Unit-01-Law Structure: 1.1 Introduction Objectives 1.

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

Judicial precedents are an important source of law Judicial precedents are another important source of law. established by usage and regarded as legally binding by those to whom the rules are applicable. This law is created by legislation such as Parliament. (c) The Rajya Sabha. 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”. (e) The Supreme Court. A _______________ is a territorial division. as administered by Indian courts. the courts are required to apply the personal law of the parties.1. Customary law Customs have played an important role in making the law and therefore is also known as customary law. However. with people therein subject to a uniform system of law administered by some authority of the state. These rules of law are known as judicial precedents. Thus. This is known as the doctrine of ‘stare decisis’. Which one of the following possess the power of supreme legislation in India: (a) The President. (d) The Parliament. 1. ‘Statute’ – an important source of law The statutes or the statutory law or the legislation is the main source of law. Thus in certain matters. It is sometimes called ‘enacted law’ as it is brought into existence by getting Acts passed by the legislative body. 1. It is a generally observed course of conduct by people on a particular matter. (c) statutes and (d) personal law. expressly or by implication. In simple words. were there is a settled rule of law. the Constitution empowers the Parliament and state legislatures to promulgate law for the guidance or conduct of persons to whom the statute is. When a particular course of conduct is followed again and again.3. may be defined as “those rules of human action. It is based on the principle that a rule of law which has been settled by a series of decisions generally should be binding on the court and should be followed in similar cases.3 Sources of Indian Law The main sources of modern Indian Law. (b) judicial precedents (stare decisis). 2. only such decisions which lay down some new rules or principles are treated as judicial precedents.2 Secondary sources of Indian law . (ii) Secondary sources. may be divided into two broad categories: (i) Primary sources and. made applicable. a point of issue between the parties to a dispute is not covered by any statute or custom. ‘Customary Law’. In such cases. we follow the personal laws of Hindus. (b) The Lok Sabha. in the words of Keeton. In India. they cannot substitute their opinions for the established rule of law. Mohammedan and Christians. “it is the uniformity of conduct of all persons under like circumstances”. 1. it is the duty of the judges to follow the same. The literal meaning of this phrase is “stand by the decision”. Personal law Many times.1 Primary sources of Indian law The primary sources of Indian law are: (a) customs. it becomes a custom.3. It is called Statute Law because it is the writ of the state and is in written form (jus scriptum).

i. It can pass any law it pleases and can override its own previous Acts and the decisions of the courts. developed to enlarge. The Common Law was found to be unsatisfactory in dealing with disputes between merchants.e. The frequent use of terms such as ’good faith’. (iii) The law Merchant and (iv) The Statute Law. the common law is found in the collected cases of the various courts of law and is sometimes known as ‘case law’. However. ‘public policy’. 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. 1872. however. yet in its application our courts have to be selective. 4. The English law. The literal meaning of the term ‘equity’ is ‘natural justice’. has to conform to the peculiar circumstances and conditions prevailing in this country. Justice. Statute law. therefore.. the Indian Partnership Act. 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. 1882. Therefore. The Statute law consists of the law passed by the Parliament and therefore. is ‘written’ law. the Scale of Goods Act 1930 and the Negotiable Instruments Act. Statute law. therefore. The merchants. equity and good conscience In India we do not have. for guidance. like the common law. the greater part of the Law Merchant has been codified in India. the courts in India look to English decisions on the point. . Where. supplement or override a narrow rigid system of existing law of the land. This source consists of all those unwritten legal doctrines embodying customs and traditions developed over centuries by the English courts. Nowadays. The development of equity as a source of law occurred due to rigours and hardships of the Common Law.The secondary sources of Indian Law are English Law and Justice. Common law. These rules were known as Lex Mercatoria or the Law Merchant. Its evolution like that of equity can be traced to unsuitability of Common Law so far as the commercial transactions were concerned. Even though the bulk of our law is based on and follows the English law. Thus. where law is silent on any point or there is some lacuna in a statute. ‘public interest’. in its technical and narrower sense. in its application to India. Especially. English law The chief sources of English Law are: (i) the Common Law (ii) Equity. the principles of equity come handy to the judges who exercise their discretion often on equitable considerations. English law is not very important source of Indian law. 3. in statutes and by the judges in their judgements is based on principles of equity. For example. equity and good conscience. is superior to and can override any rule of Common Law or equity. are some of the very important Acts relating to business transactions. The law merchant or lex mercatoria. developed certain rules based upon customs and usages to govern their mercantile transactions. The Indian Contract Act. 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. ‘equity’ means a body of legal doctrines and rules emanating from the administrations of justice. But the equitable principles of law. the ‘equity’ is unwritten and is a supplement to common law as a source of law. no did we ever had separate courts (as in England) administering ‘equity’. Equity and Good Conscience. 1932. are the guiding force behind most of the statutes in our country and the decisions of the courts. Equity. justice. The authority of parliament is supreme but is subject to natural limitations and those laid down by the Constitution. Now we shall briefly describe the main sources of English law: 1. 2.

1. There may be deficiency in the service provided by business. We need institutions and a framework of rules and regulations to provide firmness to our mutual relations. will be guided by law. That is why we regard rule of law as the essence of civilised society. It provides certainty to our relationships. No society can exist without a legal order. the Central Government gave complete freedom to Banks to fix interest rates. the various provisions of the Companies Act. The doctrine of judicial precedent is also known as the doctrine of: (a) Stare decisis. Certain business practices may amount to monopolistic. Products supplied may be defective. Sometimes even the nature of the business organization itself imposes legal fetters right from the time of its formation. marketing and other functions of the business enterprise are to be conducted within a certain framework of legal environment. 5. The decision making process of business. and business which commits acts or omissions declared to be illegal is subject to sanctions. The contracts entered into by business with others may be held to be void or may be against public policy. custom and precedent. The buying and selling. Law is a major factor in business decision making. Thus. _____________ means a body of legal doctrines and rules emanating from the administrations of justice. Even the installation of a business unit itself may involve observance of some legal provision or the other. Certain conduct is illegal. Sometime ago. custom and legislation. For instance. in the case of a company. Sometimes the law may require business to provide certain facilities to its employees. In addition. 4. even when the contract does not provide therefore. Almost every aspect of business is regulated by law. Almost every aspect of business is controlled by law. the law and legal sanctions may be used to prevent certain conduct or to require that certain acts be done or to make business to comply to some requirement. developed to enlarge.4 Legal Environment of Business The law is almost a universal human need. 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. and legislation. The important sources of law are custom. law is the foundation for the regulation of all business conduct and decisions. Their appearance in the legal history has been in the following order: (a) Legislation. 1956 and other allied laws are to be complied with for incorporation and commencement of business. 1969. The sanctions may include liability for damage if the conduct amounts to a breach of contract. which was obviously aimed at triggering off competition in the Indian economy. production. Without law. For instance. (b) Custom. precedent and legislation. Self Assessment Questions . 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. supplement or override a narrow rigid system of existing law of the land. It emphasizes that laws ought to be general in character so that there is no arbitrariness in their exercise. the provisions of labour welfare laws impose a legal obligation on employers to provide certain benefits to their workers. there would be complete anarchy in society. They complement each other. (c) Precedent. Law and business are closely related disciplines. There may be fines or imprisonment if the conduct is declared a crime. Thus. (b) Obiter dicta. The agreement between a manufacturer and his dealers may defeat the provisions of some law or the other. business people must take decisions within the framework of law otherwise sanctions will be imposed. precedent. restrictive or unfair trade practices. It also emphasizes complete equality before law and equal conformity to law by officials and individuals. In this way. right from its very inception.Self Assessment Questions 3.

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;

or in a customs. and consequences for non-compliance of those requirements. (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. business people enter into contracts on the premise that if the other party fails to keep its promise. or in natural law”. Therefore. the subject matter thereof must be considered reasonable by the people at large. (a) Property rights (b) Information rights (c) Personal rights (d) None 12. The Indian Legal System handles cases in two separate ways _______________ and criminal. it is found that the existing law is incapable of tackling certain changes. which one is not the source of English law? (a) Common law (b) Business law (c) Equity (d) Statute law 1. 11. New inventions are being made. they would have certain remedies under the law. Law must be such that one is enabled to predict with some accuracy the legal consequences of an action. Activity 3: Suggest your overview on “The right has a source either in a contract. Wide publicity should be given to the law enacted so as to give an opportunity to those affected by it to know its requirements. And. Self Assessment Questions 13. These are: (i) Predictability. 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. then it must accommodate them by amendments thereto. the old doctrine of “ignorance of law is no excuse” stands on its own feet.7 Essentials of Law There are certain essentials which must be present in law in order to make it effective. As regards reasonableness of law’s coverage. The world is changing. For example. (ii) Flexibility and (iii) Reasonable application and coverage. . Law must be flexible enough to meet changing conditions. Law must be reasonable both in its application and coverage. a law that a large number of persons consider to be unreasonable will soon become ineffective. if at a later stage. However.(b) Both written and unwritten law. Out of the following.

Different types of organizations like Sole Ownership. Partnership.(a) Business law (b) Personal law (c) Substantive law (d) Civil law 14. IPR stands for (a) Intellectual Promising Rights (b) Intellectual Property Rights (c) Indian Property Rights (d) International Property Rights 1. it is imperative that a manager understands the various ways in which businesses can be organized. including some forms unique to India like the Joint Hindu Undivided Family firm. Any form of business needs legal sanction. 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 . Therefore. Private law include (a) Family laws (b) Law of property (c) Law of contract (d) All of the above 15. Public Limited Company. Private Limited Company. Just like any other study even business management is incomplete without a proper study of its laws.8 Summary Business laws are essential for the students of management to understand the legal rules and aspects of business. All the following laws include in public law EXCEPT a) Criminal law b) Constitutional law c) Law of tort d) Municipal law 16. This subject introduces some of the common forms of business organizations. Joint Stock Company along with the rationale for adopting these forms are explored.

Complement 7. 3.9 Terminal Questions 1. 1. knowledge of the legal environment of business is very necessary”. State: A state is a territorial division.10 Answers Answers to Self Assessment Questions 1. What are the sources of Indian law? Discuss any one important source of law and justify why it is important. 1. Law: Law is a body of principles recognized and applied by the state in the administration of justice. State 3.” Explain 6. is protected by law. Describe its (i) Objectives (ii) Legal provisions (iii) Impact on business and society. sources 9. “Possession. Absolute rights cannot be conferred in the modern society. You must have come across some law or the other which has either been amended or enacted recently. The legal constraints tend to control or limit the discretion of the business on the grounds that. business entities 10. right or wrong. “The study of law is not limited to learning legal rules. with people therein subject to a uniform system of law administered by some authority of the state. usages and traditions which were developed over centuries by the English Courts. What are the nature and significance of business law? 5. Comment. 4. Equity 6. (a) 4.English Common Law: English common law is a system of law based upon English customs. (c) . Statute Law: The statute law refers to the law laid down in the Acts of Parliament. (b) 5. Law 8. Equity: It refers to that branch of the English law which developed separately from the common law. 2. Comment. (d) 2.

as administered by Indian courts. 6. In a strongly worded verdict the court had said.BJP combine ordered a review of the project. There was total transparency at every stage of negotiation. Secondly.. and (v) the absence of competitive bidding. (b) Answers to Terminal Questions 1. (ii) business persons and their customers. 4.2 – 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. (b) 13.” 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. . “The proposal was deliberated at length for two and a half years. There is nothing to show that anybody was being favoured for any specific reason. (ii) Secondary sources. 3. 2.6 – Effect of possession in the business. Question Describe various reasons behind the increment in cost of Enron plant in Maharashtra.11. Naturally. But the new government of Maharashtra-the Shiv Sena . (c) 12.3 – The main sources of modern Indian Law. Refer 1.2 – How legal provisions affect the business what are their objectives. The Congress leaders alleged that cancelling the project was a politically-motivated decision. 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. in April 1995. (c) 16. for the first few projects. and (iii) business persons and the state. (ii) the alleged bribes paid by Enron. (d) 15. Nothing was done secretly. Enron cannot be blamed for government policies. 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. Mini-case The Enron Development Corporation of USA. MW gas fired plant. (iii) the high cost of the project. (d) 14. and were to be given every facility by the government. suppliers. Refer 1. Refer 1. dealers. Refer 1. on the 695. the government would not go in for public tendering. (iv) the lack of transparency. Some of the counts on which the project was criticised were: (i) the social and environmental aspects of the project. Refer 1. 5.4 – Explain the various legal constraints of business in today’s scenario. may be divided into two broad categories: (i) Primary sources and. started construction in Maharashtra. etc. Firstly. Refer 1. draft agreements were prepared from time to time. when it threw out a petition filed against the project by one of the leaders of BJP. it is pertinent to refer to the ruling by the Bombay High Court in 1994.4 – 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. Also. which is one of the largest integrated natural gas companies in the world. and it was ultimately the eighth or ninth draft which was finalised.

2 Meaning and Essentials of a Valid Contract Contract Agreement Essentials of a contract Classification of contracts 2.6 Consideration (Secs. 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 2.1 Introduction Objectives 2. 23-25 and 185) Meaning of consideration “No consideration.5 Consent and Free Consent Meaning of consent Free consent 2.(Hint: Due to the political reasons) MB0051-Unit-02-Law of Contract Unit-02-Law of Contract Structure: 2.4) 2.2(d).10 and 25) .3 Proposal (or Offer) and Acceptance Modes of making an offer Acceptance of an offer Completion of communication of offer and acceptance (Sec.

9 Quasi Contracts Meaning of quasi contracts Cases which are treated as quasi contracts 2.62) Discharge of contracts by impossibility of performance Discharge of a contract by operation of law Discharge of contracts by breach 2.15 Terminal Questions .10 Performance of Contracts (Secs.37-67) Meaning of performance of contract Meaning of offer to perform Who must perform the promise under a contract? 2.12 Remedies for Breach of Contract 2.14 Summary 2.31-36) Contingent contract defined (Sec.11 Different Modes of Discharge of Contracts (Secs.13 Freedom to Contract Freedom to contract is a myth or an illusion What is a standard form contract? 2.31) Essential characteristics of a contingent contract 2.26-28) Agreement in restraint of trade 2.7 Agreements Declared Void (Secs.8 Contingent Contract (Secs.26-30) Agreements against public policy (Secs.2.73-75) Discharge of contracts by performance or tender Meaning of mutual consent (Sec.

Sometimes we do not even realize that we are making a contract. A corresponding duty is imposed on the Airlines.2 Meaning and Essentials of a Valid Contract 2.10 provides that all agreements are contracts.2. for example.. confer legal rights on one party and subjects the other party to some legal obligation. Objectives After studying this unit. In this context. and with a lawful object. with a view to obtaining the assent of that other to such act. howsoever made. 2. entrepreneurs. Thus. X has a remedy against it. Enforceability by law: The agreement must be such which is enforceable by law so as to become a contract.3 Essentials of a contract Sec. Thus.2. In the case of people engaged in business. In case the Airlines fails to fulfil its promise.2. you came to know about the law and basic concepts of law. made between at least two parties by which rights are acquired by one and obligations are created on the part of another. to do something. In this unit you will study how to enter into the contracts. The Airlines is under an obligation to take X from Mumbai to Bangalore on 10 January.2(b)).16 Answers 2. they carry on business by entering into contracts. One of them makes a proposal (or an offer) to the other. there are certain agreements which do not become contracts as this element of enforceability by law is absent. enforceable by law. corporate counsels. In a contract there are at least two parties. fails to do that. X) has a legal remedy.e. Example: D Airlines sells a ticket on 1 January to X for the journey from Mumbai to Bangalore on 10 January. there must be an agreement between two or more . and professionals in different fields deal frequently with contracts. When the person to whom the proposal is made signifies his assent thereto.g. the word ‘promise’ is defined by Sec. In this unit you will study about the contract of law. you should be able to: · Describe the essentials of a valid contract · Enumerate the capacity of contract · Define acceptance · Define consent 2. hiring a taxi. To constitute a contract. purchase or sale of a share of a company or a plot of land. which had agreed to do something. for a lawful consideration. buying a book. the other party to the contract (i.. A proposal. Some of these are made consciously.2(b). if they are made by free consent of parties. X has a right against the Airlines to be taken from Mumbai to Bangalore on 10 January.2. 2.2 Agreement Sec. the proposal is said to be accepted. contracts. If the party. and are not expressly declared by law to be void. then the other party has a remedy. Thus. competent to contract.2(e) defines an agreement as “every promise and every set of promises forming consideration for each other”. e. etc.1 Contract A contract is an agreement. In any case. when accepted becomes a promise (Sec.1 Introduction In the previous unit. As there is a breach of promise by the promisor (the Airlines). the business executives.

telex messages. A stranger to consideration cannot maintain a suit. amounts to offer by conduct. It is made by positive acts or signs so that the person acting or making signs means to say or convey something. illegal or unenforceable. Express offer: It means an offer made by words (whether written or oral). in no case.2. void. (True/False) 2.. void. (iv) Unenforceable. abstain from doing) something with a view to obtain acceptance of the other party to such act or abstinence (Sec. and specific or general. the meaning of which is not certain or capable of being made certain. Self Assessment Questions 1. A contract to constitute a valid contract must have all the essential elements discussed earlier. The best example of formal contracts is negotiable instruments. Formal and informal contracts: This is another way of classifying contracts on the basis of their formation.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. If one or more of these elements are missing. (True/False) 2. An offer can be either express or implied. etc. The oral offer can be made either in person or over telephone. An agreement is composed of two elements – offer or proposal by one party and acceptance thereof by the other party.than two parties.2 Acceptance of an offer . is valid.. An agreement. This includes such conduct or forbearance on one’s part that the other person takes it as his willingness or assent.3).2(a)).2(i) A voidable contract is one which may be repudiated (i. such as cheques. 2.e. An offer is synonymous with proposal. (iii) Void. Offer by abstinence: An offer can also be made by a party by omission to do something. Effect of absence of one or more essential elements of a valid contract: If one or more essentials of a valid contract are missing. The offerer or proposer expresses his willingness “to do” or “not to do” (i. advertisements. the contract is either voidable. but not by others. telegrams. illegal or unenforceable. silence of a party can. Informal contracts are those for which the law does not require a particular set of formalities or special language. 2. However. 2. (True/False) 3. A promise for a promise is a good consideration.3. (ii) Voidable.e. then the contract may be either voidable. Classification according to validity: Contracts may be classified according to their validity as (i) Valid. Implied offer: It is an offer made by conduct.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.3 Proposal (or Offer) and Acceptance Offer is not only one of the essential elements of a contract but it is the basic building block also. A formal contract is one to which the law gives special effect because of the formalities or the special language used in creating it. As per Sec. No one can enter into a contract with himself. The written offer can be made by letters.3. avoided) at the will of one or more of the parties.

Where A proposes by a letter to sell his car to B at a certain price. (True/False) 5. and (iii) is not disqualified from contracting by any law to which he is subject (Sec. .11).4.3. a minor may make a contract. he must be of sound mind so as to be competent to contract. as against the person to whom its made. Every person is competent to contract if he (i) is of the age of majority. The liability for necessaries of life supplied to persons of unsound mind is the same as for minors. Implied acceptance: Acceptance is implied when it is said to be gathered from the surrounding circumstances or the conduct of the parties.When the person to whom the offer is made signifies his assent thereto. however the minor can make the other party bound by the contract. 2. Does this mean that a minor is not competent to contract? No.3 Mental incompetence prohibits a valid contract A person who is not of sound mind may not enter into a contract. 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. That usually is 18 years. The completion of communication of acceptance has two aspects. (ii) As against the acceptor. Communication of offer is complete when the letter of offer is posted. (ii) is of sound mind. when it comes to the knowledge of the offer or. The acceptance of an offer may be express or implied.1 Persons who are competent to contract Any one cannot enter into a contract.3 Completion of communication of offer and acceptance (Sec. Thus. A lunatic is a person who is mentally deranged due to some mental strain or other personal experience. 2. A proposal when accepted becomes a valid contract even though acceptance is not in the prescribed mode. he must be competent to contract according to the law. (i) As against the offer or and (ii) As against the acceptor.2(b)). The contract law defines maturity as the age of majority.. acceptance is the act of giving consent to the proposal. The communication of acceptance is complete (i) As against the offer or when it is put into a course of transmission to him so as to be out of the power of the acceptor.4 Capacity to Contract 2. 2. A test of soundness of mind has been laid down by law. the communication of the offer is complete when B receives the letter. (True/False) 2. viz.4. He does not have lucid intervals. the offer is said to be accepted (Sec. An idiot is a person who is of permanently unsound mind.4. The offeree is deemed to have given his acceptance when he gives his assent to the proposal. The communication of acceptance is complete. (True/False) 6. 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.2 Capacity of a minor to enter into a contract Age of a person determines enough maturity to make a contract. when it comes to his knowledge. He is incapable of entering into a contract and therefore a contract with an idiot is void. but he is not bound by the contract. Self Assessment Questions 4. 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.4) It is necessary to communicate offer to the offeree and the acceptance to the offeror.

When two or more persons agree upon the same thing in the same sense they are said to consent. the promisor is not responsible for non-performance.5. 2. Like fraud. In this way. (iv) any other act fitted to deceive.1 Meaning of consent Offer by one party is accepted by the other party.2 Free consent For a contract to be valid it is not only necessary that the parties consent but also that they consent freely. (ii) undue influence. (iv) misrepresentation or (v) mistake. free consent is one of the essentials of a valid contract.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. Where there is a consent but no free consent the contract is voidable at the option of the party whose consent was not free. (v) any such act or omission as the law specifically declares to be fraudulent. Meaning of fraud (Secs. A married woman cannot enter into a contract.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. (iii) promise made without any intention of performing it.A person who is drunk. When the promisee does not accept the offer of performance. (iii) fraud. (True/False) 2.15). A consent is said to be free when it is not caused by: (i) coercion. Meaning of ‘mistake’ (Secs. . Thus. The consent of the offeree to the offer by the offer or is necessary. 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. fraud is different from misrepresentation. (True/False) 8.18-19) Misrepresentation is also known as simple misrepresentation whereas fraud is known as fraudulent misrepresentation. Self Assessment Questions 7.5 Consent and Free Consent 2. Meaning of misrepresentation (Secs.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. The party making it believes it to be true. Such a statement is made innocently. 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.5. (Sec. Meaning of coercion (Secs. It is essential to the creation of a contract that both parties agree to the same thing in the same sense. (ii) active concealment of a fact by one having knowledge or belief of the fact.

loss or responsibility given. (True/False) 2.24). void”. i. (True/False) 13. Some other agreements which are declared to be void are explained below.26-30) The Act declares certain agreements to be void. A person who makes a promise to do or abstain from doing something usually does so as a return of equivalent of some loss. . If the offeree does not accept the offer according to the mode prescribed by the offeror. or some forbearance. (v) Agreements in restraint of parental rights are void.6. 114]. Dayaldas.1 Meaning of consideration One of the essential elements of a valid contract is that it must be supported by consideration.23).2 Agreement in restraint of trade Sec. (iii) Contracts in the nature of champerty and maintenance. part of consideration of which is unlawful (Sec. “something in return”. 2. or inconvenience that may have or may have been occasioned to the other party in respect of the promise. This something or consideration need not be in terms of money. Some of the agreements which are against public policy and have been declared to be void by law. to that extent. These are as follows: (i) Trading with enemy: (ii) Agreements for stifling prosecution.e. not open to the courts to enter into any question of reasonableness or otherwise of the restraint [Khemchand v.Self Assessment Questions 9.6. (True/False) 10.25). (True/False) 11.26-28) An agreement which conflicts with morals of the time and contravenes any established interest of society is void as being against public policy. (1942) Sind. (iii) agreements. suffered or undertaken by the other party. All agreements in restraint of trade. An attempt to deceive which does not deceive is not fraud.10 and 25) A promise without consideration cannot create a legal obligation. In simple terms consideration is what a promisor demands as the price for his promise. damage. Consent obtained by fraud makes the agreement void. Also a promise by one party may be consideration for the promise of other party. (True/False) 2. therefore. (iv) Agreement for the sale of public offices and titles are void. 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. 2. Cancellation of a contract by mutual consent of the parties is called waiver. (ii) agreements. the object or consideration of which is unlawful (Sec. Past consideration is no consideration.7.7 Agreements Declared Void (Secs. the offer does not lapse automatically.6 Consideration (Secs. trade or business of any kind is. The term consideration is used in the sense of quid pro que.27 provides that “every agreement by which any one is restrained from exercising a lawful profession. (vi) Agreements in restraint of marriage of any person other than a minor is void. 2..1 Agreements against public policy (Secs.2(d). whether general or partial. detriment. no contract” (Secs.20). (iv) agreements made without consideration (Sec. right. Self Assessment Questions 12. It is. qualified or unqualified.7. 23-25 and 185) 2. This “something” may even be some benefit.2 “No consideration. are void. interest or profit accruing to one party.

express or implied. (True/False) 15.8 Contingent Contract (Secs. If the event is bound to happen and the contract has got to be performed in any case. According to Dr Jenks. (True/False) 2.2 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.2 Cases which are treated as quasi contracts Following are the cases which are to be deemed quasi contracts: . on grounds of natural justice. This is a contingent contract.8. (True/False) 2.000 if B’s house is burnt. (iii) The event must be collateral.1 Contingent contract defined (Sec. incidental to the contract.9. quasi contract is “a situation in which law imposes upon one person. i.1 Meaning of quasi contracts ‘Quasi Contracts’ are so-called because the obligations associated with such transactions could neither be referred as tortious nor contractual. (True/False) 17. in courts. Social agreements are enforceable in courts. collateral to such contract does or does not happen.8. 2. Self Assessment Questions 16. Payments made by a debtor are always appropriated in chronological order.9. (ii) The event must be uncertain. if some event. An agreement to agree is a valid contract.9 Quasi Contracts 2.. Example: A contracts to pay B Rs 10. although no contract.e. 2. it is not a contingent contract. has in fact been entered into by them”.31-36) 2.31) A contingent contract is a contract to do or not to do something. an obligation similar to that which arises from a true contract. but are still recognised as enforceable like contracts.Self Assessment Questions 14. A person who is usually of unsound mind cannot enter into a contract even when he is of sound mind.

