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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
as administered by Indian courts. It is sometimes called ‘enacted law’ as it is brought into existence by getting Acts passed by the legislative body. (e) The Supreme Court. 1. It is called Statute Law because it is the writ of the state and is in written form (jus scriptum). (c) statutes and (d) personal law. Thus. “it is the uniformity of conduct of all persons under like circumstances”. In such cases. 2. 1.1.1 Primary sources of Indian law The primary sources of Indian law are: (a) customs. Mohammedan and Christians. These rules of law are known as judicial precedents. Judicial precedents are an important source of law Judicial precedents are another important source of law. the courts are required to apply the personal law of the parties. may be defined as “those rules of human action. 1. expressly or by implication. (c) The Rajya Sabha. established by usage and regarded as legally binding by those to whom the rules are applicable. In simple words. they cannot substitute their opinions for the established rule of law. in the words of Keeton. When a particular course of conduct is followed again and again. a point of issue between the parties to a dispute is not covered by any statute or custom. may be divided into two broad categories: (i) Primary sources and. (b) judicial precedents (stare decisis). (ii) Secondary sources. It is a generally observed course of conduct by people on a particular matter. Customary law Customs have played an important role in making the law and therefore is also known as customary law.3. it is the duty of the judges to follow the same. only such decisions which lay down some new rules or principles are treated as judicial precedents. In India. with people therein subject to a uniform system of law administered by some authority of the state.3. Which one of the following possess the power of supreme legislation in India: (a) The President. 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”. were there is a settled rule of law.2 Secondary sources of Indian law . A _______________ is a territorial division. made applicable. ‘Statute’ – an important source of law The statutes or the statutory law or the legislation is the main source of law. The literal meaning of this phrase is “stand by the decision”. Personal law Many times. 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. ‘Customary Law’. This is known as the doctrine of ‘stare decisis’. the Constitution empowers the Parliament and state legislatures to promulgate law for the guidance or conduct of persons to whom the statute is. (d) The Parliament. However.3 Sources of Indian Law The main sources of modern Indian Law. we follow the personal laws of Hindus. This law is created by legislation such as Parliament. (b) The Lok Sabha. Thus in certain matters. it becomes a custom.
developed to enlarge. in its application to India. Therefore. 2. has to conform to the peculiar circumstances and conditions prevailing in this country. supplement or override a narrow rigid system of existing law of the land. Justice. 1932. Statute law. the Scale of Goods Act 1930 and the Negotiable Instruments Act. (iii) The law Merchant and (iv) The Statute Law. in its technical and narrower sense. Now we shall briefly describe the main sources of English law: 1. 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. Nowadays. English law is not very important source of Indian law. These rules were known as Lex Mercatoria or the Law Merchant. Where. yet in its application our courts have to be selective. This source consists of all those unwritten legal doctrines embodying customs and traditions developed over centuries by the English courts. justice. are the guiding force behind most of the statutes in our country and the decisions of the courts. therefore. The law merchant or lex mercatoria. however. Especially. equity and good conscience In India we do not have. is superior to and can override any rule of Common Law or equity. for guidance. like the common law. The merchants.. The development of equity as a source of law occurred due to rigours and hardships of the Common Law. the principles of equity come handy to the judges who exercise their discretion often on equitable considerations. . ‘public interest’. is ‘written’ law. Even though the bulk of our law is based on and follows the English law. where law is silent on any point or there is some lacuna in a statute. Common law. 1872. The literal meaning of the term ‘equity’ is ‘natural justice’. the common law is found in the collected cases of the various courts of law and is sometimes known as ‘case law’. For example. no did we ever had separate courts (as in England) administering ‘equity’. But the equitable principles of law. However. the ‘equity’ is unwritten and is a supplement to common law as a source of law. equity and good conscience. Its evolution like that of equity can be traced to unsuitability of Common Law so far as the commercial transactions were concerned. Equity and Good Conscience. are some of the very important Acts relating to business transactions. 4. The Indian Contract Act. It can pass any law it pleases and can override its own previous Acts and the decisions of the courts. English law The chief sources of English Law are: (i) the Common Law (ii) Equity. 1882. 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. i. the greater part of the Law Merchant has been codified in India. The Statute law consists of the law passed by the Parliament and therefore. ‘equity’ means a body of legal doctrines and rules emanating from the administrations of justice. 3. ‘public policy’. 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. Thus. in statutes and by the judges in their judgements is based on principles of equity. The authority of parliament is supreme but is subject to natural limitations and those laid down by the Constitution. the Indian Partnership Act. the courts in India look to English decisions on the point. The frequent use of terms such as ’good faith’. developed certain rules based upon customs and usages to govern their mercantile transactions.The secondary sources of Indian Law are English Law and Justice.e. Equity. The English law. The Common Law was found to be unsatisfactory in dealing with disputes between merchants. therefore. Statute law.
Products supplied may be defective. which was obviously aimed at triggering off competition in the Indian economy. (c) Precedent. the Central Government gave complete freedom to Banks to fix interest rates. No society can exist without a legal order. That is why we regard rule of law as the essence of civilised society. Self Assessment Questions . the various provisions of the Companies Act. in the case of a company. (b) Custom. custom and legislation. For instance. the provisions of labour welfare laws impose a legal obligation on employers to provide certain benefits to their workers. Sometimes even the nature of the business organization itself imposes legal fetters right from the time of its formation. Law and business are closely related disciplines. We need institutions and a framework of rules and regulations to provide firmness to our mutual relations. there would be complete anarchy in society. For instance. and business which commits acts or omissions declared to be illegal is subject to sanctions. 1956 and other allied laws are to be complied with for incorporation and commencement of business. custom and precedent. There may be fines or imprisonment if the conduct is declared a crime. even when the contract does not provide therefore. Almost every aspect of business is controlled by law. Certain business practices may amount to monopolistic. law is the foundation for the regulation of all business conduct and decisions. (b) Obiter dicta. The doctrine of judicial precedent is also known as the doctrine of: (a) Stare decisis. The decision making process of business.Self Assessment Questions 3. will be guided by law. Sometimes the law may require business to provide certain facilities to its employees. 4. There may be deficiency in the service provided by business. In this way. production. Law is a major factor in business decision making. supplement or override a narrow rigid system of existing law of the land. Certain conduct is illegal. and legislation. _____________ means a body of legal doctrines and rules emanating from the administrations of justice. 5. The buying and selling. They complement each other. developed to enlarge. 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. Almost every aspect of business is regulated by law. The contracts entered into by business with others may be held to be void or may be against public policy.4 Legal Environment of Business The law is almost a universal human need. right from its very inception. 1969. 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. business people must take decisions within the framework of law otherwise sanctions will be imposed. The important sources of law are custom. It provides certainty to our relationships. precedent and legislation. It emphasizes that laws ought to be general in character so that there is no arbitrariness in their exercise. In addition. precedent. Thus. The agreement between a manufacturer and his dealers may defeat the provisions of some law or the other. marketing and other functions of the business enterprise are to be conducted within a certain framework of legal environment. 1. Without law. The sanctions may include liability for damage if the conduct amounts to a breach of contract. Their appearance in the legal history has been in the following order: (a) Legislation. Sometime ago. 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. 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. restrictive or unfair trade practices. Even the installation of a business unit itself may involve observance of some legal provision or the other. It also emphasizes complete equality before law and equal conformity to law by officials and individuals. Thus.
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;
(a) Property rights (b) Information rights (c) Personal rights (d) None 12. if at a later stage. Law must be such that one is enabled to predict with some accuracy the legal consequences of an action. As regards reasonableness of law’s coverage. 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. Self Assessment Questions 13. which one is not the source of English law? (a) Common law (b) Business law (c) Equity (d) Statute law 1. Wide publicity should be given to the law enacted so as to give an opportunity to those affected by it to know its requirements. Law must be reasonable both in its application and coverage. . business people enter into contracts on the premise that if the other party fails to keep its promise. Therefore. And. (ii) Flexibility and (iii) Reasonable application and coverage. (c) Unwritten law (d) Written law. 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. and consequences for non-compliance of those requirements. Activity 3: Suggest your overview on “The right has a source either in a contract. For example. 11. the subject matter thereof must be considered reasonable by the people at large. or in a customs. These are: (i) Predictability.7 Essentials of Law There are certain essentials which must be present in law in order to make it effective. The Indian Legal System handles cases in two separate ways _______________ and criminal. then it must accommodate them by amendments thereto. Law must be flexible enough to meet changing conditions. the old doctrine of “ignorance of law is no excuse” stands on its own feet. The world is changing. New inventions are being made. they would have certain remedies under the law. a law that a large number of persons consider to be unreasonable will soon become ineffective.(b) Both written and unwritten law. Out of the following. it is found that the existing law is incapable of tackling certain changes. However. or in natural law”.
Private law include (a) Family laws (b) Law of property (c) Law of contract (d) All of the above 15. Joint Stock Company along with the rationale for adopting these forms are explored. IPR stands for (a) Intellectual Promising Rights (b) Intellectual Property Rights (c) Indian Property Rights (d) International Property Rights 1.8 Summary Business laws are essential for the students of management to understand the legal rules and aspects of business. Public Limited Company. Just like any other study even business management is incomplete without a proper study of its laws. 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 . including some forms unique to India like the Joint Hindu Undivided Family firm. All the following laws include in public law EXCEPT a) Criminal law b) Constitutional law c) Law of tort d) Municipal law 16. Any form of business needs legal sanction.(a) Business law (b) Personal law (c) Substantive law (d) Civil law 14. Partnership. it is imperative that a manager understands the various ways in which businesses can be organized. This subject introduces some of the common forms of business organizations. Private Limited Company. Therefore. Different types of organizations like Sole Ownership.
Equity: It refers to that branch of the English law which developed separately from the common law. with people therein subject to a uniform system of law administered by some authority of the state. 3.10 Answers Answers to Self Assessment Questions 1. “The study of law is not limited to learning legal rules. 1. What are the nature and significance of business law? 5. Complement 7. sources 9. Law: Law is a body of principles recognized and applied by the state in the administration of justice. (d) 2. right or wrong. The legal constraints tend to control or limit the discretion of the business on the grounds that. Absolute rights cannot be conferred in the modern society. (a) 4. (c) . business entities 10.English Common Law: English common law is a system of law based upon English customs. is protected by law. State 3. Equity 6. knowledge of the legal environment of business is very necessary”. Law 8.” Explain 6. State: A state is a territorial division. (b) 5. usages and traditions which were developed over centuries by the English Courts. 1. Describe its (i) Objectives (ii) Legal provisions (iii) Impact on business and society.9 Terminal Questions 1. Comment. 2. “Possession. You must have come across some law or the other which has either been amended or enacted recently. 4. What are the sources of Indian law? Discuss any one important source of law and justify why it is important. Comment. Statute Law: The statute law refers to the law laid down in the Acts of Parliament.
. Enron cannot be blamed for government policies. Refer 1. There was total transparency at every stage of negotiation.” 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. Some of the counts on which the project was criticised were: (i) the social and environmental aspects of the project. (ii) the alleged bribes paid by Enron. Naturally. (iii) the high cost of the project. Mini-case The Enron Development Corporation of USA. (b) Answers to Terminal Questions 1. Refer 1. when it threw out a petition filed against the project by one of the leaders of BJP. Question Describe various reasons behind the increment in cost of Enron plant in Maharashtra. Refer 1. 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 1.2 – How legal provisions affect the business what are their objectives. 3.3 – The main sources of modern Indian Law. may be divided into two broad categories: (i) Primary sources and. Refer 1. Also. . etc. (c) 16. (ii) business persons and their customers.4 – Explain the various legal constraints of business in today’s scenario. suppliers. 4. it is pertinent to refer to the ruling by the Bombay High Court in 1994. There is nothing to show that anybody was being favoured for any specific reason. the government would not go in for public tendering.6 – Effect of possession in the business. Refer 1.2 – 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. (c) 12. Firstly. 6. (iv) the lack of transparency.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. draft agreements were prepared from time to time. “The proposal was deliberated at length for two and a half years. 2. as administered by Indian courts.11. (ii) Secondary sources. and were to be given every facility by the government. Nothing was done secretly. But the new government of Maharashtra-the Shiv Sena . which is one of the largest integrated natural gas companies in the world. and (iii) business persons and the state. (b) 13. (d) 14. dealers. in April 1995. started construction in Maharashtra. and it was ultimately the eighth or ninth draft which was finalised. (d) 15. The Congress leaders alleged that cancelling the project was a politically-motivated decision. 5. and (v) the absence of competitive bidding. 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. In a strongly worded verdict the court had said. MW gas fired plant. on the 695.BJP combine ordered a review of the project. Secondly. for the first few projects.
(Hint: Due to the political reasons) MB0051-Unit-02-Law of Contract Unit-02-Law of Contract Structure: 2.1 Introduction Objectives 2.2(d).2 Meaning and Essentials of a Valid Contract Contract Agreement Essentials of a contract Classification of contracts 2.6 Consideration (Secs.10 and 25) . no contract” (Secs.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) 2.5 Consent and Free Consent Meaning of consent Free consent 2.3 Proposal (or Offer) and Acceptance Modes of making an offer Acceptance of an offer Completion of communication of offer and acceptance (Sec.
31) Essential characteristics of a contingent contract 2.37-67) Meaning of performance of contract Meaning of offer to perform Who must perform the promise under a contract? 2.2.10 Performance of Contracts (Secs.26-28) Agreement in restraint of trade 2.31-36) Contingent contract defined (Sec.8 Contingent Contract (Secs.9 Quasi Contracts Meaning of quasi contracts Cases which are treated as quasi contracts 2.15 Terminal Questions .26-30) Agreements against public policy (Secs.62) Discharge of contracts by impossibility of performance Discharge of a contract by operation of law Discharge of contracts by breach 2.14 Summary 2.73-75) Discharge of contracts by performance or tender Meaning of mutual consent (Sec.12 Remedies for Breach of Contract 2.7 Agreements Declared Void (Secs.13 Freedom to Contract Freedom to contract is a myth or an illusion What is a standard form contract? 2.11 Different Modes of Discharge of Contracts (Secs.
Some of these are made consciously. the proposal is said to be accepted. In case the Airlines fails to fulfil its promise. In the case of people engaged in business. Sometimes we do not even realize that we are making a contract.2 Agreement Sec. contracts. corporate counsels.10 provides that all agreements are contracts. One of them makes a proposal (or an offer) to the other. purchase or sale of a share of a company or a plot of land. and are not expressly declared by law to be void. hiring a taxi. buying a book. In this unit you will study about the contract of law. e. Enforceability by law: The agreement must be such which is enforceable by law so as to become a contract. there must be an agreement between two or more . In this context. In a contract there are at least two parties. you came to know about the law and basic concepts of law. 2. When the person to whom the proposal is made signifies his assent thereto. for example.3 Essentials of a contract Sec.g. As there is a breach of promise by the promisor (the Airlines). and with a lawful object. howsoever made. To constitute a contract.2.. X has a right against the Airlines to be taken from Mumbai to Bangalore on 10 January. Example: D Airlines sells a ticket on 1 January to X for the journey from Mumbai to Bangalore on 10 January. etc.2(b)). In this unit you will study how to enter into the contracts. the business executives. entrepreneurs. Objectives After studying this unit. you should be able to: · Describe the essentials of a valid contract · Enumerate the capacity of contract · Define acceptance · Define consent 2. The Airlines is under an obligation to take X from Mumbai to Bangalore on 10 January. fails to do that.2(e) defines an agreement as “every promise and every set of promises forming consideration for each other”. the word ‘promise’ is defined by Sec. made between at least two parties by which rights are acquired by one and obligations are created on the part of another.1 Introduction In the previous unit. Thus.2.. A proposal. A corresponding duty is imposed on the Airlines. then the other party has a remedy. to do something. when accepted becomes a promise (Sec. 2. and professionals in different fields deal frequently with contracts. the other party to the contract (i.2. which had agreed to do something.1 Contract A contract is an agreement. X has a remedy against it. for a lawful consideration. If the party.2 Meaning and Essentials of a Valid Contract 2. In any case. confer legal rights on one party and subjects the other party to some legal obligation. X) has a legal remedy.2(b). Thus. if they are made by free consent of parties. with a view to obtaining the assent of that other to such act.2.e. they carry on business by entering into contracts. competent to contract. enforceable by law. Thus.16 Answers 2. there are certain agreements which do not become contracts as this element of enforceability by law is absent.
The best example of formal contracts is negotiable instruments. The oral offer can be made either in person or over telephone. void.2(i) A voidable contract is one which may be repudiated (i. Implied offer: It is an offer made by conduct. Offer by abstinence: An offer can also be made by a party by omission to do something. abstain from doing) something with a view to obtain acceptance of the other party to such act or abstinence (Sec.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. such as cheques. (ii) Voidable. void.3). A contract to constitute a valid contract must have all the essential elements discussed earlier. (iii) Void.2(a)). An agreement is composed of two elements – offer or proposal by one party and acceptance thereof by the other party. (True/False) 3. the contract is either voidable. An offer is synonymous with proposal. However. A formal contract is one to which the law gives special effect because of the formalities or the special language used in creating it. A stranger to consideration cannot maintain a suit. is valid. This includes such conduct or forbearance on one’s part that the other person takes it as his willingness or assent. (True/False) 2. If one or more of these elements are missing.e. then the contract may be either voidable. Express offer: It means an offer made by words (whether written or oral). It is made by positive acts or signs so that the person acting or making signs means to say or convey something. As per Sec. illegal or unenforceable. 2. but not by others. Formal and informal contracts: This is another way of classifying contracts on the basis of their formation. 2. and specific or general. amounts to offer by conduct. The written offer can be made by letters. telex messages. An agreement.. 2. etc. avoided) at the will of one or more of the parties. in no case.3. An offer can be either express or implied. The offerer or proposer expresses his willingness “to do” or “not to do” (i.2 Acceptance of an offer ..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.2. illegal or unenforceable.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. Effect of absence of one or more essential elements of a valid contract: If one or more essentials of a valid contract are missing. (True/False) 2. silence of a party can. Informal contracts are those for which the law does not require a particular set of formalities or special language. Self Assessment Questions 1. telegrams. the meaning of which is not certain or capable of being made certain.than two parties. Classification according to validity: Contracts may be classified according to their validity as (i) Valid. advertisements. A promise for a promise is a good consideration.e. (iv) Unenforceable. No one can enter into a contract with himself.
The offeree is deemed to have given his acceptance when he gives his assent to the proposal. Every person is competent to contract if he (i) is of the age of majority. (True/False) 5. (True/False) 6. Self Assessment Questions 4. Implied acceptance: Acceptance is implied when it is said to be gathered from the surrounding circumstances or the conduct of the parties. A lunatic is a person who is mentally deranged due to some mental strain or other personal experience. the offer is said to be accepted (Sec.4. The communication of acceptance is complete. the communication of the offer is complete when B receives the letter.4.When the person to whom the offer is made signifies his assent thereto. 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. when it comes to his knowledge. The contract law defines maturity as the age of majority.1 Persons who are competent to contract Any one cannot enter into a contract. acceptance is the act of giving consent to the proposal.4 Capacity to Contract 2. but he is not bound by the contract. The acceptance of an offer may be express or implied. viz. The completion of communication of acceptance has two aspects. That usually is 18 years. He does not have lucid intervals.2(b)). a minor may make a contract. 2. however the minor can make the other party bound by the contract. Communication of offer is complete when the letter of offer is posted. 2. The liability for necessaries of life supplied to persons of unsound mind is the same as for minors. and (iii) is not disqualified from contracting by any law to which he is subject (Sec. 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. as against the person to whom its made. when it comes to the knowledge of the offer or.3 Mental incompetence prohibits a valid contract A person who is not of sound mind may not enter into a contract.3.11). (i) As against the offer or and (ii) As against the acceptor.. An idiot is a person who is of permanently unsound mind. he must be competent to contract according to the law. 2. A proposal when accepted becomes a valid contract even though acceptance is not in the prescribed mode. Thus. .3 Completion of communication of offer and acceptance (Sec. A test of soundness of mind has been laid down by law. Does this mean that a minor is not competent to contract? No. he must be of sound mind so as to be competent to contract.4. (ii) As against the acceptor. (ii) is of sound mind. Where A proposes by a letter to sell his car to B at a certain price. 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.4) It is necessary to communicate offer to the offeree and the acceptance to the offeror. (True/False) 2. He is incapable of entering into a contract and therefore a contract with an idiot is void.2 Capacity of a minor to enter into a contract Age of a person determines enough maturity to make a contract. 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.
The consent of the offeree to the offer by the offer or is necessary. (iv) misrepresentation or (v) mistake. Self Assessment Questions 7.A person who is drunk.1 Meaning of consent Offer by one party is accepted by the other party. (ii) undue influence. (ii) active concealment of a fact by one having knowledge or belief of the fact. The party making it believes it to be true. (v) any such act or omission as the law specifically declares to be fraudulent. Thus. In this way. fraud is different from misrepresentation.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. Meaning of fraud (Secs. free consent is one of the essentials of a valid contract.15). 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. 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. (True/False) 2. (Sec. It is essential to the creation of a contract that both parties agree to the same thing in the same sense.5 Consent and Free Consent 2. the promisor is not responsible for non-performance.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. Such a statement is made innocently. .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. Like fraud. Meaning of misrepresentation (Secs. (True/False) 8. A consent is said to be free when it is not caused by: (i) coercion. Where there is a consent but no free consent the contract is voidable at the option of the party whose consent was not free. 2. When the promisee does not accept the offer of performance. When two or more persons agree upon the same thing in the same sense they are said to consent. Meaning of ‘mistake’ (Secs. (iii) fraud. (iii) promise made without any intention of performing it.18-19) Misrepresentation is also known as simple misrepresentation whereas fraud is known as fraudulent misrepresentation. A married woman cannot enter into a contract.5.5. Meaning of coercion (Secs. (iv) any other act fitted to deceive.2 Free consent For a contract to be valid it is not only necessary that the parties consent but also that they consent freely.
10 and 25) A promise without consideration cannot create a legal obligation.1 Agreements against public policy (Secs. An attempt to deceive which does not deceive is not fraud. right. no contract” (Secs. 114].1 Meaning of consideration One of the essential elements of a valid contract is that it must be supported by consideration.24). or inconvenience that may have or may have been occasioned to the other party in respect of the promise. Cancellation of a contract by mutual consent of the parties is called waiver. This “something” may even be some benefit. part of consideration of which is unlawful (Sec.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. loss or responsibility given. to that extent. trade or business of any kind is. (iv) Agreement for the sale of public offices and titles are void. (True/False) 2. All agreements in restraint of trade.23).e. 2. (iii) agreements. i. 2. Some other agreements which are declared to be void are explained below. Some of the agreements which are against public policy and have been declared to be void by law. qualified or unqualified. It is. “something in return”. In simple terms consideration is what a promisor demands as the price for his promise. (v) Agreements in restraint of parental rights are void.27 provides that “every agreement by which any one is restrained from exercising a lawful profession.20). If the offeree does not accept the offer according to the mode prescribed by the offeror. are void. interest or profit accruing to one party.Self Assessment Questions 9.26-30) The Act declares certain agreements to be void.6 Consideration (Secs. (True/False) 13. detriment. not open to the courts to enter into any question of reasonableness or otherwise of the restraint [Khemchand v. damage. This something or consideration need not be in terms of money. or some forbearance. (iii) Contracts in the nature of champerty and maintenance.7 Agreements Declared Void (Secs.2 “No consideration. . 2.26-28) An agreement which conflicts with morals of the time and contravenes any established interest of society is void as being against public policy. The term consideration is used in the sense of quid pro que.6.7. (True/False) 10. (True/False) 11.6. void”.2(d). (iv) agreements made without consideration (Sec.25).2 Agreement in restraint of trade Sec. These are as follows: (i) Trading with enemy: (ii) Agreements for stifling prosecution. Consent obtained by fraud makes the agreement void. (ii) agreements. A person who makes a promise to do or abstain from doing something usually does so as a return of equivalent of some loss. 23-25 and 185) 2. Dayaldas.. therefore. suffered or undertaken by the other party. the object or consideration of which is unlawful (Sec. (1942) Sind. whether general or partial. the offer does not lapse automatically. (True/False) 2. Past consideration is no consideration. Also a promise by one party may be consideration for the promise of other party. Self Assessment Questions 12. (vi) Agreements in restraint of marriage of any person other than a minor is void.
has in fact been entered into by them”.9. collateral to such contract does or does not happen. i.1 Contingent contract defined (Sec.8. although no contract. A person who is usually of unsound mind cannot enter into a contract even when he is of sound mind.Self Assessment Questions 14. 2. (True/False) 2.9. Example: A contracts to pay B Rs 10. (True/False) 2. (ii) The event must be uncertain. (True/False) 17. 2.1 Meaning of quasi contracts ‘Quasi Contracts’ are so-called because the obligations associated with such transactions could neither be referred as tortious nor contractual. quasi contract is “a situation in which law imposes upon one person. on grounds of natural justice. incidental to the contract.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. Social agreements are enforceable in courts. it is not a contingent contract.8. an obligation similar to that which arises from a true contract.31) A contingent contract is a contract to do or not to do something.8 Contingent Contract (Secs.2 Cases which are treated as quasi contracts Following are the cases which are to be deemed quasi contracts: . If the event is bound to happen and the contract has got to be performed in any case. (iii) The event must be collateral. (True/False) 15. Self Assessment Questions 16. Payments made by a debtor are always appropriated in chronological order. An agreement to agree is a valid contract..e.31-36) 2. if some event. express or implied. but are still recognised as enforceable like contracts.000 if B’s house is burnt. This is a contingent contract.9 Quasi Contracts 2. in courts. According to Dr Jenks.
A promises to deliver goods to B on a certain day on payment of Rs 1. (True/False) 21.85. (True/False) 19.68). then A must perform this promise personally.73-75) A contract may be discharged by (i) performance. Claim for necessaries supplied to a person incapable of contracting or on his account. (Sec. as soon as the car is delivered to B and B pays the agreed . If there is no such intention of the parties. where A contracts to sell his car to B for Rs 1. and B is bound to pay Rs 1. Thus.000.1 Meaning of performance of contract A contract creates obligations. (v) operation of law.69). where A promises to paint a picture for B. and who. then the promisor may employ a competent person to perform the promise. If a person. such promise is to be performed by him only.11 Different Modes of Discharge of Contracts (Secs. the promisor shall not be responsible for non-performance nor shall he lose his rights under the contract. (iii) mutual consent. A person who is interested in the payment of money which another is bound by law to pay. ‘Performance’ of contract means the carrying out of obligations under it.37-67) 2. (True/False) 2. A dies before that day. If A has promised to deliver some items of grocery to B. This is called as ‘Tender’ or ‘Attempted Performance’.000. 2.10. 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.37). therefore.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. (ii) tender. 2.10. (True/False) 2. Commercial impossibility does not make the contract void. then the promisor may employ a competent person to perform the promise. (iii) In case of death of the promisor. the contract comes to an end. Self Assessment Questions 18. Thus. there was an intention of the parties that the promise must be performed by the promisor himself.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. incapable of entering into a contract. The liability of joint promisors is joint and several. Reimbursement to a person paying money due by another in payment of which he is interested. Self Assessment Questions 20.10 Performance of Contracts (Secs. is entitled to be reimbursed by the other.11. (i) In case.10. or any one whom he is legally bound to support is supplied by another person with necessaries suited to his condition in life. or some law (Sec. 2. the person who furnished such supplies is entitled to be reimbursed from the property of such incapable person (Sec. (vi) breach. A’s legal representatives are bound to deliver the goods to B. If a valid tender is made and is not accepted by the promisee.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. A may perform this promise either personally delivering the items to B or causing it to be delivered to B through someone.1.000 to A’s representatives. 2. the legal representative must perform the promise unless a contrary intention appears from the contract. (iv) subsequent impossibility. A threat to commit suicide does not amount to coercion. (ii) If there is no such intention of the parties. pays it.
The breach of contract may arise in two ways: (i) anticipatory and (ii) actual. (iv) the other party may sue for damages. A contract may terminate by mutual consent in any of the six ways viz. The actual breach by failure to perform may take place (a) at the time when performance is due. that party may proceed in several ways: (i) the other party may urge the breaching party to reconsider the breach. (ii) By insolvency. Thus.11.11. Death of the promisor results in termination of the contract in cases involving personal skill or ability. From there. to live up to any of its promises under a contract. 23. waiver and merger.. There are two types of impossibility: (i) Impossibility may be inherent in the transaction (i. (iii) By merger. The failure to perform means that one party must not have performed a material part of the contract by a stated deadline. 2. novation. Novation means substitution of a new contract for the original one.3 Discharge of contracts by impossibility of performance A contract may be discharged because of impossibility of performance. or to rescind it or alter it. he will be liable for its breach. In such a case the aggrieved party is freed from all his obligations under the contract. 2. Self Assessment Questions 22.2 Meaning of mutual consent (Sec. alteration and remission. The tender or offer of performance has the same effect as performance. the contract). (ii) Impossibility may emerge later by the change of certain circumstances material to the contract. ____________ means substitution of a new contract for the original one. or (v) the other party may sue for other remedies. if a person does not perform his part of the contract at the stipulated time. .12 Remedies for Breach of Contract When someone breaches a contract. the original contract is discharged. then this amounts to a breach of contract on the part of the promisor. A contract terminates by breach of contract. (iii) the other party may bring the breaching party to an agency for alternative dispute resolution. the contract comes to an end by performance. 2. the other party is no longer obligated to keep its end of the bargain. rescission.11. 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.4 Discharge of a contract by operation of law Discharge by operation of law may take place in four ways: (i) By death. The consequence of this is that the promisee becomes entitled to certain remedies. or (b) during the performance of the contract.11. A contract terminates by breach of contract. 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. the other party may treat the contract as rescinded. Actual breach of contracts: The actual breach can occur by (i) failure to perform as promised.5 Discharge of contracts by breach A breach of contract is one party’s failure. (ii) if it is a contract with a merchant. Rescission of the contract: When a breach of contract is committed by one party. 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.price for it.62) If the parties to a contract agree to substitute a new contract for it. mutual consent or impossibility or operation of law. If a promisor tenders performance of his promise but the other party refuses to accept. the promisor stands discharged of his obligations. (True/False) 2. (ii) making it impossible for the other party to perform. 2. without a legal excuse.e. the other party may get help from consumers’ associations.
There are certain laws for the protection of the employees.73-74. . The main kind of damages awarded in a contract suit are ordinary damages. Self Assessment Questions 24.2 What is a standard form contract? A standard form contract is a document which is generally printed. rather they are one-sided contracts. (True/False) 25. 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. with certain blanks to be filled in. The freedom of the parties is limited by four factors. The act is not exhaustive. 1872.14 Summary The law of contract in India is contained in the Indian Contract Act. Damages under Sec. 1872). Self Assessment Questions 26. This Act is based mainly on English common law. What is the most common remedy for breach of contracts: The usual remedy for breach of contracts is suit for damages. (True/False) 27.13 Freedom to Contract 2. There are three remedies under the Specific Relief Act. therefore. 2.Damages (Sec. 1963. A contract is imposed by a party having a strong bargaining power on a party having a weak bargaining power. The customer has only to sign it. It is prepared by the business people. Therefore. (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.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.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. Damages under Sec.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. 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. (True/False) 2. from his standpoint.75 are awarded according to certain rules as laid down in Secs. Glossary Contract: An agreement enforceable by law is a contract.13.1 Freedom to contract is a myth or an illusion The freedom of the parties is limited by two factors. containing terms and conditions. and an employer cannot. which is to a large extent made up of judicial precedents. induce his employees to enter into any contract favourable to the employer. (iii) The aggrieved party is required to take reasonable steps to keep his losses to the minimum.75 are awarded according to certain rules as laid down in Sec. Many of the contracts now being entered into by consumers are not the result of individual negotiations.73-74. the freedom to contract is restricted. Sec.13. (True/False) 2. (there being a separate contract act in England).
False 6.15 Terminal Questions 1. Discuss. 7. False 3. What are the different modes of discharge of contracts? Explain the discharge of contract by performance or tender. 2. False 10. 8.16 Answers Answers to Self Assessment Questions 1. False 7. Give some example of ordinary damages. 4. 6. 1872. When is an offer to be accepted? 5. “All agreement are not contracts but all contacts are agreements”. False 4. False 5. True 2.Agreement: Every promise and every set of promises forming the consideration for each other is an agreement. “Freedom to contract is a myth or an illusion”. True . Valid Contract: Contracts which satisfy all the essential elements of a valid contract are enforceable in a court of law. Void Contract: A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable. Describe the rules regarding communication of offer and acceptance. Comment. 2. False 9. 3. Distinguish between a wagering agreement and a contingent contract. False 8. Enumerate some of the contracts which are expressly declared to be void by the Indian Contract Act. Can ordinary damages be claimed for any remote or indirect loss or damages by reason of the breach? 9. What do you mean by contract? What test would you apply to ascertain whether an agreement is a contract? 2.
False 13. 3. True 21. True 27. enforceable by law. False 16.2 – A contract is an agreement. Refer 2.3 – Offer is not only one of the essential elements of a contract but it is the basic building block also.2 – The agreement must be such which is enforceable by law so as to become a contract. True 19. False Answers to Terminal Questions 1. True 14. True 24. True 25. Refer 2.11 – A contract may be discharged by (i) performance. 7. False 12. 6. Refer 2. Refer 2.8 – A contingent contract is a contract to do or not to do something. made between at least two parties. 4. (ii) tender .2 – Avoidable contract is one which may be repudiated at the will of one or more of the parties. False 15. True 22.. Refer 2. True 26. Novation 23. False 20. Refer 2. 2. False 18. False 17.3 – It is necessary to communicate offer to the offeree and the acceptance to the offeror. 5.11. Refer 2.
One carbolic smoke ball will last a family several months. and hopefully flush out the cold. She claimed £100 from the Carbolic Smoke Ball Company. The tube was then inserted into the user’s nose. according to the printed directions supplied with each ball. Address: "Carbolic Smoke Ball Company. Regent Street.13 – The freedom of the parties is limited by two factors.8.73-74. 1891. The barristers representing her argued that the advertisement and her reliance on it was a contract between her and the company. 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. making it the cheapest remedy in the world at the price. It was filled with carbolic acid (phenol). It claimed to be a cure for influenza and a number of other diseases. Carlill brought a claim to court. post free. they replied with an anonymous letter that if it is used properly the company had complete confidence in the smoke ball’s efficacy. "27. 10s. £1000 is deposited with the Alliance Bank. Louisa Elizabeth Carlill saw the advertisement.75 are awarded according to certain rules as laid down in Secs.2 Purpose and Meaning of the Contract of Guarantee . bought one of the balls and used three times daily for nearly two months until she contracted the flu on January 17." Mrs.1 Introduction Objectives 3. The company argued it was not a serious contract. It was squeezed at the bottom to release the vapours into the nose of the user. Mini-case The Carbolic Smoke Ball Company made a product called the "smoke ball". 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.12 – Damages under Sec. They ignored two letters from her husband. The smoke ball was a rubber ball with a tube attached. Mrs. The Company published advertisements in the Pall Mall Gazette and other newspapers on November 13. shewing our sincerity in the matter. who had trained as a solicitor. 9. In fact the inflammation caused by the device would have probably increased susceptibility to catching influenza. Refer 2. 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. (Hint: summarize this case in your word. Princes Street. and in no ascertained case was the disease contracted by those using the carbolic smoke ball. 1892. During the last epidemic of influenza many thousand carbolic smoke balls were sold as preventives against this disease. Refer 2. London.) MB0051-Unit-03-Contracts of Guarantee and Indemnity Unit-03-Contracts of Guarantee and Indemnity Structure: 3. after having used the ball three times daily for two weeks. Question Do you agree to what the company says? Justify. This would cause the nose to run. The ball can be refilled at a cost of 5s. On a third request for her reward. Hanover Square. or any disease caused by taking cold.
