. Law: Law is a body of principles recognized and applied by the state in the administration of justice. (d) 2. 2. (a) 4. What are the sources of Indian law? Discuss any one important source of law and justify why it is important. What are the nature and significance of business law? 5. “The study of law is not limited to learning legal rules. is protected by law. Law 8. business entities 10. State 3. “Possession. 3.9 Terminal Questions 1. Equity 6. State: A state is a territorial division. 1. Comment. Absolute rights cannot be conferred in the modern society.English Common Law: English common law is a system of law based upon English customs. (b) 5. Equity: It refers to that branch of the English law which developed separately from the common law. (c) . right or wrong.
There was total transparency at every stage of negotiation. Refer 1. MW gas fired plant.BJP combine ordered a review of the project.. the government would not go in for public tendering. The BJP had opposed the deal on various counts when it was being struck between Enron and then the government of Maharashtra headed by Congress party. (c) 16. and were to be given every facility by the government. There is nothing to show that anybody was being favoured for any specific reason. suppliers. Nothing was done secretly. (ii) the alleged bribes paid by Enron. and (v) the absence of competitive bidding. The Congress leaders alleged that cancelling the project was a politically-motivated decision. “The proposal was deliberated at length for two and a half years. Some of the counts on which the project was criticised were: (i) the social and environmental aspects of the project. when it threw out a petition filed against the project by one of the leaders of BJP. Refer 1. (ii) business persons and their customers. Refer 1. Question Describe various reasons behind the increment in cost of Enron plant in Maharashtra. 4. (d) 14. as administered by Indian courts. (iii) the high cost of the project.6 – Effect of possession in the business. Refer 1. Secondly. In a strongly worded verdict the court had said. .2 – How legal provisions affect the business what are their objectives. 3.11. etc.” Also the Government of India had taken a series of decisions concerning inviting private sector participation in the power sector and announcing a list of incentives. Naturally. 5. on the 695. the first few private sector projects were to be given the status of pioneer projects what later came to be known as “fast track” ones. Refer 1. Mini-case The Enron Development Corporation of USA. it is pertinent to refer to the ruling by the Bombay High Court in 1994. (b) Answers to Terminal Questions 1. (iv) the lack of transparency. draft agreements were prepared from time to time.2 – Business Law may be defined as that branch of law which prescribes a set of rules for the governance of certain transactions and relations between: (i) business persons themselves. in April 1995. and (iii) business persons and the state. Enron cannot be blamed for government policies. (ii) Secondary sources. (d) 15. Refer 1.3 – The main sources of modern Indian Law. Also. for the first few projects. Firstly. (b) 13.4 – Explain the various legal constraints of business in today’s scenario. 2. may be divided into two broad categories: (i) Primary sources and. and it was ultimately the eighth or ninth draft which was finalised. started construction in Maharashtra. which is one of the largest integrated natural gas companies in the world. But the new government of Maharashtra-the Shiv Sena . dealers.4 – The legal environment of business is one of the major factors in regulating its conduct though some of the laws may act as facilitators for some segment of the business at some time or the other. 6. (c) 12.
5 Consent and Free Consent Meaning of consent Free consent 2.2 Meaning and Essentials of a Valid Contract Contract Agreement Essentials of a contract Classification of contracts 2. no contract” (Secs.3 Proposal (or Offer) and Acceptance Modes of making an offer Acceptance of an offer Completion of communication of offer and acceptance (Sec.1 Introduction Objectives 2.4 Capacity to Contract Persons who are competent to contract Capacity of a minor to enter into a contract Mental incompetence prohibits a valid contract 2. 23-25 and 185) Meaning of consideration “No consideration.4) 2.(Hint: Due to the political reasons) MB0051-Unit-02-Law of Contract Unit-02-Law of Contract Structure: 2.2(d).6 Consideration (Secs.10 and 25) .
10 Performance of Contracts (Secs.15 Terminal Questions .31) Essential characteristics of a contingent contract 2.14 Summary 2.2.37-67) Meaning of performance of contract Meaning of offer to perform Who must perform the promise under a contract? 2.12 Remedies for Breach of Contract 2.31-36) Contingent contract defined (Sec.62) Discharge of contracts by impossibility of performance Discharge of a contract by operation of law Discharge of contracts by breach 2.13 Freedom to Contract Freedom to contract is a myth or an illusion What is a standard form contract? 2.73-75) Discharge of contracts by performance or tender Meaning of mutual consent (Sec.26-30) Agreements against public policy (Secs.7 Agreements Declared Void (Secs.8 Contingent Contract (Secs.11 Different Modes of Discharge of Contracts (Secs.26-28) Agreement in restraint of trade 2.9 Quasi Contracts Meaning of quasi contracts Cases which are treated as quasi contracts 2.
for a lawful consideration. the business executives.. they carry on business by entering into contracts. and with a lawful object. X) has a legal remedy. the other party to the contract (i. In this unit you will study how to enter into the contracts. hiring a taxi. In a contract there are at least two parties. corporate counsels. the word ‘promise’ is defined by Sec. for example.. If the party. Thus. howsoever made.g. there must be an agreement between two or more . contracts. In this context. buying a book. confer legal rights on one party and subjects the other party to some legal obligation. then the other party has a remedy. In any case. Objectives After studying this unit. to do something. with a view to obtaining the assent of that other to such act. made between at least two parties by which rights are acquired by one and obligations are created on the part of another.10 provides that all agreements are contracts. Thus. etc.2.2. and professionals in different fields deal frequently with contracts. As there is a breach of promise by the promisor (the Airlines).2(e) defines an agreement as “every promise and every set of promises forming consideration for each other”.16 Answers 2. The Airlines is under an obligation to take X from Mumbai to Bangalore on 10 January.2(b). and are not expressly declared by law to be void. Enforceability by law: The agreement must be such which is enforceable by law so as to become a contract. e. To constitute a contract. which had agreed to do something.2. enforceable by law. 2. In case the Airlines fails to fulfil its promise.1 Introduction In the previous unit.2. A proposal. X has a right against the Airlines to be taken from Mumbai to Bangalore on 10 January. the proposal is said to be accepted. you should be able to: · Describe the essentials of a valid contract · Enumerate the capacity of contract · Define acceptance · Define consent 2. purchase or sale of a share of a company or a plot of land.3 Essentials of a contract Sec. when accepted becomes a promise (Sec. When the person to whom the proposal is made signifies his assent thereto. X has a remedy against it. A corresponding duty is imposed on the Airlines. 2. Some of these are made consciously. entrepreneurs. Sometimes we do not even realize that we are making a contract. competent to contract.e. One of them makes a proposal (or an offer) to the other. you came to know about the law and basic concepts of law. Thus.2 Agreement Sec.2 Meaning and Essentials of a Valid Contract 2.1 Contract A contract is an agreement. In this unit you will study about the contract of law. In the case of people engaged in business. Example: D Airlines sells a ticket on 1 January to X for the journey from Mumbai to Bangalore on 10 January. if they are made by free consent of parties.2(b)). there are certain agreements which do not become contracts as this element of enforceability by law is absent. fails to do that.
2. telegrams. Implied offer: It is an offer made by conduct. 2. advertisements. As per Sec. such as cheques. A promise for a promise is a good consideration.1 Modes of making an offer An offer can be made by any act or omission of party proposing by which he intends to communicate such proposal or which has the effect of communicating it to the other (Sec. This includes such conduct or forbearance on one’s part that the other person takes it as his willingness or assent.3. Self Assessment Questions 1. Informal contracts are those for which the law does not require a particular set of formalities or special language. abstain from doing) something with a view to obtain acceptance of the other party to such act or abstinence (Sec. The best example of formal contracts is negotiable instruments. and specific or general.e. then the contract may be either voidable. void. (True/False) 2.. amounts to offer by conduct.3.e. Effect of absence of one or more essential elements of a valid contract: If one or more essentials of a valid contract are missing. The oral offer can be made either in person or over telephone. (ii) Voidable. void. Formal and informal contracts: This is another way of classifying contracts on the basis of their formation. illegal or unenforceable. If one or more of these elements are missing. etc. 2. (True/False) 2. Offer by abstinence: An offer can also be made by a party by omission to do something.2(i) A voidable contract is one which may be repudiated (i.than two parties. in no case. (iv) Unenforceable. A stranger to consideration cannot maintain a suit. the contract is either voidable.2(a)). avoided) at the will of one or more of the parties. However.3). An agreement is composed of two elements – offer or proposal by one party and acceptance thereof by the other party.. No one can enter into a contract with himself. illegal or unenforceable. The offerer or proposer expresses his willingness “to do” or “not to do” (i. A contract to constitute a valid contract must have all the essential elements discussed earlier. the meaning of which is not certain or capable of being made certain. (iii) Void. Express offer: It means an offer made by words (whether written or oral).2 Acceptance of an offer . It is made by positive acts or signs so that the person acting or making signs means to say or convey something. telex messages.3 Proposal (or Offer) and Acceptance Offer is not only one of the essential elements of a contract but it is the basic building block also. A formal contract is one to which the law gives special effect because of the formalities or the special language used in creating it. Classification according to validity: Contracts may be classified according to their validity as (i) Valid. (True/False) 3.4 Classification of contracts Contracts may be classified as follows: Classification of contracts according to formation: A contract may be (a) Made in writing (b) By words spoken and (c) Inferred from the conduct of the parties or the circumstances of the case. is valid. An agreement. An offer can be either express or implied. The written offer can be made by letters. but not by others. An offer is synonymous with proposal.2. silence of a party can.
A lunatic is a person who is mentally deranged due to some mental strain or other personal experience.1 Persons who are competent to contract Any one cannot enter into a contract. The completion of communication of acceptance has two aspects. He does not have lucid intervals. Self Assessment Questions 4. The offeree is deemed to have given his acceptance when he gives his assent to the proposal. however the minor can make the other party bound by the contract. A person is said to be of unsound mind for the purpose of making a contract if at the time he makes it he is incapable of understanding it and of forming a rational judgement as to its effect upon his interests. (True/False) 2. Does this mean that a minor is not competent to contract? No. he must be competent to contract according to the law. (True/False) 6. The communication of acceptance is complete (i) As against the offer or when it is put into a course of transmission to him so as to be out of the power of the acceptor.4 Capacity to Contract 2. He is incapable of entering into a contract and therefore a contract with an idiot is void. (True/False) 5.. the offer is said to be accepted (Sec. The acceptance of an offer may be express or implied. Thus. when it comes to his knowledge.4) It is necessary to communicate offer to the offeree and the acceptance to the offeror. The liability for necessaries of life supplied to persons of unsound mind is the same as for minors.When the person to whom the offer is made signifies his assent thereto. That usually is 18 years. . 2.3 Mental incompetence prohibits a valid contract A person who is not of sound mind may not enter into a contract.4. the communication of the offer is complete when B receives the letter. The communication of acceptance is complete. Communication of offer is complete when the letter of offer is posted.2 Capacity of a minor to enter into a contract Age of a person determines enough maturity to make a contract. a minor may make a contract. he must be of sound mind so as to be competent to contract. acceptance is the act of giving consent to the proposal. 2.4. Implied acceptance: Acceptance is implied when it is said to be gathered from the surrounding circumstances or the conduct of the parties. Every person is competent to contract if he (i) is of the age of majority. but he is not bound by the contract. as against the person to whom its made.2(b)). (ii) As against the acceptor. A proposal when accepted becomes a valid contract even though acceptance is not in the prescribed mode. The contract law defines maturity as the age of majority. A test of soundness of mind has been laid down by law.3 Completion of communication of offer and acceptance (Sec. It is express when the acceptance has been signified either in writing or by words of mouth or by performance of some required act of the offeree. viz. (ii) is of sound mind. when it comes to the knowledge of the offer or.11). (i) As against the offer or and (ii) As against the acceptor. When is it that the communication is considered to be completed? The communication of an offer is complete when it comes to the knowledge of the person to whom it is made. Where A proposes by a letter to sell his car to B at a certain price. 2.3.4. An idiot is a person who is of permanently unsound mind. and (iii) is not disqualified from contracting by any law to which he is subject (Sec.
Meaning of fraud (Secs. Meaning of coercion (Secs.18-19) Misrepresentation is also known as simple misrepresentation whereas fraud is known as fraudulent misrepresentation. (True/False) 8. (Sec. The party making it believes it to be true.17 and 19) Fraud means and includes any of the following acts committed by a party to a contract with an intent to deceive the other party thereto or to induce him to enter into a contract: (i) the suggestion as a fact of that which is not true by one who does not believe it to be true. . The consent of the offeree to the offer by the offer or is necessary. (v) any such act or omission as the law specifically declares to be fraudulent. intoxicated or delirious from fever so as to be incapable of understanding the nature and effect of an agreement or form a rational judgement as to its effect on his interests cannot enter into valid contracts whilst such drunkenness or delirium lasts. Such a statement is made innocently.15). (iii) fraud.1 Meaning of consent Offer by one party is accepted by the other party. A married woman cannot enter into a contract. fraud is different from misrepresentation.2 Free consent For a contract to be valid it is not only necessary that the parties consent but also that they consent freely. Meaning of misrepresentation (Secs. It is essential to the creation of a contract that both parties agree to the same thing in the same sense. In this way. (iv) misrepresentation or (v) mistake. (ii) undue influence. (True/False) 2. Self Assessment Questions 7.5. (iv) any other act fitted to deceive.15 and 72) Coercion is (i) the committing or threatening to commit any act forbidden by the Indian Penal Code or (ii) the unlawful detaining or threatening to detain any property to the prejudice of any person whatever with the intention of causing any person to enter into an agreement. (iii) promise made without any intention of performing it. the promisor is not responsible for non-performance. Meaning of ‘mistake’ (Secs. misrepresentation is an incorrect or false statement but the falsity or inaccuracy is not due to any desire to deceive or defraud the other party. Thus.A person who is drunk. When two or more persons agree upon the same thing in the same sense they are said to consent. free consent is one of the essentials of a valid contract. Like fraud. Where there is a consent but no free consent the contract is voidable at the option of the party whose consent was not free. (ii) active concealment of a fact by one having knowledge or belief of the fact. 2.5 Consent and Free Consent 2. When the promisee does not accept the offer of performance. A consent is said to be free when it is not caused by: (i) coercion.5.20-21) Mistake may be defined as an erroneous belief on the part of the parties to the contract concerning something pertaining to the contract.
(1942) Sind. or some forbearance. qualified or unqualified. are void.6. In simple terms consideration is what a promisor demands as the price for his promise. 2. An attempt to deceive which does not deceive is not fraud. the offer does not lapse automatically. (True/False) 10.24).26-28) An agreement which conflicts with morals of the time and contravenes any established interest of society is void as being against public policy. part of consideration of which is unlawful (Sec. detriment.27 provides that “every agreement by which any one is restrained from exercising a lawful profession. (iv) Agreement for the sale of public offices and titles are void. It is.23). (v) Agreements in restraint of parental rights are void. Self Assessment Questions 12. 23-25 and 185) 2. Some other agreements which are declared to be void are explained below. (iv) agreements made without consideration (Sec. If the offeree does not accept the offer according to the mode prescribed by the offeror.25). (True/False) 2. (ii) agreements. This something or consideration need not be in terms of money. 2.6 Consideration (Secs. damage. trade or business of any kind is. whether general or partial. (vi) Agreements in restraint of marriage of any person other than a minor is void. All agreements in restraint of trade.20).1 Agreements against public policy (Secs.7. suffered or undertaken by the other party. (iii) Contracts in the nature of champerty and maintenance. 2. . “something in return”. 114]. Past consideration is no consideration. loss or responsibility given. Consent obtained by fraud makes the agreement void. no contract” (Secs. (True/False) 11. i.7. Some of them (such as the following) have already been explained: (i) agreements entered into through a mutual mistake of fact between the parties (Sec. interest or profit accruing to one party.1 Meaning of consideration One of the essential elements of a valid contract is that it must be supported by consideration. Also a promise by one party may be consideration for the promise of other party. (True/False) 2.. (iii) agreements. right. not open to the courts to enter into any question of reasonableness or otherwise of the restraint [Khemchand v. Dayaldas. Some of the agreements which are against public policy and have been declared to be void by law. or inconvenience that may have or may have been occasioned to the other party in respect of the promise. (True/False) 13.2 Agreement in restraint of trade Sec. the object or consideration of which is unlawful (Sec. This “something” may even be some benefit. A person who makes a promise to do or abstain from doing something usually does so as a return of equivalent of some loss.10 and 25) A promise without consideration cannot create a legal obligation. void”. These are as follows: (i) Trading with enemy: (ii) Agreements for stifling prosecution.26-30) The Act declares certain agreements to be void. therefore.Self Assessment Questions 9.2(d). Cancellation of a contract by mutual consent of the parties is called waiver.7 Agreements Declared Void (Secs. The term consideration is used in the sense of quid pro que.e. to that extent.2 “No consideration.6.
an obligation similar to that which arises from a true contract.9 Quasi Contracts 2.000 if B’s house is burnt. quasi contract is “a situation in which law imposes upon one person. if some event.2 Essential characteristics of a contingent contract There are three essential characteristics of a contingent contract: (i) The performance of a contingent contract depends upon happening or nonhappening of some future event. (True/False) 2. Self Assessment Questions 16.e. (ii) The event must be uncertain. it is not a contingent contract. 2. express or implied. Example: A contracts to pay B Rs 10. collateral to such contract does or does not happen.8.1 Meaning of quasi contracts ‘Quasi Contracts’ are so-called because the obligations associated with such transactions could neither be referred as tortious nor contractual. (True/False) 15. incidental to the contract. A person who is usually of unsound mind cannot enter into a contract even when he is of sound mind. (True/False) 2.8. Social agreements are enforceable in courts. has in fact been entered into by them”.31) A contingent contract is a contract to do or not to do something. An agreement to agree is a valid contract. although no contract. (True/False) 17. According to Dr Jenks.31-36) 2. but are still recognised as enforceable like contracts.2 Cases which are treated as quasi contracts Following are the cases which are to be deemed quasi contracts: .9. i. (iii) The event must be collateral. on grounds of natural justice. in courts. This is a contingent contract.1 Contingent contract defined (Sec. 2. If the event is bound to happen and the contract has got to be performed in any case.9. Payments made by a debtor are always appropriated in chronological order.8 Contingent Contract (Secs.Self Assessment Questions 14..
2. or any one whom he is legally bound to support is supplied by another person with necessaries suited to his condition in life. (True/False) 2. The parties to contract must either perform or offer to perform their respective promises unless such performance is dispensed with or excused under the provisions of the Indian Contract Act. is entitled to be reimbursed by the other.11 Different Modes of Discharge of Contracts (Secs. (v) operation of law.000. and who. This is called as ‘Tender’ or ‘Attempted Performance’.10 Performance of Contracts (Secs. then A must perform this promise personally. A person who is interested in the payment of money which another is bound by law to pay. Thus.68). Self Assessment Questions 18.10. 2. Thus. (iv) subsequent impossibility. If there is no such intention of the parties. therefore. Commercial impossibility does not make the contract void. or some law (Sec.000. then the promisor may employ a competent person to perform the promise.10. as soon as the car is delivered to B and B pays the agreed . (i) In case. A’s legal representatives are bound to deliver the goods to B. A dies before that day. pays it.1 Meaning of performance of contract A contract creates obligations. where A promises to paint a picture for B. A may perform this promise either personally delivering the items to B or causing it to be delivered to B through someone. If A has promised to deliver some items of grocery to B. (True/False) 19. (Sec. The liability of joint promisors is joint and several. Self Assessment Questions 20. 2. ‘Performance’ of contract means the carrying out of obligations under it.85. the legal representative must perform the promise unless a contrary intention appears from the contract. 2.000 to A’s representatives. Reimbursement to a person paying money due by another in payment of which he is interested. (ii) If there is no such intention of the parties. If a valid tender is made and is not accepted by the promisee. A promises to deliver goods to B on a certain day on payment of Rs 1. the person who furnished such supplies is entitled to be reimbursed from the property of such incapable person (Sec. A threat to commit suicide does not amount to coercion.37-67) 2. (vi) breach. and B is bound to pay Rs 1. (iii) In case of death of the promisor.3 Who must perform the promise under a contract? The promise may be performed by promisor himself or his agent or by his legal representative. (iii) mutual consent. If a person. there was an intention of the parties that the promise must be performed by the promisor himself. (True/False) 21. such promise is to be performed by him only. where A contracts to sell his car to B for Rs 1.73-75) A contract may be discharged by (i) performance. incapable of entering into a contract. then the promisor may employ a competent person to perform the promise. the promisor shall not be responsible for non-performance nor shall he lose his rights under the contract.37).2 Meaning of offer to perform It may happen that the promisor offers performance of his obligation under the contract at the proper time and place but the promisee refuses to accept the performance.69).1. (True/False) 2.11.1 Discharge of contracts by performance or tender The obvious mode of discharge of a contract is by performances that is where the parties have done whatever was contemplated under the contract. the contract comes to an end. Claim for necessaries supplied to a person incapable of contracting or on his account.10. (ii) tender.
the contract). 23. 2. the other party may treat the contract as rescinded.11. he will be liable for its breach. (True/False) 2. The failure to perform means that one party must not have performed a material part of the contract by a stated deadline.12 Remedies for Breach of Contract When someone breaches a contract. The actual breach by failure to perform may take place (a) at the time when performance is due. (ii) Impossibility may emerge later by the change of certain circumstances material to the contract. Death of the promisor results in termination of the contract in cases involving personal skill or ability. Rescission of the contract: When a breach of contract is committed by one party. 2.5 Discharge of contracts by breach A breach of contract is one party’s failure. Anticipatory breach of contracts: The anticipatory breach of contract occurs when a party repudiates it before the time fixed for performance has arrived or when a party by his own act disables himself from performing the contract.2 Meaning of mutual consent (Sec. 2. Thus. . novation. The breach of contract may arise in two ways: (i) anticipatory and (ii) actual. 2. or to rescind it or alter it. without a legal excuse. Actual breach of contracts: The actual breach can occur by (i) failure to perform as promised. Self Assessment Questions 22. (iii) the other party may bring the breaching party to an agency for alternative dispute resolution. In such a case the aggrieved party is freed from all his obligations under the contract.11. If the promisor has not performed his promise in accordance with the terms of the contract or where the performance is not excused by tender.3 Discharge of contracts by impossibility of performance A contract may be discharged because of impossibility of performance.11. then this amounts to a breach of contract on the part of the promisor.11.. (ii) By insolvency. the other party is no longer obligated to keep its end of the bargain.e. The tender or offer of performance has the same effect as performance. rescission. (ii) making it impossible for the other party to perform.price for it. ____________ means substitution of a new contract for the original one. that party may proceed in several ways: (i) the other party may urge the breaching party to reconsider the breach. A contract terminates by breach of contract. mutual consent or impossibility or operation of law. the other party may get help from consumers’ associations. The consequence of this is that the promisee becomes entitled to certain remedies. the original contract is discharged. to live up to any of its promises under a contract. waiver and merger. There are two types of impossibility: (i) Impossibility may be inherent in the transaction (i. (iii) By merger. Novation means substitution of a new contract for the original one. A contract terminates by breach of contract. or (b) during the performance of the contract. the promisor stands discharged of his obligations. If a promisor tenders performance of his promise but the other party refuses to accept. (ii) if it is a contract with a merchant.62) If the parties to a contract agree to substitute a new contract for it. if a person does not perform his part of the contract at the stipulated time.4 Discharge of a contract by operation of law Discharge by operation of law may take place in four ways: (i) By death. (iv) the other party may sue for damages. The insolvency law provides for discharge of contracts under certain circumstances so where an order of discharge is passed by an insolvency court the insolvent stands discharged of all debts incurred previous to his adjudication. From there. the contract comes to an end by performance. or (v) the other party may sue for other remedies. A contract may terminate by mutual consent in any of the six ways viz. alteration and remission.
73 contains three important rules: (i) Compensation as general damages will be awarded only for those losses that directly and naturally result from the breach of the contract.1 Indian Contract Act. The idea is to compensate the aggrieved party for the loss he has suffered as a result of the breach of the contract.75): Another relief or remedy available to the promisee in the event of a breach of promise by the promisor is to claim damages or loss arising to him therefrom. with certain blanks to be filled in. from his standpoint. (ii) Compensation for losses indirectly caused by breach may be paid as special damages if the party in breach had knowledge that such losses would also follow from such act of breach. containing terms and conditions. (True/False) 27. 1872. which is to a large extent made up of judicial precedents. (True/False) 2.13. What is the most common remedy for breach of contracts: The usual remedy for breach of contracts is suit for damages. (there being a separate contract act in England). Many of the contracts now being entered into by consumers are not the result of individual negotiations. Damages under Sec. (True/False) 25. This is the amount of money it would take to put the aggrieved party in as good a position as if there had not been a breach of contract. It extends to the whole of India except the state of Jammu and Kashmir and came into force on the first day of September 1872 (Sec.13 Freedom to Contract 2.75 are awarded according to certain rules as laid down in Secs. Therefore. . The main kind of damages awarded in a contract suit are ordinary damages. 1872). Damages under Sec. therefore.2 What is a standard form contract? A standard form contract is a document which is generally printed.13. This Act is based mainly on English common law. It is prepared by the business people. The customer has only to sign it. rather they are one-sided contracts. There are three remedies under the Specific Relief Act.1 Freedom to contract is a myth or an illusion The freedom of the parties is limited by two factors. Self Assessment Questions 24. Sec. There are certain laws for the protection of the employees. (iii) The aggrieved party is required to take reasonable steps to keep his losses to the minimum. A contract is imposed by a party having a strong bargaining power on a party having a weak bargaining power. 2. (True/False) 2. The freedom of the parties is limited by four factors.73-74.Damages (Sec. Self Assessment Questions 26. 1963. and an employer cannot. induce his employees to enter into any contract favourable to the employer. the freedom to contract is restricted.14 Summary The law of contract in India is contained in the Indian Contract Act.73-74. Glossary Contract: An agreement enforceable by law is a contract. The act is not exhaustive.75 are awarded according to certain rules as laid down in Sec.
False 4. 6. False 5. 7. False 9. True 2. Discuss. “All agreement are not contracts but all contacts are agreements”. 4. 2. Comment. 1872. What do you mean by contract? What test would you apply to ascertain whether an agreement is a contract? 2. Void Contract: A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable. Can ordinary damages be claimed for any remote or indirect loss or damages by reason of the breach? 9. Enumerate some of the contracts which are expressly declared to be void by the Indian Contract Act. Describe the rules regarding communication of offer and acceptance. False 6. Distinguish between a wagering agreement and a contingent contract. What are the different modes of discharge of contracts? Explain the discharge of contract by performance or tender.15 Terminal Questions 1. True . When is an offer to be accepted? 5. Give some example of ordinary damages. False 10. Valid Contract: Contracts which satisfy all the essential elements of a valid contract are enforceable in a court of law. 8. False 8. 3.Agreement: Every promise and every set of promises forming the consideration for each other is an agreement.16 Answers Answers to Self Assessment Questions 1. “Freedom to contract is a myth or an illusion”. 2. False 7. False 3.
7. Refer 2. False 18. True 27. True 24. True 21.. 6. False 12.11 – A contract may be discharged by (i) performance.3 – It is necessary to communicate offer to the offeree and the acceptance to the offeror. Refer 2.11. True 25.2 – The agreement must be such which is enforceable by law so as to become a contract. Refer 2. 3. Novation 23. False 17.8 – A contingent contract is a contract to do or not to do something. True 19. True 22. True 26. enforceable by law.2 – A contract is an agreement. 4. False 13. 2. (ii) tender . Refer 2. Refer 2.3 – Offer is not only one of the essential elements of a contract but it is the basic building block also. Refer 2. False 20. made between at least two parties. 5. Refer 2.2 – Avoidable contract is one which may be repudiated at the will of one or more of the parties. True 14. False Answers to Terminal Questions 1. False 16. False 15.
1 Introduction Objectives 3. or any disease caused by taking cold. It was squeezed at the bottom to release the vapours into the nose of the user. The company argued it was not a serious contract. but "to protect themselves against all fraudulent claims" they would need her to come to their office to use the ball each day and checked by the secretary. and hopefully flush out the cold.2 Purpose and Meaning of the Contract of Guarantee . It claimed to be a cure for influenza and a number of other diseases. bought one of the balls and used three times daily for nearly two months until she contracted the flu on January 17. Refer 2. after having used the ball three times daily for two weeks. Regent Street. Louisa Elizabeth Carlill saw the advertisement.13 – The freedom of the parties is limited by two factors. Refer 2. Mrs. Carlill brought a claim to court. The ball can be refilled at a cost of 5s.8. London. who had trained as a solicitor. 9. claiming that it would pay £100 to anyone who got sick with influenza after using its product according to the instructions set out in the advertisement. 1891.12 – Damages under Sec. During the last epidemic of influenza many thousand carbolic smoke balls were sold as preventives against this disease. She claimed £100 from the Carbolic Smoke Ball Company. Mini-case The Carbolic Smoke Ball Company made a product called the "smoke ball". One carbolic smoke ball will last a family several months. post free. £1000 is deposited with the Alliance Bank. according to the printed directions supplied with each ball. (Hint: summarize this case in your word. Hanover Square." Mrs. Princes Street. 1892. They ignored two letters from her husband. The smoke ball was a rubber ball with a tube attached. Question Do you agree to what the company says? Justify. On a third request for her reward. It was filled with carbolic acid (phenol). The tube was then inserted into the user’s nose. and in no ascertained case was the disease contracted by those using the carbolic smoke ball.) MB0051-Unit-03-Contracts of Guarantee and Indemnity Unit-03-Contracts of Guarantee and Indemnity Structure: 3.73-74. they replied with an anonymous letter that if it is used properly the company had complete confidence in the smoke ball’s efficacy. This would cause the nose to run. shewing our sincerity in the matter. and so they ought to pay. £100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza colds. 10s. In fact the inflammation caused by the device would have probably increased susceptibility to catching influenza.75 are awarded according to certain rules as laid down in Secs. making it the cheapest remedy in the world at the price. The Company published advertisements in the Pall Mall Gazette and other newspapers on November 13. Address: "Carbolic Smoke Ball Company. "27. The barristers representing her argued that the advertisement and her reliance on it was a contract between her and the company.
6 Contract of Indemnity Meaning of indemnity Rights of the indemnified (i.e.8 Terminal Questions 3.7 Summary 3.9 Answers 3.126) Fiduciary relationship 3. Liabilities and Discharge of Surety Rights against the creditor Rights against the principal debtor Rights against co-sureties Liability of surety Discharge of surety 3..1 Introduction .3 Kinds of Guarantee Oral or written guarantee Specific and continuing guarantee A guarantee may either be for the whole debt or a part of the debt 3.5 Rights.4 Rights and Obligations of the Creditor Rights of a creditor Obligations imposed on a creditor in a contract of guarantee 3. the indemnity holder) Rights of the indemnifier Commencement of indemnifier’s liability 3.Purpose of guarantee Definition and nature of the contract of guarantee (Sec.
If the company defaults. etc. The relationship between M and the bank is called a guarantee or suretyship. These are: i) The guarantee is generally made use of to secure loans.126-147). the managing director signs again as an individual. are a form of contract of guarantee. The bank requires that the managing director M promises to repay the loan personally should the company default. If an employee misappropriates then the surety will have to reimburse the employer.1 Purpose of guarantee The contracts of guarantee are among the most common business contracts and are used for a number of purposes. When the directors of the company including M execute the promissory note on behalf of the company. The sections quoted in this chapter refer to the Act unless otherwise stated. In this unit you will study about the guarantee and indemnity of contracts. that a criminal defendant will appear for trial. . a contract of guarantee is for the security of the creditor. the bank can approach M for the payment. or obtain a court order to either claim or sell the collateral. It could ask that all the three directors (including M) sign the promissory note as co-sureties. M. If the prisoner does not appear in the court as desired then the bond is forfeited. Thus. for the good conduct of the latter.In the previous units. But if M pays the money to the bank. If they do so and the company defaults. The bank need not look to the collateral first. The law relating to the contracts of guarantee is given in the Indian Contract Act. If the company fails to repay the loan. 1872 (Secs. ii) The contracts of guarantee are sometimes called performance bonds. Sometimes the banks (lenders) ask for more security for the loans in addition to the personal guarantee of an official of the borrowing company. It is a contractual relationship resulting from the unconditional promise of M (known as the surety or guarantor) to repay the loan to the creditor (the bank) for the obligation of the principal debtor (the company) should it default. then the right of the bank on the collateral gets transferred to him. in the case of a construction project. iii) Bail bonds.2 Purpose and Meaning of the Contract of Guarantee 3. Also employers often demand a type of performance bond known as a fidelity bond from employees who handle cash. the builder may have to find a surety to stand behind his promise to perform the construction contract.2. you should be able to: · Explain the contract of guarantee · Describe the types of guarantee · Explain the rights and obligations of creditor · Enumerate the contract of indemnity 3. used in criminal law. they sign as company’s officials. In this way a prisoner is released on bail pending his trial. the bank now has three options: to compel the principal debtor to pay. demand payment from the surety. the bank may seek payment from any one or any two of them or all of them. you came to know about the law and the contract of law. The bank has yet another alternative for securing its loan to the company. The company may agree that a particular machinery in its factory would serve as collateral security for the loan. In this unit you come to know when a company needs some money for its business it approaches a bank. For example.. Objectives After studying this unit. A bail bond is a device which ensures.
3.2. must exist at the time the contract of guarantee is made. (True/False) 3. and the person to whom the guarantee is given is called the ‘creditor’. in effect. Specific guarantee is different from continuing guarantee. The contract of surety is not a contract collateral to the contract of the principal debtor. There must be a distinct promise on the party of the surety to be assumable for the debt. As per the Indian law. of a third person in case of his default”. A creditor must disclose all those facts which. Example: When A requests B to lend Rs10. It is not necessary that the principal contract.3. (True/False) 3. under certain circumstances. From the above discussion.In this unit our primary concern is with the contracts of guarantee which are used for securing loan.144). the surety would expect not to exist. it should be noted that it is no part of the creditor’s duty to inform the surety about all his previous dealings with the debtor. Similarly. etc. viz. a principal contract between the principal debtor and creditor. the suretyship relation is one of trust and confidence and the validity of the contract depends upon good faith on the part of the creditor. Also. or discharge the liability.. the contract of guarantee can be avoided on the ground of concealment of a materiel fact. a contract of guarantee must be in writing. the original contract between the debtor and creditor may be about to come into existence. be two contracts. 3. there is an implied contract also between the principal debtor and the surety. if it is intended to be applicable to a particular debt and thus comes to end on its repayment. he will himself pay to B.3 Fiduciary relationship A contract of guarantee is not a contract “uberrimae fidei” (requiring utmost good faith).126) A contract of guarantee is defined as “a contract to perform the promise. However. the person for whom the guarantee is given is called the ‘principal debtor’. between the debtor and the creditor. . and a secondary contract between the creditor and the surety. there is a contract of guarantee. the principal debtor and the surety. the primary liability is of the surety. under the circumstances. but is an independent contract. In case of an oral agreement the existence of the agreement itself is very difficult to prove.2. 3.126).3. will discharge the surety. For a contract of guarantee.1 Oral or written guarantee A contract of guarantee may either be oral or in writing (Sec. A guarantee is a “specific guarantee”. the guarantee is not valid if that other person does not join (Sec. though a creditor should always prefer to put it in writing to avoid any dispute regarding the terms. A specific guarantee once given is irrevocable. (True/False) 2. The person who gives the guarantee is called ‘surety’. it is clear that in a contract of guarantee there must. Nevertheless. In a contract of guarantee there are three parties. a surety may be called upon to pay though principal debtor is not liable at all.3 Kinds of Guarantee 3. So where guarantee is given for good conduct of an employee. Self Assessment Questions 1. A contract of guarantee may be either oral or in writing. the creditor. where a person gives a guarantee upon a contract that the creditor shall not act upon it until another person has joined in it as co-surety.2 Definition and nature of the contract of guarantee (Sec. Similarly. Therefore.000 to C and guarantees that C will repay the amount within the agreed time and that on C failing to do so. where X guarantees the existing and future liabilities of A to B upto a certain amount which limit has already been exceeded.2 Specific and continuing guarantee From the point of view of the scope of guarantee a contract of guarantee may either by specific or continuing. the employer’s failure to inform the surety of any breach on the part of employee.
continuing guarantee cannot be revoked regarding transactions that have ready taken place. 30.130). 30. The guarantee given by A was a continuing guarantee and he is accordingly liable to B to the extent of Rs. Unlike a specific guarantee which is irrevocable.000 or whether he has guaranteed the full amount of Rs.500 being ¼ of Rs. being ¼ of the balance. 30. B supplies C with tea of the value above Rs. so far as regards future transactions. 30. 12.000 = Rs. The guarantee in this case is a specific guarantee. If on the other hand. If A stood surety only for a part of the debt and if X’s estate can pay only 25 paisa dividend in the rupee. 5.129) Example: A guarantees payment to B. 50.000 subject to a limit of Rs.000.e. a tea-dealer. Since after paying Rs. Afterwards B supplies C with tea to the value of Rs.500. Self Assessment Questions 4.000 – Rs. 10. 30. then Y can get Rs.000 then Y can recover from A Rs. This matter becomes important if X is adjudged insolvent and Y wants to prove in X’s insolvency and also enforce his remedy against A. For instance. This can happen only if X’s estate declares a higher dividend.000 to Y. 30.000 which was not guaranteed.. where X owes Y Rs 50. A guarantee which extends to a series of transactions is called a “continuing guarantee” (Sec.000. 7.000. A contract of guarantee is for the security of the ……………… (a) Buyer (b) Seller (c) Debtor (d) Creditor 5.3. i. as a revocation of a continuing guarantee.000 and A has stood as surety for Rs. 50. 50. 50. 30. the question may arise whether A has guaranteed Rs.000.e. A will not get any dividend unless Y has been fully paid.3 A guarantee may either be for the whole debt or a part of the debt Difficult questions arise in case of guarantee for a limited amount because there is an important distinction between a guarantee for only a part of the whole debt and a guarantee for the whole debt subject to a limit. C fails to pay. to the amount of Rs.000 paid by A to Y. A had stood surety for the whole debt of Rs 50. Continuing guarantee is a: .. (Sec.000 out of Rs.000. i. 30. 3.Example: A guarantees the repayment of a loan of Rs.131). A can claim from X’s estate. However.000 the full amount of guarantee from A and Rs. Rs. 20. 30.000 from X’s estate. a continuing guarantee can be revoked regarding further transactions (Sec. ¼ of Rs.000 and from X’s estate Rs. 10.000 for any tea he may from time to time supply to C. A guarantee regarding the conduct of another person is a continuing guarantee. 10.000 and C pays B for it.000 subject to a limit of Rs.000 to B by C (a banker). he will get Rs. 15. in the absence of any contract to the contrary. 10. The death of the surety operates.
The creditor is entitled to demand payment from the surety as soon as the principal debtor refuses to pay or makes default in payment. discharges the surety as to the transactions subsequent to the variance”.133 provides. discharges the surety. with one effect that the surety’s remedy to recover the money in case the principal debtor defaults. or agree not to sue the principal debtor. the banker) to assign to them his property in consideration of their releasing him from their demands. the legal consequence of which is the discharge of the principal debtor”. but it cannot sue A as the guarantee is from March 4. 3. These are: a) Sec. the creditor is entitled to proceed in the surety’s insolvency and claim the pro rata dividend. A in this case is discharged from his liability as the contract has been varied as much as the banker might sue X before March 4. “A contract between the creditor and the principal debtor. 2.137). by which the principal debtor is released.136 states that if the creditor makes an agreement with a third party. without the surety’s consent. or by any act or omission of the creditor. Example: A banker contracts to lend X Rs.4.000 on March 4.4 Rights and Obligations of the Creditor 3. Here B is released from his debt by the contract with C and A is discharged from his suretyship. The liability of the surety cannot be postponed till all other remedies against the principal debtor have been exhausted. or to enforce any other remedy against him. “any variance made. may be impaired. unless the surety assents to such contract”. A guarantees repayment. the creditor cannot be asked to exhaust all other remedies against principal debtor before proceeding against surety. the debtor may die or become insane or insolvent or his financial position may become weaker in the meanwhile. The creditor is under an obligation not to release or discharge the principal debtor. 2.2 Obligations imposed on a creditor in a contract of guarantee 1. however. or not to use the principal debtor. Sec. discharge the surety (Sec.(a) Guarantee which extends to a series of transactions (b) Guarantee which limited access of transactions (c) Guarantee not related to transactions (d) None of the above 3. The banker pays X Rs. but not with the principal debtor.1 Rights of a creditor 1. Not to release or discharge the principal debtor. The creditor should not change any terms of the original contract without seeking the consent of the surety. 3. to give extension of time to the principal debtor. in the absence of a provision to the contrary. does not. arises only when the principal debtor has made default and not before that. Not to change any terms of the original contract. B later contracts with his creditors (including C.4. . or give time to. b) Mere forbearance on the part of creditor to sue the principal debtor. In other words. Sec. Where surety is insolvent. Not to compound. The creditor also has a right of general lien on the securities of the surety in his possession. 5. 5.135 provides. Example: A gives a guarantee to banker C for repayment of the debt granted to B. This right. However. in the terms of the contract between the principal debtor and the creditor. Sec. surety is not discharged even if his consent has not been sought. there are certain exceptions. by which the creditor makes a composition with or promises to give time to.134 states: “The surety is discharged by a contract between the creditor and principal debtor.000 on January 1. If the time for repayment is extended.
subject to the limit fixed by their guarantee and not proportionately to the liability undertaken.5 Rights. Liabilities and Discharge of Surety Rights of a surety may be classified under three heads: (i) rights against the creditor. namely. Sec. 1. (True/False) 3. In the event of principal debtor being a minor. (True/False) 7. B and C are sureties to D for the sum of Rs. Rs.e. E makes default to the extent of Rs 30. .000 he can claim contribution from the others. in the event of proved dishonesty of the employee. i. the co-sureties have guaranteed different sums..000. the other co-surety (or co-sureties) thereby is not discharged. Where a debt has been guaranteed by more than one person.000. 4. which gives power to C to sell the furniture and apply the proceeds in discharge of the note. creditor cannot recover his money from the surety. b) Where.000 lent to E.000.2 Rights against the principal debtor a) Right of subrogation: Sec.138). A in the penalty of Rs 10. C sells the furniture. The co-surety released by the creditor is also not released from his liability to the other sureties (Sec. So. B and C as sureties for D. he is invested with all the rights which the creditor has against the debtor. only a small price is realised. Not to do any act inconsistent with the rights of the surety (Sec. as between themselves to pay Rs. B in that of Rs 20. for the amount paid in excess of Rs.000 each and if any one of them has to pay more than his share. the surety is subrogated to all the rights which the creditor had against the principal debtor. When a *surety has paid more than his share or a decree has been passed against him for more than his share. each in a different penalty.147 to contribute equally. Self Assessment Questions 6. 3. Examples: (i) A.000 and B and C Rs 15.5. Further. the surety can direct creditor to dismiss the employee whose honesty he has guaranteed. A.139). In other words.000 each. The creditor does not a right of general lien on the securities of the surety in his possession. enter into three several bonds. (ii) rights against the principal debtor and (iii) rights against co-sureties. together with a bill of sale of B’s furniture. C in that of Rs 40. b) Right to be indemnified: The surety has a right to recover from the principal debtor the amounts which he has rightfully paid under the contract of guarantee.000. The creditor’s failure to do so will exonerate the surety from his liability. the creditor must hand over to the surety. conditioned for D’s duly accounting to E. Example: A.146 provides for a right of contribution between them. Where C lends money to B on the security of a joint and several promissory note made in C’s favour by B and by A as surety for B. they are called co-sureties. 1. but owing to his misconduct and willful negligence. (ii) In the above example.141). E defaults in making payment. B and C are each liable to pay Rs 10. if D makes default to the extent of Rs 40.5. A.000. 1. Subsequently. he has a right of contribution from the other sureties who are equally bound to pay with him.c) If the creditor releases one of the co-sureties. or without the consent of the surety parts with any securities (whether known to the surety or not) the surety is discharged to the extent of the value of such securities (Sec.000. the securities in the same condition as they formerly stood in his hands. then A is discharged from liability on the note. they are bound under Sec.000.140 lays down that where a surety has paid the guaranteed debt on its becoming due or has performed the guaranteed duty on the default of the principal debtor. 3. 3. if the creditor loses. A is liable to pay Rs 20. 3. B and C are liable.1 Rights against the creditor In case of fidelity guarantee.3 Rights against co-sureties a) Right of contribution.5.