1 Meaning of performance of contract A contract creates obligations. (True/False) 21. (vi) breach. where A contracts to sell his car to B for Rs 1. Commercial impossibility does not make the contract void.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. ‘Performance’ of contract means the carrying out of obligations under it. Claim for necessaries supplied to a person incapable of contracting or on his account. This is called as ‘Tender’ or ‘Attempted Performance’.73-75) A contract may be discharged by (i) performance. then A must perform this promise personally. Self Assessment Questions 20. A dies before that day.10.37-67) 2. and B is bound to pay Rs 1. Thus. the promisor shall not be responsible for non-performance nor shall he lose his rights under the contract. as soon as the car is delivered to B and B pays the agreed . the legal representative must perform the promise unless a contrary intention appears from the contract. 2.1. (True/False) 19. the contract comes to an end.69). If a valid tender is made and is not accepted by the promisee.000. If A has promised to deliver some items of grocery to B. (ii) If there is no such intention of the parties. (v) operation of law. If a person. A threat to commit suicide does not amount to coercion. A’s legal representatives are bound to deliver the goods to B.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.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. 2. A person who is interested in the payment of money which another is bound by law to pay. (True/False) 2. such promise is to be performed by him only. then the promisor may employ a competent person to perform the promise. then the promisor may employ a competent person to perform the promise. If there is no such intention of the parties. 2.10. incapable of entering into a contract. (True/False) 2. The parties to contract must either perform or offer to perform their respective promises unless such performance is dispensed with or excused under the provisions of the Indian Contract Act. is entitled to be reimbursed by the other. 2. (iii) mutual consent. or some law (Sec. The liability of joint promisors is joint and several. pays it. Thus. A may perform this promise either personally delivering the items to B or causing it to be delivered to B through someone. therefore.000 to A’s representatives.000.68). the person who furnished such supplies is entitled to be reimbursed from the property of such incapable person (Sec. where A promises to paint a picture for B.11. (i) In case.11 Different Modes of Discharge of Contracts (Secs. (iii) In case of death of the promisor.37). A promises to deliver goods to B on a certain day on payment of Rs 1. (Sec. or any one whom he is legally bound to support is supplied by another person with necessaries suited to his condition in life. Self Assessment Questions 18. (ii) tender.10. there was an intention of the parties that the promise must be performed by the promisor himself. and who.85. Reimbursement to a person paying money due by another in payment of which he is interested.10 Performance of Contracts (Secs. (iv) subsequent impossibility.

The breach of contract may arise in two ways: (i) anticipatory and (ii) actual. (ii) if it is a contract with a merchant. that party may proceed in several ways: (i) the other party may urge the breaching party to reconsider the breach. There are two types of impossibility: (i) Impossibility may be inherent in the transaction (i. The consequence of this is that the promisee becomes entitled to certain remedies. 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. the promisor stands discharged of his obligations.11. (ii) Impossibility may emerge later by the change of certain circumstances material to the contract. A contract may terminate by mutual consent in any of the six ways viz. novation. 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. mutual consent or impossibility or operation of law. the contract). If a promisor tenders performance of his promise but the other party refuses to accept. .3 Discharge of contracts by impossibility of performance A contract may be discharged because of impossibility of performance. The actual breach by failure to perform may take place (a) at the time when performance is due. 23. the other party is no longer obligated to keep its end of the bargain. A contract terminates by breach of contract. (True/False) 2. the other party may get help from consumers’ associations. (ii) By insolvency. (iv) the other party may sue for damages.e. or (b) during the performance of the contract. 2. rescission.price for it.11. the other party may treat the contract as rescinded.11.2 Meaning of mutual consent (Sec.5 Discharge of contracts by breach A breach of contract is one party’s failure. Novation means substitution of a new contract for the original one. The failure to perform means that one party must not have performed a material part of the contract by a stated deadline. Death of the promisor results in termination of the contract in cases involving personal skill or ability. 2. 2. to live up to any of its promises under a contract.4 Discharge of a contract by operation of law Discharge by operation of law may take place in four ways: (i) By death. if a person does not perform his part of the contract at the stipulated time. ____________ means substitution of a new contract for the original one. Thus. the contract comes to an end by performance.62) If the parties to a contract agree to substitute a new contract for it. Self Assessment Questions 22. waiver and merger. Rescission of the contract: When a breach of contract is committed by one party. A contract terminates by breach of contract. In such a case the aggrieved party is freed from all his obligations under the contract. Actual breach of contracts: The actual breach can occur by (i) failure to perform as promised. From there. or to rescind it or alter it.. then this amounts to a breach of contract on the part of the promisor. alteration and remission.11.12 Remedies for Breach of Contract When someone breaches a contract. the original contract is discharged. 2. (ii) making it impossible for the other party to perform. (iii) the other party may bring the breaching party to an agency for alternative dispute resolution. he will be liable for its breach. (iii) By merger. without a legal excuse. The tender or offer of performance has the same effect as performance. or (v) the other party may sue for other remedies. 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.

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. (there being a separate contract act in England). and an employer cannot. 1872). which is to a large extent made up of judicial precedents.2 What is a standard form contract? A standard form contract is a document which is generally printed. Damages under Sec. The freedom of the parties is limited by four factors. 1872. Sec.1 Freedom to contract is a myth or an illusion The freedom of the parties is limited by two factors. 2. Many of the contracts now being entered into by consumers are not the result of individual negotiations. from his standpoint. containing terms and conditions.13 Freedom to Contract 2. (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.73-74.75): 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. There are three remedies under the Specific Relief Act. the freedom to contract is restricted. 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.1 Indian Contract Act.Damages (Sec.13. Glossary Contract: An agreement enforceable by law is a contract. The customer has only to sign it. Self Assessment Questions 24.13. induce his employees to enter into any contract favourable to the employer. (True/False) 25. (True/False) 2. 1963. rather they are one-sided contracts. (True/False) 2. . Therefore. A contract is imposed by a party having a strong bargaining power on a party having a weak bargaining power. The act is not exhaustive. The idea is to compensate the aggrieved party for the loss he has suffered as a result of the breach of the contract.75 are awarded according to certain rules as laid down in Sec. therefore. The main kind of damages awarded in a contract suit are ordinary damages.73-74. There are certain laws for the protection of the employees. It is prepared by the business people.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. This Act is based mainly on English common law. Self Assessment Questions 26. (iii) The aggrieved party is required to take reasonable steps to keep his losses to the minimum. Damages under Sec. with certain blanks to be filled in.14 Summary The law of contract in India is contained in the Indian Contract Act. (True/False) 27.75 are awarded according to certain rules as laid down in Secs. What is the most common remedy for breach of contracts: The usual remedy for breach of contracts is suit for damages.

What do you mean by contract? What test would you apply to ascertain whether an agreement is a contract? 2. False 10. False 8. 7. When is an offer to be accepted? 5. 8. Valid Contract: Contracts which satisfy all the essential elements of a valid contract are enforceable in a court of law. “All agreement are not contracts but all contacts are agreements”. False 9. Describe the rules regarding communication of offer and acceptance. 3. 2.15 Terminal Questions 1. Void Contract: A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable. Can ordinary damages be claimed for any remote or indirect loss or damages by reason of the breach? 9. What are the different modes of discharge of contracts? Explain the discharge of contract by performance or tender. 1872. True 2. Distinguish between a wagering agreement and a contingent contract. False 6. Comment. True . Give some example of ordinary damages. Discuss. 6.Agreement: Every promise and every set of promises forming the consideration for each other is an agreement. False 4. False 3. “Freedom to contract is a myth or an illusion”. False 7. False 5. 4. 2.16 Answers Answers to Self Assessment Questions 1. Enumerate some of the contracts which are expressly declared to be void by the Indian Contract Act.

made between at least two parties. False 20. Refer 2. False 17. Refer 2. True 27. 2. Refer 2.8 – A contingent contract is a contract to do or not to do something. enforceable by law. False 16. Refer 2. False Answers to Terminal Questions 1. Novation 23.2 – The agreement must be such which is enforceable by law so as to become a contract.2 – A contract is an agreement. 3. 4. Refer 2. 7. 5.3 – Offer is not only one of the essential elements of a contract but it is the basic building block also. True 14. False 15.3 – It is necessary to communicate offer to the offeree and the acceptance to the offeror.11 – A contract may be discharged by (i) performance. True 25. True 26. False 18. True 19. Refer 2. Refer 2.2 – Avoidable contract is one which may be repudiated at the will of one or more of the parties. False 12. True 22. True 21. True 24. False 13. 6.. (ii) tender .11.

after having used the ball three times daily for two weeks.) MB0051-Unit-03-Contracts of Guarantee and Indemnity Unit-03-Contracts of Guarantee and Indemnity Structure: 3. 10s. One carbolic smoke ball will last a family several months. or any disease caused by taking cold. Regent Street. and so they ought to pay. 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. She claimed £100 from the Carbolic Smoke Ball Company. post free. Princes Street. The Company published advertisements in the Pall Mall Gazette and other newspapers on November 13. They ignored two letters from her husband." Mrs. 1891. £1000 is deposited with the Alliance Bank.12 – Damages under Sec. 9.75 are awarded according to certain rules as laid down in Secs. The ball can be refilled at a cost of 5s. Question Do you agree to what the company says? Justify. and hopefully flush out the cold. making it the cheapest remedy in the world at the price. The barristers representing her argued that the advertisement and her reliance on it was a contract between her and the company. (Hint: summarize this case in your word. On a third request for her reward. Refer 2. Mrs.8. During the last epidemic of influenza many thousand carbolic smoke balls were sold as preventives against this disease. shewing our sincerity in the matter. Address: "Carbolic Smoke Ball Company. "27. This would cause the nose to run. Carlill brought a claim to court. bought one of the balls and used three times daily for nearly two months until she contracted the flu on January 17. £100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza colds. It was filled with carbolic acid (phenol). In fact the inflammation caused by the device would have probably increased susceptibility to catching influenza. they replied with an anonymous letter that if it is used properly the company had complete confidence in the smoke ball’s efficacy.13 – The freedom of the parties is limited by two factors. Louisa Elizabeth Carlill saw the advertisement.2 Purpose and Meaning of the Contract of Guarantee . 1892. Hanover Square.73-74.1 Introduction Objectives 3. London. 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. It claimed to be a cure for influenza and a number of other diseases. and in no ascertained case was the disease contracted by those using the carbolic smoke ball. The smoke ball was a rubber ball with a tube attached. Mini-case The Carbolic Smoke Ball Company made a product called the "smoke ball". according to the printed directions supplied with each ball. who had trained as a solicitor. 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. Refer 2. The tube was then inserted into the user’s nose.

7 Summary 3.4 Rights and Obligations of the Creditor Rights of a creditor Obligations imposed on a creditor in a contract of guarantee 3.6 Contract of Indemnity Meaning of indemnity Rights of the indemnified (i.1 Introduction ..5 Rights. 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. the indemnity holder) Rights of the indemnifier Commencement of indemnifier’s liability 3.e.8 Terminal Questions 3.126) Fiduciary relationship 3.Purpose of guarantee Definition and nature of the contract of guarantee (Sec.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 3.9 Answers 3.

But if M pays the money to the bank. M. For example. If the prisoner does not appear in the court as desired then the bond is forfeited. 1872 (Secs. The company may agree that a particular machinery in its factory would serve as collateral security for the loan. Objectives After studying this unit. used in criminal law. they sign as company’s officials. If an employee misappropriates then the surety will have to reimburse the employer. Also employers often demand a type of performance bond known as a fidelity bond from employees who handle cash. Sometimes the banks (lenders) ask for more security for the loans in addition to the personal guarantee of an official of the borrowing company. that a criminal defendant will appear for trial. ii) The contracts of guarantee are sometimes called performance bonds. In this unit you will study about the guarantee and indemnity of contracts. If the company defaults. The bank requires that the managing director M promises to repay the loan personally should the company default. or obtain a court order to either claim or sell the collateral. If they do so and the company defaults. you came to know about the law and the contract of law. a contract of guarantee is for the security of the creditor.2. It could ask that all the three directors (including M) sign the promissory note as co-sureties. the bank can approach M for the payment. are a form of contract of guarantee. 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. The bank need not look to the collateral first. demand payment from the surety. etc. the builder may have to find a surety to stand behind his promise to perform the construction contract. In this way a prisoner is released on bail pending his trial. the bank now has three options: to compel the principal debtor to pay. the managing director signs again as an individual..2 Purpose and Meaning of the Contract of Guarantee 3. In this unit you come to know when a company needs some money for its business it approaches a bank. These are: i) The guarantee is generally made use of to secure loans. 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. The law relating to the contracts of guarantee is given in the Indian Contract Act. for the good conduct of the latter. The sections quoted in this chapter refer to the Act unless otherwise stated. When the directors of the company including M execute the promissory note on behalf of the company. in the case of a construction project.126-147).1 Purpose of guarantee The contracts of guarantee are among the most common business contracts and are used for a number of purposes. 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. If the company fails to repay the loan. iii) Bail bonds. Thus. A bail bond is a device which ensures. the bank may seek payment from any one or any two of them or all of them.In the previous units. The bank has yet another alternative for securing its loan to the company.

there is a contract of guarantee. Also. In case of an oral agreement the existence of the agreement itself is very difficult to prove.3. or discharge the liability.1 Oral or written guarantee A contract of guarantee may either be oral or in writing (Sec. be two contracts. However. Self Assessment Questions 1.144). will discharge the surety.2. etc. A contract of guarantee may be either oral or in writing. As per the Indian law. the person for whom the guarantee is given is called the ‘principal debtor’. under certain circumstances. 3. the creditor. . Example: When A requests B to lend Rs10. but is an independent contract. a surety may be called upon to pay though principal debtor is not liable at all. if it is intended to be applicable to a particular debt and thus comes to end on its repayment. (True/False) 3.In this unit our primary concern is with the contracts of guarantee which are used for securing loan. viz. the original contract between the debtor and creditor may be about to come into existence. 3. under the circumstances.2. in effect. (True/False) 3.. The contract of surety is not a contract collateral to the contract of the principal debtor. there is an implied contract also between the principal debtor and the surety. A guarantee is a “specific guarantee”. of a third person in case of his default”.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. a principal contract between the principal debtor and creditor. where a person gives a guarantee upon a contract that the creditor shall not act upon it until another person has joined in it as co-surety. Nevertheless. the surety would expect not to exist. It is not necessary that the principal contract. A specific guarantee once given is irrevocable. There must be a distinct promise on the party of the surety to be assumable for the debt. and the person to whom the guarantee is given is called the ‘creditor’. 3.3 Fiduciary relationship A contract of guarantee is not a contract “uberrimae fidei” (requiring utmost good faith). the contract of guarantee can be avoided on the ground of concealment of a materiel fact.000 to C and guarantees that C will repay the amount within the agreed time and that on C failing to do so. the guarantee is not valid if that other person does not join (Sec. the employer’s failure to inform the surety of any breach on the part of employee. he will himself pay to B. From the above discussion. Similarly.126). The person who gives the guarantee is called ‘surety’. it is clear that in a contract of guarantee there must. (True/False) 2. So where guarantee is given for good conduct of an employee.3. In a contract of guarantee there are three parties. 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. For a contract of guarantee. the primary liability is of the surety. and a secondary contract between the creditor and the surety.126) A contract of guarantee is defined as “a contract to perform the promise. a contract of guarantee must be in writing. Specific guarantee is different from continuing guarantee. Similarly. though a creditor should always prefer to put it in writing to avoid any dispute regarding the terms. A creditor must disclose all those facts which. between the debtor and the creditor. where X guarantees the existing and future liabilities of A to B upto a certain amount which limit has already been exceeded. must exist at the time the contract of guarantee is made.2 Definition and nature of the contract of guarantee (Sec. Therefore. the principal debtor and the surety. 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.3 Kinds of Guarantee 3.

000 to B by C (a banker). where X owes Y Rs 50. a continuing guarantee can be revoked regarding further transactions (Sec.000. If on the other hand. i. 3. 30.. 15. 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. 30. 30. For instance. as a revocation of a continuing guarantee.000. 30.e.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.500. 50. he will get Rs. 50.000 which was not guaranteed. A will not get any dividend unless Y has been fully paid. 5. 30.000 = Rs. C fails to pay. a tea-dealer.000 out of Rs. continuing guarantee cannot be revoked regarding transactions that have ready taken place. 30.3. 30.000. ¼ of Rs. 30. 50.. A contract of guarantee is for the security of the ……………… (a) Buyer (b) Seller (c) Debtor (d) Creditor 5.000 and from X’s estate Rs.130).000 then Y can recover from A Rs.500 being ¼ of Rs.000 to Y. 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.000 paid by A to Y. The death of the surety operates. The guarantee given by A was a continuing guarantee and he is accordingly liable to B to the extent of Rs. Afterwards B supplies C with tea to the value of Rs. 7. However. 10.000 subject to a limit of Rs. 50. in the absence of any contract to the contrary. then Y can get Rs. Continuing guarantee is a: .000 – Rs.e. A had stood surety for the whole debt of Rs 50. A guarantee regarding the conduct of another person is a continuing guarantee.000 from X’s estate. i. Unlike a specific guarantee which is irrevocable. 10. The guarantee in this case is a specific guarantee.000 subject to a limit of Rs. A can claim from X’s estate. 10. Since after paying Rs. This can happen only if X’s estate declares a higher dividend.000 or whether he has guaranteed the full amount of Rs.000 and A has stood as surety for Rs.000.131). the question may arise whether A has guaranteed Rs. being ¼ of the balance.000 the full amount of guarantee from A and Rs. so far as regards future transactions.000 for any tea he may from time to time supply to C.129) Example: A guarantees payment to B.000. Rs. to the amount of Rs. 20. 12.Example: A guarantees the repayment of a loan of Rs. 30.000 and C pays B for it. 10. Self Assessment Questions 4. (Sec. A guarantee which extends to a series of transactions is called a “continuing guarantee” (Sec. B supplies C with tea of the value above Rs.

“A contract between the creditor and the principal debtor. the creditor cannot be asked to exhaust all other remedies against principal debtor before proceeding against surety. the banker) to assign to them his property in consideration of their releasing him from their demands. 2. These are: a) Sec. The creditor also has a right of general lien on the securities of the surety in his possession. 2. The creditor is entitled to demand payment from the surety as soon as the principal debtor refuses to pay or makes default in payment. In other words. with one effect that the surety’s remedy to recover the money in case the principal debtor defaults.000 on January 1. there are certain exceptions.4. discharges the surety. or to enforce any other remedy against him. to give extension of time to the principal debtor. The creditor is under an obligation not to release or discharge the principal debtor. discharge the surety (Sec. unless the surety assents to such contract”. Not to release or discharge the principal debtor.133 provides. 3. without the surety’s consent. Here B is released from his debt by the contract with C and A is discharged from his suretyship. If the time for repayment is extended. Not to change any terms of the original contract.(a) Guarantee which extends to a series of transactions (b) Guarantee which limited access of transactions (c) Guarantee not related to transactions (d) None of the above 3. The banker pays X Rs. 3.134 states: “The surety is discharged by a contract between the creditor and principal debtor. however. Sec.135 provides. . 5. 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. by which the principal debtor is released. Where surety is insolvent. Sec. A guarantees repayment. or not to use the principal debtor. 5. However.000 on March 4. may be impaired. or give time to. B later contracts with his creditors (including C.4 Rights and Obligations of the Creditor 3. but not with the principal debtor.137). the creditor is entitled to proceed in the surety’s insolvency and claim the pro rata dividend. Example: A banker contracts to lend X Rs. Example: A gives a guarantee to banker C for repayment of the debt granted to B. or agree not to sue the principal debtor. the debtor may die or become insane or insolvent or his financial position may become weaker in the meanwhile. in the absence of a provision to the contrary. “any variance made.4. The creditor should not change any terms of the original contract without seeking the consent of the surety. arises only when the principal debtor has made default and not before that. b) Mere forbearance on the part of creditor to sue the principal debtor. in the terms of the contract between the principal debtor and the creditor. Not to compound. does not. The liability of the surety cannot be postponed till all other remedies against the principal debtor have been exhausted. but it cannot sue A as the guarantee is from March 4. discharges the surety as to the transactions subsequent to the variance”. the legal consequence of which is the discharge of the principal debtor”. Sec. surety is not discharged even if his consent has not been sought. by which the creditor makes a composition with or promises to give time to. or by any act or omission of the creditor. This right.1 Rights of a creditor 1.2 Obligations imposed on a creditor in a contract of guarantee 1.136 states that if the creditor makes an agreement with a third party.

for the amount paid in excess of Rs.1 Rights against the creditor In case of fidelity guarantee. 4. Further.000 lent to E. In the event of principal debtor being a minor.5 Rights.000 each.000 each and if any one of them has to pay more than his share.139). Example: A.000. Subsequently. they are called co-sureties. Not to do any act inconsistent with the rights of the surety (Sec. the surety is subrogated to all the rights which the creditor had against the principal debtor.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. 1. (ii) In the above example. the surety can direct creditor to dismiss the employee whose honesty he has guaranteed. the securities in the same condition as they formerly stood in his hands. b) Where.000. . The creditor does not a right of general lien on the securities of the surety in his possession.2 Rights against the principal debtor a) Right of subrogation: Sec. E makes default to the extent of Rs 30. 3. the co-sureties have guaranteed different sums.000.e. C in that of Rs 40..138). So.5. B and C as sureties for D. the creditor must hand over to the surety.000. Rs. B and C are each liable to pay Rs 10. together with a bill of sale of B’s furniture.5. then A is discharged from liability on the note. The co-surety released by the creditor is also not released from his liability to the other sureties (Sec. as between themselves to pay Rs. he has a right of contribution from the other sureties who are equally bound to pay with him. 3. in the event of proved dishonesty of the employee. Examples: (i) A. 3.5. they are bound under Sec.000. (True/False) 7. A in the penalty of Rs 10. Where a debt has been guaranteed by more than one person.141). but owing to his misconduct and willful negligence. A.000 he can claim contribution from the others. he is invested with all the rights which the creditor has against the debtor. only a small price is realised. Liabilities and Discharge of Surety Rights of a surety may be classified under three heads: (i) rights against the creditor. if D makes default to the extent of Rs 40. B and C are liable.3 Rights against co-sureties a) Right of contribution.c) If the creditor releases one of the co-sureties. A is liable to pay Rs 20. The creditor’s failure to do so will exonerate the surety from his liability. In other words. E defaults in making payment.000 and B and C Rs 15.000.000. B and C are sureties to D for the sum of Rs. creditor cannot recover his money from the surety. Self Assessment Questions 6. enter into three several bonds. the other co-surety (or co-sureties) thereby is not discharged.146 provides for a right of contribution between them. 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. each in a different penalty. subject to the limit fixed by their guarantee and not proportionately to the liability undertaken.147 to contribute equally. (True/False) 3. 3. i. (ii) rights against the principal debtor and (iii) rights against co-sureties. 1. C sells the furniture. A. conditioned for D’s duly accounting to E. 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. 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. if the creditor loses. Sec. When a *surety has paid more than his share or a decree has been passed against him for more than his share. 1. which gives power to C to sell the furniture and apply the proceeds in discharge of the note. namely. B in that of Rs 20.

But as soon as the principal debtor defaults.3.R. 3. By variance in terms of the contract (Sec. The surety shall. By the death of surety (Sec. principal debtor (Sec. the creditor need not first exhaust his remedies against the securities before suing the surety.130). The creditor may file a suit against the surety without suing the principal debtor.I. Shripat I. though a minor debtor is not liable. 2.128. or agreeing not to sue. by notice to the creditor. as a revocation of a continuing guarantee. in consideration of B’s discounting.L. (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. But A is liable to B for Rs 2. If a minor could not default. the surety is liable for all those amounts the principal debtor is liable for. unless it is expressly provided for. the liability of the surety is coextensive with that of the principal debtor. made without the surety’s consent. or by any act or omission of the creditor. 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.000 on default of C. According to the decision of the Bombay High Court in Kashiba v. the acceptor. in the sense that the surety will be liable for all those sums for which the principal debtor is liable. The death of the surety operates. or promises to give time to. the liability of the surety is co-extensive with that of the principal debtor (Sec.R. But the later decisions of the Bombay High Court have taken a contrary view. A is discharged from his suretyship by the variance made without his consent and is not liable to make good this loss. B discounts bill for C to the extent of Rs 2. Example: A guarantees to B the payment of a bill of exchange by C. as to future transactions. Afterwards B and C contract. by which the principal debtor is released. as his liability arises only on default by the principal debtor. By compounding with. or not to sue the principal debtor. The revocation discharges A from liability to B for any subsequent discount. for twelve months. discharges the surety as to transactions subsequent to the variance. Example: A. in the absence of any contract to the contrary.4 Liability of surety Unless the contract provides otherwise.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. a guarantor for a minor cannot be held liable. 1927 the surety can be held liable. Further. By notice of revocation (Sec. A continuing guarantee may at any time be revoked by the surety. Shivappa Manju and in Pestonji Mody v.5. . 1957 Mad. however. Afterwards. 10 Bom. the liability of the guarantor being secondary liability does not arise at all. in the terms of the contract between the principal debtor and the creditor. A revokes the guarantee. discharges the surety. unless the contract specifically so provides.134). that B’s salary shall be raised and that he shall become liable for one-fourth of the losses on overdrafts.135). In other words. guarantees to B. The bill is dishonoured by C. The liability of a surety is called as secondary or contingent. the legal consequence of which is the discharge of the principal debtor. The surety is discharged by any contract between the creditor and principal debtor. the liability of the surety begins and runs co-extensive with the liability of the principal debtor. By release or discharge of principal debtor (Sec. bills of exchange for C. Position of surety in case of a minor principal debtor. Meherbai it was held that as under Sec. at A’s request. The same view has been endorsed by the Madras High Court in the case of Edavan Nambiar v. Any variance. at the end of the three months.5. without A’s consent. the due payment of all such bills to the extent of Rs 5.000. 4. The creditor is even not bound to give notice of the default to the surety. so far as regards future transactions.133). be not discharged if (a) he assents to such contract. 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. 164). where the creditor holds securities from the principal debtor for his debt. B allows a customer to overdraw and the bank loses a sum of money. or giving time to. 3.128).131). Example: A becomes surety to C for B’s conduct as a manager in C’s bank. In Manju Mahadeo v. 5. A contract between the creditor and the principal debtor by which the creditor makes a composition with.000. Moolaki Raman (A. It was held that unless the contract otherwise provides.