7 Summary 3..8 Terminal Questions 3.Purpose of guarantee Definition and nature of the contract of guarantee (Sec.5 Rights.e. 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 .126) Fiduciary relationship 3.3 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 3.6 Contract of Indemnity Meaning of indemnity Rights of the indemnified (i.4 Rights and Obligations of the Creditor Rights of a creditor Obligations imposed on a creditor in a contract of guarantee 3.9 Answers 3. the indemnity holder) Rights of the indemnifier Commencement of indemnifier’s liability 3.
the bank may seek payment from any one or any two of them or all of them. used in criminal law.. If the company fails to repay the loan. are a form of contract of guarantee.1 Purpose of guarantee The contracts of guarantee are among the most common business contracts and are used for a number of purposes. the bank now has three options: to compel the principal debtor to pay. If they do so and the company defaults. These are: i) The guarantee is generally made use of to secure loans. Sometimes the banks (lenders) ask for more security for the loans in addition to the personal guarantee of an official of the borrowing company. If the company defaults. you came to know about the law and the contract of law. the bank can approach M for the payment. The bank need not look to the collateral first. The law relating to the contracts of guarantee is given in the Indian Contract Act. The relationship between M and the bank is called a guarantee or suretyship. then the right of the bank on the collateral gets transferred to him. the builder may have to find a surety to stand behind his promise to perform the construction contract. they sign as company’s officials. that a criminal defendant will appear for trial. In this way a prisoner is released on bail pending his trial. 1872 (Secs. iii) Bail bonds. or obtain a court order to either claim or sell the collateral.2 Purpose and Meaning of the Contract of Guarantee 3. The bank has yet another alternative for securing its loan to the company. A bail bond is a device which ensures. a contract of guarantee is for the security of the creditor.In the previous units. The company may agree that a particular machinery in its factory would serve as collateral security for the loan. M.2.126-147). It could ask that all the three directors (including M) sign the promissory note as co-sureties. In this unit you will study about the guarantee and indemnity of contracts. . The bank requires that the managing director M promises to repay the loan personally should the company default. For example. demand payment from the surety. 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. for the good conduct of the latter. etc. Also employers often demand a type of performance bond known as a fidelity bond from employees who handle cash. In this unit you come to know when a company needs some money for its business it approaches a bank. 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. But if M pays the money to the bank. in the case of a construction project. When the directors of the company including M execute the promissory note on behalf of the company. If the prisoner does not appear in the court as desired then the bond is forfeited. If an employee misappropriates then the surety will have to reimburse the employer. Thus. Objectives After studying this unit. the managing director signs again as an individual. ii) The contracts of guarantee are sometimes called performance bonds. The sections quoted in this chapter refer to the Act unless otherwise stated.
a surety may be called upon to pay though principal debtor is not liable at all. where X guarantees the existing and future liabilities of A to B upto a certain amount which limit has already been exceeded.1 Oral or written guarantee A contract of guarantee may either be oral or in writing (Sec. the employer’s failure to inform the surety of any breach on the part of employee. in effect. Specific guarantee is different from continuing guarantee. However. a principal contract between the principal debtor and creditor. the contract of guarantee can be avoided on the ground of concealment of a materiel fact. A creditor must disclose all those facts which.. The contract of surety is not a contract collateral to the contract of the principal debtor. under the circumstances.000 to C and guarantees that C will repay the amount within the agreed time and that on C failing to do so. A guarantee is a “specific guarantee”. a contract of guarantee must be in writing. there is an implied contract also between the principal debtor and the surety. Example: When A requests B to lend Rs10. but is an independent contract. if it is intended to be applicable to a particular debt and thus comes to end on its repayment. Therefore. Also. it is clear that in a contract of guarantee there must. Self Assessment Questions 1.126) A contract of guarantee is defined as “a contract to perform the promise. (True/False) 2. there is a contract of guarantee. From the above discussion.3. The person who gives the guarantee is called ‘surety’. Nevertheless. 3. A specific guarantee once given is irrevocable.3. the creditor. must exist at the time the contract of guarantee is made. 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. or discharge the liability. the surety would expect not to exist.2. between the debtor and the creditor. etc. he will himself pay to B.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.In this unit our primary concern is with the contracts of guarantee which are used for securing loan. For a contract of guarantee.144). Similarly. So where guarantee is given for good conduct of an employee. 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. though a creditor should always prefer to put it in writing to avoid any dispute regarding the terms. under certain circumstances. . In case of an oral agreement the existence of the agreement itself is very difficult to prove. 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. the primary liability is of the surety. the person for whom the guarantee is given is called the ‘principal debtor’.3 Kinds of Guarantee 3. (True/False) 3. and a secondary contract between the creditor and the surety.2. A contract of guarantee may be either oral or in writing. of a third person in case of his default”.3 Fiduciary relationship A contract of guarantee is not a contract “uberrimae fidei” (requiring utmost good faith). 3. Similarly. the original contract between the debtor and creditor may be about to come into existence. It is not necessary that the principal contract.126). 3.2 Definition and nature of the contract of guarantee (Sec. will discharge the surety. the guarantee is not valid if that other person does not join (Sec. In a contract of guarantee there are three parties. (True/False) 3. the principal debtor and the surety. and the person to whom the guarantee is given is called the ‘creditor’. There must be a distinct promise on the party of the surety to be assumable for the debt. As per the Indian law. be two contracts. viz.
The guarantee in this case is a specific guarantee. A had stood surety for the whole debt of Rs 50. 30. Continuing guarantee is a: . Since after paying Rs. 50.000 subject to a limit of Rs. 12. 30.e. 10. continuing guarantee cannot be revoked regarding transactions that have ready taken place. 30.e.000 to B by C (a banker).000 subject to a limit of Rs. i.000 for any tea he may from time to time supply to C.000 to Y. the question may arise whether A has guaranteed Rs. 10. However. The guarantee given by A was a continuing guarantee and he is accordingly liable to B to the extent of Rs. For instance. 30..000. 15.000 from X’s estate. to the amount of Rs. 30.500 being ¼ of Rs. a continuing guarantee can be revoked regarding further transactions (Sec.000 = Rs. in the absence of any contract to the contrary.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. Rs. A will not get any dividend unless Y has been fully paid.000 the full amount of guarantee from A and Rs. 20.000. a tea-dealer. as a revocation of a continuing guarantee. 30. A can claim from X’s estate.000 out of Rs. A guarantee regarding the conduct of another person is a continuing guarantee. If on the other hand. 30. 50.000 and A has stood as surety for Rs. C fails to pay.000 – Rs.000.500. 10. 5. so far as regards future transactions. 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. A guarantee which extends to a series of transactions is called a “continuing guarantee” (Sec. 10. Self Assessment Questions 4.131). A contract of guarantee is for the security of the ……………… (a) Buyer (b) Seller (c) Debtor (d) Creditor 5. then Y can get Rs.3. B supplies C with tea of the value above Rs. Afterwards B supplies C with tea to the value of Rs. 50.000 paid by A to Y.129) Example: A guarantees payment to B.000 or whether he has guaranteed the full amount of Rs. ¼ of Rs.000 and from X’s estate Rs. 7. 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. The death of the surety operates.000 which was not guaranteed. 3.000.130).000. i. This can happen only if X’s estate declares a higher dividend. he will get Rs. 30.Example: A guarantees the repayment of a loan of Rs. Unlike a specific guarantee which is irrevocable.000 and C pays B for it. being ¼ of the balance. (Sec. where X owes Y Rs 50. 30..000 then Y can recover from A Rs. 50.
The banker pays X Rs. 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. Sec. However. b) Mere forbearance on the part of creditor to sue the principal debtor. A guarantees repayment. This right. unless the surety assents to such contract”. The creditor is under an obligation not to release or discharge the principal debtor. 2. . the debtor may die or become insane or insolvent or his financial position may become weaker in the meanwhile.137). or give time to. by which the principal debtor is released. 5. The creditor should not change any terms of the original contract without seeking the consent of the surety. 5. Not to release or discharge the principal debtor. If the time for repayment is extended.4 Rights and Obligations of the Creditor 3.000 on January 1. The liability of the surety cannot be postponed till all other remedies against the principal debtor have been exhausted. In other words. in the terms of the contract between the principal debtor and the creditor. The creditor is entitled to demand payment from the surety as soon as the principal debtor refuses to pay or makes default in payment. The creditor also has a right of general lien on the securities of the surety in his possession.000 on March 4. but it cannot sue A as the guarantee is from March 4. or not to use the principal debtor. but not with the principal debtor. 2. surety is not discharged even if his consent has not been sought. Sec. discharges the surety.1 Rights of a creditor 1. the legal consequence of which is the discharge of the principal debtor”. Example: A gives a guarantee to banker C for repayment of the debt granted to B. “A contract between the creditor and the principal debtor. 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. there are certain exceptions.4.2 Obligations imposed on a creditor in a contract of guarantee 1. discharges the surety as to the transactions subsequent to the variance”. 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 3.136 states that if the creditor makes an agreement with a third party. These are: a) Sec. 3. the banker) to assign to them his property in consideration of their releasing him from their demands. in the absence of a provision to the contrary. may be impaired.135 provides. or by any act or omission of the creditor. Where surety is insolvent. Example: A banker contracts to lend X Rs.133 provides.4. to give extension of time to the principal debtor. 3. the creditor cannot be asked to exhaust all other remedies against principal debtor before proceeding against surety. Not to change any terms of the original contract. the creditor is entitled to proceed in the surety’s insolvency and claim the pro rata dividend. or to enforce any other remedy against him. by which the creditor makes a composition with or promises to give time to. “any variance made. Not to compound. arises only when the principal debtor has made default and not before that. without the surety’s consent. Sec. however. Here B is released from his debt by the contract with C and A is discharged from his suretyship. does not.134 states: “The surety is discharged by a contract between the creditor and principal debtor. B later contracts with his creditors (including C.
Sec.5. enter into three several bonds. A is liable to pay Rs 20. 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. Liabilities and Discharge of Surety Rights of a surety may be classified under three heads: (i) rights against the creditor. Not to do any act inconsistent with the rights of the surety (Sec. i.146 provides for a right of contribution between them. C sells the furniture. B and C are liable.e. creditor cannot recover his money from the surety. A.2 Rights against the principal debtor a) Right of subrogation: Sec. 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. B in that of Rs 20.3 Rights against co-sureties a) Right of contribution.000 each.000 and B and C Rs 15. 1.147 to contribute equally.000. B and C as sureties for D.5 Rights.000.139). only a small price is realised. So. each in a different penalty. as between themselves to pay Rs. in the event of proved dishonesty of the employee. 3. The creditor’s failure to do so will exonerate the surety from his liability. E makes default to the extent of Rs 30.1 Rights against the creditor In case of fidelity guarantee.. (True/False) 7.000 he can claim contribution from the others. The co-surety released by the creditor is also not released from his liability to the other sureties (Sec. he has a right of contribution from the other sureties who are equally bound to pay with him. E defaults in making payment.5. for the amount paid in excess of Rs.141).000. then A is discharged from liability on the note. the creditor must hand over to the surety. C in that of Rs 40. 1. Further. the surety can direct creditor to dismiss the employee whose honesty he has guaranteed. subject to the limit fixed by their guarantee and not proportionately to the liability undertaken. A. b) Where. (True/False) 3. In other words.c) If the creditor releases one of the co-sureties. 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. conditioned for D’s duly accounting to E. When a *surety has paid more than his share or a decree has been passed against him for more than his share. (ii) In the above example. (ii) rights against the principal debtor and (iii) rights against co-sureties. he is invested with all the rights which the creditor has against the debtor. they are bound under Sec.5. 4. 3. the co-sureties have guaranteed different sums.138). which gives power to C to sell the furniture and apply the proceeds in discharge of the note.000. Rs.000 lent to E. The creditor does not a right of general lien on the securities of the surety in his possession. 1. if the creditor loses.000 each and if any one of them has to pay more than his share. A in the penalty of Rs 10. the other co-surety (or co-sureties) thereby is not discharged. namely. the surety is subrogated to all the rights which the creditor had against the principal debtor. Example: A.000. they are called co-sureties. B and C are sureties to D for the sum of Rs. Self Assessment Questions 6. together with a bill of sale of B’s furniture. but owing to his misconduct and willful negligence. 3.000. Subsequently. if D makes default to the extent of Rs 40. B and C are each liable to pay Rs 10. the securities in the same condition as they formerly stood in his hands. 3. In the event of principal debtor being a minor.000. Examples: (i) A.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. . Where a debt has been guaranteed by more than one person.
Position of surety in case of a minor principal debtor. Shripat I. however. . in consideration of B’s discounting. in the terms of the contract between the principal debtor and the creditor. the due payment of all such bills to the extent of Rs 5. The surety shall.5. But A is liable to B for Rs 2.5 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. It was held that unless the contract otherwise provides. 5. the surety is liable for all those amounts the principal debtor is liable for. The liability of a surety is called as secondary or contingent. or not to sue the principal debtor. But the later decisions of the Bombay High Court have taken a contrary view. as to future transactions. Afterwards B and C contract. 10 Bom.L. B discounts bill for C to the extent of Rs 2. or agreeing not to sue. A continuing guarantee may at any time be revoked by the surety.3.128. The death of the surety operates. by notice to the creditor. made without the surety’s consent.134). Afterwards.133).131). The creditor is even not bound to give notice of the default to the surety. at A’s request. or by any act or omission of the creditor. By notice of revocation (Sec. the acceptor. 1927 the surety can be held liable. a guarantor for a minor cannot be held liable. Moolaki Raman (A. Meherbai it was held that as under Sec. unless it is expressly provided for. bills of exchange for C. in the absence of any contract to the contrary. By the death of surety (Sec. (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.128). without A’s consent. The same view has been endorsed by the Madras High Court in the case of Edavan Nambiar v. If a minor could not default. or giving time to.4 Liability of surety Unless the contract provides otherwise.130). 3. A revokes the guarantee. though a minor debtor is not liable. 4. unless the contract specifically so provides. as his liability arises only on default by the principal debtor. that B’s salary shall be raised and that he shall become liable for one-fourth of the losses on overdrafts. The bill is dishonoured by C. B allows a customer to overdraw and the bank loses a sum of money. The surety is discharged by any contract between the creditor and principal debtor.I. the liability of the guarantor being secondary liability does not arise at all. Example: A. According to the decision of the Bombay High Court in Kashiba v. or promises to give time to. But as soon as the principal debtor defaults. as a revocation of a continuing guarantee. The creditor may file a suit against the surety without suing the principal debtor.5. discharges the surety. 164).000 on default of C.000. the liability of the surety begins and runs co-extensive with the liability of the principal debtor. where the creditor holds securities from the principal debtor for his debt. By variance in terms of the contract (Sec. discharges the surety as to transactions subsequent to the variance. the creditor need not first exhaust his remedies against the securities before suing the surety.000. the liability of the surety is co-extensive with that of the principal debtor (Sec. Further. so far as regards future transactions. The revocation discharges A from liability to B for any subsequent discount. A is discharged from his suretyship by the variance made without his consent and is not liable to make good this loss. 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. Example: A guarantees to B the payment of a bill of exchange by C. By release or discharge of principal debtor (Sec.R. By compounding with. Any variance. the legal consequence of which is the discharge of the principal debtor. Example: A becomes surety to C for B’s conduct as a manager in C’s bank. be not discharged if (a) he assents to such contract.R. at the end of the three months. 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. the liability of the surety is coextensive with that of the principal debtor. for twelve months. by which the principal debtor is released. 3.135). In other words. In Manju Mahadeo v. Shivappa Manju and in Pestonji Mody v. principal debtor (Sec. guarantees to B. A contract between the creditor and the principal debtor by which the creditor makes a composition with. 2. in the sense that the surety will be liable for all those sums for which the principal debtor is liable. 1957 Mad.
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. like any other contract. The contract of indemnity. 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. in such cases.4 Commencement of indemnifier’s liability . (True/False) 9.3 Rights of the indemnifier The Act makes no mention of the rights of indemnifier.6.g.e. Self Assessment Questions 8. Loss of security.6 Contract of Indemnity 3. the surety is discharged. This is a contract of indemnity. A contract of insurance is a glaring example of such type of contracts.6. The surety is a favoured debtor. By creditor’s act or omission impairing surety’s eventual remedy (Sec.1 Meaning of indemnity Secs. These are two parties in a contraction of identity indemnifier and indemnified.6. The liability of a surety is secondary. (True/False) 10.6. the duty of a principal to indemnify an agent from consequences of all lawful acts done by him as an agent.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 promisee)..2 Rights of the indemnified (i. (iii) All sums which may have been paid under the terms of any compromise of any such suit. Sec. (ii) All costs of suit which he may have to pay to such third party. 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. the surety is discharged to the extent of the value of the security. Between co-sureties there is equality of burden and benefit. unless the surety consented to the release of such security (Sec.e. are similar to the rights of a surety under Sec.141)..124 and 125 provide for a contract of indemnity. 3.. 7. viz.141. 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.139). 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.. If the creditor does any act which is inconsistent with the right of the surety. his rights. must have all the essentials of a valid contract. The indemnifier promises to make good the loss of the indemnified (i. However. 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. 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. 3. A contract of indemnity may arise either by (i) an express promise or (ii) operation of law. e. 3.6. (True/False) 3.
Thus. In case of a guarantee. 2. Indemnity is not necessarily given by repayment after payment. the surety is entitled to proceed against the principal debtor in his own name while in case of indemnity. there is an existing debt or obligation. A contract in which A says to B. Contract of indemnity come under which section: (a) Secs. 125 and 126 12. It is not necessary that the principal contract. must exit at the time the contract of guarantee is made. Distinction between a contract of guarantee and a contract of indemnity. the original contract between the debtor and creditor may be about to come into existence.7 Summary The contract of surety is not a contract collateral to the principal debtor. ‘If you lend £20 to C. the ‘principal debtor’. Other points of difference are: 1. 124 and 125 (d) Secs. In case of indemnity the possibility of any loss happening is a contingency against which the indemnifier undertakes to indemnify. “If you lend £20 to C and he does not pay you. in a contract of indemnity. The liability of a promisor is primary and independent in a contract of indemnity. On the other hand undertaking in these words. there are three parties. 3. but excellently. I will see that your money comes back’ is an indemnity. the performance of which is guaranteed by the surety. Similarly. 126 and 127 (c) Secs. unless there is an assignment in his favour. I will is a guarantee. the liability of the surety is secondary. In a contract of guarantee. after discharging the debt. . Mather in his book “Securities Acceptable to the Lending Banker” has very briefly. a surety may be called upon to pay though principal debtor is not liable at all. the primary liability being that of the principal debtor. There must be a distinct promise on the party of the surety to be assumable for the debt. Glossary Indemnity: Indemnity means to make good the loss or to compensate the party who has suffered some loss. the indemnifier cannot proceed against third parties in his own name.C. under certain circumstances. In a contract of guarantee. In the case of guarantee. A contract of indemnity may arise either by an express promise or _______________. 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. Self Assessment Questions 11. 3. 124 and 126 (b) Secs. between the debtor and the creditor.Indemnity requires that the party to be indemnified shall never be called upon to pay. brought out the distinction between indemnity and guarantee by the following illustration. L. the ‘creditor’ and the ‘surety’. but it is an independent contract. indemnifier and indemnified. on the other hand. there are only two parties.
True 10. 5. False 8. 3.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.8 Terminal Questions 1.9 Answers Answers to Self Assessment Questions 1. True 9. Distinguish between a contract of guarantee and a contract of indemnity. False 4. Define contract of indemnity. (c) 12. True 3. (a) 6. 3. Continuing Guarantee: A guarantee which extends to a series of transactions is called a continuing guarantee. What is a ‘Continuing guarantee’? When it can be worked? 3. Describe the rights of the indemnifier and the indemnity holder. True 7. True 11. Discharge of Surety from Liability: A surety is said to be discharged when his liability as surety comes to an end. 4. 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 2. Explain the circumstances under which a surety may be discharged from the liability by the conduct of the creditor. Operation of law Answers to Terminal Questions . What do you mean by contract of guarantee? 2. (d) 5.
He told me to pay for another 2 units for another $150 USD. In this case. All his information is fraudulent. Mini-case "I didn’t receive the products. This can be judged easily by calling his company telephone number or by searching the company name on related state government websites. it can be picked up anywhere in the recipient’s country. He registered on your website as a US company. Refer 3. Western Union is a dangerous payment method. So try to avoid adopting this payment method and consider other more secure payment methods like escrow. Questions 1. The criminal remains anonymous. His is a fraudulent company!" If you think their price is very attractive and want to deal with them. but actually it is Chinese Company.148) Kinds of bailments . it is very necessary for you to verify that they are legitimate company and their contact information is correct. 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) 2.1. the duty of a principal to indemnify an agent from consequences of all lawful acts done by him as an agent. but I have refused. (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. 5. Refer 3. (ii) rights against the principal debtor and (iii) rights against co-sureties.. So it is a commonly used payment method for con-artists.2 Bailment and its Kinds Definition of bailment (Sec. the fraudster is pretending to be a US company. but all his registered information is false. 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. 2. Refer 3.6 – Student describe own. 3. The supplier said the goods were detained in the Customs Office because Customs didn’t find the original invoice attached to the goods. I paid by Western Union.1 Introduction Objectives 4.5 – 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. 4.g.2 – The contracts of guarantee are among the most common business contracts and are used for a number of purposes.6 – A contract of indemnity may arise either by (i) an express promise or (ii) operation of law. Refer 3. with no way of tracing the person who picked it up. Refer 3. e.
Also. goods are pledged for securing loans. you enter into a legal relationships. you came to know about the contract of law and guarantee of contract. you should be able to: · Describe the bailment and its types · Explain the duties and rights of bailor · Define pledge .8 Rights and Duties of Pledgor and a Pledgee Duties of a pledgee Duties of a pledgor Rights of a pledgor 4.7 Pledge by Non-owners 4.1 Introduction In the previous unit.4 Termination of Bailment 4. Objectives After studying this unit. Traders often store their surplus goods in warehouses. and factory owners often send machinery back to vendors for repairs. At one time or another. Bailments are quite common in business also. In this unit you will study about the contract of bailment. and utilize the services of cold storages for keeping their goods to be taken back as and when required.5 Finder of Lost Goods 4. called bailment and pledge.9 Summary 4.4.11 Answers 4.6 Pledge or Pawn 4.10 Terminal Questions 4.3 Duties and Rights of Bailor and Bailee Duties of a bailor Duties of a bailee Rights of a bailee Rights of a bailor 4.
they shall be returned to the bailor. i.e. i. agrees to hold them on behalf of C. (vii) Delivery of goods as security for the repayment of loan and interest thereon. Bailment is based on a contract. but without reward. Return of goods in specie. Ownership of goods.. Delivery of goods by one person to another for the use of the former. i. therefore the person delivering the possession of goods need not be the owner. in their original or altered form. (vi) Delivery of goods to a carrier for the purpose of carrying them from one place to another. already in possession of goods contracts to hold them as bailee. the delivery of goods is upon a contract that when the purpose is accomplished. (iv) Pawn or Pledge. 4. however. (v) Delivery of goods for being transported. it is agreed that it will be returned. Thus. The essence of bailment is delivery of goods by one person to another for some temporary purpose. 2. (ii) A delivers a wrist watch to B for repairs. Deposit of goods with another by way of security for money borrowed.148) Bailment is defined as the “delivery of goods by one to another person for some purpose. a jeweller. by the bailee for reward.2. Let’s illustrate. (True/False) 2. Placing of ornaments in a bank locker is not a contact of bailment. (i) Deposit. bailor. 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. The person delivering the goods is called the ‘bailor’ and the person to whom the goods are delivered is called the ‘bailee’. it is only the possession of goods which is transferred and not the ownership thereof. for dry cleaning.· Explain the pledge by non-owner 4. (i) A delivers some clothes to B. upon a contract that they shall. where an equivalent and not the same is agreed to be returned. or something to be done about them.149). there is a constructive transfer of possession from C to A. where a watch is delivered to a watch repairer for repair. (iv) A delivers a suit-length to a tailor for stitching. 3. has elapsed or been performed”. (ii) Commodatum. in return for payment of money. his business is to transfer possession and not ownership. In bailment. or condition on which they were bailed. classified into six kinds as follows. on the receipt of the agreed or reasonable charges. where one person. for making jewellery.1 Definition of bailment (Sec.2 Kinds of bailments Bailments may be. be actual or constructive. as soon as the time of use for. (v) A delivers some gold biscuits to B.e. after repair. (True/False) 3.. (iii) Hire. Goods lent to the bailee for hire. From the definition of bailment.2. Delivery of goods. The explanation to the above Section points out that delivery of possession is not necessary. All are the kind of bailments. Example: A holding goods on behalf of B. Goods lent to a friend gratis to be used by him. when the purpose is accomplished. a dry cleaner. the following characteristics should be noted: 1. The bailee is under an obligation to re-deliver the goods. In a bailment. pledge. Delivery of good is essential for effecting bailment. Return of specific goods (in specie) is an essential characteristic of bailment. Actual delivery may be made by handing over goods to the bailee.e. For example. (vi) Delivery of goods as in (v) above. The goods are delivered for some purpose and it is agreed that the specific goods shall be returned. (iii) A lends his book to B for reading. there is no bailment. EXCEPT: (a) Commodatum . 4.2 Bailment and its Kinds 4. be returned or otherwise disposed of according to the directions of person delivering them”. Delivery of goods may.. Self Assessment Questions 1.
e. the bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would. If the bailee without the consent of the bailor. Example: A car is lent for a journey. The ordinary expenses like petrol. mixes the goods of the bailor with his own goods and the goods can be separated or divided. the bailor must repay to the bailee all necessary expenses incurred by him for the purpose of the bailment. 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. Liability for breach of warranty as to title. A is responsible to B for damage sustained.1 Duties of a bailor 1. 3. In all cases of bailment. Not to mix bailor’s goods with his own (Secs.164). the bailee. C drives with care. He does not disclose the fact that the horse is vicious. he is responsible for the damage arising to the bailee directly from such faults. 2. 2. In case the bailee makes unauthorised use of goods. bailee has taken the amount of care as described above.2 Duties of a bailee 1. destruction or deterioration of the thing bailed (Sec. take of his own goods of the same bulk.. If he does not make such disclosure.150). for the loss. or to receive back the goods or to give directions respecting them (Sec. in the absence of any special contract. Sec. A is liable to make compensation to B for the damage done to the car. To take care of the goods bailed (Sec. In case of non-gratuitous bailments. To bear expenses in case of gratuitous bailments.3. The horse runs away. Example: A gives B’s car to C without B’s knowledge and permission.154).151). but the car is damaged in an accident. B allows C. B sues C and receives compensation. the bailee shall be bound to bear the expense of separation or division and any damages arising from the mixture. he shall not be responsible. 3. which he knows to be vicious. of which the bailor is aware and which materially interfere with the use of them or expose the bailee to extraordinary risks.152). A.3. 4. The bailor is bound to disclose to the bailee faults in the goods bailed. is responsible to make good this loss to C. i. the bailor.155-157). his wife. Example: A lends a horse. 4. uses them in a way not warranted by the terms of bailment. the bailor is held responsible to bear only extraordinary expenses. In case. he is liable to make compensation to the bailor for any damages arising to the goods from or during such use of them. Not to make unauhorised use of goods (Sec. To disclose know faults in the goods (Sec. quality and value as the goods bailed. B is thrown and injured. . Regarding bailments under which bailee is to receive no remuneration. to B. etc. Example: A lends a car to B for his own driving only.(b) Hire (c) Deposit (d) Loan 4..158 provides that in the absence of a contract to the contrary.3 Duties and Rights of Bailor and Bailee 4. to drive the car. the money spent in its repair will be regarded as an extraordinary expenditure and borne by the bailor. shall be borne by the bailee but in case the car goes out of order. under similar circumstances.
the goods bailed. 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. for which they were bailed has been accomplished. Right against wrongful deprivation of or injury to goods (Secs. a right to retain such goods until he receives due remuneration for the service he has rendered in respect of them”. The provisions of Sec. To return any accretion to the goods bailed (Sec. 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. whatever is obtained by way of relief or compensation in such a suit shall. (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). any increase or profit which may have accrued from the goods bailed. he is responsible to the bailor for any loss.163).4 Rights of a bailor . until some debt or claim is paid. These bailees can retain all goods of the bailor so long as anything is due to them. once the debt is satisfied or obligation discharged. 4. factors. Thus. on the other hand. and (c) for extraordinary expenses. 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. If a third person wrongfully deprives the bailee of the use or possession of the goods bailed. mixes the 100 bales with other bales of his own bearing a different mark. or the purpose. The cow gives birth to a calf. or deliver according to the bailor’s directions. in the absence of a contract to the contrary. Since. Another right of bailee is the right of lien (Secs.160). if looked from the point of view of bailee. B is bound to deliver the cow as well as the calf to A. to be returned to or kept at the disposal of the owner (i.161). 4. he has. B. unless there is a contract to the contrary. It reads: “Where the bailee has. If bailee fails to return the goods at the proper time.3 Rights of a bailee 1. then.. 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. Particular Lien. means the right to retain the particular goods in respect of which the claim is due. 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. Example: A leaves a cow in the custody of B to be taken care of. 5. bailor). the right of lien is extinguished. Lien is a right in one person to retain that which is in his possession. Particular Lien is conferred upon a bailee by virtue of the provisions of Sec. In the absence of any contract to the contrary. without A’s consent.170. the bailee’s rights. lien is available only until the debt or claim is satisfied. 180-181).3. as between the bailor and the bailee.3. Lien.170-171). as soon as the time for which they were bailed has expired. a bailee can sue bailor for (a) claiming compensation for damages resulting from non-disclosure of faults in the goods. rendered any service involving the exercise of labour or skill in respect of the goods bailed.181). belonging to another. 2.171 empower certain categories of bailees to exercise a general lien. without demand. To return the goods bailed without demand (Sec. or causes them any injury. These include: bankers. (b) for breach of warranty as to the title and the damage resulting there from. The property so retained has. in accordance with the purpose of the bailment. attorneys of High Court and policy brokers. It is the duty of the bailee to return. or according to his directions.e. destruction or deterioration of the goods from that time (Sec. Lien may be of two types: (i) General Lien and (ii) Particular Lien. wharfingers. 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. the bailee is bound to deliver to the bailor. Now. the bailor is entitled to be compensated by the bailee for the loss of the goods. be dealt with according to their respective interest (Sec. 4. Bailee’s right of lien is particular in certain cases whereas general in other cases.Example: A bails 100 bales of cotton marked with a particular mark to B. The duties of the bailor are. 3.
(True/False) 4. 3. Further. Example: A lets to B for hire. it comes to an end on the expiry of the specified period. 2. the borrower has acted in such a manner that the return of the thing before the specified time would cause him (i. On the accomplishment of the specified purpose. A gratuitous bailment may be terminated at any time (Sec.162). By bailee’s act inconsistent with conditions of bailment. a gratuitous bailment terminates by the death of either the bailor or the bailee (Sec. Example: A room cooler is hired by X from Y for a period of 6 months. Where bailment is for a specific period. Self Assessment Question 6. A shall have the option to terminate 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. On the expiry of the stipulated period. the bailor must indemnify the borrower for the loss if he compels an immediate return (Sec. if premature termination causes any loss to the bailee exceeding the benefit derived from the bailment. the bailor can demand their return whenever he pleases. (True/False) 5. on the faith of such bailment. besides the responsibility of exercising reasonable efforts in finding the real owner. His rights are summed up hereunder. the bailor may terminate the bailment (Sec. by suit. The bailor can enforce. If the bailee does any act with regard to the goods bailed.159). A gratuitous bailment can be terminated by the bailor even before the stated time..159). Self Assessment Questions 4. 4.e.e.. However.1. However. bailment is for specific purpose it terminates as soon as the purpose is accomplished. 2. the bailor must indemnify. bailment without reward). On the expiry of 6 months X must return the cooler. even though he lent it for a specified time or purpose. . In case. B drives the horse in his carriage.5 Finder of Lost Goods Finding is not owning. he enjoys certain rights also.4 Termination of Bailment A contract of bailment terminates or comes to an end under the following circumstances: 1. (True/False) 4. Bailee need not return to the bailor any accretion to the goods on completion of the contract of bailment. inconsistent with the conditions of the bailment.153). the bailee) loss exceeding the benefit derived by him from the bailment. a horse for his own riding. But if. A bailee has a general lien on the goods bailed. all duties or liabilities of the bailee. In case of gratuitous bailment (i.
they can be disposed of after a reasonable notice. the finder may sue for such reward and may retain the goods until he receives it. 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. Self Assessment Questions 7. is called the ‘pledgor’ and the person to whom the goods are so delivered is called the ‘pledgee’. When a thing which is commonly the subject of sale is lost. A finder. Right to retain the goods (Sec. 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. (i) when the thing is in danger of perishing or of losing the greater part of its value. It is only a qualified property that passes to the pledgee. To a creditor.6 Pledge or Pawn Sec. who delivers the goods as security. defines a pledge as the bailment of goods as security for payment of a debt or performance of a promise. A person who delivers the goods as security is known as: (a) Pledgee (b) Pledgor (c) Bailor (d) None 4. 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.168). be actual or constructive. cannot sue for such compensation. It offers the following advantages: 1. The Official Assignee contended that the pledge of the railway receipt was not valid. The ownership remains with the pledgor.172. upon demand. Delivery of goods may. duly endorsed. it amounts to constructive delivery. He acquires a special property. The owner of the goods can create a valid pledge by transferring to the creditor the documents of title relating to the goods. in case the borrower makes a default in payment. lender can sell the goods and prove for the balance of the debt. and is a valid pledge. no other creditor or ‘authority’ can take away the goods or its price. But where. (1971) Company Cases 591. to pay the lawful charges of the finder. that the railway receipts in India are title to goods. where sugar pledged with the Bank was seized by the Government of Bihar. (True/False) 8. pledge is perhaps the most satisfactory mode of creating a charge on goods. in Bank of Bihar v. however. Stocks cannot be manipulated as they are under the lender’s possession and control. Example: A businessman pledged a railway receipt to a bank. 2.1. The goods are in the possession of the creditor and therefore. State of Bihar and Ors. Advantages of pledge. and that the pledge of the railway receipt to the bank. (ii) when the lawful charges of the finder in respect of the thing found. . Similarly. A finder may sell goods when they are in danger of perishing or losing the greater part of their value. however. and lien which is not of ordinary nature and so long as his loan is not repaid. if the owner cannot with reasonable diligence be found or if he refuses. 3. amount to two-third of its value. Delivery essential. 2. if any. constituted a valid pledge of the goods. Held. In the case of insolvency of the borrower. Right to sell (Sec. Later he was declared bankrupt. Thus. The person. duly endorsed. 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. a specific reward has been offered by the owner for the return of the goods lost. 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. the finder may sell it.169).
a seller left in possession of goods after sale.178-A). 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 . 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. if he does the business outside his business premises or out of business hours. when acting in the ordinary course of business of a mercantile agent.30 of the Sale of Goods Act.4. Once again. Therefore.178). Where a mercantile agent is. Pledge by a person in possession under a voidable contract (Sec.169 (d) Sec. However. 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. The mercantile agent must have acted in the ordinary course of his business. 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. For a pledge by a mercantile agent to be valid the following conditions must be satisfied: a) Good faith. with the consent of the owner. 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. Self Assessment Questions 9. before sale. however.170 4. in the customary course of business as such agent. Under Sec. even a pledge by nonowners shall be valid: 1.7 Pledge by Non-owners The general rule is that it is the owner of the goods who can ordinarily create a valid pledge. (a) Sec. who obtains possession of goods with the consent of the seller. can create a valid pledge. Such a pledge shall. and a buyer. Pledge by seller or buyer in possession after sale. in possession of goods or the documents of title to goods.168 (b) Sec. 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. b) Acting in the ordinary course of business. 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. Pledge by a mercantile agent. any pledge made by him. such a transaction would fall outside this section. means a mercantile agent having. 2. in the following cases.2(9) of the Sale of Goods Act. shall be as valid as if he were expressly authorised by the owner of the goods to make the same.167 (c) Sec. 3. Provide your view on this. The ownership of the goods bailed passes to the bailee. The onus of proving both these facts rests upon the person disputing the validity of the pledge. (True/False) 10. Right to sell comes under which section. A ‘mercantile agent’ as per Sec.
Union of India. If. The pledgee is required to take as much care of the goods pledged to him as a person of ordinary prudence would.8. not only for payment of the debt or the performance of the promise.b) the pawnee act is good faith and without notice of the pawnor’s defect of title. Where a person pledges goods in which he has only a limited interest. (b) he can supervise the sale to see that it fetches the right price. A pledgee has a right to recover any extraordinary expenditure incurred for the preservation of the goods pledged (Sec. In Morvi Mercantile Bank Ltd v. 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. Pledge by co-owner in possession. In case the goods pledged when sold do not fully meet the amount of the debt. The pledgee will be liable to the pledgor for the damages. Sec. A pledgee’s rights are not limited to his interests in the pledged goods. . there is any surplus. 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. 5. Self Assessment Questions 11.. Similarly. but such contract. a pledgee may further pledge goods to the extent of the amount advanced thereon.176. the pledgee can proceed for the balance. 5. in the absence of a contract to that effect. the pledge is valid to the extent of the interest. A mercantile agent comes under _______________.1 Duties of a pledgee 1. i.. In case of injury to the goods or their deprivation by a third party. 4.175).e. However.8 Rights and Duties of Pledgor and a Pledgee According to Sec. the sale made by the pledgee without giving a reasonable notice to the pledgor is not void. 2. on the other hand. under similar circumstances.000 – the amount due to it. the pledgee must be informed. 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. Rs 35. Thus. However.e. take of his own goods. 12. i. shall be presumed in regard to subsequent advances made by the pawnee. In case the pledgor fails to inform such faults or abnormal character of the goods pledged. The pawnee may retain the goods pledged. the amount over and above his interest is to be held by him in trust for the pledgor. any damage as a result of non-disclosure shall have to be compensated by the pledgor.173]. A pledge by a mercantile agent to be valid if he must be in good faith and ________________. that has to be accounted for to the pledgor. a reasonable notice must be given to the pledgor so that: (a) the pledgor may meet his obligation as a last chance.179). cannot be set aside. Pawnee’s right of retainer [Sec. retain the goods pledged for any debt or promise other than the debt or promise for which they are pledged. but the full value of the consignment. in the absence of anything to the contrary. explosives or fragile. 4.000. 4. Pledge by a person having limited interest (Sec. In addition to the rights mentioned in Sec.176 in case the pledgor fails to pay his debt or complete the performance of obligation at the stipulated time. 4. of a similar nature.174 provides that the pawnee shall not. if the goods are of an abnormal character says. a pledgee has the following rights: 1. It is the duty of the pledgor to disclose any defects or faults in the goods pledged which are within his knowledge. The pledgee has a right to claim any damages suffered because of the defective title of the pledgor. 3. he would have all such remedies that the owner of the goods would have against them. However. or (ii) sell the goods pledged on giving the pledgor a reasonable notice of sale. Before sale can be executed. the Supreme Court held that the bank (pledgee) was entitled to recover not only Rs 20.