The revocation discharges A from liability to B for any subsequent discount. made without the surety’s consent. the due payment of all such bills to the extent of Rs 5. The surety shall. as his liability arises only on default by the principal debtor. Any variance. Moolaki Raman (A. Meherbai it was held that as under Sec. discharges the surety. or promises to give time to. however. or agreeing not to sue. 5. It was held that unless the contract otherwise provides. But as soon as the principal debtor defaults. guarantees to B. Example: A becomes surety to C for B’s conduct as a manager in C’s bank. The same view has been endorsed by the Madras High Court in the case of Edavan Nambiar v. a guarantor for a minor cannot be held liable. A contract between the creditor and the principal debtor by which the creditor makes a composition with. the acceptor.3. the liability of the surety begins and runs co-extensive with the liability of the principal debtor.133). or giving time to.131). principal debtor (Sec. 3. A revokes the guarantee. without A’s consent. But A is liable to B for Rs 2. Position of surety in case of a minor principal debtor. According to the decision of the Bombay High Court in Kashiba v.R. as a revocation of a continuing guarantee.128. Shivappa Manju and in Pestonji Mody v. B discounts bill for C to the extent of Rs 2. Afterwards B and C contract. though a minor debtor is not liable. for twelve months.5 Discharge of surety The liability of surety under a contract of a guarantee comes to an end under any one of the following circumstances: 1. in the sense that the surety will be liable for all those sums for which the principal debtor is liable. the legal consequence of which is the discharge of the principal debtor.000 on default of C. By release or discharge of principal debtor (Sec.130). By the death of surety (Sec.5. Further. be not discharged if (a) he assents to such contract. unless it is expressly provided for. bills of exchange for C. But the later decisions of the Bombay High Court have taken a contrary view. at the end of the three months. Example: A guarantees to B the payment of a bill of exchange by C.L.R. The death of the surety operates. by notice to the creditor. A is liable not only for the amount of the bill but also for any interest and charges which may have become due on it. . The bill is dishonoured by C. B allows a customer to overdraw and the bank loses a sum of money. The liability of a surety is called as secondary or contingent. Example: A. the surety is liable for all those amounts the principal debtor is liable for.000. as to future transactions. in the terms of the contract between the principal debtor and the creditor. in the absence of any contract to the contrary. In Manju Mahadeo v. By compounding with.000. where the creditor holds securities from the principal debtor for his debt. it can be no more than that of the principal debtor and that the surety therefore cannot be held liable on a guarantee given for default by a minor. discharges the surety as to transactions subsequent to the variance. the liability of the surety is coextensive with that of the principal debtor. the liability of the guarantor being secondary liability does not arise at all. that B’s salary shall be raised and that he shall become liable for one-fourth of the losses on overdrafts. 1957 Mad. the creditor need not first exhaust his remedies against the securities before suing the surety. 2.I. A is discharged from his suretyship by the variance made without his consent and is not liable to make good this loss. 3. Afterwards. in consideration of B’s discounting. or by any act or omission of the creditor. 10 Bom. By variance in terms of the contract (Sec. 4. The creditor is even not bound to give notice of the default to the surety. 1927 the surety can be held liable.134). In other words.4 Liability of surety Unless the contract provides otherwise.5. (b) the contract to give time to the principal debtor is made by the creditor with a third person and not with the principal debtor. The surety is discharged by any contract between the creditor and principal debtor. or not to sue the principal debtor. unless the contract specifically so provides.135). by which the principal debtor is released. at A’s request. so far as regards future transactions. 164). the liability of the surety is co-extensive with that of the principal debtor (Sec. If a minor could not default. A continuing guarantee may at any time be revoked by the surety.128). By notice of revocation (Sec. Shripat I. The creditor may file a suit against the surety without suing the principal debtor.
the duty of a principal to indemnify an agent from consequences of all lawful acts done by him as an agent.6. or omits to do any act which his duty to the surety requires him to do and the eventual remedy of surety himself against the principal debtor is thereby impaired. provided in bringing or defending the suit (a) he acted under the authority of the indemnifier or (b) if he did not act in contravention of orders of the indemnifier and in such a way as a prudent man would act in his own case.. If the creditor loses or parts with any security given to him by the principal debtor at the time the contract of guarantee was made. The indemnifier promises to make good the loss of the indemnified (i.2 Rights of the indemnified (i. his rights. 3.e.. in such cases. By creditor’s act or omission impairing surety’s eventual remedy (Sec. he becomes entitled to the benefit of all the securities which the creditor has against the principal debtor whether he was aware of them or not. 7. This is a contract of indemnity.6 Contract of Indemnity 3.3 Rights of the indemnifier The Act makes no mention of the rights of indemnifier..141. (True/False) 9.6. These are two parties in a contraction of identity indemnifier and indemnified.6. A contract of indemnity may arise either by (i) an express promise or (ii) operation of law. (True/False) 3. A contract of insurance is a glaring example of such type of contracts.4 Commencement of indemnifier’s liability .g. 3. the surety is discharged. if the compromise was not contrary to the orders of the indemnifier and was one which it would have been prudent for the promisee to make. Loss of security. However. If the creditor does any act which is inconsistent with the right of the surety. the promisee). like any other contract. the indemnity holder) He is entitled to recover from the promisor: (i) All damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies. must have all the essentials of a valid contract. (iii) All sums which may have been paid under the terms of any compromise of any such suit. 3. unless the surety consented to the release of such security (Sec..e. Self Assessment Questions 8. (True/False) 10. The liability of a surety is secondary. the surety is discharged to the extent of the value of the security. e.6. (ii) All costs of suit which he may have to pay to such third party.124 and 125 provide for a contract of indemnity.1 Meaning of indemnity Secs.141). viz.6. Example: A contracts to indemnify B against the consequences of any proceeding which C may take against B in respect of a certain sum of Rs 200. The contract of indemnity. are similar to the rights of a surety under Sec.124 provides that a contract of indemnity is a contract whereby one party promises to save the other from loss caused to him (the promisee) by the conduct of the promisor himself or by the conduct of any other person. The surety is a favoured debtor. Between co-sureties there is equality of burden and benefit.139). Sec.
124 and 126 (b) Secs. In a contract of guarantee. the original contract between the debtor and creditor may be about to come into existence. 125 and 126 12. 3. 3. under certain circumstances. It is not necessary that the principal contract. Mather in his book “Securities Acceptable to the Lending Banker” has very briefly. the performance of which is guaranteed by the surety. Thus.Indemnity requires that the party to be indemnified shall never be called upon to pay. the primary liability being that of the principal debtor. Other points of difference are: 1. indemnifier and indemnified. there are three parties. between the debtor and the creditor. unless there is an assignment in his favour. the ‘principal debtor’. The indemnified may compel the indemnifier to place him in a position to meet liability that may be cast upon him without waiting until the promisee (indemnified) has actually discharged it. The liability of a promisor is primary and independent in a contract of indemnity. “If you lend £20 to C and he does not pay you. In case of a guarantee. there are only two parties. but excellently. I will see that your money comes back’ is an indemnity. on the other hand. the indemnifier cannot proceed against third parties in his own name. there is an existing debt or obligation. Contract of indemnity come under which section: (a) Secs. 124 and 125 (d) Secs. There must be a distinct promise on the party of the surety to be assumable for the debt. in a contract of indemnity. after discharging the debt. A contract in which A says to B.C. the liability of the surety is secondary. Similarly. brought out the distinction between indemnity and guarantee by the following illustration. I will is a guarantee. but it is an independent contract. In a contract of guarantee. 2. Distinction between a contract of guarantee and a contract of indemnity. A contract of indemnity may arise either by an express promise or _______________. In the case of guarantee. . ‘If you lend £20 to C. Glossary Indemnity: Indemnity means to make good the loss or to compensate the party who has suffered some loss. On the other hand undertaking in these words. Self Assessment Questions 11. 126 and 127 (c) Secs. L. the surety is entitled to proceed against the principal debtor in his own name while in case of indemnity. Indemnity is not necessarily given by repayment after payment.7 Summary The contract of surety is not a contract collateral to the principal debtor. the ‘creditor’ and the ‘surety’. a surety may be called upon to pay though principal debtor is not liable at all. In case of indemnity the possibility of any loss happening is a contingency against which the indemnifier undertakes to indemnify. must exit at the time the contract of guarantee is made.
Explain the circumstances under which a surety may be discharged from the liability by the conduct of the creditor. (d) 5. True 7. Discharge of Surety from Liability: A surety is said to be discharged when his liability as surety comes to an end. Operation of law Answers to Terminal Questions . (c) 12. 3. False 2. (a) 6. 4. Continuing Guarantee: A guarantee which extends to a series of transactions is called a continuing guarantee. True 3. True 11. What is a ‘Continuing guarantee’? When it can be worked? 3. Distinguish between a contract of guarantee and a contract of indemnity.9 Answers Answers to Self Assessment Questions 1. 3. True 9. False 8. Define contract of indemnity. 5. What do you mean by contract of guarantee? 2. Describe the rights of the indemnifier and the indemnity holder.8 Terminal Questions 1.Contract of Indemnity: A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person. True 10. Contract of Guarantee: A contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default. False 4.
but actually it is Chinese Company. All his information is fraudulent.148) Kinds of bailments . The supplier said the goods were detained in the Customs Office because Customs didn’t find the original invoice attached to the goods. but all his registered information is false.6 – A contract of indemnity may arise either by (i) an express promise or (ii) operation of law.1 Introduction Objectives 4. Western Union is a dangerous payment method. with no way of tracing the person who picked it up. He told me to pay for another 2 units for another $150 USD. 5. So try to avoid adopting this payment method and consider other more secure payment methods like escrow.2 – The contracts of guarantee are among the most common business contracts and are used for a number of purposes.6 – Student describe own.2 Bailment and its Kinds Definition of bailment (Sec. What would you understand if the seller requests you to send payment to another country instead of his registered country showed on the website? (Hint: Refer First Para of case) 2. The criminal remains anonymous. e. I paid by Western Union. (Hint: Take full knowledge about the product and company if you use virtual mode of transaction) MB0051-Unit-04-Contracts of Bailment and Pledge Unit-04-Contracts of Bailment and Pledge Structure: 4.. (ii) rights against the principal debtor and (iii) rights against co-sureties. the fraudster is pretending to be a US company. 2. Refer 3. He registered on your website as a US company. it can be picked up anywhere in the recipient’s country.5 – Rights of a surety may be classified under three heads: (i) rights against the creditor. Analyze the ways in which a person can find out the whether the company is fraudulent. but I have refused. In this case. Refer 3. The supplier explained that it’s his company’s policy was to issue original invoices only when quantities are above 5 units.3 – The scope of guarantee a contract of guarantee may either by specific or continuing. His is a fraudulent company!" If you think their price is very attractive and want to deal with them. 4. Questions 1. 3. it is very necessary for you to verify that they are legitimate company and their contact information is correct.1.g. This can be judged easily by calling his company telephone number or by searching the company name on related state government websites. So it is a commonly used payment method for con-artists. Mini-case "I didn’t receive the products. Refer 3. the duty of a principal to indemnify an agent from consequences of all lawful acts done by him as an agent. Refer 3. Refer 3.
called bailment and pledge.1 Introduction In the previous unit. and utilize the services of cold storages for keeping their goods to be taken back as and when required.11 Answers 4. Objectives After studying this unit.8 Rights and Duties of Pledgor and a Pledgee Duties of a pledgee Duties of a pledgor Rights of a pledgor 4.5 Finder of Lost Goods 4.4. Also. you should be able to: · Describe the bailment and its types · Explain the duties and rights of bailor · Define pledge . goods are pledged for securing loans. Bailments are quite common in business also. In this unit you will study about the contract of bailment. At one time or another.3 Duties and Rights of Bailor and Bailee Duties of a bailor Duties of a bailee Rights of a bailee Rights of a bailor 4.9 Summary 4.7 Pledge by Non-owners 4. you came to know about the contract of law and guarantee of contract.6 Pledge or Pawn 4.4 Termination of Bailment 4. you enter into a legal relationships. and factory owners often send machinery back to vendors for repairs. Traders often store their surplus goods in warehouses.10 Terminal Questions 4.
they shall be returned to the bailor. (i) A delivers some clothes to B.2 Bailment and its Kinds 4. The goods are delivered for some purpose and it is agreed that the specific goods shall be returned. The bailee is under an obligation to re-deliver the goods. it is agreed that it will be returned. or condition on which they were bailed. (True/False) 2. where a watch is delivered to a watch repairer for repair. Return of goods in specie. or something to be done about them. Ownership of goods. In a bailment. Goods lent to a friend gratis to be used by him. 3. be returned or otherwise disposed of according to the directions of person delivering them”. on the receipt of the agreed or reasonable charges. Delivery of goods. already in possession of goods contracts to hold them as bailee.. For example. i. 4. there is a constructive transfer of possession from C to A. Delivery of goods may. (iv) Pawn or Pledge. for dry cleaning. All are the kind of bailments. 2.e. Delivery of goods by one person to another for the use of the former. a dry cleaner. (v) Delivery of goods for being transported. bailor. after repair. Placing of ornaments in a bank locker is not a contact of bailment. it is only the possession of goods which is transferred and not the ownership thereof. Delivery of good is essential for effecting bailment. therefore the person delivering the possession of goods need not be the owner. but without reward. Return of specific goods (in specie) is an essential characteristic of bailment. by the bailee for reward. a jeweller. The explanation to the above Section points out that delivery of possession is not necessary. has elapsed or been performed”. where one person. when the purpose is accomplished. (ii) Commodatum. there is no bailment. (iii) Hire. in return for payment of money. Deposit of goods with another by way of security for money borrowed.. Actual delivery may be made by handing over goods to the bailee. in their original or altered form.e.2 Kinds of bailments Bailments may be. as soon as the time of use for. In bailment. i. 4. the following characteristics should be noted: 1. The person delivering the goods is called the ‘bailor’ and the person to whom the goods are delivered is called the ‘bailee’. upon a contract that they shall. (vi) Delivery of goods as in (v) above. The essence of bailment is delivery of goods by one person to another for some temporary purpose. (ii) A delivers a wrist watch to B for repairs. for making jewellery. however. (vii) Delivery of goods as security for the repayment of loan and interest thereon.148) Bailment is defined as the “delivery of goods by one to another person for some purpose. (i) Deposit. Bailment is based on a contract.2. the delivery of goods is upon a contract that when the purpose is accomplished.. his business is to transfer possession and not ownership. (vi) Delivery of goods to a carrier for the purpose of carrying them from one place to another. agrees to hold them on behalf of C. Constructive delivery may be made by doing something which has the effect of putting the goods in the possession of the intended bailee or any person authorised to hold them on his behalf (Sec.149). classified into six kinds as follows. Let’s illustrate.· Explain the pledge by non-owner 4. Thus. where an equivalent and not the same is agreed to be returned.2. Self Assessment Questions 1. (iv) A delivers a suit-length to a tailor for stitching. pledge. From the definition of bailment. be actual or constructive. EXCEPT: (a) Commodatum . (v) A delivers some gold biscuits to B.1 Definition of bailment (Sec.e. i. (True/False) 3. Goods lent to the bailee for hire. Example: A holding goods on behalf of B. (iii) A lends his book to B for reading.
In all cases of bailment. Example: A gives B’s car to C without B’s knowledge and permission. Not to make unauhorised use of goods (Sec.3 Duties and Rights of Bailor and Bailee 4. take of his own goods of the same bulk. The bailor is responsible to the bailee for any loss which the bailee may sustain by reason that the bailor was not entitled to make the bailment.151). The bailor is bound to disclose to the bailee faults in the goods bailed. to B. . destruction or deterioration of the thing bailed (Sec. He does not disclose the fact that the horse is vicious. bailee has taken the amount of care as described above. which he knows to be vicious. but the car is damaged in an accident.3. 3. C drives with care.158 provides that in the absence of a contract to the contrary.152). 4. to drive the car.1 Duties of a bailor 1. Example: A car is lent for a journey. his wife.2 Duties of a bailee 1. B sues C and receives compensation. A is responsible to B for damage sustained. the bailor is held responsible to bear only extraordinary expenses. he is liable to make compensation to the bailor for any damages arising to the goods from or during such use of them.(b) Hire (c) Deposit (d) Loan 4.. he shall not be responsible.164). under similar circumstances. B is thrown and injured. Example: A lends a horse. the money spent in its repair will be regarded as an extraordinary expenditure and borne by the bailor.150). If the bailee without the consent of the bailor. A. In case of non-gratuitous bailments. of which the bailor is aware and which materially interfere with the use of them or expose the bailee to extraordinary risks. uses them in a way not warranted by the terms of bailment. the bailor must repay to the bailee all necessary expenses incurred by him for the purpose of the bailment. In case. To bear expenses in case of gratuitous bailments. mixes the goods of the bailor with his own goods and the goods can be separated or divided. the bailee shall be bound to bear the expense of separation or division and any damages arising from the mixture. To take care of the goods bailed (Sec. If he does not make such disclosure. Regarding bailments under which bailee is to receive no remuneration.3. Not to mix bailor’s goods with his own (Secs. is responsible to make good this loss to C. the bailee. in the absence of any special contract. The horse runs away. or to receive back the goods or to give directions respecting them (Sec. etc.154). In case the bailee makes unauthorised use of goods. for the loss. Liability for breach of warranty as to title. B allows C. 2. The ordinary expenses like petrol. i. To disclose know faults in the goods (Sec. A is liable to make compensation to B for the damage done to the car.e. 3. Example: A lends a car to B for his own driving only. he is responsible for the damage arising to the bailee directly from such faults. 4. Sec. shall be borne by the bailee but in case the car goes out of order.155-157).. quality and value as the goods bailed. the bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would. the bailor. 2.
if looked from the point of view of bailee.181). If a third person wrongfully deprives the bailee of the use or possession of the goods bailed. Lien is a right in one person to retain that which is in his possession. or the purpose. Lien may be of two types: (i) General Lien and (ii) Particular Lien.3. a right to retain such goods until he receives due remuneration for the service he has rendered in respect of them”.Example: A bails 100 bales of cotton marked with a particular mark to B. means the right to retain the particular goods in respect of which the claim is due. It reads: “Where the bailee has. B is bound to deliver the cow as well as the calf to A. unless there is a contract to the contrary. But in case goods are mixed in such a manner that it is impossible to separate the goods bailed from the other goods and deliver them back. These include: bankers.3 Rights of a bailee 1.161). 2. destruction or deterioration of the goods from that time (Sec. whatever is obtained by way of relief or compensation in such a suit shall. The duties of the bailor are. These bailees can retain all goods of the bailor so long as anything is due to them. belonging to another. Thus in the case of wrongful deprivation the bailee has a right to use the same remedies which the owner might have used in the like case. B. 3.4 Rights of a bailor . on the other hand. the bailee is bound to deliver to the bailor. he has. attorneys of High Court and policy brokers. the right of lien is extinguished. Another right of bailee is the right of lien (Secs. Now. mixes the 100 bales with other bales of his own bearing a different mark.170-171). factors..171 empower certain categories of bailees to exercise a general lien.170. 5. for which they were bailed has been accomplished. once the debt is satisfied or obligation discharged. any increase or profit which may have accrued from the goods bailed. To return the goods bailed without demand (Sec.3. 4. In the absence of any contract to the contrary. Right against wrongful deprivation of or injury to goods (Secs. 4. as between the bailor and the bailee.163). he is responsible to the bailor for any loss. The property so retained has. the bailee is entitled to use such remedies as the owner might have used in the like case if no bailment had been made and either the bailor or the bailee may bring a suit against the third person for such deprivation or injury. until some debt or claim is paid. without demand. thus presupposes two things: (i) The person vested with the right of lien is in possession of the goods or securities in the ordinary course of business. It is the duty of the bailee to return. the bailor is entitled to be compensated by the bailee for the loss of the goods. 180-181). bailor). without A’s consent. in the absence of a contract to the contrary. A is entitled to have his 100 bales returned and B is bound to bear all expenses incurred in the separation of the bales and any other incidental damage. a bailee can sue bailor for (a) claiming compensation for damages resulting from non-disclosure of faults in the goods. Since. or deliver according to the bailor’s directions. The provisions of Sec. To return any accretion to the goods bailed (Sec. or according to his directions. rendered any service involving the exercise of labour or skill in respect of the goods bailed. If bailee fails to return the goods at the proper time. the bailee’s rights. wharfingers. Example: A leaves a cow in the custody of B to be taken care of. then. (b) for breach of warranty as to the title and the damage resulting there from. 4. (ii) The owner (bailor in this case) has a lawful debt due or obligation to discharge to the person in possession of the said goods or securities (bailee in this case).160). the goods bailed. or causes them any injury. Particular Lien. and (c) for extraordinary expenses.e. General Lien means the right to retain goods not only for demands arising out of the goods retained but for a general balance of account in favour of certain persons. in fact. to be returned to or kept at the disposal of the owner (i. in accordance with the purpose of the bailment. Bailee’s right of lien is particular in certain cases whereas general in other cases. The cow gives birth to a calf. Particular Lien is conferred upon a bailee by virtue of the provisions of Sec. lien is available only until the debt or claim is satisfied. Thus. as soon as the time for which they were bailed has expired. be dealt with according to their respective interest (Sec. Lien.
e.. However. the bailor can demand their return whenever he pleases. (True/False) 5. The bailor can enforce. the borrower has acted in such a manner that the return of the thing before the specified time would cause him (i. But if. a gratuitous bailment terminates by the death of either the bailor or the bailee (Sec. the bailor may terminate the bailment (Sec. In case of gratuitous bailment (i. If the bailee does any act with regard to the goods bailed. Self Assessment Questions 4. A bailee has a general lien on the goods bailed. (True/False) 4. A gratuitous bailment may be terminated at any time (Sec. A gratuitous bailment can be terminated by the bailor even before the stated time. However. By bailee’s act inconsistent with conditions of bailment. the bailor must indemnify the borrower for the loss if he compels an immediate return (Sec. the bailor must indemnify. . on the faith of such bailment. a horse for his own riding. besides the responsibility of exercising reasonable efforts in finding the real owner. On the expiry of 6 months X must return the cooler.5 Finder of Lost Goods Finding is not owning. A shall have the option to terminate the bailment. by suit. Further. if premature termination causes any loss to the bailee exceeding the benefit derived from the bailment. Bailee need not return to the bailor any accretion to the goods on completion of the contract of bailment. he enjoys certain rights also. (True/False) 4. inconsistent with the conditions of the bailment. A finder of lost goods is treated as the bailee of the goods found as such and is charged with the responsibilities of a bailee. bailment without reward).159). Example: A room cooler is hired by X from Y for a period of 6 months. bailment is for specific purpose it terminates as soon as the purpose is accomplished.159). In case. the bailee) loss exceeding the benefit derived by him from the bailment. On the accomplishment of the specified purpose.. Self Assessment Question 6. His rights are summed up hereunder. 2. On the expiry of the stipulated period.1. B drives the horse in his carriage.162). even though he lent it for a specified time or purpose. all duties or liabilities of the bailee.153).e. Where bailment is for a specific period. 2. Example: A lets to B for hire. 3. 4.4 Termination of Bailment A contract of bailment terminates or comes to an end under the following circumstances: 1. it comes to an end on the expiry of the specified period.
and that the pledge of the railway receipt to the bank. To a creditor. where the goods continue to remain in the borrower’s possession but are agreed to be held as a ‘bailee’ on behalf of the pledgee and subject to the pledgee’s order. But where. 3. 2. be actual or constructive. Advantages of pledge. In the case of insolvency of the borrower. It offers the following advantages: 1. . the Court ordered the State Government of Bihar to reimburse the bank for such amount as the Bank in the ordinary course would have realised by the sale of sugar seized. however. The Official Assignee contended that the pledge of the railway receipt was not valid. The ownership remains with the pledgor. When a thing which is commonly the subject of sale is lost. pledge is perhaps the most satisfactory mode of creating a charge on goods.1. He acquires a special property. (True/False) 8. Self Assessment Questions 7. The goods are in the possession of the creditor and therefore. however. The owner of the goods can create a valid pledge by transferring to the creditor the documents of title relating to the goods. It is only a qualified property that passes to the pledgee. The person. duly endorsed. State of Bihar and Ors. A person who delivers the goods as security is known as: (a) Pledgee (b) Pledgor (c) Bailor (d) None 4. and is a valid pledge. A finder of lost goods may retain the goods until he receives the compensation for money spent in preserving the goods and/or amount spent in finding the true owner. Delivery of goods may. A finder. Delivery essential. (i) when the thing is in danger of perishing or of losing the greater part of its value. Held. to pay the lawful charges of the finder. It is constructive delivery where the key of a godown (in which the goods are kept) or documents of title to the goods are delivered. the finder may sue for such reward and may retain the goods until he receives it. is called the ‘pledgor’ and the person to whom the goods are so delivered is called the ‘pledgee’. who delivers the goods as security. Later he was declared bankrupt. A pledge is created only when the goods are delivered by the borrower to the lender or to someone on his behalf with the intention of their being treated as security against the advance. if any. lender can sell the goods and prove for the balance of the debt. upon demand.172. if the owner cannot with reasonable diligence be found or if he refuses. in Bank of Bihar v. amount to two-third of its value.169). 2. the finder may sell it.6 Pledge or Pawn Sec. duly endorsed. (1971) Company Cases 591. where sugar pledged with the Bank was seized by the Government of Bihar. no other creditor or ‘authority’ can take away the goods or its price. that the railway receipts in India are title to goods. Right to retain the goods (Sec. in case the borrower makes a default in payment. A finder may sell goods when they are in danger of perishing or losing the greater part of their value. and lien which is not of ordinary nature and so long as his loan is not repaid. constituted a valid pledge of the goods. cannot sue for such compensation.168). it amounts to constructive delivery. a specific reward has been offered by the owner for the return of the goods lost. Example: A businessman pledged a railway receipt to a bank. Right to sell (Sec. Stocks cannot be manipulated as they are under the lender’s possession and control. Similarly. defines a pledge as the bailment of goods as security for payment of a debt or performance of a promise. (ii) when the lawful charges of the finder in respect of the thing found. they can be disposed of after a reasonable notice. Thus.
can create a valid pledge. The mercantile agent must have acted in the ordinary course of his business. (True/False) 10. shall be as valid as if he were expressly authorised by the owner of the goods to make the same.167 (c) Sec.2(9) of the Sale of Goods Act.30 of the Sale of Goods Act. Such a pledge shall. means a mercantile agent having. any pledge made by him. b) Acting in the ordinary course of business. Activity 2: The finder of lost goods has no right to file a suit for recovery of expenses incurred by him for finding out the true owner. in the following cases. The pledgee must have acted in good faith and must not have at the time of the pledge notice that the pawnor had no authority to pledge the goods. A ‘mercantile agent’ as per Sec. Where a mercantile agent is. for the pledge to be valid the pledgee should have acted in good faith and without notice of previous sale of goods to the buyer or of the lien of the seller over the goods. when acting in the ordinary course of business of a mercantile agent. There is hardly any possibility of the same goods being charged with some other party if actual possession of the goods is taken by the lender. authority either to sell goods or to consign goods for the purpose of sale or to buy goods or to raise money on the security of goods. 1930. Once again. who obtains possession of goods with the consent of the seller. if he does the business outside his business premises or out of business hours. The onus of proving both these facts rests upon the person disputing the validity of the pledge. a seller left in possession of goods after sale. such a transaction would fall outside this section. Pledge by a person in possession under a voidable contract (Sec. be valid only if the pawnee acts in good faith and has not at the time of the pledge notice that the pawnor has no authority to pledge (Sec. before sale. However. Right to sell comes under which section. in the customary course of business as such agent. Therefore. with the consent of the owner. in possession of goods or the documents of title to goods.170 4.178). Pledge by a mercantile agent.168 (b) Sec. 2. even a pledge by nonowners shall be valid: 1.178-A). Pledge by seller or buyer in possession after sale.169 (d) Sec.7 Pledge by Non-owners The general rule is that it is the owner of the goods who can ordinarily create a valid pledge. The ownership of the goods bailed passes to the bailee. however. Self Assessment Questions 9. Where a person obtains possession of goods under a voidable contract the pledge created by him is valid provided: a) the contract has not been rescinded before the contract of pledge and . Provide your view on this. Under Sec. For a pledge by a mercantile agent to be valid the following conditions must be satisfied: a) Good faith. and a buyer. (a) Sec. 3.4.
not only for payment of the debt or the performance of the promise. that has to be accounted for to the pledgor. The pledgee is required to take as much care of the goods pledged to him as a person of ordinary prudence would. he would have all such remedies that the owner of the goods would have against them.175). Pledge by a person having limited interest (Sec. A pledgee’s rights are not limited to his interests in the pledged goods. Similarly.173]. However. the sale made by the pledgee without giving a reasonable notice to the pledgor is not void. Thus. If. shall be presumed in regard to subsequent advances made by the pawnee.000. but such contract. Pledge by co-owner in possession.176 in case the pledgor fails to pay his debt or complete the performance of obligation at the stipulated time. there is any surplus. the pledgee can exercise any of the following right: (i) bring a suit against the pledgor upon the default in redemption of the debt or performance of promise and retain possession of goods pledged as a collateral security. Where a person pledges goods in which he has only a limited interest. One of several joint owners of goods in sole possession thereof with the consent of the rest may make a valid pledge of the goods.000 – the amount due to it. Before sale can be executed. any damage as a result of non-disclosure shall have to be compensated by the pledgor. The pawnee may retain the goods pledged. a pledgee has the following rights: 1. Sec. A mercantile agent comes under _______________.e. The pledgee has a right to claim any damages suffered because of the defective title of the pledgor.1 Duties of a pledgee 1.174 provides that the pawnee shall not. the pledgee can proceed for the balance. Rs 35. In case the pledgor fails to inform such faults or abnormal character of the goods pledged. Self Assessment Questions 11. In case of injury to the goods or their deprivation by a third party. the Supreme Court held that the bank (pledgee) was entitled to recover not only Rs 20. The pledgee will be liable to the pledgor for the damages.. Union of India. if the goods are of an abnormal character says. 4. on the other hand. in the absence of anything to the contrary. 4. i. 3. or (ii) sell the goods pledged on giving the pledgor a reasonable notice of sale.179). 5.176. the amount over and above his interest is to be held by him in trust for the pledgor. 4. a reasonable notice must be given to the pledgor so that: (a) the pledgor may meet his obligation as a last chance. In case the goods pledged when sold do not fully meet the amount of the debt. However. the pledgee must be informed. take of his own goods. In Morvi Mercantile Bank Ltd v. i. However. (b) he can supervise the sale to see that it fetches the right price. retain the goods pledged for any debt or promise other than the debt or promise for which they are pledged.8. 4. 12. the pledge is valid to the extent of the interest. Pawnee’s right of retainer [Sec. In addition to the rights mentioned in Sec.. of a similar nature. 2. a pledgee may further pledge goods to the extent of the amount advanced thereon. explosives or fragile. A pledge by a mercantile agent to be valid if he must be in good faith and ________________. but for the interest of the debt and all necessary expenses incurred by him in respect of the possession or for the preservation of the goods pledged. It is the duty of the pledgor to disclose any defects or faults in the goods pledged which are within his knowledge.e.b) the pawnee act is good faith and without notice of the pawnor’s defect of title. cannot be set aside. A pledgee has a right to recover any extraordinary expenditure incurred for the preservation of the goods pledged (Sec. in the absence of a contract to that effect. . 5. under similar circumstances. but the full value of the consignment.8 Rights and Duties of Pledgor and a Pledgee According to Sec.
4. Any accruals to the goods pledged belong to the pledgor and should be delivered accordingly. 4.8. 5. Where the pledgee has exercised his right of sale of goods. He is responsible to meet any extraordinary expenditure incurred by the pledgee for the preservation of the goods. 2.2 Duties of a pledgor 1. the bailor is responsible for the damage arising to the bailee directly from such faults. or condition on which they were bailed. If the goods are bailed or hire or reward. and in case he does not receive the notice he has a right to claim any damages that may result. 3. the pledgor has a right to claim the same.8. Bailment is usually based on a contract. The pledgee is bound to return the goods on payment of the debt. 4. If any loss is caused to the goods because of mishandling or negligence on the part of the pledgee. The pledgee is bound to return the goods on payment of the debt. . 3. The pledgor has a right to claim any accruals to the goods pledged. 4. He has a right to receive a reasonable notice in case the pledgee intends to sell the goods. He must disclose to the pledgee any material faults or extraordinary risks in the goods to which the pledgee may be exposed. Self Assessment Questions 13. the pledgor is entitled to receive from the pledgee any surplus that may remain with him after the debt is completely paid off. The pledgee must not put the goods to an unauthorised use. any shortfall has to be made good by the pledgor. The pledgee has a right to claim any damages suffered because of the defective title of the pledgor. In case of sale. Thus. the bonus shares are the property of the pledgor and not the pledgee.9 Summary The bailee is under an obligation to re-deliver the goods. has elapsed or been performed. (True/False) 4. as soon as the time of use for.2. (True/False) 14. 4.3 Rights of a pledgor 1. He is liable for any loss caused to the pledgee because of defects in his (pledgor’s) title to the goods. The pledgor has a right to claim back the security pledged on repayment of the debt with interest and other charges. 3. 2. in their original altered form. if the security consists of equity shares and the company issues bonus shares to the equity shareholders.
6. 3. be returned or otherwise disposed of according to the direction of the person delivering them. False 5. Bailee: The person to whom the goods are delivered is called the bailee. (b) 9. False 10. When a pledger fails to redeem his pledge. False 6. What are the respective rights and duties of a pawnor and a pawnee? 5. 2. Pledge: The bailment of goods as security for payment of a debt or performance of a promise is called pledge. True 8. True 7. True 2. Bailor: The person delivering the goods is called the bailor. “Bailor is liable to the bailee for loss caused by faults in the goods bailed whether the bailor was aware of the same or not”. Distinguish between ‘gratuitous bailment’ and ‘bailment for hire’.Glossary Bailment: A bailment is the delivery of goods by one person to another for some purpose upon a contract that they shall when the purpose is accomplished. Describe the characteristics of pledge. 4. (d) 4. (a) 11.10 Terminal Questions 1. True 3. Acting in the ordinary course of business .11 Answers Answers to Self Assessment Questions 1. What do you mean by bailment? What are the requisites of a contract of bailment? Explain. 4. Comment. what rights does the pledge have in the pledge? 4.
3 – The bailor is bound to disclose to the bailee faults in the goods bailed. The company explained that the commission for non-executive directors was upped to Rs 20 lakh a year in 2004. However. Pradip Shah.38 per cent in Pfizer. 5. 1930 13.176 in case the pledgor fails to pay his debt or complete the performance of obligation at the stipulated time. Kewal Handa’s salary. Shah and Mr. upon a contract that they shall. One of the enabling resolutions was regarding Pfizer’s Managing Director in India. Pfizer’s Chairman. that there was no intention to delist. Refer 4.50 per share. from the present 41 per cent. R. LIC totally holds 14. Mr. unable to give reasons behind the decision. given its equity holding.A. as compared with the previous year’s Rs 27.12. Shareholders should be part of the good and bad times of the company. he said. along with some other shareholders. 3. but for a dissenting LIC representative who opposed two enabling proposals to increase the salary of the managing director and the commission of two Indian non-executive directors. 2.6 – The person. however. when the purpose is accomplished. effective for a five-year period starting December 2003.6 – To a creditor. Sec.8 – According to Sec. Mr. Refer 4. up to Rs 50 lakh a year. pledge is perhaps the most satisfactory mode of creating a charge on goods. and the LIC representative told that he was communicating the decision taken by the corporation. Market observers indicated that LIC could push for a poll on the proposal. True 14. be returned or otherwise disposed of according to the directions of person delivering them”. clarified that there were no motives behind the company’s actions and dividends were generous when the circumstances warranted it.50 per share. He.2 – Bailment is defined as the “delivery of goods by one to another person for some purpose. at the rate of one per cent of the company’s profit. proposing that it be increased from its 2007-level of Rs 1. 6. Refer 4. The dividend for the year ended 2008 was Rs 12. He was. is called the ‘pledgor’ and the person to whom the goods are so delivered is called the ‘pledgee’. seeking to raise their commission.80 crore to a maximum of Rs 2. Shah. Refer 4.2(9) of Sales of Goods Act. It offers the following advantages.A.3 – Candidate give answer by their experience through the study of this unit. Refer 4. who delivers the goods as security.50 crore a year. On Pfizer Inc’s recently announced plan to raise stake in its Indian subsidiary to 75 per cent. R. respectively. 4. said a shareholder who has been holding a Pfizer share since the beginning. Mini-case It would have been business as usual at multinational drug-maker Pfizer’s annual shareholder meeting. of which the bailor is aware and which materially interfere with the use of them or expose the bailee to extraordinary risks. when the multinational sent letters to shareholders inviting them into their fold. The other enabling resolution was with reference to resident non-executive directors Mr. were expressing their unhappiness over the dividend. Refer 4. . True Answers to Terminal Questions 1. "at this time".
Creeping acquisition and buyback was allowed only till 75 per cent.189) Agency by ratification (Secs. Question Discuss LIC’s role in Pfizer.2 Agent and Agency (Sec.196-200) Agency coupled with interest 5. The company was planning to increase its field force by 300 people. he clarified. (Hint: Summarize the LIC responsibilities in Pfizer.187) Agency by estoppel (Sec. Also. he said. the applicable milestone for Pfizer for reverse book building was 75 per cent.4 Classification of Agents Special and general agents Mercantile or commercial agents Non-mercantile or non-commercial agents . Pfizer was also evaluating the possibility of merging Duchem (that has pharma and animal health businesses) with itself.3 Kinds of Agencies Express agency (Sec.237) Agency by holding out Agency of necessity (Sec. Detailing Pfizer’s plans to expand its domestic reach. including 100 for just retail sales.Unlike info-tech companies.187) Implied agency (Sec. Mr.182) Who can employ agent? Who may be agent? 5.1 Introduction Objectives 5.) MB0051-Unit-05-Contract of Agency Unit-05-Contract of Agency Structure: 5. Handa said that they would increase the product portfolio and value offerings from the company. he said.
you came to know about the bailment and guarantee of contract.11 Terminal Questions 5. makes provisions as regards agency. there arose the problem of distribution of goods. Before the Industrial revolution.182 to 238 deal with the subject of agency. Secs.10 Summary 5.9 Power of Attorney Meaning A power of attorney may be special or general Registration 5.190-195) 5.8 Termination of Agency Circumstances under which agency terminates or comes to an end (Sec. To meet the rising demand.6 Principal’s Duties to the Agent and his Liability to Third Parties Duties of a principal Liability of principal to third parties Undisclosed principal Concealed principal 5. In this unit you will study about the contract of agency.201) When termination of agency takes effect? 5.1 Introduction In the previous units.7 Personal Liability of Agent 5. Objectives .12 Answers 5. These helpers or “servants” as they were called performed whatever physical tasks were assigned to them. As population and trade expanded and division of labour and specialisation became the order of the day.Sub-agent and substituted agent (Secs. The Indian Contract Act. manufacturers and shopkeepers began to hire others to work for them. business was carried on largely by individual artisans in their homes and in small family operated shops. 1872.5 Duties and Rights of Agent Duties of agent Rights of agent 5. under the close personal supervision of the “master”.
000. For example.1 Who can employ agent? Any person who is of the age of majority according to the law to which he is subject and who is of sound mind. to sell his car for not less than Rs 90. 5. Example: Rahim appoints Kiran. The relationship between Anil and Bharat is called Agency. The usual form of a written contract of agency is the power of attorney on a stamped paper.000. No qualifications as such are prescribed for a person to be agent except that he has attained majority and is of sound mind. 5. in considering the contract of agency itself (i.. 5. (True/False) 2. there is no bar to the appointment of a minor as agent. agent is a person who acts in place of another. a minor. (True/False) 5.182) Agent is “a person employed to do any act for another or to represent another in dealings with third person”. Thus. The person for whom or on whose behalf he acts is called the Principal. you should be able to: · Define agent · Describe the types of agencies · Explain the duties and rights of agent · Explain the power of attorney 5. A principal can always revoke agent’s authority. 5. This relationship is based upon an agreement whereby one person acts for another in transaction with a third person. No particular form is required for appointing agent. Thus.After studying this unit. Anil is the Principal and Bharat is his agent. Thus.184).2. no person who is not of the age of majority and of sound mind can become agent. as to be responsible to his principal (Sec. it is immaterial whether or not the agent is legally competent to contract.2 Agent and Agency (Sec.1 Express agency (Sec. A substituted agent is as good agent of the agent as a sub-agent.187) . If agent acts for a minor or lunatic.2 Implied agency (Sec. the contractual capacity of the agent becomes important. However. a minor or a lunatic cannot contract through agent since they cannot contract themselves personally either. there are different kinds of agency.3.187) A person may be appointed as agent. Anil appoints Bharat. a broker. may employ agent (Sec. Self Assessment Questions 1. Thus. Kiran sells it for Rs 80.3.183).2. to sell his Maruti Car on his behalf. he will be personally liable to the third party.2 Who may be agent? Since agent is a mere connecting link or a ‘conduit pipe’ between the principal and the third party. Rahim will be held bound by the transaction and further shall have no right against Kiran for claiming the compensation for having not obeyed the instructions. either by word of mouth or by writing. since Kiran is a minor and a contract with a minor is void abinitio. the relation between principal and agent).e. Thus.3 Kinds of Agencies A contract of agency may be created by an express agreement or by implication (implied agreement) or by ratification.
Ratification tantamounts to prior authority.5 Agency of necessity (Sec. Lallan is bound by the offer. Puran pays his servant in cash to purchase the goods. One broad classification of agents is: (i) mercantile or commercial agents and (ii) nonmercantile or non-commercial agents. An ostensible agency is as effective as an express agency.3. by his conduct or statements.7 Agency coupled with interest Agency is said to be coupled with interest when authority is given for the purpose of securing some benefit to the agent.Implied agency arises from the conduct. he is estopped from subsequently denying it. situation or relationship of parties. (True/False) 4. includes agency by estoppel. Example: Lallan makes an offer to Badal. Example: Puran allows his servant Amar to buy goods for him on credit from Komal and pay for them regularly. If he does anything beyond the specified act.3. 5.237) When a person has. Lallan subsequently withdraws the offer.189) This arises where there is no express or implied appointment of a person as agent for another but he is forced to act on behalf of a particular person. On one occasion. A special agent.6 Agency by ratification (Secs. Agency in such a case is said to be created by ratification. or where he exceeds the given authority. Badal accepts the offer though he has no authority to do so. therefore.3 Agency by estoppel (Sec.4 Agency by holding out Though part of the law of estoppel. induced others to believe that a certain person is his agent. thus rendering the revocation of the offer inoperative. to ratify the act of the agent. he runs the risk of being personally liable since the principal may not ratify the same. Managing Director of a company.3. 5. Implied agency. Another classification of agents is: (1) general and (2) special. it will have the same effect as if the act was originally done by his authority. but the company ratifies Badal’s acceptance. Komal can recover the price from Puran since through previous dealings Puran has held out his servant Amar as his agent. Self Assessment Questions 3. therefore. However. although it is not a fact.196 permits the principal. . Sec. if he so desires. 5. agency by holding out and agency of necessity.4 Classification of Agents Agents may be classified from different points of view. The principal is precluded from denying the truth of agency which he himself has represented as a fact.3.3. has only a limited authority to do the specified act.196-200) Where agent does an act for his principal but without knowledge of authority. The ratification by the company relates back to the time Badal accepted the offer. 5. the agency is one coupled with interest. where the agent has himself an interest in the subject-matter of the agency. 5. 5. the principal is not held bound by the transaction. In other words. (True/False) 5. If he so elects. The servant purchases good on credit pocketing the money. An offer once accepted cannot be withdrawn.1 Special and general agents A special agent is a person appointed to do some particular act or enter into some particular contract.4. some affirmative conduct by the principal is necessary in creation of agency by holding out.
If he does not provide further maintenance. purchased were not necessaries. attorneys. factor. 5. Sec.. A commission agent is agent who is employed to buy or sell goods or transact business. del credere agent. A commission agent may have possession of the goods or not. however.. The usual method of dealing by a broker is to make entries of the terms of contract in a book.4.4. A factor is a mercantile agent who is entrusted with the possession of goods with an authority to sell the same. banker. unless expressly authorised to do.2 Mercantile or commercial agents A mercantile or commercial agent may assume any of the following forms: broker. because of lack of time. Hence.190-195) The general rule is that agent cannot appoint agent. estate agent. But this presumption may be rebutted and the husband may escape liability if he can prove that (a) he had expressly forbidden his wife from purchasing anything on credit or from borrowing money. The document sent to the seller is called the sold note and the one sent buyer is called the bought note. He is merely a connecting link between the engager and a third party. He then sends the particulars of the same to both parties. (v) in an unforeseen emergency. Pakka and Katcha Adatias and indentor. she is agent. Also. However.5. called the memorandum book and to sign them. sub-agency is not generally recognised. (c) he had given sufficient money to his wife for purchasing necessaries. A factor has a general lien on the goods in his possession.4 Sub-agent and substituted agent (Secs. guarantees the performance of the contract by the other party. commission agent. A commission agent is not liable in case the third party fails to carry out the agreed obligation.190 deals with the circumstances as to when and how far agent can delegate his duties. in consideration of an extra remuneration. He is also authorised to raise money on their security. The following principles provide guidelines as regards wife as agent of her husband: (i) If the wife and husband are living together and the wife is looking for necessaries. he would be bound to pay her bills for necessaries. cannot barter the goods. Self Assessment Questions 5. Agent may appoint agent in the following circumstances: (i) where expressly permitted by the principal. The governing rule is enshrined in a maxim ‘a delegate cannot further delegate’. (iii) the nature of agency is such that it cannot be accomplished without the appointment of a sub-agent. The remuneration that he gets for the purpose is called the commission. 5. she is not her husband’s agent and thus cannot bind him even for necessaries. i.5 Duties and Rights of Agent 5.g. A broker is a mercantile agent engaged to buy and/or sell property or to make bargains and contracts between the engager and third party for a commission (called brokerage). if Anthony is appointed to type certain papers. he assigns the job to another equally competent typist Bharat. But where the wife lives apart under no justifiable circumstances. A del credere agent is one who. His lien in case of goods in his possession is a particular lien. (True/False) 6. through no fault of hers. (iv) where the nature of the job assigned to the agent is purely clerical and does not involve the exercise of discretion. e. (True/False) 5. the delegation is valid.e. she has an implied authority to bind the husband for necessaries.4. called a del credere commission.3 Non-mercantile or non-commercial agents Some of the agents in this category are: wife. Agent being merely a connecting link is never personally liable.1 Duties of agent The duties of agent towards his principal are: . Agent being a delegate cannot transfer his duties to another. or (d) the trader had been expressly told not to give credit to his wife. He can even sell the goods on credit and in his own name. A broker has no possession of goods or property. (ii) Where the wife lives apart from the husband. auctioneer. Agent cannot renounce his agency. counsels (advocates). (ii) where the ordinary custom of the trade permits delegation.5. the husband is liable to provide for her maintenance. A factor. (b) goods. he cannot delegate his authority. The principle underlying the rule is that the principal engages agent ordinarily on personal consideration and thus may not have the same confidence in the person appointed by the agent.