If the creditor does any act which is inconsistent with the right of the surety. 3.4 Commencement of indemnifier’s liability .6.6.6. The liability of a surety is secondary. in such cases. must have all the essentials of a valid contract. A contract of insurance is a glaring example of such type of contracts.. 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. (True/False) 3...124 and 125 provide for a contract of indemnity. However.6 Contract of Indemnity 3. The indemnifier promises to make good the loss of the indemnified (i. unless the surety consented to the release of such security (Sec. (True/False) 9. the duty of a principal to indemnify an agent from consequences of all lawful acts done by him as an agent. Self Assessment Questions 8.e. If the creditor loses or parts with any security given to him by the principal debtor at the time the contract of guarantee was made. the 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.e. the surety is discharged. 3. By creditor’s act or omission impairing surety’s eventual remedy (Sec. 3. his rights. These are two parties in a contraction of identity indemnifier and indemnified. (iii) All sums which may have been paid under the terms of any compromise of any such suit. The contract of indemnity.6. Loss of security. Sec. 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.1 Meaning of indemnity Secs. 7. 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. A contract of indemnity may arise either by (i) an express promise or (ii) operation of law. the promisee).124 provides that a contract of indemnity is a contract whereby one party promises to save the other from loss caused to him (the promisee) by the conduct of the promisor himself or by the conduct of any other person. The surety is a favoured debtor..139). like any other contract.3 Rights of the indemnifier The Act makes no mention of the rights of indemnifier. (ii) All costs of suit which he may have to pay to such third party. 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.g.141.2 Rights of the indemnified (i. the surety is discharged to the extent of the value of the security. Between co-sureties there is equality of burden and benefit.141). viz. are similar to the rights of a surety under Sec. e. (True/False) 10.6. This is a contract of indemnity. Example: A contracts to indemnify B against the consequences of any proceeding which C may take against B in respect of a certain sum of Rs 200.

the ‘principal debtor’. indemnifier and indemnified. I will see that your money comes back’ is an indemnity. In the case of guarantee. the primary liability being that of the principal debtor. 126 and 127 (c) Secs.C. the original contract between the debtor and creditor may be about to come into existence. Self Assessment Questions 11. 125 and 126 12. Distinction between a contract of guarantee and a contract of indemnity. between the debtor and the creditor. A contract of indemnity may arise either by an express promise or _______________.7 Summary The contract of surety is not a contract collateral to the principal debtor. Mather in his book “Securities Acceptable to the Lending Banker” has very briefly. L.Indemnity requires that the party to be indemnified shall never be called upon to pay. 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. It is not necessary that the principal contract. there are three parties. . in a contract of indemnity. there are only two parties. brought out the distinction between indemnity and guarantee by the following illustration. In a contract of guarantee. Other points of difference are: 1. Thus. Indemnity is not necessarily given by repayment after payment. A contract in which A says to B. 124 and 126 (b) Secs. after discharging the debt. 3. unless there is an assignment in his favour. On the other hand undertaking in these words. There must be a distinct promise on the party of the surety to be assumable for the debt. a surety may be called upon to pay though principal debtor is not liable at all. but it is an independent contract. 3. the liability of the surety is secondary. there is an existing debt or obligation. Similarly. must exit at the time the contract of guarantee is made. I will is a guarantee. but excellently. the performance of which is guaranteed by the surety. 2. In case of a guarantee. “If you lend £20 to C and he does not pay you. the ‘creditor’ and the ‘surety’. In case of indemnity the possibility of any loss happening is a contingency against which the indemnifier undertakes to indemnify. 124 and 125 (d) Secs. ‘If you lend £20 to C. under certain circumstances. on the other hand. The liability of a promisor is primary and independent in a contract of indemnity. Glossary Indemnity: Indemnity means to make good the loss or to compensate the party who has suffered some loss. Contract of indemnity come under which section: (a) Secs. In a contract of guarantee. the surety is entitled to proceed against the principal debtor in his own name while in case of indemnity. the indemnifier cannot proceed against third parties in his own name.

True 10. True 7. 3. True 9. 3. 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. True 11. Distinguish between a contract of guarantee and a contract of indemnity. Describe the rights of the indemnifier and the indemnity holder. Discharge of Surety from Liability: A surety is said to be discharged when his liability as surety comes to an end. False 4. Explain the circumstances under which a surety may be discharged from the liability by the conduct of the creditor. (c) 12. False 8. Operation of law Answers to Terminal Questions . 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. 5. (d) 5.9 Answers Answers to Self Assessment Questions 1. Define contract of indemnity. False 2. (a) 6.8 Terminal Questions 1. 4. What do you mean by contract of guarantee? 2. True 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.

2 Bailment and its Kinds Definition of bailment (Sec. 3.148) Kinds of bailments . He told me to pay for another 2 units for another $150 USD. So try to avoid adopting this payment method and consider other more secure payment methods like escrow. but actually it is Chinese Company. Refer 3.2 – The contracts of guarantee are among the most common business contracts and are used for a number of purposes. The criminal remains anonymous. So it is a commonly used payment method for con-artists. but I have refused. Refer 3. Refer 3.6 – Student describe own. All his information is fraudulent. (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. This can be judged easily by calling his company telephone number or by searching the company name on related state government websites. The supplier explained that it’s his company’s policy was to issue original invoices only when quantities are above 5 units. Mini-case "I didn’t receive the products.5 – Rights of a surety may be classified under three heads: (i) rights against the creditor. Questions 1.1. In this case. 2. Analyze the ways in which a person can find out the whether the company is fraudulent. His is a fraudulent company!" If you think their price is very attractive and want to deal with them.3 – The scope of guarantee a contract of guarantee may either by specific or continuing. 4. the duty of a principal to indemnify an agent from consequences of all lawful acts done by him as an agent.g.. 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) 2.6 – A contract of indemnity may arise either by (i) an express promise or (ii) operation of law. it is very necessary for you to verify that they are legitimate company and their contact information is correct. 5. with no way of tracing the person who picked it up. the fraudster is pretending to be a US company. He registered on your website as a US company. Refer 3. I paid by Western Union. Western Union is a dangerous payment method.1 Introduction Objectives 4. Refer 3. (ii) rights against the principal debtor and (iii) rights against co-sureties. e. but all his registered information is false. The supplier said the goods were detained in the Customs Office because Customs didn’t find the original invoice attached to the goods. it can be picked up anywhere in the recipient’s country.

11 Answers 4. you should be able to: · Describe the bailment and its types · Explain the duties and rights of bailor · Define pledge .5 Finder of Lost Goods 4. you came to know about the contract of law and guarantee of contract.10 Terminal Questions 4. Also. At one time or another. Traders often store their surplus goods in warehouses.3 Duties and Rights of Bailor and Bailee Duties of a bailor Duties of a bailee Rights of a bailee Rights of a bailor 4.4. goods are pledged for securing loans. In this unit you will study about the contract of bailment.1 Introduction In the previous unit.7 Pledge by Non-owners 4. called bailment and pledge. and utilize the services of cold storages for keeping their goods to be taken back as and when required. Objectives After studying this unit. and factory owners often send machinery back to vendors for repairs.8 Rights and Duties of Pledgor and a Pledgee Duties of a pledgee Duties of a pledgor Rights of a pledgor 4.9 Summary 4.4 Termination of Bailment 4. you enter into a legal relationships. Bailments are quite common in business also.6 Pledge or Pawn 4.

there is no bailment. i. Return of goods in specie. Let’s illustrate.2 Bailment and its Kinds 4.2.· Explain the pledge by non-owner 4. on the receipt of the agreed or reasonable charges. Self Assessment Questions 1.e. 4. Ownership of goods. the following characteristics should be noted: 1. where an equivalent and not the same is agreed to be returned. Actual delivery may be made by handing over goods to the bailee. The person delivering the goods is called the ‘bailor’ and the person to whom the goods are delivered is called the ‘bailee’. however. The goods are delivered for some purpose and it is agreed that the specific goods shall be returned. when the purpose is accomplished. as soon as the time of use for. a jeweller. the delivery of goods is upon a contract that when the purpose is accomplished. (iv) Pawn or Pledge.149). bailor. for dry cleaning. Delivery of goods. his business is to transfer possession and not ownership. there is a constructive transfer of possession from C to A. Placing of ornaments in a bank locker is not a contact of bailment. Return of specific goods (in specie) is an essential characteristic of bailment. they shall be returned to the bailor. in return for payment of money. it is agreed that it will be returned.e. (vii) Delivery of goods as security for the repayment of loan and interest thereon. classified into six kinds as follows. after repair. The explanation to the above Section points out that delivery of possession is not necessary. has elapsed or been performed”. i. 3. agrees to hold them on behalf of C. (True/False) 3. Delivery of goods may.. Thus. (iii) A lends his book to B for reading. 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. already in possession of goods contracts to hold them as bailee.1 Definition of bailment (Sec. 4. Deposit of goods with another by way of security for money borrowed. for making jewellery. i. pledge. (iv) A delivers a suit-length to a tailor for stitching. EXCEPT: (a) Commodatum . be actual or constructive. (True/False) 2. The bailee is under an obligation to re-deliver the goods. The essence of bailment is delivery of goods by one person to another for some temporary purpose. (ii) A delivers a wrist watch to B for repairs.2. (i) A delivers some clothes to B. therefore the person delivering the possession of goods need not be the owner. or condition on which they were bailed. (vi) Delivery of goods as in (v) above. (v) Delivery of goods for being transported. All are the kind of bailments. 2. but without reward. Example: A holding goods on behalf of B. (iii) Hire. In bailment. be returned or otherwise disposed of according to the directions of person delivering them”. Goods lent to the bailee for hire. Goods lent to a friend gratis to be used by him.e.. (i) Deposit. a dry cleaner.148) Bailment is defined as the “delivery of goods by one to another person for some purpose. or something to be done about them. by the bailee for reward. where one person. in their original or altered form.2 Kinds of bailments Bailments may be. From the definition of bailment. (v) A delivers some gold biscuits to B. Delivery of good is essential for effecting bailment. it is only the possession of goods which is transferred and not the ownership thereof. where a watch is delivered to a watch repairer for repair. (ii) Commodatum.. Delivery of goods by one person to another for the use of the former. upon a contract that they shall. (vi) Delivery of goods to a carrier for the purpose of carrying them from one place to another. Bailment is based on a contract. For example. In a bailment.

etc. 4. quality and value as the goods bailed. which he knows to be vicious. is responsible to make good this loss to C. but the car is damaged in an accident. To take care of the goods bailed (Sec.152). To disclose know faults in the goods (Sec. the bailor. 4. the bailor is held responsible to bear only extraordinary expenses. in the absence of any special contract. .3. the bailor must repay to the bailee all necessary expenses incurred by him for the purpose of the bailment. uses them in a way not warranted by the terms of bailment.151). for the loss. under similar circumstances. to B. Regarding bailments under which bailee is to receive no remuneration.1 Duties of a bailor 1. A is liable to make compensation to B for the damage done to the car. of which the bailor is aware and which materially interfere with the use of them or expose the bailee to extraordinary risks.164). The ordinary expenses like petrol. If the bailee without the consent of the bailor. he shall not be responsible. He does not disclose the fact that the horse is vicious.158 provides that in the absence of a contract to the contrary.. take of his own goods of the same bulk. the bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would. Not to make unauhorised use of goods (Sec. In case the bailee makes unauthorised use of goods. 3. In case of non-gratuitous bailments. destruction or deterioration of the thing bailed (Sec. 3. Example: A gives B’s car to C without B’s knowledge and permission. to drive the car. In all cases of bailment.3 Duties and Rights of Bailor and Bailee 4. Sec.150). the bailee. Liability for breach of warranty as to title. The horse runs away. his wife. or to receive back the goods or to give directions respecting them (Sec. shall be borne by the bailee but in case the car goes out of order. Example: A lends a car to B for his own driving only. 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.e. 2. To bear expenses in case of gratuitous bailments. Example: A car is lent for a journey. the bailee shall be bound to bear the expense of separation or division and any damages arising from the mixture.155-157). A is responsible to B for damage sustained.3. In case.2 Duties of a bailee 1. the money spent in its repair will be regarded as an extraordinary expenditure and borne by the bailor. A. If he does not make such disclosure. B is thrown and injured. mixes the goods of the bailor with his own goods and the goods can be separated or divided. 2. bailee has taken the amount of care as described above. Example: A lends a horse.(b) Hire (c) Deposit (d) Loan 4. B allows C. i. he is liable to make compensation to the bailor for any damages arising to the goods from or during such use of them. B sues C and receives compensation. Not to mix bailor’s goods with his own (Secs.. The bailor is bound to disclose to the bailee faults in the goods bailed.154). he is responsible for the damage arising to the bailee directly from such faults. C drives with care.

as soon as the time for which they were bailed has expired.171 empower certain categories of bailees to exercise a general lien. factors. a right to retain such goods until he receives due remuneration for the service he has rendered in respect of them”. The cow gives birth to a calf. 4. a bailee can sue bailor for (a) claiming compensation for damages resulting from non-disclosure of faults in the goods. once the debt is satisfied or obligation discharged. the goods bailed.3. in fact. on the other hand. 4. Lien is a right in one person to retain that which is in his possession. Another right of bailee is the right of lien (Secs. attorneys of High Court and policy brokers. Example: A leaves a cow in the custody of B to be taken care of. 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. Since. To return any accretion to the goods bailed (Sec. 180-181). or causes them any injury. Thus. in the absence of a contract to the contrary. Now. (b) for breach of warranty as to the title and the damage resulting there from.181). then. the bailee is bound to deliver to the bailor. belonging to another. for which they were bailed has been accomplished. It is the duty of the bailee to return.. Particular Lien is conferred upon a bailee by virtue of the provisions of Sec.170-171). 5. 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.3 Rights of a bailee 1.e.Example: A bails 100 bales of cotton marked with a particular mark to B. Right against wrongful deprivation of or injury to goods (Secs. in accordance with the purpose of the bailment. or deliver according to the bailor’s directions. The duties of the bailor are. 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. Bailee’s right of lien is particular in certain cases whereas general in other cases. To return the goods bailed without demand (Sec. 4. 2.4 Rights of a bailor . rendered any service involving the exercise of labour or skill in respect of the goods bailed. if looked from the point of view of bailee. wharfingers. 3.3. he has. 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. whatever is obtained by way of relief or compensation in such a suit shall. The provisions of Sec. the right of lien is extinguished. the bailor is entitled to be compensated by the bailee for the loss of the goods. any increase or profit which may have accrued from the goods bailed. be dealt with according to their respective interest (Sec. It reads: “Where the bailee has. 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 property so retained has. as between the bailor and the bailee. until some debt or claim is paid. Particular Lien. 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. or according to his directions.161). In the absence of any contract to the contrary. 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. (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). without A’s consent. without demand.163). lien is available only until the debt or claim is satisfied.160). and (c) for extraordinary expenses. If a third person wrongfully deprives the bailee of the use or possession of the goods bailed. the bailee’s rights. unless there is a contract to the contrary. B. These bailees can retain all goods of the bailor so long as anything is due to them. or the purpose. Lien. Lien may be of two types: (i) General Lien and (ii) Particular Lien. If bailee fails to return the goods at the proper time. means the right to retain the particular goods in respect of which the claim is due. mixes the 100 bales with other bales of his own bearing a different mark. he is responsible to the bailor for any loss. bailor). destruction or deterioration of the goods from that time (Sec.170. These include: bankers.

3. The bailor can enforce. inconsistent with the conditions of the bailment. 2.4 Termination of Bailment A contract of bailment terminates or comes to an end under the following circumstances: 1. (True/False) 4. a gratuitous bailment terminates by the death of either the bailor or the bailee (Sec. Self Assessment Question 6. B drives the horse in his carriage. On the expiry of 6 months X must return the cooler. the borrower has acted in such a manner that the return of the thing before the specified time would cause him (i. . 2.162). A shall have the option to terminate the bailment. (True/False) 4. bailment without reward). In case. 4.159). But if. he enjoys certain rights also. However. the bailor may terminate the bailment (Sec.e.159). Example: A room cooler is hired by X from Y for a period of 6 months. By bailee’s act inconsistent with conditions of bailment. a horse for his own riding. on the faith of such bailment. Where bailment is for a specific period. if premature termination causes any loss to the bailee exceeding the benefit derived from the bailment. Bailee need not return to the bailor any accretion to the goods on completion of the contract of bailment. In case of gratuitous bailment (i.. 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. the bailee) loss exceeding the benefit derived by him from the bailment. If the bailee does any act with regard to the goods bailed..153). the bailor must indemnify the borrower for the loss if he compels an immediate return (Sec. However. A gratuitous bailment can be terminated by the bailor even before the stated time. besides the responsibility of exercising reasonable efforts in finding the real owner. A gratuitous bailment may be terminated at any time (Sec.e. all duties or liabilities of the bailee. Example: A lets to B for hire. On the accomplishment of the specified purpose. it comes to an end on the expiry of the specified period. (True/False) 5.5 Finder of Lost Goods Finding is not owning.1. by suit. the bailor can demand their return whenever he pleases. Further. His rights are summed up hereunder. On the expiry of the stipulated period. A bailee has a general lien on the goods bailed. bailment is for specific purpose it terminates as soon as the purpose is accomplished. the bailor must indemnify. even though he lent it for a specified time or purpose. Self Assessment Questions 4.

(1971) Company Cases 591. 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. duly endorsed. however. however. constituted a valid pledge of the goods. in case the borrower makes a default in payment. To a creditor. cannot sue for such compensation. The person. it amounts to constructive delivery.169). The ownership remains with the pledgor. A finder. He acquires a special property. A person who delivers the goods as security is known as: (a) Pledgee (b) Pledgor (c) Bailor (d) None 4. to pay the lawful charges of the finder. 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. duly endorsed. . It is only a qualified property that passes to the pledgee. if the owner cannot with reasonable diligence be found or if he refuses. The goods are in the possession of the creditor and therefore. and is a valid pledge. Thus. Right to retain the goods (Sec. The Official Assignee contended that the pledge of the railway receipt was not valid. in Bank of Bihar v. 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 owner of the goods can create a valid pledge by transferring to the creditor the documents of title relating to the goods. Stocks cannot be manipulated as they are under the lender’s possession and control. Advantages of pledge. But where. be actual or constructive. 2. lender can sell the goods and prove for the balance of the debt. Later he was declared bankrupt. the finder may sue for such reward and may retain the goods until he receives it.1. that the railway receipts in India are title to goods. who delivers the goods as security. Example: A businessman pledged a railway receipt to a bank.168). no other creditor or ‘authority’ can take away the goods or its price. 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. (ii) when the lawful charges of the finder in respect of the thing found. if any. where sugar pledged with the Bank was seized by the Government of Bihar. Delivery essential. Similarly. upon demand. pledge is perhaps the most satisfactory mode of creating a charge on goods. defines a pledge as the bailment of goods as security for payment of a debt or performance of a promise. and that the pledge of the railway receipt to the bank. 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. Self Assessment Questions 7.6 Pledge or Pawn Sec. Delivery of goods may. Held. State of Bihar and Ors. 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. 3. In the case of insolvency of the borrower. a specific reward has been offered by the owner for the return of the goods lost. Right to sell (Sec. A finder may sell goods when they are in danger of perishing or losing the greater part of their value. they can be disposed of after a reasonable notice. (i) when the thing is in danger of perishing or of losing the greater part of its value. 2. It offers the following advantages: 1. (True/False) 8. the finder may sell it.172. and lien which is not of ordinary nature and so long as his loan is not repaid. amount to two-third of its value.

shall be as valid as if he were expressly authorised by the owner of the goods to make the same. 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. 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. any pledge made by him. with the consent of the owner. The ownership of the goods bailed passes to the bailee. For a pledge by a mercantile agent to be valid the following conditions must be satisfied: a) Good faith. 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 . 1930. A ‘mercantile agent’ as per Sec.169 (d) Sec.170 4. can create a valid pledge.4. if he does the business outside his business premises or out of business hours. Pledge by seller or buyer in possession after sale. before sale. b) Acting in the ordinary course of business. Where a mercantile agent is. The mercantile agent must have acted in the ordinary course of his business. The onus of proving both these facts rests upon the person disputing the validity of the pledge.7 Pledge by Non-owners The general rule is that it is the owner of the goods who can ordinarily create a valid pledge. and a buyer.167 (c) Sec. means a mercantile agent having.30 of the Sale of Goods Act. Pledge by a person in possession under a voidable contract (Sec. Self Assessment Questions 9. in the following cases. when acting in the ordinary course of business of a mercantile agent. in the customary course of business as such agent. such a transaction would fall outside this section. Once again. Under Sec. (a) Sec.178-A). a seller left in possession of goods after sale.168 (b) Sec. Therefore. 2. 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. in possession of goods or the documents of title to goods. 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. Right to sell comes under which section. who obtains possession of goods with the consent of the seller.2(9) of the Sale of Goods Act. Provide your view on this. (True/False) 10.178). 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. even a pledge by nonowners shall be valid: 1. 3. Such a pledge shall. 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. However. Pledge by a mercantile agent. however.

i. 5. 3. in the absence of a contract to that effect. The pawnee may retain the goods pledged. Self Assessment Questions 11. 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.. or (ii) sell the goods pledged on giving the pledgor a reasonable notice of sale.1 Duties of a pledgee 1.. A pledgee has a right to recover any extraordinary expenditure incurred for the preservation of the goods pledged (Sec. If. in the absence of anything to the contrary. . In case the pledgor fails to inform such faults or abnormal character of the goods pledged. Sec.b) the pawnee act is good faith and without notice of the pawnor’s defect of title. However. The pledgee is required to take as much care of the goods pledged to him as a person of ordinary prudence would. A pledgee’s rights are not limited to his interests in the pledged goods. but the full value of the consignment. the amount over and above his interest is to be held by him in trust for the pledgor. A pledge by a mercantile agent to be valid if he must be in good faith and ________________. i. on the other hand. take of his own goods.e. under similar circumstances.176. In case of injury to the goods or their deprivation by a third party.179). A mercantile agent comes under _______________. the pledgee must be informed. he would have all such remedies that the owner of the goods would have against them. Thus. 4.173]. a pledgee may further pledge goods to the extent of the amount advanced thereon.175). In Morvi Mercantile Bank Ltd v. if the goods are of an abnormal character says. of a similar nature. 2. a pledgee has the following rights: 1. However. Before sale can be executed.176 in case the pledgor fails to pay his debt or complete the performance of obligation at the stipulated time. However.174 provides that the pawnee shall not. In addition to the rights mentioned in Sec. 5. a reasonable notice must be given to the pledgor so that: (a) the pledgor may meet his obligation as a last chance. cannot be set aside. (b) he can supervise the sale to see that it fetches the right price. 12. the pledgee can proceed for the balance. In case the goods pledged when sold do not fully meet the amount of the debt.000 – the amount due to it. Pledge by a person having limited interest (Sec. Pledge by co-owner in possession. shall be presumed in regard to subsequent advances made by the pawnee. Union of India. 4. but such contract. Rs 35. the Supreme Court held that the bank (pledgee) was entitled to recover not only Rs 20. 4. any damage as a result of non-disclosure shall have to be compensated by the pledgor. It is the duty of the pledgor to disclose any defects or faults in the goods pledged which are within his knowledge. 4.8. there is any surplus. Where a person pledges goods in which he has only a limited interest. One of several joint owners of goods in sole possession thereof with the consent of the rest may make a valid pledge of the goods. the sale made by the pledgee without giving a reasonable notice to the pledgor is not void. not only for payment of the debt or the performance of the promise.8 Rights and Duties of Pledgor and a Pledgee According to Sec. The pledgee has a right to claim any damages suffered because of the defective title of the pledgor. the pledge is valid to the extent of the interest. The pledgee will be liable to the pledgor for the damages. 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. explosives or fragile. Similarly.000. retain the goods pledged for any debt or promise other than the debt or promise for which they are pledged.e. Pawnee’s right of retainer [Sec. that has to be accounted for to the pledgor.

in their original altered form. 2. 3. Thus. 4. (True/False) 14. has elapsed or been performed. 3. If the goods are bailed or hire or reward. Bailment is usually based on a contract.3 Rights of a pledgor 1. 5. the pledgor has a right to claim the same. 3. as soon as the time of use for. If any loss is caused to the goods because of mishandling or negligence on the part of the pledgee. 2. 4. Any accruals to the goods pledged belong to the pledgor and should be delivered accordingly. (True/False) 4. the bonus shares are the property of the pledgor and not the pledgee. The pledgee is bound to return the goods on payment of the debt. and in case he does not receive the notice he has a right to claim any damages that may result. He is responsible to meet any extraordinary expenditure incurred by the pledgee for the preservation of the goods. 4. 4. He is liable for any loss caused to the pledgee because of defects in his (pledgor’s) title to the goods. . The pledgor has a right to claim back the security pledged on repayment of the debt with interest and other charges. or condition on which they were bailed. any shortfall has to be made good by the pledgor. the pledgor is entitled to receive from the pledgee any surplus that may remain with him after the debt is completely paid off. He has a right to receive a reasonable notice in case the pledgee intends to sell the goods.8.9 Summary The bailee is under an obligation to re-deliver the goods. The pledgee is bound to return the goods on payment of the debt. 4.8.2. the bailor is responsible for the damage arising to the bailee directly from such faults. The pledgor has a right to claim any accruals to the goods pledged. The pledgee has a right to claim any damages suffered because of the defective title of the pledgor.2 Duties of a pledgor 1. In case of sale. Where the pledgee has exercised his right of sale of goods. if the security consists of equity shares and the company issues bonus shares to the equity shareholders. The pledgee must not put the goods to an unauthorised use. He must disclose to the pledgee any material faults or extraordinary risks in the goods to which the pledgee may be exposed. Self Assessment Questions 13.

True 7. Describe the characteristics of pledge. What are the respective rights and duties of a pawnor and a pawnee? 5. True 8. be returned or otherwise disposed of according to the direction of the person delivering them. False 5. Distinguish between ‘gratuitous bailment’ and ‘bailment for hire’. (b) 9. (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. Bailor: The person delivering the goods is called the bailor. 4. True 2. 2.10 Terminal Questions 1. 4. What do you mean by bailment? What are the requisites of a contract of bailment? Explain. Bailee: The person to whom the goods are delivered is called the bailee.11 Answers Answers to Self Assessment Questions 1. (d) 4. Acting in the ordinary course of business . False 6. what rights does the pledge have in the pledge? 4. Pledge: The bailment of goods as security for payment of a debt or performance of a promise is called pledge. 3. “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”. True 3. Comment. When a pledger fails to redeem his pledge. 6. False 10.

3. He was.38 per cent in Pfizer. at the rate of one per cent of the company’s profit. Pradip Shah. Refer 4. True Answers to Terminal Questions 1. 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. True 14.12. as compared with the previous year’s Rs 27. said a shareholder who has been holding a Pfizer share since the beginning.8 – According to Sec. On Pfizer Inc’s recently announced plan to raise stake in its Indian subsidiary to 75 per cent.3 – The bailor is bound to disclose to the bailee faults in the goods bailed. R. Sec. The other enabling resolution was with reference to resident non-executive directors Mr.176 in case the pledgor fails to pay his debt or complete the performance of obligation at the stipulated time. were expressing their unhappiness over the dividend. The company explained that the commission for non-executive directors was upped to Rs 20 lakh a year in 2004.6 – The person.A. Refer 4. is called the ‘pledgor’ and the person to whom the goods are so delivered is called the ‘pledgee’. He. effective for a five-year period starting December 2003. Shah and Mr. The dividend for the year ended 2008 was Rs 12. clarified that there were no motives behind the company’s actions and dividends were generous when the circumstances warranted it. LIC totally holds 14.2 – Bailment is defined as the “delivery of goods by one to another person for some purpose. Mr. 6. given its equity holding. he said. however. 5. that there was no intention to delist. from the present 41 per cent. of which the bailor is aware and which materially interfere with the use of them or expose the bailee to extraordinary risks. "at this time". Shah. upon a contract that they shall. Mr. up to Rs 50 lakh a year. be returned or otherwise disposed of according to the directions of person delivering them”. 1930 13. proposing that it be increased from its 2007-level of Rs 1. 2.80 crore to a maximum of Rs 2. Refer 4.50 per share. One of the enabling resolutions was regarding Pfizer’s Managing Director in India. Mini-case It would have been business as usual at multinational drug-maker Pfizer’s annual shareholder meeting. Shareholders should be part of the good and bad times of the company.6 – To a creditor. seeking to raise their commission. R. and the LIC representative told that he was communicating the decision taken by the corporation. Refer 4. respectively.50 crore a year. Market observers indicated that LIC could push for a poll on the proposal. who delivers the goods as security. along with some other shareholders. when the purpose is accomplished.3 – Candidate give answer by their experience through the study of this unit. It offers the following advantages.2(9) of Sales of Goods Act. when the multinational sent letters to shareholders inviting them into their fold. unable to give reasons behind the decision. Refer 4. However. Kewal Handa’s salary.50 per share.A. 4. . pledge is perhaps the most satisfactory mode of creating a charge on goods. Pfizer’s Chairman.