2. He is responsible to meet any extraordinary expenditure incurred by the pledgee for the preservation of the goods. 4. Self Assessment Questions 13. (True/False) 4. the bonus shares are the property of the pledgor and not the pledgee.2.9 Summary The bailee is under an obligation to re-deliver the goods. He must disclose to the pledgee any material faults or extraordinary risks in the goods to which the pledgee may be exposed. In case of sale. Any accruals to the goods pledged belong to the pledgor and should be delivered accordingly. 2.3 Rights of a pledgor 1. If the goods are bailed or hire or reward. 3. 3. as soon as the time of use for. 4. If any loss is caused to the goods because of mishandling or negligence on the part of the pledgee.8. if the security consists of equity shares and the company issues bonus shares to the equity shareholders. He is liable for any loss caused to the pledgee because of defects in his (pledgor’s) title to the goods. has elapsed or been performed. the pledgor is entitled to receive from the pledgee any surplus that may remain with him after the debt is completely paid off. 5. Where the pledgee has exercised his right of sale of goods. any shortfall has to be made good by the pledgor. the bailor is responsible for the damage arising to the bailee directly from such faults. (True/False) 14. in their original altered form.8.2 Duties of a pledgor 1. The pledgee has a right to claim any damages suffered because of the defective title of the pledgor. Bailment is usually based on a contract. The pledgee is bound to return the goods on payment of the debt. Thus. The pledgor has a right to claim back the security pledged on repayment of the debt with interest and other charges. The pledgor has a right to claim any accruals to the goods pledged. The pledgee is bound to return the goods on payment of the debt. He has a right to receive a reasonable notice in case the pledgee intends to sell the goods. . 4. 4. The pledgee must not put the goods to an unauthorised use. the pledgor has a right to claim the same. 4. 3. and in case he does not receive the notice he has a right to claim any damages that may result. or condition on which they were bailed.
10 Terminal Questions 1. True 8. Pledge: The bailment of goods as security for payment of a debt or performance of a promise is called pledge. 3. (a) 11.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. False 6. be returned or otherwise disposed of according to the direction of the person delivering them. What are the respective rights and duties of a pawnor and a pawnee? 5. what rights does the pledge have in the pledge? 4. True 3. False 10. False 5. 4. 4. 2. What do you mean by bailment? What are the requisites of a contract of bailment? Explain. Distinguish between ‘gratuitous bailment’ and ‘bailment for hire’. True 7. Comment. Bailee: The person to whom the goods are delivered is called the bailee. 6. When a pledger fails to redeem his pledge. Acting in the ordinary course of business . Bailor: The person delivering the goods is called the bailor. (b) 9.11 Answers Answers to Self Assessment Questions 1. “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”. Describe the characteristics of pledge. True 2. (d) 4.
and the LIC representative told that he was communicating the decision taken by the corporation. However.6 – To a creditor. given its equity holding. Mini-case It would have been business as usual at multinational drug-maker Pfizer’s annual shareholder meeting.12. True Answers to Terminal Questions 1. Pfizer’s Chairman. Kewal Handa’s salary. be returned or otherwise disposed of according to the directions of person delivering them”. Refer 4.176 in case the pledgor fails to pay his debt or complete the performance of obligation at the stipulated time.3 – Candidate give answer by their experience through the study of this unit. . were expressing their unhappiness over the dividend. True 14.3 – The bailor is bound to disclose to the bailee faults in the goods bailed. however. effective for a five-year period starting December 2003. R. He was. when the purpose is accomplished. up to Rs 50 lakh a year. Pradip Shah. One of the enabling resolutions was regarding Pfizer’s Managing Director in India. Refer 4. at the rate of one per cent of the company’s profit. that there was no intention to delist. said a shareholder who has been holding a Pfizer share since the beginning. Sec. he said. Mr. along with some other shareholders. Refer 4. proposing that it be increased from its 2007-level of Rs 1. of which the bailor is aware and which materially interfere with the use of them or expose the bailee to extraordinary risks. 4.50 per share.50 crore a year. when the multinational sent letters to shareholders inviting them into their fold. Refer 4. who delivers the goods as security.2(9) of Sales of Goods Act. upon a contract that they shall. 1930 13. unable to give reasons behind the decision. The other enabling resolution was with reference to resident non-executive directors Mr.80 crore to a maximum of Rs 2.A. It offers the following advantages. Refer 4. He. is called the ‘pledgor’ and the person to whom the goods are so delivered is called the ‘pledgee’. from the present 41 per cent. 3. LIC totally holds 14. respectively. Market observers indicated that LIC could push for a poll on the proposal. 2. The dividend for the year ended 2008 was Rs 12. R.38 per cent in Pfizer.8 – According to Sec. 6. as compared with the previous year’s Rs 27. On Pfizer Inc’s recently announced plan to raise stake in its Indian subsidiary to 75 per cent. "at this time".2 – Bailment is defined as the “delivery of goods by one to another person for some purpose. 5.50 per share. clarified that there were no motives behind the company’s actions and dividends were generous when the circumstances warranted it.6 – The person. Shah.A. Shareholders should be part of the good and bad times of the company. Mr. Shah and Mr. seeking to raise their commission. pledge is perhaps the most satisfactory mode of creating a charge on goods. Refer 4. 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. The company explained that the commission for non-executive directors was upped to Rs 20 lakh a year in 2004.
Question Discuss LIC’s role in Pfizer.2 Agent and Agency (Sec. Creeping acquisition and buyback was allowed only till 75 per cent.Unlike info-tech companies.4 Classification of Agents Special and general agents Mercantile or commercial agents Non-mercantile or non-commercial agents .3 Kinds of Agencies Express agency (Sec. Pfizer was also evaluating the possibility of merging Duchem (that has pharma and animal health businesses) with itself. Mr.189) Agency by ratification (Secs.187) Implied agency (Sec.196-200) Agency coupled with interest 5.187) Agency by estoppel (Sec. including 100 for just retail sales. Also.1 Introduction Objectives 5. the applicable milestone for Pfizer for reverse book building was 75 per cent. Detailing Pfizer’s plans to expand its domestic reach.) MB0051-Unit-05-Contract of Agency Unit-05-Contract of Agency Structure: 5. The company was planning to increase its field force by 300 people. he said. (Hint: Summarize the LIC responsibilities in Pfizer.237) Agency by holding out Agency of necessity (Sec. Handa said that they would increase the product portfolio and value offerings from the company. he clarified.182) Who can employ agent? Who may be agent? 5. he said.
1872.7 Personal Liability of Agent 5.6 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 5.182 to 238 deal with the subject of agency.201) When termination of agency takes effect? 5.12 Answers 5.5 Duties and Rights of Agent Duties of agent Rights of agent 5. Objectives .10 Summary 5. Before the Industrial revolution.190-195) 5. The Indian Contract Act. business was carried on largely by individual artisans in their homes and in small family operated shops. Secs. manufacturers and shopkeepers began to hire others to work for them.1 Introduction In the previous units. These helpers or “servants” as they were called performed whatever physical tasks were assigned to them.11 Terminal Questions 5. As population and trade expanded and division of labour and specialisation became the order of the day.9 Power of Attorney Meaning A power of attorney may be special or general Registration 5. makes provisions as regards agency. under the close personal supervision of the “master”.8 Termination of Agency Circumstances under which agency terminates or comes to an end (Sec. you came to know about the bailment and guarantee of contract. To meet the rising demand. In this unit you will study about the contract of agency.Sub-agent and substituted agent (Secs. there arose the problem of distribution of goods.
e.2 Implied agency (Sec.187) .187) A person may be appointed as agent. If agent acts for a minor or lunatic.000. a minor. 5.2 Agent and Agency (Sec. Anil appoints Bharat. For example. a broker.. Thus.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. may employ agent (Sec. (True/False) 5. No particular form is required for appointing agent. Thus. Thus. either by word of mouth or by writing. Thus. a minor or a lunatic cannot contract through agent since they cannot contract themselves personally either. 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. to sell his car for not less than Rs 90. 5.183). A principal can always revoke agent’s authority. Example: Rahim appoints Kiran. no person who is not of the age of majority and of sound mind can become agent. A substituted agent is as good agent of the agent as a sub-agent.182) Agent is “a person employed to do any act for another or to represent another in dealings with third person”. agent is a person who acts in place of another.000. However. The usual form of a written contract of agency is the power of attorney on a stamped paper. he will be personally liable to the third party. as to be responsible to his principal (Sec. Anil is the Principal and Bharat is his agent. 5.2 Who may be agent? Since agent is a mere connecting link or a ‘conduit pipe’ between the principal and the third party.After studying this unit.3. it is immaterial whether or not the agent is legally competent to contract. (True/False) 2.1 Express agency (Sec. This relationship is based upon an agreement whereby one person acts for another in transaction with a third person. Thus. No qualifications as such are prescribed for a person to be agent except that he has attained majority and is of sound mind. 5. there is no bar to the appointment of a minor as agent. the contractual capacity of the agent becomes important. Self Assessment Questions 1. Kiran sells it for Rs 80.2. The person for whom or on whose behalf he acts is called the Principal. The relationship between Anil and Bharat is called Agency.3. to sell his Maruti Car on his behalf.184).2. since Kiran is a minor and a contract with a minor is void abinitio. there are different kinds of agency. in considering the contract of agency itself (i. the relation between principal and agent).3 Kinds of Agencies A contract of agency may be created by an express agreement or by implication (implied agreement) or by ratification. 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.
3.3. Managing Director of a company. Lallan subsequently withdraws the offer. Agency in such a case is said to be created by ratification. Lallan is bound by the offer. the principal is not held bound by the transaction. induced others to believe that a certain person is his agent.4.7 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. therefore. it will have the same effect as if the act was originally done by his authority. therefore.5 Agency of necessity (Sec. (True/False) 5.Implied agency arises from the conduct.6 Agency by ratification (Secs. Komal can recover the price from Puran since through previous dealings Puran has held out his servant Amar as his agent. However. Example: Lallan makes an offer to Badal.3.189) 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. by his conduct or statements. 5. If he so elects. Sec. to ratify the act of the agent. he runs the risk of being personally liable since the principal may not ratify the same. In other words. Ratification tantamounts to prior authority. some affirmative conduct by the principal is necessary in creation of agency by holding out.3. 5.237) When a person has. thus rendering the revocation of the offer inoperative. 5. although it is not a fact. agency by holding out and agency of necessity. . the agency is one coupled with interest. On one occasion. (True/False) 4. situation or relationship of parties. 5.4 Agency by holding out Though part of the law of estoppel. If he does anything beyond the specified act. if he so desires. Badal accepts the offer though he has no authority to do so.4 Classification of Agents Agents may be classified from different points of view. Puran pays his servant in cash to purchase the goods. includes agency by estoppel. The servant purchases good on credit pocketing the money. The ratification by the company relates back to the time Badal accepted the offer. Example: Puran allows his servant Amar to buy goods for him on credit from Komal and pay for them regularly. 5. An offer once accepted cannot be withdrawn. Implied agency. but the company ratifies Badal’s acceptance. or where he exceeds the given authority. he is estopped from subsequently denying it. has only a limited authority to do the specified act.3.196-200) Where agent does an act for his principal but without knowledge of authority. An ostensible agency is as effective as an express agency. Self Assessment Questions 3. Another classification of agents is: (1) general and (2) special.1 Special and general agents A special agent is a person appointed to do some particular act or enter into some particular contract.3 Agency by estoppel (Sec. 5. One broad classification of agents is: (i) mercantile or commercial agents and (ii) nonmercantile or non-commercial agents. where the agent has himself an interest in the subject-matter of the agency. The principal is precluded from denying the truth of agency which he himself has represented as a fact. A special agent.196 permits the principal.
g. e. The usual method of dealing by a broker is to make entries of the terms of contract in a book. He can even sell the goods on credit and in his own name. attorneys. A broker has no possession of goods or property. called the memorandum book and to sign them.1 Duties of agent The duties of agent towards his principal are: . he would be bound to pay her bills for necessaries. estate agent.e. Pakka and Katcha Adatias and indentor. If he does not provide further maintenance. unless expressly authorised to do.. (v) in an unforeseen emergency. A commission agent is not liable in case the third party fails to carry out the agreed obligation. the delegation is valid. (True/False) 5. the husband is liable to provide for her maintenance. He is merely a connecting link between the engager and a third party. she has an implied authority to bind the husband for necessaries. however. 5. (b) goods. commission agent. cannot barter the goods. he assigns the job to another equally competent typist Bharat. But where the wife lives apart under no justifiable circumstances. He then sends the particulars of the same to both parties. Sec. A factor has a general lien on the goods in his possession. because of lack of time. he cannot delegate his authority. A commission agent may have possession of the goods or not. (iii) the nature of agency is such that it cannot be accomplished without the appointment of a sub-agent.5. 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.5. A factor.2 Mercantile or commercial agents A mercantile or commercial agent may assume any of the following forms: broker.5 Duties and Rights of Agent 5. purchased were not necessaries. banker.4 Sub-agent and substituted agent (Secs.. Self Assessment Questions 5.3 Non-mercantile or non-commercial agents Some of the agents in this category are: wife. auctioneer. He is also authorised to raise money on their security. she is not her husband’s agent and thus cannot bind him even for necessaries. if Anthony is appointed to type certain papers. (True/False) 6. called a del credere commission.190-195) The general rule is that agent cannot appoint agent. (ii) where the ordinary custom of the trade permits delegation. Agent may appoint agent in the following circumstances: (i) where expressly permitted by the principal. or (d) the trader had been expressly told not to give credit to his wife. A del credere agent is one who.4. Agent being a delegate cannot transfer his duties to another.4. Also. counsels (advocates). through no fault of hers. 5. del credere agent. His lien in case of goods in his possession is a particular lien.190 deals with the circumstances as to when and how far agent can delegate his duties. Agent cannot renounce his agency. A factor is a mercantile agent who is entrusted with the possession of goods with an authority to sell the same. (iv) where the nature of the job assigned to the agent is purely clerical and does not involve the exercise of discretion. Hence. guarantees the performance of the contract by the other party. The remuneration that he gets for the purpose is called the commission. However. A commission agent is agent who is employed to buy or sell goods or transact business. i. sub-agency is not generally recognised. she is agent. factor. (c) he had given sufficient money to his wife for purchasing necessaries. (ii) Where the wife lives apart from the husband. Agent being merely a connecting link is never personally liable. in consideration of an extra remuneration. The document sent to the seller is called the sold note and the one sent buyer is called the bought note. The governing rule is enshrined in a maxim ‘a delegate cannot further delegate’.4. 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). 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. 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.
212). He can.2 Rights of agent Agent has a number of rights these are: 1. Not to disclose confidential information supplied to him by the principal. however. Example: Pawar appoints Amar. If he does so. except where there is a contract to the contrary. but maintaining proper accounts supported by vouchers. But the remuneration does not become payable unless he has carried out the object of agency. do with regard to his own business. 2. 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. to a reasonable remuneration. Pawan may. Rendering of accounts does not mean showing the accounts. Right of lien (Sec. on discovering that Amar has bought the house. In the absence of any contract to the contrary. 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. The agent should conduct the business with the skill and diligence that is generally possessed by persons engaged in similar business.213). By a special contract. Agent should deliver to the principal all moneys including secret commission received by him.. agent may get a general lien extending to all claims arising out of the agency. 2. i. everything consistent with the proved facts will be presumed against him.1. To render proper accounts (Sec.221). The duty of the agent must be literally complied with. It is the duty of agent. This is known as agent’s right of retainer. to buy a particular house for him. If the agent fails to keep proper accounts of the principal’s business. Amar tells Pawan that it cannot be bought. disbursements and services in respect of the same has been paid or accounted for to him.209). To conduct the business of agency according to the principal’s directions (Sec. to use all reasonable diligence. Not to deal on his own account. agent is entitled to retain goods. 3. deduct his lawful expenses and remuneration. Not entitled to remuneration for misconduct (Sec. except where the principal knows that the agent is wanting in skill (Sec. the agent can do all that a reasonable man would. To communicate with the principal in case of difficulty (Sec. but buys the house for himself. 7.211). 6. 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. Example: Pawan directs Amar.214). until the amount due to himself for commission. Right to remuneration (Secs. the agent is not supposed to deviate from the directions of the principal even for the principal’s benefit. Since. 5. however.220). 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. 8. a broker. He becomes agent by necessity.e. whether movable or immovable of the principal received by him. This lien of the agent is a particular lien confined to all claims arising in respect of the particular goods and property. any loss occasioned thereby shall have to be borne by the agent.219-220). the principal can claim from the agent any benefit which he might have obtained.5. papers and other property. 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.217). his agent. the word ‘lien’ means retaining possession. whereas any surplus must be accounted for to the principal. Agent is entitled to his agreed commission or remuneration and if there is no agreement. Agent may retain. Not to make any secret profits. Agent should not deal on his own account without first obtaining the consent of his principal. 9. 3. under similar circumstances. If he does so. 5. In case of emergency. in communicating with his principal and in seeking to obtain his instructions. The agent has to render proper accounts. compel him to sell it to Pawan at the price he bought. it can be enjoyed by the agent only where the goods or papers are in actual or constructive possession of the . 4. Right of retainer (Sec. out of any sums received on account of the principal in the business of the agency. however. in case of difficulty.
4. (True/False) 5. so much only of what he does as is within his authority.227). 5.226). Right of indemnification (Secs. be lost where he parts with the possession of goods or papers. (True/False) 8. 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. can proceed against him on the contract. his lien is not affected by the loss of possession. Like an unpaid seller. An agent coupled with interest is irrevocable.223 provides an option to the third parties to either sue the principal or agent or both.222). though it causes an injury to the rights of third persons (Sec. he may exercise the unpaid seller’s right of stopping the goods in transit in case of buyer’s insolvency. he enjoys the right of stopping the goods in transit if in the meantime the principal has become insolvent. Agent being a mere connecting link binds the principal for all his acts done within the scope of his authority (Sec.agent.223).222-224). 5. The right of lien will. Sec.6.225). therefore. The principal is bound by any notice or information given to the agent in the course of business transacted by him. (b) Where agent holds himself liable to his principal for the price of the goods sold.238).2 Liability of principal to third parties 1. But if the possession is obtained from the agent by fraud or unlawful means. Self Assessment Questions 7. he stands towards the principal in the position of an unpaid seller. (ii) liable to indemnify agent against the consequences of an act done in good faith. Where agent exceeds his authority and the part of what he does. 6. 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. 3. or by incurring a personal liability for the price. can be separated from the part which is beyond his authority. The principal will be liable even for misrepresentations made or frauds committed by agent in the business of agency for his own benefit. del credere agent. Agent can never delegate his authority. For example. 5. on discovering his name. 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. is binding as between him and the principal (Sec.6. (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 liability of the principal continues even in cases where agent is held personally liable. The principal remains liable to the third parties even where his name was not disclosed. 4. The third parties.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. Right of stoppage in transit. But misrepresentations made or frauds committed by agents in matters beyond their authority do not affect their principals (Sec. 2. which is within his authority. . 7. 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.
must look to the agent for payment or performance and the agent may sue or be sued on the contract. the third parties are not aware of the existence of the principal and regard the agent as the person contracting for himself. A ______________ is a mercantile agent engaged to buy and/or sell property. The third parties.3 Undisclosed principal Where agent. Sec.230). In such a case. 10. (a) Broker (b) Advisor . 5. such a principal is called an undisclosed principal. though discloses the fact that he is agent working for some principal. 5. (2) where the agent does not disclose the name of his principal. However. (True/False) 12. if there is an agreement to the effect. he can. Self Assessment Questions 11.7 Personal Liability of Agent Agent is only a connecting link between the principal and third parties. though disclosed.6. A wife can always pledge her husband’s credit.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. conceals the name of the principal. express or implied. the undisclosed principal must exist and must also be the principal at the time the contract is made. From the above discussion. thus. cannot be sued. it may be inferred that agent can enforce contracts personally and be held bound for contracts entered into on behalf of his principal.4 Concealed principal Where agent conceals not only the name of the principal but the very fact that there is a principal. the principal is called a concealed principal. (3) where the principal.6. where principal is a minor. Self Asessment Qestions 9. Being only a medium. nor is he personally bound by them (Sec. neither personally enforce contracts entered into by him on behalf of his principal. for instance. The liability of an undisclosed principal is similar to that of a disclosed principal unless there is a _____________ making the agent liable. The liability of an undisclosed principal is similar to that of a disclosed principal unless there is a trade custom making the agent liable. in the absence of a contract to the contrary. He cannot be brought into existence as a principal after the contract has been concluded. The principal is not liable for _____________ acts done by the agent at the instance of the principal.5.
By renunciation of agency by the agent. An agency shall also terminate in case the subject matter is either destroyed or rendered unlawful. in such a case. takes effect before it becomes known to him (Sec. Insolvency of the principal. On revocation by the principal.1 Meaning . by notice. Where agent is appointed to do a particular act. Death or insanity of the principal or the agent. on behalf of the legal representatives of the principal (s. 4. but before he receives it. When the agency is for a fixed period of time.201) 1. If principal can cause termination of agency by revocation. 7. As regards third parties. 5.208). (True/False) 5.(c) Agent (d) None 5.205). sells the goods for Rs 100. B. The sale is binding on A and B is entitled to five rupees as his commission. 6.8. The termination of the authority of agent does not.9 Power of Attorney 5.1 Circumstances under which agency terminates or comes to an end (SEC.209) 5. Example: A directs B to sell goods for him and agrees to give B 5% commission on the price fetched by the goods. by a letter revokes B’s authority. The principal may. In case of a continuous agency. agency may be revoked any time before the commencement of the act. A afterwards.8. terminates the agency. 3. agency is for a fixed period and the agency is renounced without a sufficient cause.208). terminates the agency. (True/False) 14. But. On the performance of the specific purpose. 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. not of the agent. they can continue to deal with the agent till they come to know of the termination of the authority (Sec. 2. Insanity or death of the principal or agent. agent. however.2 When termination of agency takes effect? 1.8 Termination of Agency 5. so far as regard the agent. Where. not terminates the agency. should take all reasonable steps for the preservation of property. it comes to an end on the expiry of that time. Death or insanity of the principal or the agent. agency terminates when that act is done or when the performance becomes impossible. 3. Self Assessment Questions 13. 2. On the expiry of fixed period of time. after the letter is sent.9. Insolvency of the principal. agent may renounce his agency by giving a sufficient notice to that effect. the principal must be compensated (Sec. revoke the authority of the agent at any time. Notice of revocation is essential to the agent as well as to the third parties. The termination of the authority of agent causes the termination of authority of all sub-agents appointed by him. Where the agent is appointed to do a single 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. 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. If the deed conferring power relates to several transactions it is general power of attorney. The amount of stamp duty varies with different types of powers as described in the Stamp Act and varies among different States of India. 5. A person cannot enter into a contract as his own and later shift it to another. It is the Powers of Attorney Act. The person executing the deed is known as the _______________. 5. but does not define it. it is known as special power of attorney.4 of the Power of Attorney Act. which deals with the subject. Further Sec.9.2 A power of attorney may be special or general If the deed conferring power by one to another relates to one single transaction. 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. And so also a power creating a charge in favour of the donee upon an immovable property referred to therein.9.33 of the Act. whether movable or immovable of the principal received by him.32 (c) of the Registration Act.A power of attorney is defined by Sec. Glossary .3 Registration As a general rule. 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. 1882. In the absence of any contract to the contrary agent is entitled to retain goods. 16. however.” which empowers “a specified person to act for and in the name of the person executing it”. Such a power of attorney is to be executed before and authenticated by a registrar or sub-registrar. 1908. papers and other property. Self Assessment Questions 15. requires that where a document is presented for registration by the agent of a person entitled to present it for registration. The power of attorney is required to be engrossed on non-judicial stamp paper. until the amount due to himself for commission.. The power of attorney. The power of attorney is required to be engrossed on non-judicial stamp paper. or the power agent or the power of attorney agent.2(21) of the Stamp Act. Sec. Such certified copies are equal to originals and are binding on all. 5. The power of attorney is required to be engrossed on ______________.10 Summary The agent must contract as agent he must not allow the third party to imagine that he is the principal. as including “any instrument not chargeable with a fee under the law relating to court fees for the time being in force. it would require registration. A commission agent is agent who is employed to buy or sell goods or transact business. such agent must be duly authorised by power of attorney executed and authenticated in manner as mentioned in Sec. In common parlance. executed before a notary public in India will not enable the agent to present any document for registration under the Registration Act. Unregistered power executed in a foreign country before a notary public can be used by the agent for presentation of document for registration. 1908.
Describe the rights of agent against his principal. What do you mean by agency by estoppel? In what way does it differ from agency by holding out? 2. True 4. True 8. “Agent having an authority to do an act has authority to do every lawful thing which is necessary in order to do such act. True 5. Describe the meaning of ‘agency by ratification’. criminal 10.12 Answers Answers to self assessment questions 1. True . 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 2. False 12. 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. False 9. False 3.11 Terminal Questions 1. (a) 13. 3.Agent: An agent is a person employed to do any act for another or to represent another in dealing with the third persons. 5. False 6. What conditions must be fulfilled for a valid ratification? Explain the effect of a valid ratification. 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. False 7. trade custom 11. What do you mean by del credere agent? 5.” Comment. 5.
The person for whom or on whose behalf he acts is called the Principal. 5. 2. which is any way extremely difficult to monitor. there are two views over whether the law should prohibit this `rebating’. At the Life Insurance Executive Council. it has been almost a standard practice for the agents of Life Insurance Corporation to give their customers a part of their commission. However. in an e-mail to Business Line. to ratify the act of the agent. Says Mr N.5 – Agent is a person who acts in place of another. Alegion Risk Management Services (which proposes to become a general insurance .196 permits the principal. called a del credere commission. Mr Dilip Gazaaro. After all." Max New York Life’s spokesman echoes similar views. in consideration of an extra remuneration. insurance companies are even allowed to extend credit to their customers for premiums.6 – A special agent is a person appointed to do some particular act or enter into some particular contract. Director. This shortening of process often leads to misrepresentation resulting in poor service quality." Ms Ghoshal said. no matter how difficult it is to monitor. another point of view of the same issue is that there is no point in prohibiting rebating by agents. HDFC Standard Life. a claim is payable if and only if the premium has been received in full. "There has to be a change in awareness level for all customers to refrain from rebating. "This industry has been with a monopoly player. Refer 5. the agent is paying out of his pocket.8 – Where agent does an act for his principal but without knowledge of authority.4 – A del credere agent is one who. 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. In India. although they all agree that monitoring this is almost impossible. 4. Sec. he is estoppels from subsequently denying it. Why prohibit rebating only in the insurance industry. "An agent rebates in order to shorten his sales cycle. the principal is not held bound by the transaction. False 15.14. "They can explain the customer as to why he needs to pay the agent for his service. However. They usually paid the first quarter’s premium on behalf of the customer. says that his company actually dismissed an agent for rebating. "We as an industry are also establishing a code of conduct against such practices. and therefore not a matter of opinion. Refer 5. Advocates of this view point out that in most countries. Principal or donor 16. Head-Retail Sales. guarantees the performance of the contract by the other party. induced others to believe that a certain person is his agent. Other insurance companies agree. is a fact.000. Head-Corporate Communications. the Financial Planning Advisers are trained to handle such demands. That this practice is illegal. Raveendran. If the customer can pay substantial amounts for premium. Rebating is in a way an informal credit extended to the customer by the agent. by his conduct or statements." says Ms Suniti Ghoshal. 3." says a spokesman of Max New York Life Insurance. However. Dabur CGU Life Insurance). says Ms Ghosal. Most life insurance companies support banning of rebating. Refer 5. Non-judicial stamp paper Answers to Terminal Questions 1." There are others who believe that rebating should continue to be illegal. or not. Mini-case Over the years. At Aviva. Refer 5. Refer 5. Aviva Life Insurance (formerly. when discount is a way of life in all other industries? But insurance companies do not like it. if he so desires. hence certain things have only been done without being questioned much.2 – When a person has. we have recommended that the penalty for rebating be increased from Rs 500 to Rs 10. or where he exceeds the given authority.
Question Discuss the financial planning advisor role in insurance industry. you don’t necessarily go to the doctor who charges the least.1 Introduction Objectives 6. MB0051-Unit-06 -Law of Partnership Unit-06 -Law of Partnership Structure: 6.2 Meaning and Nature of Partnership Formation of partnerships Duration of partnership Partnership at will Particular partnership Limited partnership 6. "Legalising rebating would drive away the serious agents who do not usually give rebates".6 Relations of Partners to Third Parties . But legalising rebating would push back the arrival of such a time. After all.broker). that rebating will automatically go away. when the society matures enough to be willing to pay for a service. (Hint: Basically financial advisor is a main person who involve more and more in the planning of insurance sector).5 Relations of Partners to one Another Rights of partners Duties of partners 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 6.3 Registration of Firms (Secs. He says that there would come a time.
1932. A contract of partnership is a special contract. you should be able to: l Explain the nature of partnership l Define partnership deed .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. The law relating to partnership in India is contained in the Indian Partnership Act.44) 6. 1872.1 Introduction In the earlier units. it was embodied in Chapter XI of the Indian Contract Act.11 Answers 6.26-27) 6. Prior to the enactment of this Act.10 Terminal Questions 6. Sec.3 provides that the provision of the Indian Contract Act. shall apply to the contract of partnership unless any provision thereof is inconsistent with the provisions of the Indian Partnership Act. In this unit you will study about the law of partnership. Partnership is a time-honoured form of business organisation and one that is still much in use in India. Objectives After studying this unit. you came to know about the contract of agency. Therefore.9 Summary 6.8 Dissolution Dissolution of firm and dissolution of partnership Dissolution of firm Dissolution by court (Sec.Implied authority of a partner Liabilities of a partner Liability of a firm for wrongful acts of a partner (Secs. 1932.
4. sharing of losses is not. These persons must be natural persons having legal capacity to contract. These elements must be present so as to form a partnership and are discussed below. 268]. a person may become a partner with another even in a particular adventure or undertaking (Sec. 2. 1956 can enter into a contract of partnership. a trader. it will not amount to partnership. Unless the person joins for the purpose of carrying on a business. 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..L. The following points must be kept in mind: 1. Partnership is an association of two or more than two persons. Sec.2(b)].l Explain the relations of partners to others l Describe the changes in a firm 6. The joint carrying on of a business alone is not enough. 2.2. 1. The agreement must be to share profits of the business. The term ‘business’ includes every trade. puts the limit at 10 in case of banking business and 20 in case of any other business. A partnership is an extension of agency for which no consideration is necessary. Partnership must be the result of an agreement between two or more persons.C. Partnership is the result of an agreement between two or more persons (who are known as partners after the partnership comes into existence). There must be at least two persons who should join together to constitute a partnership. it is always advisable to have the partnership agreement in writing. 3. certain essential elements of partnership emerge. a partnership to arise. while constituting a partnership. there must be an agreement to share profits arising from the business. An alien friend can enter into partnership. an alien enemy cannot. occupation or profession [Sec. Unless otherwise so agreed.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.11 of the Companies Act. incorporated under the Companies Act. An agreement presupposes a minimum number of two persons. As mentioned above.. 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. 3. No consideration is required to create partnership. Hickman. or by any of them acting for all”. The Act provides that a minor may be admitted to be benefits of partnership. 4. a company (which is an artificial person) cannot be a partner. However. . Therefore. 1956. But whereas the sharing of profits is an essential element of partnership. Thus. the arrangement did not make creditors partners with A in business [Cox v. Example: A. The partnership agreement may be express (i. (1860) 8 H. a partnership firm cannot be a partner of another partnership firm. Held. The agreement must be to carry on some business. As regards maximum number of partners in a partnership firm. On analysis of the definition.8). 6. owed money to several creditors. He agreed to pay his creditors out of the profits of his business (run under the creditors’ supervision) what he owed to them. Similarly. 5. A person of unsound mind is not competent to enter into a partnership. A company. at least two persons must make an agreement. because one person cannot become a partner with himself. sharing of profits also involves sharing of losses. Though the word ‘business’ generally conveys the idea of numerous transactions.e.
An unregistered partnership is illegal. (iii) the names of any other places where the firm carries on business. 6.3. (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.2. (True/False) 6. He then issues under his hand a Certificate of 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 Duration of partnership The duration of partnership may or may not be fixed.4 Particular partnership In accordance with Sec. An unregistered partnership firm is not illegal but its rights are not enforceable. Such a partnership is usually dissolved on the completion of the adventure or undertaking. .3.2 Registration of firms is optional The Act does not provide for compulsory registration of firms.3 Registration of Firms (Secs.8 a particular partnership is one which is formed for a particular adventure or a particular undertaking. Therefore such a partnership has no fixed or definite date of termination. a statement in the prescribed form and accompanied by the prescribed fee.2. ensured registration of firms by introducing certain disabilities that an unregistered firm suffers from. The statement must be signed by all the partners. 4. (v) the names in full and addresses of the partners and (vi) the duration of the firm.58 have been duly complied with. or by their agents especially authorised in that behalf and duly verified. The firm cannot. 6. When the Registrar of Firms is satisfied that the provisions of Sec.5 Limited partnership In this type of partnership. It may be constituted even for a particular adventure.2. Self Assessment Questions 3. Accordingly death or retirement of a partner does not affect the continuance of such a partnership. A partnership firm may be registered at any time by post. Self Assessment Questions 1.3 Partnership at will In accordance with Sec. (True/False) 2.58-59) 6. 6.6.1 Application for registration Sec. A firm cannot sue a person for the price of goods it ______________. But at the same time Sec.2. Registration of a partnership firm is effective from the date when the registrar files the statement & makes entries in the ______________. In a limited partnership. (ii) the place or the principal place of business of the firm. It is optional and there is no penalty for non-registration. (iv) the date when each partner joined the firm. 6. the liability of certain partners is limited to the amount of capital which they have agreed to contribute to the business.7.69 has effectively.59). a partnership is called a partnership at will where. there will be at least one general partner whose liability is unlimited and one or more special partners whose liability is limited. Registration is effective from the date when the Registrar files the statement and makes entries in the Register of Firms. stating: (i) the firm’s name.58 lays down the procedure for registration of partnership firms. 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.
3.4. 6.6. 1872. To express his opinion on any matter. However. The partnership deed is required to be stamped according to the provisions of the Stamp Act.4 Partnership Deed 6. shall continue to apply to firms. written agreement is not compulsory.12(c)].2(e) provides that “expressions used but not defined in this Act and defined in the Indian Contract Act. every partner has the following rights: 1. shall have the meanings assigned to them in that Act”.1 Rights of partners Subject to the contract between the partners. To have access to and inspect and copy any of the books of the firm [Sec. are applicable to it. To take part in the conduct of the firm’s business [Sec.11(1)]. it is desirable to enter into a written agreement which is called Partnership deed or agreement.12(d)].5 Relations of Partners to one Another The relation of the partners of a firm to one another arises through an agreement between them. but in case of difference of opinion regarding ordinary matters of the business.13(b)]. 2. Such an agreement may be express or may be implied from the course of dealings between them. the provisions of the Indian Contract Act.5. Self Assessment Questions 5. Also Sec. Where there is no specific agreement or where the agreement is silent at a certain point. 1899.2 Partnership agreements and contract law Sec.1 A partnership can be formed either by oral or written agreement In France and Italy. The Indian Partnership Act has effectively ensured the registration of firms without making it compulsory. the relations of partners to one another as regard their rights and duties are governed by Secs. the law requires all partnership agreements to be in writing. But in order to avoid misunderstanding and litigation. It may be varied by their consent and such consent may be expressed or may be implied by a course of dealings [Sec. (True/False) 6. Each partner should possess a copy of the Deed. 4.9-17 of the Act. or where no agreement exists. (True/False) 7. he is bound by the majority decision. 1872. It is obligatory for a firm to be registered under the Indian Partnership Act. But in England.3 provides that the unrepealed provisions of the Indian Contract Act. (True/False) 6. 1872 save insofar as they are inconsistent with the provisions of this Act. USA and India. A firm is liable for the wrongful acts of a partner. no change can be made in the nature of the business without the consent of all the partners [Sec. 6. As a partnership agreement is a contract.12(a)]. . To share equally in the profits [Sec.4.
(i) They are bound to (a) carry on the business of the firm to the greatest common advantage. 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. the firm is liable therefore to the same extent as the partner. all such acts as are reasonably necessary to protect the firm from loss. (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.13(a)].5. 6. To continue in the partnership. It is express.18 every partner is the agent of the firm for the purposes of the business of the firm. . 6. (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. (True/False) 9.e. however.9.1 Implied authority of a partner A partner’s authority may be express or implied.6 Relations of Partners to Third Parties Subject to Sec.6. 9. or with the authority of his partners. 6. i. (v) If a partner carries on any business competing with that of the firm.13(c)]. Self Assessment Questions 8. a partner shall be liable for (i) not carrying on the business of the firm to the greatest common advantage. A person can be admitted as a partner in a firm with the consent of the majority of partners.6.13(e)]. he shall account for and pay to the firm all profits made by him in that business [Sec.5. be oral or written. by the wrongful act or omission of a partner acting in the ordinary course of the business of a firm. however. A partner may. i. not to be expelled. in view of Sec. 6. (iv) If restrained by an agreement with other partners. the law presumes that every partner has the power to do certain acts unless negative by an express agreement. (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. A minor can be a partner in a firm. be expelled if a power to expel is conferred upon the partners and power is exercised bona fide by a majority of partners [Sec.2 Duties of partners Sec. 7.2 Liabilities of a partner Liability of a partner stems from not complying with his duties under the Partnership Act. 6. To do.11(2)].6. (iii) To attend diligently to his duties in the conduct of the firm’s business without any remuneration [Sec. It is implied when the law impliedly gives certain powers to a partner. when it is fixed between the partners by mutual agreement. To be indemnified by the firm in respect of liabilities incurred by him in the ordinary course of business [Sec. (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.e.9 provides for general duties of partners. in an emergency.16(b)]. The agreement may.10).3 Liability of a firm for wrongful acts of a partner (Secs. Secs. Thus. 8.19 and 22 deal with the subject of implied authority of a partner..33(i)]. loss or injury is caused to any third party or any penalty is incurred.26-27) Where.. To rank as a joint owner of the property of the firm.