5. but buys the house for himself.219-220). Right of retainer (Sec. do with regard to his own business. in communicating with his principal and in seeking to obtain his instructions. until the amount due to himself for commission. In the absence of any contract to the contrary. out of any sums received on account of the principal in the business of the agency. Agent may retain. The duty of the agent must be literally complied with. 9. 5. If he does so. Right of lien (Sec. Agent should not deal on his own account without first obtaining the consent of his principal. agent is entitled to retain goods. in case of difficulty. but maintaining proper accounts supported by vouchers. Not entitled to remuneration for misconduct (Sec.214).209). 7. the word ‘lien’ means retaining possession. To render proper accounts (Sec. to buy a particular house for him. the agent can do all that a reasonable man would. This is known as agent’s right of retainer. Amar is entitled to his commission when he has procured a party who is willing to negotiate on reasonable terms and to desirous of entering into a contract with Pawar. except where the principal knows that the agent is wanting in skill (Sec. Amar tells Pawan that it cannot be bought.212). to use all reasonable diligence. 4. disbursements and services in respect of the same has been paid or accounted for to him. To take all reasonable steps for the protection and preservation of the interests entrusted to him when the principal dies or becomes of unsound mind (Sec. To communicate with the principal in case of difficulty (Sec. Pawan may. whether movable or immovable of the principal received by him. 8. 6. 2. whereas any surplus must be accounted for to the principal.221). papers and other property. If the agent fails to keep proper accounts of the principal’s business.213). deduct his lawful expenses and remuneration. Agent is entitled to his agreed commission or remuneration and if there is no agreement. compel him to sell it to Pawan at the price he bought. however. everything consistent with the proved facts will be presumed against him. When the object of agency is deemed to have been carried out or the act assigned to the agent is completed would depend on the terms of the contract. Right to remuneration (Secs. In case of emergency. it can be enjoyed by the agent only where the goods or papers are in actual or constructive possession of the . The agent has to render proper accounts. By a special contract.211). however. This lien of the agent is a particular lien confined to all claims arising in respect of the particular goods and property. Agent who is guilty of misconduct in the business of agency is not entitled to any remuneration in respect of that part of the business which he has misconducted. 3. to a reasonable remuneration.2 Rights of agent Agent has a number of rights these are: 1. any loss occasioned thereby shall have to be borne by the agent. Not to disclose confidential information supplied to him by the principal. however.1. Agent should deliver to the principal all moneys including secret commission received by him.217). the principal can claim from the agent any benefit which he might have obtained. a broker. agent may get a general lien extending to all claims arising out of the agency. He becomes agent by necessity. Example: Pawan directs Amar.220). The agent should conduct the business with the skill and diligence that is generally possessed by persons engaged in similar business. To conduct the business of agency according to the principal’s directions (Sec. 3. If he does so.e. Since. i. Not to make any secret profits. 2. under similar circumstances. the agent is not supposed to deviate from the directions of the principal even for the principal’s benefit. his agent. Rendering of accounts does not mean showing the accounts. Example: Pawar appoints Amar.5. But the remuneration does not become payable unless he has carried out the object of agency. It is the duty of agent. all moneys due to himself in respect of advances made or expenses properly incurred by him in conducting such business and also such remuneration as may be payable to him for acting as agent. He can. on discovering that Amar has bought the house.. except where there is a contract to the contrary. Not to deal on his own account.
del credere agent. can proceed against him on the contract. 4. be lost where he parts with the possession of goods or papers.222-224). The principal is bound to indemnify agent against the consequences of all lawful acts done by the agent in exercise of authority conferred on him.agent. Self Assessment Questions 7. 3. his lien is not affected by the loss of possession. The right of lien will. 6. The principal is bound by any notice or information given to the agent in the course of business transacted by him. Right of indemnification (Secs. (True/False) 5.238). Thus a principal is (i) bound to indemnify the agent against the consequences of all lawful acts done by such agent in exercise of the authority conferred upon him (Sec. The agent can stop the goods while in transit in two cases: (a) Where he has purchased goods on behalf of the principal either with his own funds.6 Principal’s Duties to the Agent and his Liability to Third Parties 5.1 Duties of a principal The rights of agent are in fact the duties of the principal. which is within his authority.2 Liability of principal to third parties 1. 7. But if the possession is obtained from the agent by fraud or unlawful means.227). 2. For example. or by incurring a personal liability for the price. is binding as between him and the principal (Sec.226). Where agent exceeds his authority and the part of what he does. 4.6. 5. Right of stoppage in transit.223). (ii) liable to indemnify agent against the consequences of an act done in good faith. (iii) bound to compensate his agent in respect of injury caused to such agent by the principal’s neglect or want of skill (Sec. The principal is liable for the acts of the agent falling not only within the actual authority but also within the scope of his apparent or ostensible authority.6. he may exercise the unpaid seller’s right of stopping the goods in transit in case of buyer’s insolvency.223 provides an option to the third parties to either sue the principal or agent or both. Like an unpaid seller. 5. 5. he stands towards the principal in the position of an unpaid seller. The principal remains liable to the third parties even where his name was not disclosed. so much only of what he does as is within his authority. Sec. The principal will be liable even for misrepresentations made or frauds committed by agent in the business of agency for his own benefit. . The liability of the principal continues even in cases where agent is held personally liable.225). Agent being a mere connecting link binds the principal for all his acts done within the scope of his authority (Sec. But misrepresentations made or frauds committed by agents in matters beyond their authority do not affect their principals (Sec. he enjoys the right of stopping the goods in transit if in the meantime the principal has become insolvent. on discovering his name. (True/False) 8. (b) Where agent holds himself liable to his principal for the price of the goods sold. therefore. Agent can never delegate his authority. though it causes an injury to the rights of third persons (Sec. can be separated from the part which is beyond his authority.222). An agent coupled with interest is irrevocable. The third parties.
the third parties are not aware of the existence of the principal and regard the agent as the person contracting for himself. He cannot be brought into existence as a principal after the contract has been concluded. (a) Broker (b) Advisor . The liability of an undisclosed principal is similar to that of a disclosed principal unless there is a trade custom making the agent liable. conceals the name of the principal. cannot be sued. thus. nor is he personally bound by them (Sec. in the absence of a contract to the contrary. express or implied. if there is an agreement to the effect.6. A wife can always pledge her husband’s credit.3 Undisclosed principal Where agent.6. Self Assessment Questions 11. The third parties. neither personally enforce contracts entered into by him on behalf of his principal. 5. Self Asessment Qestions 9.5. for instance. However. such a principal is called an undisclosed principal. A ______________ is a mercantile agent engaged to buy and/or sell property. though discloses the fact that he is agent working for some principal. From the above discussion.230). The liability of an undisclosed principal is similar to that of a disclosed principal unless there is a _____________ making the agent liable. Being only a medium.4 Concealed principal Where agent conceals not only the name of the principal but the very fact that there is a principal. though disclosed. 10.230 enlists the following cases where a contract to this effect shall be presumed to exist: (1) where the contract is made by agent for the sale or purchase of goods for a merchant resident abroad. 5. the principal is called a concealed principal. Sec. he can. (2) where the agent does not disclose the name of his principal. must look to the agent for payment or performance and the agent may sue or be sued on the contract. it may be inferred that agent can enforce contracts personally and be held bound for contracts entered into on behalf of his principal. where principal is a minor. (3) where the principal. The principal is not liable for _____________ acts done by the agent at the instance of the principal. the undisclosed principal must exist and must also be the principal at the time the contract is made.7 Personal Liability of Agent Agent is only a connecting link between the principal and third parties. (True/False) 12. In such a case.
5. Example: A directs B to sell goods for him and agrees to give B 5% commission on the price fetched by the goods. The principal may.8. revoke the authority of the agent at any time. they can continue to deal with the agent till they come to know of the termination of the authority (Sec. The termination of the authority of agent does not. As regards third parties. Where agent is appointed to do a particular act. An agency shall also terminate in case the subject matter is either destroyed or rendered unlawful. Insanity or death of the principal or agent. By renunciation of agency by the agent. A afterwards. by a letter revokes B’s authority. terminates the agency. on behalf of the legal representatives of the principal (s.201) 1. Where the agent is appointed to do a single act.1 Meaning .9 Power of Attorney 5. agent may renounce his agency by giving a sufficient notice to that effect.208).205).209) 5. in such a case. by notice. (True/False) 14.8 Termination of Agency 5.9. agent. On the performance of the specific purpose. (True/False) 5. agency is for a fixed period and the agency is renounced without a sufficient cause. 2. 3. Self Assessment Questions 13. agency may be revoked any time before the commencement of the act. Insolvency of the principal. When the agency is for a fixed period of time. 3. 6. 2.208). On the expiry of fixed period of time.2 When termination of agency takes effect? 1.1 Circumstances under which agency terminates or comes to an end (SEC. terminates the agency. it comes to an end on the expiry of that time.(c) Agent (d) None 5. B. If principal can cause termination of agency by revocation. Where. not of the agent. sells the goods for Rs 100. Death or insanity of the principal or the agent. not terminates the agency. however. On revocation by the principal.8. 4. Notice of revocation is essential to the agent as well as to the third parties. the principal must be compensated (Sec. But. The termination of the authority of agent causes the termination of authority of all sub-agents appointed by him. but before he receives it. Death or insanity of the principal or the agent. agency terminates when that act is done or when the performance becomes impossible. so far as regard the agent. should take all reasonable steps for the preservation of property. takes effect before it becomes known to him (Sec. notice of revocation is essential to the agent as well as to the third parties who have acted on the agency with the knowledge of the principal. Insolvency of the principal. after the letter is sent. The sale is binding on A and B is entitled to five rupees as his commission. 7. In case of a continuous agency.
The amount of stamp duty varies with different types of powers as described in the Stamp Act and varies among different States of India. The power of attorney is required to be engrossed on non-judicial stamp paper. 1882 provides that the original deed of power can be deposited in the High Court in whose jurisdiction the principal resides and a certified copy of the deed can be obtained from the High Court.2 A power of attorney may be special or general If the deed conferring power by one to another relates to one single transaction. it would require registration. however. The power of attorney is required to be engrossed on ______________. The person executing the deed is known as the _______________. but does not define it. If the deed conferring power relates to several transactions it is general power of attorney. The power of attorney is required to be engrossed on non-judicial stamp paper. whether movable or immovable of the principal received by him..A power of attorney is defined by Sec. In common parlance.32 (c) of the Registration Act.4 of the Power of Attorney Act. such agent must be duly authorised by power of attorney executed and authenticated in manner as mentioned in Sec.2(21) of the Stamp Act. papers and other property. Further Sec. It is the Powers of Attorney Act. The person executing the deed is known as the Principal or donor and the one in whose favour it is executed is the agent. Such certified copies are equal to originals and are binding on all. it is known as special power of attorney. which deals with the subject. 1882.10 Summary The agent must contract as agent he must not allow the third party to imagine that he is the principal. a power of attorney is an instrument or a deed by which a person is empowered to act for and in the name of the person executing it. Self Assessment Questions 15.” which empowers “a specified person to act for and in the name of the person executing it”. 1908. registration of power of attorney is not necessary but if it authorises the donee to recover the rents of an immovable property of the donor for the donee’s benefit. requires that where a document is presented for registration by the agent of a person entitled to present it for registration.33 of the Act.9. 5. as including “any instrument not chargeable with a fee under the law relating to court fees for the time being in force. 1908. 16.9. In the absence of any contract to the contrary agent is entitled to retain goods. until the amount due to himself for commission. or the power agent or the power of attorney agent. And so also a power creating a charge in favour of the donee upon an immovable property referred to therein. A person cannot enter into a contract as his own and later shift it to another. Such a power of attorney is to be executed before and authenticated by a registrar or sub-registrar. 5. Sec. Unregistered power executed in a foreign country before a notary public can be used by the agent for presentation of document for registration. The power of attorney.3 Registration As a general rule. Glossary . 5. A commission agent is agent who is employed to buy or sell goods or transact business. executed before a notary public in India will not enable the agent to present any document for registration under the Registration Act.
criminal 10. False 9. Sub-agent: A sub-agent is a person employed by and acting under the control of the original agent in the business of the agency. 4.11 Terminal Questions 1. 3.12 Answers Answers to self assessment questions 1. Describe the meaning of ‘agency by ratification’.Agent: An agent is a person employed to do any act for another or to represent another in dealing with the third persons. trade custom 11. False 3. Describe the rights of agent against his principal. (a) 13. False 7. True 5. Agency by Express Agreement: An agency by express agreement is created when by spoken or written words an express authority is given to an agent. False 6. True . False 12. What conditions must be fulfilled for a valid ratification? Explain the effect of a valid ratification. True 4. “Agent having an authority to do an act has authority to do every lawful thing which is necessary in order to do such act. What do you mean by del credere agent? 5. True 8.” Comment. False 2. 5. What do you mean by agency by estoppel? In what way does it differ from agency by holding out? 2. Agency by Estoppel: Agency by estoppel arises where a person by his words or conduct third persons to believe that a certain person is his agent. 5.
Refer 5. Principal or donor 16. a claim is payable if and only if the premium has been received in full. HDFC Standard Life. or where he exceeds the given authority. 2.6 – A special agent is a person appointed to do some particular act or enter into some particular contract. called a del credere commission.8 – Where agent does an act for his principal but without knowledge of authority." Max New York Life’s spokesman echoes similar views.4 – A del credere agent is one who. says that his company actually dismissed an agent for rebating. At the Life Insurance Executive Council. False 15." Ms Ghoshal said. However. Mr Dilip Gazaaro. 4. "This industry has been with a monopoly player." says Ms Suniti Ghoshal. Refer 5. Non-judicial stamp paper Answers to Terminal Questions 1. 5. in consideration of an extra remuneration. They usually paid the first quarter’s premium on behalf of the customer. says Ms Ghosal. it has been almost a standard practice for the agents of Life Insurance Corporation to give their customers a part of their commission. The person for whom or on whose behalf he acts is called the Principal. the Financial Planning Advisers are trained to handle such demands. After all. Advocates of this view point out that in most countries. However. Mini-case Over the years. Rebating is in a way an informal credit extended to the customer by the agent. "There has to be a change in awareness level for all customers to refrain from rebating. 3.2 – When a person has. hence certain things have only been done without being questioned much. there are two views over whether the law should prohibit this `rebating’. insurance companies are even allowed to extend credit to their customers for premiums. he is estoppels from subsequently denying it. However." says a spokesman of Max New York Life Insurance. "We as an industry are also establishing a code of conduct against such practices. guarantees the performance of the contract by the other party. Dabur CGU Life Insurance). Other insurance companies agree. the agent is paying out of his pocket. induced others to believe that a certain person is his agent." There are others who believe that rebating should continue to be illegal. although they all agree that monitoring this is almost impossible. Raveendran. he also needs to ensure that the advice he receives and the service he avails of for his policy are the best in terms of quality and integrity. the principal is not held bound by the transaction. and therefore not a matter of opinion. "They can explain the customer as to why he needs to pay the agent for his service. If the customer can pay substantial amounts for premium. which is any way extremely difficult to monitor. no matter how difficult it is to monitor. Refer 5. "An agent rebates in order to shorten his sales cycle.000. Head-Corporate Communications. Refer 5. Head-Retail Sales. or not. Alegion Risk Management Services (which proposes to become a general insurance . Most life insurance companies support banning of rebating.5 – Agent is a person who acts in place of another. if he so desires. Refer 5. In India. to ratify the act of the agent. Why prohibit rebating only in the insurance industry. Aviva Life Insurance (formerly. At Aviva. That this practice is illegal. by his conduct or statements. when discount is a way of life in all other industries? But insurance companies do not like it. Director.14. is a fact. Says Mr N. Sec. another point of view of the same issue is that there is no point in prohibiting rebating by agents. This shortening of process often leads to misrepresentation resulting in poor service quality. we have recommended that the penalty for rebating be increased from Rs 500 to Rs 10. in an e-mail to Business Line.196 permits the principal.
5 Relations of Partners to one Another Rights of partners Duties of partners 6. MB0051-Unit-06 -Law of Partnership Unit-06 -Law of Partnership Structure: 6. But legalising rebating would push back the arrival of such a time.broker). when the society matures enough to be willing to pay for a service. "Legalising rebating would drive away the serious agents who do not usually give rebates".3 Registration of Firms (Secs. Question Discuss the financial planning advisor role in insurance industry. that rebating will automatically go away. He says that there would come a time.6 Relations of Partners to Third Parties . you don’t necessarily go to the doctor who charges the least.1 Introduction Objectives 6. (Hint: Basically financial advisor is a main person who involve more and more in the planning of insurance sector).2 Meaning and Nature of Partnership Formation of partnerships Duration of partnership Partnership at will Particular partnership Limited partnership 6.58-59) Application for registration Registration of firms is optional 6.4 Partnership Deed A partnership can be formed either by oral or written agreement Partnership agreements and contract law 6. After all.
9 Summary 6. 1932.Implied authority of a partner Liabilities of a partner Liability of a firm for wrongful acts of a partner (Secs. you came to know about the contract of agency.44) 6.11 Answers 6. Sec. Prior to the enactment of this Act.3 provides that the provision of the Indian Contract Act. you should be able to: l Explain the nature of partnership l Define partnership deed .10 Terminal Questions 6. Therefore.26-27) 6.8 Dissolution Dissolution of firm and dissolution of partnership Dissolution of firm Dissolution by court (Sec. A contract of partnership is a special contract.1 Introduction In the earlier units. it was embodied in Chapter XI of the Indian Contract Act. Partnership is a time-honoured form of business organisation and one that is still much in use in India. In this unit you will study about the law of partnership. 1872. The law relating to partnership in India is contained in the Indian Partnership Act. 1932. Objectives After studying this unit.7 Changes in a Firm Rights and liabilities of incoming partners Rights and liabilities of a retired partner Expulsion of a partner Insolvency of a partner Death of a partner Transfer of partner’s interest 6. shall apply to the contract of partnership unless any provision thereof is inconsistent with the provisions of the Indian Partnership Act.
Partnership is an association of two or more than two persons. 4. On analysis of the definition. sharing of losses is not.1 Formation of partnerships All the essential elements of a valid contract must be present in a partnership as it is based on an agreement. a partnership to arise. 6.L. 3. Sec. a company (which is an artificial person) cannot be a partner. . The term ‘business’ includes every trade.11 of the Companies Act. As regards maximum number of partners in a partnership firm. The following points must be kept in mind: 1. However. incorporated under the Companies Act.e. an alien enemy cannot. An alien friend can enter into partnership. it is always advisable to have the partnership agreement in writing. occupation or profession [Sec.2. 5. Therefore. Unless otherwise so agreed. 2. No consideration is required to create partnership. while constituting a partnership. But whereas the sharing of profits is an essential element of partnership. Partnership must be the result of an agreement between two or more persons. certain essential elements of partnership emerge. The Act provides that a minor may be admitted to be benefits of partnership. 2. An agreement presupposes a minimum number of two persons. oral or writing) or implied and the latter may be inferred from the conduct or the course of dealings of the parties or from the circumstances of the case.C. 1956 can enter into a contract of partnership.. 268]. because one person cannot become a partner with himself. Example: A. A company. there must be an agreement to share profits arising from the business.8). Partnership is the result of an agreement between two or more persons (who are known as partners after the partnership comes into existence). As mentioned above. 4. The agreement must be to carry on some business. A person of unsound mind is not competent to enter into a partnership. These persons must be natural persons having legal capacity to contract.. (1860) 8 H. a partnership firm cannot be a partner of another partnership firm. puts the limit at 10 in case of banking business and 20 in case of any other business. the arrangement did not make creditors partners with A in business [Cox v. The partnership agreement may be express (i. He agreed to pay his creditors out of the profits of his business (run under the creditors’ supervision) what he owed to them. sharing of profits also involves sharing of losses. Similarly. A partnership is an extension of agency for which no consideration is necessary. a person may become a partner with another even in a particular adventure or undertaking (Sec. 1. owed money to several creditors. Hickman. it will not amount to partnership.l Explain the relations of partners to others l Describe the changes in a firm 6.2 Meaning and Nature of Partnership A partnership is defined as “the relationship between persons who have agreed to share profits of a business carried on by all. 1956. Though the word ‘business’ generally conveys the idea of numerous transactions.2(b)]. at least two persons must make an agreement. or by any of them acting for all”. These elements must be present so as to form a partnership and are discussed below. There must be at least two persons who should join together to constitute a partnership. Thus. The joint carrying on of a business alone is not enough. 3. Unless the person joins for the purpose of carrying on a business. 6. The agreement must be to share profits of the business. Held. a trader.
(i) it is not constituted for a fixed period of time and (ii) there is no provision made as to the determination of partnership in any other way. ensured registration of firms by introducing certain disabilities that an unregistered firm suffers from. (True/False) 2. Self Assessment Questions 3. Registration is effective from the date when the Registrar files the statement and makes entries in the Register of Firms.2 Registration of firms is optional The Act does not provide for compulsory registration of firms. stating: (i) the firm’s name. 6.3.59).4 Particular partnership In accordance with Sec.58 lays down the procedure for registration of partnership firms. Accordingly death or retirement of a partner does not affect the continuance of such a partnership.58-59) 6.58 have been duly complied with. Such a partnership is usually dissolved on the completion of the adventure or undertaking.2.3. It may be constituted even for a particular adventure. When the Registrar of Firms is satisfied that the provisions of Sec.7. Registration of a partnership firm is effective from the date when the registrar files the statement & makes entries in the ______________. A partnership firm may be registered at any time by post. (ii) the place or the principal place of business of the firm. Therefore such a partnership has no fixed or definite date of termination. An unregistered partnership firm is not illegal but its rights are not enforceable. In a limited partnership. . It is optional and there is no penalty for non-registration. or delivering to the Registrar of Firms of the area in which any place of business of the firm is situated or proposed to be situated.2. (iv) the date when each partner joined the firm.2.2. A firm cannot sue a person for the price of goods it ______________.8 a particular partnership is one which is formed for a particular adventure or a particular undertaking.6. The firm cannot. 6. (True/False) 6. 6. An unregistered partnership is illegal. a partnership is called a partnership at will where.3 Partnership at will In accordance with Sec.69 has effectively. or by their agents especially authorised in that behalf and duly verified. there will be at least one general partner whose liability is unlimited and one or more special partners whose liability is limited.3 Registration of Firms (Secs.2 Duration of partnership The duration of partnership may or may not be fixed. Self Assessment Questions 1. 6.5 Limited partnership In this type of partnership. (v) the names in full and addresses of the partners and (vi) the duration of the firm. 4.1 Application for registration Sec. he registers the firm by recording an entry of the statement in a register called the Register of Firms and shall file the statement (Sec. a statement in the prescribed form and accompanied by the prescribed fee. (iii) the names of any other places where the firm carries on business. But at the same time Sec. He then issues under his hand a Certificate of registration. The statement must be signed by all the partners. the liability of certain partners is limited to the amount of capital which they have agreed to contribute to the business.
1872. it is desirable to enter into a written agreement which is called Partnership deed or agreement.4 Partnership Deed 6. 1872 save insofar as they are inconsistent with the provisions of this Act. 3. 1872. But in order to avoid misunderstanding and litigation. 2. the provisions of the Indian Contract Act. but in case of difference of opinion regarding ordinary matters of the business. the law requires all partnership agreements to be in writing. It is obligatory for a firm to be registered under the Indian Partnership Act.3 provides that the unrepealed provisions of the Indian Contract Act. The Indian Partnership Act has effectively ensured the registration of firms without making it compulsory. every partner has the following rights: 1. written agreement is not compulsory.9-17 of the Act.1 Rights of partners Subject to the contract between the partners. Where there is no specific agreement or where the agreement is silent at a certain point.12(a)].2(e) provides that “expressions used but not defined in this Act and defined in the Indian Contract Act. or where no agreement exists. 1899. Self Assessment Questions 5. 6.5. Each partner should possess a copy of the Deed. shall have the meanings assigned to them in that Act”.12(c)].6.2 Partnership agreements and contract law Sec. (True/False) 6.4.13(b)]. (True/False) 6.4. (True/False) 7. To share equally in the profits [Sec. are applicable to it. To express his opinion on any matter.12(d)]. the relations of partners to one another as regard their rights and duties are governed by Secs.5 Relations of Partners to one Another The relation of the partners of a firm to one another arises through an agreement between them. no change can be made in the nature of the business without the consent of all the partners [Sec. . It may be varied by their consent and such consent may be expressed or may be implied by a course of dealings [Sec. USA and India.1 A partnership can be formed either by oral or written agreement In France and Italy. 4. Such an agreement may be express or may be implied from the course of dealings between them. To have access to and inspect and copy any of the books of the firm [Sec. he is bound by the majority decision. 6. The partnership deed is required to be stamped according to the provisions of the Stamp Act. A firm is liable for the wrongful acts of a partner. To take part in the conduct of the firm’s business [Sec. shall continue to apply to firms. As a partnership agreement is a contract.11(1)]. Also Sec. However. But in England.
6. To continue in the partnership. To be indemnified by the firm in respect of liabilities incurred by him in the ordinary course of business [Sec.5. (iv) If restrained by an agreement with other partners. (ii) not being just and faithful to other partners and (iii) failure to render true accounts and full information of all things affecting the firm to any partner or his legal representative. (True/False) 6. a partner has a duty not to carry on any business other than that of the firm while he is a partner [Sec.6.2 Liabilities of a partner Liability of a partner stems from not complying with his duties under the Partnership Act. To rank as a joint owner of the property of the firm. in an emergency. 8.19 and 22 deal with the subject of implied authority of a partner.6 Relations of Partners to Third Parties Subject to Sec. or with the authority of his partners. 6. 6. The agreement may. 9.9. however.26-27) Where.13(c)].6. To do. It is express. be expelled if a power to expel is conferred upon the partners and power is exercised bona fide by a majority of partners [Sec. when it is fixed between the partners by mutual agreement. Thus.e.10). loss or injury is caused to any third party or any penalty is incurred. (iii) To attend diligently to his duties in the conduct of the firm’s business without any remuneration [Sec. A partner may.e..33(i)].16(b)]. A minor can be a partner in a firm.1 Implied authority of a partner A partner’s authority may be express or implied.18 every partner is the agent of the firm for the purposes of the business of the firm. It is implied when the law impliedly gives certain powers to a partner. be oral or written.3 Liability of a firm for wrongful acts of a partner (Secs.11(2)]. however. 6. Secs.5. A person can be admitted as a partner in a firm with the consent of the majority of partners. in view of Sec.13(a)].13(e)]. the firm is liable therefore to the same extent as the partner. (True/False) 9. Self Assessment Questions 8. (ii) Every partner shall indemnify the firm for loss caused to it by his fraud in the conduct of the business of the firm (Sec. . i. the law presumes that every partner has the power to do certain acts unless negative by an express agreement.. (i) They are bound to (a) carry on the business of the firm to the greatest common advantage. (v) If a partner carries on any business competing with that of the firm. To claim interest @ 6 per cent per annum on any amount advanced by him beyond the amount of capital that he agreed to subscribe [Sec. a partner shall be liable for (i) not carrying on the business of the firm to the greatest common advantage. (b) to be just and faithful to each other and (c) to render true accounts and full information of all things affecting the firm to any partner or his legal representative.9 provides for general duties of partners. all such acts as are reasonably necessary to protect the firm from loss. 7. not to be expelled. 6. i. he shall account for and pay to the firm all profits made by him in that business [Sec. by the wrongful act or omission of a partner acting in the ordinary course of the business of a firm.6.2 Duties of partners Sec.
(ii) change in the nature of business or undertakings and (iii) change in the constitution of a firm. 6. The liability of a new partner ordinarily commences from the date when he is admitted as a partner. which provides that for the purpose of ratification of agency. Sec. (iii) where the partnership is at will.32 provides that a retired partner continues to be liable for all the acts of the firm done before his retirement unless he is discharged from his liability.3 Expulsion of a partner . However. (i) he may retire at any time with the consent of all other partners. 6.7. At the same time. The firm is reconstituted by the remaining partners. A firm can enter into a partnership agreement with another firm. (True/False) 6.32 contemplates three ways in which a partner may retire from the firm. the partners may carry on the business even after the expiry of the fixed period and the partnership becomes ‘partnership at will’. This is in accordance with Sec. the principal must be in existence at the time when the act was done. But such an agreement is binding only on the partners and does not give the right to any creditor of the firm to sue the new partner for past debts of the firm. a partner may retire by giving to his partners a notice of his intention to retire. it comes to an end.1 Rights and liabilities of incoming partners Sec. Such an agreement may be implied by a course of dealing between such third party and the remaining partners. There can be thirty partners in a firm. Such a partner enjoys all the rights as are conferred upon him by the Act and by the contract between him and the existing partners. 1872.31 provides that subject to a contract between partners and to the provisions regarding minors in a firm. A partnership may be entered into for a fixed period of time. (ii) where there is an agreement between the partners about retirement. a partner may retire in accordance with the terms of that agreement. (True/False) 11. after the third party had knowledge of the retirement. the acts of the old partners cannot be ratified by the new partner.32 clearly comprehends a situation where a partner may retire without dissolving the firm.12(c) provides that subject to contract between the partners no change may be made in the nature of the business without the consent of all the partners. unless he agrees to be liable for obligations incurred by the firm prior to that date.196 of the Indian Contract Act. Sec.7. no new partner can be introduced into a firm without the consent of all the existing partners.7 Changes in a Firm The Act contemplates the following changes in a firm: (i) change in the duration of a firm. He may be discharged from liability to any third party for the acts of the firm done before his retirement if (a) there is an agreement made by him with such third party and the remaining partners. ‘Partnership’ and ‘firm’ are synonymous. 6. When the fixed period is over. Sec. This is because there is no privacy of contract between the creditor and the new partner. Sec.2 Rights and liabilities of a retired partner An outgoing partner means a partner who has retired from a firm. Liability of the retired partner. (This implies the principle of novation).Self Assessment Questions 10.7. (b) there is an implied agreement to the above effect.. (True/False) 12. viz.
but it would nevertheless be “dissolution of partnership”. 6. Sec. he ceases to be a partner on the date on which the order of adjudication is passed whether or not the firm is thereby dissolved.40 also provides for the dissolution of a firm in accordance with a contract between the partners. (True/False) 14. mortgage or charge.40 provides that a firm may.7. in good faith. It naturally involves closing down the business. But as the partnership relationship is based on mutual confidence.45 lays down an identical rule applicable to a case where the death of a partner has caused dissolution of the firm.6 Transfer of partner’s interest A partner may transfer his interest in the firm by sale.2 Dissolution of firm When the relationship existing between all the partners of the firm comes to an end. the assignee of a partner’s interest cannot enjoy the same rights and privileges as the assignor.29 provides that the transferee. Thus. 6. dissolution of firm always implies dissolution of partnership. Sharing of profits is a conclusive evidence of partnership. Sec. A public notice of the death of a partner is not required. be dissolved with the consent of all the partners. (ii) a notice of expulsion has been served on the partner and (iii) the partner to be expelled has been given an opportunity of being heard. but dissolution of partnership need not lead to dissolution of firm.Sec.5 Death of a partner Sec. Dissolution of partnership may involve merely a change in the relation of the partners and not the dissolution of the firm. 6.7. the insolvency of a partner results in dissolution of a firm but the partners may specifically provide that on such a contingency the firm shall not be dissolved. or (iii) inspect books of the firm.42(c) provides that a firm is dissolved by the death of a partner. in the absence of a contract to the contrary.34 provides that where a partner in a firm is adjudicated insolvent. A firm may be dissolved in any of the following ways: 1. It follows that if the dissolution of partnership is not between all the partners. Thus.8. Self Assessment Questions 13. at any time. There is no question of ‘reconstituted firm’ in such a case. The contract providing for dissolution may have been incorporated in the partnership deed itself or in a separate agreement. the firm continues its business without dissolution and provides that the estate of the deceased partner is not liable for any act of the firm done after his death. Proviso to Sec. it is called dissolution of the firm. (True/False) 6. is not entitled to (i) interfere in the conduct of business of the firm or (ii) require accounts of the firm.35 deals with a situation where after the death of a partner. It is to be noted that ordinarily but not invariably.4 Insolvency of a partner Sec. it would not amount to “dissolution of firm”. The test of good faith will be satisfied if (i) the expulsion is in the interest of the partnership. a partner may be expelled from the firm if (i) the power of expulsion is conferred by a contract between the partners. By agreement.7. The transfer may be absolute or partial. This applies to all cases whether the firm is for a fixed period or otherwise. during the continuance of the firm. (ii) the power is exercised by a majority of the partners and (iii) the power is exercised in good faith.8.39 provides that the dissolution of partnership between all the partners of a firm is called the “dissolution of the firm”.8 Dissolution 6. 6. 2. Sec. A partner is not entitled to claim remuneration.33 provides that a partner may not be expelled from a firm by a majority of partners except in exercise.1 Dissolution of firm and dissolution of partnership Sec. By mutual consent. . Sec. of powers conferred by the contract between the partners.
The court can order dissolution even though the partnership is for a fixed period [Rehmat-un-nisa-v.3. In such a case partnership is dissolved. f) The court can also dissolve partnership where the business of the firm cannot be carried on save at a loss.41 calls this as compulsory dissolution. or otherwise conducts himself in such a way that is not reasonably practicable for the other partners to carry on business in partnership with him. If a partner is guilty of conduct which is likely to affect prejudicially the carrying on of the business of the firm. mortgage or charge). because trading with an alien enemy is against public policy. Self Assessment Questions . The application in this case may be made by any of the partners or by the next friend of the insane partner. the fact of hostility between the partners which makes cooperation between them impossible. If all the partners or all the partners but one become insolvent. in any way (e.41 provides that a firm is dissolved by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the partners to carry it on in partnership.8. unless a very special case is made out for dissolution. Price. may be made by any of the partners and not by the incapacitated partner.. the illegality of one or more of them does not prevent the lawful adventure from being carried on by the firm. c) Misconduct of a partner affecting the business. the court may dissolve a firm on any of the following grounds: a) If a partner has become of unsound mind. Sec. The court can order dissolution on any other ground which in the opinion of the court is a fit ground for dissolution of partnership. partners not on speaking terms. If a partner transfers. If a partner willfully and persistently commits a breach of the partnership agreement regarding management. By business becoming illegal. if a partner becomes permanently incapable of performing his duties as a partner. 5. e) Transfer of interest or share by a partner. The suit for dissolution under this ground can be brought by a partner other than the guilty partner. Sec. 6. g) Just and equitable. A partner can. 42 Bom. etc. Dissolution on this ground has been granted in case of deadlock in the management. The court may order for dissolution of partnership. Partners becoming alien enemies.3 Dissolution by court (Sec.g. however. by sale. the court may dissolve the partnership.41 also covers cases of partnership between persons some of whom become alien enemies by a subsequent declaration of war. the court may order dissolution. if the partnership relates to more than one adventure. By the insolvency of all the partners but one. the court will not order dissolution. b) Permanent incapacity of a partner. have been held to be sufficient reasons for dissolution. The application for dissolution. Sec. In the case of insanity of a dormant partner. The transfer of a part of his share by a partner to any third party is not permissible unless otherwise agreed. 380]. in such a case. his whole interest in the partnership to a third party (outsider) or allows his share to be charged in execution of a decree against him or allows the same to be sold for arrears of land revenue or for charges recoverable as land revenue. 4. d) Willful and persistent disregard of partnership agreement by a partner. because no new partner is introduced thereby. there is a dissolution of the firm. Continuous refusal by a partner to attend to his duties in the partnership business. transfer even the whole of his share to a partner in the firm. the court may order dissolution. disappearance of the substratum of the business. But.44) At the suit of a partner.
(a) What is a partnership? (b) Briefly state special features of a partnership on the basis of which its existence can be determined under the Indian Partnership Act? 2. or corporation. In what circumstances is partnership dissolved: (i) automatically. in law.15. sole proprietorship. What is meant by the implied authority of a partner to bind the firm? State the acts of a partner for which he does not have the implied authority to bind the firm. (True/False) 16. What is meant by dissolution of a firm? Is it different from the dissolution of partnership? 6.. Dissolution of firm always implies dissolution of partnership. (a) Explain the procedure for getting a partnership firm registered. 6. To avoid future dispute it is always advisable to have partnership expressed in writing. limited liability company.10 Terminal Questions 1. Register of firms .9 Summary The relationship of partnership arises from an agreement between the persons concerned not from status. 6. Describe the mode of settling accounts of a firm after dissolution with special reference to a case where one of the partners has become insolvent and nothing is recoverable from his estate. A partnership is formed by an agreement between the partners. To avoid future complications and dispute amongst the persons constituting partnership. Glossary Partnership: A partnership is a type of business entity in which partners (owners) share with each other the profits or losses of the business. When is such a registration treated as complete? (b) State the effects of nonregistration of a firm. partnership. Firm: Any business entity such as a corporation. 6. The rights and obligations of the partners towards each other and towards the firm can be determined by an oral or written agreement. Proprietorship: A proprietorship is a company which is not registered with the state as a limited liability company or corporation. This agreement may be oral or written. Dissolution of firm by agreement come under ________________. False 2. (ii) compulsorily by the court? 5. True 3. agreement in writing must be preferred. adoption. or "private equity" "investment (firm) organization" Dissolution: Dissolution (law). Agreement as made between the persons must be valid and enforceable by law. 4.11 Answers Answers to Self Assessment Questions 1. (c) What are the advantages of registration of a partnership firm? 3. means to end a legal entity or agreement such as a marriage.
False 14.g. Refer 6. Mini-case If she weren’t a shade confused.4.58 lays down the procedure for registration of partnership firms. True 13. "For chartered accountants there are a plethora of opportunities in the new international trading regime. mortgage or charge). It naturally involves closing down the business. She wanted to join one of the Big Four firms with the long-term goal of becoming the next C. Wafers knew that the industry offered fat pay packs but her heart actually lay in consulting. K." Wafers agreed. a star CFO.40 Answers to Terminal Questions 1. She recalled reading in the ICAI . 2. 4. True 7.8 – Sec. was her inspiration and she wished to be like him . False 9. True 15. supplied 5. True 16. At the campus interview her senior had picked a job for Rs 9 lakh and gosh he wasn’t even a rank holder. in any way (e. 3. Refer 6. Refer 6.3 – Sec..8 – When the relationship existing between all the partners of the firm comes to an end.39 provides that the dissolution of partnership between all the partners of a firm is called the “dissolution of the firm”. Her professor had once told the class. you should do what the heart tells you. Prahalad. when it is fixed between the partners by mutual agreement. 5. Refer 6. False 11.8 – If a partner transfers. It is express. False 10. Refer 6. Sec. she wouldn’t be Wafers! Her uncle. it is called dissolution of the firm. True 8." He was talking about careers! China said. globe trotting and knowledgeable.6 – A partner’s authority may be express or implied. by sale.2 – A partnership is defined as “the relationship between persons who have agreed to share profits of a business carried on by all. Refer 6. False 6. or by any of them acting for all”. his whole interest in the partnership to a third party. "In life. True 12. 6.jet setting.
"So will I be liable for my partners’ shortcomings even if I have been honest in conducting my duties. "But what is LLP?" asked China. among others. "But that comes with a huge price. the opportunities are not just in the industry. accounting firms will have opportunities at the international level. every partner will be an agent of the partnership and not of the other partners." she added." "Excellent. "Because of the legal stipulation of unlimited liability among partners. "Other forms of organisation are tried and tested." She had read a research report on "Who are India’s top auditors and how much do they charge. "A limited liability partnership is a form of organisation which shields a partner’s assets from limitless liabilities that may accrue from the omissions and commissions of other partners. "of the Companies Act bars the formation of a partnership consisting of more than 20 persons. "Isn’t this a merger of the partnership form of organisation and the company form?" remarked China." replied China." China remarked. Wafers added. At the government level. Wafers explained." she asked. accounting firms in the US have millions of dollars worth of legal suits pending against them." she added. She was in Class X. "Actually. "It promises perpetual succession and a distinct legal identity were it to become law. if he had one." said Wafers. "In LLP. This could create disputes between partners." China smiled. The idea is to make LLP a vehicle for business expansion. Wafer’s niece. Replied Wafers. China played the devil’s advocate. "If you want to succeed. at the revenue authorities level and at the business unit level. accounting firms in India are allowed to function as sole proprietary concerns or as partnership firms." Wafers had a word of caution. "Yeah." he told himself." Muskan asked." This set Muskan thinking." She added. "Legally. Sec. "LLP being a form of partnership having characteristics of a company will limit liability in the case of business failure or professional negligence litigation to the partner responsible. And added. the major chunk of all benefits is drawn by the creamy layer of large firms. "You mean to say." said Muskan." China continued his black hat thinking. having no cap on the maximum number of partners a firm can have." answered Wafers." said China hurriedly. you should strike out new paths rather than travel the worn out paths of accepted success. "How?" asked Muskan. Won’t the firm have to register itself as a company?" "Yes and No." said Wafers.11." said Wafers. Why then should one go for something new?" Wafers answered this question philosophically quoting John Rockefeller. "Sec. it requires only a minimum of two partners." said Wafers "If LLP becomes law." said China." (LLP) she added. Not for nothing was Wafers considered strong in law." asked China. A partnership is the relationship between persons who have agreed to share the profits of a business carried on by all or anyone of them acting for all. "This is why the accounting fraternity is in favour of limited liability partnership. "That’s the general idea. that’s why she loved China. Ha." China was surprised. "the liberalised trade scenario which offers potential to provide services across international borders will augment greater liability to firms in case of default. The walking encyclopaedia had no inhibitions about seeking a clarification on a doubt. "They will have to divide work amongst themselves appropriately. "Exactly." queried Muskan. only the negligent partner will be penalised and not the whole firm. multi-disciplinary and multi-locational requirements of today’s global and domestic clients. but crystal clear division of duties between partners will go a long way in reducing the same. documented the great divide in the accounting profession. If the pink papers are to be believed. "The decision to go for LLP will be based on the interplay of costs and benefits. Question Comment on “A partnership is the relationship between persons who have agreed to share the profits of a business carried on by all or anyone of them acting for all”. (Hints: Refer partnership act) .11 will have to be amended. Further. "Is it possible to prove that only a particular partner was negligent and not the others?" Wafers replied. They are in practice as well. Indian partnerships are mostly restricted to family members and persons who know each other thoroughly. "So?" "So." said China impressed by the kid asking the right questions." Muskan looked definitely confused. "Wow! These CA students are so analytical. "Moreover. "This traditional model is not equipped to meet the multi-competency.website that "Opportunities would emerge at three fundamental levels in the WTO regime." "You mean." which had. "The LLP form of organisation would help the small and medium practitioners by encouraging networking and specialisation of functions. "Yes.
MB0051-Unit-07-Law of Sales of Goods Unit-07-Law of Sales of Goods Structure: 7.1 Introduction Objectives 7.2 Contract of Sale 7.3 Goods and their Classification Meaning of goods Classification of goods 7.4 Meaning of Price Meaning Mode of payment of the price 7.5 Conditions and Warranties (Secs.11-17) 7.6 Passing of Property in Goods Meaning of ‘property in goods’ Rules regarding passing of property in goods from the seller to the buyer 7.7 Transfer of Title by Non-owners (Secs.27-30) 7.8 Performance of a Contract of Sale of Goods Duties of the seller and the buyer Delivery Passing of property in goods in the case of foreign trade 7.9 Unpaid Seller and his Rights Who is an unpaid seller? Rights of an unpaid seller Lien on goods (Secs.47-49)
Right of stoppage in transit Right of resale (Sec.54) 7.10 Remedies for Breach of a Contract Suit for price (Sec.55) Suit for damages for non-acceptance (Sec.56) Suit for interest (Sec.61) Buyer’s remedies against seller 7.11 Sale by Auction (Sec.64) 7.12 Summary 7.13 Terminal Questions 7.14 Answers 7.1 Introduction In the earlier units, you came to know about the partnership laws. In this unit you will study about law of sales of goods. Transactions in the nature of sale of goods form the subject matter of the Sale of Goods Act, 1930. The Act covers topics such as the concept of sale of goods, warranties and conditions arising out of sale, delivery of goods and passing of property and other obligations of the buyer and the seller. It also covers the field of documents of title to goods and the transfer of ownership on the basis of such documents. The Act came into force on 1st July, 1930. It extends to the whole of India, except Jammu and Kashmir. Objectives After studying this unit, you should be able to: · Define contract of sale · Explain the classification of goods · Describe the conditions and warranties of goods · Explain unpaid seller and his rights · Define sale by auction 7.2 Contract of Sale Sec.4 defines a contract of sale as ‘a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price’. From the definition, the following essentials of the contract emerge:
1. There must be at least two parties. A sale has to be bilateral because the property in goods has to pass from one person to another. The seller and the buyer must be different persons. A person cannot buy his own goods. However, a part-owner may sell to another part-owner. Examples: A partnership firm was dissolved and the surplus assets, including some goods, were divided among the partners in specie. The sales-tax officer sought to tax this transaction. Held, this transaction did not amount to sale. The partners were themselves the joint owners of the goods and they could not be both sellers and buyers. Moreover, no money consideration was promised or paid by any partner to the firm as consideration for the goods allotted to him. 2. Transfer or agreement to transfer the ownership of goods. In a contract of sale, it is the ownership that is transferred (in the case of sale), or agreed to be transferred (in the case of agreement to sell), as against transfer of mere possession or limited interest (as in the case of bailment or pledge). 3. The subject matter of the contract must necessarily be goods. The sale of immovable property is not covered under Sale of Goods Act. The expression ‘goods’ is defined in Sec.2(7). 4. Price is the consideration of the contract of sale. The consideration in a contract of sale has necessarily to be ‘money’, (i.e., the legal tender money). If for instance, goods are offered as the consideration for goods, it will not amount to sale. It will be called a ‘barter’. Payment by installments. In the case of sale of goods, the parties may agree that the price will be payable by installments. Also, the terms may stipulate some amount by way of down payment and the balance by installments. Sale and agreement to sell Where under a contract of sale, the property (ownership) in the goods is transferred from the seller to the buyer, it is called a sale [Sec.4(3)]. Thus, sale takes place when there is a transfer of ownership in goods from the seller to the buyer. A sale is an executed contract. Example: Ramanathan sells his car to Bhim for Rs. 1 lakh. If all essential elements of a valid contract are present, it is a sale and therefore the ownership of the car stands transferred from Ramanathan to Bhim. This is so even where the payment of the price or the delivery of the car or both have been postponed. Agreement to sell means a contract of sale under which the transfer of property in goods is to take place at a future date or subject to some conditions thereafter to be fulfilled. Distinction between sale and agreement to sell The distinction between the two is of prime importance as they have different legal repercussions. The rights and duties of the parties vary with the fact whether the contract of sale is an actual sale or an agreement to sell. In a sale, the seller transfers the ownership in the goods at the time of entering into the contract; in the agreement to sell, the ownership is agreed to be transferred later. Self Assessment Questions 1. No sale can take place without a price. (True/False) 2. The delivery of ascertained goods is essential for the completion of sale. (True/False) 7.3 Goods and their Classification 7.3.1 Meaning of goods ‘Goods’ means every kind of movable property, other than actionable claims and money; and includes stocks and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. Thus, things like trade marks
2(14)]. who owns a TV show room. it is paid by the buyer in advance as security for the due performance of his part of the contract.e. or is not capable of being fixed. If price is not fixed. Landed property. According to Sec. sells it to her. does not constitute goods. Example: In a particular trade. Generic or unascertained goods are goods indicated by description and not specifically identified. Example: Kulkarni agrees to sell future crop of a particular agricultural field in the next season. Self Assessment Questions 3. As to how the price is to be fixed Secs. or (ii) agreed to be fixed in a manner provided by the contact. Contingent goods is a part of __________________ goods. In general..1 Meaning Price means the money consideration for the sale of goods. the deposit unless otherwise agreed is forfeited to the seller. future and contingent. Price is an integral part of a contract of sale. Specific goods means goods identified and agreed upon at the time a contract of sale is made [Sec. Example: Alka agrees to sell to Bhola a certain painting only if Chetan. Contingent goods are a part of future goods. It is not paid as part payment of price.3. 7. the price may (i) either be fixed by the contract.4.6(2)]. e. gas. Ascertained goods. Existing goods are those which are owned or possessed by the seller at the time of the contract (Sec. its present owner. has 20 TV sets and agrees to sell any one of them to Bharti.9 and 10 lay down certain rules. . and where it goes off by the seller’s default he must return the earnest money. But if the sale goes off through buyer’s fault. the contract is void ab initio. Contingent goods are the goods the acquisition of which by the seller depends upon a contingency which may or may not happen [Sec.2 Classification of goods Goods may be classified as existing.4 Meaning of Price 7. If the transaction goes through. there is a usage to deduct discount in determining the price. may be the subject matter of a contract of sale. The usage is implied by the course of dealings between the parties. by a valuer or (iii) determined by the course of dealings between the parties. goodwill. i. it is only the movables.2 Mode of payment of the price The seller is not bound to accept any kind of payment – except in legal tender money unless there is an agreement express or implied to the contrary or unless the seller is estopped from disputing the mode of payment. 4. Future goods means goods to be manufactured or produced or acquired by the seller after making the contract of sale [Sec. Also known as deposit. Existing goods may be either (a) specific or ascertained..2(6)]. This is an agreement to sell future goods. Earnest money.9.6). Thus. or (b) generic and unascertained. things which can be carried from one place to another that form ‘goods’. 7. 7. since which particular TV set shall become the subject matter of sale is not individualised at the time of the contract of sale. This painting is classified as contingent goods.4. water. the earnest money is adjusted against the price.patents. Instances of goods possessed but not owned by the seller are sales by agents and pledges. electricity are all goods and therefore. he is not bound to accept payment by cheque. though normally used as synonym for specific goods may be intended to include goods which have become ascertained subsequently to the formation of the contract. copyright.g. Existing goods may be either specific or _______________. The contract is for unascertained goods. Example: Anthony. therefore.
e. Doctrine of caveat emptor The doctrine of caveat emptor is a fundamental principle of the law of sale of goods. The former stipulations are called ‘conditions’ and the latter ‘warranties’. it may be agreed that delivery of goods shall be made or taken on or before a certain date. Similarly. Express condition or warranty.e. i. Implied conditions and warranties [Secs.17). time of payment. Where the buyer treats the breach of condition as a breach of warranty. will be regarded as a breach of the contract. e. Where the contract of sale is not severable and the buyer has accepted the goods or part thereof.14-17]. 7. It means ‘CAUTION BUYER’.5 Conditions and Warranties (Sec. or (b) elect to treat the breach of the condition as a breach of warranty. therefore.. he cannot later on insist that the condition be fulfilled.14). express warranty as to its soundness may be incorporated. so that a breach of these terms will not put an end to the contract but will make the party committing the breach liable to damages.g.13). quality of the goods to be supplied.16(1)). the buyer may either (a) waive the condition. (vii) implied condition in the case of sale by sample as well as description (Sec. i.15). Some may be intended by the parties to be of a fundamental nature.62 recognizes the following two principles: (i) what is expressed makes what is implied to cease and (ii) custom and agreement overrule law. the buyer is active and is either waiving the condition or electing to treat the breach of condition as a breach of warranty. e. Implied conditions and warranties are deemed to be incorporated by law in every contract of sale of goods unless the terms of the contract show a contrary intention. may permit repudiation of the contract in spite of the acceptance of the goods by the buyer. the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty..11-17) In a contract of sale.e. The buyer must inspect the goods to find out if they will suit his purpose.16(2)].e. parties make certain stipulations. (True/False) 6. ‘let the buyer beware’. However. In other words. agree to certain terms...g. ii) There is also a compulsory treatment of breach of condition as a breach of warranty..15). They are said to the ‘express’ when the terms of the contract expressly. the right to repudiate the contract is deemed to have been lost. They are said to be ‘implied’ when the law deems their existence in the contract even without their actually having been put in the contract. provide for them.Self Assessment Questions 5. These circumstances are: i) Where a contract of sale is subject to any condition to be fulfilled by the seller. In such situations. the agreement may provide otherwise. Breach of condition to be treated as breach of warranty (Sec. i. (iii) condition as to quality or fitness for buyer’s purpose (Sec. (ii) sale by description (Sec. (iv) condition as to merchantable quality [Sec. However.g. These may be of any kind that the parties may choose to agree upon. . Express and implied conditions and warranties. (vi) implied condition in the case of sale by sample (Sec. The implied conditions: (i) condition as to title (Sec. (v) condition as to wholesomeness. Sec. but of a subsidiary or inferior character. an implied condition or warranty may be negative by an express term to the contrary. it is no part of the seller’s duty to point out defects of his own goods. Conditions and warranties may be either express or implied.. Under certain circumstances a breach of condition is to be treated as a breach of warranty. he has to give a notice to the seller to that effect. All stipulations cannot be treated on the same footing. If the buyer decides to waive the condition. Price is an _______________ of a contract of sale. Some may be intended by the parties to be binding. i. the breach of which. Consideration in a contract of sale of goods can also be paid partly in money and partly in goods. in a contract of sale of a car. e.