Creeping acquisition and buyback was allowed only till 75 per cent. Detailing Pfizer’s plans to expand its domestic reach.196-200) Agency coupled with interest 5.187) Implied agency (Sec. Also.4 Classification of Agents Special and general agents Mercantile or commercial agents Non-mercantile or non-commercial agents .2 Agent and Agency (Sec. he said. Question Discuss LIC’s role in Pfizer.3 Kinds of Agencies Express agency (Sec. he said. Mr. Handa said that they would increase the product portfolio and value offerings from the company. Pfizer was also evaluating the possibility of merging Duchem (that has pharma and animal health businesses) with itself.187) Agency by estoppel (Sec. he clarified.) MB0051-Unit-05-Contract of Agency Unit-05-Contract of Agency Structure: 5. (Hint: Summarize the LIC responsibilities in Pfizer.Unlike info-tech companies. the applicable milestone for Pfizer for reverse book building was 75 per cent.237) Agency by holding out Agency of necessity (Sec. including 100 for just retail sales.182) Who can employ agent? Who may be agent? 5.1 Introduction Objectives 5. The company was planning to increase its field force by 300 people.189) Agency by ratification (Secs.

business was carried on largely by individual artisans in their homes and in small family operated shops. In this unit you will study about the contract of agency. Before the Industrial revolution. As population and trade expanded and division of labour and specialisation became the order of the day. 1872. under the close personal supervision of the “master”.10 Summary 5.1 Introduction In the previous units. manufacturers and shopkeepers began to hire others to work for them. makes provisions as regards agency. there arose the problem of distribution of goods.Sub-agent and substituted agent (Secs.201) When termination of agency takes effect? 5.9 Power of Attorney Meaning A power of attorney may be special or general Registration 5.8 Termination of Agency Circumstances under which agency terminates or comes to an end (Sec.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.12 Answers 5. you came to know about the bailment and guarantee of contract. These helpers or “servants” as they were called performed whatever physical tasks were assigned to them.190-195) 5. Secs.7 Personal Liability of Agent 5.11 Terminal Questions 5. To meet the rising demand.5 Duties and Rights of Agent Duties of agent Rights of agent 5. The Indian Contract Act. Objectives .

e. (True/False) 2. A principal can always revoke agent’s authority. This relationship is based upon an agreement whereby one person acts for another in transaction with a third person. may employ agent (Sec. in considering the contract of agency itself (i. The relationship between Anil and Bharat is called Agency.1 Express agency (Sec.After studying this unit. No particular form is required for appointing agent.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.187) . no person who is not of the age of majority and of sound mind can become agent.000. A substituted agent is as good agent of the agent as a sub-agent. Thus. Example: Rahim appoints Kiran. 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. agent is a person who acts in place of another. Thus. 5. 5. No qualifications as such are prescribed for a person to be agent except that he has attained majority and is of sound mind. Anil appoints Bharat. the contractual capacity of the agent becomes important.2 Implied agency (Sec. 5. The usual form of a written contract of agency is the power of attorney on a stamped paper. 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. However.2. Thus.. to sell his car for not less than Rs 90. For example. Thus. a minor.3.2 Agent and Agency (Sec. Anil is the Principal and Bharat is his agent. Thus.182) Agent is “a person employed to do any act for another or to represent another in dealings with third person”.2 Who may be agent? Since agent is a mere connecting link or a ‘conduit pipe’ between the principal and the third party. a minor or a lunatic cannot contract through agent since they cannot contract themselves personally either.2. a broker.3 Kinds of Agencies A contract of agency may be created by an express agreement or by implication (implied agreement) or by ratification.3.000. either by word of mouth or by writing. Self Assessment Questions 1. The person for whom or on whose behalf he acts is called the Principal. Kiran sells it for Rs 80. it is immaterial whether or not the agent is legally competent to contract.187) A person may be appointed as agent. to sell his Maruti Car on his behalf. he will be personally liable to the third party. there is no bar to the appointment of a minor as agent. there are different kinds of agency. since Kiran is a minor and a contract with a minor is void abinitio.183). 5. (True/False) 5. If agent acts for a minor or lunatic. as to be responsible to his principal (Sec. the relation between principal and agent).184).

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. A special agent. if he so desires. 5. 5. some affirmative conduct by the principal is necessary in creation of agency by holding out. although it is not a fact. The principal is precluded from denying the truth of agency which he himself has represented as a fact. 5. If he does anything beyond the specified act.237) When a person has. (True/False) 4. One broad classification of agents is: (i) mercantile or commercial agents and (ii) nonmercantile or non-commercial agents. Sec.5 Agency of necessity (Sec. 5. Agency in such a case is said to be created by ratification. On one occasion. If he so elects.4 Agency by holding out Though part of the law of estoppel. In other words. (True/False) 5. he runs the risk of being personally liable since the principal may not ratify the same. . he is estopped from subsequently denying it.Implied agency arises from the conduct.1 Special and general agents A special agent is a person appointed to do some particular act or enter into some particular contract.4. Managing Director of a company. but the company ratifies Badal’s acceptance. thus rendering the revocation of the offer inoperative. Komal can recover the price from Puran since through previous dealings Puran has held out his servant Amar as his agent. An offer once accepted cannot be withdrawn. Example: Lallan makes an offer to Badal. Puran pays his servant in cash to purchase the goods. therefore.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. Lallan is bound by the offer. agency by holding out and agency of necessity. The servant purchases good on credit pocketing the money.196-200) Where agent does an act for his principal but without knowledge of authority. the principal is not held bound by the transaction. includes agency by estoppel. to ratify the act of the agent.3 Agency by estoppel (Sec. Another classification of agents is: (1) general and (2) special. has only a limited authority to do the specified act. therefore. Lallan subsequently withdraws the offer. Ratification tantamounts to prior authority. Implied agency. it will have the same effect as if the act was originally done by his authority.3.3.3. 5. where the agent has himself an interest in the subject-matter of the agency.196 permits the principal.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. or where he exceeds the given authority.3.6 Agency by ratification (Secs.3. However. Self Assessment Questions 3. induced others to believe that a certain person is his agent. the agency is one coupled with interest. situation or relationship of parties. An ostensible agency is as effective as an express agency. Example: Puran allows his servant Amar to buy goods for him on credit from Komal and pay for them regularly. by his conduct or statements. 5. The ratification by the company relates back to the time Badal accepted the offer.

1 Duties of agent The duties of agent towards his principal are: . or (d) the trader had been expressly told not to give credit to his wife. The usual method of dealing by a broker is to make entries of the terms of contract in a book. in consideration of an extra remuneration. Agent cannot renounce his agency. estate agent. auctioneer.5. A factor. he cannot delegate his authority. (True/False) 5. guarantees the performance of the contract by the other party. unless expressly authorised to do.4. cannot barter the goods.190-195) The general rule is that agent cannot appoint agent. He is also authorised to raise money on their security. (b) goods. Agent being a delegate cannot transfer his duties to another. however. (iii) the nature of agency is such that it cannot be accomplished without the appointment of a sub-agent. (c) he had given sufficient money to his wife for purchasing necessaries.5 Duties and Rights of Agent 5. He then sends the particulars of the same to both parties. (ii) Where the wife lives apart from the husband. 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). e. Hence. He is merely a connecting link between the engager and a third party. banker. because of lack of time.4. purchased were not necessaries. 5. A commission agent is not liable in case the third party fails to carry out the agreed obligation. (iv) where the nature of the job assigned to the agent is purely clerical and does not involve the exercise of discretion.g. commission agent. The document sent to the seller is called the sold note and the one sent buyer is called the bought note. If he does not provide further maintenance. sub-agency is not generally recognised. A factor has a general lien on the goods in his possession. (True/False) 6. 5. A commission agent may have possession of the goods or not. A del credere agent is one who. (v) in an unforeseen emergency.5. he assigns the job to another equally competent typist Bharat. she is agent.3 Non-mercantile or non-commercial agents Some of the agents in this category are: wife. 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. The remuneration that he gets for the purpose is called the commission. Agent may appoint agent in the following circumstances: (i) where expressly permitted by the principal. However. A factor is a mercantile agent who is entrusted with the possession of goods with an authority to sell the same.4. Pakka and Katcha Adatias and indentor. Self Assessment Questions 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. factor.2 Mercantile or commercial agents A mercantile or commercial agent may assume any of the following forms: broker. the delegation is valid. Sec. del credere agent. i. (ii) where the ordinary custom of the trade permits delegation. 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. counsels (advocates). she has an implied authority to bind the husband for necessaries. His lien in case of goods in his possession is a particular lien. Agent being merely a connecting link is never personally liable. called the memorandum book and to sign them.190 deals with the circumstances as to when and how far agent can delegate his duties. But where the wife lives apart under no justifiable circumstances. the husband is liable to provide for her maintenance. called a del credere commission.. if Anthony is appointed to type certain papers.4 Sub-agent and substituted agent (Secs.e. attorneys. she is not her husband’s agent and thus cannot bind him even for necessaries. through no fault of hers. The governing rule is enshrined in a maxim ‘a delegate cannot further delegate’. Also. he would be bound to pay her bills for necessaries.. He can even sell the goods on credit and in his own name. A commission agent is agent who is employed to buy or sell goods or transact business. A broker has no possession of goods or property.

4. under similar circumstances.. 9. compel him to sell it to Pawan at the price he bought. He becomes agent by necessity. to a reasonable remuneration. whereas any surplus must be accounted for to the principal. in communicating with his principal and in seeking to obtain his instructions. But the remuneration does not become payable unless he has carried out the object of agency.219-220). Since. his agent. except where the principal knows that the agent is wanting in skill (Sec. 3. a broker.220). Amar tells Pawan that it cannot be bought.214). to use all reasonable diligence. Not entitled to remuneration for misconduct (Sec. everything consistent with the proved facts will be presumed against him. Agent may retain. however. it can be enjoyed by the agent only where the goods or papers are in actual or constructive possession of the . deduct his lawful expenses and remuneration. If he does so. agent is entitled to retain goods. Right to remuneration (Secs. Not to deal on his own account. To conduct the business of agency according to the principal’s directions (Sec. 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. By a special contract.e. In the absence of any contract to the contrary. out of any sums received on account of the principal in the business of the agency.221).1. any loss occasioned thereby shall have to be borne by the agent. The agent has to render proper accounts. If he does so. whether movable or immovable of the principal received by him.212). 5. except where there is a contract to the contrary. 2. however. Example: Pawar appoints Amar. disbursements and services in respect of the same has been paid or accounted for to him. To render proper accounts (Sec. until the amount due to himself for commission. This is known as agent’s right of retainer. Right of retainer (Sec.211). The duty of the agent must be literally complied with. In case of emergency. agent may get a general lien extending to all claims arising out of the agency. Not to make any secret profits. The agent should conduct the business with the skill and diligence that is generally possessed by persons engaged in similar business. the agent can do all that a reasonable man would. 3. papers and other property. 5. but maintaining proper accounts supported by vouchers. do with regard to his own business.2 Rights of agent Agent has a number of rights these are: 1. This lien of the agent is a particular lien confined to all claims arising in respect of the particular goods and 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. He can. Example: Pawan directs Amar. on discovering that Amar has bought the house. To communicate with the principal in case of difficulty (Sec. 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. Pawan may. 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. Agent should deliver to the principal all moneys including secret commission received by him. in case of difficulty. but buys the house for himself. Rendering of accounts does not mean showing the accounts. 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. 7. Right of lien (Sec. Agent should not deal on his own account without first obtaining the consent of his principal. 6. however. If the agent fails to keep proper accounts of the principal’s business. the word ‘lien’ means retaining possession.217). 2. Agent is entitled to his agreed commission or remuneration and if there is no agreement. It is the duty of agent. to buy a particular house for him. 8.5. the agent is not supposed to deviate from the directions of the principal even for the principal’s benefit. i.213).209). the principal can claim from the agent any benefit which he might have obtained. Not to disclose confidential information supplied to him by the principal.

But if the possession is obtained from the agent by fraud or unlawful means.222-224). 5. can be separated from the part which is beyond his authority. can proceed against him on the contract. The principal will be liable even for misrepresentations made or frauds committed by agent in the business of agency for his own benefit.2 Liability of principal to third parties 1. The right of lien will.agent.222). 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. 4. 5. Agent can never delegate his authority. (ii) liable to indemnify agent against the consequences of an act done in good faith. Self Assessment Questions 7. Right of stoppage in transit. therefore. on discovering his name. his lien is not affected by the loss of possession. is binding as between him and the principal (Sec. which is within his authority. Like an unpaid seller. Right of indemnification (Secs.1 Duties of a principal The rights of agent are in fact the duties of the principal. . The principal is bound by any notice or information given to the agent in the course of business transacted by him. But misrepresentations made or frauds committed by agents in matters beyond their authority do not affect their principals (Sec. though it causes an injury to the rights of third persons (Sec. 7.238). Agent being a mere connecting link binds the principal for all his acts done within the scope of his authority (Sec. An agent coupled with interest is irrevocable.6 Principal’s Duties to the Agent and his Liability to Third Parties 5.226). For example. The liability of the principal continues even in cases where agent is held personally liable. del credere agent. be lost where he parts with the possession of goods or papers. The principal remains liable to the third parties even where his name was not disclosed. or by incurring a personal liability for the price. 3. (iii) bound to compensate his agent in respect of injury caused to such agent by the principal’s neglect or want of skill (Sec. The principal is bound to indemnify agent against the consequences of all lawful acts done by the agent in exercise of authority conferred on him. he enjoys the right of stopping the goods in transit if in the meantime the principal has become insolvent. Where agent exceeds his authority and the part of what he does. (b) Where agent holds himself liable to his principal for the price of the goods sold. (True/False) 8. 2.223 provides an option to the third parties to either sue the principal or agent or both. The principal is liable for the acts of the agent falling not only within the actual authority but also within the scope of his apparent or ostensible authority.6. (True/False) 5.6.227). so much only of what he does as is within his authority.223). he stands towards the principal in the position of an unpaid seller. Sec. 6. The third parties. 5. 4.225). 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. he may exercise the unpaid seller’s right of stopping the goods in transit in case of buyer’s insolvency.

Self Asessment Qestions 9. From the above discussion. The principal is not liable for _____________ acts done by the agent at the instance of the principal. the principal is called a concealed principal. 5. it may be inferred that agent can enforce contracts personally and be held bound for contracts entered into on behalf of his principal. (a) Broker (b) Advisor . The liability of an undisclosed principal is similar to that of a disclosed principal unless there is a trade custom making the agent liable. the undisclosed principal must exist and must also be the principal at the time the contract is made. A ______________ is a mercantile agent engaged to buy and/or sell property. Sec.5. nor is he personally bound by them (Sec. 10. thus.230). express or implied. in the absence of a contract to the contrary.7 Personal Liability of Agent Agent is only a connecting link between the principal and third parties. if there is an agreement to the effect. Being only a medium.3 Undisclosed principal Where agent.6. However. A wife can always pledge her husband’s credit. cannot be sued. conceals the name of the principal. He cannot be brought into existence as a principal after the contract has been concluded. In such a case. Self Assessment Questions 11. such a principal is called an undisclosed principal. the third parties are not aware of the existence of the principal and regard the agent as the person contracting for himself. he can. (2) where the agent does not disclose the name of his principal.6. 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.4 Concealed principal Where agent conceals not only the name of the principal but the very fact that there is a principal. (3) where the principal. though disclosed. must look to the agent for payment or performance and the agent may sue or be sued on the contract.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. The third parties. 5. (True/False) 12. though discloses the fact that he is agent working for some principal. where principal is a minor.

209) 5. But. On the performance of the specific purpose. B. The principal may.208). By renunciation of agency by the agent. (True/False) 5. Death or insanity of the principal or the agent. in such a case. agent may renounce his agency by giving a sufficient notice to that effect.1 Circumstances under which agency terminates or comes to an end (SEC. Insolvency of the principal. Death or insanity of the principal or the agent. it comes to an end on the expiry of that time. 4. should take all reasonable steps for the preservation of property. so far as regard the agent. terminates the agency.9.9 Power of Attorney 5. Example: A directs B to sell goods for him and agrees to give B 5% commission on the price fetched by the goods. on behalf of the legal representatives of the principal (s. 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. agency terminates when that act is done or when the performance becomes impossible. they can continue to deal with the agent till they come to know of the termination of the authority (Sec. When the agency is for a fixed period of time. A afterwards. Where. after the letter is sent. Self Assessment Questions 13. 3. 3. An agency shall also terminate in case the subject matter is either destroyed or rendered unlawful. by a letter revokes B’s authority.1 Meaning . not terminates the agency. (True/False) 14. On revocation by the principal. agency is for a fixed period and the agency is renounced without a sufficient cause. On the expiry of fixed period of time.8.8.208). Insolvency of the principal. As regards third parties. Where agent is appointed to do a particular act. The sale is binding on A and B is entitled to five rupees as his commission. revoke the authority of the agent at any time. The termination of the authority of agent causes the termination of authority of all sub-agents appointed by him. Insanity or death of the principal or agent.201) 1. Where the agent is appointed to do a single act. Notice of revocation is essential to the agent as well as to the third parties. 2. If principal can cause termination of agency by revocation. 2. but before he receives it. takes effect before it becomes known to him (Sec. however. 7. by notice. 5. sells the goods for Rs 100. terminates the agency.205).2 When termination of agency takes effect? 1.8 Termination of Agency 5.(c) Agent (d) None 5. agent. In case of a continuous agency. agency may be revoked any time before the commencement of the act. the principal must be compensated (Sec. 6. The termination of the authority of agent does not.

The person executing the deed is known as the Principal or donor and the one in whose favour it is executed is the agent. 5.2 A power of attorney may be special or general If the deed conferring power by one to another relates to one single transaction. Such a power of attorney is to be executed before and authenticated by a registrar or sub-registrar. Such certified copies are equal to originals and are binding on all. as including “any instrument not chargeable with a fee under the law relating to court fees for the time being in force. 1908. which deals with the subject. such agent must be duly authorised by power of attorney executed and authenticated in manner as mentioned in Sec. A person cannot enter into a contract as his own and later shift it to another. it would require registration. Glossary . A commission agent is agent who is employed to buy or sell goods or transact business. 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.9.10 Summary The agent must contract as agent he must not allow the third party to imagine that he is the principal. Further Sec. The amount of stamp duty varies with different types of powers as described in the Stamp Act and varies among different States of India. requires that where a document is presented for registration by the agent of a person entitled to present it for registration. 1908. The person executing the deed is known as the _______________. or the power agent or the power of attorney agent.” which empowers “a specified person to act for and in the name of the person executing it”. The power of attorney is required to be engrossed on ______________. but does not define it. And so also a power creating a charge in favour of the donee upon an immovable property referred to therein. 5. 5. executed before a notary public in India will not enable the agent to present any document for registration under the Registration Act. Sec. 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. until the amount due to himself for commission. In common parlance.. In the absence of any contract to the contrary agent is entitled to retain goods. If the deed conferring power relates to several transactions it is general power of attorney.4 of the Power of Attorney Act. 1882.3 Registration As a general rule.32 (c) of the Registration Act. It is the Powers of Attorney Act. The power of attorney is required to be engrossed on non-judicial stamp paper.2(21) of the Stamp Act.33 of the Act. whether movable or immovable of the principal received by him. 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. The power of attorney. Unregistered power executed in a foreign country before a notary public can be used by the agent for presentation of document for registration. Self Assessment Questions 15.A power of attorney is defined by Sec. 16. The power of attorney is required to be engrossed on non-judicial stamp paper. papers and other property. it is known as special power of attorney. however.9.

True 4. False 2. Describe the rights of agent against his principal.11 Terminal Questions 1.” Comment. False 12. False 9. What do you mean by agency by estoppel? In what way does it differ from agency by holding out? 2. 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. 5. Describe the meaning of ‘agency by ratification’. 5. 4. 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 3. False 7. True . True 8.12 Answers Answers to self assessment questions 1. 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. True 5.Agent: An agent is a person employed to do any act for another or to represent another in dealing with the third persons. (a) 13. 3. What conditions must be fulfilled for a valid ratification? Explain the effect of a valid ratification. What do you mean by del credere agent? 5. criminal 10. trade custom 11. False 6. “Agent having an authority to do an act has authority to do every lawful thing which is necessary in order to do such act.

After all. "They can explain the customer as to why he needs to pay the agent for his service. a claim is payable if and only if the premium has been received in full." says Ms Suniti Ghoshal. to ratify the act of the agent. insurance companies are even allowed to extend credit to their customers for premiums. Says Mr N. the principal is not held bound by the transaction. the Financial Planning Advisers are trained to handle such demands. Dabur CGU Life Insurance). Aviva Life Insurance (formerly. "There has to be a change in awareness level for all customers to refrain from rebating. called a del credere commission. the agent is paying out of his pocket. says that his company actually dismissed an agent for rebating. says Ms Ghosal.4 – A del credere agent is one who. by his conduct or statements. In India. Head-Retail Sales. 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.6 – A special agent is a person appointed to do some particular act or enter into some particular contract. there are two views over whether the law should prohibit this `rebating’." Ms Ghoshal said. False 15. Refer 5. "We as an industry are also establishing a code of conduct against such practices. Sec. "This industry has been with a monopoly player. 3. Mr Dilip Gazaaro. Alegion Risk Management Services (which proposes to become a general insurance . it has been almost a standard practice for the agents of Life Insurance Corporation to give their customers a part of their commission. or where he exceeds the given authority." Max New York Life’s spokesman echoes similar views. we have recommended that the penalty for rebating be increased from Rs 500 to Rs 10. although they all agree that monitoring this is almost impossible. Other insurance companies agree. The person for whom or on whose behalf he acts is called the Principal. Refer 5. when discount is a way of life in all other industries? But insurance companies do not like it." There are others who believe that rebating should continue to be illegal. They usually paid the first quarter’s premium on behalf of the customer. guarantees the performance of the contract by the other party.196 permits the principal.8 – Where agent does an act for his principal but without knowledge of authority. he is estoppels from subsequently denying it. At the Life Insurance Executive Council.000. "An agent rebates in order to shorten his sales cycle. Most life insurance companies support banning of rebating. However. Non-judicial stamp paper Answers to Terminal Questions 1. If the customer can pay substantial amounts for premium.14. HDFC Standard Life.5 – Agent is a person who acts in place of another. Head-Corporate Communications. is a fact. or not. Advocates of this view point out that in most countries. another point of view of the same issue is that there is no point in prohibiting rebating by agents. hence certain things have only been done without being questioned much." says a spokesman of Max New York Life Insurance. Refer 5. induced others to believe that a certain person is his agent. Why prohibit rebating only in the insurance industry. That this practice is illegal. and therefore not a matter of opinion.2 – When a person has. if he so desires. Director. 2. However. At Aviva. This shortening of process often leads to misrepresentation resulting in poor service quality. 4. Rebating is in a way an informal credit extended to the customer by the agent. However. Principal or donor 16. no matter how difficult it is to monitor. 5. in an e-mail to Business Line. in consideration of an extra remuneration. Refer 5. Mini-case Over the years. Raveendran. which is any way extremely difficult to monitor. Refer 5.

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).4 Partnership Deed A partnership can be formed either by oral or written agreement Partnership agreements and contract law 6. But legalising rebating would push back the arrival of such a time. "Legalising rebating would drive away the serious agents who do not usually give rebates".3 Registration of Firms (Secs.broker). that rebating will automatically go away.58-59) Application for registration Registration of firms is optional 6. you don’t necessarily go to the doctor who charges the least.1 Introduction Objectives 6.5 Relations of Partners to one Another Rights of partners Duties of partners 6.6 Relations of Partners to Third Parties . 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. He says that there would come a time. After all. Question Discuss the financial planning advisor role in insurance industry.

3 provides that the provision of the Indian Contract Act. A contract of partnership is a special contract. Therefore. 1932. it was embodied in Chapter XI of the Indian Contract Act. 1872.8 Dissolution Dissolution of firm and dissolution of partnership Dissolution of firm Dissolution by court (Sec.26-27) 6.10 Terminal Questions 6.44) 6. you came to know about the contract of agency.9 Summary 6. 1932. Objectives After studying this unit. Prior to the enactment of this Act.1 Introduction In the earlier units. Partnership is a time-honoured form of business organisation and one that is still much in use in India.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. you should be able to: l Explain the nature of partnership l Define partnership deed .Implied authority of a partner Liabilities of a partner Liability of a firm for wrongful acts of a partner (Secs. In this unit you will study about the law of partnership.11 Answers 6. The law relating to partnership in India is contained in the Indian Partnership Act. shall apply to the contract of partnership unless any provision thereof is inconsistent with the provisions of the Indian Partnership Act. Sec.

a trader. it will not amount to partnership. a person may become a partner with another even in a particular adventure or undertaking (Sec. Hickman. However. 1. it is always advisable to have the partnership agreement in writing. The agreement must be to share profits of the business.8). Unless the person joins for the purpose of carrying on a business. Thus. 5. there must be an agreement to share profits arising from the business. As mentioned above.. These elements must be present so as to form a partnership and are discussed below. a partnership firm cannot be a partner of another partnership firm. The term ‘business’ includes every trade. A company. On analysis of the definition. The Act provides that a minor may be admitted to be benefits of partnership. The following points must be kept in mind: 1. He agreed to pay his creditors out of the profits of his business (run under the creditors’ supervision) what he owed to them. There must be at least two persons who should join together to constitute a partnership. An agreement presupposes a minimum number of two persons. Sec. 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. These persons must be natural persons having legal capacity to contract. Example: A.2(b)]. or by any of them acting for all”. 2. Partnership is an association of two or more than two persons. certain essential elements of partnership emerge. Similarly.l Explain the relations of partners to others l Describe the changes in a firm 6. Though the word ‘business’ generally conveys the idea of numerous transactions. 3. at least two persons must make an agreement. the arrangement did not make creditors partners with A in business [Cox v. 1956 can enter into a contract of partnership.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. puts the limit at 10 in case of banking business and 20 in case of any other business.e. As regards maximum number of partners in a partnership firm.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. 268]. Partnership must be the result of an agreement between two or more persons.. The partnership agreement may be express (i. a company (which is an artificial person) cannot be a partner. incorporated under the Companies Act. an alien enemy cannot.2. Partnership is the result of an agreement between two or more persons (who are known as partners after the partnership comes into existence). 1956. 2. The joint carrying on of a business alone is not enough. 4. No consideration is required to create partnership. 6. sharing of profits also involves sharing of losses. A person of unsound mind is not competent to enter into a partnership.11 of the Companies Act. . 3. Therefore. because one person cannot become a partner with himself. The agreement must be to carry on some business. Held.L. 4. But whereas the sharing of profits is an essential element of partnership. sharing of losses is not. occupation or profession [Sec. 6. while constituting a partnership. A partnership is an extension of agency for which no consideration is necessary. a partnership to arise. (1860) 8 H. Unless otherwise so agreed.C. owed money to several creditors. An alien friend can enter into partnership.