6. ‘Partnership’ and ‘firm’ are synonymous.3 Expulsion of a partner . 1872. (True/False) 6.32 clearly comprehends a situation where a partner may retire without dissolving the firm. no new partner can be introduced into a firm without the consent of all the existing partners. (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. the principal must be in existence at the time when the act was done. (True/False) 11. which provides that for the purpose of ratification of agency.7. Liability of the retired partner.196 of the Indian Contract Act. (b) there is an implied agreement to the above effect.1 Rights and liabilities of incoming partners Sec. a partner may retire by giving to his partners a notice of his intention to retire.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. (True/False) 12. 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.. 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. after the third party had knowledge of the retirement. Sec. (ii) where there is an agreement between the partners about retirement. 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.7 Changes in a Firm The Act contemplates the following changes in a firm: (i) change in the duration of a firm. unless he agrees to be liable for obligations incurred by the firm prior to that date. Such an agreement may be implied by a course of dealing between such third party and the remaining partners. Sec. A firm can enter into a partnership agreement with another firm. However.2 Rights and liabilities of a retired partner An outgoing partner means a partner who has retired from a firm. The liability of a new partner ordinarily commences from the date when he is admitted as a partner. viz.31 provides that subject to a contract between partners and to the provisions regarding minors in a firm. At the same time. the acts of the old partners cannot be ratified by the new partner.Self Assessment Questions 10.7. A partnership may be entered into for a fixed period of time. 6. This is because there is no privacy of contract between the creditor and the new partner. the partners may carry on the business even after the expiry of the fixed period and the partnership becomes ‘partnership at will’. a partner may retire in accordance with the terms of that agreement. (ii) change in the nature of business or undertakings and (iii) change in the constitution of a firm. The firm is reconstituted by the remaining partners. Sec. it comes to an end. Sec. 6. (This implies the principle of novation). There can be thirty partners in a firm.7. (i) he may retire at any time with the consent of all other partners. This is in accordance with Sec.32 contemplates three ways in which a partner may retire from the firm. When the fixed period is over.
Sec. (ii) the power is exercised by a majority of the partners and (iii) the power is exercised in good faith.35 deals with a situation where after the death of a partner. 6. Thus.34 provides that where a partner in a firm is adjudicated insolvent. The contract providing for dissolution may have been incorporated in the partnership deed itself or in a separate agreement.8.45 lays down an identical rule applicable to a case where the death of a partner has caused dissolution of the firm. Self Assessment Questions 13.8 Dissolution 6.7.7. Sec. But as the partnership relationship is based on mutual confidence. but it would nevertheless be “dissolution of partnership”. (True/False) 14. of powers conferred by the contract between the partners. be dissolved with the consent of all the partners. Sec.8.1 Dissolution of firm and dissolution of partnership Sec. is not entitled to (i) interfere in the conduct of business of the firm or (ii) require accounts of the firm. By mutual consent.40 also provides for the dissolution of a firm in accordance with a contract between the partners. Proviso to Sec. 2. in the absence of a contract to the contrary. Sec.42(c) provides that a firm is dissolved by the death of a partner. The transfer may be absolute or partial. (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.6 Transfer of partner’s interest A partner may transfer his interest in the firm by sale. Dissolution of partnership may involve merely a change in the relation of the partners and not the dissolution of the firm.2 Dissolution of firm When the relationship existing between all the partners of the firm comes to an end. It follows that if the dissolution of partnership is not between all the partners.39 provides that the dissolution of partnership between all the partners of a firm is called the “dissolution of the firm”.40 provides that a firm may. the assignee of a partner’s interest cannot enjoy the same rights and privileges as the assignor. (True/False) 6.7. 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. By agreement. in good faith. A firm may be dissolved in any of the following ways: 1.33 provides that a partner may not be expelled from a firm by a majority of partners except in exercise. it would not amount to “dissolution of firm”.5 Death of a partner Sec. 6. Sharing of profits is a conclusive evidence of partnership. but dissolution of partnership need not lead to dissolution of firm. This applies to all cases whether the firm is for a fixed period or otherwise. Thus. a partner may be expelled from the firm if (i) the power of expulsion is conferred by a contract between the partners. 6. There is no question of ‘reconstituted firm’ in such a case. or (iii) inspect books of the firm. .4 Insolvency of a partner Sec.Sec. It naturally involves closing down the business. The test of good faith will be satisfied if (i) the expulsion is in the interest of the partnership. It is to be noted that ordinarily but not invariably. 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. mortgage or charge. dissolution of firm always implies dissolution of partnership. it is called dissolution of the firm.29 provides that the transferee. 6. A public notice of the death of a partner is not required. A partner is not entitled to claim remuneration. 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. at any time. during the continuance of the firm.
Sec.3 Dissolution by court (Sec. By business becoming illegal. the court will not order dissolution. By the insolvency of all the partners but one. 6. If all the partners or all the partners but one become insolvent. because no new partner is introduced thereby. In the case of insanity of a dormant partner. b) Permanent incapacity of a partner. 380]. the court may order dissolution. 42 Bom. if the partnership relates to more than one adventure. however. in such a case. g) Just and equitable. d) Willful and persistent disregard of partnership agreement by a partner. If a partner willfully and persistently commits a breach of the partnership agreement regarding management. The application for dissolution. partners not on speaking terms. if a partner becomes permanently incapable of performing his duties as a partner. disappearance of the substratum of the business.41 also covers cases of partnership between persons some of whom become alien enemies by a subsequent declaration of war. 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. Partners becoming alien enemies. the court may dissolve a firm on any of the following grounds: a) If a partner has become of unsound mind.8. A partner can.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.44) At the suit of a partner. Price. there is a dissolution of the firm. The court can order dissolution on any other ground which in the opinion of the court is a fit ground for dissolution of partnership. Dissolution on this ground has been granted in case of deadlock in the management. 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. etc. mortgage or charge). The suit for dissolution under this ground can be brought by a partner other than the guilty partner. The transfer of a part of his share by a partner to any third party is not permissible unless otherwise agreed. unless a very special case is made out for dissolution. the fact of hostility between the partners which makes cooperation between them impossible. If a partner transfers. The application in this case may be made by any of the partners or by the next friend of the insane partner. 4. the court may order dissolution.g.3.41 calls this as compulsory dissolution. Sec.. The court may order for dissolution of partnership. c) Misconduct of a partner affecting the business. f) The court can also dissolve partnership where the business of the firm cannot be carried on save at a loss. The court can order dissolution even though the partnership is for a fixed period [Rehmat-un-nisa-v. Continuous refusal by a partner to attend to his duties in the partnership business. may be made by any of the partners and not by the incapacitated partner. In such a case partnership is dissolved. Sec. 5. transfer even the whole of his share to a partner in the firm. because trading with an alien enemy is against public policy. the court may dissolve the partnership. the illegality of one or more of them does not prevent the lawful adventure from being carried on by the firm. in any way (e. by sale. e) Transfer of interest or share by a partner. have been held to be sufficient reasons for dissolution. But. Self Assessment Questions . If a partner is guilty of conduct which is likely to affect prejudicially the carrying on of the business of the firm.
11 Answers Answers to Self Assessment Questions 1.10 Terminal Questions 1.9 Summary The relationship of partnership arises from an agreement between the persons concerned not from status. Agreement as made between the persons must be valid and enforceable by law. sole proprietorship. means to end a legal entity or agreement such as a marriage. 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. (True/False) 16. limited liability company. agreement in writing must be preferred. The rights and obligations of the partners towards each other and towards the firm can be determined by an oral or written agreement. True 3. or "private equity" "investment (firm) organization" Dissolution: Dissolution (law). 4. (a) Explain the procedure for getting a partnership firm registered. This agreement may be oral or written. Register of firms . Proprietorship: A proprietorship is a company which is not registered with the state as a limited liability company or corporation. A partnership is formed by an agreement between the partners. Firm: Any business entity such as a corporation.15. Dissolution of firm by agreement come under ________________. 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. adoption. What is meant by dissolution of a firm? Is it different from the dissolution of partnership? 6.. 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. partnership. In what circumstances is partnership dissolved: (i) automatically. (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. Dissolution of firm always implies dissolution of partnership. (c) What are the advantages of registration of a partnership firm? 3. 6. False 2. or corporation. in law. 6. 6. To avoid future complications and dispute amongst the persons constituting partnership. To avoid future dispute it is always advisable to have partnership expressed in writing. (ii) compulsorily by the court? 5.
a star CFO. False 11.4. Refer 6. mortgage or charge).jet setting. She wanted to join one of the Big Four firms with the long-term goal of becoming the next C. Prahalad. Mini-case If she weren’t a shade confused. was her inspiration and she wished to be like him . Her professor had once told the class. in any way (e. you should do what the heart tells you. "For chartered accountants there are a plethora of opportunities in the new international trading regime. Refer 6. False 6. 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. his whole interest in the partnership to a third party. or by any of them acting for all”. False 9. 6." Wafers agreed. It is express.58 lays down the procedure for registration of partnership firms. True 15. 2. False 10.8 – When the relationship existing between all the partners of the firm comes to an end.. Refer 6. True 13. Sec. it is called dissolution of the firm." He was talking about careers! China said.40 Answers to Terminal Questions 1.8 – Sec. Refer 6. globe trotting and knowledgeable. "In life. Refer 6.8 – If a partner transfers.6 – A partner’s authority may be express or implied. She recalled reading in the ICAI . True 7. Wafers knew that the industry offered fat pay packs but her heart actually lay in consulting. by sale. 3. False 14. 5. True 8.2 – A partnership is defined as “the relationship between persons who have agreed to share profits of a business carried on by all. 4. Refer 6. It naturally involves closing down the business.3 – Sec. she wouldn’t be Wafers! Her uncle.g. K.39 provides that the dissolution of partnership between all the partners of a firm is called the “dissolution of the firm”. True 12. when it is fixed between the partners by mutual agreement. supplied 5.
Ha." which had." said Wafers "If LLP becomes law.11. "Exactly. the major chunk of all benefits is drawn by the creamy layer of large firms. Sec. "In LLP. 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. "Is it possible to prove that only a particular partner was negligent and not the others?" Wafers replied.11 will have to be amended. Wafers explained. (Hints: Refer partnership act) ." China remarked. Indian partnerships are mostly restricted to family members and persons who know each other thoroughly." said China impressed by the kid asking the right questions. that’s why she loved China. "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." he told himself." Muskan looked definitely confused. "You mean to say. "If you want to succeed." said China hurriedly. "But what is LLP?" asked China. Not for nothing was Wafers considered strong in law." answered Wafers. documented the great divide in the accounting profession." she added. "Because of the legal stipulation of unlimited liability among partners. This could create disputes between partners." she added. "Moreover. "That’s the general idea. every partner will be an agent of the partnership and not of the other partners. "It promises perpetual succession and a distinct legal identity were it to become law. The walking encyclopaedia had no inhibitions about seeking a clarification on a doubt. They are in practice as well." She added. Replied Wafers. "Other forms of organisation are tried and tested. the opportunities are not just in the industry. at the revenue authorities level and at the business unit level. multi-disciplinary and multi-locational requirements of today’s global and domestic clients. accounting firms in the US have millions of dollars worth of legal suits pending against them. having no cap on the maximum number of partners a firm can have. "Yes." Wafers had a word of caution. "So?" "So." Muskan asked. only the negligent partner will be penalised and not the whole firm. Further." China smiled. "Wow! These CA students are so analytical. if he had one." said Wafers." She had read a research report on "Who are India’s top auditors and how much do they charge. "Sec. Wafer’s niece. accounting firms in India are allowed to function as sole proprietary concerns or as partnership firms. "The decision to go for LLP will be based on the interplay of costs and benefits. "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." she asked. "This is why the accounting fraternity is in favour of limited liability partnership." This set Muskan thinking. "They will have to divide work amongst themselves appropriately.website that "Opportunities would emerge at three fundamental levels in the WTO regime." "Excellent." (LLP) she added." queried Muskan. "This traditional model is not equipped to meet the multi-competency. At the government level. "Isn’t this a merger of the partnership form of organisation and the company form?" remarked China. it requires only a minimum of two partners. "So will I be liable for my partners’ shortcomings even if I have been honest in conducting my duties. The idea is to make LLP a vehicle for business expansion." said Muskan." asked China. "How?" asked Muskan. among others. 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”. She was in Class X. "Legally. "But that comes with a huge price. Won’t the firm have to register itself as a company?" "Yes and No." said Wafers. Why then should one go for something new?" Wafers answered this question philosophically quoting John Rockefeller. "the liberalised trade scenario which offers potential to provide services across international borders will augment greater liability to firms in case of default. "The LLP form of organisation would help the small and medium practitioners by encouraging networking and specialisation of functions." China was surprised. "Actually. accounting firms will have opportunities at the international level. China played the devil’s advocate. you should strike out new paths rather than travel the worn out paths of accepted success. but crystal clear division of duties between partners will go a long way in reducing the same. Wafers added. And added." replied China." said China. If the pink papers are to be believed." "You mean. "Yeah." said Wafers." China continued his black hat thinking.
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
goodwill. who owns a TV show room. water. This is an agreement to sell future goods.g.e. But if the sale goes off through buyer’s fault.9 and 10 lay down certain rules. In general. gas. or is not capable of being fixed. by a valuer or (iii) determined by the course of dealings between the parties. 7. the price may (i) either be fixed by the contract. According to Sec. and where it goes off by the seller’s default he must return the earnest money. since which particular TV set shall become the subject matter of sale is not individualised at the time of the contract of sale. the earnest money is adjusted against the price. or (b) generic and unascertained. Contingent goods are a part of future goods.1 Meaning Price means the money consideration for the sale of goods. i. sells it to her.4. Existing goods may be either (a) specific or ascertained. or (ii) agreed to be fixed in a manner provided by the contact.. Contingent goods is a part of __________________ goods. 7. Generic or unascertained goods are goods indicated by description and not specifically identified. copyright. Specific goods means goods identified and agreed upon at the time a contract of sale is made [Sec. he is not bound to accept payment by cheque. 4. there is a usage to deduct discount in determining the price.patents. e. the contract is void ab initio. Ascertained goods. 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. Instances of goods possessed but not owned by the seller are sales by agents and pledges. things which can be carried from one place to another that form ‘goods’. Existing goods are those which are owned or possessed by the seller at the time of the contract (Sec. As to how the price is to be fixed Secs. electricity are all goods and therefore. If the transaction goes through.2(6)]. it is only the movables. therefore.9.2 Classification of goods Goods may be classified as existing. . does not constitute goods. has 20 TV sets and agrees to sell any one of them to Bharti. Price is an integral part of a contract of sale. Contingent goods are the goods the acquisition of which by the seller depends upon a contingency which may or may not happen [Sec. Thus. the deposit unless otherwise agreed is forfeited to the seller.. may be the subject matter of a contract of sale. Example: Alka agrees to sell to Bhola a certain painting only if Chetan. The contract is for unascertained goods.3. 7. The usage is implied by the course of dealings between the parties. future and contingent. Self Assessment Questions 3.2 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. This painting is classified as contingent goods.4. Also known as deposit. Example: In a particular trade. It is not paid as part payment of price. If price is not fixed.6). Future goods means goods to be manufactured or produced or acquired by the seller after making the contract of sale [Sec.6(2)]. Example: Kulkarni agrees to sell future crop of a particular agricultural field in the next season. it is paid by the buyer in advance as security for the due performance of his part of the contract.4 Meaning of Price 7. Existing goods may be either specific or _______________. Earnest money. its present owner. Landed property.2(14)]. Example: Anthony.
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. may permit repudiation of the contract in spite of the acceptance of the goods by the buyer. in a contract of sale of a car. 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. ‘let the buyer beware’.e. The buyer must inspect the goods to find out if they will suit his purpose. They are said to the ‘express’ when the terms of the contract expressly.g. Conditions and warranties may be either express or implied..5 Conditions and Warranties (Sec.e. The former stipulations are called ‘conditions’ and the latter ‘warranties’.15). Express and implied conditions and warranties. time of payment. (True/False) 6. i. In other words. will be regarded as a breach of the contract. therefore.16(1)).. Under certain circumstances a breach of condition is to be treated as a breach of warranty. the agreement may provide otherwise. provide for them. Where the contract of sale is not severable and the buyer has accepted the goods or part thereof.15). the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty. These circumstances are: i) Where a contract of sale is subject to any condition to be fulfilled by the seller. Doctrine of caveat emptor The doctrine of caveat emptor is a fundamental principle of the law of sale of goods. e. the right to repudiate the contract is deemed to have been lost. Implied conditions and warranties [Secs.g.. it may be agreed that delivery of goods shall be made or taken on or before a certain date. 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. ii) There is also a compulsory treatment of breach of condition as a breach of warranty.11-17) In a contract of sale. (vii) implied condition in the case of sale by sample as well as description (Sec. (vi) implied condition in the case of sale by sample (Sec.14-17].. agree to certain terms. e. he has to give a notice to the seller to that effect..Self Assessment Questions 5. Where the buyer treats the breach of condition as a breach of warranty.13). Sec. Consideration in a contract of sale of goods can also be paid partly in money and partly in goods. quality of the goods to be supplied. parties make certain stipulations.g.14). In such situations. an implied condition or warranty may be negative by an express term to the contrary. However. Some may be intended by the parties to be binding. However. 7.e.16(2)]. The implied conditions: (i) condition as to title (Sec. (v) condition as to wholesomeness. he cannot later on insist that the condition be fulfilled. Similarly. the buyer may either (a) waive the condition.17). e. If the buyer decides to waive the condition. It means ‘CAUTION BUYER’. Breach of condition to be treated as breach of warranty (Sec. These may be of any kind that the parties may choose to agree upon. . Express condition or warranty. (ii) sale by description (Sec. (iv) condition as to merchantable quality [Sec.62 recognizes the following two principles: (i) what is expressed makes what is implied to cease and (ii) custom and agreement overrule law. (iii) condition as to quality or fitness for buyer’s purpose (Sec. it is no part of the seller’s duty to point out defects of his own goods.e. but of a subsidiary or inferior character. i. i. Price is an _______________ of a contract of sale. the breach of which. All stipulations cannot be treated on the same footing. or (b) elect to treat the breach of the condition as a breach of warranty.. the buyer is active and is either waiving the condition or electing to treat the breach of condition as a breach of warranty. Some may be intended by the parties to be of a fundamental nature. express warranty as to its soundness may be incorporated. i.
however. Normally goods shall be appropriated by the seller. either by the seller with the assent of the buyer or by the buyer with the assent of the seller. Sec. The ‘ownership’ of goods is different from ‘possession’ of goods. 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.20-24).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. 7. In the case of specific goods to which something has to be done by the seller to put them in a deliverable state. 2. Specific goods in a deliverable state.Self Assessment Questions 7. Specific goods not in a deliverable state. 8. the conduct of the parties and the circumstances of the case. the property shall pass to the buyer only when the latter has assented to the appropriation.23 provides that in the case of sale of unascertained goods or future goods by description. property in the goods is not transferred to the buyer unless and until the goods are ascertained (Sec. Unless a contrary intention appears. the property in them is transferred to the buyer at such times as the parties to the contract intend it to be transferred. The intention of the parties is ascertained from the terms of the contract.21). In a sale of specific or ascertained goods.18 to 25 lay down the rules which determine when property passes from the seller to the buyer. Unascertained or future goods. Conditions and warranties are said to the _____________ when the terms of the contract expressly. Where he appropriates the goods to the contract. The assent. 1. though normally a person who is in possession of the goods shall also be its owner but it need not necessarily be so. property passes to the buyer when goods of that description in a deliverable state are unconditionally appropriated to the contract.18).6. 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. Whether the . may be given before or after appropriation. property passes only when such thing is done and the buyer has notice thereof (Sec. Unconditional appropriation.20). The ‘possession’ of goods refers to the custody of goods. In the case of specific goods in a deliverable state. When there is a contract for the sale of unascertained goods. 7.6 Passing of Property in Goods 7. provide for them. These rules for different kinds of goods are summarised below: Specific or ascertained goods. the undermentioned rules are applicable for ascertaining the intention of the parties (Secs. the property passes at the time the contract (unconditional) is made (Sec.6.2 Rules regarding passing of property in goods from the seller to the buyer Secs.1 Meaning of ‘property in goods’ The phrase ‘property in goods’ means ownership of goods. The ___________ is a fundamental principle of the law of sale of goods. Sec.
has no title. as the case may be.I.A.27 lays down a general rule as to transfer of title.O.appropriation is done by the seller or the buyer. 7. therefore.) and Ex-Ship.8 Performance of a Contract of Sale of Goods The contract of sale of goods is to be performed. ‘memo dat quod non habet’ which means that no one can give what he himself has not. as unless otherwise agreed. _______________ lays down a general rule as to transfer of title. The _______________ of goods refers to the custody of goods. that is. 27-30) Sec.31-44 provide for the duties of the seller and the buyer and the rules regarding delivery of goods. The seller has the duty of giving delivery of goods according to the (i) terms of the contract. In this context.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.2(2)].F. However. 10. nor need the buyer pay the price.B. _______________ lay down the rules which determine when property passes from the seller to the buyer. Self Assessment Questions 11.8.33 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. delivery and payment of price are concurrent conditions (Sec. unless the seller is ready and willing to give delivery.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.32). 7.31). Self Assessment Questions 9. it is only the owner of goods who can transfer a good title. accept delivery and pay compensation to the seller in case he wrongfully refuses to accept delivery.8. These terms reflect a number of conditions which are either attached by the parties or by custom and practice of business people.) or Free on Airport (F. Secs.7 Transfer of Title by Non-owners (Secs. the assent of the other party must be obtained.2 Delivery Delivery is defined as a voluntary transfer of possession from one person to another [Sec. 7. no delivery need be given. or he has defective title. This rule is expressed by the maxim. though he has purchased in good faith and for value. and (ii) rules contained in the Act.) and (ii) Cost. The most usual of such contracts are: (i) Free on board (F. he may do the appropriation.O. if the buyer is not willing to pay the price. Where goods are in the possession of the buyer. 7. Insurance and Freight (C. No one can give a better title than what he himself has. The buyer of the goods has the duty to pay for the goods. the buyer’s title will be equally wanting or defective. Sec. 7. in accordance with the terms of the contract of sale (Sec. If the seller.8. Self Assessment Questions .
3 Lien on goods (Secs. 7.73-74 of the Indian Contract Act. (b) where the goods have been sold on credit.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. (c) where the buyer becomes insolvent. 1872. shall have certain rights. (True/False) 7.55).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.9. i.54) The unpaid seller.. 1930: (a) rights against the goods.47 to 54. 7.9. 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.e.9.5 Right of resale (Sec. namely. (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. In case buyer fails or refuses to pay. 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. The rights against the goods are as follows: 7.9. namely: (i) Rights under the Secs. _____________ is defined as a voluntary transfer of possession from one person to another. can resell the goods. The right of lien by an unpaid seller can be exercised for the non-payment of price of goods and other charges. (ii) damages for non-acceptance of goods (Sec. 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. . (b) rights against the buyer personally. 13. (ii) Rights under the Sale of Goods Act. ______________ provide for the duties of the seller and the buyer.9 Unpaid Seller and his Rights A contract is comprised of reciprocal promises. (iii) suit for interest (Sec. 7. (a) where the goods have been sold without any stipulation as to credit. Lien can be exercised only for nonpayment of the price and not for any other charges due against the buyer. (i) if the goods are of a perishable nature.2 Rights of an unpaid seller The rights of an unpaid seller may broadly be classified under two heads. but the term of credit has expired.12. as unpaid seller. 7. The word lien means to retain possession of. buyer has to pay for it. the seller has the following remedies against the buyer personally. 47-49) The word lien means to retain possession of. For Example. In a contract of sale. the seller cannot claim lien for godown charges for storing the goods in exercise of his lien for the price. (True/False) 15. 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.56). to recover damages for breach of contract.10 Remedies for Breach of a Contract In addition to the rights of a seller against goods provided in Secs. if seller is under an obligation to deliver goods.56). Self Assessment Questions 14. 7. the seller.50). retaining them till the price is paid. (i) suit for price (Sec.9.
It is obvious that the unpaid seller can claim interest only when he can recover the price.61) When under a contract of sale. Where the property in the goods has not passed to the buyer and the price was not payable without passing of property. It is also the practice to say ‘three times’. the seller may sue him for damages for non-acceptance. 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. the seller can only sue for damages and not for the price. as a rule. 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.57). In the absence of a contract to the contrary. if the seller’s remedy is to claim damages only. 3. the seller cannot file a suit for the price. 7. (ii) right of recovery of the price. The amount of damages is not to be determined in accordance with the provisions laid down in Sec. The interest may be calculated from the date of the tender of the goods or from the date on which the price was payable.10..59).2 Suit for damages for non-acceptance (Sec. 1872.e. the difference between the market price and the contract price can be recovered. then he cannot claim interest. (iv) suit for breach of condition. Thus. i.10.60).11 Sale by Auction (Sec. (iii) specific performance (Sec. the court may award interest at such rate as it thinks fit on the amount of the price. Risk follows ownership. each lot is deemed prima facie. (True/False) 7.73 of the Indian Contract Act. his only remedy is to claim damages. the sale is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner. until such completion any bidder may withdraw his bid.61).64) In the case of sale by auction the following rules apply: 1. 1872. Self Assessment Questions 16.4 Buyer’s remedies against seller The buyer has the following rights against the seller for breach of contract: (i) damages for non-delivery (Sec. the seller tenders the goods to the buyer and the buyer wrongfully refuses or neglects to accept and pay the price. where there is an available market for the goods prima facie. B fails to pay the price within the stipulated time.7. (vii) recovery of interest (Sec. Where the property in goods has not passed to the buyer. 7. At an auction. 7. to be the subject matter of a separate contract of sale.56) Where the buyer wrongfully neglects or refuses to accept and pay for the goods. (v) suit for breach of warranty (Sec. (vi) anticipatory breach (Sec. 2. the seller has a further right to claim interest on the amount of the price.10. the seller can sue the buyer for the price of the goods.73 of the Indian Contract Act. the seller or any person on his behalf may bid at the auction. .000 and the price was agreed to be paid before the expiry of ten days of the contract. (True/False) 17.58). The amount of damages is to be determined in accordance with the provisions laid down in Sec.3 Suit for interest (Sec.10. Example: A sold certain goods to B for Rs 5.1 Suit for price (Sec.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. When the goods are put up for sale in lots.
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. Explain the rules relating to delivery of goods. future and contingent. If the seller makes use of pretended bidding to raise the price. Where under a contract of sale.13 Terminal Questions 1. A ‘Hire-purchase agreement’ is a bailment plus an agreement to sell. sale is voidable at the option of the buyer. Describe the rules as given in the Sale of Goods Act. Goods may be classified as existing. parties make certain stipulations All stipulations are not treated on the same footing. In contract of sale. 6. regarding fixation of price. 1930. (True/False) 7. Sale is to be distinguished from an agreement to sell. 1930? 2. Where the sale is not notified to be subject to a right to bid on behalf of the seller. On the other hand. it shall not be lawful for the seller to bid for himself or to employ any person to bid at such sale. 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. 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. 3. Warranty: A warranty is a stipulation collateral to the main purpose of the contract.4. the breach of which gives rise to a right to treat the contract as repudiated. 5. These stipulations are technically known as conditions and warranties. Goods: Goods mean every kind of movable property other than actionable claims and money. Self Assessment Questions 18. . 7. Condition: A condition is a stipulation essential to the main purpose of the contact. Any sale contravening this rule shall be treated as fraudulent. What are the essentials of a contract of sale under the Sale of Goods Act. State the circumstances under which a condition can be waived and treated as a warranty. or for the auctioneer knowingly to take any bid from the seller or any such person. These conditions and warranties may be express or implied. the property in goods is transferred from the seller to the buyer. The sale may be notified to be subject to a reserved or upset price. Distinguish between condition and warranty. (True/False) 19. 4. There are can be an ‘agreement to sell’ goods. it is a called a sale. 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. 5. Describe firefly the rules regarding the transfer of ownership from the seller to the buyer.
Distinguish between the right of lien and stoppage in transit.27 12. Doctrine of caveat emptor 9.31-44 13. Secs. True 2. Delivery 14. Express 8.14 Answers Answers to Self Assessment Questions 1. Possession 10. False Answers to Terminal Questions . False 17. True 16. Future 4. 7. Secs. 7. True 6. False 3. Ascertained 5.6. What remedies are available to a seller fro breach of contract of sale? 8. Describe the law which governs the sale of goods by auction. Sec.18 to 25 11. False 15. Integral part 7. True 18. True 19.
Refer 7. 5. the contract is void ab initio.55). In this case. in order to give business efficacy to the contract. Essentially. Question . it is only the owner of goods who can transfer a good title. entitled to its deposit back and was not required to make any further payments under the contract. The director and controlling mind of Olivaylle sought to establish a large olive grove and olive oil manufacturing plant in central western Victoria. and therefore the law that applies will be.2 – Sec. entered into a written contract with Flottweg. (iii) suit for interest (Sec. Olivaylle’s case was that the requisite "reasonable period of grace" had expired. the director of Olivaylle tendered for a number of international producers of equipment for the processing of olives and. Prior to entering into the contract. 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 . 8.6 – In a sale of specific or ascertained goods. or is not capable of being fixed. it was an implied term of the contract that Olivaylle was. On the passing of 30th June 2006. Olivaylle paid a deposit of approximately [euro] 140. that is. Refer 7. Refer 7. While waiting for the first stage of the grove to reach maturity.47 to 54.56). a large international manufacturer of such equipment. to be the subject matter of a separate contract of sale.56). rather than the postal acceptance rule which states that acceptance occurs at the time and place where the letter was posted. Refer 7. 4. 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. the property in them is transferred to the buyer at such times as the parties to the contract intend it to be transferred. upon its withdrawal from the contract. 2.to which Flottweg took issue and proceedings were commenced. Price is an integral part of a contract of sale. entitling it to terminate or "withdraw" from the contract.1. the seller has the following remedies against the buyer personally. If price is not fixed.8 – Him/herself 7. on 8th February 2005. 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. 6. Refer 7. Refer 7.5 – Under certain circumstances a breach of condition is to be treated as a breach of warranty. where the email acceptance was received. Further. if the Federal Court position in this regard is to be followed. Thus.2 – Price means the money consideration for the sale of goods. Briefly. Refer 7.10 – In addition to the rights of a seller against goods provided in Secs. (ii) damages for non-acceptance of goods (Sec. 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 2006.27 lays down a general rule as to transfer of title. Mini-case In the recent decision of Olivaylle Pty Ltd v Flottweg GMBH & Co KGAA (No 4) (2009) 255 ALR 632. Flottweg’s acceptance was communicated by email (sent in Germany) to Olivaylle at its olive grove in Victoria. failing which Olivaylle asserted that it would withdraw from the contract and demand the return of its deposit.the place where the message is received is where the contract is accepted. Refer 7. each lot is deemed prima facie. 3. it appears that a contract will be deemed to be made. Olivaylle did just that . the facts of the case are as follows. 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.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’. (i) suit for price (Sec.11 – When the goods are put up for sale in lots.7 – Sec. 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.
4 Promissory Notes and Bills of Exchange Promissory note Bill of exchange 8.85) 8.21-25) .8 Presentment Maturity (Secs.7 Negotiation of a Negotiable Instrument Meaning of negotiation Negotiation and assignment Endorsement Forged endorsement (Sec.1 Introduction Objectives 8.6 Holder and Holder in due Course 8.3 Important Terms Ambiguous instrument (Sec.17) Inchoate stamped instruments (Sec.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: 8.2 Negotiable Instrument 8.5 Cheques Specimen of a cheque Requisites of a cheque 8.20) Capacity of parties to the negotiable instrument 8.
9 Dishonour Dishonour of a bill Noting Protesting (Sec. The term ‘instrument’ means ‘any written document by which a right is created in favour of some person’.10 Crossing of Cheques Meaning of crossing Significance of crossing Types of crossing 8.100) 8.14 Answers 8.1 Introduction In the earlier units. 1882. cheques and promissory notes have been dealt with in considerable detail in this Act. Bills of exchange. you came to know about the law of sales of goods.13 Terminal Questions 8.Presentment for payment 8. which came into force on 1st March.11 The Paying Banker 8. In this unit you will study about the law of negotiable instruments. 1881. The word ‘negotiable’ has a technical meaning whereby rights in an instrument can be transferred by one person to another. Objectives After studying this unit you should be able to: · Define some negotiable terms · Describe promissory notes · Analyze holder · Explain presentment · Describe paying banker 8.12 Summary 8.2 Negotiable Instrument . In this unit you will study law relating to negotiable instruments is primarily contained in the Negotiable Instruments Act.
or (b) by endorsement and delivery. Sec. Self Assessment Questions 3. dividend warrants.17) An ambiguous instrument is one which may be construed either as a promissory note or as a bill of exchange. Transferability may be by (a) delivery. bank notes.An ‘Instrument’ as referred to in the Act is a legally recognised written document. Self Assessment Questions 1.17 provides that the holder may. A negotiable instrument is subject to certain presumptions. if negatively interpreted prohibits minors. but that its holder in due course acquires a good title notwithstanding any defects in a previous holder’s title. 4. as the case may be. 3. bearer debentures. make or endorse a negotiable instrument is coextensive with his capacity to enter into contract. 8. (True/False) 2. can be transferred any number of times. i. scripts and treasury bills are negotiable by usage. is not negotiable. a bill of exchange drawn by a person upon himself may be construed as a promissory note. whereby rights are created in favour of one and obligations are created on the part of another.e. Regarding such instruments.. Freely transferable. 8. An instrument.3. persons of unsound mind and persons forbidden under any other Act like insolvency to make a valid contract.2 Inchoate stamped instruments (Sec. the transferee takes it subject to all equities and liabilities of the transferor. at this election treat it as either and the instrument shall be thenceforward treated accordingly.3. but is assignable.e. Promissory note. upon it a negotiable instrument. for any amount specified therein but not exceeding the amount covered by the stamp. to enable the transferee to get a title in the instrument. Sec. till its maturity.3 Important Terms 8. Holder’s title free from defects. Thus. 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. A negotiable instrument can be transferred infinitum..1 Ambiguous instrument (Sec. 1872. 5.3. bill of exchange and cheque are negotiable instruments by statute as they are so recognised by Sec. he thereby gives prima facie authority to the holder thereof to make or complete. An ___________ is one which may be construed either as a promissory note or as a bill of exchange. The term ‘negotiability’ means that not only is the instrument transferable by endorsement and/or delivery. The word ‘negotiable’ means transferable from one person to another either by mere delivery or by endorsement and delivery.20) An inchoate instrument means an instrument that is incomplete in certain respects. Another feature of a negotiable instrument is that its holder in due course can sue on the instrument in his own name. 8. Thus. . There are certain instruments which are recognised as negotiable instruments by usage. accept. A negotiable instrument need not be in writing. An instrument may possess the characteristics of negotiability either by statute or by usage.13. 2. The holder can sue in his own name. ____________ is one who receives the instrument for value and without any notice as to the defect in the title of the transferor. i. share warrants. 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.11 of the Indian Contract Act. An instrument is called ‘negotiable’ if it possesses the following features: 1.3 Capacity of parties to the negotiable instrument The capacity of a party to draw. bank drafts. Thus. which does not have these characteristics.
4 Promissory Notes and Bills of Exchange 8. to be paid on demand.4.U. the following are NOT promissory notes: (i) “Mr B. The endorser – the person who endorses the note in favour of another person.” (ii) “I am liable to pay you Rs 500”.” (vii) “I promise to pay B Rs 500 and to deliver to him my white Maruti Car 1 January next.4.” (ii) “I acknowledge myself to be indebted to B in Rs 1000. containing an unconditional order. The following are two illustrations of promissory notes. a certain person or to the bearer of the instrument (Sec.” But. I.” (v) “I promise to pay B Rs 1500 on D’s death. Specimen of a bill of exchange .5 as ‘an instrument in writing.2 Bill of exchange A ‘bill of exchange’ is defined by Sec. The endorsee – the person in whose favour the note is negotiated by indorsement. for value received. or to the bearer of the instrument’. The payee – the person to whom the amount of the note is payable.1 Promissory note A promissory note is an instrument in writing (not being a bank or a currency note) containing an unconditional undertaking. 2. The holder – is either the original payee or any other person in whose favour the note has been endorsed.” Specimen of a promissory note Parties to a promissory note 1. Where A signs instruments in the following terms: (i) “I promise to pay B or order Rs 500. signed by the maker to pay a certain sum of money to. (iii) “I promise to pay B Rs 500 and all other sums which shall be due to him. 5. or to the order of. 8. signed by the maker. The maker – the person who makes the note promising to pay the amount stated therein.4.4).” (vi) “I promise to pay B Rs 500 seven days after my marriage with C. directing a certain person to pay a certain sum of money only to or to the order of. first deducting thereout any money which he may owe me. 3. provided he leaves me enough to pay that sum.” (iv) “I promise to pay B Rs 500.O. 4. 8. An inchoate instrument means an instrument that is ___________ in certain respects. (I owe you) Rs 1000. a certain person.
payable after a specified period of time. l Acceptor for honour. l The endorser: It is the person who endorses a bill. A is the payee and X is the drawee. In case of a bearer bill. Self Assessment Questions 5. (True/False) . 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. the bearer or possessor is the holder.e. (True/False) 6. drawee is the person responsible for acceptance and payment of the bill. 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. Thus. i. A bill of exchange may be drawn payable ‘at sight’. Bills in set are used in foreign trade transactions. 2006. The specimen given above is of a usance bill. l The drawee: The person on whom the bill is drawn.Here Y is the drawer. l The payee: The person to whom amount of the bill is payable. l Drawee in case of need. l The endorsee: It is the person to whom the bill is negotiated by endorsement. l The holder: It is the original payee but where the bill has been endorsed. on demand or payable ‘after certain time after sight’ also.. the endorsee. 16. It is not necessary to put any date in the case of promissory notes payable on demand. In certain cases however a stranger may accept the bill on behalf of the drawee. It may be the drawer himself or any other person. (True/False) 7.
an order asking the banker to pay a specified amount with interest.6 defines a cheque.5. Unconditional order.5. The Amendment Act 2002 has substituted new section for Sec. is not a cheque as the sum payable is not certain. 4. It is. orders asking the banker to deliver securities or certain other things cannot be regarded as cheques.8. Written instrument.5 Cheques A cheque is the usual method of withdrawing money from a current account with a banker. Generally. 3. . Similarly. The order must be only for the payment of money and that too must be specified.2 Requisites of a cheque The requisites of a cheques are: 1. legally. is an order by the customer of the bank directing his banker to pay on demand. ‘A cheque in the electronic form’ means a cheque which contains the exact mirror image of a paper cheque. to or to the order of the person named therein or to the bearer. Regarding the writing materials to be used.6. however. in essence. the specified amount. On a specified banker only. 2. Although. and is generated. A cheque must contain an unconditional order. Thus. not necessary that the word order or its equivalent must be used to make the document a cheque. 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. A certain sum of money. 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. If the word “please” precedes “pay” the document will not be regarded as invalid merely on this account.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. Savings bank accounts are also permitted to be operated by cheques provided certain minimum balance is maintained. Sec. A cheque must be drawn on a specified banker. 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. the rate of interest not specified. law does not lay down any restrictions and therefore cheque may be written either with (a) pen (b) typewriter or may be (c) printed. A cheque must be an instrument in writing. 8. the order to bank is expressed by the word “pay”. These forms are printed on special security paper which is sensitive to chemicals and makes any chemical alterations noticeable. To avoid any mistake. 8..