1 Meaning of ‘property in goods’ The phrase ‘property in goods’ means ownership of goods.2(3) states that goods are said to be in a deliverable state when they are in such a state that the buyer would under the contract be bound to take delivery of them. the property shall pass to the buyer only when the latter has assented to the appropriation. Specific goods not in a deliverable state. though normally a person who is in possession of the goods shall also be its owner but it need not necessarily be so. Unascertained or future goods. Specific goods in a deliverable state. 7. Whether the . 8. may be given before or after appropriation.20).2 Rules regarding passing of property in goods from the seller to the buyer Secs. the conduct of the parties and the circumstances of the case.18 to 25 lay down the rules which determine when property passes from the seller to the buyer. Where he appropriates the goods to the contract. Sec.23 provides that in the case of sale of unascertained goods or future goods by description. When there is a contract for the sale of unascertained goods. either by the seller with the assent of the buyer or by the buyer with the assent of the seller. 2. the property in them is transferred to the buyer at such times as the parties to the contract intend it to be transferred. the undermentioned rules are applicable for ascertaining the intention of the parties (Secs. Unless a contrary intention appears. property passes only when such thing is done and the buyer has notice thereof (Sec.6.6 Passing of Property in Goods 7. property passes to the buyer when goods of that description in a deliverable state are unconditionally appropriated to the contract. Sec. Unconditional appropriation. The ‘ownership’ of goods is different from ‘possession’ of goods.18). 1. The assent.20-24).Self Assessment Questions 7. Conditions and warranties are said to the _____________ when the terms of the contract expressly. provide for them. however. In a sale of specific or ascertained goods. Normally goods shall be appropriated by the seller.21). In the case of specific goods to which something has to be done by the seller to put them in a deliverable state. The fact that the time of payment or the delivery of the goods or both are postponed does not affect the passing of the property. The unconditional appropriation of goods may be made either by the seller with the buyer’s assent or by the buyer with the seller’s assent. The intention of the parties is ascertained from the terms of the contract. 7. The ‘possession’ of goods refers to the custody of goods. property in the goods is not transferred to the buyer unless and until the goods are ascertained (Sec. The ___________ is a fundamental principle of the law of sale of goods. These rules for different kinds of goods are summarised below: Specific or ascertained goods. the property passes at the time the contract (unconditional) is made (Sec.6. In the case of specific goods in a deliverable state.
Self Assessment Questions .33 provides that delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or which has the effect of putting the goods in the possession of the buyer or of any person authorised to hold them on his behalf.32).B.1 Duties of the seller and the buyer It is the duty of the seller to deliver the goods and of the buyer to accept and pay for them. The most usual of such contracts are: (i) Free on board (F. as unless otherwise agreed. Insurance and Freight (C. ‘memo dat quod non habet’ which means that no one can give what he himself has not. accept delivery and pay compensation to the seller in case he wrongfully refuses to accept delivery.I.3 Passing of property in goods in the case of foreign trade There are certain terms which are used in the contract of sale of goods in foreign trade. The seller has the duty of giving delivery of goods according to the (i) terms of the contract.2 Delivery Delivery is defined as a voluntary transfer of possession from one person to another [Sec.31). 7.8. the assent of the other party must be obtained.O. as the case may be.8 Performance of a Contract of Sale of Goods The contract of sale of goods is to be performed. The buyer of the goods has the duty to pay for the goods. delivery and payment of price are concurrent conditions (Sec. However. 27-30) Sec. Where goods are in the possession of the buyer. and (ii) rules contained in the Act. This rule is expressed by the maxim. that is. Sec.O. nor need the buyer pay the price. no delivery need be given. has no title. or he has defective title. the buyer’s title will be equally wanting or defective. therefore. 10.) or Free on Airport (F. unless the seller is ready and willing to give delivery. 7. _______________ lay down the rules which determine when property passes from the seller to the buyer. These terms reflect a number of conditions which are either attached by the parties or by custom and practice of business people. if the buyer is not willing to pay the price.7 Transfer of Title by Non-owners (Secs. The _______________ of goods refers to the custody of goods.2(2)].8. in accordance with the terms of the contract of sale (Sec. 7. he may do the appropriation.appropriation is done by the seller or the buyer.8.31-44 provide for the duties of the seller and the buyer and the rules regarding delivery of goods. it is only the owner of goods who can transfer a good title.) and Ex-Ship. Self Assessment Questions 9.) and (ii) Cost. though he has purchased in good faith and for value. Self Assessment Questions 11. _______________ lays down a general rule as to transfer of title. Secs.A.F. 7. In this context. If the seller. No one can give a better title than what he himself has. 7.27 lays down a general rule as to transfer of title.
56).47 to 54. For Example. The rights against the goods are as follows: 7. In a contract of sale. the seller has the following remedies against the buyer personally. namely.9. (True/False) 15.5 Right of resale (Sec. Self Assessment Questions 14. (b) rights against the buyer personally.12. (i) suit for price (Sec.73-74 of the Indian Contract Act. 47-49) The word lien means to retain possession of. retaining them till the price is paid. In case buyer fails or refuses to pay. (b) where the goods have been sold on credit. . 1872.54) The unpaid seller.55). i. 7. The right of lien by an unpaid seller can be exercised for the non-payment of price of goods and other charges. the seller. Lien can be exercised only for nonpayment of the price and not for any other charges due against the buyer. (ii) a bill of exchange or other negotiable instrument has been received as conditional payment and the condition on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise.4 Right of stoppage in transit This right of the unpaid seller consists in preventing the goods from being delivered to the buyer and resuming and regaining their possession while in transit. (i) if the goods are of a perishable nature..50). An unpaid seller who is in possession of goods is entitled to retain them in his possession until payment or tender of the price in three situations.1 Who is an unpaid seller? A seller of goods is an unpaid seller when (i) the whole of the price has not been paid or tendered.2 Rights of an unpaid seller The rights of an unpaid seller may broadly be classified under two heads.9. shall have certain rights. as unpaid seller. to recover damages for breach of contract.3 Lien on goods (Secs.e.9 Unpaid Seller and his Rights A contract is comprised of reciprocal promises. 1930: (a) rights against the goods. (a) where the goods have been sold without any stipulation as to credit. if seller is under an obligation to deliver goods. ______________ provide for the duties of the seller and the buyer.9. can resell the goods. (ii) damages for non-acceptance of goods (Sec. who has retained the possession of the goods in exercise of his right of lien or who has resumed possession from the carrier upon insolvency of the buyer. but the term of credit has expired. 7.9. 7. The right of stoppage in transit is earned only where the right of lien is lost and is available only where the buyer has become insolvent (Sec. (True/False) 7.56). The word lien means to retain possession of. (iii) suit for interest (Sec. _____________ is defined as a voluntary transfer of possession from one person to another.9.10 Remedies for Breach of a Contract In addition to the rights of a seller against goods provided in Secs. 7. buyer has to pay for it. namely: (i) Rights under the Secs. (c) where the buyer becomes insolvent. 13. (ii) Rights under the Sale of Goods Act. without any notice to the buyer and (ii) in other cases after notice to buyer calling upon him to pay or tender the price within a reasonable time and upon failure of the buyer to do so. 7. the seller cannot claim lien for godown charges for storing the goods in exercise of his lien for the price.
(True/False) 7. (vii) recovery of interest (Sec. the court may award interest at such rate as it thinks fit on the amount of the price.3 Suit for interest (Sec. B fails to pay the price within the stipulated time. (iv) suit for breach of condition. the sale is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner.60).61) When under a contract of sale. The interest may be calculated from the date of the tender of the goods or from the date on which the price was payable. the seller can only sue for damages and not for the price. (ii) right of recovery of the price.10.. if the seller’s remedy is to claim damages only. Example: A sold certain goods to B for Rs 5.10. The amount of damages is not to be determined in accordance with the provisions laid down in Sec. each lot is deemed prima facie.59).10.61).4 Buyer’s remedies against seller The buyer has the following rights against the seller for breach of contract: (i) damages for non-delivery (Sec. 7. the seller may sue him for damages for non-acceptance. When the goods are put up for sale in lots. until such completion any bidder may withdraw his bid. 3.2 Suit for damages for non-acceptance (Sec. where there is an available market for the goods prima facie. the seller can sue the buyer for the price of the goods. 2. Where the property in the goods has not passed to the buyer and the price was not payable without passing of property.64) In the case of sale by auction the following rules apply: 1.73 of the Indian Contract Act.57). 1872. It is also the practice to say ‘three times’. (iii) specific performance (Sec. (True/False) 17. the seller has a further right to claim interest on the amount of the price.1 Suit for price (Sec.11 Sale by Auction (Sec. At an auction. i.000 and the price was agreed to be paid before the expiry of ten days of the contract. to be the subject matter of a separate contract of sale.73 of the Indian Contract Act. then he cannot claim interest. Where the property in goods has not passed to the buyer. In the absence of a contract to the contrary. his only remedy is to claim damages. (v) suit for breach of warranty (Sec. The amount of damages is to be determined in accordance with the provisions laid down in Sec.10.58). It is obvious that the unpaid seller can claim interest only when he can recover the price. the difference between the market price and the contract price can be recovered.55) Where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay the price. as a rule. the seller or any person on his behalf may bid at the auction. . 7. Self Assessment Questions 16. Thus. 1872. 7.e.7.56) Where the buyer wrongfully neglects or refuses to accept and pay for the goods. the seller cannot file a suit for the price. Risk follows ownership. A can file a suit for price against B even though the goods have not been delivered or the property in goods has not been passed to B. A right to bid may be reserved expressly by or on behalf of the seller and where such right is expressly reserved but not otherwise. (vi) anticipatory breach (Sec. the seller tenders the goods to the buyer and the buyer wrongfully refuses or neglects to accept and pay the price.
Goods may be classified as existing. In contract of sale. Distinguish between condition and warranty. it is a called a sale. Where the sale is not notified to be subject to a right to bid on behalf of the seller. State the circumstances under which a condition can be waived and treated as a warranty. 1930. These stipulations are technically known as conditions and warranties. Any sale contravening this rule shall be treated as fraudulent. 5. (True/False) 19. Condition: A condition is a stipulation essential to the main purpose of the contact. Describe firefly the rules regarding the transfer of ownership from the seller to the buyer. 7. it shall not be lawful for the seller to bid for himself or to employ any person to bid at such sale. 1930? 2. the breach of which gives rise to a right to treat the contract as repudiated. Goods: Goods mean every kind of movable property other than actionable claims and money. Describe the rules as given in the Sale of Goods Act. Warranty: A warranty is a stipulation collateral to the main purpose of the contract. If the seller makes use of pretended bidding to raise the price. the property in goods is transferred from the seller to the buyer. Explain the rules relating to delivery of goods. There are can be an ‘agreement to sell’ goods. Glossary Contract of Sale: A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. (True/False) 7. 5. Where under a contract of sale. The sale may be notified to be subject to a reserved or upset price.13 Terminal Questions 1. 3. the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated. 6. or for the auctioneer knowingly to take any bid from the seller or any such person. future and contingent. an agreement to sell means a contract of sale under which the transfer of property in goods is to take place at a future date or subject to conditions thereafter to be fulfilled. What are the essentials of a contract of sale under the Sale of Goods Act. Self Assessment Questions 18. .12 Summary A contract of sale is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. 4. These conditions and warranties may be express or implied. sale is voidable at the option of the buyer.4. regarding fixation of price. A ‘Hire-purchase agreement’ is a bailment plus an agreement to sell. Sale is to be distinguished from an agreement to sell. On the other hand. parties make certain stipulations All stipulations are not treated on the same footing.
Ascertained 5. False Answers to Terminal Questions . Future 4.6. Secs. Describe the law which governs the sale of goods by auction. False 3. What remedies are available to a seller fro breach of contract of sale? 8. True 6. Distinguish between the right of lien and stoppage in transit. 7. 7. Sec. True 16. Doctrine of caveat emptor 9.27 12. True 18.18 to 25 11.14 Answers Answers to Self Assessment Questions 1. Secs. False 15. Delivery 14. True 19. Express 8. False 17. Integral part 7. Possession 10. True 2.31-44 13.
it appears that a contract will be deemed to be made. 2. Such a notice was delivered on 21st February 2006 alleging purported defects in the production line process and requiring those defects to be remedied by 30th June 2006. each lot is deemed prima facie. failing which Olivaylle asserted that it would withdraw from the contract and demand the return of its deposit. It was a term of the contract that Flottweg would guarantee that the equipment supplied would be in accordance with certain design and quality specifications. entered into a written contract with Flottweg. Refer 7.56). If price is not fixed. 6. 8. While waiting for the first stage of the grove to reach maturity. 3. 4. the director of Olivaylle tendered for a number of international producers of equipment for the processing of olives and.to which Flottweg took issue and proceedings were commenced. in order to give business efficacy to the contract.2 – Price means the money consideration for the sale of goods. to be the subject matter of a separate contract of sale. upon its withdrawal from the contract.the place where the message is received is where the contract is accepted. entitling it to terminate or "withdraw" from the contract. that is.4 defines a contract of sale as ‘a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price’. Refer 7. Price is an integral part of a contract of sale. where the email acceptance was received. or is not capable of being fixed.6 – In a sale of specific or ascertained goods. Refer 7. it was an implied term of the contract that Olivaylle was.55). Olivaylle’s case was that the requisite "reasonable period of grace" had expired. In this case.7 – Sec.2 – Sec. it is only the owner of goods who can transfer a good title. Logan J also expressed the view (which in the end wasn’t necessary for his decision) that the instantaneous communication rule applies when considering when and where the acceptance of an offer by email occurs. Thus. the contract is void ab initio. Essentially. if the Federal Court position in this regard is to be followed.56).47 to 54. Refer 7. the facts of the case are as follows. a single judge of the Federal Court held that a purported termination of a contract for the sale of goods by the purchaser for an alleged breach of that contract was invalid. on 8th February 2005.8 – Him/herself 7. Refer 7. Briefly. 5. Question . Further. and therefore the law that applies will be. the property in them is transferred to the buyer at such times as the parties to the contract intend it to be transferred. Mini-case In the recent decision of Olivaylle Pty Ltd v Flottweg GMBH & Co KGAA (No 4) (2009) 255 ALR 632. On the passing of 30th June 2006.1.10 – In addition to the rights of a seller against goods provided in Secs. Flottweg’s acceptance was communicated by email (sent in Germany) to Olivaylle at its olive grove in Victoria. Refer 7. a large international manufacturer of such equipment.5 – Under certain circumstances a breach of condition is to be treated as a breach of warranty. The director and controlling mind of Olivaylle sought to establish a large olive grove and olive oil manufacturing plant in central western Victoria. entitled to its deposit back and was not required to make any further payments under the contract. (i) suit for price (Sec. (ii) damages for non-acceptance of goods (Sec.11 – When the goods are put up for sale in lots. Prior to entering into the contract. Olivaylle paid a deposit of approximately [euro] 140. Refer 7. (iii) suit for interest (Sec. the seller has the following remedies against the buyer personally. The judge also made an important observation about the acceptance of agreements in the age of email communications. His Honour suggested that he would employ an analogy to telexes . Refer 7. rather than the postal acceptance rule which states that acceptance occurs at the time and place where the letter was posted. Olivaylle did just that . and that Olivaylle would be entitled to exercise a right to a reduction in the purchase price or a "withdrawal" from the contract on the expiry of a "reasonable period of grace" after notice in writing of a failure to meet such specifications.27 lays down a general rule as to transfer of title.
2 Negotiable Instrument 8.8 Presentment Maturity (Secs.5 Cheques Specimen of a cheque Requisites of a cheque 8.6 Holder and Holder in due Course 8.7 Negotiation of a Negotiable Instrument Meaning of negotiation Negotiation and assignment Endorsement Forged endorsement (Sec.3 Important Terms Ambiguous instrument (Sec.1 Introduction Objectives 8.17) Inchoate stamped instruments (Sec.21-25) .20) Capacity of parties to the negotiable instrument 8.4 Promissory Notes and Bills of Exchange Promissory note Bill of exchange 8.85) 8.Is it right on he part of the Olivaylle to nominate 30th June 2006 as the reasonable period of grace? Why? (Hint: Refer para 2 in the case) MB0051-Unit-08-Law of Negotiable Instruments Unit-08-Law of Negotiable Instruments Structure: 8.
cheques and promissory notes have been dealt with in considerable detail in this Act. The word ‘negotiable’ has a technical meaning whereby rights in an instrument can be transferred by one person to another. In this unit you will study about the law of negotiable instruments. you came to know about the law of sales of goods. 1882.Presentment for payment 8. Bills of exchange.13 Terminal Questions 8.2 Negotiable Instrument .9 Dishonour Dishonour of a bill Noting Protesting (Sec.1 Introduction In the earlier units. The term ‘instrument’ means ‘any written document by which a right is created in favour of some person’.12 Summary 8.10 Crossing of Cheques Meaning of crossing Significance of crossing Types of crossing 8. which came into force on 1st March.14 Answers 8. Objectives After studying this unit you should be able to: · Define some negotiable terms · Describe promissory notes · Analyze holder · Explain presentment · Describe paying banker 8.100) 8. In this unit you will study law relating to negotiable instruments is primarily contained in the Negotiable Instruments Act.11 The Paying Banker 8. 1881.
An ‘Instrument’ as referred to in the Act is a legally recognised written document. at this election treat it as either and the instrument shall be thenceforward treated accordingly. accept. bill of exchange and cheque are negotiable instruments by statute as they are so recognised by Sec.17) An ambiguous instrument is one which may be construed either as a promissory note or as a bill of exchange. upon it a negotiable instrument. which does not have these characteristics. Regarding such instruments. Freely transferable. There are certain instruments which are recognised as negotiable instruments by usage. An instrument.3 Important Terms 8. Holder’s title free from defects. but is assignable. bank notes. or (b) by endorsement and delivery. but that its holder in due course acquires a good title notwithstanding any defects in a previous holder’s title. Thus. 2. Sec. The holder can sue in his own name. i.. whereby rights are created in favour of one and obligations are created on the part of another. if negatively interpreted prohibits minors. The term ‘negotiability’ means that not only is the instrument transferable by endorsement and/or delivery.3.3 Capacity of parties to the negotiable instrument The capacity of a party to draw.17 provides that the holder may. Transferability may be by (a) delivery. Thus. An instrument is called ‘negotiable’ if it possesses the following features: 1. A holder in due course is one who receives the instrument for value and without any notice as to the defect in the title of the transferor..20) An inchoate instrument means an instrument that is incomplete in certain respects. share warrants. a bill of exchange drawn by a person upon himself may be construed as a promissory note.11 of the Indian Contract Act. can be transferred any number of times. as the case may be. he thereby gives prima facie authority to the holder thereof to make or complete. make or endorse a negotiable instrument is coextensive with his capacity to enter into contract. Sec. dividend warrants. is not negotiable. . The word ‘negotiable’ means transferable from one person to another either by mere delivery or by endorsement and delivery. bank drafts. An instrument may possess the characteristics of negotiability either by statute or by usage. till its maturity. 5.13.1 Ambiguous instrument (Sec. 3. i. for any amount specified therein but not exceeding the amount covered by the stamp. 8. 8. bearer debentures. persons of unsound mind and persons forbidden under any other Act like insolvency to make a valid contract.e. 4. A negotiable instrument can be transferred infinitum. scripts and treasury bills are negotiable by usage. Where one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments then in force in India and either wholly blank or having written thereon an incomplete negotiable instrument.3. A negotiable instrument is subject to certain presumptions. An ___________ is one which may be construed either as a promissory note or as a bill of exchange. Self Assessment Questions 3.2 Inchoate stamped instruments (Sec. 1872.3. (True/False) 2. ____________ is one who receives the instrument for value and without any notice as to the defect in the title of the transferor. Promissory note. A negotiable instrument need not be in writing. the transferee takes it subject to all equities and liabilities of the transferor. Self Assessment Questions 1. to enable the transferee to get a title in the instrument. 8. Another feature of a negotiable instrument is that its holder in due course can sue on the instrument in his own name. Thus.e.
The maker – the person who makes the note promising to pay the amount stated therein. The endorsee – the person in whose favour the note is negotiated by indorsement. Where A signs instruments in the following terms: (i) “I promise to pay B or order Rs 500. first deducting thereout any money which he may owe me.1 Promissory note A promissory note is an instrument in writing (not being a bank or a currency note) containing an unconditional undertaking. 8. An inchoate instrument means an instrument that is ___________ in certain respects. 2. or to the order of. a certain person or to the bearer of the instrument (Sec. Specimen of a bill of exchange . directing a certain person to pay a certain sum of money only to or to the order of. 3.2 Bill of exchange A ‘bill of exchange’ is defined by Sec. The holder – is either the original payee or any other person in whose favour the note has been endorsed. (iii) “I promise to pay B Rs 500 and all other sums which shall be due to him. provided he leaves me enough to pay that sum. to be paid on demand.” (vii) “I promise to pay B Rs 500 and to deliver to him my white Maruti Car 1 January next. or to the bearer of the instrument’. a certain person.4). I.4. signed by the maker to pay a certain sum of money to. 8.” (vi) “I promise to pay B Rs 500 seven days after my marriage with C. The endorser – the person who endorses the note in favour of another person. The payee – the person to whom the amount of the note is payable.” (ii) “I acknowledge myself to be indebted to B in Rs 1000.” (v) “I promise to pay B Rs 1500 on D’s death. signed by the maker.O. The following are two illustrations of promissory notes.” (iv) “I promise to pay B Rs 500.4. containing an unconditional order.” Specimen of a promissory note Parties to a promissory note 1. (I owe you) Rs 1000.U. 5. for value received.” (ii) “I am liable to pay you Rs 500”.5 as ‘an instrument in writing. 4.” But. the following are NOT promissory notes: (i) “Mr B.4.4 Promissory Notes and Bills of Exchange 8.
the endorsee. 2006. 16. l Acceptor for honour. Thus. (True/False) 7. l Drawee in case of need.. l The payee: The person to whom amount of the bill is payable. (True/False) 6. A bill of exchange may be drawn payable ‘at sight’. l The endorser: It is the person who endorses a bill. Bills in set are used in foreign trade transactions. In case of a bearer bill. Self Assessment Questions 5. the bearer or possessor is the holder.Here Y is the drawer. payable after a specified period of time. drawee is the person responsible for acceptance and payment of the bill.e. In certain cases however a stranger may accept the bill on behalf of the drawee. X will express his willingness to pay ‘accepting’ the bill by writing words somewhat as below across the face of the bill: ACCEPTED Sd-X Jan. (True/False) . i. The specimen given above is of a usance bill. A is the payee and X is the drawee. l The drawee: The person on whom the bill is drawn. l The endorsee: It is the person to whom the bill is negotiated by endorsement. Signature of the maker is not required in the case of a promissory note. Parties to a bill of exchange The parties of bill of exchange are: l The drawer: The person to whom the amount of the bill is payable. l The holder: It is the original payee but where the bill has been endorsed. It may be the drawer himself or any other person. It is not necessary to put any date in the case of promissory notes payable on demand. on demand or payable ‘after certain time after sight’ also.
A cheque.1 Specimen of a cheque Every bank has its own printed cheque forms which are supplied to the account holders at the time of opening the account as well as subsequently whenever needed. Sec. A certain sum of money. however. Unconditional order. 4. Thus.5 Cheques A cheque is the usual method of withdrawing money from a current account with a banker. the specified amount. is not a cheque as the sum payable is not certain. On a specified banker only. to or to the order of the person named therein or to the bearer. a customer may withdraw his money even by writing his directions to the banker on a plain paper but in practice bankers honour only those orders which are issued on the printed forms of cheques. A cheque must be drawn on a specified banker. To avoid any mistake. and is generated. written and signed in a secure system ensuring the minimum safety standards with the use of digital signature and asymmetric crypto system. the name and address of the banker should be specified. not necessary that the word order or its equivalent must be used to make the document a cheque. legally.5. is an order by the customer of the bank directing his banker to pay on demand. A cheque must contain an unconditional order. in essence.8. It provides that a ‘cheque’ is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic from. A cheque must be an instrument in writing. law does not lay down any restrictions and therefore cheque may be written either with (a) pen (b) typewriter or may be (c) printed. Generally. ‘A cheque in the electronic form’ means a cheque which contains the exact mirror image of a paper cheque. the rate of interest not specified. 8. 8. orders asking the banker to deliver securities or certain other things cannot be regarded as cheques. It is.6 defines a cheque. Regarding the writing materials to be used.. 3. These forms are printed on special security paper which is sensitive to chemicals and makes any chemical alterations noticeable.5. Written instrument. The Amendment Act 2002 has substituted new section for Sec. Savings bank accounts are also permitted to be operated by cheques provided certain minimum balance is maintained.2 Requisites of a cheque The requisites of a cheques are: 1. If the word “please” precedes “pay” the document will not be regarded as invalid merely on this account. . Although.6. 2. The order must be only for the payment of money and that too must be specified. Similarly. an order asking the banker to pay a specified amount with interest. the order to bank is expressed by the word “pay”.
the acceptor and all the intermediate endorsers continue to remain liable to the holder in due course until the instrument is duly satisfied. A post-dated cheque cannot be honoured. till the date mentioned. Payable on demand. A cheque without a date is considered incomplete and is returned unpaid by the banks. that the instrument has not been filled in accordance with the authority given by him provided the amount filled is covered by the stamp affixed. instruments drawn in favour of a body corporate. or the payee or endorsee thereof. When the drawer asks the banker to pay and does not specify the time for its payment.. he will be able to establish his claim even against the real owner of that instrument. Self Assessment Questions 8. its holder is the person so entitled at the time of such loss or destruction. (True/False) 10. Use of the words ‘on demand’ or their equivalent is not necessary. the transferee of a post-dated cheque.19).3. the title of holder of a negotiable instrument is always subject to the title of its transferor whereas a holder in due course acquires a better title than that of its transferor. like that of the cheque on which payment is due. Privileges of a holder in due course A holder in due course is given certain additional privileges under the Act. bill of exchange or cheque.e. Dating of cheques. acquires a better title than its transferor. According to Sec. is “a person who for consideration became the possessor of a promissory note. without consideration and thus becomes the holder. One can get a post-dated cheque encashed across the bank counter at any time. ‘Person’ should not be understood in a limited sense including only human beings. as against a holder in due course. The life of a cheque is three months from the date of issue. Privilege against inchoate stamped instruments. But. who signed and delivered to another a stamped but otherwise inchoate (incomplete) instrument. 2. is stopped from asserting. As per Sec. if payable to order. before the amount mentioned in it becomes payable and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title (Sec. i. a person. except at the personal risk of the bank’s manager. institutions. he may be a holder but will not be called a holder in due course. A cheque must always be crossed to make it a valid instrument. on the other hand. Thus. every prior party to a negotiable instrument. say. . Where the note. etc. if he is a holder in due course. The term in fact includes ‘legal persons’ also. if payable to bearer. 6. A cheque that bears a date earlier than six months is a stale cheque and cannot be claimed for.5. are valid instruments being payable to legal persons. Besides. A cheque bearing an earlier date is antedated and the one bearing the later date is called post-dated. the instrument is payable on demand (Sec. which are not available to a holder. 7. Thus. So where a lost negotiable instrument is transferred to a person who takes it. he will not be entitled to enforce his claim against its real owner.6 Holder and Holder in due Course According to Sec. the maker or drawer.9. if he is a holder in due course as per Sec. i. clubs. The drawer of a cheque is expected to date it before it leaves his hands.9). where a person receives a negotiable instrument without consideration. (True/False) 9. A post-dated cheque is as much negotiable as a cheque for which payment is due.e. The drawer can date a cheque with the date earlier or later than the date on which it is drawn. bill or cheque is lost or destroyed. A cheque to be valid must be payable on demand and not otherwise. local authorities..20.8.. A ‘holder in due course’. Payee to be certain. a holder of a negotiable instruments is “a person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. 1. (True/False) 8. A cheque to be valid must be payable to a certain person.
drawn accepted or transferred without consideration and the negotiable instrument gets into the hands of a holder in due course.42). All types of bills are entitled for three days of grace. because the endorsement is nullity.3 Endorsement An endorsement is the mode of negotiating a negotiable instrument.46). Self Assessment Questions 11. the endorsement may be made on a slip of paper attached to it. (True/False) 8. Where an instrument is negotiated to a holder in due course.53). for the purpose of negotiation. Usually the endorsement is on the back of the instrument.1 Meaning of negotiation The transfer of an instrument by one party to another so as to constitute the transferee a holder thereof is called ‘negotiation’. unless he was himself a party to the fraud (Sec. of the transferor. A ______________ is “a person who for consideration became the possessor of a promissory note. However. The holder in due course shall. if such an instrument is negotiated by way of a forged endorsement. Any person acquiring it takes it free of all defects. the rights. Thus.7 Negotiation of a Negotiable Instrument 8.7. have to prove that the instrument was endorsed by the same hand as drawer’s signature (Sec.7. bill of exchange or cheque. 12. But where the instrument has been endorsed in blank. however. An endorsement according to Sec. its transferee gets good title irrespective of the defective title.43). When a negotiable instrument is made. Fictitious drawer or payee. The person to whom the instrument is endorsed is called the endorsee. This attached slip of paper is called ‘Allonge’. 4. 8. he is said to endorse the same and is called the endorser”.15. the acceptor cannot be relieved from his liability to the holder in due course. 8. Where a bill of exchange is drawn by a fictitious person and is payable to his order. though it may be even on the face of it. Not only that the title of the holder in due course is not subject to the defect in previous holder’s title but once that instrument passes through the hands of a holder in due course.85) In case an instrument is endorsed in full.7. 6. on the back or face thereof or on a slip of paper annexed thereto. Right of an endorsee from a holder in due course.2 Negotiation and assignment Both the assignment and negotiation involve the transfer of the right to receive the payment of debt.7. if any. it is purged of all defects. A negotiable instrument payable otherwise than to bearer can be negotiated only by indorsement and delivery. 5.4 Forged endorsement (Sec. . then the plea of absence of consideration cannot be raised against him or against any subsequent holder deriving title from him (Sec. which the transferee of an instrument by negotiation acquires are substantially superior to those of an assignee.3. it can be negotiated by mere delivery and the holder derives his title independent of the forged endorsement and can claim the amount from any of the parties to the instrument. When an instrument is negotiated. the endorsee will acquire no title even though he be a purchaser for value and in good faith. Where no space is left on the instrument. is “when the maker or holder of a negotiable instrument signs the same otherwise than as such maker. 8. or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument. the parties to the instrument cannot escape liability on the ground that the delivery of the instrument was conditional or for a special purpose only (Sec. it cannot be endorsed or negotiated except by an endorsement signed by the person to whom or to whose order the instrument is payable.
However. It is due for payment as soon as it is issued. Maturity date is not required to be determined in the case of cheques.. The drawer is liable only if the instrument is dishonoured by non-payment. during banking hours (Sec. the parties to the instrument other than the maker. acceptor or drawee.21 provides that a note or bill ‘at sight’ or ‘on presentment’ is payable on demand. X endorses it in blank and it comes into the hands of Y.64).8. (True/False) 16. Self Assessment Questions 13. notes.65).8. 8. The date on which payment of an instrument falls due is called maturity (Sec. A negotiable instrument is said be dishonoured by nonpayment when the maker. (True/False) 8. etc. makes default in payment upon being duly required to pay the same (Sec. The presentment for payment must be made during the usual hours of business. their liability can be invoked only if the holder gives them notice of such dishonour.2 Presentment for payment A negotiable instrument must be presented for payment to the maker.Example: A bill is endorsed. (True/False) 14. as the case may be. An _____________ is the mode of negotiating a negotiable instrument. “pay to X or order”. Therefore the question of maturity arises only in the case of a note or bill payable ‘After sight’ or ‘After date’ or at a certain period after the happening of an event which is certain to happen. by the holder or his agent. and at a banker’s premises. A forges Y’s endorsement and transfers it to B.9. Sec. may be made payable on a specified date or after the specified period of time.9 Dishonour 8.8 Presentment Presentment of a negotiable instrument is made for two purposes: (i) for acceptance and (ii) for payment. In case of default. who simply delivers it to A. 8. but through the genuine endorsement of X and can claim payment from any of the parties to the instrument in spite of the intervening forged endorsement. as the case may be. it is necessary to refer to the maturity of the instrument. B. acceptor or drawee thereof. as the holder. Before discussing the presentment for payment.92). .22). A post dated cheque is valid and negotiable.21-25) Cheques are always payable on demand but other instruments like bills. The effect of dishonour of a negotiable instrument whether by non-acceptance or non-payment is to render the drawer and all the endorsers liable to the holder. 8. Therefore most of the provisions relating to presentment for payment are linked with the maturity of the instrument.1 Dishonour of a bill A bill of exchange may be dishonoured either by non-acceptance or by non-payment. A payee of a cheque is entitled to claim interest. acceptor or drawee are not liable to such holder (Sec. Self Assessment Questions 15.1 Maturity (Secs. does not derive his title through the forged endorsement to Y.
that addition shall be deemed a crossing. given by the acceptor.2 Noting Noting is a convenient method of authenticating the fact of dishonour. notes down in his register the date of its dishonour and the reason. The payment on a crossed cheque can be collected only through a banker.123 defines crossing as. the holder must give notice of dishonour to the drawer and all other parties whom he seeks to make liable. ‘Noting’ must be made within a reasonable time after dishonour. Specimen of general crossing . is prevented from getting the cheque encashed at the counter of the paying banker. 8. between two parallel transverse lines. If the instrument has been expressly dishonoured. 18. 8. besides giving the notice as referred to above. 8. either with or without the words. if any. or of two parallel transverse lines simply. The _____________ is the formal notarial certificate attesting the dishonour of the bill and based upon the noting. a person. The term general crossing implies the addition of two parallel transverse lines. the holder. After the noting has been made.3 Types of crossing Crossing may be either (1) General or (2) Special. “Where a cheque bears across its face an addition of the words ‘and company’ or any abbreviation thereof. Sec. and the cheque shall be deemed to be crossed generally. A negotiable instrument is said be ____________ by non-payment. and the notary’s charges should be mentioned.” A cheque that is not crossed is a called an open cheque. the formal protest may be drawn up by the notary at his leisure.When a negotiable instrument is dishonoured by non-acceptance or non-payment.10. ‘not negotiable’. The notary public presents the instrument. By crossing a cheque. the reason why the holder treats it as dishonoured.10 Crossing of Cheques 8. and an act can only be deemed a notarial act if it is done by a notary under his signature and official seal. Crossing on cheque is a direction to the paying banker by the drawer that payment should not be made across the counter.9. 8.10.99).1 Meaning of crossing Crossing is a unique feature associated with a cheque affecting to a certain extent the obligation of the paying banker and also its negotiable character. Where an instrument is dishonoured. who is not entitled to receive its payment.2 Significance of crossing As payment cannot be claimed across the counter on a crossed cheque.10. When the protest is drawn up it relates back to the date of noting. 8. crossing of cheques serves as a measure of safety against theft or loss of cheques in transit. It is a peculiar method of modifying the instrument to the banker for payment of the cheque.9. Self Assessment Questions 17. Every notary is required to have and use a seal.3 Protesting (Sec. The holder may cause such dishonour to be noted by the notary public upon the instrument or upon a paper attached thereto or partly upon each (Sec.100) The protest is the formal notarial certificate attesting the dishonour of the bill and based upon the noting. should get the bill or promissory note ‘noted’ by the notary public.
‘paying banker’ is a banker upon whom a cheque is drawn.10 and has been given above. either with or without the words ‘not negotiable’. A cheque having the cross mark such as ‘X’ is not generally regarded as a _______________. payment of a post dated cheque is not a payment in due course. Payment must be in accordance with the apparent tenor of the instrument. and to be paid to that banker”. It is necessary that a payment to constitute a payment in due course should be made at or after maturity. that addition shall be deemed a crossing. and the cheque shall be deemed to be crossed specially. Sec. it makes the cheques more safer. A distinguishing feature of special crossing is that it includes the name of some bank or the other. Specimen of special crossing Self Assessment Questions 19. Thus. The drawing of two parallel lines is not necessary in case of a specially crossed cheque. A payment before maturity is not a payment in due course. For example. 8.11 The Paying Banker The ‘paying banker’ is a term used to denote the position and duties of the drawee-banks in paying the cheques of their customers.124 in this regard reads: “Where a cheque bears across its face. . an addition of the name of banker. The object of special crossing is to direct the drawee banker to pay the cheque only if it is presented through the particular bank mentioned therein. (True/False) 20. The following conditions must be satisfied before a payment of a negotiable instrument can be called as a payment in due course: 1. Thus.‘Special Crossing’ implies the specification of the name of the banker on the face of the cheque. Payment in due course What is a payment in due course is defined in Sec.
A payment is not a payment in due course if it is made to a person entitled to receive it. The term Negotiable Instrument consists of two parts viz. A thief is not said to be in possession of the instrument.2.. Payment must be made in money only unless the payee agrees to accept payment in some other form (e. So. where a peon of a company presents a cheque for a big amount on behalf of the company.12 Summary The Negotiable Instrument Act. 22. payment in due course means payment in accordance with the apparent tenor of the instrument made in good faith and without negligence. Glossary Negotiable Instrument: Means a promissory note. A payment is a payment in due course if it is made to a person entitled to receive it. . 4. Payment must be made in money only. Bill of Exchange: A bill of exchange is an instrument in writing containing an unconditional to the order of a certain person or to the bearer of the instrument. bills of exchange. Cheque: A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable. 3. Self Assessment Questions 21.g.10. bill of exchange or cheque payable either to order or to bearer. The banker can disregard the direction only at his own risk and responsibility. (True/False) 8. Promissory Note: A promissory note is an instrument in writing containing an unconditional undertaking signed by the maker to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument. As per the instructions issued by the Reserve Bank of India (9-9-1992) it would be safer for the drawer to cross a cheque “not negotiable” with the words “account payee” added to it. Negotiable and Instrument. the payment is not in due course. Thus. Payment must be made in good faith and without negligence. bill of exchange or promissory note). 1881 came into force on 1st March 1881. where a banker makes payment on a cheque materially altered.. Money includes bank notes or currency notes but excludes cheque. It means an instrument possessing the quality of Negotiability is entitled to be called negotiable instrument. without exercising due care. The courts of law have held that “an account payee” crossing is a direction to the collecting banker as to how the proceeds are to be applied after receipt. ___________ is a banker upon whom a cheque is drawn. which is contrary to the past experience. under Sec. It extends to the whole of India except the State of Jammu & Kashmir. the banker should conduct proper enquiry before making payment on such a cheque. So payment is not in due course. promissory notes and goods. Payment must be made to the person in possession of the instrument. When there exists suspicious circumstances and the paying banker fails to make any enquiry as to them. Payment must be made under circumstances which do not afford a reasonable ground for believing that a person is not entitled to receive payment of the amount mentioned therein. The word ‘negotiable’ means transferable by delivery and the word ‘instrument ‘ mean written documents by which a right is created in favour of some person. 5.
Comment 5. A holder in due course 3. Comment. What is a bill of exchange? Describe its characteristics. False 2. 3. Describe briefly the meaning of ‘general’ and ‘special’ crossing and “crossing after the issue of a cheque”. Explain the provisions relating to ‘Noting’ and ‘Protesting’ of a bill which has been dishonoured by the acceptor. What do you mean by negotiation? How it differs from assignment? 7. Name the instruments which are recognized as negotiable instruments by the Negotiable Instruments Act. 8. Holder in due course 12.14 Answers Answers to Self Assessment Questions 1. “Issue of a cheque that bounces is an offence”. False 13. Incomplete 5. True 7.8. Define the term ‘holder’. What do you mean by negotiable instruments? 2. 6. False 9. True 8. 9. How does a promissory note differ from a bill of exchange? 4. False 11. False 10.13 Terminal Questions 1. 1881. True . ‘holder for value’ and ‘holder in due course’. “A cheque is a bill of exchange drawn on a banker”. Ambiguous instrument 4. False 6. 8.
False Answers to Terminal Questions 1. Paying banker 22.9 – Noting is a convenient method of authenticating the fact of dishonour. or to the bearer of the instrument’. Crossed cheque 21. Refer 8.14. Mini-case Deepak is a client of City Limouzines India Ltd. Refer 8.8.5 as ‘an instrument in writing. He received a cheque of amount Rs. a certain person. a holder of a negotiable instruments is “a person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto." . Refer 8. signed by the maker. which has been bounced with narration "Insufficient Balance".2 – Refer Business Law book by SS Gulshan 3. but didn’t get any satisfactory response from help line.5 – Refer Sec. 6000 dated as 2-sep-2009 from City Limouzines India Ltd. True 20. Dishonoured 18. 5. True 17. Refer 8.2 – An ‘Instrument’ as referred to in the Act is a legally recognised written document. 4. Refer 8. 7. He called on City Limouzines India Ltd help line for same. Refer 8.11 – Refer Business Law book by SS Gulshan. He called on "Toll Free/24X7 Helpline: 23814792" at 2:16 PM on dated 12-Sep-2009 a lady picked the call and she didn’t show any interest to resolve his query/concern. containing an unconditional order. 2. False 16. & deposited same cheque on 7-Sep-2009 in his Bank. Refer 8. directing a certain person to pay a certain sum of money only to or to the order of.7 – The transfer of an instrument by one party to another so as to constitute the transferee a holder thereof is called ‘negotiation’. she hanged the phone with stating that "We will dispatch a letter after 20th Sep then check. 8. 9. Refer 8.5 of this unit.10 – Refer Business Law book by SS Gulshan. Endorsement 15.” 6.6 – According to Sec. Protest 19.8. whereby rights are created in favour of one and obligations are created on the part of another.4 – A ‘bill of exchange’ is defined by Sec. Refer 8.