3 Registration of Firms (Secs. or by their agents especially authorised in that behalf and duly verified.2. He then issues under his hand a Certificate of registration. (ii) the place or the principal place of business of the firm. 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.69 has effectively.58 have been duly complied with.3.58 lays down the procedure for registration of partnership firms.2 Duration of partnership The duration of partnership may or may not be fixed. the liability of certain partners is limited to the amount of capital which they have agreed to contribute to the business.4 Particular partnership In accordance with Sec.1 Application for registration Sec. Registration is effective from the date when the Registrar files the statement and makes entries in the Register of Firms. When the Registrar of Firms is satisfied that the provisions of Sec.2. The firm cannot.2 Registration of firms is optional The Act does not provide for compulsory registration of firms. Registration of a partnership firm is effective from the date when the registrar files the statement & makes entries in the ______________. A partnership firm may be registered at any time by post. (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. But at the same time Sec. An unregistered partnership firm is not illegal but its rights are not enforceable. . 6. (v) the names in full and addresses of the partners and (vi) the duration of the firm. 6. 6. stating: (i) the firm’s name. Self Assessment Questions 1. A firm cannot sue a person for the price of goods it ______________.7. Accordingly death or retirement of a partner does not affect the continuance of such a partnership. Self Assessment Questions 3.59).5 Limited partnership In this type of partnership. Therefore such a partnership has no fixed or definite date of termination. Such a partnership is usually dissolved on the completion of the adventure or undertaking. there will be at least one general partner whose liability is unlimited and one or more special partners whose liability is limited. 6. (iv) the date when each partner joined the firm.8 a particular partnership is one which is formed for a particular adventure or a particular undertaking.3 Partnership at will In accordance with Sec. he registers the firm by recording an entry of the statement in a register called the Register of Firms and shall file the statement (Sec. (True/False) 6.2. The statement must be signed by all the partners.6.3. An unregistered partnership is illegal. It may be constituted even for a particular adventure. (True/False) 2. 4.58-59) 6. ensured registration of firms by introducing certain disabilities that an unregistered firm suffers from. It is optional and there is no penalty for non-registration. a statement in the prescribed form and accompanied by the prescribed fee. a partnership is called a partnership at will where. In a limited partnership. (iii) the names of any other places where the firm carries on business.2.

The partnership deed is required to be stamped according to the provisions of the Stamp Act.12(a)]. 6.1 Rights of partners Subject to the contract between the partners. the relations of partners to one another as regard their rights and duties are governed by Secs. It may be varied by their consent and such consent may be expressed or may be implied by a course of dealings [Sec. 1872. written agreement is not compulsory. 1872 save insofar as they are inconsistent with the provisions of this Act. USA and India. but in case of difference of opinion regarding ordinary matters of the business. 1872.1 A partnership can be formed either by oral or written agreement In France and Italy. every partner has the following rights: 1. are applicable to it. Each partner should possess a copy of the Deed.5. .9-17 of the Act. he is bound by the majority decision.13(b)]. 1899. Such an agreement may be express or may be implied from the course of dealings between them. However.6. no change can be made in the nature of the business without the consent of all the partners [Sec. Self Assessment Questions 5. To take part in the conduct of the firm’s business [Sec. But in order to avoid misunderstanding and litigation. Also Sec. Where there is no specific agreement or where the agreement is silent at a certain point.4. 3. or where no agreement exists. 4.12(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. shall continue to apply to firms. 2. The Indian Partnership Act has effectively ensured the registration of firms without making it compulsory. the provisions of the Indian Contract Act.4 Partnership Deed 6. shall have the meanings assigned to them in that Act”. A firm is liable for the wrongful acts of a partner.3 provides that the unrepealed provisions of the Indian Contract Act. the law requires all partnership agreements to be in writing.12(c)]. (True/False) 6.4.2(e) provides that “expressions used but not defined in this Act and defined in the Indian Contract Act. To have access to and inspect and copy any of the books of the firm [Sec. it is desirable to enter into a written agreement which is called Partnership deed or agreement. To express his opinion on any matter.2 Partnership agreements and contract law Sec. But in England. It is obligatory for a firm to be registered under the Indian Partnership Act. To share equally in the profits [Sec.11(1)]. 6. As a partnership agreement is a contract. (True/False) 7. (True/False) 6.

. It is implied when the law impliedly gives certain powers to a partner. The agreement may. not to be expelled. 6. Secs. by the wrongful act or omission of a partner acting in the ordinary course of the business of a firm.2 Duties of partners Sec.e.18 every partner is the agent of the firm for the purposes of the business of the firm. he shall account for and pay to the firm all profits made by him in that business [Sec. A minor can be a partner in a firm. or with the authority of his partners. 6.13(a)]. A partner may. all such acts as are reasonably necessary to protect the firm from loss. A person can be admitted as a partner in a firm with the consent of the majority of partners.6 Relations of Partners to Third Parties Subject to Sec. 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.33(i)].16(b)]. (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. however. be expelled if a power to expel is conferred upon the partners and power is exercised bona fide by a majority of partners [Sec. loss or injury is caused to any third party or any penalty is incurred. (iv) If restrained by an agreement with other partners. however.5. (True/False) 6.9 provides for general duties of partners.6.5.1 Implied authority of a partner A partner’s authority may be express or implied. in view of Sec. (True/False) 9.2 Liabilities of a partner Liability of a partner stems from not complying with his duties under the Partnership Act. To be indemnified by the firm in respect of liabilities incurred by him in the ordinary course of business [Sec. a partner has a duty not to carry on any business other than that of the firm while he is a partner [Sec. To do.19 and 22 deal with the subject of implied authority of a partner. To rank as a joint owner of the property of the firm. the law presumes that every partner has the power to do certain acts unless negative by an express agreement.3 Liability of a firm for wrongful acts of a partner (Secs. 6.9. .6. (v) If a partner carries on any business competing with that of the firm.. (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. i. 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. Thus. (i) They are bound to (a) carry on the business of the firm to the greatest common advantage.e. (iii) To attend diligently to his duties in the conduct of the firm’s business without any remuneration [Sec.13(e)]. It is express. Self Assessment Questions 8. be oral or written. i. To continue in the partnership. 7.13(c)].26-27) Where. the firm is liable therefore to the same extent as the partner. 6.10). 9. in an emergency. when it is fixed between the partners by mutual agreement. a partner shall be liable for (i) not carrying on the business of the firm to the greatest common advantage. 8.6.11(2)].

6. (i) he may retire at any time with the consent of all other partners. This is because there is no privacy of contract between the creditor and the new partner. which provides that for the purpose of ratification of agency.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. a partner may retire by giving to his partners a notice of his intention to retire. no new partner can be introduced into a firm without the consent of all the existing partners. (True/False) 6. (True/False) 12.7. 6. 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. 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. This is in accordance with Sec. (True/False) 11.Self Assessment Questions 10. A firm can enter into a partnership agreement with another firm. it comes to an end. (ii) change in the nature of business or undertakings and (iii) change in the constitution of a firm.31 provides that subject to a contract between partners and to the provisions regarding minors in a firm. Sec. 1872. There can be thirty partners in a firm. At the same time. the partners may carry on the business even after the expiry of the fixed period and the partnership becomes ‘partnership at will’.2 Rights and liabilities of a retired partner An outgoing partner means a partner who has retired from a firm.7 Changes in a Firm The Act contemplates the following changes in a firm: (i) change in the duration of a firm. after the third party had knowledge of the retirement. the principal must be in existence at the time when the act was done. the acts of the old partners cannot be ratified by the new partner..32 contemplates three ways in which a partner may retire from the firm. a partner may retire in accordance with the terms of that agreement. viz. 6. Sec. unless he agrees to be liable for obligations incurred by the firm prior to that date. 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. The firm is reconstituted by the remaining partners.1 Rights and liabilities of incoming partners Sec. Such an agreement may be implied by a course of dealing between such third party and the remaining partners. (iii) where the partnership is at will. Sec. Liability of the retired partner. The liability of a new partner ordinarily commences from the date when he is admitted as a partner.7.3 Expulsion of a partner .196 of the Indian Contract Act. However. (This implies the principle of novation). (b) there is an implied agreement to the above effect.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.32 clearly comprehends a situation where a partner may retire without dissolving the firm. When the fixed period is over. A partnership may be entered into for a fixed period of time. Sec. (ii) where there is an agreement between the partners about retirement. ‘Partnership’ and ‘firm’ are synonymous.

The test of good faith will be satisfied if (i) the expulsion is in the interest of the partnership.40 also provides for the dissolution of a firm in accordance with a contract between the partners. Sec. The contract providing for dissolution may have been incorporated in the partnership deed itself or in a separate agreement. (True/False) 14. The transfer may be absolute or partial. A public notice of the death of a partner is not required. but it would nevertheless be “dissolution of partnership”.2 Dissolution of firm When the relationship existing between all the partners of the firm comes to an end. of powers conferred by the contract between the partners.39 provides that the dissolution of partnership between all the partners of a firm is called the “dissolution of the firm”. 6. mortgage or charge. A partner is not entitled to claim remuneration. or (iii) inspect books of the firm. By mutual consent. . in good faith. It follows that if the dissolution of partnership is not between all the partners.Sec. 2.6 Transfer of partner’s interest A partner may transfer his interest in the firm by sale.29 provides that the transferee. But as the partnership relationship is based on mutual confidence. Sec. (True/False) 6.7.42(c) provides that a firm is dissolved by the death of a partner. Sec.4 Insolvency of a partner Sec. Thus. but dissolution of partnership need not lead to dissolution of firm. Sharing of profits is a conclusive evidence of partnership. be dissolved with the consent of all the partners. it is called dissolution of the firm.8.45 lays down an identical rule applicable to a case where the death of a partner has caused dissolution of the firm. (ii) the power is exercised by a majority of the partners and (iii) the power is exercised in good faith. There is no question of ‘reconstituted firm’ in such a case. 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.35 deals with a situation where after the death of a partner. A firm may be dissolved in any of the following ways: 1. Proviso to Sec. Thus.8 Dissolution 6. 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.34 provides that where a partner in a firm is adjudicated insolvent.40 provides that a firm may. during the continuance of the firm. By agreement.7. Dissolution of partnership may involve merely a change in the relation of the partners and not the dissolution of the firm. is not entitled to (i) interfere in the conduct of business of the firm or (ii) require accounts of the firm. (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. in the absence of a contract to the contrary. This applies to all cases whether the firm is for a fixed period or otherwise.1 Dissolution of firm and dissolution of partnership Sec. he ceases to be a partner on the date on which the order of adjudication is passed whether or not the firm is thereby dissolved. 6. 6. a partner may be expelled from the firm if (i) the power of expulsion is conferred by a contract between the partners. it would not amount to “dissolution of firm”.5 Death of a partner Sec.33 provides that a partner may not be expelled from a firm by a majority of partners except in exercise. at any time. the assignee of a partner’s interest cannot enjoy the same rights and privileges as the assignor. 6. Self Assessment Questions 13.7.8. It naturally involves closing down the business. It is to be noted that ordinarily but not invariably. Sec. dissolution of firm always implies dissolution of partnership.

Continuous refusal by a partner to attend to his duties in the partnership business. The court may order for dissolution of partnership. The transfer of a part of his share by a partner to any third party is not permissible unless otherwise agreed. 6.g. in such a case. the court will not order dissolution. unless a very special case is made out for dissolution.3. The application in this case may be made by any of the partners or by the next friend of the insane partner. the fact of hostility between the partners which makes cooperation between them impossible. Self Assessment Questions . Sec. c) Misconduct of a partner affecting the business. partners not on speaking terms. transfer even the whole of his share to a partner in the firm. Price. d) Willful and persistent disregard of partnership agreement by a partner. Sec. But. because trading with an alien enemy is against public policy. If all the partners or all the partners but one become insolvent. e) Transfer of interest or share by a partner. 380].8. If a partner transfers. In such a case partnership is dissolved. there is a dissolution of the firm. the illegality of one or more of them does not prevent the lawful adventure from being carried on by the firm. the court may dissolve the partnership. Partners becoming alien enemies. b) Permanent incapacity of a partner.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. if a partner becomes permanently incapable of performing his duties as a partner. The court can order dissolution on any other ground which in the opinion of the court is a fit ground for dissolution of partnership. have been held to be sufficient reasons for dissolution. 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. because no new partner is introduced thereby. The suit for dissolution under this ground can be brought by a partner other than the guilty partner. mortgage or charge). By business becoming illegal. In the case of insanity of a dormant partner.. The application for dissolution. the court may order dissolution. the court may dissolve a firm on any of the following grounds: a) If a partner has become of unsound mind. disappearance of the substratum of the business. Sec. if the partnership relates to more than one adventure. however. in any way (e. 42 Bom. By the insolvency of all the partners but one. the court may order dissolution.44) At the suit of a partner. If a partner willfully and persistently commits a breach of the partnership agreement regarding management.41 calls this as compulsory dissolution. may be made by any of the partners and not by the incapacitated partner. 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. etc. If a partner is guilty of conduct which is likely to affect prejudicially the carrying on of the business of the firm.3 Dissolution by court (Sec. 4. f) The court can also dissolve partnership where the business of the firm cannot be carried on save at a loss.41 also covers cases of partnership between persons some of whom become alien enemies by a subsequent declaration of war. The court can order dissolution even though the partnership is for a fixed period [Rehmat-un-nisa-v. Dissolution on this ground has been granted in case of deadlock in the management. g) Just and equitable. A partner can. by sale. 5.

means to end a legal entity or agreement such as a marriage. agreement in writing must be preferred. 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. (ii) compulsorily by the court? 5.10 Terminal Questions 1. or corporation. False 2. Agreement as made between the persons must be valid and enforceable by law. Register of firms . This agreement may be oral or written. partnership. Dissolution of firm by agreement come under ________________. A partnership is formed by an agreement between the partners. True 3. Firm: Any business entity such as a corporation. (True/False) 16. (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. When is such a registration treated as complete? (b) State the effects of nonregistration of a firm. or "private equity" "investment (firm) organization" Dissolution: Dissolution (law). (a) Explain the procedure for getting a partnership firm registered. What is meant by dissolution of a firm? Is it different from the dissolution of partnership? 6. The rights and obligations of the partners towards each other and towards the firm can be determined by an oral or written agreement. 4.. (c) What are the advantages of registration of a partnership firm? 3. adoption.11 Answers Answers to Self Assessment Questions 1. 6. In what circumstances is partnership dissolved: (i) automatically. 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.15. To avoid future dispute it is always advisable to have partnership expressed in writing. 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.9 Summary The relationship of partnership arises from an agreement between the persons concerned not from status. 6. in law. sole proprietorship. Proprietorship: A proprietorship is a company which is not registered with the state as a limited liability company or corporation. Dissolution of firm always implies dissolution of partnership. limited liability company. To avoid future complications and dispute amongst the persons constituting partnership. 6.

his whole interest in the partnership to a third party. in any way (e. False 6. At the campus interview her senior had picked a job for Rs 9 lakh and gosh he wasn’t even a rank holder. Refer 6. True 15. "In life. Refer 6. 5. False 14. supplied 5. Prahalad. she wouldn’t be Wafers! Her uncle. K. or by any of them acting for all”. 6. 4. 2. False 10. Refer 6. was her inspiration and she wished to be like him .3 – Sec. It is express." Wafers agreed. Her professor had once told the class." He was talking about careers! China said. 3. "For chartered accountants there are a plethora of opportunities in the new international trading regime.g. globe trotting and knowledgeable.jet setting.40 Answers to Terminal Questions 1. it is called dissolution of the firm.8 – When the relationship existing between all the partners of the firm comes to an end.. She recalled reading in the ICAI .8 – If a partner transfers. True 12. you should do what the heart tells you. 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. Mini-case If she weren’t a shade confused. Refer 6. She wanted to join one of the Big Four firms with the long-term goal of becoming the next C. True 7. It naturally involves closing down the business. Wafers knew that the industry offered fat pay packs but her heart actually lay in consulting. Refer 6. False 11. when it is fixed between the partners by mutual agreement.39 provides that the dissolution of partnership between all the partners of a firm is called the “dissolution of the firm”. Refer 6. True 16.58 lays down the procedure for registration of partnership firms.8 – Sec. by sale. mortgage or charge). a star CFO. Sec.6 – A partner’s authority may be express or implied. True 13. False 9.4.

"If you want to succeed. every partner will be an agent of the partnership and not of the other partners. "Moreover. Indian partnerships are mostly restricted to family members and persons who know each other thoroughly. "It promises perpetual succession and a distinct legal identity were it to become law. "In LLP. "This is why the accounting fraternity is in favour of limited liability partnership. multi-disciplinary and multi-locational requirements of today’s global and domestic clients." (LLP) she added. "How?" asked Muskan. "The decision to go for LLP will be based on the interplay of costs and benefits." she added." "You mean." She had read a research report on "Who are India’s top auditors and how much do they charge." This set Muskan thinking. the opportunities are not just in the industry. At the government level. "That’s the general idea. "Is it possible to prove that only a particular partner was negligent and not the others?" Wafers replied. Wafers explained. "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. China played the devil’s advocate. "The LLP form of organisation would help the small and medium practitioners by encouraging networking and specialisation of functions. "You mean to say." answered Wafers." she added. Not for nothing was Wafers considered strong in law.11 will have to be amended. "Wow! These CA students are so analytical. "Yeah. 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”. "But what is LLP?" asked China. among others. "Legally." he told himself. If the pink papers are to be believed." China smiled." which had. "Sec." said Wafers." She added. Sec. Further." said China impressed by the kid asking the right questions. "of the Companies Act bars the formation of a partnership consisting of more than 20 persons. "the liberalised trade scenario which offers potential to provide services across international borders will augment greater liability to firms in case of default.11. that’s why she loved China. Wafers added." asked China." said Wafers "If LLP becomes law." Muskan asked. if he had one. "They will have to divide work amongst themselves appropriately. Replied Wafers." said China. having no cap on the maximum number of partners a firm can have. They are in practice as well. accounting firms in the US have millions of dollars worth of legal suits pending against them. (Hints: Refer partnership act) . She was in Class X. "So?" "So. but crystal clear division of duties between partners will go a long way in reducing the same." queried Muskan." said Muskan. only the negligent partner will be penalised and not the whole firm. This could create disputes between partners. "Actually. "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. 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. Ha." Muskan looked definitely confused. the major chunk of all benefits is drawn by the creamy layer of large firms. at the revenue authorities level and at the business unit level. "Exactly." said Wafers." Wafers had a word of caution. accounting firms will have opportunities at the international level.website that "Opportunities would emerge at three fundamental levels in the WTO regime. "But that comes with a huge price." she asked. accounting firms in India are allowed to function as sole proprietary concerns or as partnership firms. "Because of the legal stipulation of unlimited liability among partners. The idea is to make LLP a vehicle for business expansion. "Other forms of organisation are tried and tested. "So will I be liable for my partners’ shortcomings even if I have been honest in conducting my duties. The walking encyclopaedia had no inhibitions about seeking a clarification on a doubt. Why then should one go for something new?" Wafers answered this question philosophically quoting John Rockefeller." said China hurriedly. you should strike out new paths rather than travel the worn out paths of accepted success. And added." China remarked. Won’t the firm have to register itself as a company?" "Yes and No. documented the great divide in the accounting profession." "Excellent." China was surprised." replied China. "Isn’t this a merger of the partnership form of organisation and the company form?" remarked China. "Yes. it requires only a minimum of two partners." China continued his black hat thinking." said Wafers. Wafer’s niece. "This traditional model is not equipped to meet the multi-competency.

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

4.4 Meaning of Price 7. does not constitute goods. the deposit unless otherwise agreed is forfeited to the seller. If the transaction goes through.1 Meaning Price means the money consideration for the sale of goods. It is not paid as part payment of price. The contract is for unascertained goods. since which particular TV set shall become the subject matter of sale is not individualised at the time of the contract of sale. Instances of goods possessed but not owned by the seller are sales by agents and pledges. by a valuer or (iii) determined by the course of dealings between the parties. Self Assessment Questions 3. The usage is implied by the course of dealings between the parties. future and contingent.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.6(2)].2 Classification of goods Goods may be classified as existing. 7. therefore. may be the subject matter of a contract of sale. Also known as deposit. Contingent goods is a part of __________________ goods. i. he is not bound to accept payment by cheque. Existing goods are those which are owned or possessed by the seller at the time of the contract (Sec. This is an agreement to sell future goods. Example: Kulkarni agrees to sell future crop of a particular agricultural field in the next season. But if the sale goes off through buyer’s fault. 7.g.. . As to how the price is to be fixed Secs.e. This painting is classified as contingent goods.3. Thus. Price is an integral part of a contract of sale. Existing goods may be either (a) specific or ascertained. goodwill. In general. 4. gas. Example: In a particular trade. Example: Anthony. it is only the movables. Contingent goods are a part of future goods.. the earnest money is adjusted against the price. Earnest money.2(6)]. According to Sec. the contract is void ab initio. there is a usage to deduct discount in determining the price. sells it to her. has 20 TV sets and agrees to sell any one of them to Bharti.6).9. e. or (b) generic and unascertained. it is paid by the buyer in advance as security for the due performance of his part of the contract. If price is not fixed.9 and 10 lay down certain rules. 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. the price may (i) either be fixed by the contract. Specific goods means goods identified and agreed upon at the time a contract of sale is made [Sec. copyright. electricity are all goods and therefore. 7. Generic or unascertained goods are goods indicated by description and not specifically identified. Landed property. water. its present owner.4. things which can be carried from one place to another that form ‘goods’. or is not capable of being fixed.patents. who owns a TV show room. Example: Alka agrees to sell to Bhola a certain painting only if Chetan. or (ii) agreed to be fixed in a manner provided by the contact. Future goods means goods to be manufactured or produced or acquired by the seller after making the contract of sale [Sec. and where it goes off by the seller’s default he must return the earnest money. Contingent goods are the goods the acquisition of which by the seller depends upon a contingency which may or may not happen [Sec. Existing goods may be either specific or _______________. Ascertained goods.2(14)].

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. the buyer is active and is either waiving the condition or electing to treat the breach of condition as a breach of warranty.13).. Sec. i. Conditions and warranties may be either express or implied. Under certain circumstances a breach of condition is to be treated as a breach of warranty.. in a contract of sale of a car. the buyer may either (a) waive the condition. it may be agreed that delivery of goods shall be made or taken on or before a certain date. Breach of condition to be treated as breach of warranty (Sec. will be regarded as a breach of the contract. he cannot later on insist that the condition be fulfilled. i.e. e. e. the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty. but of a subsidiary or inferior character.14). express warranty as to its soundness may be incorporated.e. an implied condition or warranty may be negative by an express term to the contrary. . Price is an _______________ of a contract of sale. the right to repudiate the contract is deemed to have been lost.62 recognizes the following two principles: (i) what is expressed makes what is implied to cease and (ii) custom and agreement overrule law.Self Assessment Questions 5. In other words. ii) There is also a compulsory treatment of breach of condition as a breach of warranty...g. ‘let the buyer beware’. the breach of which.. Where the buyer treats the breach of condition as a breach of warranty. time of payment.16(1)).15).e. These may be of any kind that the parties may choose to agree upon. (v) condition as to wholesomeness. quality of the goods to be supplied. However.5 Conditions and Warranties (Sec. he has to give a notice to the seller to that effect. i.14-17]. Similarly. Some may be intended by the parties to be of a fundamental nature. (ii) sale by description (Sec.g. If the buyer decides to waive the condition. the agreement may provide otherwise. (vi) implied condition in the case of sale by sample (Sec. (iii) condition as to quality or fitness for buyer’s purpose (Sec. The former stipulations are called ‘conditions’ and the latter ‘warranties’. or (b) elect to treat the breach of the condition as a breach of warranty. It means ‘CAUTION BUYER’. parties make certain stipulations. Express condition or warranty. therefore. They are said to the ‘express’ when the terms of the contract expressly. In such situations. i. provide for them. may permit repudiation of the contract in spite of the acceptance of the goods by the buyer. Doctrine of caveat emptor The doctrine of caveat emptor is a fundamental principle of the law of sale of goods. Implied conditions and warranties [Secs. The buyer must inspect the goods to find out if they will suit his purpose. it is no part of the seller’s duty to point out defects of his own goods. (iv) condition as to merchantable quality [Sec. Consideration in a contract of sale of goods can also be paid partly in money and partly in goods.15). e. These circumstances are: i) Where a contract of sale is subject to any condition to be fulfilled by the seller. Express and implied conditions and warranties. Some may be intended by the parties to be binding. The implied conditions: (i) condition as to title (Sec. (True/False) 6. However. 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. 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. Where the contract of sale is not severable and the buyer has accepted the goods or part thereof.17). 7. (vii) implied condition in the case of sale by sample as well as description (Sec.11-17) In a contract of sale..g.16(2)]. agree to certain terms.e. All stipulations cannot be treated on the same footing.

6 Passing of Property in Goods 7. Sec. In the case of specific goods to which something has to be done by the seller to put them in a deliverable state.20-24).6.21). 2. the conduct of the parties and the circumstances of the case.2 Rules regarding passing of property in goods from the seller to the buyer Secs. Unless a contrary intention appears. the property shall pass to the buyer only when the latter has assented to the appropriation. property in the goods is not transferred to the buyer unless and until the goods are ascertained (Sec. Unconditional appropriation. In a sale of specific or ascertained goods. Unascertained or future goods. Sec. Whether the . The intention of the parties is ascertained from the terms of the contract.18). may be given before or after appropriation. however. the undermentioned rules are applicable for ascertaining the intention of the parties (Secs.2(3) states that goods are said to be in a deliverable state when they are in such a state that the buyer would under the contract be bound to take delivery of them. The unconditional appropriation of goods may be made either by the seller with the buyer’s assent or by the buyer with the seller’s assent. The ‘ownership’ of goods is different from ‘possession’ of goods. Normally goods shall be appropriated by the seller. 8. When there is a contract for the sale of unascertained goods. Conditions and warranties are said to the _____________ when the terms of the contract expressly. The ___________ is a fundamental principle of the law of sale 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. These rules for different kinds of goods are summarised below: Specific or ascertained goods. property passes to the buyer when goods of that description in a deliverable state are unconditionally appropriated to the contract. property passes only when such thing is done and the buyer has notice thereof (Sec. 1. Specific goods not in a deliverable state. 7.20). the property passes at the time the contract (unconditional) is made (Sec. though normally a person who is in possession of the goods shall also be its owner but it need not necessarily be so.18 to 25 lay down the rules which determine when property passes from the seller to the buyer. 7. either by the seller with the assent of the buyer or by the buyer with the assent of the seller.23 provides that in the case of sale of unascertained goods or future goods by description. Specific goods in a deliverable state. the property in them is transferred to the buyer at such times as the parties to the contract intend it to be transferred.6. provide for them. Where he appropriates the goods to the contract.Self Assessment Questions 7. The assent. In the case of specific goods in a deliverable state. The ‘possession’ of goods refers to the custody of goods.1 Meaning of ‘property in goods’ The phrase ‘property in goods’ means ownership of goods.