. 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. Self Assessment Questions 8. The term in fact includes ‘legal persons’ also. Besides. is stopped from asserting. if he is a holder in due course as per Sec. or the payee or endorsee thereof. clubs. if payable to bearer. acquires a better title than its transferor.5. 2. Privileges of a holder in due course A holder in due course is given certain additional privileges under the Act. Payable on demand. institutions.3. till the date mentioned. bill or cheque is lost or destroyed. he will not be entitled to enforce his claim against its real owner. local authorities. A cheque that bears a date earlier than six months is a stale cheque and cannot be claimed for. 1. 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.e. 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. A cheque must always be crossed to make it a valid instrument. A cheque bearing an earlier date is antedated and the one bearing the later date is called post-dated. ‘Person’ should not be understood in a limited sense including only human beings. Privilege against inchoate stamped instruments. (True/False) 9. the maker or drawer.8. the instrument is payable on demand (Sec. he may be a holder but will not be called a holder in due course.9.e. (True/False) 8. Where the note. So where a lost negotiable instrument is transferred to a person who takes it. without consideration and thus becomes the holder. A cheque to be valid must be payable to a certain person. instruments drawn in favour of a body corporate.. According to Sec. 7. As per Sec. bill of exchange or cheque. A ‘holder in due course’. . A cheque to be valid must be payable on demand and not otherwise. are valid instruments being payable to legal persons. Thus. the transferee of a post-dated cheque. 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. where a person receives a negotiable instrument without consideration. Use of the words ‘on demand’ or their equivalent is not necessary. the acceptor and all the intermediate endorsers continue to remain liable to the holder in due course until the instrument is duly satisfied. etc.19). The life of a cheque is three months from the date of issue. is “a person who for consideration became the possessor of a promissory note. (True/False) 10. if he is a holder in due course. When the drawer asks the banker to pay and does not specify the time for its payment. on the other hand. One can get a post-dated cheque encashed across the bank counter at any time. who signed and delivered to another a stamped but otherwise inchoate (incomplete) instrument. But. a person. like that of the cheque on which payment is due. 6. Thus. Payee to be certain. which are not available to a holder. he will be able to establish his claim even against the real owner of that instrument. if payable to order. The drawer of a cheque is expected to date it before it leaves his hands. except at the personal risk of the bank’s manager. as against a holder in due course.. i.9).20. every prior party to a negotiable instrument. say. its holder is the person so entitled at the time of such loss or destruction. A cheque without a date is considered incomplete and is returned unpaid by the banks. A post-dated cheque is as much negotiable as a cheque for which payment is due.6 Holder and Holder in due Course According to Sec. i. The drawer can date a cheque with the date earlier or later than the date on which it is drawn. A post-dated cheque cannot be honoured. Dating of cheques.
4. However. Self Assessment Questions 11. . Thus. A ______________ is “a person who for consideration became the possessor of a promissory note.15. 5. The holder in due course shall.7.53). 12. All types of bills are entitled for three days of grace. have to prove that the instrument was endorsed by the same hand as drawer’s signature (Sec. or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument. Where no space is left on the instrument. 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. 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. is “when the maker or holder of a negotiable instrument signs the same otherwise than as such maker. 6. The person to whom the instrument is endorsed is called the endorsee.85) In case an instrument is endorsed in full.46). then the plea of absence of consideration cannot be raised against him or against any subsequent holder deriving title from him (Sec. however.4 Forged endorsement (Sec.2 Negotiation and assignment Both the assignment and negotiation involve the transfer of the right to receive the payment of debt. An endorsement according to Sec. the endorsee will acquire no title even though he be a purchaser for value and in good faith. for the purpose of negotiation. 8. bill of exchange or cheque.43). A negotiable instrument payable otherwise than to bearer can be negotiated only by indorsement and delivery. on the back or face thereof or on a slip of paper annexed thereto. the endorsement may be made on a slip of paper attached to it.42). This attached slip of paper is called ‘Allonge’.7 Negotiation of a Negotiable Instrument 8. When a negotiable instrument is made. drawn accepted or transferred without consideration and the negotiable instrument gets into the hands of a holder in due course.3. Where a bill of exchange is drawn by a fictitious person and is payable to his order. because the endorsement is nullity. When an instrument is negotiated. 8. Usually the endorsement is on the back of the instrument. of the transferor.3 Endorsement An endorsement is the mode of negotiating a negotiable instrument. 8. which the transferee of an instrument by negotiation acquires are substantially superior to those of an assignee. the rights. he is said to endorse the same and is called the endorser”.7. 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. it cannot be endorsed or negotiated except by an endorsement signed by the person to whom or to whose order the instrument is payable. the acceptor cannot be relieved from his liability to the holder in due course. Where an instrument is negotiated to a holder in due course. if any.7. though it may be even on the face of it. if such an instrument is negotiated by way of a forged endorsement. Fictitious drawer or payee. Right of an endorsee from a holder in due course. unless he was himself a party to the fraud (Sec. But where the instrument has been endorsed in blank. Any person acquiring it takes it free of all defects. it is purged of all defects. its transferee gets good title irrespective of the defective title. (True/False) 8.7.1 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’.
It is due for payment as soon as it is issued..8 Presentment Presentment of a negotiable instrument is made for two purposes: (i) for acceptance and (ii) for payment. A payee of a cheque is entitled to claim interest. notes. However. acceptor or drawee thereof. their liability can be invoked only if the holder gives them notice of such dishonour. Sec.21 provides that a note or bill ‘at sight’ or ‘on presentment’ is payable on demand. Maturity date is not required to be determined in the case of cheques. X endorses it in blank and it comes into the hands of Y. 8. by the holder or his agent. makes default in payment upon being duly required to pay the same (Sec. as the case may be. during banking hours (Sec. 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. A negotiable instrument is said be dishonoured by nonpayment when the maker.8. 8. (True/False) 14.1 Dishonour of a bill A bill of exchange may be dishonoured either by non-acceptance or by non-payment. etc. 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. it is necessary to refer to the maturity of the instrument. as the holder. as the case may be. The drawer is liable only if the instrument is dishonoured by non-payment.22). (True/False) 16. B. A post dated cheque is valid and negotiable. Self Assessment Questions 13. “pay to X or order”.8. and at a banker’s premises. the parties to the instrument other than the maker. Before discussing the presentment for payment. acceptor or drawee.1 Maturity (Secs. Therefore most of the provisions relating to presentment for payment are linked with the maturity of the instrument.2 Presentment for payment A negotiable instrument must be presented for payment to the maker. (True/False) 8.Example: A bill is endorsed. does not derive his title through the forged endorsement to Y. may be made payable on a specified date or after the specified period of time.64). The date on which payment of an instrument falls due is called maturity (Sec. An _____________ is the mode of negotiating a negotiable instrument. 8. . The presentment for payment must be made during the usual hours of business. Self Assessment Questions 15. In case of default.9 Dishonour 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.92). who simply delivers it to A. A forges Y’s endorsement and transfers it to B.65).21-25) Cheques are always payable on demand but other instruments like bills.9. acceptor or drawee are not liable to such holder (Sec.
notes down in his register the date of its dishonour and the reason.2 Noting Noting is a convenient method of authenticating the fact of dishonour. crossing of cheques serves as a measure of safety against theft or loss of cheques in transit. the holder must give notice of dishonour to the drawer and all other parties whom he seeks to make liable. 8. 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.2 Significance of crossing As payment cannot be claimed across the counter on a crossed cheque. or of two parallel transverse lines simply. the reason why the holder treats it as dishonoured. 8. the formal protest may be drawn up by the notary at his leisure. The payment on a crossed cheque can be collected only through a banker. If the instrument has been expressly dishonoured.9. 8.10. The _____________ is the formal notarial certificate attesting the dishonour of the bill and based upon the noting. The notary public presents the instrument.99). Where an instrument is dishonoured. if any.9. and an act can only be deemed a notarial act if it is done by a notary under his signature and official seal. 8. should get the bill or promissory note ‘noted’ by the notary public. either with or without the words. and the cheque shall be deemed to be crossed generally. between two parallel transverse lines.10. By crossing a cheque. that addition shall be deemed a crossing. The term general crossing implies the addition of two parallel transverse lines. is prevented from getting the cheque encashed at the counter of the paying banker. Every notary is required to have and use a seal. ‘not negotiable’.” A cheque that is not crossed is a called an open cheque.When a negotiable instrument is dishonoured by non-acceptance or non-payment. 8. It is a peculiar method of modifying the instrument to the banker for payment of the cheque.123 defines crossing as.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.3 Types of crossing Crossing may be either (1) General or (2) Special.3 Protesting (Sec. a person. Sec.10 Crossing of Cheques 8. 18. who is not entitled to receive its payment. Crossing on cheque is a direction to the paying banker by the drawer that payment should not be made across the counter. Self Assessment Questions 17. A negotiable instrument is said be ____________ by non-payment. given by the acceptor. Specimen of general crossing . besides giving the notice as referred to above.10. After the noting has been made. and the notary’s charges should be mentioned. ‘Noting’ must be made within a reasonable time after dishonour. “Where a cheque bears across its face an addition of the words ‘and company’ or any abbreviation thereof.100) The protest is the formal notarial certificate attesting the dishonour of the bill and based upon the noting. When the protest is drawn up it relates back to the date of noting. the holder.
that addition shall be deemed a crossing. Thus.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. Payment in due course What is a payment in due course is defined in Sec. either with or without the words ‘not negotiable’. 8. A payment before maturity is not a payment in due course.‘Special Crossing’ implies the specification of the name of the banker on the face of the cheque. Specimen of special crossing Self Assessment Questions 19. 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. ‘paying banker’ is a banker upon whom a cheque is drawn. and to be paid to that banker”. Sec. The following conditions must be satisfied before a payment of a negotiable instrument can be called as a payment in due course: 1.124 in this regard reads: “Where a cheque bears across its face. A distinguishing feature of special crossing is that it includes the name of some bank or the other. payment of a post dated cheque is not a payment in due course. . For example. Thus. an addition of the name of banker.10 and has been given above. The drawing of two parallel lines is not necessary in case of a specially crossed cheque. (True/False) 20. and the cheque shall be deemed to be crossed specially. it makes the cheques more safer. Payment must be in accordance with the apparent tenor of the instrument. A cheque having the cross mark such as ‘X’ is not generally regarded as a _______________. It is necessary that a payment to constitute a payment in due course should be made at or after maturity.
the payment is not in due course. It extends to the whole of India except the State of Jammu & Kashmir. Negotiable and Instrument. . So payment is not in due course. where a peon of a company presents a cheque for a big amount on behalf of the company. So. Self Assessment Questions 21. A thief is not said to be in possession of the instrument. 5. bills of exchange. Thus. 4. payment in due course means payment in accordance with the apparent tenor of the instrument made in good faith and without negligence. 1881 came into force on 1st March 1881. Payment must be made to the person in possession of the instrument. (True/False) 8. 3. 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. 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.2. Payment must be made in money only. It means an instrument possessing the quality of Negotiability is entitled to be called negotiable instrument. Payment must be made in good faith and without negligence. 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. Money includes bank notes or currency notes but excludes cheque. The term Negotiable Instrument consists of two parts viz. Payment must be made in money only unless the payee agrees to accept payment in some other form (e. 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. bill of exchange or cheque payable either to order or to bearer. which is contrary to the past experience.. where a banker makes payment on a cheque materially altered.10. ___________ is a banker upon whom a cheque is drawn. under Sec. 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.g. A payment is a payment in due course if it is made to a person entitled to receive it. Cheque: A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable. promissory notes and goods.12 Summary The Negotiable Instrument Act.. When there exists suspicious circumstances and the paying banker fails to make any enquiry as to them. without exercising due care. Glossary Negotiable Instrument: Means a promissory note. 22. The banker can disregard the direction only at his own risk and responsibility. the banker should conduct proper enquiry before making payment on such a cheque. A payment is not a payment in due course if it is made to a person entitled to receive it. 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. bill of exchange or promissory note).
What do you mean by negotiable instruments? 2. False 2. A holder in due course 3. Describe briefly the meaning of ‘general’ and ‘special’ crossing and “crossing after the issue of a cheque”. “Issue of a cheque that bounces is an offence”. “A cheque is a bill of exchange drawn on a banker”. Explain the provisions relating to ‘Noting’ and ‘Protesting’ of a bill which has been dishonoured by the acceptor.13 Terminal Questions 1. Holder in due course 12. What is a bill of exchange? Describe its characteristics. 3. Comment 5. Ambiguous instrument 4. Name the instruments which are recognized as negotiable instruments by the Negotiable Instruments Act. True 7. 8. Define the term ‘holder’. True 8. False 13. 6. False 10. 1881. False 9.8. What do you mean by negotiation? How it differs from assignment? 7. False 6. Comment. True . 9. ‘holder for value’ and ‘holder in due course’. 8. How does a promissory note differ from a bill of exchange? 4. False 11. Incomplete 5.14 Answers Answers to Self Assessment Questions 1.
14. 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. 6000 dated as 2-sep-2009 from City Limouzines India Ltd. but didn’t get any satisfactory response from help line. Mini-case Deepak is a client of City Limouzines India Ltd.4 – A ‘bill of exchange’ is defined by Sec. Refer 8. True 20. 5. a certain person. 2. He called on City Limouzines India Ltd help line for same.2 – An ‘Instrument’ as referred to in the Act is a legally recognised written document. Refer 8. Refer 8. 7.5 as ‘an instrument in writing.8. she hanged the phone with stating that "We will dispatch a letter after 20th Sep then check. True 17. whereby rights are created in favour of one and obligations are created on the part of another. 9.10 – Refer Business Law book by SS Gulshan.2 – Refer Business Law book by SS Gulshan 3. which has been bounced with narration "Insufficient Balance".7 – The transfer of an instrument by one party to another so as to constitute the transferee a holder thereof is called ‘negotiation’. False 16. Refer 8.5 of this unit. He received a cheque of amount Rs. Dishonoured 18. signed by the maker. Refer 8." .8.9 – Noting is a convenient method of authenticating the fact of dishonour. Protest 19. Refer 8. Crossed cheque 21. & deposited same cheque on 7-Sep-2009 in his Bank. Refer 8. or to the bearer of the instrument’. Paying banker 22. Refer 8. Refer 8.5 – Refer Sec. Endorsement 15. False Answers to Terminal Questions 1. 8. 4.6 – According to Sec. containing an unconditional order. directing a certain person to pay a certain sum of money only to or to the order of. 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.11 – Refer Business Law book by SS Gulshan.” 6.
But I am unable to understand that how a cheque of amount Rs. there are cases of cheque bouncing & dishonour.1 Introduction Objectives 9. Questions 1.12] Where to file a complaint? How to file a complaint? Procedure on admission of complaint [Sec.Deepak states that. he lodges a complaint the consumer court requesting them to take legal action against City Limouzines India Ltd.13] Power of the district forum [Sec. and ISO approved company.2 Important Terms 9.14) Time-frame for decisions of consumer courts Appeal to state commission Appeal to national commission .9 of this unit) MB0051-Unit-09-The Consumer Protection Act Unit-09-The Consumer Protection Act Structure: 9.4 Nature and Scope of Remedies Available to Consumers Who can file a complaint? [Sec.com" but till date I am not getting any revert from company. Analyse the legal actions which should be taken by the Consumer court for the protection of Investors. as per his knowledge and as per company websites "City Limouzines" India Ltd. Thinking this. What precautions & remedies would you suggest for the investors to get them protection from such fraud companies? (Hint: Refer 8. What penalties should be forced on the company? (Hint: Refer 8. if company is going to Fraud then it will impact all investors.11 of this unit) 3. Every now & then.3 Rights of Consumers 9. (Hint: recall consumer protection act again) 2. 6000 get bounced with narration "Insufficient Balance"? I sent mail regarding same on given e mail ID "firstname.lastname@example.org(4)] Reliefs available to consumers (Sec. It is very serious case.
l The provisions of this Act are in addition to and not in derogation of the provisions of any other Act. the USA.1 Introduction In the earlier units. 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. Objectives After studying this unit. l It confers certain rights on consumers. It is described as a unique legislation of its kind ever enacted in India to offer protection to the consumers.7 Answers 9.Appeal to the supreme court against the orders of national commission Limitation period (Sec. The Act is claimed to have been designed after an in-depth study of consumer protection laws and arrangements in UK. In this unit you will study about the Consumer Protection Act. which are punitive or preventive in nature the provisions of this Act are compensatory in nature.29A) 9. Unlike other laws. Australia and New Zealand. The main objective of this Act is to provide better protection to the consumers.5 Summary 9. 1993 and 2002. speedy and inexpensive redressal to the consumers’ grievances. Complainant: A complainant means any of the following and having made a complaint: .6 Terminal Questions 9. 1986 was born. The Act intends to provide simple. you came to know about the law of negotiable instruments.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.24A) Vacancies or defects in appointment not to invalidate order (Sec. public or co-operative. 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. 1986 was substantially amended in 1991. l It covers all sectors whether private. The Consumer Protection Act.
(iii) the services hired or availed of or agreed to be hired or availed of by him suffer from deficiency in any respect. and the complainant has suffered loss or damage. Parallel to ‘defect’ in case of goods. A person who hires or avails of any services for consideration which has been paid or promised or partly paid and partly promised. Accordingly. or (ii) any voluntary consumer association registered under the Companies Act. 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. Consumer dispute [Sec.9. imperfection. denies or disputes the allegations contained in the complaint. a price in excess of the price (a) fixed by or under any law for the time being in force. ‘District Forum’ means a consumer Dispute Redressal Forum established under clause (a) of Sec. his legal heir or representative. it is defined to mean any fault. imperfection or shortcoming in the quality. (d) agreed between the parties.. or under any system of deferred payment. The State Government may. Defect [Sec. or as is claimed by the trader in any manner whatsoever in relation to any goods. Consumer. District Forum. if it deems fit. 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. It means a dispute where the person against whom a complaint has been made. 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. The term includes any other user of such goods when such use is made with the approval of the buyer. A ‘defect’ is defined to mean any fault.2(1)(f)]. shortcoming or inadequacy in the quality. (b) if the trader could have known with due diligence that the goods so offered are unsafe to the public. in respect of hire-purchase transactions. (ii) the goods bought by him or agreed to be bought by him suffer from defect(s) in any respect. ‘Consumer’ means any of the following persons: 1. . purity or standard which is required to be maintained by or under any law for the time being in force or under any contract. Deficiency. Complaint: ‘Complaint’ means any allegation in writing made by a complainant with a view to obtaining any relief under the Act.(i) a consumer.2(1)(c)]. (c) displayed on the price list exhibited by him by or under any law for the time being in force. express or implied. (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. (iv) a trader or the service provider. has charged for the goods or for the services mentioned in the complaint. or (v) in case of death of consumer.e. by or under any law for the time being in force. 1956 or under any other law for the time being in force. deficiency is relevant in case of services. as the case may be. potency. or (iii) the Central Government or any State Government. quantity. that: (i) any unfair trade practice or restrictive trade practice has been adopted by any trader or service provider. or (iv) one or more consumers. establish more than one District Forum in a district. 2. The term includes any other beneficiary of such services with the approval of the first mentioned person. where there are numerous consumers having the same interest. (b) displayed on the goods or any package containing such goods.
(iii) A person who puts or causes to be put his own mark on any goods made or manufactured by any other manufacturer. 1986 was amended in (a) 1991. The expression ‘Manufacturer’ for the purpose of this Act. (ii) A person who does not make or manufacture any goods but assembles parts thereof made or manufactured by others.3 Rights of Consumers For the first time in the history of consumer legislation in India. Consumer Protection Act. 1993 and 2001 9. The Government vide powers conferred upon it under the said clause established a National Commission in 1987. 1986 extended a statutory recognition to the rights of consumers.2(7) of the Sale of Goods Act. ‘Goods’ under this Act shall have the same meaning as assigned to them under the Sale of Goods 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. the Consumer Protection Act. 1993 and 2002 (c) 1992. Any of the following made a complaint EXCEPT (a) A consumer (b) The Central Government (c) In case of death of consumer. 1930. 1930].Goods.6 of the Act recognizes the following six rights of consumers: . 1993 and 2002 (d) 1992. 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. where a manufacturer dispatches any goods or parts thereof to any branch office maintained by him. 1993 and 2001 (b) 1991. and includes stock and shares. Consumer Protection Act.9. Sec. ‘Goods’ means every kind of movable property other than actionable claims and money. Self Assessment Questions 1. 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. Accordingly. Manufacturer. National Commission: ‘National Commission’ means the National Consumer Disputes Redressal Commission established under clause (c) of Sec. But. growing crops. means any of the following persons: (i) A person who makes or manufactures any goods or part thereof. applies to (a) All products and services (b) Only physical products (c) Only services (d) Only certain products and service 2. his legal heir or representative (d) None 3.
. so as to protect the consumer against unfair trade practices. the right to be protected against the marketing of goods and services which are hazardous to life and property. establish more than one District Forum in a District. __________ means right to be assured. etc. 6.e. quantity. the consumers’ interests will receive due consideration at appropriate forums.4. i. It also includes right to fair settlement of the genuine grievances of the consumers. At the State level. Right to consumer education: It means the right to acquire the knowledge and skill to be an informed consumer. potency. Right to choose: It means right to be assured. standard and price of goods or services.. access to a variety of goods and services at competitive prices. 2. railways. Self Assessment Questions 4. it means right to be assured of satisfactory quality and service at a fair price. Right to safety. the right to be informed about the quality. the Act envisages a three-tier quasi-judicial machinery at the District. It also includes right to be represented in various forums formed to consider the consumers’ welfare. wherever possible. Right to be heard.1 Who can file a complaint ? (Sec. telephones.4 Nature and Scope of Remedies available to Consumers To provide simple. speedy and inexpensive redressal of consumer grievances. Right to be informed. 4. Right to seek redressal: It means the right to seek redressal against unfair practices or restrictive trade practices or unscrupulous exploitation of consumers. The State Government may.. purity.e. i. wherever possible. i. there is a National Consumer Disputes Redressal Commission to be known as National Commission.1. access to a variety of goods and services at competitive prices.. say.e. 5. State and National levels. if it deems fit. 9.12) Any of the following persons may file a complaint under the Act: . In case of monopolies. there are to be similar redressal commissions to be known as State Commissions and at the National level. 3. 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. At the District level there are to be District Fora as the redressal fora. as the case may be. 9.
11). In case of death of a consumer.4. 3.4 Procedure on admission of complaint (Sec.21]. a complaint shall not be rejected unless an opportunity of being heard has been given to the complainant. 9. if any. claimed does not exceed rupees twenty lakhs. It provides as follows: 1. The complaint should be addressed to the President of the Forum/Commission. 2. The State Commission shall also have the jurisdiction to entertain appeals against the orders of any District Forum within the State.1. If the value of the goods or services and the compensation. it is the total amount of compensation claimed in the petition (and not the individual claims) that will determine the question of jurisdiction.13) . the complaint can be filed before the State Commission [Sec. arises (Sec. (b) the name. where there are numerous consumers having the same interest. all consumers so interested.2 Where to file a complaint? 1. 1956 or any other law for the time being in force. if any. complaint can be filed before the National Commission [Sec. 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.3 How to file a complaint? There is no fee for filing a complaint before any of the aforesaid bodies.17]. as far as they can be ascertained. (c) the facts relating to complaint and when and where it arose. 3. the District Forum may. A complaint should contain the following information: (a) the name. wholly or in part. claimed exceeds Rs one crore. 9. One or more consumers. with the permission of the District Forum. 2. 3. [Sec. On receipt of a complaint. on behalf of. Where a joint petition is filed on behalf of a large number of victims. The Central or the State Government. description and address of the opposite party or parties. allow the complaint to be proceeded with or rejected. 2002 has amended Sec. as the case may be. (e) the relief which the complaint is seeking. the District Forum may proceed with the complaint in the manner as provided under the Act. 4. 9. If the value of goods or services and the compensation. his legal heir or representative can file a complaint. If the value of the goods or services and compensation. in support of the allegations contained in the complaint. if any. In case the total compensation claimed exceeds. The National Commission shall also have the jurisdiction to entertain appeals against the orders of any State Commission [Sec. claimed exceeds rupees twenty lakhs but does not exceed rupees one crore. any voluntary consumer association registered under the Companies Act. Where a complaint is allowed to be proceeded with. The Amendment Act. if any.4. the matter can be heard by the State Commission [Public Health Engineering Department v Uphokta Sanrakshan Samiti (1992)]. It is not necessary that the consumer is a member of such an association. presently. (d) documents. 2. Any recognised consumers association namely. Every complaint shall be accompanied with such amount of fee as prescribed.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. The complaint can also be sent by post to the appropriate Forum/Commission. However.4.21]. The complainant or his authorised agent can present the complaint in person. or for the benefit of. Rs 20 lakhs but does not exceed Rs one crore.17]. description and address of the complainant. by order.
14) If. the charges paid by the complainant. (ii) Where the opposite party. 2. or omits or fails to take any action to represent his case within the time given by the District Forum. It shall then refer the sample so sealed to the appropriate laboratory along with a direction that such laboratory make an analysis or test. (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. (iv) If any of the parties disputes the correctness of the findings of the appropriate laboratory. 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)]. (ha) to cease manufacture of hazardous goods . (ii) Before any sample of the goods is referred to any appropriate laboratory under clause (c).4.4. (iii) the reception of evidence on affidavits. namely: (a) to remove the defect pointed out by the appropriate laboratory from the goods in question. On receipt of the report from the appropriate laboratory. the District Forum shall obtain a sample of the goods from the complainant. (f) to discontinue the unfair trade practice or the restricted trade practice or not to repeat them. for payment to the appropriate laboratory for carrying out the necessary analysis or test in relation to the goods in question [Clause (d)]. 1908 while trying a suit in respect of the following matters. and (vi) any other matter which may be prescribed. (iv) the requisitioning of the concerned analysis or test from the appropriate laboratory or from any other relevant source. 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)]. it shall issue an order to the opposite party directing him to do one or more of the following things. the District Forum shall proceed to settle the consumer disputes in the manner specified in clauses (c) to (g) hereunder.e.13(4)] District Forum shall have the same powers as are vested in a civil court under the Code of Civil Procedure.13. or as the case may be. (c) to return to the complainant the price. namely: (i) the summoning and enforcing the attendance of any defendant or witness and examining the witness on oath. the District Forum may require the complainant to deposit to the credit of the Forum such fees as may be specified.6 Reliefs available to consumers (Sec. (ii) the discovery and production of any document or other material object producible as evidence.14 [Clause (g)]. 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. as may be granted by the District Forum. (b) to replace the goods with new goods of similar description which shall be free from defects. whichever may be necessary.5 Power of the district forum [Sec. 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. on admission of a complaint referred to him under (a) above. (e) to remove the defects in goods or deficiencies in the services in question.1. (v) issuing of any commission (i. 9. 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)]. or disputes the correctness of the method of analysis or test adopted by the appropriate laboratory. 9.. (h) to withdraw the hazardous goods from being offered for sale. warrant conferring authority) for the examination of any witness. (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. 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. seal it and authenticate it in the manner prescribed. (g) not to offer the hazardous goods for sale. (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. after the proceeding conducted under Sec. denies or disputes the allegations contained in the complaint.
However. No appeal by a person who is required to pay any amount in terms of an order of the State Commission.19]. . as the case may be.7 Time-frame for decisions of consumer courts The complaint should be decided by the Redressal Forum.4.4. (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. to be attached.29A) No Act or proceeding of the District Forum. (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.4. Where an interim order made under this Act is not complied with. In (a) above. 9.10 Appeal to the supreme court against the orders of national commission Any person. (i) to provide for adequate costs to parties.12 Vacancies or defects in appointment not to invalidate order (Sec. may order the property of the person. The Amendment Act. shall be entertained by the National Commission. as it deems fit. 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. 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. 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. the District Forum shall have the power to grant punitive damages. within a period of 30 days from the date of the order.and to desist from offering services which are hazardous in nature. 2002 has substituted Sec. may prefer an appeal against such order to the Supreme Court. unless the appellant has deposited 50 per cent of the amount or Rs.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. 9. 9. the State Commission or the National Commission. However. as far as possible. 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.11 Limitation period (Sec. aggrieved by an order made by the National Commission. 9. not complying with such order.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. 9.23].25 by a new section. the District Forum or the State Commission or the National Commission.4.4.4. Enforcement of orders of the District Forum. 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. 55000 whichever is less. It provides as follows: 1. Sec. 9.24A) The District Forum.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.
claimed exceeds rupees twenty lakhs. if any. The complaint can be filled in the ‘District Forum’ if (a) The value of goods or services and compensation. 1992 (c) Consumer Protection Act. 1991 (b) Consumer Protection Act. Transfer of cases comes under which section. EXCEPT. 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. Where any amount is due from any person under an order made by a District Forum. the person entitled to the amount may make an application to the District Forum. (c) Both A and B (d) Only A 8. (a) Sec. as the case may be. 3. the property attached may be sold and out of the proceeds thereof. if any. to the party entitled thereto. 2002 9. if any. (a) Consumer Protection Act.2. if the non-compliance continues. the State Commission or the National Commission. Which amendment of Consumer Protection Act. (d) All of the above 7. means any of the following. 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. Self Assessment Questions 6.22 C . (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. permitted representative complaints. as the case may be. No attachment made under Sub-sec. The expression ‘Manufacturer’ for the purpose of this Act. 1993 (d) Consumer Protection Act.22 B (b) Sec. State Commission or the National Commission.(1) shall remain in force for more than three months at the end of which. (b) The value of goods or services and compensation. claimed exceeds rupees twenty lakhs but not exceed rupees 1 crore.
1986. we have the Indian Contract Act. etc which to some extent protect consumer interests.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”. . The onset on intense competition also made producers aware of the benefits of customer satisfaction and hence by and large. the Standards of Weights and Measures Act. (b) Agricultural Products and Grading and Marketing Act. the Agricultural Produce (Grading and Marketing) Act. it lead to the legislation of the Consumer Protection Act. (c) Agricultural Products and Graduate and Marketing Act. 2002 11. 1993 (d) Amendment Act. 1991 (b) Amendment Act. However. often sellers make exaggerated claims and advertisements. which involved lengthy legal process proving.(c) Sec. the Trade and Merchandise Marks Act. Describe the main features of the Consumer Protection Act.6 Terminal Questions 1. 1986. to be too expensive and time consuming for lay consumers. the principle of “consumer is king” is now accepted. Consumer: Any person who buys any goods for consideration which has been paid or promised or partly paid and partly promised. the need for a more simpler and quicker access to redressal to consumer grievances was felt and accordingly. Sec. denies or disputes the allegation contained in the complaint. these laws required the consumer to initiate action by way of a civil suit. the Dangerous Drugs Act. Therefore. 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. The need to recognize and enforce the rights of consumers is being understood and several laws have been made for this purpose. the Indian Standards Institution (Certification Marks) Act. In India.28 A inserted in which amendment of Consumer Protection Act. This leaves the consumer in a difficult position with very few avenues for redressal. (a) Amendment Act. which they do not intend to fulfill. but not limited. Glossary Complaint: Complaint many allegation in writing by a complainant with a view to obtaining any relief under the Act. 1992 (c) Amendment Act. the Sale of Goods Act. the Prevention of Food Adulteration Act. (d) None 9.22 A 10. Service: Service means service of any description which is available to potential users and includes. 9.22 D (d) Sec. Consumer Dispute: Dispute where the person against whom a complaint has been made. AGMARK stands for (a) Agricultural Process and Grading and Marketing Act.
4. 1986 seeks to achieve? 3. (d) 3. 1986.3 – Please study consumer right. Right to choose 6. Refer 9. Refer Unit – Study first this unit and give answers. (a) 10. Examine the rights of a consumer enshrined under the Consumer Protection Act. (c) A person sending a telegram. (c) 5.7 Answers Answers to Self Assessment Questions 1. (b) 4. (c) 9. 2. What sort of complaint may be lodged under the Act? 9. (a) 7. 5. (d) 11.3 – The main features are: (1) It applies to all goods and services unless specifically exempted by the Central Government. What are the objects which the Consumer Protection Act. (a) 8. Refer 9. (b) A person who registers himself for a telephone connection. public or co-operative. (a) 2.2. (2) It covers all sectors whether private. 3. Explain the procedure District Forum follows on receipt of a complaint from a consumer. 6. Can the following be regarded as consumers? (a) A patient of a government hospital. (b) Answers to Terminal Questions 1. .
the federal government sets food safety. resources were not only scarce but shrinking. adulterated or misbranded products. p. . This could drag down Canadian food standards to the lowest common denominator. Refer 9. 130) The federal government of Canada faced a number of food security problems in the early 1990s. Refer 9. and facilitating interprovincial trade. quality and grading standards for products sold interprovincially and internationally and administers regulations aimed at preventing the production or sale in Canada of dangerous. In addition. fluid milk. which facilitated adoption of innovative reform measures: 1. b) The 1994 SPS Agreement required that countries use their food safety and animal. 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. and thousands of municipal governments. 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.4.3 – Refer power of district forum. Mini-case Governmental responsibility for food in Canada is divided among the federal.4 – Nature and Scope of Remedies Available to Consumers. including restaurants and grocery stores. Federal responsibility centres on export and inter-provincial trade: protecting and expanding export markets for Canadian food products. 3. The Government wanted to reform its public service along the lines achieved in the United Kingdom and New Zealand. as well as dairies and meat plants whose products are sold within the province. 10 provincial. Refer 9. where separate agencies were spun off from government. and the food retail industry. three territorial. Resources for additional inspection of fish products were not available. despite the small percentage of overall production represented and assurances outlined in the Auditor General of Canada’s 1994 Report. including local food processing. 5. 6. 5. not for trade protection purposes. 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. 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. Provinces and municipalities are responsible for: The intraprovincial aspects of the food industry. c) Gaps resulting from non-inspection or non-rigorous inspection were perceived by processors as a weak link. Canada’s reputation for high quality food had been damaged by the "tainted tuna" scandal. (Moore and Skogstad. the food service industry. Some 77 pieces of legislation govern food inspection among three levels of government.3 – Refer consumer rights.g. plant and health regulations only to the extent necessary to protect human. They decide whether and how to inspect local operations. b) Canadian producers/processors were vulnerable to trade challenges in a fragmented system. 2. 4. animal life or health.
National unity was threatened. Separation of health and safety standard setting from inspection.6. tuberculosis in cattle and zoonotic diseases such as salmonella enteritidis in poultry. 10. 11. for its fish inspection program. 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. and solutions suggested in the winning Liberal platforms in the 1993 and 1997 elections were renewal of the federation. tuberculosis in cattle and zoonotic diseases such as salmonella enteritidis in poultry. thereby fulfilling a World Health Organization principle. 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. Separation of health risk analysis from risk management. One such risk-based tool. thereby fulfilling a World Health Organization principle. 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. most notably the capacity to retain revenues. The Agency reports not to a deputy minister but directly to the Minister of Agriculture and Agri-Food. Risk assessment methods allowed the allocation of food inspection resources on a risk basis. The Auditor General also has authority to conduct periodic value-for-money audits of the Agency. and Agriculture and Agri-Food Canada into one self-standing Agency effective April 1. The Government of Canada consolidated all of its food inspection and quarantine services from Health Canada. d) Separation of health risk analysis from risk management. 12. It also has a number of financial flexibilities not available to government departments. The Auditor General of Canada was appointed as an external auditor under the CFIA Act. the Hazard Analysis Critical Control Point (HACCP) system. was deemed more effective than existing systems in ensuring food safety. Employing the Auditor General of Canada’s definition of the public interest when assessing ASDs. The Agency has separate employer status. Canada was the first government to adopt this system. including better coordination of services and reduction in overlap and duplication among governments. A more integrated and comprehensive approach (gate-to-plate) to trichinosis in swine. Improved capacity to respond to outbreaks of food-borne illness and threats to the food system presented by medicated feeds and antibiotic residues. Fisheries and Oceans. b) Improved capacity to respond to outbreaks of food-borne illness and threats to the food system presented by medicated feeds and antibiotic residues. developed for the US space program. 1997. permitting new flexibilities for inspection. c) Separation of health and safety standard setting from inspection. On all counts the CFIA’s self-assessment concluded it was serving the public interest. 8. 9. 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. 7. rather than working through the Public Service Commission. the CFIA addressed whether there was an appropriate focus on public objectives. Reduced criticism of conflict of interest because the same department was responsible for promoting and regulating an industry (fisheries). permitting new flexibilities for inspection. Question . e) Reduced criticism of conflict of interest because the same department was responsible for promoting and regulating an industry (fisheries). and so can hire and fire its own employees. Protecting the public interest is a major concern in creating alternate Service Delivery Agencies (ASDs) in Canada.