9 of this unit) MB0051-Unit-09-The Consumer Protection Act Unit-09-The Consumer Protection Act Structure: 9. Thinking this.4 Nature and Scope of Remedies Available to Consumers Who can file a complaint? [Sec.12] Where to file a complaint? How to file a complaint? Procedure on admission of complaint [Sec. as per his knowledge and as per company websites "City Limouzines" India Ltd.2 Important Terms 9. Every now & then.com" but till date I am not getting any revert from company. But I am unable to understand that how a cheque of amount Rs. It is very serious case.13(4)] Reliefs available to consumers (Sec. there are cases of cheque bouncing & dishonour.1 Introduction Objectives 9.Deepak states that. if company is going to Fraud then it will impact all investors.11 of this unit) 3. (Hint: recall consumer protection act again) 2. What penalties should be forced on the company? (Hint: Refer 8. Questions 1.13] Power of the district forum [Sec. What precautions & remedies would you suggest for the investors to get them protection from such fraud companies? (Hint: Refer 8.14) Time-frame for decisions of consumer courts Appeal to state commission Appeal to national commission . he lodges a complaint the consumer court requesting them to take legal action against City Limouzines India Ltd.3 Rights of Consumers 9. 6000 get bounced with narration "Insufficient Balance"? I sent mail regarding same on given e mail ID "info@citylimouzines. and ISO approved company. Analyse the legal actions which should be taken by the Consumer court for the protection of Investors.
speedy and inexpensive redressal to the consumers’ grievances.2 Important Terms Other salient features of the Act are: l It applies to all goods and services unless specifically exempted by the Central Government.7 Answers 9. The main objective of this Act is to provide better protection to the consumers. 1986 was born. the USA. The Act intends to provide simple. l It confers certain rights on consumers.29A) 9.1 Introduction In the earlier units.5 Summary 9. It is described as a unique legislation of its kind ever enacted in India to offer protection to the consumers. which are punitive or preventive in nature the provisions of this Act are compensatory in nature. l It covers all sectors whether private. public or co-operative. you came to know about the law of negotiable instruments. The Consumer Protection Act. 1986 was substantially amended in 1991.24A) Vacancies or defects in appointment not to invalidate order (Sec. Unlike other laws. Complainant: A complainant means any of the following and having made a complaint: . Australia and New Zealand. The Consumer Protection Act. you should be able to: l Define important terms related to consumer l Explain Rights of consumers l Analyze the remedies available for consumer 9.6 Terminal Questions 9. In this unit you will study about the Consumer Protection Act. The Act is claimed to have been designed after an in-depth study of consumer protection laws and arrangements in UK.Appeal to the supreme court against the orders of national commission Limitation period (Sec. l It envisages establishment of consumer protection councils at the Central and State levels whose main object shall be to promote and protect the rights of the consumers. 1993 and 2002. l The provisions of this Act are in addition to and not in derogation of the provisions of any other Act. Objectives After studying this unit.
(iv) a trader or the service provider. Consumer dispute [Sec. or under any system of deferred payment. Complaint: ‘Complaint’ means any allegation in writing made by a complainant with a view to obtaining any relief under the Act. imperfection or shortcoming in the quality. shortcoming or inadequacy in the quality. express or implied. Defect [Sec. where there are numerous consumers having the same interest. Parallel to ‘defect’ in case of goods. by or under any law for the time being in force. in respect of hire-purchase transactions. or as is claimed by the trader in any manner whatsoever in relation to any goods. deficiency is relevant in case of services. (d) agreed between the parties. ‘District Forum’ means a consumer Dispute Redressal Forum established under clause (a) of Sec. 1956 or under any other law for the time being in force. (iii) the services hired or availed of or agreed to be hired or availed of by him suffer from deficiency in any respect. potency.. has charged for the goods or for the services mentioned in the complaint. ‘Consumer’ means any of the following persons: 1. (v) goods which will be hazardous to life and safety when used are being offered for sale to the public (a) in contravention of any standards relating to safety of such goods as required to be complied with. 2. District Forum. (b) displayed on the goods or any package containing such goods. quantity. if it deems fit. or (v) in case of death of consumer. Consumer. This section provides that for the purposes of the Act a Consumer Disputes Redressal Forum to be known as the ‘District Forum’ established by the State Government in each district of the State by notification. (ii) the goods bought by him or agreed to be bought by him suffer from defect(s) in any respect. The term includes any other user of such goods when such use is made with the approval of the buyer. (b) if the trader could have known with due diligence that the goods so offered are unsafe to the public. purity or standard which is required to be maintained by or under any law for the time being in force or under any contract. his legal heir or representative. . that: (i) any unfair trade practice or restrictive trade practice has been adopted by any trader or service provider. It means a dispute where the person against whom a complaint has been made.e.2(1)(f)]. or (ii) any voluntary consumer association registered under the Companies Act. Deficiency.9. A person who buys any goods for a consideration which has been paid or promised or partly paid and partly promised or under any system of deferred payment i. as the case may be. or (iii) the Central Government or any State Government. imperfection. The State Government may. or (iv) one or more consumers. The term includes any other beneficiary of such services with the approval of the first mentioned person. A person who hires or avails of any services for consideration which has been paid or promised or partly paid and partly promised. and the complainant has suffered loss or damage.2(1)(c)]. a price in excess of the price (a) fixed by or under any law for the time being in force. (c) displayed on the price list exhibited by him by or under any law for the time being in force. A ‘defect’ is defined to mean any fault. nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service. it is defined to mean any fault.(i) a consumer. Accordingly. denies or disputes the allegations contained in the complaint. establish more than one District Forum in a district.
Consumer Protection Act. 1930. Sec. 1993 and 2002 (c) 1992. 1993 and 2001 (b) 1991.2(7) of the Sale of Goods Act. Accordingly. This section provides that there shall be established for the purposes of this Act a National Consumer Disputes Redressal Commission established by the Central Government by notification. The expression ‘Manufacturer’ for the purpose of this Act. such branch office shall not be deemed to be manufacturer even though the parts so dispatched to it are assembled at such branch office and are sold or distributed from such branch office. ‘Goods’ means every kind of movable property other than actionable claims and money. 1993 and 2001 9. But. Manufacturer. applies to (a) All products and services (b) Only physical products (c) Only services (d) Only certain products and service 2. where a manufacturer dispatches any goods or parts thereof to any branch office maintained by him. 1986 extended a statutory recognition to the rights of consumers. 1930]. 1993 and 2002 (d) 1992.Goods. (iii) A person who puts or causes to be put his own mark on any goods made or manufactured by any other manufacturer. his legal heir or representative (d) None 3. and includes stock and shares. grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale [Sec. Self Assessment Questions 1. ‘Goods’ under this Act shall have the same meaning as assigned to them under the Sale of Goods Act. growing crops. National Commission: ‘National Commission’ means the National Consumer Disputes Redressal Commission established under clause (c) of Sec.3 Rights of Consumers For the first time in the history of consumer legislation in India. means any of the following persons: (i) A person who makes or manufactures any goods or part thereof. the Consumer Protection Act.6 of the Act recognizes the following six rights of consumers: . 1986 was amended in (a) 1991. Consumer Protection Act.9. The Government vide powers conferred upon it under the said clause established a National Commission in 1987. Any of the following made a complaint EXCEPT (a) A consumer (b) The Central Government (c) In case of death of consumer. (ii) A person who does not make or manufacture any goods but assembles parts thereof made or manufactured by others.
9. quantity. Right to acquire the knowledge and skill to be an informed consumer is a: (a) Right to be heard (b) Right to be informed (c) Right to consumer education (d) Right to safety 5. establish more than one District Forum in a District. wherever possible. say. purity.. Right to be informed. It also includes right to fair settlement of the genuine grievances of the consumers. it means right to be assured of satisfactory quality and service at a fair price. i. Self Assessment Questions 4. standard and price of goods or services.4 Nature and Scope of Remedies available to Consumers To provide simple. 2.. access to a variety of goods and services at competitive prices. the right to be informed about the quality. 6..e.12) Any of the following persons may file a complaint under the Act: . there are to be similar redressal commissions to be known as State Commissions and at the National level. access to a variety of goods and services at competitive prices. 5. wherever possible. State and National levels. __________ means right to be assured. as the case may be. At the State level. It also includes right to be represented in various forums formed to consider the consumers’ welfare. telephones. railways.1. i. Right to consumer education: It means the right to acquire the knowledge and skill to be an informed consumer. the right to be protected against the marketing of goods and services which are hazardous to life and property. The State Government may. the Act envisages a three-tier quasi-judicial machinery at the District. 9. the consumers’ interests will receive due consideration at appropriate forums. Right to choose: It means right to be assured. i. potency.4. 4. In case of monopolies. 3. Right to safety.e. etc.e. At the District level there are to be District Fora as the redressal fora. Right to be heard. if it deems fit. so as to protect the consumer against unfair trade practices. Right to seek redressal: It means the right to seek redressal against unfair practices or restrictive trade practices or unscrupulous exploitation of consumers. there is a National Consumer Disputes Redressal Commission to be known as National Commission..1 Who can file a complaint ? (Sec. speedy and inexpensive redressal of consumer grievances.
by order. Where a joint petition is filed on behalf of a large number of victims. allow the complaint to be proceeded with or rejected. description and address of the opposite party or parties. 2.1. 4. on behalf of. It is not necessary that the consumer is a member of such an association. 9. The Amendment Act. If the value of goods or services and the compensation. It provides as follows: 1. if any. with the permission of the District Forum. the District Forum may proceed with the complaint in the manner as provided under the Act. If the value of the goods or services and the compensation. 9. complaint can be filed before the National Commission [Sec. The complaint can also be sent by post to the appropriate Forum/Commission. claimed exceeds Rs one crore. the complaint can be filed before the State Commission [Sec. if any.21]. Rs 20 lakhs but does not exceed Rs one crore. If the value of the goods or services and compensation. Any recognised consumers association namely. 1956 or any other law for the time being in force. claimed does not exceed rupees twenty lakhs.4. Every complaint shall be accompanied with such amount of fee as prescribed.4. 3. if any. a complaint shall not be rejected unless an opportunity of being heard has been given to the complainant. wholly or in part. (d) documents. 3. On receipt of a complaint. the matter can be heard by the State Commission [Public Health Engineering Department v Uphokta Sanrakshan Samiti (1992)]. as the case may be. In case of death of a consumer.4 Procedure on admission of complaint (Sec.3 How to file a complaint? There is no fee for filing a complaint before any of the aforesaid bodies.21]. The Central or the State Government.4. his legal heir or representative can file a complaint. in support of the allegations contained in the complaint. claimed exceeds rupees twenty lakhs but does not exceed rupees one crore. description and address of the complainant. 2. presently. The State Commission shall also have the jurisdiction to entertain appeals against the orders of any District Forum within the State. (e) the relief which the complaint is seeking. The complainant or his authorised agent can present the complaint in person. Where a complaint is allowed to be proceeded with. (b) the name. all consumers so interested. [Sec. if any. (c) the facts relating to complaint and when and where it arose. The National Commission shall also have the jurisdiction to entertain appeals against the orders of any State Commission [Sec.17]. as far as they can be ascertained.2 Where to file a complaint? 1. In case the total compensation claimed exceeds. However. A complaint should contain the following information: (a) the name.11). it is the total amount of compensation claimed in the petition (and not the individual claims) that will determine the question of jurisdiction. 2. The consumer to whom such goods are sold or delivered or agreed to be sold or delivered or such service provided or agreed to be provided. or for the benefit of.12. then the complaint can be filed in the District Forum within the local limits of whose jurisdiction the opposite party actually resides or carries on business or has a branch office or personally works for gain or where the cause of action. where there are numerous consumers having the same interest. The complaint should be addressed to the President of the Forum/Commission. any voluntary consumer association registered under the Companies Act.13) . One or more consumers. 2002 has amended Sec.17]. 3. the District Forum may. arises (Sec. 9.
9. the District Forum is satisfied that the goods complained against suffer from any of the defects specified in the complaint or that any of the allegations contained in the complaint about the services are proved. or omits or fails to take any action to represent his case within the time given by the District Forum. (d) to pay such amount as may be awarded by it as compensation to the consumer for any loss or injury suffered by the consumer due to the negligence of the opposite party.14) If. (v) issuing of any commission (i. whichever may be necessary. (ii) Before any sample of the goods is referred to any appropriate laboratory under clause (c). namely: (i) the summoning and enforcing the attendance of any defendant or witness and examining the witness on oath. and (vi) any other matter which may be prescribed. on admission of a complaint referred to him under (a) above. (f) to discontinue the unfair trade practice or the restricted trade practice or not to repeat them. (iii) the reception of evidence on affidavits.13(4)] District Forum shall have the same powers as are vested in a civil court under the Code of Civil Procedure. 9. (ii) the discovery and production of any document or other material object producible as evidence. (iv) If any of the parties disputes the correctness of the findings of the appropriate laboratory.4.5 Power of the district forum [Sec.6 Reliefs available to consumers (Sec.. (ha) to cease manufacture of hazardous goods . It shall then refer the sample so sealed to the appropriate laboratory along with a direction that such laboratory make an analysis or test. Procedure in respect of goods where the defect alleged requires no testing or analysis: (i) Refer a copy of the admitted complaint within 21 days from the date of its admission to the opposite party mentioned in the complaint directing him to give his version of the case within a period of 30 days or such extended period not exceeding 15 days. the charges paid by the complainant. with a view to finding out whether such goods suffer from any defect alleged in the complaint or from any other defect and to report its findings thereof to the District Forum within a period of 45 days of the receipt of the reference or within such extended period as may be granted by the District Forum [Clause (c)]. as may be granted by the District Forum. 1908 while trying a suit in respect of the following matters. warrant conferring authority) for the examination of any witness. the District Forum shall forward a copy of the report along with such remarks as the District Forum may feel appropriate to the opposite party [Clause (e)]. (ii) Where the opposite party. the District Forum may require the complainant to deposit to the credit of the Forum such fees as may be specified. (iv) the requisitioning of the concerned analysis or test from the appropriate laboratory or from any other relevant source. or as the case may be. the District Forum shall proceed to settle the consumer disputes in the manner specified in clauses (c) to (g) hereunder.e. Procedure in respect of goods where the defect alleged requires analysis or testing: (i) Where a complainant alleges a defect in the goods which cannot be determined without proper analysis or test of the goods. after the proceeding conducted under Sec. seal it and authenticate it in the manner prescribed. the District Forum shall obtain a sample of the goods from the complainant. namely: (a) to remove the defect pointed out by the appropriate laboratory from the goods in question. the District Forum shall require the opposite party or the complainant to submit in writing his objections in regard to the report made by the appropriate laboratory [Clause (f)]. denies or disputes the allegations contained in the complaint. 2. (c) to return to the complainant the price. (v) The District Forum shall thereafter give a reasonable opportunity to the complainant as well as the opposite party of being heard as to the correctness or otherwise of the report made by the appropriate laboratory and also as to the objection made in relation thereto under clause (f) and issue an appropriate order under Sec.13. (g) not to offer the hazardous goods for sale. (e) to remove the defects in goods or deficiencies in the services in question. for payment to the appropriate laboratory for carrying out the necessary analysis or test in relation to the goods in question [Clause (d)]. or disputes the correctness of the method of analysis or test adopted by the appropriate laboratory. it shall issue an order to the opposite party directing him to do one or more of the following things.1. (h) to withdraw the hazardous goods from being offered for sale. On receipt of the report from the appropriate laboratory.4.14 [Clause (g)]. (b) to replace the goods with new goods of similar description which shall be free from defects. (iii) The District Forum shall remit the amount deposited to its credit under clause (d) to the appropriate laboratory to enable it to carry out the analysis or test as aforesaid.
the State Commission or the National Commission. . 9.4.29A) No Act or proceeding of the District Forum. may order the property of the person. Sec.11 Limitation period (Sec.4. unless the appellant has deposited 50 per cent of the amount or Rs. 2002 has substituted Sec.4.9 Appeal to national commission Any person aggrieved by an order made by the State Commission may prefer an appeal against such order to the National Commission within a period of 30 days from the date of the order [Sec. the District Forum shall have the power to grant punitive damages. However. as it deems fit.4. Where an interim order made under this Act is not complied with. 9.4. the State Commission or the National Commission shall not admit a complaint unless it is filed within two years from the date on which the cause of action has arisen. (hc) to issue corrective advertisement to neutralize the effect of misleading advertisement at the cost of the opposite party responsible for issuing such misleading advertisement. 55000 whichever is less.4. within a period of 30 days from the date of the order. the State Commission or the National Commission shall be invalid by reason only of the existence of any vacancy amongst its members or any defect in the constitution thereof. It provides as follows: 1. 9. (i) to provide for adequate costs to parties.23].19].7 Time-frame for decisions of consumer courts The complaint should be decided by the Redressal Forum.24A) The District Forum. 9. as far as possible. as the case may be. In (a) above. However. shall be entertained by the National Commission. Supreme Court may entertain an appeal after the expiry of the said period of 30 days if it is satisfied that there was sufficient cause for not filing it within that period [Sec. within a period of 3 months from the date of the notice received by the opposite party where complaint does not require analysis or testing of the commodities and within 5 months if it requires analysis or testing of commodities. the State Commission may entertain an appeal after the expiry of the said period of 30 days if it is satisfied that there was sufficient cause for not filing it within that period. Enforcement of orders of the District Forum.and to desist from offering services which are hazardous in nature.12 Vacancies or defects in appointment not to invalidate order (Sec. The Amendment Act.25 by a new section. to be attached. aggrieved by an order made by the National Commission.19A provides that an appeal filed before the state commission or the National Commission shall be heard as expeditiously as possible and an endeavour shall be made to finally dispose of the appeal within a period of 90 days from the date of its admission. the District Forum or the State Commission or the National Commission. No appeal by a person who is required to pay any amount in terms of an order of the State Commission.8 Appeal to state commission Any person aggrieved by an order made by the District Forum may prefer and appeal against such order to the State Commission within a period of 30 days from the date of the order. 9. 9.10 Appeal to the supreme court against the orders of national commission Any person. (hb) to pay such sum as may be determined by it if it is of the opinion that loss or injury has been suffered by a large number of consumers who are not identifiable conveniently. may prefer an appeal against such order to the Supreme Court. not complying with such order.
the person entitled to the amount may make an application to the District Forum. (d) All of the above 7. claimed exceeds rupees twenty lakhs but not exceed rupees 1 crore. 3. the property attached may be sold and out of the proceeds thereof. EXCEPT. as the case may be. (a) Sec. (a) Consumer Protection Act. to the party entitled thereto. (c) Both A and B (d) Only A 8. if any. 1991 (b) Consumer Protection Act. (a) A Hindu Undivided Family (b) A person who makes are manufactures any goods (c) A person who does not make or manufacture any good but assembles part thereof made. claimed exceeds rupees twenty lakhs. the District Forum or the State Commission or the National Commission may award such damages as it thinks fit to the complainant and shall pay the balance. 1992 (c) Consumer Protection Act. (b) The value of goods or services and compensation. if any. No attachment made under Sub-sec. as the case may be. permitted representative complaints.(1) shall remain in force for more than three months at the end of which. The complaint can be filled in the ‘District Forum’ if (a) The value of goods or services and compensation. 2002 9. Where any amount is due from any person under an order made by a District Forum. Self Assessment Questions 6. Transfer of cases comes under which section. Which amendment of Consumer Protection Act. if the non-compliance continues. The expression ‘Manufacturer’ for the purpose of this Act. and such District Forum or the State Commission or the National Commission may issue a certificate for the said amount to the Collector of the district (by whatever name called) and the Collector shall proceed to recover the amount in the same manner as arrears of land revenue.22 C . State Commission or the National Commission. 1993 (d) Consumer Protection Act.2. if any. the State Commission or the National Commission.22 B (b) Sec. means any of the following.
Sec. In India.28 A inserted in which amendment of Consumer Protection Act. the need for a more simpler and quicker access to redressal to consumer grievances was felt and accordingly. denies or disputes the allegation contained in the complaint. 2002 11. the Indian Standards Institution (Certification Marks) Act. The onset on intense competition also made producers aware of the benefits of customer satisfaction and hence by and large. AGMARK stands for (a) Agricultural Process and Grading and Marketing Act. (c) Agricultural Products and Graduate and Marketing Act. which they do not intend to fulfill. the Dangerous Drugs Act.6 Terminal Questions 1. 1986. Consumer: Any person who buys any goods for consideration which has been paid or promised or partly paid and partly promised. etc which to some extent protect consumer interests. 9. Therefore. 1991 (b) Amendment Act. Consumer Dispute: Dispute where the person against whom a complaint has been made. the Prevention of Food Adulteration Act. (b) Agricultural Products and Grading and Marketing Act. we have the Indian Contract Act. (d) None 9. often sellers make exaggerated claims and advertisements. The need to recognize and enforce the rights of consumers is being understood and several laws have been made for this purpose.22 A 10.(c) Sec. it lead to the legislation of the Consumer Protection Act. . 1992 (c) Amendment Act. Describe the main features of the Consumer Protection Act. 1993 (d) Amendment Act. (a) Amendment Act. Glossary Complaint: Complaint many allegation in writing by a complainant with a view to obtaining any relief under the Act. Service: Service means service of any description which is available to potential users and includes. The origins of this principle lie in the fact that in today’s mass production economy where there is little contact between the producer and consumer. to be too expensive and time consuming for lay consumers. these laws required the consumer to initiate action by way of a civil suit. which involved lengthy legal process proving. the Trade and Merchandise Marks Act.5 Summary The earlier principle of “Caveat Emptor” or “let the buyer beware” which was prevalent has given way to the principle of “Consumer is King”.22 D (d) Sec. the principle of “consumer is king” is now accepted. the Standards of Weights and Measures Act. This leaves the consumer in a difficult position with very few avenues for redressal. the Sale of Goods Act. the Agricultural Produce (Grading and Marketing) Act. but not limited. However. 1986.
Right to choose 6. (b) 4. Refer 9. Explain the procedure District Forum follows on receipt of a complaint from a consumer.2. 5. (c) 5. (c) A person sending a telegram. (a) 10. (a) 8. (d) 11. 2. public or co-operative. What sort of complaint may be lodged under the Act? 9. What are the objects which the Consumer Protection Act. 1986 seeks to achieve? 3.3 – Please study consumer right. Can the following be regarded as consumers? (a) A patient of a government hospital. Examine the rights of a consumer enshrined under the Consumer Protection Act. .3 – The main features are: (1) It applies to all goods and services unless specifically exempted by the Central Government. 6. (a) 7.7 Answers Answers to Self Assessment Questions 1. (b) Answers to Terminal Questions 1. 4. Refer 9. 1986. (2) It covers all sectors whether private. (c) 9. (d) 3. (a) 2. 3. (b) A person who registers himself for a telephone connection. Refer Unit – Study first this unit and give answers.
(Moore and Skogstad. Provinces and municipalities are responsible for: The intraprovincial aspects of the food industry. The "national treatment" principle in the North American Free Trade Agreement could be interpreted to mean that imports must meet the provincial standard of the province they enter rather than the standard required for inter-provincial or international trade. . Developments in international trade and potential developments in interprovincial trade: a) Industry and governments favoured harmonized standards and streamlined inspection to ensure the competitiveness of the Canadian food industry domestically & internationally. and thousands of municipal governments.4. and the food retail industry. resources were not only scarce but shrinking. 2. and facilitating interprovincial trade. including restaurants and grocery stores. p. including local food processing. 10 provincial. They decide whether and how to inspect local operations. Canada’s reputation for high quality food had been damaged by the "tainted tuna" scandal. b) Canadian producers/processors were vulnerable to trade challenges in a fragmented system. plant and health regulations only to the extent necessary to protect human. the federal government sets food safety. the food service industry. In addition. adulterated or misbranded products. a) Canadian exporters were concerned about being denied access to external markets on the grounds that Canadian food safety standards and inspection systems were not equivalent to those of the markets into which they were shipping. Refer 9. d) Closer integration of the US and Canadian markets under free trade agreements made the industry anxious to reduce the costs and inefficiencies resulting from differing provincial standards e. c) Gaps resulting from non-inspection or non-rigorous inspection were perceived by processors as a weak link. where separate agencies were spun off from government. The Government wanted to reform its public service along the lines achieved in the United Kingdom and New Zealand. quality and grading standards for products sold interprovincially and internationally and administers regulations aimed at preventing the production or sale in Canada of dangerous.g.3 – Refer consumer rights. Refer 9. as well as dairies and meat plants whose products are sold within the province. 4. Resources for additional inspection of fish products were not available. 5. Refer 9.3 – Refer power of district forum. three territorial. 130) The federal government of Canada faced a number of food security problems in the early 1990s. b) The 1994 SPS Agreement required that countries use their food safety and animal. animal life or health. Federal responsibility centres on export and inter-provincial trade: protecting and expanding export markets for Canadian food products. despite the small percentage of overall production represented and assurances outlined in the Auditor General of Canada’s 1994 Report. 5. which facilitated adoption of innovative reform measures: 1. Some 77 pieces of legislation govern food inspection among three levels of government. 3. fluid milk. not for trade protection purposes.4 – Nature and Scope of Remedies Available to Consumers. 6. This could drag down Canadian food standards to the lowest common denominator. Mini-case Governmental responsibility for food in Canada is divided among the federal.
Improved capacity to respond to outbreaks of food-borne illness and threats to the food system presented by medicated feeds and antibiotic residues. 9. and solutions suggested in the winning Liberal platforms in the 1993 and 1997 elections were renewal of the federation. Reduced criticism of conflict of interest because the same department was responsible for promoting and regulating an industry (fisheries). d) Separation of health risk analysis from risk management. It also has a number of financial flexibilities not available to government departments. thereby fulfilling a World Health Organization principle. the Hazard Analysis Critical Control Point (HACCP) system. 11. c) Separation of health and safety standard setting from inspection. The Agency reports not to a deputy minister but directly to the Minister of Agriculture and Agri-Food. and Agriculture and Agri-Food Canada into one self-standing Agency effective April 1. Fisheries and Oceans. tuberculosis in cattle and zoonotic diseases such as salmonella enteritidis in poultry. most notably the capacity to retain revenues. The Auditor General of Canada was appointed as an external auditor under the CFIA Act. the CFIA addressed whether there was an appropriate focus on public objectives. 8. 7. Emergence of alternatives to high-cost prescriptive regulation: New scientific and technological tools furnished the Government with opportunities to shift additional costs and a significant degree of responsibility for food safety to the food industry itself. The Auditor General also has authority to conduct periodic value-for-money audits of the Agency. e) Reduced criticism of conflict of interest because the same department was responsible for promoting and regulating an industry (fisheries). Risk assessment methods allowed the allocation of food inspection resources on a risk basis. 10. Separation of health and safety standard setting from inspection. permitting new flexibilities for inspection. 1997. Separation of health risk analysis from risk management. b) Improved capacity to respond to outbreaks of food-borne illness and threats to the food system presented by medicated feeds and antibiotic residues.6. was deemed more effective than existing systems in ensuring food safety. 12. with duties to audit the CFIA’s financial statements and assess the fairness and reliability of the performance information provided in the Agency’s Annual Report to Parliament. One such risk-based tool. National unity was threatened. On all counts the CFIA’s self-assessment concluded it was serving the public interest. developed for the US space program. permitting new flexibilities for inspection. including better coordination of services and reduction in overlap and duplication among governments. Canada was the first government to adopt this system. Question . The Agency has separate employer status. The Government of Canada consolidated all of its food inspection and quarantine services from Health Canada. for its fish inspection program. Protecting the public interest is a major concern in creating alternate Service Delivery Agencies (ASDs) in Canada. thereby fulfilling a World Health Organization principle. A more integrated and comprehensive approach (gate-to-plate) to trichinosis in swine. and so can hire and fire its own employees. Clarification of food-related roles and responsibilities of federal government departments has led to: a) A more integrated and comprehensive approach (gate-to-plate) to trichinosis in swine. maintenance of public service values and adequate control over public funds and assets. Employing the Auditor General of Canada’s definition of the public interest when assessing ASDs. tuberculosis in cattle and zoonotic diseases such as salmonella enteritidis in poultry. It was so well accepted internationally that Canadian meat packing plants were subsequently required to conform to US regulations requiring large American meat packing plants to implement a HACCP plan by January 1998. rather than working through the Public Service Commission.
19 Procedure for investigation of combination 10. Analyse the kind of agency it is.3 Prohibition of Anti-competitive Agreements 10.1.4 Prohibition of Abuse of Dominant Position 10.2 Definitions 10.5 and 6) 10.) MB0051-Unit-10-The Competition Act. 2002 Unit-10-The Competition Act.5 Regulation of Combinations (Secs.6 Competition Commission of India Establishment of commission Duties of commission Benches of commission Procedure for deciding a case where members of a bench differ in opinion Jurisdiction of bench 10.8 Miscellaneous Provisions Power to grant interim relief Power to award compensation Appearance before commission .1 Introduction Objectives 10. (Hint: It is a self-standing agency with a separate employer status and more financial flexibilities.7 Enquiry into certain Agreements and Dominant Position of Enterprise and Combinations Enquiry into certain agreements and dominant position of enterprises Enquiry into combination by commission Procedure for enquiry on complaints under Sec. 2002 Structure: 10.
acquiring or agreeing to acquire – (1) Shares. such arrangement. you came to know about the Consumer Protection Act. understanding or action is formal or in writing.9 Finance. Accounts and Audit Grants by Central Government Constitution of fund Accounts and audit 10. voting rights or assets of any enterprise. It received the assent of the President of India on 13th January. 2002. understanding or action is intended to be enforceable by legal proceedings. Acquisition.10 Summary 10. The Competition Act. 2002 extends to the whole of India except the State of Jammu and Kashmir. It shall come into force on such date as the Central Government may.Review of orders of commission Rectification of orders Execution of orders of commission Appeal 10. It means. appoint. or (2) Control over management or control over assets of any enterprise.2 Definitions Sec. 2003. or (2) whether or not such arrangement. Agreement. directly or indirectly.2 defines various expressions used in the Act. these expressions are defined as below. It includes any arrangement or understanding or action in concert – (1) Whether or not. you should be able to: · Define various term related to Competition Act · Describe prohibition of anti-competitive agreements · Explain competition commission of India · Describe miscellaneous provisions 10.1 Introduction In the earlier units. Unless the context otherwise requires. Objectives After studying this unit.11 Terminal Questions 10. In this unit you will study about the Competition Act. .12 Answers 10. by notification in the Official Gazette.
Relevant Geographic Market. It means the Director General appointed under Sec.7(1). storage. It means a person or a department of the Government. It includes value of sale of goods or services. engaged in any activity. It means any authority. Turnover. or (iii) in investment. control or attempt to control the production. State. relating to the (i) production. their prices and intended use. established by or under any Central. Commission. Chairperson. It means the market which may be determined by the Commission with reference to the relevent product market or the relevant geographic market or with reference to both the markets. It includes an association of producers. institute. Member. Relevant Product Market. profession or occupation relating to the production. either directly or through one or more of its units or divisions or subsidiaries. CCI stands for (a) Consumer Commission of India (b) Competition Commission of India . Public Financial Institution. who or which is. sale or price of. Relevant Market.8 and includes the Chairperson. business. or has been. It means a market comprising the area in which the conditions of competition for supply of goods or provision of services or demand of goods or services are distinctly homogeneous and can be distinguished from the conditions prevailing in the neighboring areas. by arrangement amongst themselves. It means a public financial institution specified under Sec. of any kind. supply. Deputy or Assistant Director General appointed under that section. holding. Statutory Authority. limit. It means shares in the share capital of a company carrying voting rights and includes – (i) any security which entitles the holder to receive shares with voting rights. or (ii) the provision of services. acquisition or control of articles of goods. or Provincial Act for the purposes of regulating production or supply of goods or provision of any services or markets therefore or any matter connected therewith or incidental thereto. Trade. or in the business of acquiring. (ii) stock except where a distinction between stock and shares is expressed or implied. or trade in goods or provision of services. It means a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer. It includes any practice relating to the carrying on of any trade by a person or an enterprise. Enterprise. Director General. board. It means the Chairperson of the Commission appointed under Sec. council. Further such unit or division or subsidiary may be located at the same place where the enterprise is located or at a different place or at different places.8(1).4A of the Companies Act. industry. traders or service providers who. underwriting or dealing with shares. distribution. Joint. It means the Competition Commission of India established under Sec. university or any other body corporate.16 (1) and includes any Additional. storage or control of goods and includes the provision of any services. distributors. It means any trade. Self Assessment Questions 1.Cartel. sellers. Practice. Shares. supply. by reason of characteristics of the products or services. 1956 and includes a State Financial. distribution. corporation. debentures or other securities of any other body corporate. Industrial or Investment Corporation. distribution. It means a Member of the Commission appointed under Sec.
3. (c) shares the market or source of production or provision of services by way of allocation of geographical area of market. engaged in identical or similar trade of goods or provision of services shall be presumed to have an appreciable adverse effect on competition of it: (a) directly or indirectly determines purchase or sale prices. this section also specifies certain activities which shall be presumed to have an appreciable adverse effect on competition. distribution.19 enumerates the factors which are to be kept in mind by the Commission while determining whether an agreement has an appreciable adverse effect on competition or not under s. Any agreement between enterprises or persons referred (a) Bid-rigging (b) Bid-singing (c) Bid-locking . Thus no enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production.16(1) 10. (a) Sec. supply. Sec.8(2) (d) Sec.8(1) (b) Sec. technical development. Factors which cause adverse effect on competition. or decision taken by any association of enterprises or association of persons.3 Prohibition of Anti-competitive Agreements Sec. Further. or type of goods and services. which causes or is likely to cause an appreciable adverse effect on competition within India. investment or provision of services. including cartels. acquisition or control of goods or provision of services. Value of sales of goods or service includes in (a) Product (b) Service (c) Turnover (d) Profit 4. storage.(c) Competition Collaboration of India (d) Computer Competition of India 2. (d) directly or indirectly results in bid rigging or collusive bidding. or number of customers in the market or any other similar way. Activities having adverse effect on competition. Director General appointed under. Thus any (i) agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or (ii) practice carried on. supply. Self Assessment Questions 3.16(2) (c) Sec. markets. (b) limits or controls production.3 provides for prohibition of entering into anti-competitive agreements. Any agreement entered into in contravention of this provision shall be void.
voting rights or assets: Any acquisition where (i) the parties to the acquisition. being the acquirer and the enterprise. 3000 crores. other relevant market. The expression ‘dominant position’ means a position of strength. have no connection with the subject of such contracts. jointly have or would jointly have – (A) either in India. or (c) indulges in practice or practices resulting in denial of market access. or (ii) affect its competitors or consumers or the relevant market in its favour. or (b) limits or restricts (i) production of goods or provision of services or market therefore. in aggregate. or (ii) price in purchase or sale (including predatory price) of goods or service. 2000 (d) Design Act. . These circumstances are: (a) Acquisition of control.(d) None 10. the assets of the value of more than US $ 500 m or turnover more than US $ 1500 m. or (d) makes conclusion of contracts subject to acceptance by other parties of supplementary obligations which. or (ii) technical or scientific development relating to goods or services to the prejudice of consumers. shares.5 Regulation of Combinations (Secs. Self Assessment Questions 5. which enables it to (i) operate independently of competitive forces prevailing in the relevant market. 2002 6. or (e) uses its dominant position in one relevant market to enter units. in the relevant market. in India. 10.4 prohibits abuse of dominant position by any enterprise. or (B) in India or outside India.4 Prohibition of Abuse of Dominant Position Sec. or protect. assets or voting rights have been acquired or are being acquired. Design registered under the (a) Design Act. The acquisition of one or more enterprises by one or more persons or acquiring of control or merger or amalgamation of enterprises under certain circumstances specified below shall be construed as combination. the assets or the value of more than Rs. by their nature or according to commercial usage. 2003 (b) Design Act. would belong after the acquisition. in aggregate. There shall be an abuse of dominant position. in the relevant market. imposes unfair or discriminatory (i) condition in purchase or sale of goods or service. or (ii) the group. 1000 crores or turnover more than Rs. shares. the assets of the value of more than US $ 2 billion or turnover more than US $ 6 billion. 12000 crores. if an enterprise: (a) directly or indirectly. voting rights or assets has been acquired or are being acquired jointly have (A) either in India. enjoyed by an enterprise. whose control. The expression ……………… means a position of strength. shares. 2001 (c) Design Act. to which the enterprise whose control. 5 and 6) Sec. or (B) in India or outside India.5 deals with combination of enterprises and persons. the assets of the value of more than Rs. 4000 crores or turnover more than Rs. enjoyed by an enterprise.
the assets of the value of more than Rs. inter alia. 10. provides that no person or enterprise shall enter into a combination which is likely to cause or causes an appreciable adverse effect on competition within the relevant market in India. Such a combination.6.44 provides for penalty for making false statements or omission to furnish material information by a person. or (B) in India or outside India. (b) execution of any agreement or other document for acquisition or acquiring of control referred to in Sec. 4000 crores or turnover more than Rs. Sec. may. if entered into.7 provides for the establishment of the Competition Commission of India. Sec.6. 3000 crores. (c) Merger or Amalgamation: Any merger or amalgamation in which (i) the enterprise remaining after merger or the enterprise created as a result of the amalgamation. 1000 crores or turnover more than Rs. or (B) in India or outside India. at his or its option. the assets of the value of more than Rs. to which the enterprise remaining after the merger or the enterprise created as a result of the amalgamation.6. the assets of the value of more than US $ 500 million or turnover more than US $ 1500 million or (ii) the group.6 Competition Commission of India 10. or is being acquired. the assets of the value of more than Rs. in aggregate. The place of head office of the commission shall be decided by the Central Government. or (B) in India or outside India. A market comprising the area in which the conditions of competition for supply of goods known as: (a) Relevant Product Market (b) Relevant Geographic Market (c) Relevant Market (d) None 8. Exemption: Any person or enterprise.1 Establishment of commission Sec. if (i) the enterprise over which control has been acquired along with the enterprise over which the acquirer already has direct or indirect control jointly have – (A) either in India. as the case may be. 4000 crores or turnover more than Rs. would belong after the merger or the amalgamation.5 by the board of directors of the enterprises concerned with such merger or amalgamation. in aggregate.5. give notice to the commission. the assets of the value of more than Rs. being a party to a combination. shall be void. or (B) in India or outside India. as the case may be. the assets of the value of more than US $ 2 billion or turnover more than US $ 6 billion. The Commission shall be a body corporate by the aforesaid name having perpetual succession and a common seal with power to acquire. 12000 crores. 12000 crores. or (ii) the group. disclosing the details of the proposed combination. would belong after the acquisition jointly have or would jointly have (A) either in India.5 deals with combination of _____________. 3000 crores. or trading: Acquiring of control by a person over an enterprise when such person has already direct or indirect control over another enterprise engaged in production. have (A) either in India. within seven days of: (a) approval of the proposal relating to merger or amalgamation referred to in Sec. have or would have (A) either in India. the assets of the value of more than US $ two billion or turnover more than six billion US $. 10. the assets of the value of more than US $ 500 million or turnover more than US $ 1500 million. Self Assessment Questions 7. as the case may be. in aggregate.(b) Acquisition of control over production.2 Duties of commission . hold and dispose of property. in which enterprise whose control has been acquired. who or which proposes to enter into a combination. distribution. 1000 crores or turnover more than Rs. Sec. However. the commission can establish offices at other places in India. distribution or trading of a similar or identical or substitutable goods or provision of a similar or identical or substitutable service.
including those who first heard it.33) 5.19) 2.24 provides that if the Members of a Bench differ in opinion on any point. Inquiring into certain agreements (Sec. Power to grant interim relief (Sec. Power to review its own orders (Sec. (iii) protect the interests of consumers and (iv) ensure freedom of trade carried on by other participants. 10. Inquiring whether an enterprise enjoys dominant position (Sec. Powers and functions of commission With a view to perform the duties as enumerated in Sec. (ii) promote and sustain competition. 2.Sec. The jurisdiction. or (c) the cause of action. as the case may be. or (b) any of the respondents.18 provides that it shall be the duty of the Commission to (i) eliminate practices having adverse effect on competition. These are: 1.6. actually and voluntarily resides. where there are more than one. Power to award compensation (Sec. Every Bench shall consist of at least one Judicial Member. The Benches shall be constituted by the Chairperson and each Bench shall consist of not less than two Members.19) 3.34) 6. Power to regulate its own procedure (Sec. at the time of the initiation of the enquiry or institution of complaint or making of reference. Commission shall maintain proper accounts and other relevant records and prepare an annual statement of accounts under section. or personally work for gain. or carry on business. or carries on business.22 contains provisions relating to constitution of Benches of the Commission. .3 Benches of commission Sec. the Commission is conferred with certain powers.6.20) 4. actually and voluntarily resides or carries on business or personally works for gain provided that in such case either the leave of the Bench is given.4 Procedure for deciding a case where members of a bench differ in opinion Sec. arises. they shall state the point or points on which they differ.5 Jurisdiction of bench Sec. 3.25 provides that an enquiry shall be initiated or a complaint be instituted or a reference be made under this Act before a Bench within the local limits of whose jurisdiction – (a) the respondent. at the time of the initiation of enquiry or institution of the complaint or making of reference. powers and authority of the Commission may be exercised by Benches thereof.37) 10. and make a reference to the Chairperson who shall either hear the point or points himself or refer the case for hearing on such point or points by one or more of the other Members and such point or points shall be decided according to the opinion of the majority of the Members who have heard the case. as the case may be.6. Inquiring into acquisition. where there are more than one.36) 7. or the respondents who do not reside. control and combination (Sec. or personally works for gain. wholly or in part. It provides as follows: 1. Self Assessment Questions 9.18 above. as aforesaid. 10. or each of the respondents. in markets in India. acquiesce in such institution.
The Director General shall. under Sec.7.8 (d) Sec. 2.7. All of the following are the power and functions of commission EXCEPT? (a) Power to award compensation (b) Power to review its own orders (c) Inquiring into certain agreements (d) Power to reject the orders 10. On receipt of a complaint or a reference from the Central Government or a State Government or a statutory authority or on its own knowledge or information.7 (b) Sec. .19 provides that the Commission may enquire into any alleged contravention of the provisions contained in Secs.7 Enquiry into certain Agreements and Dominant Position of Enterprise and Combinations 10. CCI established under (a) Sec.(a) 51 (b) 53 (c) 54 (d) 52 10.19 provides as follows: 1. on receipt of the direction submit a report on his findings within such period as may be specified by the Commission. consumer or their association or trade association. 10. it shall direct the Director General to cause an investigation to be made into the matter.6 11. if the Commission is of the opinion that there exists a prima facie case.19. or (b) a reference is made to it by the Central Government or a State Government or a statutory authority.9 (c) Sec. upon its own knowledge or information relating to acquisition or acquiring of control or merger or amalgamation under Sec.3 or 4 either on its own motion or on (a) receipt of a complaint from any person.1 Enquiry into certain agreements and dominant position of enterprises Sec.7.3 Procedure for enquiry on complaints under Sec.5. 10.19 Sec.20 provides that the Commission may. enquire into whether such a combination has caused or is likely to cause an appreciable adverse effect on competition in India.2 Enquiry into combination by commission Sec.
for bringing the combination to the knowledge or information of the public and persons affected or likely to be affected by such combination. in such manner. it shall dismiss the complaint and may pass such orders as it deems fit. 10. 4. it shall dismiss the complaint. as the case may be.7.4 Procedure for investigation of combination Sec. as it thinks appropriate. 7.6(2) (c) Sec. after hearing the complainant. the Commission is of the opinion that there exists no prima facie case. an appreciable adverse effect on competition. direct the parties to the said combination to publish details of the combination within ten working days of such direction. If the report of the Director General relates on a complaint and such report recommends that there is no contravention of any of the provisions of this Act. as to why investigation in respect of such combination should not be conducted. 3. Written Objection: The Commission may invite any person or member of the public. The Commission shall forward a copy of the report to the parties concerned or to the Central Government or the State Government or the statutory authority.2 (1) (d) Sec. affected or likely to be affected by the said combination.29 provides as follows: 1. it shall direct the complainant to proceed with the complaint. or is likely to have. The Commission: if it is prima facie of the opinion that the combination has. If.8 Miscellaneous Provisions 10. within seven working days from the date of receipt of the response of the parties to the combination. if necessary. or has caused an appreciable adverse effect on competition within the relevant market in India. if any.2 (b) Sec. before the Commission within fifteen working days from the date on which the details of the combination were published under (2). Issue of Notice: Where the Commission is of the opinion that a combination is likely to cause.19.8. the complainant shall be given an opportunity to rebut the findings of the Director General. 6. 2. to file his written objections. 5. the Commission agrees with the recommendation of the Director General.1 Power to grant interim relief .3.3 10. the Commission is of the opinion that further enquiry is called for. it shall issue a notice to show cause to the parties to combination calling upon them to respond within thirty days of the receipt of the notice. Where on receipt of a complaint under Sec. Prohibition of entering into anti-competitive agreement comes under (a) Sec. If. after hearing the complainant. it shall. including imposition of costs. Self Assessment Questions 12.
the Commission may entertain a review application after the expiry of the said period of thirty days. by affidavit or otherwise.4 or Sec.8.4 or Sec.6.3 or Sec.Sec. Subject to the other provisions of this Act. 2.8. it is proved to the satisfaction of the Commission. However. Without prejudice to any other provisions contained in this Act.3 Appearance before commission Sec. after an enquiry made into the allegations mentioned in the application made under (1).5 Rectification of orders Sec. that an act in contravention of Sec. With a view to rectifying any mistake apparent from the record. of the amount determined by it as realizable from the enterprise as compensation for the loss or damage caused to the applicant as a result of any contravention of the provisions of Sections 3 to 6 having been committed by such enterprise. the Commission may make (a) an amendment under (1) of its own motion.8. pass an order directing the enterprise to make payment to the applicant. Where during an enquiry before the Commission. apply to the Commission for review of its order and the Commission may make such order thereon as it thinks fit. the Commission may.6 Execution of orders of commission Sec. 34 provides as follows: 1. without giving notice to the opposite party. 38 provides as follows: 1.8. in the .6 has been committed and continues to be committed or that such act is about to be committed.3 or Sec. 10. 10. 2. the Commission may amend any order passed by it under the provisions of this Act. 37 provides that any person aggrieved by an order of the Commission from which an appeal is allowed by this Act but no appeal has been preferred. (b) an amendment for rectifying any such mistake which has been brought to its notice by any party to the order. 10.2 Power to award compensation Sec. where it deems it necessary and a copy of such order granting temporary injunction shall be sent to the concerned authorities. without giving notice to the opposite party. 35 provides that a complainant or defendant or the Director General may either appear in person or authorise one or more chartered accountants or company secretaries or cost accountants or legal practitioners or any of his or its officers to present his or its case before the Commission.39 provides that every order passed by the Commission under this Act shall be enforced by the Commission in the same manner as if it were a decree or order made by a High Court or the principal civil court in a suit pending therein and it shall be lawful for the Commission to send. may. 2. by order. Where during the enquiry before the Commission it is proved to the satisfaction of the Commission by affidavit or otherwise that import of any goods is likely to contravene Sec. 10. 33 provides as follows: 1. where it deems it necessary. any person may make an application to the Commission for an order for the recovery of compensation from any enterprise for any loss or damage shown to have been suffered. within thirty days from the date of the order. grant a temporary injunction restraining any party from carrying on such act until the conclusion of such enquiry or until further orders. by such person as a result of any contravention of the provisions of Sections 3 to 6 having been committed by such enterprise. grant a temporary injunction restraining any party from importing such goods until the conclusion of such enquiry or until further orders. by order.8. The Commission may.4 Review of orders of commission Sec. it may. if it is satisfied that the applicant was prevented by sufficient cause from preferring the application in time. 10.