The buyer of the goods has the duty to pay for the goods. in accordance with the terms of the contract of sale (Sec. ‘memo dat quod non habet’ which means that no one can give what he himself has not. has no title. 7.31).32). 10.3 Passing of property in goods in the case of foreign trade There are certain terms which are used in the contract of sale of goods in foreign trade. the buyer’s title will be equally wanting or defective. or he has defective title. 7. Sec. it is only the owner of goods who can transfer a good title.) or Free on Airport (F. This rule is expressed by the maxim. the assent of the other party must be obtained.B. unless the seller is ready and willing to give delivery. and (ii) rules contained in the Act.I.7 Transfer of Title by Non-owners (Secs. No one can give a better title than what he himself has. Where goods are in the possession of the buyer. Self Assessment Questions 11. if the buyer is not willing to pay the price. 7. no delivery need be given.8. that is. If the seller.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. therefore. However.8. as unless otherwise agreed. he may do the appropriation. The seller has the duty of giving delivery of goods according to the (i) terms of the contract. These terms reflect a number of conditions which are either attached by the parties or by custom and practice of business people. delivery and payment of price are concurrent conditions (Sec.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.2 Delivery Delivery is defined as a voluntary transfer of possession from one person to another [Sec. _______________ lay down the rules which determine when property passes from the seller to the buyer. 7.8 Performance of a Contract of Sale of Goods The contract of sale of goods is to be performed. The most usual of such contracts are: (i) Free on board (F.O.A.31-44 provide for the duties of the seller and the buyer and the rules regarding delivery of goods.O. The _______________ of goods refers to the custody of goods. as the case may be. In this context.) and Ex-Ship.27 lays down a general rule as to transfer of title. _______________ lays down a general rule as to transfer of title. Self Assessment Questions . Insurance and Freight (C. Secs.F. nor need the buyer pay the price.) and (ii) Cost. Self Assessment Questions 9.8. though he has purchased in good faith and for value.appropriation is done by the seller or the buyer. accept delivery and pay compensation to the seller in case he wrongfully refuses to accept delivery.2(2)]. 27-30) Sec. 7.

The rights against the goods are as follows: 7. namely. Self Assessment Questions 14.55).9. 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. buyer has to pay for it. In a contract of sale. the seller.5 Right of resale (Sec.e. shall have certain rights. The word lien means to retain possession of. 7. the seller has the following remedies against the buyer personally. Lien can be exercised only for nonpayment of the price and not for any other charges due against the buyer.10 Remedies for Breach of a Contract In addition to the rights of a seller against goods provided in Secs. . 47-49) The word lien means to retain possession of.2 Rights of an unpaid seller The rights of an unpaid seller may broadly be classified under two heads. can resell the goods. i.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. 1930: (a) rights against the goods. 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. 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.73-74 of the Indian Contract Act. if seller is under an obligation to deliver goods.50). to recover damages for breach of contract. (True/False) 15. (c) where the buyer becomes insolvent. 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. the seller cannot claim lien for godown charges for storing the goods in exercise of his lien for the price.9. (b) rights against the buyer personally. as unpaid seller.3 Lien on goods (Secs. 7. (iii) suit for interest (Sec.9.1 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. (True/False) 7. (ii) damages for non-acceptance of goods (Sec. but the term of credit has expired. _____________ is defined as a voluntary transfer of possession from one person to another. (i) if the goods are of a perishable nature.9. retaining them till the price is paid. In case buyer fails or refuses to pay. For Example.56). (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.12.47 to 54. 7. 7.54) The unpaid seller. (a) where the goods have been sold without any stipulation as to credit. namely: (i) Rights under the Secs. 13. The right of lien by an unpaid seller can be exercised for the non-payment of price of goods and other charges.9 Unpaid Seller and his Rights A contract is comprised of reciprocal promises. 7.. (ii) Rights under the Sale of Goods Act. (b) where the goods have been sold on credit.56). ______________ provide for the duties of the seller and the buyer. (i) suit for price (Sec.9. 1872.

(iv) suit for breach of condition.10.10.56) Where the buyer wrongfully neglects or refuses to accept and pay for the goods.000 and the price was agreed to be paid before the expiry of ten days of the contract. the court may award interest at such rate as it thinks fit on the amount of the price. (v) suit for breach of warranty (Sec.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 cannot file a suit for the price. 2.10. his only remedy is to claim damages. . each lot is deemed prima facie.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. The amount of damages is to be determined in accordance with the provisions laid down in Sec. The amount of damages is not to be determined in accordance with the provisions laid down in Sec.59). Where the property in the goods has not passed to the buyer and the price was not payable without passing of property. 7. 1872.73 of the Indian Contract Act. until such completion any bidder may withdraw his bid. 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 sue the buyer for the price of the goods. then he cannot claim interest. the seller tenders the goods to the buyer and the buyer wrongfully refuses or neglects to accept and pay the price.7. In the absence of a contract to the contrary. (vii) recovery of interest (Sec. It is also the practice to say ‘three times’. where there is an available market for the goods prima facie. The interest may be calculated from the date of the tender of the goods or from the date on which the price was payable. Thus.e. (True/False) 17.. i. (ii) right of recovery of the price. It is obvious that the unpaid seller can claim interest only when he can recover the price. Risk follows ownership. Self Assessment Questions 16. (iii) specific performance (Sec. the seller has a further right to claim interest on the amount of the price.57). as a rule. the difference between the market price and the contract price can be recovered. Where the property in goods has not passed to the buyer. 7. if the seller’s remedy is to claim damages only.58). (vi) anticipatory breach (Sec. 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. When the goods are put up for sale in lots. At an auction. 7. the seller or any person on his behalf may bid at the auction. Example: A sold certain goods to B for Rs 5. to be the subject matter of a separate contract of sale. the sale is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner.73 of the Indian Contract Act. the seller can only sue for damages and not for the price.3 Suit for interest (Sec.61).1 Suit for price (Sec. (True/False) 7. the seller may sue him for damages for non-acceptance.2 Suit for damages for non-acceptance (Sec.10. 3.60).11 Sale by Auction (Sec.64) In the case of sale by auction the following rules apply: 1. 1872.61) When under a contract of sale. B fails to pay the price within the stipulated time.

Describe firefly the rules regarding the transfer of ownership from the seller to the buyer.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. Distinguish between condition and warranty. 5. Goods may be classified as existing. sale is voidable at the option of the buyer. In contract of sale. Self Assessment Questions 18. There are can be an ‘agreement to sell’ goods. 6. it shall not be lawful for the seller to bid for himself or to employ any person to bid at such sale. . 1930? 2. 3. Condition: A condition is a stipulation essential to the main purpose of the contact. Where the sale is not notified to be subject to a right to bid on behalf of the seller. 1930.4. Where under a contract of sale. 5. parties make certain stipulations All stipulations are not treated on the same footing. Any sale contravening this rule shall be treated as fraudulent. Sale is to be distinguished from an agreement to sell. Describe the rules as given in the Sale of Goods Act. the property in goods is transferred from the seller to the buyer. the breach of which gives rise to a right to treat the contract as repudiated. Goods: Goods mean every kind of movable property other than actionable claims and money. State the circumstances under which a condition can be waived and treated as a warranty. The sale may be notified to be subject to a reserved or upset price. These stipulations are technically known as conditions and warranties. (True/False) 7. 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. What are the essentials of a contract of sale under the Sale of Goods Act. 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. 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. 4. These conditions and warranties may be express or implied. it is a called a sale.13 Terminal Questions 1. regarding fixation of price. or for the auctioneer knowingly to take any bid from the seller or any such person. Warranty: A warranty is a stipulation collateral to the main purpose of the contract. On the other hand. (True/False) 19. Explain the rules relating to delivery of goods. A ‘Hire-purchase agreement’ is a bailment plus an agreement to sell. 7. If the seller makes use of pretended bidding to raise the price. future and contingent.

Express 8. What remedies are available to a seller fro breach of contract of sale? 8. 7. Possession 10. True 2. False Answers to Terminal Questions .27 12. Integral part 7. Secs.31-44 13. Doctrine of caveat emptor 9. True 16. True 18. Secs. Describe the law which governs the sale of goods by auction. Distinguish between the right of lien and stoppage in transit. False 15. Ascertained 5. Sec.14 Answers Answers to Self Assessment Questions 1. True 19. Delivery 14.18 to 25 11. 7.6. True 6. False 17. False 3. Future 4.

Further.1. Refer 7. where the email acceptance was received. Refer 7.47 to 54.10 – In addition to the rights of a seller against goods provided in Secs.6 – In a sale of specific or ascertained goods. Refer 7. the contract is void ab initio. Flottweg’s acceptance was communicated by email (sent in Germany) to Olivaylle at its olive grove in Victoria.5 – Under certain circumstances a breach of condition is to be treated as a breach of warranty.2 – Price means the money consideration for the sale of goods. the property in them is transferred to the buyer at such times as the parties to the contract intend it to be transferred. Refer 7. and therefore the law that applies will be. His Honour suggested that he would employ an analogy to telexes .27 lays down a general rule as to transfer of title.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’. the director of Olivaylle tendered for a number of international producers of equipment for the processing of olives and. 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. Olivaylle paid a deposit of approximately [euro] 140. it is only the owner of goods who can transfer a good title. The judge also made an important observation about the acceptance of agreements in the age of email communications. On the passing of 30th June 2006. Olivaylle did just that . Refer 7. If price is not fixed. 8. rather than the postal acceptance rule which states that acceptance occurs at the time and place where the letter was posted. Refer 7.11 – When the goods are put up for sale in lots. 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 2006.2 – Sec. 2. a large international manufacturer of such equipment.to which Flottweg took issue and proceedings were commenced. in order to give business efficacy to 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. (ii) damages for non-acceptance of goods (Sec.8 – Him/herself 7. While waiting for the first stage of the grove to reach maturity. 3. Price is an integral part of a contract of sale.the place where the message is received is where the contract is accepted. Refer 7. 5. Question . Briefly. Essentially. Olivaylle’s case was that the requisite "reasonable period of grace" had expired. each lot is deemed prima facie. (iii) suit for interest (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. 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. failing which Olivaylle asserted that it would withdraw from the contract and demand the return of its deposit. entered into a written contract with Flottweg. it appears that a contract will be deemed to be made. entitled to its deposit back and was not required to make any further payments under the contract. Prior to entering into the contract. (i) suit for price (Sec. 6. Mini-case In the recent decision of Olivaylle Pty Ltd v Flottweg GMBH & Co KGAA (No 4) (2009) 255 ALR 632. if the Federal Court position in this regard is to be followed.56). it was an implied term of the contract that Olivaylle was. upon its withdrawal from the contract. Refer 7. 4.56). or is not capable of being fixed. the seller has the following remedies against the buyer personally. the facts of the case are as follows. that is. Thus.7 – Sec. on 8th February 2005. 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. entitling it to terminate or "withdraw" from the contract. In this case. to be the subject matter of a separate contract of sale.55).

5 Cheques Specimen of a cheque Requisites of a cheque 8.3 Important Terms Ambiguous instrument (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: 8.6 Holder and Holder in due Course 8.1 Introduction Objectives 8.7 Negotiation of a Negotiable Instrument Meaning of negotiation Negotiation and assignment Endorsement Forged endorsement (Sec.4 Promissory Notes and Bills of Exchange Promissory note Bill of exchange 8.21-25) .20) Capacity of parties to the negotiable instrument 8.2 Negotiable Instrument 8.8 Presentment Maturity (Secs.17) Inchoate stamped instruments (Sec.85) 8.

you came to know about the law of sales of goods. In this unit you will study law relating to negotiable instruments is primarily contained in the Negotiable Instruments Act.Presentment for payment 8.1 Introduction In the earlier units. Bills of exchange. In this unit you will study about the law of negotiable instruments. 1882. which came into force on 1st March.12 Summary 8.14 Answers 8. The term ‘instrument’ means ‘any written document by which a right is created in favour of some person’.100) 8.13 Terminal Questions 8. cheques and promissory notes have been dealt with in considerable detail in this Act.9 Dishonour Dishonour of a bill Noting Protesting (Sec. 1881.2 Negotiable Instrument . Objectives After studying this unit you should be able to: · Define some negotiable terms · Describe promissory notes · Analyze holder · Explain presentment · Describe paying banker 8.11 The Paying Banker 8.10 Crossing of Cheques Meaning of crossing Significance of crossing Types of crossing 8. The word ‘negotiable’ has a technical meaning whereby rights in an instrument can be transferred by one person to another.

A negotiable instrument can be transferred infinitum. dividend warrants. Thus. share warrants.11 of the Indian Contract Act.. i. The word ‘negotiable’ means transferable from one person to another either by mere delivery or by endorsement and delivery. whereby rights are created in favour of one and obligations are created on the part of another. bank drafts. bill of exchange and cheque are negotiable instruments by statute as they are so recognised by Sec.13.e. Promissory note. The term ‘negotiability’ means that not only is the instrument transferable by endorsement and/or delivery. 3.3 Important Terms 8. at this election treat it as either and the instrument shall be thenceforward treated accordingly. Self Assessment Questions 3. which does not have these characteristics. 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.3. A negotiable instrument is subject to certain presumptions. 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. Transferability may be by (a) delivery. An instrument may possess the characteristics of negotiability either by statute or by usage.2 Inchoate stamped instruments (Sec. to enable the transferee to get a title in the instrument. An instrument is called ‘negotiable’ if it possesses the following features: 1. is not negotiable.3 Capacity of parties to the negotiable instrument The capacity of a party to draw. but is assignable.17) An ambiguous instrument is one which may be construed either as a promissory note or as a bill of exchange. Regarding such instruments. There are certain instruments which are recognised as negotiable instruments by usage. Thus. as the case may be. if negatively interpreted prohibits minors. upon it a negotiable instrument. the transferee takes it subject to all equities and liabilities of the transferor. bearer debentures. An ___________ is one which may be construed either as a promissory note or as a bill of exchange. 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. (True/False) 2. Sec. 8.3. . Sec. A negotiable instrument need not be in writing. make or endorse a negotiable instrument is coextensive with his capacity to enter into contract. Self Assessment Questions 1. but that its holder in due course acquires a good title notwithstanding any defects in a previous holder’s title. bank notes. persons of unsound mind and persons forbidden under any other Act like insolvency to make a valid contract. 4.An ‘Instrument’ as referred to in the Act is a legally recognised written document. can be transferred any number of times.. An instrument.3. for any amount specified therein but not exceeding the amount covered by the stamp. 5. or (b) by endorsement and delivery. a bill of exchange drawn by a person upon himself may be construed as a promissory note. Thus.17 provides that the holder may. 8. Another feature of a negotiable instrument is that its holder in due course can sue on the instrument in his own name. i. Freely transferable.20) An inchoate instrument means an instrument that is incomplete in certain respects.e. 1872. Holder’s title free from defects. accept. till its maturity. 2. 8. scripts and treasury bills are negotiable by usage. he thereby gives prima facie authority to the holder thereof to make or complete.1 Ambiguous instrument (Sec.

for value received.” (iv) “I promise to pay B Rs 500.4. 2. directing a certain person to pay a certain sum of money only to or to the order of. or to the bearer of the instrument’. An inchoate instrument means an instrument that is ___________ in certain respects. containing an unconditional order.U.O. a certain person.” But.4). The payee – the person to whom the amount of the note is payable. or to the order of. The endorsee – the person in whose favour the note is negotiated by indorsement.4. Specimen of a bill of exchange . The maker – the person who makes the note promising to pay the amount stated therein. 4. (I owe you) Rs 1000. the following are NOT promissory notes: (i) “Mr B. 8. first deducting thereout any money which he may owe me. 8. I.2 Bill of exchange A ‘bill of exchange’ is defined by Sec. 3. Where A signs instruments in the following terms: (i) “I promise to pay B or order Rs 500. The following are two illustrations of promissory notes.4.5 as ‘an instrument in writing.” (ii) “I acknowledge myself to be indebted to B in Rs 1000. provided he leaves me enough to pay that sum.4 Promissory Notes and Bills of Exchange 8.” Specimen of a promissory note Parties to a promissory note 1. signed by the maker to pay a certain sum of money to.” (ii) “I am liable to pay you Rs 500”. a certain person or to the bearer of the instrument (Sec. signed by the maker. (iii) “I promise to pay B Rs 500 and all other sums which shall be due to him. 5.” (vii) “I promise to pay B Rs 500 and to deliver to him my white Maruti Car 1 January next. to be paid on demand.” (vi) “I promise to pay B Rs 500 seven days after my marriage with C. The endorser – the person who endorses the note in favour of another person. The holder – is either the original payee or any other person in whose favour the note has been endorsed.” (v) “I promise to pay B Rs 1500 on D’s death.1 Promissory note A promissory note is an instrument in writing (not being a bank or a currency note) containing an unconditional undertaking.

Signature of the maker is not required in the case of a promissory note. 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. the endorsee. l Acceptor for honour. 2006. l The endorsee: It is the person to whom the bill is negotiated by endorsement. Self Assessment Questions 5. The specimen given above is of a usance bill.. payable after a specified period of time. drawee is the person responsible for acceptance and payment of the bill.e. on demand or payable ‘after certain time after sight’ also. A bill of exchange may be drawn payable ‘at sight’. It is not necessary to put any date in the case of promissory notes payable on demand. Parties to a bill of exchange The parties of bill of exchange are: l The drawer: The person to whom the amount of the bill is payable. l The payee: The person to whom amount of the bill is payable. A is the payee and X is the drawee.Here Y is the drawer. In certain cases however a stranger may accept the bill on behalf of the drawee. (True/False) . In case of a bearer bill. Bills in set are used in foreign trade transactions. (True/False) 7. l The drawee: The person on whom the bill is drawn. the bearer or possessor is the holder. l Drawee in case of need. i. (True/False) 6. l The endorser: It is the person who endorses a bill. 16. l The holder: It is the original payee but where the bill has been endorsed. It may be the drawer himself or any other person. Thus.

These forms are printed on special security paper which is sensitive to chemicals and makes any chemical alterations noticeable. 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. Regarding the writing materials to be used. 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.5 Cheques A cheque is the usual method of withdrawing money from a current account with a banker. Generally.5. Unconditional order. Similarly. an order asking the banker to pay a specified amount with interest.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. A certain sum of money. To avoid any mistake. Although. A cheque. It is. Thus. . the specified amount. however.6 defines a cheque. not necessary that the word order or its equivalent must be used to make the document a cheque. law does not lay down any restrictions and therefore cheque may be written either with (a) pen (b) typewriter or may be (c) printed. 3. is not a cheque as the sum payable is not certain. Savings bank accounts are also permitted to be operated by cheques provided certain minimum balance is maintained. If the word “please” precedes “pay” the document will not be regarded as invalid merely on this account. A cheque must be drawn on a specified banker. orders asking the banker to deliver securities or certain other things cannot be regarded as cheques. 8. ‘A cheque in the electronic form’ means a cheque which contains the exact mirror image of a paper cheque. A cheque must be an instrument in writing. 4. legally. The Amendment Act 2002 has substituted new section for Sec.5. Sec. to or to the order of the person named therein or to the bearer.8. A cheque must contain an unconditional order. written and signed in a secure system ensuring the minimum safety standards with the use of digital signature and asymmetric crypto system. 2. On a specified banker only. the rate of interest not specified. the order to bank is expressed by the word “pay”. 8. is an order by the customer of the bank directing his banker to pay on demand. in essence. 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. and is generated. Written instrument.6. the name and address of the banker should be specified..

without consideration and thus becomes the holder.20. its holder is the person so entitled at the time of such loss or destruction. 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. Self Assessment Questions 8.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. i. A post-dated cheque is as much negotiable as a cheque for which payment is due. The drawer can date a cheque with the date earlier or later than the date on which it is drawn. Dating of cheques. 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. The life of a cheque is three months from the date of issue. if he is a holder in due course as per Sec. Privileges of a holder in due course A holder in due course is given certain additional privileges under the Act. where a person receives a negotiable instrument without consideration. (True/False) 9.5. if payable to bearer. he may be a holder but will not be called a holder in due course..8. bill or cheque is lost or destroyed. A post-dated cheque cannot be honoured. clubs. . instruments drawn in favour of a body corporate. the transferee of a post-dated cheque. According to Sec. The term in fact includes ‘legal persons’ also. A cheque to be valid must be payable to a certain person. as against a holder in due course. he will be able to establish his claim even against the real owner of that instrument. Payable on demand. is “a person who for consideration became the possessor of a promissory note. 1. if payable to order. The drawer of a cheque is expected to date it before it leaves his hands. which are not available to a holder. i. Privilege against inchoate stamped instruments.9). bill of exchange or cheque. A cheque must always be crossed to make it a valid instrument. Payee to be certain.9. ‘Person’ should not be understood in a limited sense including only human beings. every prior party to a negotiable instrument. the maker or drawer. he will not be entitled to enforce his claim against its real owner.. except at the personal risk of the bank’s manager. As per Sec. When the drawer asks the banker to pay and does not specify the time for its payment. A ‘holder in due course’. Thus. institutions. acquires a better title than its transferor. A cheque bearing an earlier date is antedated and the one bearing the later date is called post-dated. A cheque without a date is considered incomplete and is returned unpaid by the banks. 2. say. etc. So where a lost negotiable instrument is transferred to a person who takes it.19).3. the acceptor and all the intermediate endorsers continue to remain liable to the holder in due course until the instrument is duly satisfied.6 Holder and Holder in due Course According to Sec. till the date mentioned. A cheque that bears a date earlier than six months is a stale cheque and cannot be claimed for. or the payee or endorsee thereof. are valid instruments being payable to legal persons. Thus. local authorities. 7. (True/False) 8. A cheque to be valid must be payable on demand and not otherwise. 6. Besides. Where the note. But. who signed and delivered to another a stamped but otherwise inchoate (incomplete) instrument. is stopped from asserting. (True/False) 10. on the other hand. the instrument is payable on demand (Sec. Use of the words ‘on demand’ or their equivalent is not necessary.e. if he is a holder in due course. One can get a post-dated cheque encashed across the bank counter at any time. 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. a person.. like that of the cheque on which payment is due.

if any. drawn accepted or transferred without consideration and the negotiable instrument gets into the hands of a holder in due course.7.4 Forged endorsement (Sec. Any person acquiring it takes it free of all defects.2 Negotiation and assignment Both the assignment and negotiation involve the transfer of the right to receive the payment of debt.7. Where a bill of exchange is drawn by a fictitious person and is payable to his order.53).7 Negotiation of a Negotiable Instrument 8. if such an instrument is negotiated by way of a forged endorsement.46). However. All types of bills are entitled for three days of grace. 4. Thus. But where the instrument has been endorsed in blank. 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. bill of exchange or cheque. 8.3. though it may be even on the face of it. its transferee gets good title irrespective of the defective title. the rights. Self Assessment Questions 11. for the purpose of negotiation. The holder in due course shall. When an instrument is negotiated. unless he was himself a party to the fraud (Sec. the endorsement may be made on a slip of paper attached to it. 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. the acceptor cannot be relieved from his liability to the holder in due course.15. have to prove that the instrument was endorsed by the same hand as drawer’s signature (Sec. 8. The person to whom the instrument is endorsed is called the endorsee. of the transferor.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’. . is “when the maker or holder of a negotiable instrument signs the same otherwise than as such maker. on the back or face thereof or on a slip of paper annexed thereto. it cannot be endorsed or negotiated except by an endorsement signed by the person to whom or to whose order the instrument is payable. 12. 8. however. which the transferee of an instrument by negotiation acquires are substantially superior to those of an assignee. An endorsement according to Sec. the endorsee will acquire no title even though he be a purchaser for value and in good faith. This attached slip of paper is called ‘Allonge’. 6. A negotiable instrument payable otherwise than to bearer can be negotiated only by indorsement and delivery. Where an instrument is negotiated to a holder in due course.3 Endorsement An endorsement is the mode of negotiating a negotiable instrument. 5. (True/False) 8. because the endorsement is nullity. then the plea of absence of consideration cannot be raised against him or against any subsequent holder deriving title from him (Sec. Right of an endorsee from a holder in due course. 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. or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument. Fictitious drawer or payee. When a negotiable instrument is made. Usually the endorsement is on the back of the instrument. he is said to endorse the same and is called the endorser”. Where no space is left on the instrument.85) In case an instrument is endorsed in full. A ______________ is “a person who for consideration became the possessor of a promissory note.42).43).7. it is purged of all defects.

A post dated cheque is valid and negotiable.1 Maturity (Secs..65). as the case may be. 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. Therefore most of the provisions relating to presentment for payment are linked with the maturity of the instrument. acceptor or drawee. An _____________ is the mode of negotiating a negotiable instrument. The presentment for payment must be made during the usual hours of business. The date on which payment of an instrument falls due is called maturity (Sec. who simply delivers it to A. . their liability can be invoked only if the holder gives them notice of such dishonour. X endorses it in blank and it comes into the hands of Y. etc. makes default in payment upon being duly required to pay the same (Sec. 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. A payee of a cheque is entitled to claim interest. The effect of dishonour of a negotiable instrument whether by non-acceptance or non-payment is to render the drawer and all the endorsers liable to the holder.8. 8. 8. “pay to X or order”. Self Assessment Questions 13.Example: A bill is endorsed. However. Self Assessment Questions 15. notes.9. it is necessary to refer to the maturity of the instrument. The drawer is liable only if the instrument is dishonoured by non-payment. (True/False) 8. 8. Maturity date is not required to be determined in the case of cheques. acceptor or drawee thereof. the parties to the instrument other than the maker.1 Dishonour of a bill A bill of exchange may be dishonoured either by non-acceptance or by non-payment. Before discussing the presentment for payment.92).64). A forges Y’s endorsement and transfers it to B. acceptor or drawee are not liable to such holder (Sec. B. In case of default.9 Dishonour 8.21 provides that a note or bill ‘at sight’ or ‘on presentment’ is payable on demand. as the holder. A negotiable instrument is said be dishonoured by nonpayment when the maker. 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. (True/False) 14. by the holder or his agent. during banking hours (Sec. as the case may be.22).2 Presentment for payment A negotiable instrument must be presented for payment to the maker.21-25) Cheques are always payable on demand but other instruments like bills. It is due for payment as soon as it is issued. (True/False) 16. and at a banker’s premises.8. Sec.8 Presentment Presentment of a negotiable instrument is made for two purposes: (i) for acceptance and (ii) for payment.