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.19 Procedure for investigation of combination 10.5 and 6) 10.3 Prohibition of Anti-competitive Agreements 10. Analyse the kind of agency it is.2 Definitions 10.6 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. 2002 Unit-10-The Competition Act.1 Introduction Objectives 10. (Hint: It is a self-standing agency with a separate employer status and more financial flexibilities.4 Prohibition of Abuse of Dominant Position 10. 2002 Structure: 10.5 Regulation of Combinations (Secs.8 Miscellaneous Provisions Power to grant interim relief Power to award compensation Appearance before commission .) MB0051-Unit-10-The Competition Act.1.
2002 extends to the whole of India except the State of Jammu and Kashmir. The Competition Act. It received the assent of the President of India on 13th January. 2003. you came to know about the Consumer Protection Act. It shall come into force on such date as the Central Government may. Agreement.1 Introduction In the earlier units. It includes any arrangement or understanding or action in concert – (1) Whether or not.Review of orders of commission Rectification of orders Execution of orders of commission Appeal 10. Acquisition. 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 10.2 Definitions Sec. 2002. It means.9 Finance. Unless the context otherwise requires. acquiring or agreeing to acquire – (1) Shares. In this unit you will study about the Competition Act. directly or indirectly. understanding or action is formal or in writing. such arrangement.2 defines various expressions used in the Act. appoint. or (2) Control over management or control over assets of any enterprise. . Accounts and Audit Grants by Central Government Constitution of fund Accounts and audit 10. or (2) whether or not such arrangement.11 Terminal Questions 10.10 Summary 10. voting rights or assets of any enterprise. understanding or action is intended to be enforceable by legal proceedings. by notification in the Official Gazette.12 Answers 10. these expressions are defined as below. Objectives After studying this unit.
institute. underwriting or dealing with shares. supply. by reason of characteristics of the products or services. their prices and intended use. Practice. It includes value of sale of goods or services. Industrial or Investment Corporation. industry. Member. corporation. It includes an association of producers. 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. It means any authority. Chairperson. Relevant Product Market. Joint. Commission.7(1). sellers. (ii) stock except where a distinction between stock and shares is expressed or implied. Statutory Authority. control or attempt to control the production. Public Financial Institution. It means a Member of the Commission appointed under Sec. storage.Cartel. It means a person or a department of the Government. holding. Relevant Market. established by or under any Central. Trade. 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. 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. Turnover. It means a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer. debentures or other securities of any other body corporate. It includes any practice relating to the carrying on of any trade by a person or an enterprise. limit. profession or occupation relating to the production. Shares. relating to the (i) production. Enterprise. or has been. or in the business of acquiring.4A of the Companies Act. distribution. council. sale or price of.8 and includes the Chairperson. It means a public financial institution specified under Sec. distributors. acquisition or control of articles of goods. traders or service providers who. Self Assessment Questions 1. who or which is. either directly or through one or more of its units or divisions or subsidiaries. engaged in any activity. 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. It means the Competition Commission of India established under Sec. It means any trade. CCI stands for (a) Consumer Commission of India (b) Competition Commission of India . distribution. board.16 (1) and includes any Additional. It means the Chairperson of the Commission appointed under Sec. Deputy or Assistant Director General appointed under that section. university or any other body corporate. business. by arrangement amongst themselves. or (iii) in investment.8(1). Director General. Relevant Geographic Market. 1956 and includes a State Financial. or (ii) the provision of services. It means the Director General appointed under Sec. of any kind. storage or control of goods and includes the provision of any services. or trade in goods or provision of services. distribution. supply. 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. State.
Any agreement entered into in contravention of this provision shall be void. Thus no enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production.(c) Competition Collaboration of India (d) Computer Competition of India 2. 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.3 Prohibition of Anti-competitive Agreements Sec. (d) directly or indirectly results in bid rigging or collusive bidding. Sec. Value of sales of goods or service includes in (a) Product (b) Service (c) Turnover (d) Profit 4. supply. or number of customers in the market or any other similar way. acquisition or control of goods or provision of services.3 provides for prohibition of entering into anti-competitive agreements. Factors which cause adverse effect on competition. or decision taken by any association of enterprises or association of persons. (a) Sec. storage.8(2) (d) Sec. (b) limits or controls production.16(2) (c) Sec. Activities having adverse effect on competition. markets.3. this section also specifies certain activities which shall be presumed to have an appreciable adverse effect on competition. which causes or is likely to cause an appreciable adverse effect on competition within India. Self Assessment Questions 3. (c) shares the market or source of production or provision of services by way of allocation of geographical area of market. distribution.16(1) 10. including cartels. technical development. Any agreement between enterprises or persons referred (a) Bid-rigging (b) Bid-singing (c) Bid-locking . Director General appointed under. supply.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.8(1) (b) Sec. Further. investment or provision of services. 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. or type of goods and services.
or (B) in India or outside India.5 deals with combination of enterprises and persons. would belong after the acquisition. There shall be an abuse of dominant position. Design registered under the (a) Design Act. or (ii) affect its competitors or consumers or the relevant market in its favour. 10. 2003 (b) Design Act. enjoyed by an enterprise. in aggregate. in aggregate. 1000 crores or turnover more than Rs. by their nature or according to commercial usage.(d) None 10. assets or voting rights have been acquired or are being acquired. other relevant market. 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. or (d) makes conclusion of contracts subject to acceptance by other parties of supplementary obligations which. whose control. enjoyed by an enterprise. or (ii) technical or scientific development relating to goods or services to the prejudice of consumers. 2000 (d) Design Act. in India. the assets of the value of more than US $ 500 m or turnover more than US $ 1500 m. 12000 crores. the assets of the value of more than US $ 2 billion or turnover more than US $ 6 billion. jointly have or would jointly have – (A) either in India. to which the enterprise whose control. or (c) indulges in practice or practices resulting in denial of market access. These circumstances are: (a) Acquisition of control. imposes unfair or discriminatory (i) condition in purchase or sale of goods or service. if an enterprise: (a) directly or indirectly. or protect. or (e) uses its dominant position in one relevant market to enter units. 5 and 6) Sec. or (ii) the group. 4000 crores or turnover more than Rs. or (b) limits or restricts (i) production of goods or provision of services or market therefore. being the acquirer and the enterprise. voting rights or assets has been acquired or are being acquired jointly have (A) either in India. have no connection with the subject of such contracts. The expression ……………… means a position of strength.4 Prohibition of Abuse of Dominant Position Sec. 3000 crores. the assets or the value of more than Rs. . or (B) in India or outside India. in the relevant market. shares. The expression ‘dominant position’ means a position of strength.5 Regulation of Combinations (Secs. 2002 6. or (ii) price in purchase or sale (including predatory price) of goods or service. 2001 (c) Design Act. in the relevant market. shares. voting rights or assets: Any acquisition where (i) the parties to the acquisition.4 prohibits abuse of dominant position by any enterprise. which enables it to (i) operate independently of competitive forces prevailing in the relevant market. shares. the assets of the value of more than Rs. Self Assessment Questions 5.
the assets of the value of more than Rs. or (B) in India or outside India.7 provides for the establishment of the Competition Commission of India. at his or its option. 4000 crores or turnover more than Rs. Sec. who or which proposes to enter into a combination.6 Competition Commission of India 10. or (B) in India or outside India.6. 1000 crores or turnover more than Rs. the assets of the value of more than Rs.5 by the board of directors of the enterprises concerned with such merger or amalgamation. or is being acquired. in aggregate. Sec. distribution.1 Establishment of commission Sec. have (A) either in India. 3000 crores. in aggregate. within seven days of: (a) approval of the proposal relating to merger or amalgamation referred to in Sec. The Commission shall be a body corporate by the aforesaid name having perpetual succession and a common seal with power to acquire. the assets of the value of more than US $ 500 million or turnover more than US $ 1500 million or (ii) the group. give notice to the commission. 12000 crores. if entered into. Such a combination. being a party to a combination. the assets of the value of more than Rs. 4000 crores or turnover more than Rs. shall be void.(b) Acquisition of control over production. would belong after the acquisition jointly have or would jointly have (A) either in India. 12000 crores.2 Duties of commission . the assets of the value of more than US $ 500 million or turnover more than US $ 1500 million. hold and dispose of property. or (B) in India or outside India. would belong after the merger or the amalgamation. 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 or would have (A) either in India. Sec. in which enterprise whose control has been acquired.5.6. (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. or (B) in India or outside India. may. as the case may be.44 provides for penalty for making false statements or omission to furnish material information by a person. 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. as the case may be. 1000 crores or turnover more than Rs. the assets of the value of more than US $ 2 billion or turnover more than US $ 6 billion. as the case may be. (b) execution of any agreement or other document for acquisition or acquiring of control referred to in Sec.6. The place of head office of the commission shall be decided by the Central Government.5 deals with combination of _____________. 10. in aggregate. Self Assessment Questions 7. the commission can establish offices at other places in India. the assets of the value of more than Rs. However. disclosing the details of the proposed combination. or (ii) the group. distribution or trading of a similar or identical or substitutable goods or provision of a similar or identical or substitutable service. Exemption: Any person or enterprise. 10. to which the enterprise remaining after the merger or the enterprise created as a result of the amalgamation. 3000 crores. 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. the assets of the value of more than US $ two billion or turnover more than six billion US $. inter alia. 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.
or each of the respondents. The Benches shall be constituted by the Chairperson and each Bench shall consist of not less than two Members. arises.18 provides that it shall be the duty of the Commission to (i) eliminate practices having adverse effect on competition. Power to review its own orders (Sec. It provides as follows: 1.6. or carries on business. as the case may be. Every Bench shall consist of at least one Judicial Member. Power to regulate its own procedure (Sec.22 contains provisions relating to constitution of Benches of the Commission. or (c) the cause of action. Self Assessment Questions 9.19) 3.6. or personally works for gain.33) 5.20) 4. Inquiring into certain agreements (Sec.5 Jurisdiction of bench Sec. or personally work for gain. These are: 1.Sec. as aforesaid.3 Benches of commission Sec. (ii) promote and sustain competition.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.37) 10.18 above. 3. The jurisdiction. Inquiring whether an enterprise enjoys dominant position (Sec. the Commission is conferred with certain powers. at the time of the initiation of enquiry or institution of the complaint or making of reference. they shall state the point or points on which they differ. Inquiring into acquisition. where there are more than one.4 Procedure for deciding a case where members of a bench differ in opinion Sec. 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. 2. including those who first heard it. where there are more than one. 10.24 provides that if the Members of a Bench differ in opinion on any point. Powers and functions of commission With a view to perform the duties as enumerated in Sec. actually and voluntarily resides. (iii) protect the interests of consumers and (iv) ensure freedom of trade carried on by other participants. powers and authority of the Commission may be exercised by Benches thereof.6. in markets in India. or (b) any of the respondents. 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.36) 7.34) 6. . acquiesce in such institution.19) 2. Power to grant interim relief (Sec. or carry on business. as the case may be. control and combination (Sec. wholly or in part. Power to award compensation (Sec. or the respondents who do not reside. 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.
9 (c) Sec. upon its own knowledge or information relating to acquisition or acquiring of control or merger or amalgamation under Sec.1 Enquiry into certain agreements and dominant position of enterprises Sec.(a) 51 (b) 53 (c) 54 (d) 52 10. .6 11. or (b) a reference is made to it by the Central Government or a State Government or a statutory authority. CCI established under (a) Sec.7. 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. under Sec.19 Sec. if the Commission is of the opinion that there exists a prima facie case.7 (b) Sec. 2.5.19 provides as follows: 1. The Director General shall. 10. enquire into whether such a combination has caused or is likely to cause an appreciable adverse effect on competition in India. it shall direct the Director General to cause an investigation to be made into the matter.7.7. 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 10.7 Enquiry into certain Agreements and Dominant Position of Enterprise and Combinations 10.3 or 4 either on its own motion or on (a) receipt of a complaint from any person. 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.20 provides that the Commission may. 10.2 Enquiry into combination by commission Sec.8 (d) Sec.19.19 provides that the Commission may enquire into any alleged contravention of the provisions contained in Secs.3 Procedure for enquiry on complaints under Sec.
if necessary.19. Issue of Notice: Where the Commission is of the opinion that a combination is likely to cause. or is likely to have. 7. before the Commission within fifteen working days from the date on which the details of the combination were published under (2).2 (b) Sec.8 Miscellaneous Provisions 10.6(2) (c) Sec.8. after hearing the complainant. affected or likely to be affected by the said combination.3. as the case may be. it shall dismiss the complaint. after hearing the complainant. it shall dismiss the complaint and may pass such orders as it deems fit. it shall direct the complainant to proceed with the complaint.7. if any. the Commission is of the opinion that further enquiry is called for. 10. Where on receipt of a complaint under Sec.3 10. the complainant shall be given an opportunity to rebut the findings of the Director General. as it thinks appropriate. in such manner. Self Assessment Questions 12. The Commission: if it is prima facie of the opinion that the combination has. including imposition of costs. If. as to why investigation in respect of such combination should not be conducted. the Commission agrees with the recommendation of the Director General. 2.29 provides as follows: 1. the Commission is of the opinion that there exists no prima facie case. Prohibition of entering into anti-competitive agreement comes under (a) Sec. 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. 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. Written Objection: The Commission may invite any person or member of the public.1 Power to grant interim relief . direct the parties to the said combination to publish details of the combination within ten working days of such direction. 6.4 Procedure for investigation of combination Sec. If. 5. or has caused an appreciable adverse effect on competition within the relevant market in India. within seven working days from the date of receipt of the response of the parties to the combination. 3.2 (1) (d) Sec. 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. it shall. to file his written objections. an appreciable adverse effect on competition. for bringing the combination to the knowledge or information of the public and persons affected or likely to be affected by such combination. 4.
The Commission may. it is proved to the satisfaction of the Commission.3 or Sec. Without prejudice to any other provisions contained in this Act. However. grant a temporary injunction restraining any party from carrying on such act until the conclusion of such enquiry or until further orders. pass an order directing the enterprise to make payment to the applicant.8. without giving notice to the opposite party. Subject to the other provisions of this Act. 10. the Commission may make (a) an amendment under (1) of its own motion.3 or Sec. 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. 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. apply to the Commission for review of its order and the Commission may make such order thereon as it thinks fit. in the . 10. where it deems it necessary and a copy of such order granting temporary injunction shall be sent to the concerned authorities. 10.39 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. (b) an amendment for rectifying any such mistake which has been brought to its notice by any party to the order. With a view to rectifying any mistake apparent from the record. Where during an enquiry before the Commission. that an act in contravention of Sec. may. 34 provides as follows: 1. 2.Sec.3 Appearance before commission Sec.6 Execution of orders of commission Sec. 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. 2.4 or Sec. 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. after an enquiry made into the allegations mentioned in the application made under (1).6 has been committed and continues to be committed or that such act is about to be committed. by such person as a result of any contravention of the provisions of Sections 3 to 6 having been committed by such enterprise. 10.4 Review of orders of commission Sec. 2. the Commission may entertain a review application after the expiry of the said period of thirty days. if it is satisfied that the applicant was prevented by sufficient cause from preferring the application in time.8. by order. without giving notice to the opposite party. the Commission may.8.8. 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. it may.5 Rectification of orders Sec.2 Power to award compensation Sec. 33 provides as follows: 1. by affidavit or otherwise. the Commission may amend any order passed by it under the provisions of this Act. within thirty days from the date of the order. where it deems it necessary. grant a temporary injunction restraining any party from importing such goods until the conclusion of such enquiry or until further orders.6. 10.4 or Sec. 38 provides as follows: 1.8.
(b) in the case of an order against any other person. (True / False) 10. that subordinate office. is situated. (b) the monies received as costs from parties to proceedings before the Commission. the place. 2.7 Appeal Sec. 14. 51 provides as follows: 1. allow it to be filed within a further period not exceeding sixty days. (a) in the case of an order against a person referred to in Sec. is situated.9.1 Grants by Central Government Sec. Self Assessment Questions 13.50 provides that Central Government may after due appropriation made by Parliament by law in this behalf. within the local limits of whose jurisdiction.9. 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. 10. 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. 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. 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. Additional. such order to the High Court or the principal civil court. 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. as the case may be.2.8.event of its inability to execute it. (b) the other expenses of the Commission in connection with the discharge of its functions and for the purposes of this Act. _____________ 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.2 Constitution of fund Sec. (c) the fees received under this Act. the Registrar and officers and other employees of the Commission. 10. if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period. . 1908. the Supreme Court may. Deputy or Assistant Directors General. allowances and pension payable to the Director General. However. (d) the interest accrued on the amounts referred to in clauses (a) to (c). 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. 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. where the person concerned voluntarily resides or carries on business or personally works for gain. Joint.9 Finance. Accounts and Audit 10.100 of the Code of Civil Procedure.
3 Accounts and audit Sec. through a purchase acquisition or a pooling of interests.9.10 Summary The Competition Act. ____________ provides that the Commission shall maintain proper accounts and other relevant records. Describe the provisions as regards prohibition of anti-competitive agreements. shall have the right to demand the production of books. in connection with the audit of the Government accounts and. removing controls and resorting to liberalization.11 Terminal Questions 1. if not all. accounts. The Fund shall be administered by a committee of such Members of the Commission as may be determined by the Chairperson. (True / False) 10. Although the stock market is seen as "high risk" this depends very much on timing and the sort of shares you invest in. by notification in the Official Gazette. 1969 became obsolete in certain respects in the light of international economic developments relating more particularly to competition laws. Glossary Acquisition: A corporate action in which a company buys most.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. For this it is necessary that the Indian market should prepare itself competition from within the country and outside.3. 10. India has responded to globalization by opening up its economy. of the target company’s ownership stakes in order to assume control of the target firm. The committee (3) shall spend monies out of the Fund for carrying out the objects for which the Fund has been constituted. 16. 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. in particular. Shares: Shares are the best investment available over a long period of time. appoint. Self Assessment Questions 15. . connected vouchers and other documents and papers and to inspect any of the offices of the Commission. privileges and authority in connection with such audit as the Comptroller and Auditor-General of India generally has. 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. 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. Turnover: Turnover often refers to inventory or accounts receivable Merger: The combining of two or more entities into one. The accounts of the Commission shall be audited by the Comptroller and Auditor-General of India. The Monopolistic and Restrictive Trade Practice Act. 2002 extends to the whole of India except the state of Jammu and Kashmir. It shall come into force on such as the Central Government may. 10. 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.
(d) 3. Describe the provisions as regards duties of the Director General to investigate contravention of the provision of the Act. Explain the provisions relating to regulation of combinations. Sec. (c) 6. (a) 11. Explain the power if the Competition Commission to enquires into anti-competitive agreements and dominant position of enterprises.12 Answers Answers to Self Assessment Questions 1. What are the circumstances under which combination is construed? 3. 7. (d) 12. 6. 9. True 15. Describe the provisions as regards ‘Benches of Commission’ and ‘Distribution of business of Commission amongst Benches’. What are the consequences for a person who contravenes the orders of the Commission? 10. Under what situations. (d) 10. Sec. (b) 8. Enterprises and persons 9. the Central Government can order division of enterprise enjoying dominant position? 8. 4. (a) 5. Is there any restrictions and other terms and conditions of service of Chairperson and other members? 5.2. Dominant position 7. (d) 13.52 . (b) 2.40 14. (c) 4.
29 provides this) 9. a set of rules that govern day-to-day workings of a company. Refer 10. asked shareholders to mail their votes through postal ballot for a change in its Articles of Association.3 provides for prohibition of entering into anti-competitive agreements. It had also said that RIL had not been consulted by REL before the proposed re-amendment of the relevant articles of association. through a postal ballot. inter alia.) 8. 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.6 – (Sec.) 3. Earlier these powers were vested with Mr Anil Ambani. of which REL is a subsidiary. RIL was among the 97.) 2. The company had sought permission to change Article 131 (a).24-per cent REL shareholders who voted in favour of the changes to its Articles of Association.5 – (Sec. Reliance Industries had earlier said that it had not sought in any withdrawal of powers conferred on Mr Anil Ambani.3 or 4 either on its own motion.6 – (Yes please follow this unit for more knowledge) 5. True Answers to Terminal Questions 1. 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. it will have the right to appoint majority of REL’s directors on the board of the company. Question . Refer 10.) 6. Refer 10. 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.6 – (Sec. Reliance Industries. Refer 10.3 – (Sec. Refer 10. 131 (a) (ii) and 131 (aa).) 4. choose the Vice-Chairman of the company and even decide the tenure of the Chairman.5 deals with combination of enterprises and persons.5 – (Sec. which allowed Mr Anil Ambani the power to appoint onethird or majority of the total directors on REL’s board. Refer 10. Refer 10.) 7. According to sources.6.6 – (With a view to perform the duties as enumerated in Sec.8 – (Sec.000-crore Reliance Group.22 contains provisions relating to constitution of Benches of the Commission.16. has voted in favour of entrusting itself with the power to appoint the majority of directors on the REL board. REL Chairman and Managing Director. by way of a special resolution. Refer 10. the Commission is conferred with certain powers. REL had. REL sought to vest these powers with its prime shareholder. the largest shareholder in Reliance Energy. Refer 10. The result of which was announced today.19 provides that the Commission may enquire into any alleged contravention of the provisions contained in Secs. 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.18 above. Vice-Chairman and the directors appointed by him.8 – (Please refer commission in this unit) Mini-case Reliance Industries.
5 Contravention and Penalties [Secs.11) 11. 1999 Unit-11-The Foreign Exchange Management Act. 3) Holding of foreign exchange etc.2 Definition under the Act 11. Current account transactions Regulation of capital account transactions Export of goods and services 11.6 Adjudication and Appeal [Secs. (Sec. 1999 Structure: 11.13 to 15] Penalties Enforcement of the orders of adjudicating authority Power to compound contraventions 11.) MB0051-Unit-11-The Foreign Exchange Management Act.16-35] Appointment of adjudicating authority Appeal to special director (appeals) .Why does Reliance want alteration in Reliance Energy’s articles? (Hint: due to the conflict between the ambani brother.1 Introduction Objectives 11.3 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.
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
authorise any person to be known as authorised person to deal in foreign exchange or in foreign securities. [Sec. [Sec. To open NRO. NRNR.5] 5.Sec.3.10(5)]. in all his dealings in foreign exchange or foreign security. money changer or offshore banking unit or in any other manner as it deems fit. Not to engage in unauthorized transactions [Sec. To sell or purchase foreign exchange for current account transactions. 11. 4. Receive any payment by order or on behalf of any person resident outside India in any name. 11. An authorised person shall.3 Powers of the authorised person 1. if he has reason to believe that any such contravention or evasion as aforesaid is contemplated by the person. direction or order made thereunder. notifications or directions made thereunder. notification. 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. regulations. An authorised person shall. Where the said person refuses to comply with any such requirement or makes only unsatisfactory compliance therewith. on an application made to it in this behalf. To deal in or transfer any foreign exchange or foreign security to any person [Sec.10(4)]. To comply with RBI directions [Sec. Except with the previous permission of the Reserve Bank. the authorised person shall refuse in writing to undertake the transactions and shall. an authorised person is not allowed to credit the account of any person without any corresponding remittance from any place outside India. require that person to make such declaration and to give such information. think fit to give. notification.10(4)]. Self Assessment Questions . as an authorised dealer. comply with such general or special direction or order as the Reserve Bank may. 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.2 Duties of an authorised person The duties of an authorised person as provided in the Act are summarised hereunder: 1.6]. To ensure compliance of FEMA provisions [Sec. [Sec. from time to time.3. report the matter to the Reserve Bank. before undertaking any transaction in foreign exchange on behalf of any person. 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. NRSR and FCNR accounts. for the purpose of securing compliance with the provisions of this Act and of any rules.4 Bank’s powers to issue directions to authorised persons (SEC.3. 3.3(a)] 2. The authorization shall be in writing and shall be subject to the conditions laid down therein. regulation. 11. regulation.3(c)] However. To sell or purchase foreign exchange for permissible capital account transactions. 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. direction or order made thereunder. NRE. 3. 2.10 provides that the Reserve Bank may.11) The Reserve Bank may. 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.
(Sec.13 provides that if any person contravenes any provision of the Act. hold.2 Holding of foreign exchange etc.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.5 explains dealings in current account transactions.5 Export of goods and services Sec.3-9 deal with regulation and management of foreign exchange.4. possess or transfer any foreign exchange.3 Current account transactions Sec. 11. own. Sec.4.4. 11. Foreign currency means any currency same as Indian currency. Self Assessment Questions 7. 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. or contravenes any condition subject to which the authorization is granted by RBI. (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.5 Contravention and Penalties [Secs. rules. (True/False) 11. An authorized person is allowed to credit the account of any person without any corresponding remittance from any place outside India. regulation etc.4 Regulation of capital account transactions Sec. 11.7 deals with export of goods and services.4. __________ explains dealings in current account transactions. 11.13 to 15] 11. 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. no person resident in India shall acquire. Sec. 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.5. foreign security or any immovable property situated outside India. 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.4 provides that except as otherwise provided in the Act.5.1 Dealings in foreign exchange etc.4.4 Regulation and Management of Foreign Exchange Secs.1 Penalties Sec. which may extend upto thrice the sum involved in such . (True/False) 6. 11. the value which the exporter having regard to prevailing market conditions expects to receive on sale of the goods in a market outside India. Every exporter is required to furnish to Reserve Bank or any other authority as prescribed. any asset outside India by any person. (True/False) 8. he shall be liable for penalty upon adjudication. 11.6 provides that any person may sell or draw foreign exchange to or from an authorised person for a capital account transaction.7 deals with export of goods and services. 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.
2 Enforcement of the orders of adjudicating authority Sec.3 Power to compound contraventions Sec. the defaulter shall not be arrested or detained in civil prison.13 provides that any adjudicating authority may. 500 per day (d) Rs. 400 per day (c) Rs. 200 per day 10. relieves the accused person from further proceedings for that contravention. Further. he shall be liable to civil imprisonment.1 Appointment of adjudicating authority . the penalty of Rs. If the contravention continues. shall be retained outside India in accordance with the directions made in this behalf. 11. However. ____________ after the first day during the period in which the contravention continue shall be imposed. the penalty of Rs.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. any contravention so compounded.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. security or any other money or property in respect of which the contravention has taken place shall be confiscated to the Central Government. 500 per day after the first day during the period in which the contravention continues shall be imposed. It may further direct that the foreign exchange holdings. (a) Rs.5.16-35] 11. of the persons committing the contravention or any part thereof. If the contravention continues. 11.6 Adjudication and Appeal [Secs. if any. Sec.5. 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. Any contravention under Sec. 11. 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. Sec. 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.6. Again. 300 per day (b) Rs. 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. Self Assessment Questions 9.13 may be compounded on an application made by the person committing such contravention within 180 days from the date of receipt of application. in addition to the penalty.contravention where such amount is quantifiable or upto two lakh rupees where the amount is not quantifiable.15 empowers the ____________.
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. modifying or setting aside the order appealed against.28 provides for powers of the Appellate Tribunal and Special Director (Appeals). The appeal shall be filed in the prescribed form and the manner accompanied by the prescribed fees.6.123 and 124 of the Indian Evidence Act. 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. 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. 2. 1. for the purpose of discharging its functions under this Act.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 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. in respect of the following matters: (a summoning and enforcing the attendance of any person and examining him on oath. (h) setting aside any order of dismissal of any representation for default or any order passed by it ex parte.6. These are summarised as under. 1908 while trying a suit. 1872 requisitioning any public record or document or copy of such record or document from any office. The Adjudicating Authority cannot hold any enquiry. The Appellate Tribunal and Special Director (Appeals) while disposing of an appeal.Sec. 3.2 Appeal to special director (appeals) Sec. The Central Government while issuing notification to this effect shall also specify the matter and places over which the Special Director (Appeals) have jurisdiction. the Special Director (Appeals) after hearing the parties may pass such orders as he thinks fit confirming. for the purposes of Sec. the Appellate Tribunal and the Special Director (Appeals) shall have all powers of a civil court. (c) receiving evidence on affidavits.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. 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. On receipt of an appeal. The Central Government is. The Appellate Tribunal and the Special Director (Appeals) shall have. 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.13. (e) issuing commissions for the examination of witnesses or documents. The Special Director (Appeals) shall have the powers of a civil court and the proceeding before him shall be deemed to be judicial proceedings. 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. (f) reviewing its decisions.17 empowers the Central Government to appoint one or more special Directors to hear the appeals against the orders of the Adjudicating Authorities. 11. . for this purpose.193 and Sec.13. however.6.4 Powers of appellate tribunal and special director (appeals) Sec.3 Establishment of appellate tribunal Sec. (b) requiring the discovery and production of documents. (d) subject to the provisions of Secs. (g) dismissing a representation of default or deciding it ex parte. under obligation to specify the jurisdiction of the Adjudicating Authority. unless a complaint is made in writing by an officer authorised by a general or special order of the central government. and (i) any other matter which may be prescribed by the Central Government.229 of the Indian Penal Code. The person alleged to have committed the contravention will be given a reasonable opportunity of being heard before imposing any penalty under Sec. the same powers as are vested in a civil court under the Code of Civil Procedure. 11.
33 provides that the Chairperson. 11.34 . and after hearing such of them as he may desire to be heard.35 (b) Sec.29 provides that where Benches are constituted. including those who first heard it. Such appeal must be filed within 60 days from the date of communication of the decision or order of the Appellate Tribunal.21 of the Indian Penal Code. 11. 11. 11. by notification. the Chairperson may. Self Assessment Questions 11.6. the Special Director (Appeals) and the Adjudicating Authority shall be deemed to be public servants within the meaning of Sec.5 Distribution of business among benches Sec. to any other Bench. for disposal. to be public servants Sec.9 Civil court not to have jurisdiction Sec.6. 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. the Chairperson may transfer any case pending before one Bench.10 Appeal to high court Sec.11. Which section provides that any person aggrieved by any decision or order to the Appellate Tribunal may file an appeal to the High Court.6. or on his own motion without such notice.6.8 Members. (a) Sec. they shall state the point or points on which they differ.31 provides that if the members of a Bench consisting of two members differ in opinion on any point. 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. IPC stands for (a) International Personal Computer (b) Indian Personal Computer (c) International Penal Code (d) Indian Penal Code 12. from time to time. Members and other officers and employees of the Appellate Tribunal.7 Decision to be by majority Sec.6.30 provides that on the application of any of the parties and after notice to the parties.6. 11.34 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. etc.35 provides that any person aggrieved by any decision or order to the Appellate Tribunal may file an appeal to the High Court.6 Power of chairperson to transfer cases Sec.
8 Miscellaneous Provisions Sec. manager. 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. (True/False) .37. Further.7 Directorate of Enforcement Secs.38 provides for empowering other officers with the same powers as are mentioned in Sec.13.37. Subject to such conditions and limitations as the Central Government may impose. Reserve Bank of India. who shall be called officers of Enforcement. was in charge of. 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.(c) Sec. 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. an officer of Enforcement may exercise the powers and discharge the duties conferred or imposed on him under this Act. 1961. such director. for the purposes of this Act. not below the rank of under-secretary to Government of India to investigate any such contravention. direction or order made thereunder is a company.36 to 38 make provisions as regards Directorate of Enforcement. Sec. Self Assessment Questions 13.38 11. subject to such conditions and limitation as the Central Government may impose. at the time the contravention was committed. the company for the conduct of the business of the company as well as the company. the Central Government may by notification authorize any officer or class of officers in the Central Government. secretary or other officer of the company. Similarly. shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly. and was responsible to. State Government.36 (d) Sec.36 and 38 (c) Secs.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. every person who. In addition. Sec.38 and 40 (d) Secs. Directorate of Enforcement make provisions under (a) Secs.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. 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. Self Assessment Question 14. where a contravention of any of the provisions of this Act or of any rule. 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. manager. The officer so appointed shall exercise the like powers which are conferred on the income-tax authorities under the Income-tax Act.34 and 36 (b) Secs.32 and 34 11. any director. Under Sec.
10 Terminal Questions 1. travellers’ cheques. postal notes. cheques. FERA has been replaced by Foreign Exchange Management Act (FEMA). credit cards or such other similar instrument as may be notified by the Reserve Bank. Export: Outflow of goods and inflow of foreign currency. Currency: This expression includes all currency notes. 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.9 Summary ‘The exchange control in India was introduced on September 3. 3. money orders. 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. FEMA has been brought to consolidate and amend the law relating to foreign exchange. Can anyone file a suit against officer of the government exercising powers under FEMA? 4. The role of authorized person.11. means bringing into India any goods or services. What are the obligations of an exporter of goods and services out of India? Explain. 1993. I973 known as FERA. letters of credit. The emergency powers were subsequently replaced by the Foreign Exchange Regulations Act. 5. 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. Describe the penalties prescribed under FEMA for contravention of its provisions. 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. 1947. bills of exchange and promissory notes. 1999. 11.11 Answers . drafts. 1999? 2. 1947 which came into operation on March 25. 1939 as a war time measure in the early period of Second World War under the powers conferred by the Defence of India Rules. Write short note on: (a) Foreign Exchange (b) Currency (c) Indian Currency (d) Foreign Currency (e) Security (f) Overseas Corporate Body 11. What are the duties and powers of an ‘authorized person’ under FEMA. 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. Import: Import with its grammatical variations and cognate expressions.
(d) 3. (a) 13. 5.10 provides that the Reserve Bank may. 4.5 9. No. 2. (d) 4. Refer 11. Sec. 3. False 7. (c) 5. True Answers to Terminal Questions 1. Refer full unit – Please refer full unit in this regards. (b) 2. Mini-case On 2nd and 3rd December 2004. Directorate of enforcement 11. as an authorised dealer. . (b) 14. 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. Refer 11. 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. please refer FEMA Act. intervention has been commonplace in the emerging market community. (c) 10. rules.13 provides that if any person contravenes any provision of the Act.Answers to Self Assessment Questions 1. Refer 11. the outstanding exception being Japan.5 – Sec. on an application made to it in this behalf. regulation etc. (d) 12. the BIS hosted a meeting of Deputy Governors of central banks from major emerging market economies to discuss foreign exchange market intervention.4 – Every exporter is required to furnish to Reserve Bank or any other authority as prescribed. (b) 6.3 – Sec. money changer or offshore banking unit or in any other manner as it deems fit. (a) 8.
Many observers from developed economies have publicly attributed the comparatively weak appreciation of Asian currencies against a rapidly depreciating US dollar to such intervention. Poland and Thailand are particularly relevant in this regard. Is intervention more effective in emerging markets? The wide range of different objectives behind intervention in practice makes assessment difficult . A third reason is that private financial markets have enough capacity to absorb and manage shocks . The difference in view is brought home by the unprecedented scale of foreign exchange reserve accumulation by the emerging market group in recent years. to supply liquidity to the forex market. 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. Yet others would counter that it is better to abstain from intervention in the foreign exchange market: such a stance would. make investors more aware of the need to hedge their own exposures. Other country papers show that varying mixtures of objectives are quite commonplace. 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. Between the end of 2001 and the end of 2004. monetary policy actions are primarily dictated by what is needed to achieve and maintain the exchange rate target. such research often conflates interventions for different purposes.especially empirical assessment that uses data from different episodes and different countries where policy objectives may vary. 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. Formal econometric research has usually thrown doubt on the conclusion of effectiveness of intervention in flexible exchange rate cases although. and the exchange rate peg has proved reasonably durable. 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. intervention is seen as having no lasting power to influence the real exchange rate and thus competitive conditions for the tradable sector. Disyatat and Galati’s paper surveys the available empirical evidence. the objectives of intervention are particularly varied.There are several reasons why developed countries no longer actively intervene. In the group of countries surveyed. there are several examples of repeated interventions over lengthy periods. 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. 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. The authors’ new estimates tentatively suggest the existence of a cumulative effect from repeated intervention (although the mechanism is not clear). The papers from Hong Kong SAR and Saudi Arabia illustrate the point. reflecting reserve accumulation by emerging market economies in Asia. In this connection. Mexico. Without a durable and independent impact on the nominal exchange rate. Four central questions are outlined below. and presents new evidence for the Czech koruna (the methodology requires detailed daily data on intervention and option prices. 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. Yet emerging market countries do intervene . Some favour of the discussion can be gleaned from the central bank papers reproduced in this volume. and this would help the market in hedging instruments to develop. the process of reserve accumulation being used to help dampen volatility when that is convenient). a point which emerges clearly from the Moreno paper and the individual country papers in this volume. they contend. intervention in the foreign exchange market is automatic or nearly so. it will be clear that many important issues remain to be resolved. along with overview papers prepared by BIS staff. In addition. 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. as noted. 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. which were only available for the Czech Republic). A second reason is that large-scale intervention can undermine the stance of monetary policy. the paper from Venezuela makes the interesting point that intervention might have diminishing power with repetition. Part of this may be attributable to cases in which fixed or targeted exchange rate regimes are in place: under such a regime. The papers from Israel. .so that there is no need to “guide” the exchange rate.presumably because they believe the instrument to be an effective tool in the circumstances and for the situations they face. In flexible exchange rate cases. This meeting threw some new light on these issues. global foreign exchange reserves grew by over US$ 1600 billion. to dampen exchange rate volatility (in some cases to satisfy an inflation target). or to influence the level of foreign reserves.
even if interventions are not in general large relative to turnover. Mihaljek’s paper shows clearly that emerging market economies typically hold very large reserves compared with market turnover. 1956 Structure: 12. (Hint: It provides more opportunities for controlling exchange rates and substituting assets across currency boundaries.1 Introduction Objectives 12. Questions 1. (Hint: Interventions slow down the change in exchange rate and supply liquidity to the forex market which is crucial for the emerging markets. What is the effect of intervention on global economy.2 Formation of a Company Promotion Registration (Secs.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.) Source: BIS paper no 24 MB0051-Unit-12-Companies Act. What do you think intervention is effective for emerging market.12 and 33) Availability of name Floatation 12.) 2.4 Articles of Association Meaning and purpose Registration of articles Subject matter of articles . and the authorities tend to have greater financial – and certainly regulatory – weight relative to their private markets.3 Memorandum of Association Meaning and purpose Form and contents Alteration of memorandum 12. 1956 Unit-12-Companies Act. And several of the country papers describe the application of regulatory measures to obtain influence over the exchange rate.