14. and thereupon the court to which the order is so sent shall execute the order as if it were a decree or order sent to it for execution. if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period. (c) the fees received under this Act. make to the Commission grants of such sums of money as the Government may think fit for being utilized for the purposes of this Act.1 Grants by Central Government Sec. allowances and pension payable to the Director General. 2. There shall be constituted a fund to be called the “Competition Fund” and there shall be credited thereto: (a) all Government grants received by the Commission. Joint. (b) the other expenses of the Commission in connection with the discharge of its functions and for the purposes of this Act. However.9. allow it to be filed within a further period not exceeding sixty days.8. that subordinate office. is situated.50 provides that Central Government may after due appropriation made by Parliament by law in this behalf. 10. 40 provides that any person aggrieved by any decision or order of the Commission may file an appeal to the Supreme Court within sixty days from the date of communication of the decision or order of the Commission to him on one or more of the grounds specified in Sec. within the local limits of whose jurisdiction. as the case may be.2.event of its inability to execute it. the Registrar and officers and other employees of the Commission.9. Self Assessment Questions 13. where the person concerned voluntarily resides or carries on business or personally works for gain. (b) in the case of an order against any other person. Any person may make an application to the Commission for an order for the recovery of compensation from any enterprise for any loss or damage. 10. (True / False) 10. (d) the interest accrued on the amounts referred to in clauses (a) to (c).100 of the Code of Civil Procedure. The Fund shall be applied for meeting (a) the salaries and allowances payable to the Chairperson and other Members and the administrative expenses including the salaries. the registered office or the sole or principal place of business of the person in India or where the person has also a subordinate office.9 Finance.2 Constitution of fund Sec. the place. 51 provides as follows: 1. 1908. such order to the High Court or the principal civil court. . _____________ provides that any person aggrieved by any decision or order of the Commission may file an appeal to the Supreme Court within sixty days from the date of communication of the decision. is situated.7 Appeal Sec. Additional. (a) in the case of an order against a person referred to in Sec. Deputy or Assistant Directors General. the Supreme Court may. Accounts and Audit 10. (b) the monies received as costs from parties to proceedings before the Commission.
3. 2002 extends to the whole of India except the state of Jammu and Kashmir. India has responded to globalization by opening up its economy. (True / False) 10.11 Terminal Questions 1. shall have the right to demand the production of books. through a purchase acquisition or a pooling of interests. The accounts of the Commission as certified by the Comptroller and Auditor-General of India or any other person appointed by him in this behalf together with the audit report thereon shall be forwarded annually to the Central Government and that Government shall cause the same to be laid before each House of Parliament. Describe the provisions as regards prohibition of anti-competitive agreements. Turnover: Turnover often refers to inventory or accounts receivable Merger: The combining of two or more entities into one. . 1969 became obsolete in certain respects in the light of international economic developments relating more particularly to competition laws. of the target company’s ownership stakes in order to assume control of the target firm. Shares: Shares are the best investment available over a long period of time.3 Accounts and audit Sec. appoint. The committee (3) shall spend monies out of the Fund for carrying out the objects for which the Fund has been constituted. The accounts of the Commission shall be audited by the Comptroller and Auditor-General of India. Although the stock market is seen as "high risk" this depends very much on timing and the sort of shares you invest in. Glossary Acquisition: A corporate action in which a company buys most. 16. The Monopolistic and Restrictive Trade Practice Act. if not all. in particular. The Fund shall be administered by a committee of such Members of the Commission as may be determined by the Chairperson. accounts. It shall come into force on such as the Central Government may. connected vouchers and other documents and papers and to inspect any of the offices of the Commission.52 provides that the Commission shall maintain proper accounts and other relevant records and prepare an annual statement of accounts in such form as may be prescribed by the Central Government in consultation with the Comptroller and Auditor-General of India. ____________ provides that the Commission shall maintain proper accounts and other relevant records. The accounts of the Commission shall be audited by the Comptroller and Auditor-General of India at such intervals as may be specified by him and any expenditure incurred in connection with such audit shall be payable by the Commission to the Comptroller and Auditor-General of India. privileges and authority in connection with such audit as the Comptroller and Auditor-General of India generally has. 10. For this it is necessary that the Indian market should prepare itself competition from within the country and outside.9. The Comptroller and Auditor-General of India and any other person appointed by him in connection with the audit of the accounts of the Commission shall have the same rights. Self Assessment Questions 15. removing controls and resorting to liberalization.10 Summary The Competition Act. The growth of share prices comfortably out-paces inflation most years because the best share prices represent the growth in earnings of the best companies. by notification in the Official Gazette. 10. in connection with the audit of the Government accounts and.
What are the circumstances under which combination is construed? 3. (d) 12. Describe the provisions as regards ‘Benches of Commission’ and ‘Distribution of business of Commission amongst Benches’. Enterprises and persons 9. Sec. (b) 8. 4.52 . (a) 11. What are the consequences for a person who contravenes the orders of the Commission? 10. (d) 13.12 Answers Answers to Self Assessment Questions 1.40 14. (d) 3. Explain the power if the Competition Commission to enquires into anti-competitive agreements and dominant position of enterprises. 6. (c) 6. Under what situations. Dominant position 7. 9. 7. the Central Government can order division of enterprise enjoying dominant position? 8. True 15. Sec. (d) 10. (c) 4.2. (b) 2. (a) 5. Explain the provisions relating to regulation of combinations. Describe the provisions as regards duties of the Director General to investigate contravention of the provision of the Act. Is there any restrictions and other terms and conditions of service of Chairperson and other members? 5.
Reliance Industries.000-crore Reliance Group. According to sources. Refer 10. has voted in favour of entrusting itself with the power to appoint the majority of directors on the REL board.) 4.3 or 4 either on its own motion.3 provides for prohibition of entering into anti-competitive agreements.6.16. REL sought to vest these powers with its prime shareholder.6 – (Sec. It had also said that RIL had not been consulted by REL before the proposed re-amendment of the relevant articles of association. Refer 10. The company had sought permission to change Article 131 (a). Refer 10. REL had. through a postal ballot.8 – (Please refer commission in this unit) Mini-case Reliance Industries. Question . a set of rules that govern day-to-day workings of a company.5 – (Sec. by way of a special resolution.) 3.6 – (Sec. True Answers to Terminal Questions 1. The result of which was announced today. provides that no person or enterprise shall enter into a combination which is likely to cause or causes an appreciable adverse effect on competition within the relevant market in India.) 7. Reliance Industries had earlier said that it had not sought in any withdrawal of powers conferred on Mr Anil Ambani. of which REL is a subsidiary. Earlier these powers were vested with Mr Anil Ambani. Refer 10. Refer 10.22 contains provisions relating to constitution of Benches of the Commission. Refer 10. RIL was among the 97. The altered Article envisages that so long as the Reliance Group of Companies holds 26 per cent or more of REL’s paidup voting equity share capital.3 – (Sec. choose the Vice-Chairman of the company and even decide the tenure of the Chairman. inter alia. it will have the right to appoint majority of REL’s directors on the board of the company. Refer 10.) 2. REL Chairman and Managing Director. the Commission is conferred with certain powers.29 provides this) 9. The move to alter the articles of association was seen as part of the ongoing differences between the Ambani brothers over control of the Rs 99.5 deals with combination of enterprises and persons. Refer 10.5 – (Sec. Vice-Chairman and the directors appointed by him.6 – (With a view to perform the duties as enumerated in Sec.8 – (Sec.19 provides that the Commission may enquire into any alleged contravention of the provisions contained in Secs.) 8. 131 (a) (ii) and 131 (aa). which allowed Mr Anil Ambani the power to appoint onethird or majority of the total directors on REL’s board.24-per cent REL shareholders who voted in favour of the changes to its Articles of Association.) 6.6 – (Yes please follow this unit for more knowledge) 5. asked shareholders to mail their votes through postal ballot for a change in its Articles of Association. the largest shareholder in Reliance Energy.18 above. The acquisition of one or more enterprises by one or more persons or acquiring of control or merger or amalgamation of enterprises under certain circumstances specified below shall be construed as combination. Refer 10.
Why does Reliance want alteration in Reliance Energy’s articles? (Hint: due to the conflict between the ambani brother.11) 11.13 to 15] Penalties Enforcement of the orders of adjudicating authority Power to compound contraventions 11. 1999 Unit-11-The Foreign Exchange Management Act. (Sec.3 Provisions Relating to an Authorised Person Authorised person Duties of an authorised person Powers of the authorised person Bank’s powers to issue directions to authorised persons (Sec.4 Regulation and Management of Foreign Exchange Dealings in foreign exchange etc. 1999 Structure: 11.1 Introduction Objectives 11.16-35] Appointment of adjudicating authority Appeal to special director (appeals) . Current account transactions Regulation of capital account transactions Export of goods and services 11.5 Contravention and Penalties [Secs.6 Adjudication and Appeal [Secs. 3) Holding of foreign exchange etc.2 Definition under the Act 11.) MB0051-Unit-11-The Foreign Exchange Management Act.
Establishment of appellate tribunal Powers of appellate tribunal and special director (appeals) Distribution of business among benches Power of chairperson to transfer cases Decision to be by majority Members, etc. to be public servants Civil court not to have jurisdiction Appeal to high court 11.7 Directorate of Enforcement 11.8 Miscellaneous Provisions 11.9 Summary 11.10 Terminal Questions 11.11 Answers 11.1 Introduction In the earlier units, you came to know about the Competition Act. In this unit you will study about the Foreign Exchange Management Act. The Foreign Exchange Management Act (FEMA), 1999 (FEMA) replaces the Foreign Exchange Regulation Act (FERA) 1973. FERA was introduced in 1974 to consolidate and amend the then existing law relating to foreign exchange. FERA aimed at having stringent controls to conserve India’s foreign exchange. FERA was amended in 1993 to bring about certain changes, as a result of introduction of economic reforms and liberalisation of the Indian economy. Objectives After studying this unit, you should be able to: · Describe the provisions relating to an authorized person · Explain the regulation and management of foreign exchange · Enumerate the directorate of enforcement · Define miscellaneous provisions 11.2 Definition under the Act Authorised Person. It means an authorised dealer, money changer, offshore banking unit or any other person for the time being authorised under the Act to deal in foreign exchange or foreign securities.
Capital account transaction. It means a transaction which alters the assets or liabilities, including contingent liabilities, outside India or assets or liabilities in India of persons resident outside India, and includes transactions referred to in Sec.6(3). Currency. This expression includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, travellers’ cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instrument as may be notified by the Reserve Bank. Vide Notification No. FEMA 15/2000/RB dated May 3, 2000, RBI has notified ‘debit cards’, ‘ATM’ cards or any other instrument by whatever name called that can be used to create a financial liability, as ‘currency’. Currency notes. It means and includes cash in the form of coins and bank notes. Currency account transaction. It means a transaction, other than a capital account transaction and without prejudice to the generality of the foregoing, such transaction includes – (i) payments due in connection with foreign trade, other current business, services and short term banking and credit facilities in the ordinary course of business; (ii) payments due as interest on loans and as net income from investments; (iii) remittances for living expenses of parents, spouse and children residing abroad; and (iv) Expenses in connection with foreign travel, education and medical care of parents, spouse and children. Export. ‘Export’ with its grammatical variations and cognate expressions, means. (i) the taking out of India to a place outside India any goods, (ii) provision of services from India to any persons outside India. Foreign currency. It means any currency other than Indian currency. Foreign security. The expression means any security, in the form of shares, stocks, bonds, debentures, or any other instrument denominated or expressed in foreign currency and includes securities expressed in foreign currency, but where redemption or any form of return such as interest or dividend is payable in Indian currency. Indian currency. It means currency which is expressed or drawn in Indian rupees but does not include special bank notes and special one rupee notes issued under Sec.28A of the Reserve Bank of India Act, 1934. Person resident outside India. It means a person who is not resident in India. Transfer. The expression ‘transfer’ includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer or right, title, possession or lien. Definitions of certain other terms used under FEMA Regulations are: Non-resident Indian (NRI). It means a person resident outside India who is a citizen of India or is a person of Indian origin. Overseas Corporate Body (OCB). The expression means a company, partnership firm, society and other corporate body owned directly or indirectly to the extent of at least 60 per cent by non-resident Indians. Further, the expression includes overseas trusts in which not less than 60 per cent beneficial interest is held by non-resident Indians directly or indirectly but irrevocably. Person of Indian Origin (PIO). It means a citizen of any country other then Bangladesh or Pakistan, if (a) he at any time held Indian passport; or (b) he or either of his parents or any of his grandparents was a citizen of India by virtue of the Constitution of India or the Citizenship Act of 1955; or (c) the person is a spouse of an Indian citizen or a person referred to in (a) and (b).
Convertible currency/Hard currency. Certain currencies are freely convertible i.e. one can exchange these currencies with any other currency without any restriction. Major among these are: Dollars (USA), Pound Sterling (UK), Euro (European Common Currency), Deutsche Mark – DM (Germany), Yen (Japan), Franc (France), Lira (Italy) etc. This is often called ‘hard currency’. Self Assessment Questions 1. FERA stands for (a) Foreign Exchange Revenue Act (b) Foreign Exchange Regulation Act (c) Foreign Exchange Regional Act (d) None 2. In which year FEMA replaces the FERA (a) 1973 (b) 1974 (c) 1998 (d) 1999 3. Means of Indian currency (a) Currency which is expressed or drawn in yen (b) Currency which is expressed or drawn in dollar (c) Currency which is expressed or drawn in Euro (d) Currency which is expressed or drawn Indian rupees 4. PIO stands for (a) Pakistan Indian Organization (b) Pakistan Indian Origin (c) Person of Indian Origin (d) None 11.3 Provisions Relating to an Authorised Person 11.3.1 Authorised person
in all his dealings in foreign exchange or foreign security. if he has reason to believe that any such contravention or evasion as aforesaid is contemplated by the person.6]. regulations. 11. To ensure compliance of FEMA provisions [Sec. [Sec.4 Bank’s powers to issue directions to authorised persons (SEC. [Sec. An authorised person shall. authorise any person to be known as authorised person to deal in foreign exchange or in foreign securities. NRSR and FCNR accounts.3. on an application made to it in this behalf.5] 5. 3. an authorised person shall not engage in any transaction involving any foreign exchange or foreign security which is not in conformity with the terms of authorization under this section. comply with such general or special direction or order as the Reserve Bank may. give to the authorised persons any direction in regard to making of payment or the doing or desist from doing any act relating to foreign exchange or foreign security.3. 11.3 Powers of the authorised person 1.3(a)] 2.10(4)]. 3. regulation.2 Duties of an authorised person The duties of an authorised person as provided in the Act are summarised hereunder: 1. To comply with RBI directions [Sec. Not to engage in unauthorized transactions [Sec.Sec. as an authorised dealer. as will reasonably satisfy him that the transaction will not involve and is not designed for the purpose of any contravention or evasion of the provisions of this Act or of any rule. NRNR. notification. An authorization so granted may be revoked by the Reserve Bank at any time if it is satisfied that (a) it is in public interest to do so. for the purpose of securing compliance with the provisions of this Act and of any rules. before undertaking any transaction in foreign exchange on behalf of any person. 2. To sell or purchase foreign exchange for permissible capital account transactions. 11. Receive any payment by order or on behalf of any person resident outside India in any name. Except with the previous permission of the Reserve Bank. 4. To deal in or transfer any foreign exchange or foreign security to any person [Sec.10 provides that the Reserve Bank may.11) The Reserve Bank may.3. regulation. The authorization shall be in writing and shall be subject to the conditions laid down therein. notifications or directions made thereunder.10(4)]. NRE. An authorised person shall. an authorised person is not allowed to credit the account of any person without any corresponding remittance from any place outside India. Where the said person refuses to comply with any such requirement or makes only unsatisfactory compliance therewith. [Sec. direction or order made thereunder. the authorised person shall refuse in writing to undertake the transactions and shall. report the matter to the Reserve Bank. direction or order made thereunder. Self Assessment Questions . or (b) the authorised person has failed to comply with the condition subject to which the authorization was granted or has contravened any of the provisions of the Act or any rule. money changer or offshore banking unit or in any other manner as it deems fit. To open NRO.3(c)] However. To sell or purchase foreign exchange for current account transactions. think fit to give. from time to time. notification. require that person to make such declaration and to give such information.10(5)].
4. any asset outside India by any person. Sec.5.3) It prohibits any person other than an authorised person from (a) dealing in or transferring any foreign exchange or foreign security to any person or (b) making any payment to or for the credit of any person resident outside India in any manner.3-9 deal with regulation and management of foreign exchange. __________ explains dealings in current account transactions.4 Regulation and Management of Foreign Exchange Secs. 11.4.13 to 15] 11. 11. (d) entering into any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire.4.13 provides that if any person contravenes any provision of the Act. Self Assessment Questions 7.6 provides that any person may sell or draw foreign exchange to or from an authorised person for a capital account transaction. or (c) receive otherwise than through an authorised person any payment by order or on behalf of any person resident outside India in any manner.4 provides that except as otherwise provided in the Act. (Sec. foreign security or any immovable property situated outside India.5 explains dealings in current account transactions. Every exporter is also required to furnish to the Reserve Bank such other information as may be required by the Reserve Bank for the purpose of ensuring the realisation of the export proceeds.5 Export of goods and services Sec. the value which the exporter having regard to prevailing market conditions expects to receive on sale of the goods in a market outside India. 11.2 Holding of foreign exchange etc. a declaration containing true and correct particulars regarding the amount representing the full export value or if the full export value of the goods is not ascertainable at the time of export. Every exporter is required to furnish to Reserve Bank or any other authority as prescribed.4 Regulation of capital account transactions Sec. regulation etc.4. own.5. rules.3 Current account transactions Sec. 11. possess or transfer any foreign exchange. An authorized person is allowed to credit the account of any person without any corresponding remittance from any place outside India. 11. no person resident in India shall acquire. (True/False) 11. (True/False) 8. This section provides that any person may sell or draw foreign exchange to or from an authorised person if such sale or drawal is a current account transaction.7 deals with export of goods and services. Also it empowers the central government to impose reasonable restrictions for current account transaction in the public interest in consultation with the Reserve Bank of India by making appropriate rules. which may extend upto thrice the sum involved in such . Sec.5 Contravention and Penalties [Secs. hold. (True/False) 6.4. Foreign currency means any currency same as Indian currency.1 Dealings in foreign exchange etc. he shall be liable for penalty upon adjudication.7 deals with export of goods and services. or contravenes any condition subject to which the authorization is granted by RBI.1 Penalties Sec. 11.
any contravention so compounded. the penalty of Rs.16-35] 11. If the contravention continues.6. if any. of the persons committing the contravention or any part thereof. However.contravention where such amount is quantifiable or upto two lakh rupees where the amount is not quantifiable.14 provides that if a person fails to make full payment of the penalty imposed within a period of 90 days from the date on which the notice of payment of such penalty is served on him. If the contravention continues. The arrest warrant issued by an Adjudicating Authority may be executed by any other Adjudicating Authority within whose jurisdiction the defaulter may for the time being be found. direct that any currency. Sec. The arrest warrant may be issued by the Adjudicating Authority if the defaulter fails to make an appearance in pursuance of the notice issued by him.15 empowers the Directorate of Enforcement or Officers of the Directorate of Enforcement and Officers of the Reserve Bank as may be authorised by the Central Government in this behalf to compound the offences.1 Appointment of adjudicating authority .15 empowers the ____________. unless he has been issued and served a notice by Adjudicating Authority calling upon him to show cause why he should not be committed to civil prison. Sec. 400 per day (c) Rs. 11.3 Power to compound contraventions Sec.5. (a) Rs. 11. Any contravention under Sec. 200 per day 10. Again. 11. ____________ after the first day during the period in which the contravention continue shall be imposed. Further.6 Adjudication and Appeal [Secs. Self Assessment Questions 9. It may further direct that the foreign exchange holdings. The Adjudicating Authority may issue a warrant for the arrest of a defaulter if it is satisfied by affidavit or otherwise that the defaulter is likely to abscond or leave the local limits of the jurisdiction of the Adjudicating Authority with the intention of delaying the execution. the defaulter shall not be arrested or detained in civil prison. in addition to the penalty. he shall be liable to civil imprisonment. 300 per day (b) Rs. the penalty of Rs.5.13 provides that any adjudicating authority may. 500 per day (d) Rs. relieves the accused person from further proceedings for that contravention. 500 per day after the first day during the period in which the contravention continues shall be imposed. security or any other money or property in respect of which the contravention has taken place shall be confiscated to the Central Government.2 Enforcement of the orders of adjudicating authority Sec. shall be retained outside India in accordance with the directions made in this behalf.13 may be compounded on an application made by the person committing such contravention within 180 days from the date of receipt of application.
18 empowers the Central Government to establish Appellate Tribunal by a notification in the Official Gazette to hear appeals against the orders of Adjudicating Authorities and special Director (Appeals) 11. (f) reviewing its decisions. The Adjudicating Authority cannot hold any enquiry. for the purposes of Sec. The person alleged to have committed the contravention will be given a reasonable opportunity of being heard before imposing any penalty under Sec.13. for the purpose of discharging its functions under this Act. the Appellate Tribunal and the Special Director (Appeals) shall have all powers of a civil court. The Appellate Tribunal and the Special Director (Appeals) shall have.16 empowers the Central Government to appoint by notification in the Official Gazette as many Adjudicating Authorities as it may think fit for holding enquiries. The Special Director (Appeals) shall have the powers of a civil court and the proceeding before him shall be deemed to be judicial proceedings.17 empowers the Central Government to appoint one or more special Directors to hear the appeals against the orders of the Adjudicating Authorities. the Special Director (Appeals) after hearing the parties may pass such orders as he thinks fit confirming. (d) subject to the provisions of Secs. 1908 while trying a suit.28 provides for powers of the Appellate Tribunal and Special Director (Appeals). modifying or setting aside the order appealed against.229 of the Indian Penal Code. the same powers as are vested in a civil court under the Code of Civil Procedure. 11. under obligation to specify the jurisdiction of the Adjudicating Authority. and (i) any other matter which may be prescribed by the Central Government.13.6. The person against whom a complaint is made is entitled to present his case before the Adjudicating Authority himself or take the assistance of a legal practitioner or Chartered Accountant. 2.2 Appeal to special director (appeals) Sec. for this purpose. The appeal shall be filed in the prescribed form and the manner accompanied by the prescribed fees. An appeal to the Special Director (Appeals) may be made against the orders of the Assistant Directors or Deputy Director of Enforcement if they are acting as Adjudicating Authority. 1872 requisitioning any public record or document or copy of such record or document from any office. unless a complaint is made in writing by an officer authorised by a general or special order of the central government. 11.123 and 124 of the Indian Evidence Act. The Central Government is.6. These are summarised as under. (g) dismissing a representation of default or deciding it ex parte. (h) setting aside any order of dismissal of any representation for default or any order passed by it ex parte.193 and Sec. On receipt of an appeal. The Appellate Tribunal and Special Director (Appeals) while disposing of an appeal. shall not be bound by the Code of Civil Procedure but will be guided by the principles of natural justice and other provisions of the Act. (e) issuing commissions for the examination of witnesses or documents. .Sec. The Special Director (Appeals) may however extend time limit for filing an appeal if he is satisfied that there was sufficient reason for not filing the appeal in time. Copies of the orders of the Special Director (Appeals) shall be sent to the parties concerned and to the concerned Adjudicating Authority.3 Establishment of appellate tribunal Sec. however. The Adjudicating Authority has been entrusted with powers of a civil court and all proceedings before it shall be deemed to be judicial proceedings within the meaning of Sec. 1. An Order made by the Appellate Tribunal or the Special Director (Appeals) under this Act shall be executable by the Appellate Tribunal or the Special Director (Appeals) as a decree of civil court and. (b) requiring the discovery and production of documents. (c) receiving evidence on affidavits.4 Powers of appellate tribunal and special director (appeals) Sec.6. in respect of the following matters: (a summoning and enforcing the attendance of any person and examining him on oath. 3. The appeal shall be filed within 45 days from the date on which the copy of the order made by the Adjudicating Authority is received by the aggrieved party. The Central Government while issuing notification to this effect shall also specify the matter and places over which the Special Director (Appeals) have jurisdiction.
6 Power of chairperson to transfer cases Sec. the Chairperson may. 11. (a) Sec.11.34 . the Chairperson may transfer any case pending before one Bench. from time to time.6.9 Civil court not to have jurisdiction Sec. for disposal.31 provides that if the members of a Bench consisting of two members differ in opinion on any point.8 Members. to any other Bench.6. including those who first heard it. Members and other officers and employees of the Appellate Tribunal.10 Appeal to high court Sec. to be public servants Sec.35 (b) Sec. 11.6. Which section provides that any person aggrieved by any decision or order to the Appellate Tribunal may file an appeal to the High Court. etc. and make a reference to the Chairperson who shall either hear the point or points himself or refer the case for hearing on such point or points by one or more of the other members of the Appellate Tribunal and such point or points shall be decided according to the opinion of the majority of the members of the Appellate Tribunal who have heard the case. the Special Director (Appeals) and the Adjudicating Authority shall be deemed to be public servants within the meaning of Sec. make provisions as to the distribution of the business of the Appellate Tribunal amongst the Benches and also provide for the matters which may be dealt with by each Bench. they shall state the point or points on which they differ.5 Distribution of business among benches Sec. or on his own motion without such notice.33 provides that the Chairperson.6. and after hearing such of them as he may desire to be heard.29 provides that where Benches are constituted. 11. Self Assessment Questions 11. IPC stands for (a) International Personal Computer (b) Indian Personal Computer (c) International Penal Code (d) Indian Penal Code 12. 11.7 Decision to be by majority Sec.6.21 of the Indian Penal Code. 11. Such appeal must be filed within 60 days from the date of communication of the decision or order of the Appellate Tribunal.35 provides that any person aggrieved by any decision or order to the Appellate Tribunal may file an appeal to the High Court.30 provides that on the application of any of the parties and after notice to the parties. by notification.6.34 provides that no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which an Adjudicating Authority or the Appellate Tribunal or the Special Director (Appeals) is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under the Act.
32 and 34 11. the Central Government may by notification authorize any officer or class of officers in the Central Government.8 Miscellaneous Provisions Sec.38 and 40 (d) Secs. any director. In addition.36 and 38 (c) Secs.36 (d) Sec. was in charge of. The officer so appointed shall exercise the like powers which are conferred on the income-tax authorities under the Income-tax Act. at the time the contravention was committed. Further. shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly. manager. every person who. Self Assessment Question 14. and was responsible to.37. for the purposes of this Act.38 provides for empowering other officers with the same powers as are mentioned in Sec. Subject to such conditions and limitations as the Central Government may impose.38 11.(c) Sec. Similarly. who shall be called officers of Enforcement.36 provides that the Central Government shall establish a Directorate of Enforcement with a director and such other officers or class of officers as it thinks fit. Sec. direction or order made thereunder is a company. where a contravention of any of the provisions of this Act or of any rule. secretary or other officer shall also be deemed to be guilty of the contravention on and shall be liable to the proceeded against and punished accordingly. State Government. 1961.34 and 36 (b) Secs.7 Directorate of Enforcement Secs. the Director of Enforcement and other officers not below the rank of an Assistant Director shall take up for investigation on the contravention of any provisions of Sec.37. manager. direction or order made thereunder has been committed by a company and it is proved that the contravention has taken place with the consent or connivance of. secretary or other officer of the company.42 makes a provision in the case of contravention by companies where a person committing a contravention of any of the provisions of this Act or of any rule. such director. an officer of Enforcement may exercise the powers and discharge the duties conferred or imposed on him under this Act. Under Sec. Directorate of Enforcement make provisions under (a) Secs. (True/False) . or is attributable to any neglect on the part of. The arrest warrant may be issued by the adjudicating authority if the defaulter fails to make an appearance in pursuance of the notice issued by him. Sec.13. not below the rank of under-secretary to Government of India to investigate any such contravention. However such a person would not be liable to punishment if he proves that the contravention took place without his knowledge or that he exercised due diligence to prevent such contravention.36 to 38 make provisions as regards Directorate of Enforcement. Self Assessment Questions 13. the company for the conduct of the business of the company as well as the company. Reserve Bank of India. subject to such conditions and limitation as the Central Government may impose.
11 Answers . The emergency powers were subsequently replaced by the Foreign Exchange Regulations Act. bills of exchange and promissory notes. Can anyone file a suit against officer of the government exercising powers under FEMA? 4. credit cards or such other similar instrument as may be notified by the Reserve Bank. The role of authorized person. FERA has been replaced by Foreign Exchange Management Act (FEMA). cheques. Export: Outflow of goods and inflow of foreign currency. 1999.11. 11. What are the duties and powers of an ‘authorized person’ under FEMA. FEMA has been brought to consolidate and amend the law relating to foreign exchange. 1939 as a war time measure in the early period of Second World War under the powers conferred by the Defence of India Rules. postal orders. Glossary Foreign Exchange Management Act: Foreign exchange management act is to facilitate external trade and payments and to promote the orderly development and maintained of foreign exchange in India. 1993. I973 known as FERA. means bringing into India any goods or services. letters of credit. money orders. the provisions of contravention and penalties and the procedures of adjudication and appeal and the power of directorate of enforcement dealt at great length in this act. The basic objective of this act is to facilitate external trade and payments and to promote the orderly development and maintenance of foreign exchange market in India. travellers’ cheques.10 Terminal Questions 1. Write short note on: (a) Foreign Exchange (b) Currency (c) Indian Currency (d) Foreign Currency (e) Security (f) Overseas Corporate Body 11. Import: Import with its grammatical variations and cognate expressions. 1999? 2. 5. This Act witnessed comprehensive revision in the wake of the changed needs of the economy during the post-independence period and was replaced by the Foreign Exchange Regulations Act. Currency: This expression includes all currency notes. 1947. Describe the penalties prescribed under FEMA for contravention of its provisions. drafts. 3. 1947 which came into operation on March 25.9 Summary ‘The exchange control in India was introduced on September 3. postal notes. What are the obligations of an exporter of goods and services out of India? Explain. The onset of the era of liberalization of the external sector of the economy and the industrial licensing followed by Partial Convertibility of Rupee and full convertibility on current account necessitated the need for further extensive amendments in the FERA which were brought about by the Foreign Exchange Regulations (Amendment) Act.
a declaration containing true and correct particulars regarding the amount representing the full export value or if the full export value of the goods is not ascertainable at the time of export. Refer 11. (c) 5.5 – Sec. 3. on an application made to it in this behalf.4 – Every exporter is required to furnish to Reserve Bank or any other authority as prescribed. rules. Refer full unit – Please refer full unit in this regards. the outstanding exception being Japan. (d) 4.3 – Sec. 2.5 9. as an authorised dealer. No. (b) 14. Refer 11. regulation etc. 5. (c) 10. money changer or offshore banking unit or in any other manner as it deems fit. Refer 11. the BIS hosted a meeting of Deputy Governors of central banks from major emerging market economies to discuss foreign exchange market intervention. . (d) 3.Answers to Self Assessment Questions 1.10 provides that the Reserve Bank may. 4. (d) 12. (b) 6. (a) 13. please refer FEMA Act. (b) 2. Sec. Mini-case On 2nd and 3rd December 2004. Directorate of enforcement 11. authorise any person to be known as authorised person to deal in foreign exchange or in foreign securities. While few developed countries have actively intervened within the last decade. False 7. True Answers to Terminal Questions 1. intervention has been commonplace in the emerging market community.13 provides that if any person contravenes any provision of the Act. (a) 8.
A third reason is that private financial markets have enough capacity to absorb and manage shocks . it will be clear that many important issues remain to be resolved. In this connection. or to influence the level of foreign reserves. The difference in view is brought home by the unprecedented scale of foreign exchange reserve accumulation by the emerging market group in recent years. There is indeed some evidence that exchange rate volatility has fallen a lot in some countries where the central bank has not intervened in recent years. make investors more aware of the need to hedge their own exposures. This meeting threw some new light on these issues. Many observers from developed economies have publicly attributed the comparatively weak appreciation of Asian currencies against a rapidly depreciating US dollar to such intervention. to dampen exchange rate volatility (in some cases to satisfy an inflation target). The papers from Israel.There are several reasons why developed countries no longer actively intervene. . intervention in the foreign exchange market is automatic or nearly so. In addition. Yet others would counter that it is better to abstain from intervention in the foreign exchange market: such a stance would. A second reason is that large-scale intervention can undermine the stance of monetary policy. which were only available for the Czech Republic). The papers from Hong Kong SAR and Saudi Arabia illustrate the point. Four central questions are outlined below.so that there is no need to “guide” the exchange rate. The papers from Korea and Peru highlight the existence of a policy trade-off where there are reasons to intervene to dampen volatility yet intervention may involve moral hazard with respect to market development. Mexico. In flexible exchange rate cases. Some favour of the discussion can be gleaned from the central bank papers reproduced in this volume. the process of reserve accumulation being used to help dampen volatility when that is convenient). global foreign exchange reserves grew by over US$ 1600 billion. the effectiveness of intervention is likely to depend on the specific circumstances – studies of effectiveness on average do not answer the question of when intervention is likely to be successful. monetary policy actions are primarily dictated by what is needed to achieve and maintain the exchange rate target. a point which emerges clearly from the Moreno paper and the individual country papers in this volume. Part of this may be attributable to cases in which fixed or targeted exchange rate regimes are in place: under such a regime. as noted. One is that research and experience suggest that the instrument is only effective (at least beyond the very short term) if seen as foreshadowing interest rate or other policy adjustments. Poland and Thailand are particularly relevant in this regard. to supply liquidity to the forex market. Hence there does seem to be a common belief that intervention by emerging market economies has significantly altered the path of the real exchange rate for long enough to matter – even if such a view runs counter to received wisdom about intervention in the markets for major currencies. there are several examples of repeated interventions over lengthy periods.presumably because they believe the instrument to be an effective tool in the circumstances and for the situations they face. they contend. reflecting reserve accumulation by emerging market economies in Asia. Formal econometric research has usually thrown doubt on the conclusion of effectiveness of intervention in flexible exchange rate cases although. and presents new evidence for the Czech koruna (the methodology requires detailed daily data on intervention and option prices. and the exchange rate peg has proved reasonably durable. Without a durable and independent impact on the nominal exchange rate. along with overview papers prepared by BIS staff. The paper from South Africa provides an example of objectives that are both subsidiary to the main objective and conditional on prevailing circumstances (in this case. the objectives of intervention are particularly varied. intervention is seen as having no lasting power to influence the real exchange rate and thus competitive conditions for the tradable sector.especially empirical assessment that uses data from different episodes and different countries where policy objectives may vary. Is intervention more effective in emerging markets? The wide range of different objectives behind intervention in practice makes assessment difficult . Disyatat and Galati’s paper surveys the available empirical evidence. Between the end of 2001 and the end of 2004. such research often conflates interventions for different purposes. Other country papers show that varying mixtures of objectives are quite commonplace. Reasons for intervention cited by central banks that do not target the exchange rate include: to slow the rate of change of the exchange rate. Yet emerging market countries do intervene . In the group of countries surveyed. The survey reported in Mihaljek’s paper shows that many emerging market central banks view intervention as effective in influencing the exchange rate consistent with their objectives. Many central banks would argue that their main aim is to limit exchange rate volatility rather than to meet a specific target for the level of the exchange rate. and this would help the market in hedging instruments to develop. the paper from Venezuela makes the interesting point that intervention might have diminishing power with repetition. The authors’ new estimates tentatively suggest the existence of a cumulative effect from repeated intervention (although the mechanism is not clear).
1956 Structure: 12. What is the effect of intervention on global economy.1 Introduction Objectives 12.4 Articles of Association Meaning and purpose Registration of articles Subject matter of articles . Questions 1. (Hint: It provides more opportunities for controlling exchange rates and substituting assets across currency boundaries.It remains possible that greater apparent effectiveness of intervention in emerging market cases simply reflects different structural characteristics. Emerging market economies tend to have less substitutability of assets across currency boundaries. 1956 Unit-12-Companies Act.2 Formation of a Company Promotion Registration (Secs. (Hint: Interventions slow down the change in exchange rate and supply liquidity to the forex market which is crucial for the emerging markets. and the authorities tend to have greater financial – and certainly regulatory – weight relative to their private markets. What do you think intervention is effective for emerging market. And several of the country papers describe the application of regulatory measures to obtain influence over the exchange rate. even if interventions are not in general large relative to turnover.12 and 33) Availability of name Floatation 12.) Source: BIS paper no 24 MB0051-Unit-12-Companies Act.3 Memorandum of Association Meaning and purpose Form and contents Alteration of memorandum 12.) 2. Mihaljek’s paper shows clearly that emerging market economies typically hold very large reserves compared with market turnover.
13 Answers 12.10 Winding up of Companies Modes of winding up Winding up by the court 12.8 General Meetings and Proceedings Need for meetings Statutory meeting (Sec.165) Annual General Meeting (AGM) (Secs.6 Shares Classes of shares Preference share Equity share Cumulative Convertible Preference Shares (CCPs) Deferred or founder’s shares Non-voting shares Sweat equity shares 12.5 Prospectus Contents of a prospectus Stock Exchange Board of India guidelines relating to disclosure on prospectus 12.12 Terminal Questions 12.7 Directors 12.11 Summary 12.166-168) Extra-ordinary Meeting (EGM) Sec.1 Introduction .9 Auditor 12.12.169 12.
1956.” 12. These may be (i) companies limited by shares. 76. although the term is used expressly in Secs.146). Therefore. you came to know about the Foreign Exchange Management Act. you should be able to: l Describe formation of company l Define shares and directors l Explain meetings and resolutions l Define auditor l Describe how to winding-up a company 12.2. (ii) companies limited by guarantee and (iii) unlimited companies. associated for any lawful purpose may. In this unit you will study about the Companies Act. which in the opinion of the Central Government is undesirable. For the purpose.12 and 33) Secs.2. it is advisable that promoters find out the availability of the proposed name of the company from the Registrar of Companies. Who is a promoter? This term has not been defined under the Act. The vast majority of companies in India are with limited liability by shares. The promoter may be an individual. These are: (i) Promotion.2 Registration (Secs.2. three names in order of priority should be filed. for convenience.3 Availability of name Sec.1 Promotion Promotion is a term of wide import denoting the preliminary steps taken for the purpose of registration and floatation of the company. (ii) Particulars regarding directors. 12. with or without limited liability. by subscribing their names to a memorandum of association and otherwise complying with the requirements of this Act in respect of registration form an incorporated company. association. syndicate. 12. 69. (ii) Registration and (iii) Floatation. are usually delivered along with the aforesaid documents.62.303). partnership or company.20 states that a company cannot be registered by a name. The Companies Act. Objectives After studying this unit. .12 permits the formation of different types of companies. two or more persons. The following two documents. though not required to be filed for the purpose of registration.12 states that. into three parts.In the earlier units. 1956 defines the word ‘company’ as a company formed and registered under the Act or an existing company formed and registered under any of the previous company laws (Sec. “any seven or more persons or where the company to be formed will be a private company. 478 and 519. Also Sec. manager and secretary. This definition does not bring out the meaning and nature of the company into a clear perspective. if any (Sec.3). (i) The address of the registered office of the company (Sec.2 Formation of a Company The whole process of formation of a company may be roughly divided. The persons who assume the task of promotion are called promoters. These two documents are required to be submitted within thirty days of registration of the company.
it can go ahead with raising capital sufficient to commence business and to carry it on satisfactorily. that is to say.3 Memorandum of Association 12. Self Assessment Questions 1. It tells us the objects of the company’s formation and the utmost possible scope of its operations beyond which its actions cannot go. any one dealing with the company. It must be done at least 3 days before allotment. divided into paragraphs. Thus.4 Floatation When a company has been registered and has received its certificate of incorporation.12. the intending shareholder can find out the field in. with ‘limited’ as the last word of the name in the . Sec.14 requires that the memorandum of a company shall be in such one of the Forms in Tables B. creditors and all those who deal with the company to know what its powers are and what is the range of its activities. numbered consecutively and signed by at least seven persons (two in the case of a private company) in the presence of at least one witness. say. as may be applicable in the case of the company. that will be ultra vires (beyond powers of) the company and so void.3. it is ready for ‘floatation’.3. Each of the members must take at least one share and write opposite his name the number of shares he takes. Sec. or (ii) Submit a ‘statement in lieu of prospectus’ in case capital has been arranged privately. it defines as well as confines the powers of the company.15 requires the memorandum to be printed. It enables shareholders. a supplier of goods or money. C.13 requires the memorandum of a limited company to contain: (i) the name of the company.2. D and E in Schedule I to the Act. or in Forms as near thereto as circumstances admit.70 makes it obligatory for every public company to take either of the following two steps: (i) Issue a prospectus in case public is to be invited to subscribe to its capital. How may partners involved in the case of private company? (a) 2 (b) 4 (c) 5 (d) 7 12. Also.2 Form and contents Sec. The persons who assume the task of promotion is known as __________ (a) Acceptors (b) Motivators (c) Promoters (d) None 2. or the purpose for which his money is going to be used by the company and what risk he is taking in making the investment. If anything is done beyond these powers. Sec. Thus. The memorandum serves a two-fold purpose. will know whether the transaction he intends to make with the company is within the objects of the company and not ultra virus its objects. 12.1 Meaning and purpose The Memorandum of Association of a company is its charter which contains the fundamental conditions upon which alone the company can be incorporated. who will attest the signature.
(ii) the name of the State. The procedure depends on whether the change is within the jurisdiction of same registrar of companies (Sec. be given to the Registrar who shall record the same (Sec. notice of the new location has to be given to the Registrar who shall record the same.case of a public company and ‘private limited’ as the last words in the case of a private company.21 provides that the name of a company may be changed at any time by passing a special resolution at a general meeting of the company and with the written approval of the Central Government. (iii) Within 30 days of the removal of the registered office.25 as an ‘association not for profit’ [Sec. the name chosen is not undesirable [Sec.20(1)]. an application is to be made in the prescribed . For this purpose. divided into shares of fixed amounts. Every company shall: (a) paint or affix its name and the address of its registered office and keep the same painted or affixed.16 provides that the company cannot alter the conditions contained in memorandum except in the cases and in the mode and to the extent express provision has been made in the Act. (c) Shifting of the registered office from one place to another within the same state (Sec.3 Alteration of memorandum Sec.146). In this case. notice of the change should. The promoters are free to choose any suitable name for the company provided: (a) the last word in the name of the company. A resolution passed by the Board of directors shall be sufficient.146) also require confirmation by the Regional Director. stating separately ‘Main objects’ and ‘other objects’. The change of name becomes effective on the issue of fresh certificate of incorporation. town or village. Change of registered office. (iii) the objects of the company. The company may do so anytime.25].146 and Sec. Too similar name. The Registrar shall then enter the new name on the register in the place of the old name and shall issue a fresh certificate of incorporation with necessary alterations [Sec. the procedure is: (i) a special resolution is required to be passed at a general meeting of the shareholders. Publication of name (Sec. if limited by shares or guarantee is ‘limited’ unless the company is registered under Sec. the resemblance between the two names must be such as to be calculated to deceive.e. A name shall be said to be calculated to deceive where it suggests some connection or association with the existing company. However.3. In case of too similar names. These contents of the memorandum are called compulsory clauses and are explained below: The name clause. (b) In the opinion of the Central Government. and (v) the amount of the authorised share capital. These provisions are explained herein below: Change of name.17A).17A): The shifting of the registered office by a company from the jurisdiction of one registrar of companies to the jurisdiction of another registrar of companies within the same state shall (in addition to requirements under Sec. within 30 days after the date of the change. This may include: (a) Change of registered office from one premises to another premises in the same city. when public company is converted into a private company or vice versa).23(1)]. in which the registered officer of the company is to be situated.147). 12.146) or whether the shifting is to the jurisdiction of another registrar of companies in the same state (Sec. on the outside of every office or place of business in a conspicuous position in letters easily legible and in the language in general use in the locality. (ii) a copy of it is to be filed with the Registrar within 30 days. (iv) the declaration that the liability of the members is limited. no approval of the Central Government is necessary if the change of the name involves only the addition or deletion of the word ‘private’ (i. However. The change of name must be communicated to the Registrar of Companies within 30 days of the change.146). (b) Change of registered office from one town or city or village to another town or city or village in the same State (Sec. Sec..13(1) (a) & Sec.