123 defines crossing as. When the protest is drawn up it relates back to the date of noting. notes down in his register the date of its dishonour and the reason. the holder. 8. 8. It is a peculiar method of modifying the instrument to the banker for payment of the cheque. given by the acceptor. “Where a cheque bears across its face an addition of the words ‘and company’ or any abbreviation thereof. The payment on a crossed cheque can be collected only through a banker. If the instrument has been expressly dishonoured. 8.9. the holder must give notice of dishonour to the drawer and all other parties whom he seeks to make liable. 8. Crossing on cheque is a direction to the paying banker by the drawer that payment should not be made across the counter. By crossing a cheque. and the cheque shall be deemed to be crossed generally.10.99).2 Noting Noting is a convenient method of authenticating the fact of dishonour. the reason why the holder treats it as dishonoured. a person.9. if any. Sec. 18.2 Significance of crossing As payment cannot be claimed across the counter on a crossed cheque. The notary public presents the instrument. The _____________ is the formal notarial certificate attesting the dishonour of the bill and based upon the noting. should get the bill or promissory note ‘noted’ by the notary public. between two parallel transverse lines.100) The protest is the formal notarial certificate attesting the dishonour of the bill and based upon the noting. who is not entitled to receive its payment. either with or without the words. 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. and an act can only be deemed a notarial act if it is done by a notary under his signature and official seal. is prevented from getting the cheque encashed at the counter of the paying banker. Specimen of general crossing . besides giving the notice as referred to above.10. ‘Noting’ must be made within a reasonable time after dishonour.” A cheque that is not crossed is a called an open cheque.When a negotiable instrument is dishonoured by non-acceptance or non-payment. and the notary’s charges should be mentioned.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.10. that addition shall be deemed a crossing. crossing of cheques serves as a measure of safety against theft or loss of cheques in transit. A negotiable instrument is said be ____________ by non-payment. 8. the formal protest may be drawn up by the notary at his leisure. Where an instrument is dishonoured. ‘not negotiable’. After the noting has been made. or of two parallel transverse lines simply. Self Assessment Questions 17.3 Protesting (Sec. Every notary is required to have and use a seal.3 Types of crossing Crossing may be either (1) General or (2) Special.10 Crossing of Cheques 8. The term general crossing implies the addition of two parallel transverse lines.

(True/False) 20. It is necessary that a payment to constitute a payment in due course should be made at or after maturity. Sec. and to be paid to that banker”.10 and has been given above. and the cheque shall be deemed to be crossed specially. payment of a post dated cheque is not a payment in due course. The drawing of two parallel lines is not necessary in case of a specially crossed cheque. 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. A distinguishing feature of special crossing is that it includes the name of some bank or the other. ‘paying banker’ is a banker upon whom a cheque is drawn.124 in this regard reads: “Where a cheque bears across its face.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. it makes the cheques more safer. For example. Specimen of special crossing Self Assessment Questions 19. 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 _______________. A payment before maturity is not a payment in due course. 8. The following conditions must be satisfied before a payment of a negotiable instrument can be called as a payment in due course: 1. either with or without the words ‘not negotiable’. . an addition of the name of banker. Thus. that addition shall be deemed a crossing.‘Special Crossing’ implies the specification of the name of the banker on the face of the cheque. Thus.

Money includes bank notes or currency notes but excludes cheque. 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. Glossary Negotiable Instrument: Means a promissory note. 1881 came into force on 1st March 1881. Negotiable and Instrument. bills of exchange.12 Summary The Negotiable Instrument Act. A payment is not a payment in due course if it is made to a person entitled to receive it. 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. (True/False) 8. 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. Payment must be made in money only. under Sec. . When there exists suspicious circumstances and the paying banker fails to make any enquiry as to them. Thus. bill of exchange or cheque payable either to order or to bearer. 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. A thief is not said to be in possession of the instrument. the payment is not in due course. payment in due course means payment in accordance with the apparent tenor of the instrument made in good faith and without negligence. It extends to the whole of India except the State of Jammu & Kashmir. Cheque: A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable. 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. So payment is not in due course. ___________ is a banker upon whom a cheque is drawn.. 5. 22. So. 4. A payment is a payment in due course if it is made to a person entitled to receive 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.. Payment must be made to the person in possession of the instrument. which is contrary to the past experience.g. bill of exchange or promissory note). 3. promissory notes and goods.10. Payment must be made in money only unless the payee agrees to accept payment in some other form (e. The term Negotiable Instrument consists of two parts viz. Self Assessment Questions 21.2. without exercising due care. where a banker makes payment on a cheque materially altered. where a peon of a company presents a cheque for a big amount on behalf of the company. 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. 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.

1881.8. Ambiguous instrument 4. False 13. Explain the provisions relating to ‘Noting’ and ‘Protesting’ of a bill which has been dishonoured by the acceptor. Name the instruments which are recognized as negotiable instruments by the Negotiable Instruments Act. False 9. Define the term ‘holder’.13 Terminal Questions 1. How does a promissory note differ from a bill of exchange? 4. ‘holder for value’ and ‘holder in due course’. Comment. False 2. Holder in due course 12. True . 6. 8. Comment 5. What do you mean by negotiable instruments? 2. What do you mean by negotiation? How it differs from assignment? 7. Incomplete 5. “Issue of a cheque that bounces is an offence”. True 8. True 7. 3. What is a bill of exchange? Describe its characteristics. Describe briefly the meaning of ‘general’ and ‘special’ crossing and “crossing after the issue of a cheque”. False 6. 9. False 11.14 Answers Answers to Self Assessment Questions 1. “A cheque is a bill of exchange drawn on a banker”. False 10. 8. A holder in due course 3.

4. 6000 dated as 2-sep-2009 from City Limouzines India Ltd.6 – According to Sec. Crossed cheque 21. but didn’t get any satisfactory response from help line.8. Refer 8. Refer 8.4 – A ‘bill of exchange’ is defined by Sec. containing an unconditional order. Refer 8. Protest 19. 9. 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. Refer 8. Refer 8.5 as ‘an instrument in writing. directing a certain person to pay a certain sum of money only to or to the order of. Refer 8. Refer 8.9 – Noting is a convenient method of authenticating the fact of dishonour. or to the bearer of the instrument’.7 – The transfer of an instrument by one party to another so as to constitute the transferee a holder thereof is called ‘negotiation’.14. False 16.11 – Refer Business Law book by SS Gulshan. He received a cheque of amount Rs.10 – Refer Business Law book by SS Gulshan. she hanged the phone with stating that "We will dispatch a letter after 20th Sep then check. True 17. 8. He called on City Limouzines India Ltd help line for same. Dishonoured 18.5 of this unit.5 – Refer Sec.2 – Refer Business Law book by SS Gulshan 3. True 20. which has been bounced with narration "Insufficient Balance". 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. False Answers to Terminal Questions 1.8.2 – An ‘Instrument’ as referred to in the Act is a legally recognised written document. 5. whereby rights are created in favour of one and obligations are created on the part of another. & deposited same cheque on 7-Sep-2009 in his Bank. 2. Refer 8. Refer 8. signed by the maker. 7. a certain person." . Endorsement 15.” 6. Paying banker 22. Mini-case Deepak is a client of City Limouzines India Ltd.

and ISO approved company.2 Important Terms 9.13] Power of the district forum [Sec. as per his knowledge and as per company websites "City Limouzines" India Ltd. What penalties should be forced on the company? (Hint: Refer 8. Analyse the legal actions which should be taken by the Consumer court for the protection of Investors.13(4)] Reliefs available to consumers (Sec. Thinking this.12] Where to file a complaint? How to file a complaint? Procedure on admission of complaint [Sec.14) Time-frame for decisions of consumer courts Appeal to state commission Appeal to national commission . 6000 get bounced with narration "Insufficient Balance"? I sent mail regarding same on given e mail ID "info@citylimouzines.9 of this unit) MB0051-Unit-09-The Consumer Protection Act Unit-09-The Consumer Protection Act Structure: 9.1 Introduction Objectives 9. there are cases of cheque bouncing & dishonour. Questions 1. But I am unable to understand that how a cheque of amount Rs.4 Nature and Scope of Remedies Available to Consumers Who can file a complaint? [Sec. (Hint: recall consumer protection act again) 2.11 of this unit) 3. What precautions & remedies would you suggest for the investors to get them protection from such fraud companies? (Hint: Refer 8. Every now & then. if company is going to Fraud then it will impact all investors.3 Rights of Consumers 9.Deepak states that. he lodges a complaint the consumer court requesting them to take legal action against City Limouzines India Ltd. It is very serious case.com" but till date I am not getting any revert from company.

l It confers certain rights on consumers. 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. l The provisions of this Act are in addition to and not in derogation of the provisions of any other Act. l It covers all sectors whether private.6 Terminal Questions 9. The Act is claimed to have been designed after an in-depth study of consumer protection laws and arrangements in UK. The Consumer Protection Act.Appeal to the supreme court against the orders of national commission Limitation period (Sec. which are punitive or preventive in nature the provisions of this Act are compensatory in nature.29A) 9. speedy and inexpensive redressal to the consumers’ grievances. In this unit you will study about the Consumer Protection Act. 1993 and 2002. 1986 was substantially amended in 1991. The Act intends to provide simple. Objectives After studying this unit. 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. It is described as a unique legislation of its kind ever enacted in India to offer protection to the consumers. The Consumer Protection Act. Australia and New Zealand.24A) Vacancies or defects in appointment not to invalidate order (Sec. Complainant: A complainant means any of the following and having made a complaint: . you came to know about the law of negotiable instruments. 1986 was born.1 Introduction In the earlier units.5 Summary 9. the USA. Unlike other laws.7 Answers 9.2 Important Terms Other salient features of the Act are: l It applies to all goods and services unless specifically exempted by the Central Government. The main objective of this Act is to provide better protection to the consumers. public or co-operative.

by or under any law for the time being in force. shortcoming or inadequacy in the quality. and the complainant has suffered loss or damage. 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. has charged for the goods or for the services mentioned in the complaint. The term includes any other beneficiary of such services with the approval of the first mentioned person. if it deems fit. (iii) the services hired or availed of or agreed to be hired or availed of by him suffer from deficiency in any respect. where there are numerous consumers having the same interest. (d) agreed between the parties. it is defined to mean any fault. as the case may be. 1956 or under any other law for the time being in force. A ‘defect’ is defined to mean any fault. The State Government may. (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. in respect of hire-purchase transactions. It means a dispute where the person against whom a complaint has been made. 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. Defect [Sec. quantity. 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. purity or standard which is required to be maintained by or under any law for the time being in force or under any contract. or as is claimed by the trader in any manner whatsoever in relation to any goods. deficiency is relevant in case of services. . Accordingly. or (iii) the Central Government or any State Government. imperfection or shortcoming in the quality. Consumer dispute [Sec. (c) displayed on the price list exhibited by him by or under any law for the time being in force. establish more than one District Forum in a district. Consumer. or (ii) any voluntary consumer association registered under the Companies Act. ‘Consumer’ means any of the following persons: 1. A person who hires or avails of any services for consideration which has been paid or promised or partly paid and partly promised.(i) a consumer. The term includes any other user of such goods when such use is made with the approval of the buyer. or (v) in case of death of consumer. or (iv) one or more consumers.2(1)(f)]. ‘District Forum’ means a consumer Dispute Redressal Forum established under clause (a) of Sec. express or implied. Complaint: ‘Complaint’ means any allegation in writing made by a complainant with a view to obtaining any relief under the Act. Deficiency. his legal heir or representative. (iv) a trader or the service provider. a price in excess of the price (a) fixed by or under any law for the time being in force. (b) displayed on the goods or any package containing such goods. potency. imperfection.2(1)(c)].e.. (ii) the goods bought by him or agreed to be bought by him suffer from defect(s) in any respect. 2. (b) if the trader could have known with due diligence that the goods so offered are unsafe to the public. denies or disputes the allegations contained in the complaint. District Forum.9. Parallel to ‘defect’ in case of goods. or under any system of deferred payment. that: (i) any unfair trade practice or restrictive trade practice has been adopted by any trader or service provider.

9. Consumer Protection Act. 1930. 1930]. 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. Any of the following made a complaint EXCEPT (a) A consumer (b) The Central Government (c) In case of death of consumer. and includes stock and shares. grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale [Sec. (ii) A person who does not make or manufacture any goods but assembles parts thereof made or manufactured by others. Consumer Protection Act. where a manufacturer dispatches any goods or parts thereof to any branch office maintained by him. ‘Goods’ means every kind of movable property other than actionable claims and money. (iii) A person who puts or causes to be put his own mark on any goods made or manufactured by any other manufacturer. Manufacturer. National Commission: ‘National Commission’ means the National Consumer Disputes Redressal Commission established under clause (c) of Sec. 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. 1986 extended a statutory recognition to the rights of consumers.Goods. growing crops. 1993 and 2002 (d) 1992. Accordingly. his legal heir or representative (d) None 3. the Consumer Protection Act. ‘Goods’ under this Act shall have the same meaning as assigned to them under the Sale of Goods Act. 1986 was amended in (a) 1991.6 of the Act recognizes the following six rights of consumers: .2(7) of the Sale of Goods Act. 1993 and 2001 9.3 Rights of Consumers For the first time in the history of consumer legislation in India. The expression ‘Manufacturer’ for the purpose of this Act. Self Assessment Questions 1. applies to (a) All products and services (b) Only physical products (c) Only services (d) Only certain products and service 2. The Government vide powers conferred upon it under the said clause established a National Commission in 1987. 1993 and 2002 (c) 1992. But. means any of the following persons: (i) A person who makes or manufactures any goods or part thereof. Sec. 1993 and 2001 (b) 1991.

2.e. purity. Right to choose: It means right to be assured. standard and price of goods or services. if it deems fit. i. __________ means right to be assured. wherever possible.4 Nature and Scope of Remedies available to Consumers To provide simple. i. Right to consumer education: It means the right to acquire the knowledge and skill to be an informed consumer.e. At the State level. it means right to be assured of satisfactory quality and service at a fair price. In case of monopolies. It also includes right to be represented in various forums formed to consider the consumers’ welfare. as the case may be.4. access to a variety of goods and services at competitive prices. telephones. establish more than one District Forum in a District. wherever possible. quantity. The State Government may. access to a variety of goods and services at competitive prices. 5. so as to protect the consumer against unfair trade practices. speedy and inexpensive redressal of consumer grievances. 9. there is a National Consumer Disputes Redressal Commission to be known as National Commission. the right to be informed about the quality. the consumers’ interests will receive due consideration at appropriate forums. there are to be similar redressal commissions to be known as State Commissions and at the National level. Self Assessment Questions 4. etc. railways..1 Who can file a complaint ? (Sec. Right to be heard. It also includes right to fair settlement of the genuine grievances of the consumers.. say. Right to seek redressal: It means the right to seek redressal against unfair practices or restrictive trade practices or unscrupulous exploitation of consumers. 3. State and National levels. 6.12) Any of the following persons may file a complaint under the Act: . 9.. the Act envisages a three-tier quasi-judicial machinery at the District.e. 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. potency. 4. Right to safety. i.1. the right to be protected against the marketing of goods and services which are hazardous to life and property.. Right to be informed.

the District Forum may proceed with the complaint in the manner as provided under the Act. It provides as follows: 1. presently. Where a joint petition is filed on behalf of a large number of victims.12. Rs 20 lakhs but does not exceed Rs one crore. The National Commission shall also have the jurisdiction to entertain appeals against the orders of any State Commission [Sec. If the value of goods or services and the compensation.4. However. (c) the facts relating to complaint and when and where it arose. A complaint should contain the following information: (a) the name. 2. Any recognised consumers association namely. 9. On receipt of a complaint. his legal heir or representative can file a complaint. [Sec.4. if any. it is the total amount of compensation claimed in the petition (and not the individual claims) that will determine the question of jurisdiction. in support of the allegations contained in the complaint. the matter can be heard by the State Commission [Public Health Engineering Department v Uphokta Sanrakshan Samiti (1992)].2 Where to file a complaint? 1. a complaint shall not be rejected unless an opportunity of being heard has been given to the complainant.17]. 1956 or any other law for the time being in force. 2. Where a complaint is allowed to be proceeded with. If the value of the goods or services and the compensation. 9. where there are numerous consumers having the same interest. on behalf of. wholly or in part. allow the complaint to be proceeded with or rejected. The complaint should be addressed to the President of the Forum/Commission. claimed exceeds rupees twenty lakhs but does not exceed rupees one crore. with the permission of the District Forum. if any.17].1. 3. 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. if any. 9. In case of death of a consumer. 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. as far as they can be ascertained. complaint can be filed before the National Commission [Sec.4. as the case may be.21].13) . (b) the name. The complaint can also be sent by post to the appropriate Forum/Commission. all consumers so interested. 3. The Central or the State Government.4 Procedure on admission of complaint (Sec. the District Forum may.3 How to file a complaint? There is no fee for filing a complaint before any of the aforesaid bodies. The Amendment Act. In case the total compensation claimed exceeds. 4. any voluntary consumer association registered under the Companies Act. 3. One or more consumers.21]. Every complaint shall be accompanied with such amount of fee as prescribed. if any. 2. (e) the relief which the complaint is seeking. claimed does not exceed rupees twenty lakhs. The State Commission shall also have the jurisdiction to entertain appeals against the orders of any District Forum within the State. The complainant or his authorised agent can present the complaint in person. 2002 has amended Sec. claimed exceeds Rs one crore. description and address of the opposite party or parties.11). (d) documents. It is not necessary that the consumer is a member of such an association. If the value of the goods or services and compensation. description and address of the complainant. or for the benefit of. by order. arises (Sec. the complaint can be filed before the State Commission [Sec.

whichever may be necessary. (ii) Before any sample of the goods is referred to any appropriate laboratory under clause (c).5 Power of the district forum [Sec. (v) issuing of any commission (i. 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. (b) to replace the goods with new goods of similar description which shall be free from defects. the District Forum shall proceed to settle the consumer disputes in the manner specified in clauses (c) to (g) hereunder. 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.1. namely: (i) the summoning and enforcing the attendance of any defendant or witness and examining the witness on oath.4. denies or disputes the allegations contained in the complaint. 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)]. 9. (ha) to cease manufacture of hazardous goods . for payment to the appropriate laboratory for carrying out the necessary analysis or test in relation to the goods in question [Clause (d)].14 [Clause (g)]. 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)]. as may be granted by the District Forum. it shall issue an order to the opposite party directing him to do one or more of the following things. (iii) the reception of evidence on affidavits. (ii) Where the opposite party. (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. warrant conferring authority) for the examination of any witness. (f) to discontinue the unfair trade practice or the restricted trade practice or not to repeat them. namely: (a) to remove the defect pointed out by the appropriate laboratory from the goods in question. the District Forum shall require the opposite party or the complainant to submit in writing his objections in regard to the report made by the appropriate laboratory [Clause (f)]. (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.4. or omits or fails to take any action to represent his case within the time given by the District Forum. the charges paid by the complainant.6 Reliefs available to consumers (Sec. after the proceeding conducted under Sec.e. (iv) the requisitioning of the concerned analysis or test from the appropriate laboratory or from any other relevant source. (c) to return to the complainant the price. 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. On receipt of the report from the appropriate laboratory. (h) to withdraw the hazardous goods from being offered for sale.13(4)] District Forum shall have the same powers as are vested in a civil court under the Code of Civil Procedure. seal it and authenticate it in the manner prescribed. or disputes the correctness of the method of analysis or test adopted by the appropriate laboratory. the District Forum shall obtain a sample of the goods from the complainant.13.14) If. (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. and (vi) any other matter which may be prescribed. or as the case may be. 9. (g) not to offer the hazardous goods for sale. the District Forum may require the complainant to deposit to the credit of the Forum such fees as may be specified. 2. (iv) If any of the parties disputes the correctness of the findings of the appropriate laboratory.. 1908 while trying a suit in respect of the following matters. (e) to remove the defects in goods or deficiencies in the services in question. on admission of a complaint referred to him under (a) above. (ii) the discovery and production of any document or other material object producible as evidence. It shall then refer the sample so sealed to the appropriate laboratory along with a direction that such laboratory make an analysis or test.

as it deems fit.7 Time-frame for decisions of consumer courts The complaint should be decided by the Redressal Forum. 9.8 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. No appeal by a person who is required to pay any amount in terms of an order of the State Commission.4. Enforcement of orders of the District Forum. shall be entertained by the National Commission. may order the property of the person. 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. (i) to provide for adequate costs to parties. as the case may be.4. Sec.23]. the State Commission or the National Commission. not complying with such order. to be attached.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.4. 9. 9. unless the appellant has deposited 50 per cent of the amount or Rs. 55000 whichever is less.4. as far as possible. .29A) No Act or proceeding of the District Forum.24A) The District Forum. The Amendment Act. (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. However.19]. within a period of 3 months from the date of the notice received by the opposite party where complaint does not require analysis or testing of the commodities and within 5 months if it requires analysis or testing of commodities. the District Forum or the State Commission or the National Commission.4.9 Appeal to national commission Any person aggrieved by an order made by the State Commission may prefer an appeal against such order to the National Commission within a period of 30 days from the date of the order [Sec. It provides as follows: 1. 2002 has substituted Sec. Where an interim order made under this Act is not complied with.10 Appeal to the supreme court against the orders of national commission Any person. 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.12 Vacancies or defects in appointment not to invalidate order (Sec.and to desist from offering services which are hazardous in nature. within a period of 30 days from the date of the order. aggrieved by an order made by the National Commission.4. 9. 9. (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.11 Limitation period (Sec. In (a) above. 9. 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. 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. However. may prefer an appeal against such order to the Supreme Court.25 by a new section. the District Forum shall have the power to grant punitive damages.

2002 9. the property attached may be sold and out of the proceeds thereof. The complaint can be filled in the ‘District Forum’ if (a) The value of goods or services and compensation. (b) The value of goods or services and compensation. 3. 1992 (c) Consumer Protection Act. means any of the following. Which amendment of Consumer Protection Act. The expression ‘Manufacturer’ for the purpose of this Act. claimed exceeds rupees twenty lakhs but not exceed rupees 1 crore. (a) Consumer Protection Act.22 B (b) Sec. to the party entitled thereto. if the non-compliance continues. 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. the State Commission or the National Commission. (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. if any.(1) shall remain in force for more than three months at the end of which. as the case may be. the person entitled to the amount may make an application to the District Forum. (c) Both A and B (d) Only A 8. 1993 (d) Consumer Protection Act. Transfer of cases comes under which section.2. permitted representative complaints. 1991 (b) Consumer Protection Act. 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. EXCEPT. (a) Sec. as the case may be. (d) All of the above 7. No attachment made under Sub-sec.22 C . if any. Self Assessment Questions 6. claimed exceeds rupees twenty lakhs. Where any amount is due from any person under an order made by a District Forum. if any. State Commission or the National Commission.

Therefore. (c) Agricultural Products and Graduate and Marketing Act. which involved lengthy legal process proving. which they do not intend to fulfill. Sec. . the Indian Standards Institution (Certification Marks) Act. Consumer Dispute: Dispute where the person against whom a complaint has been made. the Trade and Merchandise Marks Act. the Prevention of Food Adulteration Act. 1986. This leaves the consumer in a difficult position with very few avenues for redressal. the Dangerous Drugs Act. 1992 (c) Amendment Act. (a) Amendment Act. these laws required the consumer to initiate action by way of a civil suit. In India. the need for a more simpler and quicker access to redressal to consumer grievances was felt and accordingly.(c) Sec. (d) None 9. the Agricultural Produce (Grading and Marketing) Act. we have the Indian Contract Act. 1991 (b) Amendment Act. Consumer: Any person who buys any goods for consideration which has been paid or promised or partly paid and partly promised. 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 principle of “consumer is king” is now accepted. often sellers make exaggerated claims and advertisements. etc which to some extent protect consumer interests.22 A 10. denies or disputes the allegation contained in the complaint. Service: Service means service of any description which is available to potential users and includes. the Standards of Weights and Measures Act. 9. Glossary Complaint: Complaint many allegation in writing by a complainant with a view to obtaining any relief under the Act. AGMARK stands for (a) Agricultural Process and Grading and Marketing Act.28 A inserted in which amendment of Consumer Protection Act.22 D (d) Sec. 2002 11. the Sale of Goods Act.5 Summary The earlier principle of “Caveat Emptor” or “let the buyer beware” which was prevalent has given way to the principle of “Consumer is King”. to be too expensive and time consuming for lay consumers.6 Terminal Questions 1. The onset on intense competition also made producers aware of the benefits of customer satisfaction and hence by and large. 1993 (d) Amendment Act. 1986. but not limited. (b) Agricultural Products and Grading and Marketing Act. However. The need to recognize and enforce the rights of consumers is being understood and several laws have been made for this purpose. Describe the main features of the Consumer Protection Act. it lead to the legislation of the Consumer Protection Act.

(d) 11. (b) Answers to Terminal Questions 1. 4. (c) A person sending a telegram. (c) 5. (a) 2. Refer 9. Right to choose 6. (b) A person who registers himself for a telephone connection. 5. Explain the procedure District Forum follows on receipt of a complaint from a consumer. (a) 8. (c) 9.3 – Please study consumer right. public or co-operative.7 Answers Answers to Self Assessment Questions 1. (a) 7. 2. (a) 10. Refer Unit – Study first this unit and give answers. . (2) It covers all sectors whether private. 1986.2. 6.3 – The main features are: (1) It applies to all goods and services unless specifically exempted by the Central Government. (d) 3. 1986 seeks to achieve? 3. Refer 9. 3. Can the following be regarded as consumers? (a) A patient of a government hospital. (b) 4. What sort of complaint may be lodged under the Act? 9. Examine the rights of a consumer enshrined under the Consumer Protection Act. What are the objects which the Consumer Protection Act.

not for trade protection purposes. 3. three territorial. despite the small percentage of overall production represented and assurances outlined in the Auditor General of Canada’s 1994 Report. 5. 5. The Government wanted to reform its public service along the lines achieved in the United Kingdom and New Zealand. 10 provincial. 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. . Provinces and municipalities are responsible for: The intraprovincial aspects of the food industry. fluid milk. including restaurants and grocery stores. and the food retail industry. In addition. as well as dairies and meat plants whose products are sold within the province. and thousands of municipal governments. adulterated or misbranded products.g.4.3 – Refer consumer rights. including local food processing. plant and health regulations only to the extent necessary to protect human. Refer 9. Refer 9. 6. Mini-case Governmental responsibility for food in Canada is divided among the federal. 130) The federal government of Canada faced a number of food security problems in the early 1990s. 2. the food service industry. animal life or health. They decide whether and how to inspect local operations. p. 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. b) The 1994 SPS Agreement required that countries use their food safety and animal. 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. where separate agencies were spun off from government. Resources for additional inspection of fish products were not available. and facilitating interprovincial trade. Canada’s reputation for high quality food had been damaged by the "tainted tuna" scandal. 4. c) Gaps resulting from non-inspection or non-rigorous inspection were perceived by processors as a weak link. b) Canadian producers/processors were vulnerable to trade challenges in a fragmented system. quality and grading standards for products sold interprovincially and internationally and administers regulations aimed at preventing the production or sale in Canada of dangerous.3 – Refer power of district forum. the federal government sets food safety. Federal responsibility centres on export and inter-provincial trade: protecting and expanding export markets for Canadian food products. This could drag down Canadian food standards to the lowest common denominator. 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. resources were not only scarce but shrinking. (Moore and Skogstad.4 – Nature and Scope of Remedies Available to Consumers. Refer 9. Some 77 pieces of legislation govern food inspection among three levels of government. which facilitated adoption of innovative reform measures: 1.