165) Annual General Meeting (AGM) (Secs.12 Terminal Questions 12.8 General Meetings and Proceedings Need for meetings Statutory meeting (Sec.5 Prospectus Contents of a prospectus Stock Exchange Board of India guidelines relating to disclosure on prospectus 12.1 Introduction .10 Winding up of Companies Modes of winding up Winding up by the court 12.13 Answers 12.169 12.11 Summary 12.9 Auditor 12.12.7 Directors 12.6 Shares Classes of shares Preference share Equity share Cumulative Convertible Preference Shares (CCPs) Deferred or founder’s shares Non-voting shares Sweat equity shares 12.166-168) Extra-ordinary Meeting (EGM) Sec.
Therefore. if any (Sec. syndicate. The vast majority of companies in India are with limited liability by shares. “any seven or more persons or where the company to be formed will be a private company. three names in order of priority should be filed. (ii) Particulars regarding directors. it is advisable that promoters find out the availability of the proposed name of the company from the Registrar of Companies.2 Registration (Secs. (ii) Registration and (iii) Floatation. Objectives After studying this unit. though not required to be filed for the purpose of registration.303).2 Formation of a Company The whole process of formation of a company may be roughly divided. These are: (i) Promotion. (i) The address of the registered office of the company (Sec. associated for any lawful purpose may. 76.12 and 33) Secs. This definition does not bring out the meaning and nature of the company into a clear perspective. 1956.In the earlier units. Who is a promoter? This term has not been defined under the Act. The persons who assume the task of promotion are called promoters.62. two or more persons. . These two documents are required to be submitted within thirty days of registration of the company.” 12. The Companies Act. into three parts.12 permits the formation of different types of companies. Also Sec. 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.12 states that. partnership or company. although the term is used expressly in Secs.1 Promotion Promotion is a term of wide import denoting the preliminary steps taken for the purpose of registration and floatation of the company. with or without limited liability. 69. (ii) companies limited by guarantee and (iii) unlimited companies. 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. For the purpose. for convenience. In this unit you will study about the Companies 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. 12. which in the opinion of the Central Government is undesirable.3 Availability of name Sec. manager and secretary. These may be (i) companies limited by shares. you came to know about the Foreign Exchange Management Act.2. association.2. 478 and 519. The following two documents.146). are usually delivered along with the aforesaid documents. 12.20 states that a company cannot be registered by a name.3). The promoter may be an individual.2.
Sec.3.15 requires the memorandum to be printed. It enables shareholders. Each of the members must take at least one share and write opposite his name the number of shares he takes.2. 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. any one dealing with the company. it defines as well as confines the powers of the company.13 requires the memorandum of a limited company to contain: (i) the name of the company. it can go ahead with raising capital sufficient to commence business and to carry it on satisfactorily. with ‘limited’ as the last word of the name in the . or in Forms as near thereto as circumstances admit. divided into paragraphs. that will be ultra vires (beyond powers of) the company and so void. Thus. The persons who assume the task of promotion is known as __________ (a) Acceptors (b) Motivators (c) Promoters (d) None 2. 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.3 Memorandum of Association 12. The memorandum serves a two-fold purpose. that is to say. creditors and all those who deal with the company to know what its powers are and what is the range of its activities. If anything is done beyond these powers. It tells us the objects of the company’s formation and the utmost possible scope of its operations beyond which its actions cannot go. as may be applicable in the case of the company. It must be done at least 3 days before allotment.4 Floatation When a company has been registered and has received its certificate of incorporation. a supplier of goods or money. it is ready for ‘floatation’. How may partners involved in the case of private company? (a) 2 (b) 4 (c) 5 (d) 7 12. the intending shareholder can find out the field in. C. Sec. who will attest the signature. 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.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. say. Thus.2 Form and contents Sec. Self Assessment Questions 1. Also. or (ii) Submit a ‘statement in lieu of prospectus’ in case capital has been arranged privately.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. Sec. 12.12. D and E in Schedule I to the Act.14 requires that the memorandum of a company shall be in such one of the Forms in Tables B.3.
17A).13(1) (a) & Sec. (ii) the name of the State. 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.. (iii) Within 30 days of the removal of the registered office.e. (ii) a copy of it is to be filed with the Registrar within 30 days. The change of name must be communicated to the Registrar of Companies within 30 days of the change. if limited by shares or guarantee is ‘limited’ unless the company is registered under Sec.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. (c) Shifting of the registered office from one place to another within the same state (Sec. (b) In the opinion of the Central Government. 12.3 Alteration of memorandum Sec.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. For this purpose. within 30 days after the date of the change.case of a public company and ‘private limited’ as the last words in the case of a private company.146) or whether the shifting is to the jurisdiction of another registrar of companies in the same state (Sec.25].146). stating separately ‘Main objects’ and ‘other objects’. be given to the Registrar who shall record the same (Sec. notice of the change should. an application is to be made in the prescribed . Publication of name (Sec.3. In case of too similar names. These contents of the memorandum are called compulsory clauses and are explained below: The name clause. (b) Change of registered office from one town or city or village to another town or city or village 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. town or village. when public company is converted into a private company or vice versa). (iv) the declaration that the liability of the members is limited.23(1)].25 as an ‘association not for profit’ [Sec. These provisions are explained herein below: Change of name.146). The change of name becomes effective on the issue of fresh certificate of incorporation. Every company shall: (a) paint or affix its name and the address of its registered office and keep the same painted or affixed. A name shall be said to be calculated to deceive where it suggests some connection or association with the existing company. (iii) the objects of the company. The procedure depends on whether the change is within the jurisdiction of same registrar of companies (Sec.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. the procedure is: (i) a special resolution is required to be passed at a general meeting of the shareholders. the resemblance between the two names must be such as to be calculated to deceive.146 and Sec. A resolution passed by the Board of directors shall be sufficient. notice of the new location has to be given to the Registrar who shall record the same. in which the registered officer of the company is to be situated. However. The company may do so anytime. In this case. The promoters are free to choose any suitable name for the company provided: (a) the last word in the name of the company. This may include: (a) Change of registered office from one premises to another premises in the same city. Too similar name. the name chosen is not undesirable [Sec. 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.146) also require confirmation by the Regional Director. However. Change of registered office.20(1)]. and (v) the amount of the authorised share capital.147). Sec. divided into shares of fixed amounts.
Table A will still apply automatically unless it has been excluded or modified. 12. (a) Memorandum of understanding (b) Memorandum of association (c) Memorandum of unions (d) None 4.4. Such certificate shall be conclusive evidence of the compliance of all requirements under the Act.4. _________ tells us the objects of the company’s formation and the utmost possible scope of its operations beyond which its actions cannot go.T. There are actually three possible alternatives in which such company may adopt articles: (i) it may adopt Table A in full or.I.3 Subject matter of articles The articles of a company usually deal with the following matters: . Self Assessment Questions 3. Articles cannot supersede the objects as set out in the memorandum of association [Birds Investments Ltd. v. or (iii) it may set out is own articles and adopt part of Table A. Further.] 12. it does not register its own articles. The alternatives (ii) and (iii) are often employed.4 Articles of Association 12. C. Cas.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. _____________ 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. and partial adoption of Table A has particular advantage for small companies. rights.form and the confirmation shall be communicated within four weeks. If. (ii) it may wholly exclude Table A and set out its own regulations in full. They define the duties. then the articles given in Table A of Schedule I automatically becomes applicable. even if it does register articles of its own. 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. 147 Cal.2 Registration of articles Sec. 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. (1965) 35 Comp. They are subordinate to and are controlled by memorandum. because of economy in printing and also because any provision of Table A is legally beyond any doubt. however. 12.4.26 states that a public company limited by shares may register articles of association signed by the subscribers to the memorandum. 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.
a prospectus is not merely an advertisement. quorum. 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. 12. 6.1. the allotment of shares. 10. notices. as per Sec.1 Contents of a prospectus . general meetings. poll.2(36). Thus. 5. the amount of capital issued and the classes of shares into which the capital is divided. calls and forfeiture of shares for non-payment of calls.5 Prospectus A prospectus. the business of the company. the execution or adoption of a preliminary agreement. 9. resolution. number. 2. Self Assessment Questions 5. (2) The aforesaid invitation is made to the public. voting. 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. 4. it may be a circular or even a notice. minutes. Change of name must be communicated to the Registrar Companies within ________________ of the change. the rights of each class of shareholders and the procedure for variation of their rights. appointment and powers of directors. circular. means any document described or issued as prospectus and includes any notice. if any. (a) 20 days (b) 15 days (c) 10 days (d) 30 days 6. exercise of borrowing powers including issue of debentures. 3. transfer and transmission of shares. proxy. 7. the increase and reduction of share capital. 8.5. A document shall be called a prospectus if it satisfies two things: (1) It invites subscriptions to share or debentures or invites deposits.
J. (v) Date of opening of the issue.56 lays down that the matters and reports stated in Schedule II to the Act must be included in a prospectus. Capital structure 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 12.73. Under this head information is given about (i) Name and address of registered office of the company. under Sec. (ix) Names and address of the underwriters and the amount underwritten by them. ___________ lays down that the matters and reports stated in Schedule II to the Act must be included in a prospectus. In the first part brief particulars are to be given about matters mentioned below: 1. giving separately reservation for preferential allotment to promoters and others. (iii) Any special tax benefits. (ii) How to apply. The format of a prospectus is divided into three parts. But a share is not a negotiable instrument [C. 12. subscribed and paid-up capital.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. (i) Terms of payment. L. v. East India Distilleries (1957) 27 Comp. Particulars of the issue. 3. 4. (ii) Size of the present 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. 2. General information. 19] . issued. (vi) Date of closing of the issue. If no rating has been obtained. (iv) Declaration about the issue of allotment letters/refunds within a period of 10 weeks and interest in case of any delay in refund. (viii) Whether rating from CRISIL or any rating agency has been obtained for the proposed debentures/preference shares issue. (iii) Means of Financing (including contribution of promoters). Cas.T. (i) objects. 175]. in addition to the requirements of Schedule II to the Act. This definition does not bring out the meaning of a share in its true perspective. contain/specify certain particulars as are announced from time to time. Self Assessment Questions 7. A share of a company in the hands of a shareholder signifies a bundle of rights and obligations [Viswanath v. (i) Authorised.I. (vii) Name and address of auditors and lead managers.6 Shares Sec. Outstanding litigations relating to financial matters or criminal proceedings against the company or directors under Schedule XIII. 5. (1969) 2 Comp. this should be answered as ‘No’. Co. 6.5.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”. (ii) Project cost. 8. Terms of the present issue. (ii) Name/(s) of stock exchange/(s) where application for listing is made. Associated Industrial Dev. at the prescribed rate. (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.
6. and (3) Deferred or Founders’.87(1)].6.83 requires that each share in a company having a share capital must be distinguished by its appropriate number. 1999. 12.5 Deferred or founder’s shares A pure private company can issue shares of a type other than those discussed above (Sec.6. the Board of Directors have to comply with the provisions of law as regards depreciation. it may issue what are known as deferred shares. transfer of a minimum amount to reserves. A public company and a private company which is a subsidiary of a public company may not issue shares other than equity. (2) Equity or Ordinary. (True/False) 17.90). 12.6.85).– 79A was inserted for this purpose.82 to the effect that for the word ‘shares’.Sec.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. A new Sec. allowed issue of sweat equity shares subject to fulfillment of certain conditions. preference and Cumulative Convertible Preference Shares (CCPS). Self Assessment Questions 16. Sec. The holders of equity shares have voting rights in proportion to the paid-up equity capital of the company [Sec. 12. These are contemplated as altogether a different class of shares which may carry additional dividends in lieu of the voting rights. CCPS stands for (a) Constant Convertible Preference Shares . called cumulative convertible preference shares. The Companies (Amendment) Act. they are usually called founder’s shares. 1985 permitted issue of another class of shares by public limited companies. Before recommending dividend on equity shares.86.6. As deferred shares are normally held by promoters and directors of the company.4 Cumulative Convertible Preference Shares (CCPs) The Government vide its guidelines dated 19th August.6. 2000 provided for issue of such type of equity shares under Sec. 12. Thus. The Board of Directors recommend the rate of dividend which is then declared by the members at the Annual General Meeting.7 Sweat equity shares The Companies (Amendment) Act.6 Non-voting shares ‘Non-voting shares’ as the term suggests are shares which carry no voting rights.6. the words ‘shares and debentures’ shall be substituted.1 Classes of shares The most common classes of shares are: (1) Preference. 12. The rate of dividend is not fixed.3 Equity share ‘Equity share’ means a share which is not preference share (Sec.83 requires that each share in a company having a share capital must be distinguished by its appropriate number. etc. 12. 1999 amended Sec. The Companies (Amendment) Act. 12.
they have to make good the same as if they were trustees. whenever there is clash of his personal interests with that of the company. to make calls.2(13) defines a director as including "any person occupying the position of director. judicial pronouncements have described them as (i) agents. they enter into contracts on behalf of the company and in the name of the company. he should keep in mind the company’s interests. manage or superintend a company’s affairs. The directors act as agents of the company. forfeit shares should be exercised bona fide in the interests of the company. either statutory or judicial. of the term has been given. powers to allot shares. 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. But the Act gives no further guidance on the function. Self Assessment Questions 19. If they misapply company’s money. (True / False) 12.(b) Constant Convertible Permanent Shares (c) Cumulative Convertible Preference Shares (d) None 18. duties and position of a director. they occupy an office of the trust and are in certain respects in the position of trustees for the company. For instance. by whatever name called. Such cases are: l They are trustees of money which comes to their hands or which is actually under their control. (ii) trustees. a person is a director if he does whatever a director normally does. The exact position of ‘director’ is hard to define.7 Directors Sec." This is a definition based purely on function. 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. l They stand in a fiduciary relationship to the company and. In reality. therefore. directors are the persons who direct. conduct. They appoint the company’s officers and recommend the rate of dividend. Although directors are not trustees in the real sense of the term. or (iii) managing partners. 20. as no formal definition. They chalk-out the general policy of the company within the framework of the Memorandum of the Company. The directors of company are collectively referred to as the ‘Board of Directors’. The directors have also been described as trustees. therefore. (True / False) 12. However. Sec.8 General Meetings and Proceedings . l They are trustees for exercising powers conferred on them for the benefit of the company.291 has entrusted the management of the affairs of the company in their hands. The holders of equity shares have voting rights. _____________ defines a director.
cannot act itself. All business transacted at such meetings is called special business. EGM is convened for transacting some special or urgent business that may arise in between two AGMs.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. having a share capital or not. (iii) At least 21 days before the day of meeting. The legal provisions as regards such meetings are: 1. it need not hold any such meeting in the year of its incorporation or in the following year. Every company.171). The provisions relating to this meeting are: 1. limited or unlimited must hold this meeting. (ii) by the Directors on requisition.3 Annual general meeting (AGM) (Secs. and (iv) Class Meetings. this is an annual meeting of a company. (iii) at the registered office of the company or at some other place within the city. The Board of Directors may call a general meeting of the members at any time by giving not less than 21 days notice. The Act has made provisions for following different types of meetings of shareholders: (i) Statutory Meeting.12. [Sec. whether public or private. 3. 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.2 Statutory meeting (Sec.1 Need for meetings A company is an artificial person and therefore.166-168) As the name signifies. Therefore. The various provisions of law empower shareholders to do certain things. (ii) during business hours.8. However.291 empowers the Board of Directors to manage the affairs of the company. (iii) Extraordinary General Meeting. 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. be held valid if consent is accorded thereto by members of the company holding 95% or more of the voting rights (Sec.4 Extra-ordinary Meeting (EGM) – Sec.8. Sec. meetings of directors are discussed. every item on the agenda must be accompanied by an ‘Explanatory Statement’.8. An EGM may be called: (i) by the Directors of their own accord. 12. (iii) by the requisitionists themselves. however. (iv) by the Tribunal. In this Part meetings of shareholders are taken up and later in Part 14. A private company or a public company registered without share capital is under no obligation to hold such a meeting. (ii) Annual General Meeting. The meeting must be held in each calendar year and not more than fifteen months shall elapse between two meetings. a notice of the meeting is to be sent to every member stating it to be a Statutory Meeting. In this context meetings of shareholders and of directors becomes necessary.169 Clause 47 of Table A (Schedule – I) provides that all general meetings other than AGMs shall be called the EGMs. town or village in which the registered office is situated. 12. for instance. It must act through some human intermediary. A shorter notice may. They are specifically reserved for them to be done in company’s general meetings. 12. 2.8. The meeting must be held (i) on a day which is not a public holiday. change in the objects or shift of registered office or alteration of capital. The maximum gap between two such meetings may be extended by three months by taking permission of the Registrar. who may so allow for any special reason.166(2)]. 2.
The private companies are not to be taken into account for calculating the number of companies which an auditor can audit. 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. The first auditors hold office until the conclusion of the first AGM of the company. collects its assets. A person will not be eligible for appointment as an auditor of a company if be. 12.10 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. then the company in general meeting may do so. How many days before of statutory meeting a notice to be sent to every member of the company. after a period of one year from the commencement of the Amendment Act is holding any security in that company. pays its debts and finally distributes any . must within thirty days of the receipt from the company of the intimation of his appointment. Self Assessment Questions 1. (True / False) 12. Every auditor so appointed. Also. The first auditors(s) can be appointed by the Board of Directors within one month of the date of the incorporation of the company. An administrator.21. _____________ empowers the Board of Directors to manage the affairs of the company. However.9 Auditor It is compulsory for every company to appoint qualified auditors to do the audit of the accounts maintained by the company. inform the registrar in writing that he has accepted the appointment or has refused the same. Powers and duties or obligations of auditors Sec. Is it compulsory for every company to appoint qualified auditors to do the audit of the accounts maintained by the company? (True / False) 2. (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. Every auditor of a company has right of free and complete access at all times to the books. accounts and vouchers of the company whether kept at the head office or elsewhere. is appointed and he takes control of the company.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. accounts and vouchers of the company whether kept at the head office or elsewhere. (a) 11 days (b) 31 days (c) 41 days (d) 21 days 22. called a ‘liquidator’. if the Board of Directors do not appoint the first auditors. (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.
12.433. its members are not as such liable for its debts. and employs it in some business. B.1 Modes of winding up A company may be wound up in any of the following two ways: A. An association of persons. Compulsory winding up under an order of the Court. 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. A voluntary winding up under the supervision of the Court.2 Winding up by the court Winding up by the Court. 1956 become a legal entity. An administrator. and who share the profit and loss arising there from. Voluntary winding up.11 Summary A company is an association of many persons who contribute money or money’s worth to a common stock.surplus among the members in accordance with their rights. unpaid on the shares respectively held by them. called a (a) Liquidator (b) Advisor (c) Financer (d) None 19.439. The company. The statutory process by which this is achieved is called ‘liquidation’. The Court will make an order for winding up on an application by any of the persons enlisted in Sec.10. even a solvent company may be wound up. having its own entity separate from its members. Self Assessment Questions 18. being a separate person. once incorporated under the Companies Act. if any. Winding up of a company differs from insolvency of an individual inasmuch as a company cannot be made insolvent under the insolvency law. Glossary . 12. A company limited by shares is a registered company having the liability of its members limited by its memorandum of association to the amount. 12. The statutory process by which this is achieved is called ___________. C. subject to the cost of doing so. Shares in a company are transferable.10. also called compulsory winding up. Besides. may be ordered in cases mentioned in Sec.
Who is a promoter? Also explain the duties and liabilities of promoters. 3. What are the different kinds of general meetings of a company? 8. circular. (a) 9. (c) 7. 4.12 Terminal Questions 1. What do you mean by memorandum of association? What does it contain? 5. Sec. True . Write a short note on statement in lieu of prospectus. Suggest 7. Private Company: A company where the minimum number of member is two and maximum fifty. What are the characteristics of a company? 2. (d) 6. 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. Distinguish between a public limited company and private limited company. (c) 2. (b) 4.56 8. Prospectus: Any document described or issued as a prospectus and includes any notice. A 3.13 Answers Answers to Self Assessment Questions 1. 6. advertisement or other document inviting from the public. A company limited by shares intends to buy some of its own shares.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. Sec.16 5. How is an auditor appointed? What are the matters to be stated in his report? 12. 12.
478 and 519. True 18.10. Refer 12.2 – The whole process of formation of a company may be roughly divided.000 secured by the debentures issued to Mr. Salomon.62. Refer 12.5 for more detail. At the time of winding up. and (iv) Class Meetings.9 – It is compulsory for every company to appoint qualified auditors to do the audit of the accounts maintained by the company. Mini-case Salomon carried on business as a leather merchant. Salomon and £8. Sec.6 – Refer Share Section of this unit. (ii) Annual General Meeting. a daughter and four sons. 2. The company almost immediately ran into difficulties and eventually became insolvent and winding up commenced. Refer 12. Refer 12. Refer 12. (c) 11. Mr.8 – The Act has made provisions for following different types of meetings of shareholders: (i) Statutory Meeting.291 16. for convenience. True 17. 6.000 shares of £1 each and issue of debentures worth £10. Refer 12. Refer 12. Salomon was also the managing director of the company. 3. True 12.3 – The Memorandum of Association of a company is its charter which contains the fundamental conditions upon which alone the company can be incorporated.2 – Promoter term is used expressly in Sec. (d) 15. 69.000 secured by floating charge on the company’s assets in favour of Mr. into three parts. its liabilities were £10. The purchase consideration was satisfied by allotment of 20.2(13) 13.000 owing to unsecured trade creditors. 4.2 – Private company at least two members and public at least 7 members. Sec. All the other shareholders subscribed for one share of £1 each. Liquidation Answers to Terminal Questions 1. 5. the total assets of the company amounted to £6. . (iii) Extraordinary General Meeting. Refer 12. He sold his business for a sum of £30.050. 76.000 to a company formed by him along with his wife. These are: (i) Promotion. (a) 19. 7. True 14. (ii) Registration and (iii) Floatation. 8.
35 to 39] Certifying authority to issue digital signature certificate (Sec.7 Digital Signature 13.3 Benefits of the RTI 13.36) .2 Right to Information Act 13.4) Legal recognition of digital signatures (Sec.14) Secure digital signature (Sec.1 Introduction Objectives 13.10 Digital Signature Certificates [Secs. viz.16) 13.4 Information Technology Act 13.8 Electronic Governance [Secs.) MB0051-Unit-13-Information Related Laws Unit-13-Information Related Laws Structure: 13.14 to 16] Secure electronic record (Sec. (Hint: Yes Please follow the case.9 Secure Electronic Records and Secure Digital Signatures [Secs. £6.6 Commencement and Application 13.5) Use of electronic record and digital signatures in government and its agencies (Sec.15) Security procedure (Sec.5 Objectives of the Act 13. Question Do you agree to the claims of the unsecured trade creditors? Comment.4 to 16] Legal recognition of electronic records (Sec.35) Representations upon issuance of digital signature certificate (Sec.050 on the ground that the company was a mere alias or agent for Salomon.6) 13.The unsecured sundry creditors claimed the whole of the company’s assets.
allowances and other terms and conditions of service of presiding officer (Sec.Revocation of digital signature certificate (Sec.61) Appeal to high court (Sec.69) Protected system (Sec.60) Civil court not to have jurisdiction (Sec.62) Compounding of contraventions (Sec.59) Limitation (Sec.12 Offences [Secs.67) Power of the controller to give directions (Sec.71) .58) Right to legal representation (Sec.65) Hacking with computer system (Sec.51) Salary.49) Qualifications for appointment as presiding officer of the tribunal (Sec.56) Appeal to cyber regulations appellate tribunal (Sec.11 Cyber Regulations Appellate Tribunal Establishment of cyber appellate tribunal (Sec.57) Procedure and powers of the tribunal (Sec.68) Directions of controller to a subscriber to extend facilities to decrypt information (Sec.65 to 78] Tampering with computer source document (Sec.63) 13.55) Staff of the cyber appellate tribunal (Sec.66) Publishing of information which is obscene in electronic form (Sec.48) Composition of cyber appellate tribunal (Sec.52) Resignation and removal (Sec.54) Orders constituting appellate tribunal to be final and not to invalidate its proceedings (Sec.38) 13.70) Penalty for misrepresentation (Sec.50) Term office (Sec.
2000 13. you should be able to: · Explain Right to Information Act · Describe the benefits of RTI · Explain Information Technology Act 13.77) Power to investigate offences (Sec. The Right to Information (RTI) Act has been in existence for over a year.Breach of confidentiality and privacy (Sec.1 Introduction In the earlier units.14 Summary 13. actions or lack of actions and policies. the Supreme Court said that people can not speak or express themselves unless they know.73) Publication for fraudulent purpose (Sec. Therefore the masters have the rights to know how the Govts. 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.15 Terminal Questions 13.76) Penalties and confiscation not to interfere with other punishments (Sec. India is a democracy and people are the masters. accountability of the government and promoting people’s basic rights to know about government’s decisions.. you came to know about the FEAM and Companies Act. In Indian democratic system.75) Confiscation (Sec.72) Penalty for publishing digital signature certificate false in certain particulars (Sec.74) Act to apply for offence or contravention committed outside India (Sec. remains hardly known to people for whose benefit it was introduced in the first place.13 Shortcomings of the Information Technology Act. In this unit you will study about the information related laws. the right of every citizen to know information is no doubt a revolutionary step. Legislations centred on RTI are in full force in many countries of the world specially in the ones which are developed and ruled democratically. Objectives After studying this unit. meant to serve them. this Act which is full of significance in creating conditions for good governance. As early as in 1976. But ironically.78) 13.16 Answers 13.2 Right to Information Act Right to information is a part of fundamental rights under Article 19 (1) of the Constitution. are functioning. & other . Article 19 (1) says that every citizen has freedom of speech and expression.
10.2005. Maximum possible information must be disclosed voluntarily. District and Local self Governing Bodies like Panchyat and Municipal bodies. 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. For this openness and change of attitude is required. (True/False) 13. vitality. works. RTI Act. This has widened the path of corruption in manifold.administrative bodies. – Center. Every citizen of India are empowered to seek information from public authority. 2005. RTI Act. 2005 Right to Information Act. · Take copies of any Govt. It also covers NGOs – that are financed substantially with public funds provided by Govt. What rights are available under RTI Act. · Encourages public authority to be sensible and to make optimum use of limited fiscal resources. 2005 was implemented in our country on 15th June. Self Assessment Questions 1. · Take samples of materials of any Govt. it should not be misinterpreted rather it makes the administration more responsive and removes sloth. 2. · Reminds public authorities their power and duty including channels of supervision and accountability. credibility and legitimacy of public authority. · Free flow of information can tackle any disaster there by enables sustained development and growth. · Effective information flow helps citizen to secure their right and entitlement. 2005. Coverage of the Act: The RTI Act covers all level of Govt. alertness which are the major ingredients for smooth & effective functioning of public authority. 2005 empowers every citizen to: · Ask any questions from the Government or seek any information. ___________ is a part of fundamental rights under Article 19 (1) of the Constitution. · Increases efficiency. 2005 was implemented in our country on 15th June. · Inspect any Govt. The act extends to the whole of India except the State of Jammu and Kashmir. · Inspect any Govt. 2005 and became operational on 12. . work. 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. 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. documents. State. Since the Act imposes liability on public authority. documents.
the Indian Evidence Act. as they don’t want to get negative publicity or worse get entangled in legal proceedings. but such powers are largely inefficient. 1872. 4.4 Information Technology Act In May 2000. but also from the perception of lawyers. 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. The Indian IT Act also needs to evolve with the rapidly changing technology environment that breeds new forms of crimes and criminals. cyber nuisance. India enacted the IT Act and became part of a select group of countries to have put in place cyber laws. 2000. We are now beginning to see new categories and varieties of cyber crimes.Self Assessment Questions 3. Although the law came into operation on October 17. which involves the use of alternatives to paper-based methods of communication and storage of information. it still has an element of mystery around it. which have not been addressed in the IT Act. at the height of the dot-com boom. it does not expressly talk of cyber defamation. (ii) to facilitate electronic filing of documents with the government agencies. In all these years. and the Reserve Bank of India Act. 1934.5 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. 13. 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. 2000 provides for punishment to whoever transmits or publishes or causes to be published or transmitted. 1891. the Banker’s Books Evidence Act. 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. and . Another major hurdle is the reluctance on the part of companies to report the instances of cyber crimes. This includes cyber stalking. This is because India does not have reciprocity and extradition treaties with a large number of countries. (iv) to amend the Indian Penal Code. cyber defamation and the like. The Indian IT Act also needs to evolve with the rapidly changing technology environment that breeds new forms of crimes and criminals. Not only from the perception of the common man. RTI ____________ transparency & credibility of public authority. commonly referred to as “electronic commerce”. Information Technology Act apply more than 43 countries in the world. Though Section 67 of the Information Technology Act. law enforcing agencies and even the judiciary.. 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. despite the growing crime rate in the cyber world. cyber harassment. Self Assessment Questions 5. (True/False) 13. The prime reason for this is the fact that the IT Act is a set of technical laws. (iii) to facilitate electronic storage of data in place of paper-based methods of storage of data. Effective information flow helps citizen to secure their ______________ and _____________. The IT Act does give extraterritorial jurisdiction to law enforcement agencies. (True/False) 6.
This Act is not applicable to the following: (i) a negotiable instrument (other than a cheque) as defined in Sec. The “hash function” means an algorithm mapping or translation of one sequence of bits into another. (iv) a will as defined in Sec.1A of the Power of Attorney Act.6 Commencement and Application It extends to the whole of India and save as otherwise provided in this Act. A trust is defined in the _________________. (ii) a power-of-attorney as defined in Sec. RTI extends to _____________ of India. 10. 1882.3 of the Indian Trust Act.(v) to provide for matters connected therewith or incidental thereto. IT Act provides legal recognition for transactions carried out by means of __________ and other means of __________________.13 of the Negotiable Instruments Act. (v) any contract for the sale or conveyance of immovable property or any interest in such property. 13. it applies to any offence or contravention thereunder committed outside India by any person. 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. Authentication is a process used to confirm the identity of a person or to prove the integrity of information.7 Digital Signature Authentication of electronic records. (b) that two electronic records can produce the same hash result using the algorithm. (vi) any such class of documents or transactions as may be notified by the Central Government in the Official Gazette. Subject to the provisions of section 3 any subscriber may authenticate an electronic record by affixing his digital signature. (iii) a trust as defined in Sec. The authentication of message involves determining its source and verifying that it has not been modified or replaced in transit. Self Assessment Questions 7. 1882.2(h) of the Indian Succession Act. 1925 including any other testamentary disposition by whatever name called. 8. 1881. 13. Self Assessment Questions 9. Self Assessment Question . IT Act facilitates electronic storage of data in place of ____________ methods of storage of data.
receipt or payment. then such digital signature shall be deemed to be a secure digital signature. application or any other document with any office.8 Electronic Governance [Secs. notwithstanding anything contained in such law. then notwithstanding anything contained in such law. such requirement shall be deemed to have been satisfied.8. 13. 13.8. it can be verified that a digital signature. Legal recognition of electronic records come under _____________. grant. at the time it was affixed. (b) capable of identifying such subscriber. is effected by means of such electronic form as may be prescribed by the appropriate Government.2 Secure digital signature (Sec.1 Legal recognition of electronic records (Sec. 13. 13. body or agency owned or controlled by the appropriate Government in a particular manner.9. Authentication is not a process used to confirm the identity of a person.3 Security procedure (Sec. The expression “signed” as used above shall. by application of a security procedure agreed to by the parties concerned.16) .8. 13. then such record shall be deemed to be a secure electronic record from such point of time to the time of verification. (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.9. (True/False) 13. with reference to a person.6) Where any law provides for the following: (a) the filing of any form. then.3 Use of electronic record and digital signatures in government and its agencies (Sec.4 to 16] 13.14) Where any security procedure has been applied to an electronic record at a specific point of time. sanction or approval by whatever name called in a particular manner.9. authority. and (b) accessible so as to be usable for a subsequent reference.1 Secure electronic record (Sec.15) If. was – (a) unique to the subscriber affixing it. written or printed form.2 Legal recognition of digital signatures (Sec. as the case may be. such requirement shall be deemed to have been satisfied if such information or matter is (a) rendered or made available in an electronic form. means affixing of his handwritten signature or any mark on any document and the expression “signature” shall be construed accordingly.14 to 16] 13.11. such requirement shall be deemed to have been satisfied if such filing. permit. if such information or matter is authenticated by means of digital signature affixed in such manner as may be prescribed by the Central Government. (c) the receipt or payment of money in a particular manner. (b) the issue or grant of any licence. Self Assessment Question 12. issue.4) Where any law provides that information or any other matter shall be in writing or in the type.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.9 Secure Electronic Records and Secure Digital Signatures [Secs.
.10.3 Revocation of digital signature certificate (Sec. by notification. 13. (d) the subscriber’s public key and private key constitute a functioning key pair.35 to 39] 13. (True/False) 15. 13. Secure digital signature come under __________________. (d) the availability of alternatives offered to but rejected by any party.2 Composition of cyber appellate tribunal (Sec. which. or (b) upon the death of the subscriber. if it had been included in the Digital Signature Certificate would adversely affect the reliability of the representation made in (a) to (d) above.1 Establishment of cyber appellate tribunal (Sec.10. Self Assessment Questions 14. A Certifying Authority may not revoke a certificate.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.11 Cyber Regulations Appellate Tribunal 13. 13. (e) the cost of alternative procedures. (b) the level of sophistication of the parties with reference to their technological capacity. (c) the subscriber holds the private key corresponding to the public key. Any person may make an application to the Certifying Authority for the issue of a Digital Signature Certificate.10. including – (a) the nature of the transaction. (True/False) 13.35) 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. (e) the information contained in the Digital Signature Certificate is accurate.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. listed in the Digital Signature Certificate. by notification. known as the presiding officer and be appointed. Such an application is to accompany such fee not exceeding Rs 25000 as may be prescribed by the Central Government.11.10 Digital Signature Certificates [Secs. or (c) upon the dissolution of the firm or winding up of the company where the subscriber is a firm or a company.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.2 Representations upon issuance of digital signature certificate (Sec. Self Assessment Question 13. (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. establish one or more appellate tribunals to be known as the Cyber Regulations Appellate Tribunal.49) The Tribunal shall consist of one person only.1 Certifying authority to issue digital signature certificate (Sec. and (f) it has no knowledge of any material fact. (c) the volume of similar transaction engaged in by other parties. and (f) the procedures in general use for similar types of transactions or communications. to be paid to the Certifying Authority.48) The Central Government shall. by the Central Government. 13.11.
the Tribunal may.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. a judge of a High court.11. no such appeal shall lie from an order made by an adjudicating officer with the consent of the parties.11.12 Limitation (Sec.7 Orders constituting appellate tribunal to be final and not to invalidate its proceedings (Sec.54) The Presiding officer may by notice in writing addressed to the Central Government.58) The Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure. 13. may. pass such orders thereon as it thinks fit.9 Appeal to cyber regulations appellate tribunal (Sec.6 Resignation and removal (Sec.11. allowances and other terms and conditions of service of presiding officer (Sec.11. The Central Government.57) Any person aggrieved by an order made by controller or an adjudicating officer may prefer an appeal to the Tribunal.11. Further.60) . 13. and the other terms and conditions of service including pension.13. resign his office. However. 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.8 Staff of the cyber appellate tribunal (Sec. it shall be guided by the principles of natural justice and subject to the other provisions of this and of any rules. 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.55) No order of the Central Government appointing any person as the presiding officer shall be called in question. 13. remove the Presiding officer on the ground of proved misbehaviour or incapacity. Also. the Tribunal shall have powers to regulate its own procedure including the place at which it shall have its sittings.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.11.11. 13. or has been.4 Term office (Sec. 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. 13. by order. after giving the parties an opportunity of being heard. 13.11 Right to legal representation (Sec.56) The Central Government shall provide the Tribunal with such officers and employees as that Government may think. whichever is earlier.10 Procedure and powers of the tribunal (Sec. confirming.50) A person shall not be qualified for appointment as Presiding officer unless he: (a) is. Instead. These employees and officers shall discharge their functions under general superintendence of the Presiding officer. 13. On receipt of an appeal. modifying or setting aside the order appealed against. 13. 13.11.11. or is qualified to be. However.5 Salary.52) The salary and allowances payable to. gratuity and other retirement benefits of the presiding officer shall be such as may be prescribed.11. 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.