2 Registration of articles Sec. Such confirmation is required to be field within two months with the registrar of companies who shall register and certify the same within one month. The alternatives (ii) and (iii) are often employed. Cas. Such certificate shall be conclusive evidence of the compliance of all requirements under the Act. Self Assessment Questions 3.4. _____________ provides that the company cannot alter the conditions contained in memorandum except in the cases and in the mode and to the extent express provision has been made in the Act.1 Meaning and purpose The articles of association of a company and its bye laws are regulations which govern the management of its internal affairs and the conduct of its business. powers and authority of the shareholders and the directors in their respective capacities and of the company and the mode and form in which the business of the company is to be carried out. They define the duties.] 12. C. and partial adoption of Table A has particular advantage for small companies. _________ tells us the objects of the company’s formation and the utmost possible scope of its operations beyond which its actions cannot go. or (iii) it may set out is own articles and adopt part of Table A. rights. 12.26 states that a public company limited by shares may register articles of association signed by the subscribers to the memorandum.4 Articles of Association 12.I.3 Subject matter of articles The articles of a company usually deal with the following matters: . however. then the articles given in Table A of Schedule I automatically becomes applicable. even if it does register articles of its own. There are actually three possible alternatives in which such company may adopt articles: (i) it may adopt Table A in full or. 147 Cal. (a) Memorandum of understanding (b) Memorandum of association (c) Memorandum of unions (d) None 4. The Articles of association of a company have a contractual force between company and its members as also between the members inter se in relation to their rights as such members.4. (1965) 35 Comp. Table A will still apply automatically unless it has been excluded or modified. it does not register its own articles. 12. They are subordinate to and are controlled by memorandum. (ii) it may wholly exclude Table A and set out its own regulations in full. Further. because of economy in printing and also because any provision of Table A is legally beyond any doubt. v.T.form and the confirmation shall be communicated within four weeks. If. Articles cannot supersede the objects as set out in the memorandum of association [Birds Investments Ltd.4.
the increase and reduction of share capital. appointment and powers of directors. voting. the rights of each class of shareholders and the procedure for variation of their rights. notices. minutes. 3.1 Contents of a prospectus . circular. resolution. general meetings. Thus. 5. quorum. the business of the company. a prospectus is not merely an advertisement. 9. (2) The aforesaid invitation is made to the public. number. Article of association of a company have a contractual force between (a) Company and government (b) Company and its owners (c) Company and its members (d) None 12. if any.1. (a) 20 days (b) 15 days (c) 10 days (d) 30 days 6.2(36). 12. poll. 8. advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in or debentures of a body corporate. company’s lien on shares. transfer and transmission of shares. as per Sec. exercise of borrowing powers including issue of debentures. the execution or adoption of a preliminary agreement. it may be a circular or even a notice.5.5 Prospectus A prospectus. 10. 4. 7. the amount of capital issued and the classes of shares into which the capital is divided. A document shall be called a prospectus if it satisfies two things: (1) It invites subscriptions to share or debentures or invites deposits. Self Assessment Questions 5. 2. the allotment of shares. Change of name must be communicated to the Registrar Companies within ________________ of the change. proxy. calls and forfeiture of shares for non-payment of calls. means any document described or issued as prospectus and includes any notice. 6.
Particulars of the issue. (i) Authorised. (ii) Name/(s) of stock exchange/(s) where application for listing is made.T. (v) Date of opening of the issue. Certain prescribed particulars in regard to the company and other listed companies under the same management which made any capital issue during the last 3 years.6 Shares Sec.2(46) defines a share “as a share in the share capital of a company and includes stock except where a distinction between stock and share is expressed or implied”. (i) Terms of payment. Associated Industrial Dev.5. (iii) Declaration about refund of the issue if minimum subscription of 90 per cent is not received within 90 days from closure of the issue.73. Under this head information is given about (i) Name and address of registered office of the company. SEBI stands for (a) Stock Exchange Board of India (b) State Exchange Board of India (c) Stock Exchange Bank of India (d) None 12.56 lays down that the matters and reports stated in Schedule II to the Act must be included in a prospectus. under Sec. L.2 Stock Exchange Board of India guidelines relating to disclosure on prospectus Every prospectus submitted to Stock Exchange Board of India (SEBI) for vetting shall. 12. (iii) Any special tax benefits. issued. (ii) Size of the present issue. General information. Co. ___________ lays down that the matters and reports stated in Schedule II to the Act must be included in a prospectus. (vi) Date of closing of the issue. Capital structure of the company. East India Distilleries (1957) 27 Comp.J. (1969) 2 Comp. Self Assessment Questions 7. 19] . 8. 2. 4. subscribed and paid-up capital. Outstanding litigations relating to financial matters or criminal proceedings against the company or directors under Schedule XIII. (vii) Name and address of auditors and lead managers. (ii) Project cost. v. Cas.I.Sec. 6. Terms of the present issue. at the prescribed rate. (iv) Declaration about the issue of allotment letters/refunds within a period of 10 weeks and interest in case of any delay in refund. (ii) How to apply. (ix) Names and address of the underwriters and the amount underwritten by them. (viii) Whether rating from CRISIL or any rating agency has been obtained for the proposed debentures/preference shares issue. 175]. If no rating has been obtained. But a share is not a negotiable instrument [C. In the first part brief particulars are to be given about matters mentioned below: 1. (i) objects. in addition to the requirements of Schedule II to the Act. contain/specify certain particulars as are announced from time to time. (iii) Means of Financing (including contribution of promoters). this should be answered as ‘No’. A share of a company in the hands of a shareholder signifies a bundle of rights and obligations [Viswanath v. giving separately reservation for preferential allotment to promoters and others. The format of a prospectus is divided into three parts. 5. This definition does not bring out the meaning of a share in its true perspective. 3.
1999. 12.85).83 requires that each share in a company having a share capital must be distinguished by its appropriate number. 2000 provided for issue of such type of equity shares under Sec. The Companies (Amendment) Act.87(1)]. The rate of dividend is not fixed.86. the Board of Directors have to comply with the provisions of law as regards depreciation. the words ‘shares and debentures’ shall be substituted.– 79A was inserted for this purpose.Sec.83 requires that each share in a company having a share capital must be distinguished by its appropriate number. etc. 1999 amended Sec. A new Sec. 12.7 Sweat equity shares The Companies (Amendment) Act.6. CCPS stands for (a) Constant Convertible Preference Shares . 12.6. The holders of equity shares have voting rights in proportion to the paid-up equity capital of the company [Sec. A public company and a private company which is a subsidiary of a public company may not issue shares other than equity. it may issue what are known as deferred shares. Thus. preference and Cumulative Convertible Preference Shares (CCPS).2 Preference share A preference share is one which carries the following two rights over holders of equity shares: (i) a preferential right in respect of dividends at a fixed amount or at a fixed rate and (ii) a preferential right in regard to repayment of capital on winding up. called cumulative convertible preference shares.6. and (3) Deferred or Founders’. Self Assessment Questions 16. transfer of a minimum amount to reserves.5 Deferred or founder’s shares A pure private company can issue shares of a type other than those discussed above (Sec.6 Non-voting shares ‘Non-voting shares’ as the term suggests are shares which carry no voting rights.6.90).82 to the effect that for the word ‘shares’. allowed issue of sweat equity shares subject to fulfillment of certain conditions.4 Cumulative Convertible Preference Shares (CCPs) The Government vide its guidelines dated 19th August. As deferred shares are normally held by promoters and directors of the company. (2) Equity or Ordinary. These are contemplated as altogether a different class of shares which may carry additional dividends in lieu of the voting rights. 12.3 Equity share ‘Equity share’ means a share which is not preference share (Sec. (True/False) 17. 12. 1985 permitted issue of another class of shares by public limited companies. they are usually called founder’s shares. 12. The Companies (Amendment) Act.6. Sec.1 Classes of shares The most common classes of shares are: (1) Preference.6. Before recommending dividend on equity shares.6. 12. The Board of Directors recommend the rate of dividend which is then declared by the members at the Annual General Meeting.
But they are not trustees in the full sense of the term in as much as no proprietary rights of the company’s property are transferred to them and. They appoint the company’s officers and recommend the rate of dividend. Sec.291 has entrusted the management of the affairs of the company in their hands. The directors of company are collectively referred to as the ‘Board of Directors’. The directors act as agents of the company. manage or superintend a company’s affairs. _____________ defines a director. to make calls. forfeit shares should be exercised bona fide in the interests of the company. by whatever name called. directors are the persons who direct. In reality.(b) Constant Convertible Permanent Shares (c) Cumulative Convertible Preference Shares (d) None 18. (ii) trustees. they enter into contracts on behalf of the company and in the name of the company. However. They chalk-out the general policy of the company within the framework of the Memorandum of the Company. he should keep in mind the company’s interests. either statutory or judicial. Self Assessment Questions 19.2(13) defines a director as including "any person occupying the position of director. Such cases are: l They are trustees of money which comes to their hands or which is actually under their control. 20. The directors have also been described as trustees. But the Act gives no further guidance on the function." This is a definition based purely on function. they occupy an office of the trust and are in certain respects in the position of trustees for the company. a person is a director if he does whatever a director normally does. judicial pronouncements have described them as (i) agents. The exact position of ‘director’ is hard to define. The holders of equity shares have voting rights. conduct.7 Directors Sec. as no formal definition. whenever there is clash of his personal interests with that of the company. Although directors are not trustees in the real sense of the term.8 General Meetings and Proceedings . therefore. they have to make good the same as if they were trustees. l They are trustees for exercising powers conferred on them for the benefit of the company. (True / False) 12. therefore. (True / False) 12. duties and position of a director. powers to allot shares. of the term has been given. l They stand in a fiduciary relationship to the company and. For instance. If they misapply company’s money. A director is in no way a trustee for individual shareholders except when the former induces the latter by misrepresentation to sell the shares to him. or (iii) managing partners.
12.166-168) As the name signifies. it need not hold any such meeting in the year of its incorporation or in the following year. The various provisions of law empower shareholders to do certain things. every item on the agenda must be accompanied by an ‘Explanatory Statement’. Sec. (iii) At least 21 days before the day of meeting. The Board of Directors may call a general meeting of the members at any time by giving not less than 21 days notice. (iii) by the requisitionists themselves. 12. The legal provisions as regards such meetings are: 1. It must act through some human intermediary.1 Need for meetings A company is an artificial person and therefore.169 Clause 47 of Table A (Schedule – I) provides that all general meetings other than AGMs shall be called the EGMs.165) Some of the most important legal provisions regarding the statutory meeting are: (i) It is required to be held only by a public company having a share capital. The maximum gap between two such meetings may be extended by three months by taking permission of the Registrar. however. EGM is convened for transacting some special or urgent business that may arise in between two AGMs. Every company. be held valid if consent is accorded thereto by members of the company holding 95% or more of the voting rights (Sec. for instance.2 Statutory meeting (Sec. whether public or private. 3. An EGM may be called: (i) by the Directors of their own accord.8. change in the objects or shift of registered office or alteration of capital. 12. having a share capital or not. They are specifically reserved for them to be done in company’s general meetings. The meeting must be held (i) on a day which is not a public holiday. A private company or a public company registered without share capital is under no obligation to hold such a meeting. In this context meetings of shareholders and of directors becomes necessary. limited or unlimited must hold this meeting.8.4 Extra-ordinary Meeting (EGM) – Sec. (iii) Extraordinary General Meeting. this is an annual meeting of a company. [Sec. 12.8. and (iv) Class Meetings.8.291 empowers the Board of Directors to manage the affairs of the company. A shorter notice may. a notice of the meeting is to be sent to every member stating it to be a Statutory Meeting. However. (ii) by the Directors on requisition. (iv) by the Tribunal. town or village in which the registered office is situated. In this Part meetings of shareholders are taken up and later in Part 14. 2. (ii) during business hours. All business transacted at such meetings is called special business.171). Therefore. cannot act itself. Self Assessment Questions . (ii) It must be held within a period of not less than one month and not more than six months from the date at which the company is entitled to commence business. 2. (iii) at the registered office of the company or at some other place within the city. The meeting must be held in each calendar year and not more than fifteen months shall elapse between two meetings. meetings of directors are discussed. (ii) Annual General Meeting. who may so allow for any special reason.166(2)]. The Act has made provisions for following different types of meetings of shareholders: (i) Statutory Meeting. the first AGM may be held within eighteen months from the date of its incorporation and if such general meeting is held within that period. The provisions relating to this meeting are: 1.3 Annual general meeting (AGM) (Secs.
The private companies are not to be taken into account for calculating the number of companies which an auditor can audit. An administrator. However. collects its assets. 12. pays its debts and finally distributes any . after a period of one year from the commencement of the Amendment Act is holding any security in that company. Powers and duties or obligations of auditors Sec. called a ‘liquidator’.10 Winding up of Companies Winding up of a company is the process whereby its life is ended and its property administered for the benefit of its creditors and members. accounts and vouchers of the company whether kept at the head office or elsewhere. must within thirty days of the receipt from the company of the intimation of his appointment. then the company in general meeting may do so. Also. (a) 11 days (b) 31 days (c) 41 days (d) 21 days 22. The first auditors(s) can be appointed by the Board of Directors within one month of the date of the incorporation of the company. Is it compulsory for every company to appoint qualified auditors to do the audit of the accounts maintained by the company? (True / False) 2.227 enumerates some of the powers of auditors: (i) Every auditor of a company has right of free and complete access at all times to the books. if the Board of Directors do not appoint the first auditors. _____________ empowers the Board of Directors to manage the affairs of the company. (ii) He has also the right to require from the officers of the company such information and explanation as may be necessary for the performance of his duties as auditor. A person will not be eligible for appointment as an auditor of a company if be. they can be removed by members at their meeting held before the first AGM by giving a special notice of an intention to remove them.21. How many days before of statutory meeting a notice to be sent to every member of the company. Every auditor of a company has right of free and complete access at all times to the books. Every auditor so appointed. The first auditors hold office until the conclusion of the first AGM of the company. accounts and vouchers of the company whether kept at the head office or elsewhere. Self Assessment Questions 1. inform the registrar in writing that he has accepted the appointment or has refused the same. (iii) He is entitled to receive notice of and to attend general meetings of the company and be heard on any part of the business which concerns him as auditor. is appointed and he takes control of the company. (True / False) 12.9 Auditor It is compulsory for every company to appoint qualified auditors to do the audit of the accounts maintained by the company.
In simple words winding up means applying the assets of a company in the discharge of its liabilities and returning any surplus to those entitled to it. and employs it in some business.surplus among the members in accordance with their rights. if any.10. A voluntary winding up under the supervision of the Court. 12. The statutory process by which this is achieved is called ‘liquidation’. having its own entity separate from its members. 12. Self Assessment Questions 18. unpaid on the shares respectively held by them.439. B. also called compulsory winding up. 12. 1956 become a legal entity. A company limited by shares is a registered company having the liability of its members limited by its memorandum of association to the amount. may be ordered in cases mentioned in Sec. The Court will make an order for winding up on an application by any of the persons enlisted in Sec.433. Glossary . Shares in a company are transferable. subject to the cost of doing so. The statutory process by which this is achieved is called ___________. and who share the profit and loss arising there from. An administrator. Winding up of a company differs from insolvency of an individual inasmuch as a company cannot be made insolvent under the insolvency law. An association of persons. Voluntary winding up. once incorporated under the Companies Act.11 Summary A company is an association of many persons who contribute money or money’s worth to a common stock. The company. Compulsory winding up under an order of the Court. called a (a) Liquidator (b) Advisor (c) Financer (d) None 19.10.2 Winding up by the court Winding up by the Court. its members are not as such liable for its debts.1 Modes of winding up A company may be wound up in any of the following two ways: A. being a separate person. C. even a solvent company may be wound up. Besides.
4. What are the characteristics of a company? 2. Write a short note on statement in lieu of prospectus. circular. What are the different kinds of general meetings of a company? 8. (c) 2. Memorandum of Association: The memorandum of association of a company as originally framed or altered from time to time in pursuance of any previous companies law or of companies act. What do you mean by memorandum of association? What does it contain? 5. Distinguish between a public limited company and private limited company. True . (c) 7.13 Answers Answers to Self Assessment Questions 1.56 8. A 3. Who is a promoter? Also explain the duties and liabilities of promoters. Suggest 7. A company limited by shares intends to buy some of its own shares. 6.12 Terminal Questions 1. How is an auditor appointed? What are the matters to be stated in his report? 12. Sec. Prospectus: Any document described or issued as a prospectus and includes any notice. advertisement or other document inviting from the public. 3. 12. (b) 4. (a) 9. Sec. (d) 6.16 5. Private Company: A company where the minimum number of member is two and maximum fifty.Company: A company is an association of many persons who contribute money or monies worth to a common stock and employed in some trade or business and who share the profit and loss arising there-from.
000 secured by the debentures issued to Mr.2 – Promoter term is used expressly in Sec. Sec. Mr. 2.291 16. The company almost immediately ran into difficulties and eventually became insolvent and winding up commenced. 6. Refer 12. (iii) Extraordinary General Meeting.3 – The Memorandum of Association of a company is its charter which contains the fundamental conditions upon which alone the company can be incorporated. 4. True 12.000 owing to unsecured trade creditors. Mini-case Salomon carried on business as a leather merchant. and (iv) Class Meetings. (ii) Annual General Meeting. (d) 15.050. Refer 12.8 – The Act has made provisions for following different types of meetings of shareholders: (i) Statutory Meeting. The purchase consideration was satisfied by allotment of 20.6 – Refer Share Section of this unit. Salomon. Refer 12. (ii) Registration and (iii) Floatation. .62. for convenience. Refer 12. 8. the total assets of the company amounted to £6. True 18. True 14. 76. Refer 12. These are: (i) Promotion.2 – The whole process of formation of a company may be roughly divided. 478 and 519.2(13) 13.9 – It is compulsory for every company to appoint qualified auditors to do the audit of the accounts maintained by the company. 5. 7. a daughter and four sons.000 to a company formed by him along with his wife. True 17. Refer 12. into three parts. Refer 12. 3.000 secured by floating charge on the company’s assets in favour of Mr. All the other shareholders subscribed for one share of £1 each. Refer 12. Sec. its liabilities were £10. Salomon and £8. 69. Salomon was also the managing director of the company.10. (c) 11.5 for more detail. At the time of winding up.000 shares of £1 each and issue of debentures worth £10. He sold his business for a sum of £30. (a) 19. Liquidation Answers to Terminal Questions 1.2 – Private company at least two members and public at least 7 members.
10 Digital Signature Certificates [Secs.4) Legal recognition of digital signatures (Sec. Question Do you agree to the claims of the unsecured trade creditors? Comment.050 on the ground that the company was a mere alias or agent for Salomon.5 Objectives of the Act 13.) MB0051-Unit-13-Information Related Laws Unit-13-Information Related Laws Structure: 13. (Hint: Yes Please follow the case.7 Digital Signature 13.6) 13.3 Benefits of the RTI 13.14) Secure digital signature (Sec.36) .8 Electronic Governance [Secs. viz.35 to 39] Certifying authority to issue digital signature certificate (Sec.9 Secure Electronic Records and Secure Digital Signatures [Secs.15) Security procedure (Sec.The unsecured sundry creditors claimed the whole of the company’s assets.14 to 16] Secure electronic record (Sec.4 Information Technology Act 13.35) Representations upon issuance of digital signature certificate (Sec.16) 13.6 Commencement and Application 13.1 Introduction Objectives 13.4 to 16] Legal recognition of electronic records (Sec. £6.5) Use of electronic record and digital signatures in government and its agencies (Sec.2 Right to Information Act 13.
58) Right to legal representation (Sec.61) Appeal to high court (Sec.68) Directions of controller to a subscriber to extend facilities to decrypt information (Sec.54) Orders constituting appellate tribunal to be final and not to invalidate its proceedings (Sec.70) Penalty for misrepresentation (Sec.52) Resignation and removal (Sec.48) Composition of cyber appellate tribunal (Sec.62) Compounding of contraventions (Sec.38) 13.65 to 78] Tampering with computer source document (Sec.49) Qualifications for appointment as presiding officer of the tribunal (Sec.50) Term office (Sec.67) Power of the controller to give directions (Sec.57) Procedure and powers of the tribunal (Sec.66) Publishing of information which is obscene in electronic form (Sec.59) Limitation (Sec.56) Appeal to cyber regulations appellate tribunal (Sec.Revocation of digital signature certificate (Sec.55) Staff of the cyber appellate tribunal (Sec.60) Civil court not to have jurisdiction (Sec.63) 13.71) . allowances and other terms and conditions of service of presiding officer (Sec.69) Protected system (Sec.65) Hacking with computer system (Sec.11 Cyber Regulations Appellate Tribunal Establishment of cyber appellate tribunal (Sec.51) Salary.12 Offences [Secs.
75) Confiscation (Sec. But ironically. & other . remains hardly known to people for whose benefit it was introduced in the first place.14 Summary 13. 2000 13. are functioning.Breach of confidentiality and privacy (Sec. Therefore the masters have the rights to know how the Govts. the Supreme Court said that people can not speak or express themselves unless they know.2 Right to Information Act Right to information is a part of fundamental rights under Article 19 (1) of the Constitution.72) Penalty for publishing digital signature certificate false in certain particulars (Sec. Legislations centred on RTI are in full force in many countries of the world specially in the ones which are developed and ruled democratically. Since long the officials in the name of administrative secrecy hesitated to disclose information and there by kept in darkness to general public about important decision of Govt. Objectives After studying this unit. meant to serve them. As early as in 1976. the right of every citizen to know information is no doubt a revolutionary step. In this unit you will study about the information related laws. actions or lack of actions and policies. India is a democracy and people are the masters. you came to know about the FEAM and Companies Act. The Right to Information (RTI) Act has been in existence for over a year. you should be able to: · Explain Right to Information Act · Describe the benefits of RTI · Explain Information Technology Act 13..76) Penalties and confiscation not to interfere with other punishments (Sec. In Indian democratic system.78) 13. this Act which is full of significance in creating conditions for good governance.13 Shortcomings of the Information Technology Act. accountability of the government and promoting people’s basic rights to know about government’s decisions.1 Introduction In the earlier units.73) Publication for fraudulent purpose (Sec.16 Answers 13.74) Act to apply for offence or contravention committed outside India (Sec.77) Power to investigate offences (Sec. Article 19 (1) says that every citizen has freedom of speech and expression.15 Terminal Questions 13.
– Center. State. 2005 and became operational on 12. What rights are available under RTI Act. · Inspect any Govt. it should not be misinterpreted rather it makes the administration more responsive and removes sloth. · Take copies of any Govt. · Effective information flow helps citizen to secure their right and entitlement. credibility and legitimacy of public authority. Coverage of the Act: The RTI Act covers all level of Govt. vitality. · Increases efficiency. For this openness and change of attitude is required.10. 2. Since the Act imposes liability on public authority. · Take samples of materials of any Govt. works. Self Assessment Questions 1. It also covers NGOs – that are financed substantially with public funds provided by Govt. · Encourages public authority to be sensible and to make optimum use of limited fiscal resources. This has widened the path of corruption in manifold. work. (True/False) 13. The ideal objectives of the RTI Act are to promote transparency and accountability in the working of public authority and to set up a practical regime for giving citizens access to information under the control of public authorities. The main aim of this act is to eradicate the existing practice of concealing facts & events and to empower every citizen to exercise their legal right in obtaining information under RTI Act.3 Benefits of the RTI The various benefits of the RTI are: · Enhances transparency. RTI Act.administrative bodies. 2005 was implemented in our country on 15th June. The act extends to the whole of India except the State of Jammu and Kashmir. Maximum possible information must be disclosed voluntarily. · Reminds public authorities their power and duty including channels of supervision and accountability. Information must be shared for the interest of public as the purpose of this Act is to evolve an interface between public authority and citizen. 2005 was implemented in our country on 15th June. Every citizen of India are empowered to seek information from public authority. 2005 empowers every citizen to: · Ask any questions from the Government or seek any information. . documents. 2005. 2005. ___________ is a part of fundamental rights under Article 19 (1) of the Constitution.2005. · Free flow of information can tackle any disaster there by enables sustained development and growth. RTI Act. documents. alertness which are the major ingredients for smooth & effective functioning of public authority. District and Local self Governing Bodies like Panchyat and Municipal bodies. · Inspect any Govt. 2005 Right to Information Act.
Self Assessment Questions 3. In all these years. 1891. (ii) to facilitate electronic filing of documents with the government agencies. India enacted the IT Act and became part of a select group of countries to have put in place cyber laws.5 Objectives of the Act The objectives of the Act as reflected in the preamble to the Act are: (i) to provide legal recognition for transactions carried out by means of electronic data interchange and other means of electronic communication. The Indian IT Act also needs to evolve with the rapidly changing technology environment that breeds new forms of crimes and criminals.4 Information Technology Act In May 2000. Information Technology Act apply more than 43 countries in the world. (iv) to amend the Indian Penal Code. This is because India does not have reciprocity and extradition treaties with a large number of countries. The Indian IT Act also needs to evolve with the rapidly changing technology environment that breeds new forms of crimes and criminals. A major hurdle in cracking down on the perpetrators of cyber crimes such as hacking is the fact that most of them are not in India. commonly referred to as “electronic commerce”. as they don’t want to get negative publicity or worse get entangled in legal proceedings. the Banker’s Books Evidence Act.. Self Assessment Questions 5. The prime reason for this is the fact that the IT Act is a set of technical laws. any material which is obscene in electronic form with imprisonment for a term which may extend to two years and with fine which may extend to twenty five thousand rupees on first convection and in the event of second may extend to five years and also with fine which may extend to fifty thousand rupees. cyber nuisance. 1872. 13. 1934. only less than 25 cases have been registered under the IT Act 2000 and no final verdict has been passed in any of these cases as they are now pending with various courts in the country. which have not been addressed in the IT Act. (iii) to facilitate electronic storage of data in place of paper-based methods of storage of data. it still has an element of mystery around it. which involves the use of alternatives to paper-based methods of communication and storage of information. We are now beginning to see new categories and varieties of cyber crimes. the Indian Evidence Act. 2000. at the height of the dot-com boom. Another major hurdle is the reluctance on the part of companies to report the instances of cyber crimes. The above provision chiefly aim at curbing the increasing number of child pornography cases and does not encompass other crimes which could have been expressly brought within its ambit such as cyber defamation. This includes cyber stalking. but such powers are largely inefficient. Although the law came into operation on October 17. cyber harassment. law enforcing agencies and even the judiciary. RTI ____________ transparency & credibility of public authority. and the Reserve Bank of India Act. Though Section 67 of the Information Technology Act. it does not expressly talk of cyber defamation. cyber defamation and the like. Effective information flow helps citizen to secure their ______________ and _____________. (True/False) 6. but also from the perception of lawyers. (True/False) 13. despite the growing crime rate in the cyber world. The IT Act does give extraterritorial jurisdiction to law enforcement agencies. 4. 2000 provides for punishment to whoever transmits or publishes or causes to be published or transmitted. Not only from the perception of the common man. and .
generally smaller set known as “hash result” such that an electronic record yields the same hash result every time the algorithm is executed with the same electronic record as its input making it computationally infeasible (a) to derive or reconstruct the original electronic record from the hash result produced by the algorithm. 1925 including any other testamentary disposition by whatever name called. 1881. (vi) any such class of documents or transactions as may be notified by the Central Government in the Official Gazette. (ii) a power-of-attorney as defined in Sec. The “hash function” means an algorithm mapping or translation of one sequence of bits into another. 13.6 Commencement and Application It extends to the whole of India and save as otherwise provided in this Act.2(h) of the Indian Succession Act. A trust is defined in the _________________. Self Assessment Questions 7. Authentication is a process used to confirm the identity of a person or to prove the integrity of information. 8.13 of the Negotiable Instruments Act. IT Act provides legal recognition for transactions carried out by means of __________ and other means of __________________.3 of the Indian Trust Act. (b) that two electronic records can produce the same hash result using the algorithm. (iv) a will as defined in Sec. Self Assessment Questions 9. The authentication of message involves determining its source and verifying that it has not been modified or replaced in transit.7 Digital Signature Authentication of electronic records. (v) any contract for the sale or conveyance of immovable property or any interest in such property. 1882. This Act is not applicable to the following: (i) a negotiable instrument (other than a cheque) as defined in Sec. 13. IT Act facilitates electronic storage of data in place of ____________ methods of storage of data. Subject to the provisions of section 3 any subscriber may authenticate an electronic record by affixing his digital signature. 1882. it applies to any offence or contravention thereunder committed outside India by any person. RTI extends to _____________ of India. (iii) a trust as defined in Sec. Self Assessment Question .(v) to provide for matters connected therewith or incidental thereto.1A of the Power of Attorney Act. 10.
The expression “signed” as used above shall. body or agency owned or controlled by the appropriate Government in a particular manner.3 Security procedure (Sec.9. 13.5) Where any law provides that information or any other matter shall be authenticated by affixing the signature or any document shall be signed or bear the signature of any person then. as the case may be. (b) capable of identifying such subscriber. grant. then such digital signature shall be deemed to be a secure digital signature. with reference to a person. then such record shall be deemed to be a secure electronic record from such point of time to the time of verification. is effected by means of such electronic form as may be prescribed by the appropriate Government. notwithstanding anything contained in such law. (c) created in a manner or using a means under the exclusive control of the subscriber and is linked to the electronic record to which it relates in such a manner that if the electronic record was altered the digital signature would be invalidated.14 to 16] 13.1 Legal recognition of electronic records (Sec.9 Secure Electronic Records and Secure Digital Signatures [Secs.6) Where any law provides for the following: (a) the filing of any form. at the time it was affixed. such requirement shall be deemed to have been satisfied if such filing. (True/False) 13.8. means affixing of his handwritten signature or any mark on any document and the expression “signature” shall be construed accordingly. it can be verified that a digital signature.3 Use of electronic record and digital signatures in government and its agencies (Sec. sanction or approval by whatever name called in a particular manner.2 Legal recognition of digital signatures (Sec. if such information or matter is authenticated by means of digital signature affixed in such manner as may be prescribed by the Central Government.16) . by application of a security procedure agreed to by the parties concerned.8. 13. receipt or payment. 13. then notwithstanding anything contained in such law. such requirement shall be deemed to have been satisfied. then.9.15) If.4) Where any law provides that information or any other matter shall be in writing or in the type.8.2 Secure digital signature (Sec. (c) the receipt or payment of money in a particular manner. was – (a) unique to the subscriber affixing it.8 Electronic Governance [Secs. (b) the issue or grant of any licence. and (b) accessible so as to be usable for a subsequent reference. such requirement shall be deemed to have been satisfied if such information or matter is (a) rendered or made available in an electronic form. written or printed form. 13. permit. Authentication is not a process used to confirm the identity of a person. Self Assessment Question 12.14) Where any security procedure has been applied to an electronic record at a specific point of time.1 Secure electronic record (Sec. application or any other document with any office.9. issue.4 to 16] 13. 13. Legal recognition of electronic records come under _____________. authority.11.
10. 13. 184.108.40.206 Representations upon issuance of digital signature certificate (Sec. (True/False) 13. known as the presiding officer and be appointed. (c) the volume of similar transaction engaged in by other parties. Secure digital signature come under __________________. (b) the level of sophistication of the parties with reference to their technological capacity.11.3 Revocation of digital signature certificate (Sec.10 Digital Signature Certificates [Secs. Such an application is to accompany such fee not exceeding Rs 25000 as may be prescribed by the Central Government. by notification.The Central Government shall for the purposes of this Act prescribe the security procedure having regard to commercial circumstances prevailing at the time when the procedure was used.1 Establishment of cyber appellate tribunal (Sec.35 to 39] 13.1 Certifying authority to issue digital signature certificate (Sec.36) A Certifying Authority while issuing a Digital Signature Certificate shall certify that: (a) it has complied with the provisions of this Act and the rules and regulations made thereunder. and (f) it has no knowledge of any material fact. and (f) the procedures in general use for similar types of transactions or communications. by the Central Government.11. (True/False) 15. if it had been included in the Digital Signature Certificate would adversely affect the reliability of the representation made in (a) to (d) above.35) Any person may make an application to the Certifying Authority for the issue of a Digital Signature Certificate in such form as may be prescribed by the Central Government. A Certifying Authority may not revoke a certificate. establish one or more appellate tribunals to be known as the Cyber Regulations Appellate Tribunal.2 Composition of cyber appellate tribunal (Sec. 13.48) The Central Government shall.11 Cyber Regulations Appellate Tribunal 13. . Self Assessment Questions 14. (e) the cost of alternative procedures. listed in the Digital Signature Certificate. or (c) upon the dissolution of the firm or winding up of the company where the subscriber is a firm or a company. 13. which.38) A Certifying Authority may revoke a certificate issued by it: (a) where the subscriber or any other person authorised by him makes a request to that effect. including – (a) the nature of the transaction. Any person may make an application to the Certifying Authority for the issue of a Digital Signature Certificate. (d) the availability of alternatives offered to but rejected by any party. (c) the subscriber holds the private key corresponding to the public key. to be paid to the Certifying Authority. (e) the information contained in the Digital Signature Certificate is accurate.49) The Tribunal shall consist of one person only. Self Assessment Question 13. by notification. (d) the subscriber’s public key and private key constitute a functioning key pair. or (b) upon the death of the subscriber. (b) it has published the Digital Signature Certificate or otherwise made it available to such person relying on it and the subscriber has accepted it.
no such appeal shall lie from an order made by an adjudicating officer with the consent of the parties. 13.8 Staff of the cyber appellate tribunal (Sec. no act or proceeding before the Tribunal shall be called in question on the ground merely of any defect in the constitution of the Tribunal.11. These employees and officers shall discharge their functions under general superintendence of the Presiding officer. gratuity and other retirement benefits of the presiding officer shall be such as may be prescribed. However. confirming. or is qualified to be. 13. or has been. However.59) The appellant may either appear in person or authorise one or more legal practitioners or any of its officers to present his or its case before the Tribunal.55) No order of the Central Government appointing any person as the presiding officer shall be called in question. 13. 13. allowances and other terms and conditions of service of presiding officer (Sec.3 Qualifications for appointment as presiding officer of the tribunal (Sec.51) The Presiding officer shall hold office for a term of 5 years from the date on which he enters upon his office or until he attains the age of 65 years. 13. whichever is earlier. Also. by order. 13.54) The Presiding officer may by notice in writing addressed to the Central Government. or (b) is or has been a member of the India Legal Service and is holding or has held a post in Grade I of that service for at least 3 years. may. a judge of a High court.5 Salary. 13.11.60) .10 Procedure and powers of the tribunal (Sec. neither the salary and allowances nor the other terms and conditions of service of the Presiding officer shall be varied to his disadvantage after appointment. 13.11. the Tribunal shall have powers to regulate its own procedure including the place at which it shall have its sittings.4 Term office (Sec.58) The Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure. after giving the parties an opportunity of being heard.11. Further.11.11.11. and the other terms and conditions of service including pension.50) A person shall not be qualified for appointment as Presiding officer unless he: (a) is.11.56) The Central Government shall provide the Tribunal with such officers and employees as that Government may think.11 Right to legal representation (Sec. resign his office. it shall be guided by the principles of natural justice and subject to the other provisions of this and of any rules.52) The salary and allowances payable to.11. 13. Every appeal shall be filed within a period of 45 days from the date on which a copy of the order made by the controller or the adjudicating officer is received by the person aggrieved. the Tribunal may.57) Any person aggrieved by an order made by controller or an adjudicating officer may prefer an appeal to the Tribunal.11. remove the Presiding officer on the ground of proved misbehaviour or incapacity. The Central Government.6 Resignation and removal (Sec.7 Orders constituting appellate tribunal to be final and not to invalidate its proceedings (Sec. Instead.12 Limitation (Sec. modifying or setting aside the order appealed against. pass such orders thereon as it thinks fit.13. On receipt of an appeal.9 Appeal to cyber regulations appellate tribunal (Sec.
12 Offences [Secs. Right to legal representation comes under ______________.67) Whoever publishes or transmits or causes to be published in the electronic form.12. as for as may be. destroy or alter any computer source code used for a computer. 1963 shall.63) Any contravention under this Part may. or with fine which may extend up to Rs 2 lakh.15 Compounding of contraventions (Sec. no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act.66) Whoever with the intent to cause or knowing that he is likely to cause wrongful loss or damage to the public or any person destroys or deletes or alters any information residing in a computer resource or diminishes its value or utility or affects it injuriously by any means. Self Assessment Questions 16. The expression “computer source code” means the listing of programs. to read. 13.12. 13. any material which is lascivious or appeals to the prurient interest or if its effect is such as to tend to deprave and corrupt persons who are likely.14 Appeal to high court (Sec.61) No court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which an adjudicating officer or the Tribunal is empowered to determine.The provisions of the Limitation Act. 13. shall be punishable with imprisonment up to 3 years. design and layout and program analysis or computer resource in any form. 13. shall be punished on first conviction with imprisonment of either description for a term which may extend to 5 years or with fine which may extend to Rs 1 lakh. . Every appeal shall be filed within a period of 45 days from the date on which a copy of the order made by the controller or the adjudicating officer is received by the person aggrieved.11.62) Any person aggrieved by any decision or order of the Tribunal may file an appeal to the High Court within 60 days from the date of communication of the decision or order to him on any question of fact or law arising out of such order. (or computer program. destroys or alters or intentionally or knowingly causes another to conceal. or computer system or computer network). However. apply to an appeal made to the Tribunal. commits hacking.65) Whoever knowingly or intentionally conceals. see or hear the matter. either before or after the institution of Adjudication proceedings. computer commands. The benefit of compounding shall not be available to a person who commits the same or similar contravention within a period of 3 years from the date on which the contravention was previously compounded.13 Civil court not to have jurisdiction (Sec. 13.1 Tampering with computer source document (Sec.65 to 78] 13. In the event of a second or subsequent conviction the imprisonment may extend to 10 years and the fine may extend to Rs 2 lakh. such sum shall not exceed the maximum amount of the penalty which may be imposed for the contravention so compounded. Further. when the computer source code is required to be kept or maintained by law for the time being in force.12.11. be compounded by the controller or the adjudicating officer.3 Publishing of information which is obscene in electronic form (Sec. 13. or with both.2 Hacking with computer system (Sec. (True/False) 17.11. as the case may be.
12. or with fine which may extend to Rs 1 lakh.70) The appropriate government may declare any computer.12. Any person who fails to comply with any such order shall be guilty of an offence and shall be liable on conviction to imprisonment for a term not exceeding 3 years or to a fine not exceeding Rs 2 lakh or both. 13. register. In such a case.12. computer system or computer network located in India. information. rules or any regulations made thereunder.68) The controller may. direct a Certifying Authority or any employee of such authority to take such measures or cease carrying on such activities as specified in the order if those are necessary to ensure compliance with the provisions of the Act.6 Protected system (Sec.12 Confiscation (Sec.75) The provisions of this Act shall apply also to any offence or contravention committed outside India by any person irrespective of his nationality.5 Directions of controller to a subscriber to extend facilities to decrypt information (Sec.74) Whoever knowingly creates. friendly relations with foreign states or public order or for preventing incitement to the commission of any cognizable offence. 13.12.71) Whoever makes any misrepresentation to. 13. for reasons to be recorded in writing by order. or (b) the subscriber listed in the certificate has not accepted it. 13. shall be punished with imprisonment for a term which may extend to 2 years. 13. 13. 13. 13. direct any agency of the government to intercept any information transmitted through any computer resource. or (c) the certificate has been revoked or suspended unless such publication is for purpose of verifying a digital signature created prior to such suspension or revocation.72) Any person. the controller or the certifying Authority for obtaining any licence or Digital Signature Certificate. or suppresses any material fact from. computer system or computer network to be a protected system. or with fine which may extend to Rs 1 lakh. or with fine which may extend to Rs 1 lakh. and he. discloses the same to any other person shall be punished with imprisonment for a team which may extend to 2 years.10 Publication for fraudulent purpose (Sec. it is necessary that the act or conduct constituting the offence or contravention involves a computer.12.12. the security of the state. Any person who secures access or attempts to secure access to a protected system without authority from the appropriate government shall be punished with imprisonment of either description for a term which may extend to 10 years and shall also be liable to fine.12. book. publishes or otherwise makes available a Digital Signature Certificate for any fraudulent or unlawful purpose shall be punished with imprisonment for a team which may extend to 2 years.13. then he shall be punished with an imprisonment for a term which may extend to 7 years. For this application. (empowered under the Act) who has secured access to any electronic record.12. or with both.9 Penalty for publishing digital signature certificate false in certain particulars (Sec. or with both. correspondence. If he fails to provide the necessary assistance.11 Act to apply for offence or contravention committed outside India (Sec.7 Penalty for misrepresentation (Sec.73) No person shall publish a Digital Signature Certificate or otherwise make it available to any other person with the knowledge that (a) the Certifying Authority listed in the certificate has not issued it.76) . the subscriber or any person in charge of the computer resource shall extend all facilities and technical assistance to decrypt the information. without the consent of the person concerned.4 Power of the controller to give directions (Sec. or with both.12. document or other material.69) If the controller is satisfied that it is necessary or expedient so to do in the interest of the sovereignty or integrity of India. by order. It may authorise persons to have access to the protected system.8 Breach of confidentiality and privacy (Sec.
000 per mark against the guilty parties.Any computer.12. order or regulations made thereunder has been or is being contravened. (True/False) 13. Thus under IT Act. 1957. The IT Act makes no provision for jurisdictional aspects of electronic contracts. neither any protection for domain names nor action against cybersquatting is available. No person shall publish a Digital Signature Certificate.13 Shortcomings of the Information Technology Act. 2000 is silent as regards taxation of goods and services traded through e-commerce. 13. as it provides for the levy of damages upto US$ 300. Self Assessment Questions 18. The Act does not address itself to internet related issues such as domain names and cyber squatting. a police officer not below the rank of Deputy Superintendent of Police shall investigate any offence under this Act. trusts. The non-applicability of the Act to negotiable instruments would result in e-commerce in India being limited to payment systems that are non-traditional or credit card based. No provision has been made for payment of stamp duty on electronic documents. compact disks. This Act is a powerful deterrent to cybersquatting. such as intellectual property rights. contracts for sale or conveyance of immovable property or any interest in such property. 1999. The IT Act. jurisdiction of courts and tax authorities. . In USA.. testamentary dispositions (wills). including infringement. i.13 Penalties and confiscation not to interfere with other punishments (Sec. 2. 4. 6. Hacking with computer system comes under _____________. Thus infringement of copyright on e-commerce will be governed by the Copyright Act. The Act is not applicable to negotiable instruments. (i. 19. power of attorney. however. 2000 The Act does not cover certain aspects of e-commerce.77) No penalty imposed or confiscation made under this Act shall prevent the imposition of any other punishment to which the person affected thereby is liable under any other law for the time being in force. There have arisen many disputes about domain names globally. shall be liable to confiscation.e.12. rules. floppies.78) Notwithstanding anything contained in the Code of Criminal Procedure..14 Power to investigate offences (Sec. These are: 1. in respect of which provision of this Act. In India. computer system. The banks cannot extend their services to the online medium of payments. these issues are tackled by the US Anti-Cybersquatting Consumer Protection Act.e. 13. cybersquatting can be opposed by relying on the provisions of the Trade Marks Act. 1999. tape drives or any other accessories related thereto. concurrent claims and cybersquatting. The Act deals only with the commercial and criminal areas of law as affected by information technology and do not deal with certain other issues. 3. 5. trade marks and patents). copyright.
This is used to ensure authenticity. Digital Signatures: a message signed with a sender’s private key can be verified by anyone who has access to the sender’s public key. etc.15 Terminal Questions 1. certain documents are required to be compulsory registered with competent authorities of the government. Explain available rights under RTI Act. Explain some offences in detail. Glossary Information Technology: Hardware and software that perform data processing tasks. Right to information 2. Describe the provisions as regards secure electronic records and secure digital signatures. 13. 2000 has been passed to give effect to the said resolution and to promote efficient delivery of Government services by means of reliable electronic records. 2000 was passed which is based on the __________ Model law on electronic Commerce. IT Act has been passed to promote efficient delivery of the Government services by means of reliable electronic records. The private key and the public key are unique to the subscriber and constitute a functioning key pair.Self Assessment Questions 20. storing. 4. 2000. The Controller shall be the repository of all Digital Signature Certificates issued under this Act. such as capturing. plaintext. IT Act. Hence. manipulating or displaying data. these documents are excluded. (True/False) 22. 6. Encryption: Encryption is a process of coding information which could either be a file or mail message in into cipher text a form unreadable without a decoding key in order to prevent anyone except the intended recipient from reading that data. 3. 2. 13.16 Answers Answers to Self Assessment Questions 1. retrieving. In the case of immovable property. (True/False) 21. 13. Describe the objectives of IT Act. bills of exchanges. Decryption: Decryption is the reverse process of converting encoded data to its original un-encoded form. Authentication of electronic records is a process used to confirm the identity of a person or to prove the integrity of information. True . thereby proving that the sender signed it and that the message has not been tampered with. Describe the process of digital signature certificate. transmitting. IT Act excludes the provisions related to the negotiable instruments like promissory notes.14 Summary The Information Technology Act. 2005. cheques. What do you mean by digital signature? 5.
True 7. Section 59 18.2 – Full knowledge please refer 13. True 20. False 12.4 – The objectives of the Act as reflected in the preamble to the Act: to provide legal recognition for transactions carried out by means of electronic data interchange and other means of electronic communication. True 22. 4. whole 10. True 6. False 16. enhances 4. Electronics governance 13. UNCITRAL Answers to Terminal Questions 1. . Refer 13.2. 1882 11. True 15.8 for detail. paper-based 8. 3. which involves the use of alternatives to paper-based methods of communication and storage of information. Refer 13. right. True 17. 2. Section 66 19. electronic data interchange. Refer 13. Section 15 14. Refer 13.3. True 21. commonly referred to as “electronic commerce”. entitlement 5. electronic communication 9.7 and 13. Indian Trust Act.7 – Authentication is a process used to confirm the identity of a person or to prove the integrity of information.
6. Coleman & Co.) MB0051-Unit-14-The Patents Act Unit-14-The Patents Act Structure: 14. one against Steven S Lalwani and the second against Long Distance Telephone Company who had got sites registered as "theeconomictimes.8) Provisional and complete specification (Sec. The complainant claimed that the registration and use of the domain names by Lalwani and the Long Distance Telephone Company was in bad faith.8 Restoration of Lapsed Patents . Refer 13.com" and "thetimesofindia.9) Contents of specification (Sec.1 Introduction Objectives 14. held two domain names "economictimes. Refer 13.6) Form of application (Sec.com" for its respective newspapers ‘The Economic Times’ and ‘The Times of India".6 Grant of Patents and Rights Conferred Thereby 14. The traffic to these sites was redirected to other sites of Lalwani and the Long Distance Telephone Company.4 Representation and Opposition Proceedings 14.7) Information and undertaking regarding foreign applications (Sec.10 – Any person may make an application to the Certifying Authority for the issue of a Digital Signature Certificate in such form as may be prescribed by the Central Government.2 Inventions not Patentable 14.3 Applications for Patents Persons entitled to apply for patents (Sec.com" and "timesofindia. Ltd. Ltd.7 Patents of Addition 14. The defendants suggested that any misleading impression would be dispelled by the different design of the website. Mini-case Bennett.com". Question What should be the court order in this case in your opinion? (Hint: Court give decision in favour of Bennet Coleman & Co. Coleman & Company filed two complaints.5.12 for detail.10) 14.5 Provisions for Secrecy of Certain Inventions 14. The Bennett.