13. as for as may be.2 Hacking with computer system (Sec. (or computer program. 13. or with both. to read.The provisions of the Limitation Act. either before or after the institution of Adjudication proceedings.12. The expression “computer source code” means the listing of programs. or computer system or computer network). shall be punishable with imprisonment up to 3 years. be compounded by the controller or the adjudicating officer. 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.67) Whoever publishes or transmits or causes to be published in the electronic form.65 to 78] 13. 1963 shall.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.12. 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. However. computer commands.15 Compounding of contraventions (Sec. (True/False) 17. 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.1 Tampering with computer source document (Sec. Self Assessment Questions 16. 13. Further. . commits hacking. destroy or alter any computer source code used for a computer. see or hear the matter.3 Publishing of information which is obscene in electronic form (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. when the computer source code is required to be kept or maintained by law for the time being in force.11.63) Any contravention under this Part may.65) Whoever knowingly or intentionally conceals. or with fine which may extend up to Rs 2 lakh. as the case may be. Right to legal representation comes under ______________.12. apply to an appeal made to the Tribunal.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.13 Civil court not to have jurisdiction (Sec. destroys or alters or intentionally or knowingly causes another to conceal.11. 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. such sum shall not exceed the maximum amount of the penalty which may be imposed for the contravention so compounded. 13. 13.12 Offences [Secs.14 Appeal to high court (Sec.11. 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. design and layout and program analysis or computer resource in any form. 13.61) 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.
or with both. 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. If he fails to provide the necessary assistance.12 Confiscation (Sec. 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.76) . 13. It may authorise persons to have access to the protected system. discloses the same to any other person shall be punished with imprisonment for a team which may extend to 2 years.12. In such a case.12.11 Act to apply for offence or contravention committed outside India (Sec. 13.12.12. 13.12.10 Publication for fraudulent purpose (Sec.71) Whoever makes any misrepresentation to.12.9 Penalty for publishing digital signature certificate false in certain particulars (Sec. correspondence. register.8 Breach of confidentiality and privacy (Sec. or with fine which may extend to Rs 1 lakh. by order. 13. 13.5 Directions of controller to a subscriber to extend facilities to decrypt information (Sec. 13.68) The controller may.13. the controller or the certifying Authority for obtaining any licence or Digital Signature Certificate. book. For this application. computer system or computer network to be a protected system. 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.74) Whoever knowingly creates.6 Protected system (Sec. document or other material.72) Any person. direct any agency of the government to intercept any information transmitted through any computer resource. then he shall be punished with an imprisonment for a term which may extend to 7 years. it is necessary that the act or conduct constituting the offence or contravention involves a computer.12. information. or with fine which may extend to Rs 1 lakh. friendly relations with foreign states or public order or for preventing incitement to the commission of any cognizable offence. or with both. for reasons to be recorded in writing by order.70) The appropriate government may declare any computer. computer system or computer network located in India. and he. the subscriber or any person in charge of the computer resource shall extend all facilities and technical assistance to decrypt the information. rules or any regulations made thereunder. (empowered under the Act) who has secured access to any electronic record.4 Power of the controller to give directions (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.12. or with both. 13. 13.7 Penalty for misrepresentation (Sec. shall be punished with imprisonment for a term which may extend to 2 years. the security of the state. 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.75) The provisions of this Act shall apply also to any offence or contravention committed outside India by any person irrespective of his nationality. without the consent of the person concerned.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. 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. or with fine which may extend to Rs 1 lakh. or suppresses any material fact from. or (b) the subscriber listed in the certificate has not accepted it.
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. The IT Act.000 per mark against the guilty parties. rules. The IT Act makes no provision for jurisdictional aspects of electronic contracts. however. 5.14 Power to investigate offences (Sec. The banks cannot extend their services to the online medium of payments. a police officer not below the rank of Deputy Superintendent of Police shall investigate any offence under this Act. power of attorney. (True/False) 13. in respect of which provision of this Act. No provision has been made for payment of stamp duty on electronic documents. 1999.. No person shall publish a Digital Signature Certificate.78) Notwithstanding anything contained in the Code of Criminal Procedure. 19.Any computer. including infringement. testamentary dispositions (wills). copyright. Hacking with computer system comes under _____________. 6. trusts.13 Shortcomings of the Information Technology Act. This Act is a powerful deterrent to cybersquatting.e. In USA. 1957. order or regulations made thereunder has been or is being contravened. neither any protection for domain names nor action against cybersquatting is available. 13. 2000 The Act does not cover certain aspects of e-commerce. floppies. such as intellectual property rights. contracts for sale or conveyance of immovable property or any interest in such property.12. tape drives or any other accessories related thereto. computer system.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. 4. The Act is not applicable to negotiable instruments. There have arisen many disputes about domain names globally. 3. jurisdiction of courts and tax authorities. The Act does not address itself to internet related issues such as domain names and cyber squatting.12. These are: 1. these issues are tackled by the US Anti-Cybersquatting Consumer Protection Act. 2. In India. 13. concurrent claims and cybersquatting. cybersquatting can be opposed by relying on the provisions of the Trade Marks Act. i. . Thus infringement of copyright on e-commerce will be governed by the Copyright Act. Thus under IT Act.13 Penalties and confiscation not to interfere with other punishments (Sec. trade marks and patents). (i. shall be liable to confiscation. Self Assessment Questions 18. as it provides for the levy of damages upto US$ 300. 2000 is silent as regards taxation of goods and services traded through e-commerce.. 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. 1999.e. compact disks.
thereby proving that the sender signed it and that the message has not been tampered with. The private key and the public key are unique to the subscriber and constitute a functioning key pair. Authentication of electronic records is a process used to confirm the identity of a person or to prove the integrity of information. IT Act. Glossary Information Technology: Hardware and software that perform data processing tasks. 3.16 Answers Answers to Self Assessment Questions 1. (True/False) 21. The Controller shall be the repository of all Digital Signature Certificates issued under this Act. IT Act has been passed to promote efficient delivery of the Government services by means of reliable electronic records. Describe the objectives of IT Act. IT Act excludes the provisions related to the negotiable instruments like promissory notes. storing. What do you mean by digital signature? 5. 2005. 2000. certain documents are required to be compulsory registered with competent authorities of the government.Self Assessment Questions 20. such as capturing. retrieving. 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. This is used to ensure authenticity.14 Summary The Information Technology Act. cheques. (True/False) 22. plaintext. 13. 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. Describe the provisions as regards secure electronic records and secure digital signatures. Describe the process of digital signature certificate. 4. Explain available rights under RTI Act. 13.15 Terminal Questions 1. True . 2000 was passed which is based on the __________ Model law on electronic Commerce. Hence. In the case of immovable property. manipulating or displaying data. transmitting. Explain some offences in detail. Right to information 2. 2. 13. 6. these documents are excluded. bills of exchanges. Decryption: Decryption is the reverse process of converting encoded data to its original un-encoded form. 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.
True 6.7 – Authentication is a process used to confirm the identity of a person or to prove the integrity of information. True 15. Refer 13. True 20.8 for detail.7 and 13. Section 15 14. enhances 4. 1882 11. Refer 13. UNCITRAL Answers to Terminal Questions 1. entitlement 5. False 16. 4. True 7.2 – Full knowledge please refer 13. Refer 13. . paper-based 8. commonly referred to as “electronic commerce”.3. 2.2. 3. False 12. electronic communication 9. Refer 13. whole 10. electronic data interchange. Indian Trust Act. Electronics governance 13. True 22. right. Section 59 18.4 – 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 21. True 17. Section 66 19. which involves the use of alternatives to paper-based methods of communication and storage of information.
The traffic to these sites was redirected to other sites of Lalwani and the Long Distance Telephone Company.com". The Bennett. The defendants suggested that any misleading impression would be dispelled by the different design of the website.com" for its respective newspapers ‘The Economic Times’ and ‘The Times of India". The complainant claimed that the registration and use of the domain names by Lalwani and the Long Distance Telephone Company was in bad faith.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.3 Applications for Patents Persons entitled to apply for patents (Sec.6 Grant of Patents and Rights Conferred Thereby 14. Refer 13.) MB0051-Unit-14-The Patents Act Unit-14-The Patents Act Structure: 14. Coleman & Company filed two complaints.1 Introduction Objectives 14. Ltd.8 Restoration of Lapsed Patents .com" and "thetimesofindia.com" and "timesofindia.6) Form of application (Sec.8) Provisional and complete specification (Sec. 6.4 Representation and Opposition Proceedings 14.12 for detail. Ltd. Mini-case Bennett.9) Contents of specification (Sec.7 Patents of Addition 14.5. Question What should be the court order in this case in your opinion? (Hint: Court give decision in favour of Bennet Coleman & Co. Refer 13.7) Information and undertaking regarding foreign applications (Sec.2 Inventions not Patentable 14.5 Provisions for Secrecy of Certain Inventions 14. Coleman & Co. held two domain names "economictimes.10) 14. one against Steven S Lalwani and the second against Long Distance Telephone Company who had got sites registered as "theeconomictimes.
2004 on December 26. The Act describes the procedure for the grant of patent and protects his rights against infringement.13 Answers 14. The Patents (Amendment) Act 1999 had. 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. 2005.9 Compulsory Licenses 14. 2004.10 Suits Concerning Infringements of Patents 14. The Patents Act. 1995. 1970. The objective is to protect the intellectual property rights of a person to whom the patent has been granted.11 Summary 14.1 Introduction In the earlier units. Objectives After studying this unit. Consequently. India as joined the Budapest Treaty and its provisions are applicable to India. provided for the modalities for a 10-year transition facility (which India had negotiated at the time of its accession to the WTO). commencing from January 1. As a consequence. as amended and modified from time to time. you came to know about the law of Company act and information related laws. 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).12 Terminal Questions 14. 2000 (in respect of amendments notified in 2002). inter alia. 1977. . 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 Act came into force from 21st September. due from January 1.14. In this unit you will study about the Patents Act. 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. 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. the law was required to be amended further in respect of India’s obligations under the TRIPs Agreement. 1970 extends to the whole of India. 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.
Application for a patent made by a foreign national is known as ________________. Patentee: It means the person for the time being entered on the register as the grantee or proprietor of the patent. Patent cooperation treaty: It means the patent cooperation treaty done at Washington on 19 June 1970 as amended and modified from time to time.25 by the controller to examine the opposition to the patent granted and submit its report to the controller. 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. 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. which is a signatory to an international. i. regional or bilateral treaty. Patent Agent: It means a person for the time being registered under this Act as a patent agent. means that the invention is capable of being made or used in an industry. Capable of industrial application: In relation to an invention. Convention country: The expression convention country is defined in Sec..617 of the Companies Act. or on the licensee and persons authorised by him.Controller: It means the Controller General of Patents. International application: It means an application for patent made in accordance with the Patent Cooperation Treaty. . respectively. an article or process in respect of which a patent is in force. Opposition board: It means an opposition board constituted under Sec. 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. 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. the subject matter has not fallen in public domain or that it does not form part of the state of the art.133. Convention application: It means an application for a patent made by a foreign national of a convention country. Exclusive licence: It means a licence from a patentee which confers on the licensee. 2. Patent: It means a patent for any invention granted under this Act. It provides that any country. or (ii) by a corporation established by a Central or State Act which is owned or controlled by the Government. to the exclusion of all other persons (including the patentee). Patented article and Patented process: It mean. Design and Trade Marks. It also includes the any institution which is financed wholly or for the major part by the government. ____________ is a new product or process involving an inventive step and capable of industrial application.e. Invention: It means a new product or process involving an inventive step and capable of industrial application. 1956. any right in respect of the patented invention. And “exclusive licensee” shall be construed accordingly. Self Assessment Questions 1.133. Government undertaking: It means any industrial undertaking carried on (i) by a department of the Government. or (iii) by a Government company as defined in Sec.
if a corresponding application has also been filed before the Controller of India.6 to 11 deal with applications for patents.6) A patent application can be made by (a) any person claiming to be the true and first inventor of the invention. 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. (g) a method of agriculture or horticulture. animal or plant life or health or to the environment.. Sec. (b) an invention. An invention which claims something obvious or contrary to the well established natural laws cannot be ________________.3 lists the following as not being inventions within the meaning of the Act and therefore. 4. surgical. (f) the mere arrangement or re-arrangement or duplication of known devices each functioning independently of one another in a known way. diagnostic. (d) the mere discovery of any new property or new use for a known substance or of the mere use of a known process. (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. The application is to be made in the prescribed form (available in the patent office). as may be filed designating India. are not patentable: (a) an invention which is frivolous or which claims anything obvious or contrary to the well established natural laws.2 Inventions not Patentable Three sections i. 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. 14. 3 – 5 deal with this topic. 14. the proof of the right to make the application.3. 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.2 Form of application (Sec.1 Persons entitled to apply for patents (Sec. shall be deemed to be an application under this Act.3 Applications for Patents Secs. or (c) the legal representative of any deceased person. The patent application may be made by any of the above persons either alone or jointly with any other person. curative.e. machine or apparatus unless such known process results in a new product or employs at least one new reactant. 14. therapeutic. (h) any process for the medicinal. . Self Assessment Questions 3. (c) the mere discovery of a scientific principle or formulation of an abstract theory.7) Every application for a patent shall be for one invention only. Where an application is made by virtue of an assignment of the right to apply for a patent for the invention. there shall be furnished with the application and within such period as may be prescribed after the filing of the application. who immediately before his death was entitled to make such an application.3. Every international application under the patent cooperative treaty for a patent. _______________ of an abstract theory cannot be called as invention. and is to be filed in the patent office. prophylactic.14.
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. If the complete specification is not so filed. (True/False) 6. Opposition to grant of patent (Sec. Every foreign application shall be accompanied by a statement setting out detailed particulars of such application. However. 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. or (b) nondisclosure or wrongful mentioning in the complete specification. such model or sample shall not be deemed to form part of the specification. Contents of specification comes under ……………….14. if the Controller may require that an application should be further supplemented by a model or sample of anything illustrating the invention.3 Information and undertaking regarding foreign applications (Sec. 14. 26 and 28 deal with the matters relating to opposition to grant of patents.25. be deemed to form part of the specification.5 Contents of specification (Sec.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. the patent shall stand amended accordingly. 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.4 Representation and Opposition Proceedings Secs. be supplied for the purpose of any specification.3.25). if the Controller so requires. 14. any person interested may give notice of opposition to the controller on the same eleven grounds. unless the Controller otherwise directs. This section provides for pre-grant opposition procedure. Any drawings so supplied shall. source and geographical origin of biological material used in the invention and anticipation of invention by the knowledge. 14. The controller shall consider and dispose of such representation in such manner and within such period as may be prescribed. If the specification or other documents are amended by the order of the controller. Further. . Self Assessment Questions 5. and post-grant opposition procedure for revocation of a patent.10) A description of the invention is called the ‘specification’. Pre-grant opposition: A representation.3. can be made to the controller where an application for a patent has been published but a patent has not been granted. available within any local or indigenous community in India.3. Drawings may. 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. inventive step and industrial applicability. Every application for a patent shall be for one invention only. Further. 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. a complete specification shall be filed within 12 months from the date of filing of the application. in any particular case.8) The Act makes special provisions for patent applications. on the ground of (a) patentability including novelty.4 Provisional and complete specification (Sec. oral or otherwise. It should describe the invention and begin with a title sufficiently indicating the subject matter to which the invention relates. the application shall be deemed to be abandoned. and shall.
No person resident in India shall. 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. 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. (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. Self Assessment Question 8.(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. then he may give directions for prohibiting or restricting the publication of information with respect to the invention or the communication of such information. Further.6 Grant of Patents and Rights Conferred Thereby . is relevant for defence purposes or atomic energy. (d) the invention as claimed in the complete specification was publicly known or publicly used in India before the applicant’s claim. Further. 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. not less than six weeks before the application outside India. 35 to 42 make certain provisions for secrecy of certain inventions. then the controller shall not grant permit without the prior approval of the central government. (e) the invention as claimed by the applicant in his complete specification is obvious and does not involve any inventive step. (True/False) 14. or all such directions have been revoked. if in respect of an application for a patent any person contravenes any direction as to secrecy given by the Controller. Secs. however. (True/False) 14. shall be liable to be revoked. except under the authority of a written permit by the controller.33 to 42 make certain provisions for secrecy of certain inventions. Residents not to apply for patents outside India without prior permission (Sec. if any.39). Where in respect of an application for a patent. the application for patent shall be deemed to have been abandoned and the patent granted. (h) the applicant has failed to disclose to the controller the information required by Sec. (f) the invention is not patentable or its patenting is prohibited under the Act.35 (regarding secrecy of certain inventions) in relation to the application in India. 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. (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. The controller is empowered to order either to maintain or to amend or to revoke the patent on the recommendation of the opposition board.8 or has furnished the information which in any material particular was false to his knowledge.5 Provisions for Secrecy of Certain Inventions Secs. If the invention. Self Assessment Question 7.
who do not have his consent. Form. from the act of using that process. on the grant of the patent. Subject to the provision of this act. Further. The Controller may grant the patent for the improvement or modification as a “patient of addition” the term . selling or importing for these purposes that product in India.54 to 56 deal with patents of addition. Grant of patents (Sec. the controller shall publish the fact that the patent has been granted and thereupon the application.43). the term of every patent granted after the commencement of the patents (amendment) Act. the exclusive right to prevent third parties.Secs. selling or importing for those purposes the product obtained directly by that process in India.7 Patents of Addition Secs. An application may be for a patent in respect of any improvement in or modification of a patented invention (known as main invention).46). Further a patent shall be granted for one invention only. ______________ deal with the grant of patents and the rights conferred on the patentee. the exclusive right to prevent third parties.43 to 53 deal with the grant of patents and the rights conferred on the patentee. The rights granted to a patentee under SEC.44). at any time after a patent has been sealed the patentee dies. any patented process or product may be used for the purpose of experiment or research or imparting of instructions to pupils. shall be 20 years from the date of filling of the application for the patent. Amendment of patent granted to deceased applicant (Sec. (b) where the subject matter of the patent is a process. Section 48 provides that the following rights are conferred on a patentee: (a) where the matter of the patent is a product. Date of Patent (Sec. Grant of patents to be subject to certain conditions (Sec.47). and the term of every patent which has not expired and has not ceased to have effect.48 are subject to certain conditions. using.53). The government may manufacture or import the patented invention for the purpose of its own use. 2002. offering for sale. or (b) the application has not been found to be in contravention of any of the provisions of the Act. The patent shall be granted as expeditiously as possible to the applicant. Term of Patent (Sec. 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. Similarly. Every patent shall be in the prescribed form and shall have effect throughout India. The date of every patent shall be entered in the Register maintained in the Patient office. on the date of such commencement. Self Assessment Question 9. Where. Rights of patentee. extent and effect of patent (Sec. 14.45). and from the act of using. offering for sale. who do not have his consent. (or in the case of a body corporate. Every patent shall be dated as of the date on which the application for patent was filed. 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. specification and other documents related thereto shall be open for public inspection. from the act of making.
2. 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. When a patent is restored. The Controller shall give to both the applicant and the opponent an opportunity of being heard before he decides the application. An application may be for a patent in respect of any improvement in or modification of a patented invention. 3.9 Compulsory Licenses Sec. 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. may grant a licence upon such terms as he may deem fit. Procedure for disposal of applications for restoration of lapsed patents (Sec. Self Assessment Question 11. (True/False) . At any time after the expiration of 3 years from the date of the sealing of a patent.60 – 62 make provision as regards restoration of patents which have been lapsed. Self Assessment Question 10. 4. the rights of the patentee shall be subject to such provisions as may be prescribed.62).8 Restoration of Lapsed Patents Secs. 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. The controller. Rights of Patentees of lapsed patents which have been restored (Sec.of the patent of addition shall run concurrently and terminate with the main patent. Any person interested may oppose the restoration. 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. Where a patent has ceased to have effect by reason of failure to pay any renewal fee within the prescribed time.61). then an application may be made to the Controller within 18 months for the restoration of the patent. (True/False) 14. 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. whether in such a licence or otherwise or by reason of his having accepted such a licence.60). or (iii) the patented invention is not worked in the territory of India.84 provides as follows: 1. No renewal fee is payable for the patent of addition so long as the main patent remains in force. Rights of Patentees of lapsed patents which have been restored under _________________ 14. If the Controller is satisfied that the failure to pay the renewal fee was unintentional he shall advertise the application. Self Assessment Question 12. 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. Application for restoration of lapsed patents (Sec. or (ii) the patented invention is not available to the public at a reasonably affordable price.
and therefore the act of such import will not be considered to be an infringement of the patent. Such type of imports are known as ‘parallel imports’ and is a powerful tool that helps in price control. Certain acts not to be considered as infringement (Sec. 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. 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. (a) Secs. ___________ deals with the subject of suits concerning infringement of patents.104 to 116 (b) Secs. commencing from January 1. Consequently. this provicsion is made from the user’s point of view. even though it is patented here. (True/False) 14.104 to 117 (c) Secs. if any as the court thinks fit) and damages or an account of profit.104 to 118 (d) Secs. Invention: It means a new product or process involving an inventive step and capable of industrial application. 2005.104 to 115 deal with the subject of suits concerning infringement of patents. the law was required to be amended further in respect of India’s obligations under the TRIPs Agreement. Foreign exporter must be duly authorized under the law of export. due from January 1. 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. inter alia.104 to 115 14. 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. 2000 (in respect of amendments notified in 2002). 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. . Section 106 empowers the court to grant relief in cases of groundless threats of infringement. 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). As a consequence.14. 2004 on December 26.10 Suits Concerning Infringements of Patents Secs. However.107A). Self Assessment Questions 13.11 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). including an injunction (subject to such terms. 1995. Glossary Patents: A patent for any invention granted under the patent act. Section 104 provides for the jurisdiction of a court for suits to be instituted for infringement of a patent. The Patents (Amendment) Act 1999 had. This section allows import of patented commodity from anywhere in the world where it is cheaper. In other words. provided for the modalities for a 10-year transition facility (which India had negotiated at the time of its accession to the WTO).
12 Terminal Questions 1. Section 10 7. True 13. 3. Formulation 5.13 Answers Answers to Self Assessment Questions 1. 4. True 6. Invention 3. True 8. Describe the procedure for obtaining a patent. 14. Convention application 2. True . patented 4. 5. What do you mean by Patent? 2. Write short notes on: (a) Revocation of patents (b) Register of patents (c) Relief for infringement 14.62 12. False 9. Mention the inventions which are not patentable under the Act. True 11. Describe the provisions as regards examination of application for the grant of a patent.43 to 53 10.Patentee: It means the person for the time being entered on the register as the grantee or proprietor of the patent. Sec. Secs.
6 to 11 deal with applications for patents.3 – Secs. Refer 14." Suven said in a filing to the Bombay Stock Exchange.14) .13) Meaning of copyright (Sec. the filing added.1 – Patent means a patent for any invention granted under the patent Act. Question What is the importance of these patents to Suven? (Hint: Its no one involved in the same patent. Refer 14. (d) Answers to Terminal Questions 1. Suven has a total of seven granted EPO patents on new chemical entities. its Ownership and Term Works in which copyright subsists (Sec. Mr Venkat Jasti. These patents are exclusive intellectual property of Suven and are achieved through internal discovery research efforts. said.6 – Secs. parkinson. respectively. 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. Refer 14.2 – for more detail 4. and 2024. useful in the treatment of neurodegenerative disorders like alzheimer’s. 3.43 to 53 deal with the grant of patents and the rights conferred on the patentee.EP1537113. The granted claims of the patents include therapeutic agents. EP1704154 and EP1856132 and the said are valid until 2023.2 Copyright. 2. "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.) MB0051-Unit-15-The Copyright Act Unit-15-The Copyright Act Structure 15. For detail please refer full unit. Refer 14." the company CEO. and schizophrenia.14. "The company gets three patents . 5. With these new patents. it added. 2022.1 Introduction Objectives 15.
38) 15. It extends to the whole of India and came into force on January 21.31A) Licence to produce and publish translation (Sec. The law relating to copyright is contained in the Copyright Act.32) 15.11 Answers 15.3 Licences Licence by owners of copyright Compulsory licence in works withheld from public Compulsory licence in unpublished Indian works (Sec. 1984. Objectives After studying this unit you should be able to: · Define copyright · Describe copyright societies . 1957.6 International Copyright 15. you came to know about the patent act.4 Copyright Societies Registration of a copyright society (Sec.Ownership of copyright (Sec. The Act has been amended in 1983. 1958.7 Infringement of Copyright 15. 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.17) Term of copyright 15.10 Terminal Questions 15.1 Introduction In the earlier units. in this unit you learn about the concept of copyright act.8 Civil Remedies for Infringement 15.9 Summary 15.33) 15.37) Performer’s right (Sec.5 Rights of Broadcasting Organisation and of Performers Broadcasting reproduction rights (Sec.
· 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.
does any of the following acts in respect of the performance or any substantial part thereof. During this period.37) Every broadcasting organisation shall have a special right known as “Broadcasting Reproduction Right” in respect of its broadcasts. Every broadcasting organisation shall have a special right known as _____________ in respect of its broadcasts. 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. 15. 5. where it was licensed for any purpose not envisaged by such licence.Administration of rights of owner by copyright society (Sec. or (d) make any reproduction of such initial recording or visual recording where such initial recording was done without licence or. But he shall have the right to withdraw such authorisation without prejudice to the rights of the copyright society under the contract.5 Rights of Broadcasting Organisation and of Performers 15. any such sound recording or visual recording referred to in (c) or (d) above. or (e) sell or hire to the public.2 Performer’s right (Sec. full and detailed information concerning all its activities in relation to the administrator of their rights. or (b) cause the broadcast to be heard or seen by the public on payment of any charges. he will be deemed to have infringed the performer’s right: (a) makes a sound recording or visual recording of the performance.34). and (c) provide to such owners regular. . Self assessment questions 4. or (b) reproduces a sound recording or visual recording of the performance which was made without the performer’s consent. Payment of remuneration by copyrights society come under _________. 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. without the consent of the performer.38) If any person during the subsistence of a performer’s right. or (c) make any sound recording or visual recording of the broadcast.5. The society shall (a) obtain the approval of such owners of rights for its procedures of collection and distribution of fees. if anybody does the following acts without licence from the owner of the right.35). (b) obtain their approval for the utilisation of any amounts collected as fees for any purpose other than distribution to the owner of rights. or offer for such sale or hire.4A). (True / False) 15.5. Control over the copyright society by the owner of rights (Sec.1 Broadcasting reproduction rights (Sec. A copyright society may accept from an owner of rights exclusive authorisation to administer any right in any work. Self Assessment Question 6. he will be deemed to have infringed the broadcast reproduction rights: (a) re-broadcast the broadcast. The Central Government shall not ordinarily register more than one copyright society to do business in respect of the same class of works. This right will subsist for 25 years from the year of broadcasts.
not being a computer program. The reproduction of a literary.41 provides that works made or published by certain International Organisations are granted copyright protection in India. or permits for profit. (b) The making of copies or adaptation of a computer programme by the lawful possessor of a copy of such computer programme. dramatic.7 Infringement of Copyright Sec. (d) The reproduction of a literary. musical or artistic work in the form of a cinematograph film shall be deemed to be infringing copyright. Accordingly. Sec. Certain acts not to be infringement of copyright. either for the purpose of trade or to such an extent as to affect prejudicially the owner of the work. Self Assessment Questions 7. (Sec. 15.52). . dramatic. destruction or damage in order only to utilise the computer programme for the purpose for which it was supplied. or (ii) by broadcast or in a cinematograph film or by means of photographs. This section specifies acts which do not constitute an infringement of copyright. dramatic. 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. musical or artistic work for the purpose of a judicial proceeding or for the purpose of a report of a judicial proceeding.15. (c) A fair dealing with a literary. any place to be used for the communication of the work to the public. ________________ provides that works made or published by certain International Organisations are granted copyright protection in India. ___________ authorises the Central Government to extend copyright protection to foreign works. dramatic. from such copy (i) in order to utilise the computer programme for the purpose for which it was supplied. (e) The reproduction or publication of literary. the exclusive right to do which is by this Act conferred upon the owner of copyright. including research.40 authorises the Central Government to extend copyright protection to foreign works. magazine or similar periodical. These are: (a) A fair dealing with a literary.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. whether of that work or of any other work. or (ii) distributes. musical or artistic work in any work prepared by the Secretariat of a Legislature exclusively for the use of its members. 1991. the Central Government passed the copyright (International Organisations) Order (1958) under which copyright protection was granted to certain International Organisations. 8. dramatic.6 International Copyright Sec. musical or artistic work. (ii) criticism or review. (iii) exhibits in public by way of trade any infringing copies of the work. unless he was not aware and had no reasonable ground for believing that such communication would be an infringement of copyright. Accordingly the Central Government made the International copyright order. musical or artistic work for the purpose of reporting current events – (i) in a newspaper. or (ii) to make back-up copies purely as a temporary protection against loss. for the purposes of (i) private use. 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.
and has paid in the prescribed manner to owner of rights in the work. unless the author of such article has expressly reserved to himself the right of such reproduction. or of a cinematograph film or a sound recording. magazine or other periodical of an article on current economic. map. or (iii) in answer to such questions. (m) The performance of a literary. 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. if the audience is limited to such staff and students. (ii) the person making the sound recordings has given a notice of his intention to make the sound recordings. sheet of music. therein. tribunal or other judicial authority. 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. (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. or (ii) as part of the activities of a club or similar organisation which is not established or conducted for profit. (g) The reading or recitation in public of any reasonable extract from a published literary or dramatic work. (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. 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. council. (l) The causing of a recording to be heard in public by utilising it. dramatic or musical work kept in a library. unless the reproduction or publication of such judgment or order is prohibited by the court. political. (k) The making of sound recordings in respect of any literary. dramatic or musical work by an amateur club or society. commission. dramatic or musical work. (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. if the performance is given to a non-paying audience or for the benefit of a religious institution. (n) The reproduction in a newspaper. magazine or other periodical of a report of a lecture delivered in public. (iv) any judgment or order of a court. (iii) the report of any committee. of short passages from published literary or dramatic works. 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. (i) The reproduction of a literary. royalties in respect of all such sound recordings to be made by him. (o) The publication in a newspaper. dramatic or musical work by the staff and students of the institution. or (ii) as part of the questions to be answered in an examination. board or other like body appointed by the Government if such report has been laid on the Table of Legislature. dramatic or musical work in a certified copy made or supplied in accordance with any law for the time being in force.(f) The reproduction of any literary. the tribunal or other judicial authority. musical or artistic work (i) by a teacher or a pupil in the course of instruction. . unless the reproduction or publication of such report is prohibited by the Government. (q) The reproduction for the purpose of research or private study or with a view to publication. has provided copies of all covers or labels with which the sound recordings are to be sold. of an unpublished literary. (j) The performance. dramatic. as the case may be. social or religious topics. (r) The reproduction or publication of (i) any matter which has been published in any Official Gazette except an Act of a Legislature. (p) The making of not more than three copies of a book (including a pamphlet. museum or other institution to which the public access. at the rate fixed by the Copyright Board in this behalf. 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. (h) The publication in a collection. in the course of the activities of educational institution of a literary.
the following particulars are to be displayed in the video film. drawing. (w) The use by the author of an artistic work where the author of such work in not the owner of the copyright therein. 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.(t) The making or publishing of a painting. 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. dramatic. (b) the name and address of the owner of the copyright in such work. if such work is permanently situated in a public place or any premises to which the public has access. of any mould. 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.2(e) (iii). The plaintiff shall not be entitled to any damages. and the retention of such recording for archival purposes on the ground of its exceptional documentary character. plan. musical or artistic work in the form of a cinematograph film shall be deemed to be _______________. cast. 1952. Reproduction of a literary. (y) In relation to literary. and (c) the name and address of the owner of the copyright in such work. engraving or photograph of a work of architecture or photograph of a work of architecture or the display of a work of architecture. when exhibited. engraving or photograph of a sculpture. In the case of a video film in respect of any work. (a) the name and address of the person who has made the sound recording.52A requires certain particulars to be included in sound recording and video films. (u) The making or publishing of a painting. damages. (z) The making of an ephemeral recording. (za) The performance of a literary. 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. a copy of the certificate granted by the Board of Film Certification. 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. (c) the year of its publication. Also. model or study made by him for the purpose of the work. Sec. the exhibition of such film after the expiration of the term of copyright therein. sketch.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. 15. (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. (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. Self Assessment Questions 9. if such inclusion is only by way of background or is otherwise incidental to the principal matters represented in the film. 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. However. or (ii) any other artistic work. accounts and otherwise as are conferred by law for the infringement of a right. 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. (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.
Secs. after which time the work is said to enter the public domain.44 to 50 deal with the registration of copyright. It extends to the whole of India and came into force on January 21. appeal to the High Court. any person aggrieved by any final decision or order of the Copyright Board.10 Terminal Questions 1. 1958. 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. Describe the civil remedies available for infringement of copyright. .Sec. Some jurisdictions also recognize "moral rights" of the creator of a work. distribution and adaptation. the names and addresses of authors. The names or titles of the works.44 provides for a Register of copyright to be kept in the copyright office. publishers and owners of copyright and certain other prescribed particulars are entered in the Register. 55. 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. An application can be made for a licence to translate foreign literary or dramatic work after 5 yrs from its publication. or a finite period for anonymous or corporate authorship. by virtue of. The Act has been amended in 1983. Sec. 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. 1957. (True / False) 11.71 provides that if any person is aggrieved by an order made by the court under s. It is enforceable as a civil matter. Infringement of copyright: when any person without a licence from the owner or the Registrar of copyrights does anything. Sec. Further. (True / False) 15. The reproduction of the artistic work in form of a movie is the infringement of the copyright. 15. Copyright has been internationally standardized.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. such as the right to be credited for the work. may. Copyright applies to any expressible form of an idea or information that is substantive and discrete. including its publication. Glossary Copyright: The term ‘copyright’ means the exclusive right. What is the importance and meaning of copyright? 2. within 3 months from the date of such decision or order.9 Summary The law relating to copyright is contained in the Copyright Act. Self Assessment Questions 10. 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. International Copyright: Sec. 1984. What are the provisions as regards issue of compulsory licences of copyrights? 3.40 authorises the Central Government to extend copyright protection to foreign works. with the Copyright Board. the exclusive right to do which is by this Act conferred upon the owner of copyright. lasting between fifty to a hundred years from the author’s death.
Refer 15.7 – (Sec. What are the acts which are not infringement of copyrights? 5. by virtue of. accounts and otherwise as are conferred by law for the infringement of a right. True Answers to Terminal Questions 1. Refer full Unit . Refer 15. Sec. 1957: (a) Artistic work (b) Cinematograph film (c) Copyright society (d) Dramatic arts 15.31 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.) 3.51 provides that copyright in a work shall be deemed to be infringed) 5. damages. Sec.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.4. True 3.3 – (Sec.40 8. Broadcasting reproduction right 7. Sec.11 Answers Answers to Self Assessment Questions 1. Define the following terms as used in the Copyright Act.41 9. Refer 15.7 2.) 4. Sec. False 11.34A 5.2 – (The term ‘copyright’ means the exclusive right. Refer 15. True 6. Infringing copyright 10. and subject to the provision of the Act) 2.8 – (Sec. True 4.
both on the part of the Malayalam film industry and the LDF Government. modified and redistributed usually free of charge .the LDF ought to be exploring creative alternatives to the problem of film piracy.which can be used. especially in socially responsible business activities.000 members of the Malayalam film industry. copied. For a government that has recently sworn by Free and Open Source Software . "Piracy" here refers to unauthorised reproduction and distribution of films. Question of Ethics Honesty and integrity are values that are universally upheld. And so. scriptwriters and artists could honestly put their hands to their chests and swear that they had not stolen themes. the producers. studied. While no one can deny the need to protect intellectual property and ensure fair returns to its legitimate creators." ‘Huge Loss’ Such a lack of mercy is apparently dogging the Malayalam film industry. one widely used solution is the `Creative Commons’ licence. Over 2. distributors and technicians. A knee-jerk crackdown on video libraries at the instigation of powerful industry interests may not be the best long-term solution. 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. directors. if the charges of its representatives are to be believed. including superstars such as Mammootty and Mohanlal. but last week saw one with a far more glamorous sheen. as well as members of various film industry associations. Normally.000 video libraries have had to shut down. marched to the State Secretariat to express gratitude and appreciation for the Left Democratic Front Government’s crackdown on piracy. Lessons for Kerala Perhaps there are some pointers for Kerala in this experience. Yet. 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. industry sources claim. when the LDF Government gave the go-ahead to the State police to check piracy.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. anyone could equally be forgiven for wondering how many of the stars at the rally. This point has not been made to sound facetious. stories and ideas from Hollywood and Bollywood. scripts. the Rs 100-crore turnover industry loses Rs 40 to 50 crore annually to piracy. the whole furore over the video/film piracy issue smacks of certain hypocrisy . nearly 30. Today. Even as conception of ideas as inviolable property is widely recognised. these are mundane creations of assorted political parties. Since December 2006. ‘Copyleft’ Concept In the arena of artistic creation. The term itself is not new. 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." in which he mentions that sections of this work "have of late been mercilessly pirated. representing producers. denouncing the venal pirates. Questions . it shouldn’t be surprising that the Malayalam film industry stalwarts were shouting themselves hoarse.
· M.Graw Hill Pvt. References & Suggested Readings · Aggarwal. N.C.1. Kucchal ( 2002). · P. Taxmann’s. New Delhi.D. Rohini (2003). Vikas Publishing House Pvt. Delhi. (Hint: Refer basic concept of copyright) Acknowledgements. (2003).C. New Delhi. How is copyright issue becoming a problem for film industry? (Due to illegal work and no proper format of work) 2. Student’s Guide to Mercantile and Commercial Laws. Ltd. New Delhi · Kapoor. Business Law. Delhi.indialawinfo. Elements of Mercantile Law. Tata Mc.. Write a note on: ‘ Piracy and Copyrights’. · S S. Sultan Chand and Sons. Business Law.com/bareacts/soga. Excel Books. Business Law. Tulsian (2002). 2006. E-reference: · http://www. .. Gulshan. Ltd.
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