14.1 Introduction In the earlier units. 2005. The Patents (Amendment) Act 1999 had. commencing from January 1. The Act came into force from 21st September. The 1970 Act was amended in 1999 and 2002 to meet India’s obligations under the Agreement of Trade Related Aspects of Intellectual Property Rights (TRIPs) which forms part of the agreement establishing the World Trade Organisation (WTO).11 Summary 14. due from January 1. 1970 extends to the whole of India. 1995. Objectives After studying this unit.9 Compulsory Licenses 14. In this unit you will study about the Patents Act. . 2004. Consequently. Budapest treaty: It means the Budapest Treaty on the International Recognition of the Deposit of Micro-organisms for the purposes of Patent procedure done at Budapest on 28 April. The Patents Act. 1970. the law was required to be amended further in respect of India’s obligations under the TRIPs Agreement. provided for the modalities for a 10-year transition facility (which India had negotiated at the time of its accession to the WTO). it was necessary to bring in the required amendments in time and as Parliament was not in session the President of India promulgated the Patents (Amendment) Ordinance. The amendments primarily focused on the obligations which came into force from 1st January 1995 (in respect of amendments made in 1999) and obligations which came into force from 1st January. The Act describes the procedure for the grant of patent and protects his rights against infringement. as amended and modified from time to time. 2004 on December 26. you should be able to: · Define patents · Describe application of patents · Explain provisions of secrecy of certain inventions · Describe lapsed patents restoration Definitions and Interpretations The Act defines certain expressions used therein.12 Terminal Questions 14. you came to know about the law of Company act and information related laws. 2000 (in respect of amendments notified in 2002). inter alia. India as joined the Budapest Treaty and its provisions are applicable to India.10 Suits Concerning Infringements of Patents 14. As a consequence. 1977. Assignee: It includes an assignee of the assignee and the legal representative of a deceased assignee and references to the assignee of any person include references to the assignee of the legal representative or assignee of that person.13 Answers 14. The objective is to protect the intellectual property rights of a person to whom the patent has been granted.
Application for a patent made by a foreign national is known as ________________. Design and Trade Marks. any right in respect of the patented invention. Convention application: It means an application for a patent made by a foreign national of a convention country. or (iii) by a Government company as defined in Sec. And “exclusive licensee” shall be construed accordingly. . Capable of industrial application: In relation to an invention. Convention country: It means that country or a country which is member of a group of countries or a union of countries or an intergovernmental organization referred to as a convention country in Sec.617 of the Companies Act. Self Assessment Questions 1. or on the licensee and persons authorised by him. Government undertaking: It means any industrial undertaking carried on (i) by a department of the Government. Invention: It means a new product or process involving an inventive step and capable of industrial application. Patent cooperation treaty: It means the patent cooperation treaty done at Washington on 19 June 1970 as amended and modified from time to time. Patented article and Patented process: It mean. Patentee: It means the person for the time being entered on the register as the grantee or proprietor of the patent. Exclusive licence: It means a licence from a patentee which confers on the licensee.e. Patent Agent: It means a person for the time being registered under this Act as a patent agent. It also includes the any institution which is financed wholly or for the major part by the government. It provides that any country. convention or arrangement to which India is also a signatory or party and which affords to the applicants for patents in India or to citizens of India similar privileges as are granted to its own citizens in respect of the grant of patents and protection of patent rights shall be a convention country. Opposition board: It means an opposition board constituted under Sec. to the exclusion of all other persons (including the patentee). i. respectively. or (ii) by a corporation established by a Central or State Act which is owned or controlled by the Government. 1956. International application: It means an application for patent made in accordance with the Patent Cooperation Treaty.25 by the controller to examine the opposition to the patent granted and submit its report to the controller.Controller: It means the Controller General of Patents. means that the invention is capable of being made or used in an industry.. Patent: It means a patent for any invention granted under this Act.133. Convention country: The expression convention country is defined in Sec. Inventive step: It means a feature of an invention that involves technical advance as compared to the existing knowledge or having economic significance or both and that makes the invents not obvious to a person skilled in that art.133. an article or process in respect of which a patent is in force. 2. the subject matter has not fallen in public domain or that it does not form part of the state of the art. New Invention: It means any invention or technology which has not been anticipated by publication in any document or used in the country or elsewhere in the world before the date of filing of patent application with complete specification. regional or bilateral treaty. ____________ is a new product or process involving an inventive step and capable of industrial application. which is a signatory to an international.
3 – 5 deal with this topic.7) Every application for a patent shall be for one invention only.6) A patent application can be made by (a) any person claiming to be the true and first inventor of the invention. Every international application under the patent cooperative treaty for a patent. as may be filed designating India. (h) any process for the medicinal. The application is to be made in the prescribed form (available in the patent office). (d) the mere discovery of any new property or new use for a known substance or of the mere use of a known process. the primary or intended use or commercial exploitation of which would be contrary to public order or morality or which causes serious prejudice to human. curative. An invention which claims something obvious or contrary to the well established natural laws cannot be ________________. (f) the mere arrangement or re-arrangement or duplication of known devices each functioning independently of one another in a known way.3. are not patentable: (a) an invention which is frivolous or which claims anything obvious or contrary to the well established natural laws. (e) a substance obtained by a mere admixture resulting only in the aggregation of the properties of the components thereof or a process for producing such substance. surgical. and is to be filed in the patent office. (c) the mere discovery of a scientific principle or formulation of an abstract theory.3.3 lists the following as not being inventions within the meaning of the Act and therefore.14. diagnostic. 4. machine or apparatus unless such known process results in a new product or employs at least one new reactant. Where an application is made by virtue of an assignment of the right to apply for a patent for the invention. shall be deemed to be an application under this Act. Self Assessment Questions 3. animal or plant life or health or to the environment. 14. (b) an invention.2 Form of application (Sec.1 Persons entitled to apply for patents (Sec. (g) a method of agriculture or horticulture.2 Inventions not Patentable Three sections i.6 to 11 deal with applications for patents. 14. who immediately before his death was entitled to make such an application. there shall be furnished with the application and within such period as may be prescribed after the filing of the application. _______________ of an abstract theory cannot be called as invention. or (c) the legal representative of any deceased person. Sec. or (b) any person being the assignee of the person claiming to be the true and first inventor in respect of the right to make such an application. The patent application may be made by any of the above persons either alone or jointly with any other person. prophylactic.e.3 Applications for Patents Secs. the proof of the right to make the application. . 14. therapeutic. if a corresponding application has also been filed before the Controller of India. or other treatment of human beings or any process for a similar treatment of animals to render them free of disease or to increase their economic value or that of their products..
Pre-grant opposition: A representation. Every application for a patent shall be for one invention only. Post-grant opposition: At any time after the grant of a patent but before the expiry of a period of one year from the date of publication of grant of a patent. available within any local or indigenous community in India. Opposition to grant of patent (Sec. The controller shall consider and dispose of such representation in such manner and within such period as may be prescribed. 26 and 28 deal with the matters relating to opposition to grant of patents. unless the Controller otherwise directs. on the ground of (a) patentability including novelty.3 Information and undertaking regarding foreign applications (Sec.4 Representation and Opposition Proceedings Secs. be supplied for the purpose of any specification. However. the patent shall stand amended accordingly. Every foreign application shall be accompanied by a statement setting out detailed particulars of such application.5 Contents of specification (Sec. This section provides for pre-grant opposition procedure. 14. be deemed to form part of the specification.8) The Act makes special provisions for patent applications. . a complete specification shall be filed within 12 months from the date of filing of the application.3. 14. and shall. if the Controller may require that an application should be further supplemented by a model or sample of anything illustrating the invention. oral or otherwise. the foreign patent-applicant is required to give an undertaking that he would keep the Controller informed in writing of the details and development in any patent application filed outside India. in any particular case.25. inventive step and industrial applicability. the application shall be deemed to be abandoned. Self Assessment Questions 5. if the Controller so requires. Drawings may.10) A description of the invention is called the ‘specification’. (True/False) 6. 14. such model or sample shall not be deemed to form part of the specification. by way of opposition. The controller is empowered to order either to maintain or to amend or to revoke the patent on the recommendation of the opposition board.9) Where an application for a patent (not being a convention application or an application filed under the patent cooperation treaty designating India) is accompanied by a provisional specification. or (b) nondisclosure or wrongful mentioning in the complete specification. Contents of specification comes under ………………. If the complete specification is not so filed. Further. It should describe the invention and begin with a title sufficiently indicating the subject matter to which the invention relates. any person interested may give notice of opposition to the controller on the same eleven grounds. Further. and post-grant opposition procedure for revocation of a patent. can be made to the controller where an application for a patent has been published but a patent has not been granted. Any drawings so supplied shall.25).3. The application for grant of a patent can be opposed on any one or more of the following grounds only: (a) the applicant had wrongfully obtained the complete invention or a part thereof from a person under or through whom he claims. In the case of the post-grant opposition the controller shall constitute an ‘opposition board’ to dispose off the opposition and lay down the procedure for conducting the examination of such opposition by the board.3.4 Provisional and complete specification (Sec. source and geographical origin of biological material used in the invention and anticipation of invention by the knowledge.14. If the specification or other documents are amended by the order of the controller.
(c) the invention has been the subject matter of a prior claim in an application which is prior in time than the applicant’s claim. (e) the invention as claimed by the applicant in his complete specification is obvious and does not involve any inventive step.6 Grant of Patents and Rights Conferred Thereby . (d) the invention as claimed in the complete specification was publicly known or publicly used in India before the applicant’s claim. If the invention. then he may give directions for prohibiting or restricting the publication of information with respect to the invention or the communication of such information.(b) the invention has been published before the priority date of the claim in any (i) Indian specification or (ii) other document in India or else where. it appears to the Controller that the invention is one of a class notified to him by the central government as relevant for defence purpose.8 or has furnished the information which in any material particular was false to his knowledge. is relevant for defence purposes or atomic energy. Residents not to apply for patents outside India without prior permission (Sec. the application for patent shall be deemed to have been abandoned and the patent granted. The controller is empowered to order either to maintain or to amend or to revoke the patent on the recommendation of the opposition board. except under the authority of a written permit by the controller. and (b) either no direction has been given under Sec. However the Controller shall revoke the directions if the central government feels that the publication of the invention would no longer be prejudicial to the defence of India. then the controller shall not grant permit without the prior approval of the central government.5 Provisions for Secrecy of Certain Inventions Secs. Secs. if any.33 to 42 make certain provisions for secrecy of certain inventions. Self Assessment Question 7. (h) the applicant has failed to disclose to the controller the information required by Sec. Where in respect of an application for a patent.35 (regarding secrecy of certain inventions) in relation to the application in India. Self Assessment Question 8. if in respect of an application for a patent any person contravenes any direction as to secrecy given by the Controller. or all such directions have been revoked. shall be liable to be revoked. No person resident in India shall. however. (f) the invention is not patentable or its patenting is prohibited under the Act. (g) the complete specification of the applicant does not sufficiently and clearly describe the invention or the method by which it is to be performed. Further. Further. not less than six weeks before the application outside India. (True/False) 14. (True/False) 14. make application outside India for the grant of a patent for an invention unless: (a) an application for grant of a patent for the same invention has been made in India. 35 to 42 make certain provisions for secrecy of certain inventions. this section shall not apply in relation to an invention for which an application for protection has first been filed in a country outside India by a person resident outside India.39).
any patented process or product may be used for the purpose of experiment or research or imparting of instructions to pupils. the exclusive right to prevent third parties. and the term of every patent which has not expired and has not ceased to have effect. Rights of patentee. on the date of such commencement. who do not have his consent. Every patent shall be in the prescribed form and shall have effect throughout India. selling or importing for these purposes that product in India.43 to 53 deal with the grant of patents and the rights conferred on the patentee. the term of every patent granted after the commencement of the patents (amendment) Act. Where.7 Patents of Addition Secs. on the grant of the patent. 2002. Every patent shall be dated as of the date on which the application for patent was filed. 14. ______________ deal with the grant of patents and the rights conferred on the patentee.46). Grant of patents to be subject to certain conditions (Sec. Section 48 provides that the following rights are conferred on a patentee: (a) where the matter of the patent is a product.48 are subject to certain conditions. or (b) the application has not been found to be in contravention of any of the provisions of the Act. The Controller may grant the patent for the improvement or modification as a “patient of addition” the term . offering for sale. from the act of using that process. (or in the case of a body corporate. using. where the application for a patent has been found to be in order for grant of the patent and either: (a) the application has not been refused by the controller.43). shall be 20 years from the date of filling of the application for the patent. Further a patent shall be granted for one invention only.44). The date of every patent shall be entered in the Register maintained in the Patient office. extent and effect of patent (Sec. Self Assessment Question 9. Form. at any time after a patent has been sealed the patentee dies. who do not have his consent.45). Date of Patent (Sec. the same has ceased to exist before the patent is sealed) then the Controller may amend the patent by substituting for the name of that person the name of the person to whom the patent ought to have been granted.53).54 to 56 deal with patents of addition. The rights granted to a patentee under SEC. selling or importing for those purposes the product obtained directly by that process in India. Term of Patent (Sec. The government may manufacture or import the patented invention for the purpose of its own use.Secs. Subject to the provision of this act. Amendment of patent granted to deceased applicant (Sec. Grant of patents (Sec. offering for sale.47). An application may be for a patent in respect of any improvement in or modification of a patented invention (known as main invention). and from the act of using. the controller shall publish the fact that the patent has been granted and thereupon the application. from the act of making. The patent shall be granted as expeditiously as possible to the applicant. the exclusive right to prevent third parties. specification and other documents related thereto shall be open for public inspection. (b) where the subject matter of the patent is a process. Similarly. Further.
or (ii) the patented invention is not available to the public at a reasonably affordable price. Further no person shall be estopped from alleging that the reasonable requirements of the public with respect to the patented invention are not satisfied or that the patented invention is not worked in the territory of India or that the patented invention is not available to the public at a reasonably affordable price by reason of any admission made by him. Procedure for disposal of applications for restoration of lapsed patents (Sec. An application for a compulsory license can be made by any person notwithstanding that he is already the holder of a licence under the patent. then an application may be made to the Controller within 18 months for the restoration of the patent. If the Controller is satisfied that the failure to pay the renewal fee was unintentional he shall advertise the application. Where a patent has ceased to have effect by reason of failure to pay any renewal fee within the prescribed time. No renewal fee is payable for the patent of addition so long as the main patent remains in force.60 – 62 make provision as regards restoration of patents which have been lapsed. When a patent is restored. Self Assessment Question 10.60). Any person interested may oppose the restoration. An application may be for a patent in respect of any improvement in or modification of a patented invention.of the patent of addition shall run concurrently and terminate with the main patent. Rights of Patentees of lapsed patents which have been restored (Sec.84 provides as follows: 1. Application for restoration of lapsed patents (Sec.62). 2. The controller.9 Compulsory Licenses Sec. Self Assessment Question 11. 4. Self Assessment Question 12. (True/False) . whether in such a licence or otherwise or by reason of his having accepted such a licence. the rights of the patentee shall be subject to such provisions as may be prescribed. The Controller shall give to both the applicant and the opponent an opportunity of being heard before he decides the application.61). At any time after the expiration of 3 years from the date of the sealing of a patent. if satisfied that the reasonable requirements of the public with respect to the patented invention have not been satisfied or that the patented invention is not worked in the territory of India or that the patented invention is not available to the public at a reasonably affordable price. Rights of Patentees of lapsed patents which have been restored under _________________ 14. An application for a compulsory license can be made by any person notwithstanding that he is already the holder of a licence under the patent. any person interested may make an application to the controller for grant of compulsory licence on patent or any of the following grounds: (i) that the reasonable requirements of the public with respect to the patented invention have not been satisfied. or (iii) the patented invention is not worked in the territory of India.8 Restoration of Lapsed Patents Secs. may grant a licence upon such terms as he may deem fit. (True/False) 14. Every application for a compulsory licence shall contain a statement setting out the nature of the applicant’s interest together with such particulars as may be prescribed and the facts upon which the application is based. 3.
the law was required to be amended further in respect of India’s obligations under the TRIPs Agreement. However. Section 105 provides that a person may obtain a declaration from the court to the effect that the use by him of any process or the making. . ___________ deals with the subject of suits concerning infringement of patents.104 to 118 (d) Secs. Section 104 provides for the jurisdiction of a court for suits to be instituted for infringement of a patent. the foreign exporter must be duly authorized under the law to export (he need not be authorized by the patentee to sell and distribute the product). due from January 1. In other words.104 to 117 (c) Secs. The Patents (Amendment) Act 1999 had. if any as the court thinks fit) and damages or an account of profit.107A). it was necessary to bring in the required amendments in time and as Parliament was not in session the President of India promulgated the Patents (Amendment) Ordinance. This section allows import of patented commodity from anywhere in the world where it is cheaper. 2004. use or sale of an article does not constitute infringement of a patent claim even though the patentee or licensee has not alleged any infringement. Consequently. As a consequence. Assignee: It includes an assignee of the assignee and the legal representative of a deceased assignee and references to the assignee of any person include references to the assignee of the legal representative or assignee of that person. inter alia. 1995. 2000 (in respect of amendments notified in 2002). Glossary Patents: A patent for any invention granted under the patent act.14.104 to 115 deal with the subject of suits concerning infringement of patents. this provicsion is made from the user’s point of view. Foreign exporter must be duly authorized under the law of export.11 Summary The 1970 Act was amended in 1999 and 2002 to meet India’s obligations under the Agreement of Trade Related Aspects of Intellectual Property Rights (TRIPs) which forms part of the agreement establishing the World Trade Organisation (WTO).104 to 116 (b) Secs. Invention: It means a new product or process involving an inventive step and capable of industrial application. provided for the modalities for a 10-year transition facility (which India had negotiated at the time of its accession to the WTO). (True/False) 14. The amendments primarily focused on the obligations which came into force from 1st January 1995 (in respect of amendments made in 1999) and obligations which came into force from 1st January. 2005. Such type of imports are known as ‘parallel imports’ and is a powerful tool that helps in price control. and therefore the act of such import will not be considered to be an infringement of the patent. (a) Secs. Certain acts not to be considered as infringement (Sec. including an injunction (subject to such terms.10 Suits Concerning Infringements of Patents Secs. 2004 on December 26. even though it is patented here.104 to 115 14. commencing from January 1. Section 106 empowers the court to grant relief in cases of groundless threats of infringement. Self Assessment Questions 13.
Secs. False 9. 14. True 6. Invention 3. True 8. Section 10 7. Describe the procedure for obtaining a patent. True . Convention application 2. True 11.Patentee: It means the person for the time being entered on the register as the grantee or proprietor of the patent. Write short notes on: (a) Revocation of patents (b) Register of patents (c) Relief for infringement 14. What do you mean by Patent? 2. True 13.13 Answers Answers to Self Assessment Questions 1. Mention the inventions which are not patentable under the Act. Describe the provisions as regards examination of application for the grant of a patent. 3.12 Terminal Questions 1. 5.43 to 53 10. 4.62 12. patented 4. Formulation 5. Sec.
(d) Answers to Terminal Questions 1. and schizophrenia. Suven has a total of seven granted EPO patents on new chemical entities.3 – Secs. 2022. Mr Venkat Jasti.2 Copyright.1 Introduction Objectives 15. The granted claims of the patents include therapeutic agents. Refer 14. it added. For detail please refer full unit. 2. These patents are exclusive intellectual property of Suven and are achieved through internal discovery research efforts. respectively. and 2024.2 – for more detail 4.43 to 53 deal with the grant of patents and the rights conferred on the patentee. parkinson. 3. 5.13) Meaning of copyright (Sec.EP1537113. useful in the treatment of neurodegenerative disorders like alzheimer’s.6 – Secs.6 to 11 deal with applications for patents.1 – Patent means a patent for any invention granted under the patent Act. "The company gets three patents . Refer 14.) MB0051-Unit-15-The Copyright Act Unit-15-The Copyright Act Structure 15. Mini-case Suven Life Sciences said the European Patent Office (EPO) has issued three patents to its chemical entities which are used in treating nerve disorders. EP1704154 and EP1856132 and the said are valid until 2023. Refer 14. the filing added.14.14) . said. "We are very pleased by the grant of these patents to Suven by EPO for our pipeline of molecules in central nervous system arena that are being developed for cognitive disorders. Refer 14. its Ownership and Term Works in which copyright subsists (Sec." Suven said in a filing to the Bombay Stock Exchange. Question What is the importance of these patents to Suven? (Hint: Its no one involved in the same patent. With these new patents." the company CEO.
4 Copyright Societies Registration of a copyright society (Sec. 1992 and 1994 primarily to bring the Indian law in conformity with the international conventions in general and Bern Convention and the Universal Copyright Convention in particular.7 Infringement of Copyright 15.31A) Licence to produce and publish translation (Sec. 1984. The law relating to copyright is contained in the Copyright Act.9 Summary 15. 1957. Objectives After studying this unit you should be able to: · Define copyright · Describe copyright societies . The Act has been amended in 1983. It extends to the whole of India and came into force on January 21.6 International Copyright 15.10 Terminal Questions 15.38) 15.Ownership of copyright (Sec.33) 15.37) Performer’s right (Sec.3 Licences Licence by owners of copyright Compulsory licence in works withheld from public Compulsory licence in unpublished Indian works (Sec.17) Term of copyright 15. in this unit you learn about the concept of copyright act.11 Answers 15. 1958.1 Introduction In the earlier units.32) 15. you came to know about the patent act.5 Rights of Broadcasting Organisation and of Performers Broadcasting reproduction rights (Sec.8 Civil Remedies for Infringement 15.
· Explain international copyrights · Describe civil remedies for infringement 15.2 Copyright, its Ownership and Term This part enumerates works in which copyright subsists and works in which it does not subsist. Further, it gives the meaning of copyright. Also, the term and ownership of copyright are discussed. 15.2.1 Works in which copyright subsists (Sec.13) Copyright subsists throughout India in the following classes of work: (a) original, literary, dramatic, musical and artistic works; (b) cinematograph films; and (c) sound recordings. The terms ‘literary works’, ‘dramatic work’ and ‘musical work’ have already been defined in Part -1. However, copyright shall not subsist in any work specified above (other than foreign works or works of certain international organisations) unless – (i) in the case of a published work, the work is first published in India, or where the work is first published outside India, the author was a citizen of India on the date of publication, and if dead on that date, on the date of his death; (ii) in the case of an unpublished work (other than a work of architecture), the author is at the date of making of the work, a citizen of India or domiciled in India, and (iii) in the case of a work of architecture, the work is located in India. The copyright in a cinematograph film or a sound recording shall not affect the separate copyright in any work in respect of which or substantial part of which, the film, or as the case may be, the sound recording is made. 15.2.2 Meaning of copyright (Sec.14) The term ‘copyright’ means the exclusive right, by virtue of, and subject to the provision of the Act: (a) in the case of literary, dramatic or musical work, not being a computer programme – (i) to reproduce the work in any material form including the storing of it in any medium by electronic means; (ii) to issue copies of the work to the public not being copies already in circulation; (iii) to perform the work in public, or communicate it to the public; (iv) to make any cinematograph film or sound recording in respect of the work; (v) to make any translation of the work; (vi) to make any adaptation of the work; (vii) to do, in relation to a translation or an adaptation of the work, any of the acts specified in relation to the work in (i) to (vi); (b) in the case of computer programme – (i) to do any of the acts specified in clause (a) above; (ii) to sell or give on hire, or offer for sale or hire any copy of the computer programme, regardless of whether such copy has been sold or given on hire on earlier occasions; (c) in the case of an artistic work – (i) to reproduce the work in any material form including depiction in three dimensions of a two – dimensional work or in two dimensions of a three – dimensional work; (ii) to communicate the work to the public; (iii) to issue copies of the work to the public not being copies already in circulation; (iv) to include the work in any cinematograph film; (v) to make any adaptation of the work; (vi) to do in relation to an adaptation of the work any of the acts specified in relation to the work in (i) to (iv) above; (d) in the case of a cinematograph film – (i) to make a copy of the film, including a photograph of any image forming part thereof; (ii) to sell or give on hire; or offer for sale or hire, any copy of the film, regardless of whether such copy has been sold or given on hire on earlier occasions; (iii) to communicate the film to the public. (e) In the case of a sound recording – (i) to make any other sound recording embodying it; (ii) to sell or give on hire, or offer for sale or hire, any copy of the sound recording regardless of whether such copy has been sold or given on hire on earlier occasions; (iii) to communicate the sound recording to the public. 15.2.3 Ownership of copyright (Sec.17)
The author of the work is recognised to be the first owner of the copyright therein. This is however, subject to some exceptions given below: 1. In the case of a literary, dramatic or artistic work made by the author in the course of his employment or apprenticeship under the proprietor of a newspaper, magazine or similar periodical, for the purpose of publication, the said proprietor shall be the first owner of the copyright in the work (in the absence of any agreement to the contrary) insofar as the copyright relates to the publication in the newspaper, magazine or other periodical. Except in such cases, the author will be the first owner of the copyright in the work. 2. If the photograph is taken or a painting or portrait is drawn or an engraving or cinematograph film is made on payment at the instance of any person, such person, in the absence of any agreement to the contrary, shall be the first owner of the copyright therein. 3. If a work is made in the course of the author’s employment under a contract of service or apprenticeship, the employer (not being the proprietor of a newspaper, magazine or periodical) in the absence of any agreement to the contrary, the employer shall be the first owner of the copyright therein. 4. If any person has delivered any address or speech in public, then he shall be the first owner of the copyright. However, if the address or speech is delivered on behalf of any other person, then such other person shall be the owner of the copyright therein. 5. In the case of government work, the government is the owner of the copyright in the absence of any agreement to the contrary. 6. In the case of a work made or first published by or under the direction or control of any public undertaking, such public undertaking shall, in the absence of any agreement to the contrary, be the first owner of the copyright therein. 15.2.4 Term of copyright Sec.22 provides that copyright shall subsist in any literary, dramatic, musical or artistic work (other than a photograph) published within the lifetime of the author until 60 years from the beginning of the calendar year next following the year in which the author dies. Sec.23 provides for the term of copyright in anonymous and pseudonymous works. In the case of a literary, dramatic, musical or artistic work (other than a photograph), which is published anonymously or pseudonymously, copyright shall subsist until 60 years from the beginning of the calendar year next following the year in which the work is first published. Sec.24 provides for term of copyright in posthumous works. Where copyright subsists at the date of death of the author and adaptation of which has not been published before that date, the copyright will subsist until 60 years of from the beginning of the calendar year next following the year in which the work is first published. Self Assessment Questions 1. Ownership of copyright comes under ______________. 2. Copyright means the exclusive right, by virtue of, and subject to the provision of the Act. (True / False) 15.3 Licences 15.3.1 Licence by owners of copyright Sec.30 provides that the owner of the copyright in any existing work or the prospective owner of the copyright in any future work may grant any interest in the right by licence in writing signed by him or by his duly authorised agent. But in the case of a licence relating to copyright in any future work, the licence shall take effect only when the work comes into existence. 15.3.2 Compulsory licence in works withheld from public Sec.31 provides that at any time during the term of copyright in any Indian work which has been published or performed in public a complaint may be made to the Copyright Board that the owner of copyright in the work
(a) has refused to re-publish or allow the republication of the work or has refused to allow the performance in public of the work and by reason of such refusal the work is withheld from the public; or (b) has refused to allow communication to the public by broadcast of such work or in the case of a sound recording the work recorded in such sound recording, on terms which the complainant considers reasonable. 15.3.3 Compulsory Licence in unpublished Indian works (Sec.31A) Where in the case of an Indian work, the author is dead or unknown or cannot be traced or the owner of the copyright in such work cannot be found, any person may apply to the Copyright Board for a licence to publish such work or translation thereof in any language. Before making an application, the applicant shall publish his proposal in one issue of a daily newspaper in the English language having circulation in the major part of the country and where the application is for the publication of a translation in any language, also publish his proposal in one issue of any daily newspaper in that language. 15.3.4 Licence to produce and publish translation (Sec.32) Any person may apply to the Copyright Board for a licence to produce and publish a translation of a literary or dramatic work in any language after a period of 7 years for the first publication of the work. Also, an application may be made for a licence to translate foreign literary or dramatic work, after three years from its publication. Every application shall state the proposed retail price of copy of the translation of the work.
Self Assessment Question 3. Every application shall state the proposed retail price of copy of the translation of the work (True / False) 15.4 Copyright Societies 15.4.1 Registration of a copyright society (Sec.33) No person or association of persons shall commence or carry on business of issuing or granting licences in respect of any work in which copyright subsists or in respect of any other rights conferred by this Act except under or in accordance with the registration granted by the Central Government. The Central Government may, having regard to the interests of the authors and other owners of rights under this Act, the interest and convenience of the public and in particular of the groups of persons who are most likely to seek licences in respect of the relevant rights and the ability and professional competence of the applicant, register such association of persons as a copyright society subject to such conditions as may be prescribed. However, the Central Government shall not ordinarily register more than one copyright society to do business in respect of the same class of works. The Central Government may, if it is satisfied that a copyright society is being managed in a manner detrimental to the interests of the owners of rights concerned, cancel the registration of such society after such inquiry as may be prescribed. Further, if the Central Government is of the opinion that in the interests of the owners of rights concerned, it is necessary so to do, it may suspend the registration of such society pending enquiry for such period not exceeding one year. In such a situation, the Government shall appoint an administrator to discharge the functions of the copyright society.
2 Performer’s right (Sec. This right will subsist for 25 years from the year of broadcasts.5. Payment of remuneration by copyrights society (Sec. Every copyright society shall be subject to the collective control of the owners of rights under this Act whose rights it administers. (b) obtain their approval for the utilisation of any amounts collected as fees for any purpose other than distribution to the owner of rights.35).37) Every broadcasting organisation shall have a special right known as “Broadcasting Reproduction Right” in respect of its broadcasts. During this period. any such sound recording or visual recording referred to in (c) or (d) above. Every broadcasting organisation shall have a special right known as _____________ in respect of its broadcasts. if anybody does the following acts without licence from the owner of the right. where it was licensed for any purpose not envisaged by such licence. Payment of remuneration by copyrights society come under _________. he will be deemed to have infringed the performer’s right: (a) makes a sound recording or visual recording of the performance. (True / False) 15.4A). Control over the copyright society by the owner of rights (Sec. full and detailed information concerning all its activities in relation to the administrator of their rights. The copyright society is empowered to frame a scheme for determining the quantum of remuneration payable to individual copyright owners having regard to the number of copies of the work in circulation. or offer for such sale or hire. or (d) make any reproduction of such initial recording or visual recording where such initial recording was done without licence or. does any of the following acts in respect of the performance or any substantial part thereof. Self Assessment Question 6. The society shall (a) obtain the approval of such owners of rights for its procedures of collection and distribution of fees. A copyright society may accept from an owner of rights exclusive authorisation to administer any right in any work.5. without the consent of the performer. or (b) cause the broadcast to be heard or seen by the public on payment of any charges. . or (b) reproduces a sound recording or visual recording of the performance which was made without the performer’s consent. 15. he will be deemed to have infringed the broadcast reproduction rights: (a) re-broadcast the broadcast. But he shall have the right to withdraw such authorisation without prejudice to the rights of the copyright society under the contract. Self assessment questions 4. and (c) provide to such owners regular. or (e) sell or hire to the public.Administration of rights of owner by copyright society (Sec. 5. or (c) make any sound recording or visual recording of the broadcast.34).38) If any person during the subsistence of a performer’s right.5 Rights of Broadcasting Organisation and of Performers 15.1 Broadcasting reproduction rights (Sec. The Central Government shall not ordinarily register more than one copyright society to do business in respect of the same class of works.
Sec.15. musical or artistic work in the form of a cinematograph film shall be deemed to be infringing copyright.6 International Copyright Sec. dramatic.51 provides that copyright in a work shall be deemed to be infringed in the following cases: (a) when any person without a licence from the owner or the Registrar of copyrights does anything. Self Assessment Questions 7. (ii) criticism or review. . or (ii) to make back-up copies purely as a temporary protection against loss.7 Infringement of Copyright Sec. 8. musical or artistic work in any work prepared by the Secretariat of a Legislature exclusively for the use of its members. dramatic. either for the purpose of trade or to such an extent as to affect prejudicially the owner of the work. ___________ authorises the Central Government to extend copyright protection to foreign works. for the purposes of (i) private use. magazine or similar periodical.52). the Central Government passed the copyright (International Organisations) Order (1958) under which copyright protection was granted to certain International Organisations. 1991. (b) The making of copies or adaptation of a computer programme by the lawful possessor of a copy of such computer programme. dramatic. from such copy (i) in order to utilise the computer programme for the purpose for which it was supplied. musical or artistic work for the purpose of a judicial proceeding or for the purpose of a report of a judicial proceeding. or (ii) distributes. musical or artistic work. 15. Accordingly. dramatic.41 provides that works made or published by certain International Organisations are granted copyright protection in India. This section specifies acts which do not constitute an infringement of copyright. or (ii) by broadcast or in a cinematograph film or by means of photographs. Accordingly the Central Government made the International copyright order. (iii) exhibits in public by way of trade any infringing copies of the work. ________________ provides that works made or published by certain International Organisations are granted copyright protection in India. any place to be used for the communication of the work to the public. (c) A fair dealing with a literary.40 authorises the Central Government to extend copyright protection to foreign works. whether of that work or of any other work. (e) The reproduction or publication of literary. unless he was not aware and had no reasonable ground for believing that such communication would be an infringement of copyright. including research. or permits for profit. dramatic. (Sec. Certain acts not to be infringement of copyright. not being a computer program. or (b) when any person: (i) makes for sale or hire or sells or lets for hire or by way of trade displays or offers for sale or hire any infringing copies of the work covered by copyright. musical or artistic work for the purpose of reporting current events – (i) in a newspaper. These are: (a) A fair dealing with a literary. the exclusive right to do which is by this Act conferred upon the owner of copyright. or (iv) imports into India any infringing copies of the work except the copy of any work for the private and domestic use of the importer. The reproduction of a literary. destruction or damage in order only to utilise the computer programme for the purpose for which it was supplied. (d) The reproduction of a literary.
(n) The reproduction in a newspaper. dramatic or musical work by an amateur club or society. of an unpublished literary. or (iii) in answer to such questions. dramatic or musical work in a certified copy made or supplied in accordance with any law for the time being in force. if the audience is limited to such staff and students. (ii) any Act of a Legislature subject to the condition that such Act is reproduced or published together with any commentary thereon or any other original matter. council. (s) The production or publication of a translation in any Indian language of an Act of a Legislature and of any rules or orders made thereunder (i) if no translation of such Act or rules or orders in that language has previously been produced or published by the Government. . social or religious topics. (g) The reading or recitation in public of any reasonable extract from a published literary or dramatic work. musical or artistic work (i) by a teacher or a pupil in the course of instruction. (j) The performance. in the course of the activities of educational institution of a literary. at the rate fixed by the Copyright Board in this behalf. dramatic or musical work kept in a library. as the case may be. tribunal or other judicial authority. (q) The reproduction for the purpose of research or private study or with a view to publication. or (ii) where a translation of such Acts or rules or orders in that language has been produced or published by the government if the translation is not available for sale to the public. map. magazine or other periodical of an article on current economic. mainly composed of non-copyright matter bonafide intended for the use of educational institutions and so described in the title and in any advertisement issued by or on behalf of the publisher. therein. (o) The publication in a newspaper. (r) The reproduction or publication of (i) any matter which has been published in any Official Gazette except an Act of a Legislature. the tribunal or other judicial authority.(f) The reproduction of any literary. (i) The reproduction of a literary. dramatic or musical work. political. chart or plan) by or under the direction of the person in charge of a public literary for the use of the library if such book is not available for sale in India. (iii) the report of any committee. or of a cinematograph film or a sound recording. (k) The making of sound recordings in respect of any literary. (m) The performance of a literary. and has paid in the prescribed manner to owner of rights in the work. (h) The publication in a collection. unless the author of such article has expressly reserved to himself the right of such reproduction. magazine or other periodical of a report of a lecture delivered in public. has provided copies of all covers or labels with which the sound recordings are to be sold. (ii) the person making the sound recordings has given a notice of his intention to make the sound recordings. of short passages from published literary or dramatic works. unless the reproduction or publication of such report is prohibited by the Government. or (ii) as part of the questions to be answered in an examination. royalties in respect of all such sound recordings to be made by him. sheet of music. unless the reproduction or publication of such judgment or order is prohibited by the court. if the performance is given to a non-paying audience or for the benefit of a religious institution. commission. the parents and guardians of the students and persons directly connected with activities of the institution or the communication to such an audience of a cinematograph film or sound recording. if (i) sound recording of that work have been made by or with the licence or consent of the owner of the right in the work. dramatic or musical work by the staff and students of the institution. dramatic. (iv) any judgment or order of a court. (p) The making of not more than three copies of a book (including a pamphlet. (i) in an enclosed room or hall meant for the common use of residents in residential premises (not being a hotel or similar commercial establishment) as part of the amenities provided exclusively or mainly for residents. board or other like body appointed by the Government if such report has been laid on the Table of Legislature. or (ii) as part of the activities of a club or similar organisation which is not established or conducted for profit. museum or other institution to which the public access. (l) The causing of a recording to be heard in public by utilising it.
1952. musical or artistic work in the form of a cinematograph film shall be deemed to be _______________. and (c) the name and address of the owner of the copyright in such work.55 provides that the owner of copyright can sue in the district court having jurisdiction and shall be entitled to all such remedies by way of injunction. (w) The use by the author of an artistic work where the author of such work in not the owner of the copyright therein. engraving or photograph of a sculpture.(t) The making or publishing of a painting. (c) the year of its publication. by a broadcasting organisation using its own facilities for its own broadcast by a broadcasting organisation of a work which it has the right to broadcast. No person can publish a sound recording in respect of any work unless the following particulars are displayed on the sound recording and on any container thereof. model or study made by him for the purpose of the work. . However. a copy of the certificate granted by the Board of Film Certification. Reproduction of a literary. The plaintiff shall not be entitled to any damages. accounts and otherwise as are conferred by law for the infringement of a right. dramatic or musical work or the communication to the public of such work or of a sound recording in the course of any bona fide religious ceremony or an official ceremony held by the Central Government or the State Government or any local authority. drawing. sketch. dramatic. (u) The making or publishing of a painting. (v) The inclusion in a cinematograph film of – (i) any artistic work permanently situated in a public place or any premises to which the public has access. (a) the name and address of the person who has made the sound recording. then the plaintiff shall only be entitled to an injunction and account of profit made by the defendant by the sale of the infringing copies as the court may in the circumstances deem reasonable. (za) The performance of a literary. engraving or photograph of a work of architecture or photograph of a work of architecture or the display of a work of architecture. plan. 15. (b) the name and address of the owner of the copyright in such work. Also. the following particulars are to be displayed in the video film. or (ii) any other artistic work. when exhibited. if such work is permanently situated in a public place or any premises to which the public has access. (y) In relation to literary. the exhibition of such film after the expiration of the term of copyright therein. cast. damages. if such inclusion is only by way of background or is otherwise incidental to the principal matters represented in the film. or other artistic work falling under Sec. dramatic or musical work recorded or reproduced in any cinematograph film.8 Civil Remedies for Infringement Sec. drawing. of any mould. (z) The making of an ephemeral recording. In the case of a video film in respect of any work. and the retention of such recording for archival purposes on the ground of its exceptional documentary character. it is necessary that on the video cassette or other container thereof the following particulars are shown: (a) if such work is a cinematograph film required to be certified for exhibition under the provisions of the Cinematograph Act. Sec.2(e) (iii). if the defendant proves that at the date of infringement he was not aware or had no reasonable grounds for believing that copyright subsisted in the work. (b) the name and address of the person who has made the video film and a declaration by him that he has obtained the necessary licence or consent from the owner of the copyright in such work for making such video film.52A requires certain particulars to be included in sound recording and video films. (x) The reconstruction of a building or structure in accordance with the architectural drawings or plans by reference to which the building or structure was originally constructed. Self Assessment Questions 9.
the names and addresses of authors. 1992 and 1994 primarily to bring the Indian law in conformity with the international conventions in general and Bern Convention and the Universal Copyright Convention in particular. 55. such as the right to be credited for the work. Self Assessment Questions 10. 15.40 authorises the Central Government to extend copyright protection to foreign works.71 provides that if any person is aggrieved by an order made by the court under s. by virtue of. Copyright (or ©) is a form of intellectual property which gives the creator of an original work exclusive rights for a certain time period in relation to that work. then he can file an appeal within 30 days of the date of the order to the higher appellate court – which may direct stay of execution of the order till the appeal is disposed of. any person aggrieved by any final decision or order of the Copyright Board. Copyright has been internationally standardized. 1958. the exclusive right to do which is by this Act conferred upon the owner of copyright. Secs. Describe the civil remedies available for infringement of copyright. Sec. may. Glossary Copyright: The term ‘copyright’ means the exclusive right. within 3 months from the date of such decision or order. Further. or a finite period for anonymous or corporate authorship. lasting between fifty to a hundred years from the author’s death. Sec. 1984. Some jurisdictions also recognize "moral rights" of the creator of a work. What are the provisions as regards issue of compulsory licences of copyrights? 3. It extends to the whole of India and came into force on January 21. The Act has been amended in 1983. Infringement of copyright: when any person without a licence from the owner or the Registrar of copyrights does anything. 1957. with the Copyright Board.44 provides for a Register of copyright to be kept in the copyright office. Copyright applies to any expressible form of an idea or information that is substantive and discrete. It is enforceable as a civil matter.9 Summary The law relating to copyright is contained in the Copyright Act. What is the importance and meaning of copyright? 2.72 provides that appeals against any final decision or order of the Registrar of copyright shall lie within 3 months of the date of the order. including its publication. and subject to the provision of the Act: Copyright Owner: The author of the work is recognised to be the first owner of the copyright therein. International Copyright: Sec. The reproduction of the artistic work in form of a movie is the infringement of the copyright. (True / False) 11.44 to 50 deal with the registration of copyright. (True / False) 15. . after which time the work is said to enter the public domain. appeal to the High Court. distribution and adaptation. An application can be made for a licence to translate foreign literary or dramatic work after 5 yrs from its publication.10 Terminal Questions 1.Sec. publishers and owners of copyright and certain other prescribed particulars are entered in the Register. The names or titles of the works.
3 – (Sec. True Answers to Terminal Questions 1.11 Answers Answers to Self Assessment Questions 1. 1957: (a) Artistic work (b) Cinematograph film (c) Copyright society (d) Dramatic arts 15.40 8. Refer full Unit . Define the following terms as used in the Copyright Act. Refer 15. Sec.8 – (Sec. damages. and subject to the provision of the Act) 2.7 – (Sec. Sec.7 2. True 6.2 – (The term ‘copyright’ means the exclusive right.55 provides that the owner of copyright can sue in the district court having jurisdiction and shall be entitled to all such remedies by way of injunction. True 4. Broadcasting reproduction right 7.) 3.34A 5.31 provides that at any time during the term of copyright in any Indian work which has been published or performed in public a complaint may be made to the Copyright Board that the owner of copyright in the work.) 4. Refer 15.4. Refer 15. by virtue of. accounts and otherwise as are conferred by law for the infringement of a right. What are the acts which are not infringement of copyrights? 5.41 9. False 11. Sec. Sec.51 provides that copyright in a work shall be deemed to be infringed) 5. Infringing copyright 10. Refer 15. True 3.
Question of Ethics Honesty and integrity are values that are universally upheld. one widely used solution is the `Creative Commons’ licence. directors. nearly 30. Even as conception of ideas as inviolable property is widely recognised. For a government that has recently sworn by Free and Open Source Software . Lessons for Kerala Perhaps there are some pointers for Kerala in this experience. representing producers. industry sources claim. scriptwriters and artists could honestly put their hands to their chests and swear that they had not stolen themes. the whole furore over the video/film piracy issue smacks of certain hypocrisy . including superstars such as Mammootty and Mohanlal." in which he mentions that sections of this work "have of late been mercilessly pirated.which can be used. stories and ideas from Hollywood and Bollywood. studied. marched to the State Secretariat to express gratitude and appreciation for the Left Democratic Front Government’s crackdown on piracy. scripts.000 video libraries have had to shut down. it shouldn’t be surprising that the Malayalam film industry stalwarts were shouting themselves hoarse. a kind of "copyleft" licence which turns copyright on its head by allowing users to share and distribute a creation as a propriety work so long as that same freedom is also granted to other users. This point has not been made to sound facetious. A knee-jerk crackdown on video libraries at the instigation of powerful industry interests may not be the best long-term solution. "Piracy" here refers to unauthorised reproduction and distribution of films. It can be traced back to 1879 when Alfred Tennyson made a reference to it in the preface to his poem "The Lover’s Tale. these are mundane creations of assorted political parties.the LDF ought to be exploring creative alternatives to the problem of film piracy. And so. anyone could equally be forgiven for wondering how many of the stars at the rally. the Rs 100-crore turnover industry loses Rs 40 to 50 crore annually to piracy. when the LDF Government gave the go-ahead to the State police to check piracy. Yet. Normally. especially in socially responsible business activities." ‘Huge Loss’ Such a lack of mercy is apparently dogging the Malayalam film industry. copied. but last week saw one with a far more glamorous sheen. progressive movements all over the world are now experimenting with more creative ways to deal with copyright and patent laws that will favour the common good.000 members of the Malayalam film industry. Since December 2006. distributors and technicians.Mini-Case Citizens of Thiruvananthapuram are more or less inured to the tribulations caused by sundry rallies and marches clogging the main arterial road of the city during peak hours. Questions . denouncing the venal pirates. the producers. as well as members of various film industry associations. Over 2. modified and redistributed usually free of charge . While no one can deny the need to protect intellectual property and ensure fair returns to its legitimate creators. ‘Copyleft’ Concept In the arena of artistic creation. The term itself is not new.both on the part of the Malayalam film industry and the LDF Government. if the charges of its representatives are to be believed. Today.
References & Suggested Readings · Aggarwal. Delhi. Student’s Guide to Mercantile and Commercial Laws.indialawinfo. New Delhi.C. E-reference: · http://www. Sultan Chand and Sons. Tulsian (2002). Ltd.Graw Hill Pvt. Vikas Publishing House Pvt. Ltd. (Hint: Refer basic concept of copyright) Acknowledgements. · S S. Business Law.. New Delhi. Excel Books. Business Law. How is copyright issue becoming a problem for film industry? (Due to illegal work and no proper format of work) 2. · P. Gulshan.C. (2003). Taxmann’s. 2006. Kucchal ( 2002). · M. Write a note on: ‘ Piracy and Copyrights’.1.D.com/bareacts/soga. Delhi. .. N. Elements of Mercantile Law. New Delhi · Kapoor. Rohini (2003). Business Law. Tata Mc.
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