Separation of health risk analysis from risk management. Separation of health and safety standard setting from inspection. 7. The Auditor General also has authority to conduct periodic value-for-money audits of the Agency. Protecting the public interest is a major concern in creating alternate Service Delivery Agencies (ASDs) in Canada. the Hazard Analysis Critical Control Point (HACCP) system. thereby fulfilling a World Health Organization principle. and so can hire and fire its own employees. developed for the US space program. It also has a number of financial flexibilities not available to government departments. Improved capacity to respond to outbreaks of food-borne illness and threats to the food system presented by medicated feeds and antibiotic residues. The Agency has separate employer status. tuberculosis in cattle and zoonotic diseases such as salmonella enteritidis in poultry. rather than working through the Public Service Commission. Employing the Auditor General of Canada’s definition of the public interest when assessing ASDs. 9. and solutions suggested in the winning Liberal platforms in the 1993 and 1997 elections were renewal of the federation. 11. thereby fulfilling a World Health Organization principle. permitting new flexibilities for inspection. was deemed more effective than existing systems in ensuring food safety. Canada was the first government to adopt this system. including better coordination of services and reduction in overlap and duplication among governments. 8. c) Separation of health and safety standard setting from inspection. The Agency reports not to a deputy minister but directly to the Minister of Agriculture and Agri-Food. 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. maintenance of public service values and adequate control over public funds and assets. The Government of Canada consolidated all of its food inspection and quarantine services from Health Canada. 12. for its fish inspection program. 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. 10. National unity was threatened. 1997. and Agriculture and Agri-Food Canada into one self-standing Agency effective April 1. 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. tuberculosis in cattle and zoonotic diseases such as salmonella enteritidis in poultry. On all counts the CFIA’s self-assessment concluded it was serving the public interest. One such risk-based tool. Reduced criticism of conflict of interest because the same department was responsible for promoting and regulating an industry (fisheries). Fisheries and Oceans. The Auditor General of Canada was appointed as an external auditor under the CFIA Act. Risk assessment methods allowed the allocation of food inspection resources on a risk basis. most notably the capacity to retain revenues. 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. A more integrated and comprehensive approach (gate-to-plate) to trichinosis in swine. the CFIA addressed whether there was an appropriate focus on public objectives. b) Improved capacity to respond to outbreaks of food-borne illness and threats to the food system presented by medicated feeds and antibiotic residues.6. e) Reduced criticism of conflict of interest because the same department was responsible for promoting and regulating an industry (fisheries). permitting new flexibilities for inspection. d) Separation of health risk analysis from risk management. Question .

(Hint: It is a self-standing agency with a separate employer status and more financial flexibilities.5 and 6) 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. Analyse the kind of agency it is.2 Definitions 10.1 Introduction Objectives 10. 2002 Unit-10-The Competition Act.3 Prohibition of Anti-competitive Agreements 10.1.8 Miscellaneous Provisions Power to grant interim relief Power to award compensation Appearance before commission .19 Procedure for investigation of combination 10.) MB0051-Unit-10-The Competition Act.5 Regulation of Combinations (Secs. 2002 Structure: 10.4 Prohibition of Abuse of Dominant Position 10.7 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.

.11 Terminal Questions 10. Objectives After studying this unit. 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. 2002. Unless the context otherwise requires. Agreement.12 Answers 10. It includes any arrangement or understanding or action in concert – (1) Whether or not. these expressions are defined as below. It received the assent of the President of India on 13th January. by notification in the Official Gazette. or (2) Control over management or control over assets of any enterprise. The Competition Act. appoint. Acquisition. acquiring or agreeing to acquire – (1) Shares.9 Finance. In this unit you will study about the Competition Act. understanding or action is intended to be enforceable by legal proceedings. or (2) whether or not such arrangement. 2003. 2002 extends to the whole of India except the State of Jammu and Kashmir. directly or indirectly. Accounts and Audit Grants by Central Government Constitution of fund Accounts and audit 10.2 Definitions Sec. such arrangement.Review of orders of commission Rectification of orders Execution of orders of commission Appeal 10. voting rights or assets of any enterprise.1 Introduction In the earlier units. you came to know about the Consumer Protection Act. It shall come into force on such date as the Central Government may. It means.2 defines various expressions used in the Act. understanding or action is formal or in writing.10 Summary 10.

(ii) stock except where a distinction between stock and shares is expressed or implied. board.8(1). Relevant Geographic Market.4A of the Companies Act. traders or service providers who. by reason of characteristics of the products or services. It means the Director General appointed under Sec. It means a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer. acquisition or control of articles of goods.8 and includes the Chairperson. It means any trade. Self Assessment Questions 1.Cartel. 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. sellers. Turnover. underwriting or dealing with shares. debentures or other securities of any other body corporate. Deputy or Assistant Director General appointed under that section. It includes an association of producers. Industrial or Investment Corporation. their prices and intended use. distributors. It means a public financial institution specified under Sec. established by or under any Central. who or which is. university or any other body corporate. profession or occupation relating to the production. 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. Director General. Practice. 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. or trade in goods or provision of services. industry. Public Financial Institution. business. Statutory Authority. supply. Commission. corporation.7(1). CCI stands for (a) Consumer Commission of India (b) Competition Commission of India . 1956 and includes a State Financial. State. or (iii) in investment. Enterprise. It means a Member of the Commission appointed under Sec. Member. limit. distribution. holding.16 (1) and includes any Additional. It includes value of sale of goods or services. or (ii) the provision of services. It includes any practice relating to the carrying on of any trade by a person or an enterprise. control or attempt to control the production. It means the Competition Commission of India established under Sec. Relevant Product Market. distribution. council. Joint. either directly or through one or more of its units or divisions or subsidiaries. engaged in any activity. storage or control of goods and includes the provision of any services. distribution. Chairperson. by arrangement amongst themselves. sale or price of. or has been. Relevant Market. It means the Chairperson of the Commission appointed under Sec. It means any authority. supply. Shares. 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. of any kind. 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. storage. relating to the (i) production. or in the business of acquiring. Trade. It means a person or a department of the Government. institute.

Director General appointed under. Thus no enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production.8(2) (d) Sec. this section also specifies certain activities which shall be presumed to have an appreciable adverse effect on competition. 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.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. supply. Self Assessment Questions 3. which causes or is likely to cause an appreciable adverse effect on competition within India. Any agreement entered into in contravention of this provision shall be void. Any agreement between enterprises or persons referred (a) Bid-rigging (b) Bid-singing (c) Bid-locking . acquisition or control of goods or provision of services.3 provides for prohibition of entering into anti-competitive agreements. storage. Sec. or number of customers in the market or any other similar way. Further.16(1) 10.(c) Competition Collaboration of India (d) Computer Competition of India 2. markets. investment or provision of services. including cartels.16(2) (c) Sec.3. (d) directly or indirectly results in bid rigging or collusive bidding. 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. distribution. (b) limits or controls production. or type of goods and services. (c) shares the market or source of production or provision of services by way of allocation of geographical area of market. Activities having adverse effect on competition. supply. (a) Sec. or decision taken by any association of enterprises or association of persons. Value of sales of goods or service includes in (a) Product (b) Service (c) Turnover (d) Profit 4.8(1) (b) Sec. technical development.3 Prohibition of Anti-competitive Agreements Sec. Factors which cause adverse effect on competition.

5 Regulation of Combinations (Secs. if an enterprise: (a) directly or indirectly. in India. 2002 6. or (ii) the group. The expression ……………… means a position of strength. to which the enterprise whose control. the assets of the value of more than US $ 2 billion or turnover more than US $ 6 billion. imposes unfair or discriminatory (i) condition in purchase or sale of goods or service. by their nature or according to commercial usage. would belong after the acquisition. whose control. 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. or (ii) technical or scientific development relating to goods or services to the prejudice of consumers. 5 and 6) Sec.4 prohibits abuse of dominant position by any enterprise. shares. shares. 12000 crores. or (ii) price in purchase or sale (including predatory price) of goods or service. Self Assessment Questions 5. 3000 crores. or (B) in India or outside India. 1000 crores or turnover more than Rs. the assets or the value of more than Rs. or (c) indulges in practice or practices resulting in denial of market access. other relevant market. in the relevant market. or protect. or (b) limits or restricts (i) production of goods or provision of services or market therefore. . voting rights or assets has been acquired or are being acquired jointly have (A) either in India.5 deals with combination of enterprises and persons. in aggregate. voting rights or assets: Any acquisition where (i) the parties to the acquisition. jointly have or would jointly have – (A) either in India. or (d) makes conclusion of contracts subject to acceptance by other parties of supplementary obligations which. enjoyed by an enterprise. being the acquirer and the enterprise. These circumstances are: (a) Acquisition of control. 2001 (c) Design Act. The expression ‘dominant position’ means a position of strength. in the relevant market. or (B) in India or outside India. which enables it to (i) operate independently of competitive forces prevailing in the relevant market. have no connection with the subject of such contracts. or (e) uses its dominant position in one relevant market to enter units. in aggregate. 2000 (d) Design Act. or (ii) affect its competitors or consumers or the relevant market in its favour. assets or voting rights have been acquired or are being acquired. the assets of the value of more than US $ 500 m or turnover more than US $ 1500 m. 2003 (b) Design Act. Design registered under the (a) Design Act. shares. 4000 crores or turnover more than Rs.4 Prohibition of Abuse of Dominant Position Sec. the assets of the value of more than Rs.(d) None 10. There shall be an abuse of dominant position. enjoyed by an enterprise.

at his or its option.6. who or which proposes to enter into a combination. the assets of the value of more than Rs. Sec. in which enterprise whose control has been acquired.44 provides for penalty for making false statements or omission to furnish material information by a person. 10. provides that no person or enterprise shall enter into a combination which is likely to cause or causes an appreciable adverse effect on competition within the relevant market in India. However. disclosing the details of the proposed combination. 10.1 Establishment of commission Sec. to which the enterprise remaining after the merger or the enterprise created as a result of the amalgamation. the commission can establish offices at other places in India. give notice to the commission.2 Duties of commission . distribution or trading of a similar or identical or substitutable goods or provision of a similar or identical or substitutable service. the assets of the value of more than US $ two billion or turnover more than six billion US $. have or would have (A) either in India. may.7 provides for the establishment of the Competition Commission of India. The Commission shall be a body corporate by the aforesaid name having perpetual succession and a common seal with power to acquire. 4000 crores or turnover more than Rs. being a party to a combination. 12000 crores. in aggregate. 1000 crores or turnover more than Rs. or (B) in India or outside India.6. as the case may be. the assets of the value of more than Rs. 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. The place of head office of the commission shall be decided by the Central Government. 4000 crores or turnover more than Rs. 1000 crores or turnover more than Rs. the assets of the value of more than Rs. 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. would belong after the acquisition jointly have or would jointly have (A) either in India. as the case may be. in aggregate. or (B) in India or outside India. hold and dispose of property. 12000 crores. or trading: Acquiring of control by a person over an enterprise when such person has already direct or indirect control over another enterprise engaged in production.(b) Acquisition of control over production. Sec. in aggregate. have (A) either in India. the assets of the value of more than Rs. if entered into. as the case may be.5 deals with combination of _____________. the assets of the value of more than US $ 2 billion or turnover more than US $ 6 billion. would belong after the merger or the amalgamation. (b) execution of any agreement or other document for acquisition or acquiring of control referred to in Sec. inter alia. or (B) in India or outside India. Self Assessment Questions 7. 3000 crores.6 Competition Commission of India 10. Sec. (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. 3000 crores. distribution. Such a combination. within seven days of: (a) approval of the proposal relating to merger or amalgamation referred to in Sec. Exemption: Any person or enterprise. or (ii) the group. shall be void.5. or is being acquired.5 by the board of directors of the enterprises concerned with such merger or amalgamation.6. the assets of the value of more than US $ 500 million or turnover more than US $ 1500 million or (ii) the group. the assets of the value of more than US $ 500 million or turnover more than US $ 1500 million.

20) 4.37) 10.18 above. they shall state the point or points on which they differ. or the respondents who do not reside. or carries on business. (iii) protect the interests of consumers and (iv) ensure freedom of trade carried on by other participants. 2. where there are more than one. . (ii) promote and sustain competition. acquiesce in such institution. Every Bench shall consist of at least one Judicial Member. or (b) any of the respondents. at the time of the initiation of enquiry or institution of the complaint or making of reference. Inquiring into acquisition. Commission shall maintain proper accounts and other relevant records and prepare an annual statement of accounts under section.19) 3. These are: 1. or carry on business. as the case may be. control and combination (Sec.5 Jurisdiction of bench Sec. 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. the Commission is conferred with certain powers. in markets in India. Powers and functions of commission With a view to perform the duties as enumerated in Sec.3 Benches of commission Sec. where there are more than one. Inquiring whether an enterprise enjoys dominant position (Sec. or each of the respondents. Power to grant interim relief (Sec.19) 2. 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.24 provides that if the Members of a Bench differ in opinion on any point. Inquiring into certain agreements (Sec.22 contains provisions relating to constitution of Benches of the Commission. or personally work for gain. Power to review its own orders (Sec. or personally works for gain. wholly or in part.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.33) 5. Self Assessment Questions 9. as the case may be.36) 7. actually and voluntarily resides.4 Procedure for deciding a case where members of a bench differ in opinion Sec.6. powers and authority of the Commission may be exercised by Benches thereof.Sec.34) 6. 3. Power to regulate its own procedure (Sec.18 provides that it shall be the duty of the Commission to (i) eliminate practices having adverse effect on competition.6.6. 10. at the time of the initiation of the enquiry or institution of complaint or making of reference. arises. The Benches shall be constituted by the Chairperson and each Bench shall consist of not less than two Members. including those who first heard it. Power to award compensation (Sec. The jurisdiction. as aforesaid. or (c) the cause of action. It provides as follows: 1.

7.7.3 or 4 either on its own motion or on (a) receipt of a complaint from any person.9 (c) Sec. 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.2 Enquiry into combination by commission Sec.19 Sec. upon its own knowledge or information relating to acquisition or acquiring of control or merger or amalgamation under Sec.6 11.19. if the Commission is of the opinion that there exists a prima facie case.5. . on receipt of the direction submit a report on his findings within such period as may be specified by the Commission. under Sec.19 provides that the Commission may enquire into any alleged contravention of the provisions contained in Secs. enquire into whether such a combination has caused or is likely to cause an appreciable adverse effect on competition in India.19 provides as follows: 1.8 (d) Sec. it shall direct the Director General to cause an investigation to be made into the matter.3 Procedure for enquiry on complaints under Sec. 2. CCI established under (a) Sec. 10. 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. consumer or their association or trade association.7 Enquiry into certain Agreements and Dominant Position of Enterprise and Combinations 10.(a) 51 (b) 53 (c) 54 (d) 52 10. or (b) a reference is made to it by the Central Government or a State Government or a statutory authority.1 Enquiry into certain agreements and dominant position of enterprises Sec.7 (b) Sec. The Director General shall.7.20 provides that the Commission may. 10.

5. to file his written objections. Issue of Notice: Where the Commission is of the opinion that a combination is likely to cause. it shall dismiss the complaint.29 provides as follows: 1.2 (1) (d) Sec. 2. 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.6(2) (c) Sec. after hearing the complainant. as it thinks appropriate. Self Assessment Questions 12. 7. Prohibition of entering into anti-competitive agreement comes under (a) Sec. if any. the Commission is of the opinion that further enquiry is called for. The Commission: if it is prima facie of the opinion that the combination has.3 10. If. after hearing the complainant. for bringing the combination to the knowledge or information of the public and persons affected or likely to be affected by such combination.8 Miscellaneous Provisions 10. 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.4 Procedure for investigation of combination Sec.19. 6.8.1 Power to grant interim relief . If. the Commission is of the opinion that there exists no prima facie case. Written Objection: The Commission may invite any person or member of the public. 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.7. it shall direct the complainant to proceed with the complaint. 10. if necessary. direct the parties to the said combination to publish details of the combination within ten working days of such direction. affected or likely to be affected by the said combination.3. the Commission agrees with the recommendation of the Director General. the complainant shall be given an opportunity to rebut the findings of the Director General. or has caused an appreciable adverse effect on competition within the relevant market in India.2 (b) Sec. it shall. or is likely to have. 4. Where on receipt of a complaint under Sec. an appreciable adverse effect on competition. within seven working days from the date of receipt of the response of the parties to the combination. in such manner. as to why investigation in respect of such combination should not be conducted. as the case may be. it shall dismiss the complaint and may pass such orders as it deems fit. 3. including imposition of costs. before the Commission within fifteen working days from the date on which the details of the combination were published under (2).

after an enquiry made into the allegations mentioned in the application made under (1). 10. that an act in contravention of Sec. where it deems it necessary and a copy of such order granting temporary injunction shall be sent to the concerned authorities.4 or Sec. 33 provides as follows: 1. the Commission may make (a) an amendment under (1) of its own motion. the Commission may.3 or Sec.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. by order. (b) an amendment for rectifying any such mistake which has been brought to its notice by any party to the order. apply to the Commission for review of its order and the Commission may make such order thereon as it thinks fit. 10. may. it is proved to the satisfaction of the Commission.4 or Sec. where it deems it necessary. Without prejudice to any other provisions contained in this Act. The Commission may. within thirty days from the date of the order. 34 provides as follows: 1. it may.6 Execution of orders of commission Sec.6 has been committed and continues to be committed or that such act is about to be committed. the Commission may entertain a review application after the expiry of the said period of thirty days.8. by order.5 Rectification of orders Sec.2 Power to award compensation Sec. 10. by such person as a result of any contravention of the provisions of Sections 3 to 6 having been committed by such enterprise. if it is satisfied that the applicant was prevented by sufficient cause from preferring the application in time.8. With a view to rectifying any mistake apparent from the record. 2.Sec.8. 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. by affidavit or otherwise. 10. 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. without giving notice to the opposite party. 35 provides that a complainant or defendant or the Director General may either appear in person or authorise one or more chartered accountants or company secretaries or cost accountants or legal practitioners or any of his or its officers to present his or its case before the Commission. Where during an enquiry before the Commission. 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. Subject to the other provisions of this Act.8. without giving notice to the opposite party.8. the Commission may amend any order passed by it under the provisions of this Act. 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. grant a temporary injunction restraining any party from importing such goods until the conclusion of such enquiry or until further orders. grant a temporary injunction restraining any party from carrying on such act until the conclusion of such enquiry or until further orders. 2. However.3 Appearance before commission Sec. in the .4 Review of orders of commission Sec.3 or Sec. 10.6. 38 provides as follows: 1. pass an order directing the enterprise to make payment to the applicant.

51 provides as follows: 1. Accounts and Audit 10.7 Appeal Sec. 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.1 Grants by Central Government Sec. However. Additional.event of its inability to execute it. 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. allowances and pension payable to the Director General. . within the local limits of whose jurisdiction. Self Assessment Questions 13. the Supreme Court may. (b) the other expenses of the Commission in connection with the discharge of its functions and for the purposes of this Act.9. (True / False) 10. such order to the High Court or the principal civil court. 10.9. (c) the fees received under this Act. 14. is situated.8. 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. 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. is situated. (d) the interest accrued on the amounts referred to in clauses (a) to (c). 2. that subordinate office.2. 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. _____________ 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. as the case may be. (a) in the case of an order against a person referred to in Sec. where the person concerned voluntarily resides or carries on business or personally works for gain. allow it to be filed within a further period not exceeding sixty days.100 of the Code of Civil Procedure. if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period.50 provides that Central Government may after due appropriation made by Parliament by law in this behalf. (b) the monies received as costs from parties to proceedings before the Commission. Joint. 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.9 Finance. the place. (b) in the case of an order against any other person. 10.2 Constitution of fund Sec. the Registrar and officers and other employees of the Commission. 1908. Deputy or Assistant Directors General.

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. appoint. It shall come into force on such as the Central Government may. 16. The Fund shall be administered by a committee of such Members of the Commission as may be determined by the Chairperson. privileges and authority in connection with such audit as the Comptroller and Auditor-General of India generally has. 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. (True / False) 10. by notification in the Official Gazette. 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.10 Summary The Competition Act. The Monopolistic and Restrictive Trade Practice Act. in connection with the audit of the Government accounts and. 1969 became obsolete in certain respects in the light of international economic developments relating more particularly to competition laws. Shares: Shares are the best investment available over a long period of time. through a purchase acquisition or a pooling of interests. India has responded to globalization by opening up its economy. Describe the provisions as regards prohibition of anti-competitive agreements. . in particular. connected vouchers and other documents and papers and to inspect any of the offices of the Commission.3. ____________ provides that the Commission shall maintain proper accounts and other relevant records. The committee (3) shall spend monies out of the Fund for carrying out the objects for which the Fund has been constituted. Although the stock market is seen as "high risk" this depends very much on timing and the sort of shares you invest in.9. accounts. of the target company’s ownership stakes in order to assume control of the target firm. The accounts of the Commission shall be audited by the Comptroller and Auditor-General of India. shall have the right to demand the production of books.3 Accounts and audit Sec. 10. removing controls and resorting to liberalization.11 Terminal Questions 1. Self Assessment Questions 15. 10. For this it is necessary that the Indian market should prepare itself competition from within the country and outside. if not all. 2002 extends to the whole of India except the state of Jammu and Kashmir.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. Turnover: Turnover often refers to inventory or accounts receivable Merger: The combining of two or more entities into one. Glossary Acquisition: A corporate action in which a company buys most. 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.

Explain the provisions relating to regulation of combinations. What are the consequences for a person who contravenes the orders of the Commission? 10. Dominant position 7. 9. Sec. the Central Government can order division of enterprise enjoying dominant position? 8. Is there any restrictions and other terms and conditions of service of Chairperson and other members? 5. 4. (b) 8. Enterprises and persons 9.2. What are the circumstances under which combination is construed? 3. (b) 2. (d) 13. (d) 10. Describe the provisions as regards ‘Benches of Commission’ and ‘Distribution of business of Commission amongst Benches’. (c) 6.12 Answers Answers to Self Assessment Questions 1. Describe the provisions as regards duties of the Director General to investigate contravention of the provision of the Act. 6. Sec. Under what situations. (a) 5.40 14. True 15. (a) 11. (d) 3. Explain the power if the Competition Commission to enquires into anti-competitive agreements and dominant position of enterprises.52 . (d) 12. (c) 4. 7.

by way of a special resolution. Refer 10. The result of which was announced today. a set of rules that govern day-to-day workings of a company. 131 (a) (ii) and 131 (aa). Question . through a postal ballot. asked shareholders to mail their votes through postal ballot for a change in its Articles of Association.) 3.6 – (With a view to perform the duties as enumerated in Sec.19 provides that the Commission may enquire into any alleged contravention of the provisions contained in Secs. Refer 10.22 contains provisions relating to constitution of Benches of the Commission. 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. True Answers to Terminal Questions 1.8 – (Sec.3 – (Sec. Refer 10. Vice-Chairman and the directors appointed by him. inter alia.18 above.6 – (Sec.8 – (Please refer commission in this unit) Mini-case Reliance Industries. has voted in favour of entrusting itself with the power to appoint the majority of directors on the REL board.16.3 or 4 either on its own motion. According to sources. 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. of which REL is a subsidiary. REL Chairman and Managing Director. Refer 10. which allowed Mr Anil Ambani the power to appoint onethird or majority of the total directors on REL’s board.6 – (Yes please follow this unit for more knowledge) 5.29 provides this) 9. REL sought to vest these powers with its prime shareholder.24-per cent REL shareholders who voted in favour of the changes to its Articles of Association.) 7. the Commission is conferred with certain powers.) 4.) 6. it will have the right to appoint majority of REL’s directors on the board of the company. Refer 10.5 – (Sec.5 – (Sec.) 8. 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. choose the Vice-Chairman of the company and even decide the tenure of the Chairman. the largest shareholder in Reliance Energy. Refer 10.6. 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.000-crore Reliance Group. REL had. Reliance Industries had earlier said that it had not sought in any withdrawal of powers conferred on Mr Anil Ambani. Earlier these powers were vested with Mr Anil Ambani. Reliance Industries.6 – (Sec. Refer 10. Refer 10. It had also said that RIL had not been consulted by REL before the proposed re-amendment of the relevant articles of association.3 provides for prohibition of entering into anti-competitive agreements.) 2.5 deals with combination of enterprises and persons. The company had sought permission to change Article 131 (a). Refer 10. RIL was among the 97.

(Sec. 3) Holding of foreign exchange etc.) MB0051-Unit-11-The Foreign Exchange Management Act. 1999 Unit-11-The Foreign Exchange Management Act.5 Contravention and Penalties [Secs.2 Definition under the Act 11.Why does Reliance want alteration in Reliance Energy’s articles? (Hint: due to the conflict between the ambani brother. 1999 Structure: 11.16-35] Appointment of adjudicating authority Appeal to special director (appeals) .13 to 15] Penalties Enforcement of the orders of adjudicating authority Power to compound contraventions 11.11) 11. Current account transactions Regulation of capital account transactions Export of goods and services 11.6 Adjudication and Appeal [Secs.4 Regulation and Management of Foreign Exchange Dealings in foreign exchange etc.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.

Establishment of appellate tribunal Powers of appellate tribunal and special director (appeals) Distribution of business among benches Power of chairperson to transfer cases Decision to be by majority Members, etc. to be public servants Civil court not to have jurisdiction Appeal to high court 11.7 Directorate of Enforcement 11.8 Miscellaneous Provisions 11.9 Summary 11.10 Terminal Questions 11.11 Answers 11.1 Introduction In the earlier units, you came to know about the Competition Act. In this unit you will study about the Foreign Exchange Management Act. The Foreign Exchange Management Act (FEMA), 1999 (FEMA) replaces the Foreign Exchange Regulation Act (FERA) 1973. FERA was introduced in 1974 to consolidate and amend the then existing law relating to foreign exchange. FERA aimed at having stringent controls to conserve India’s foreign exchange. FERA was amended in 1993 to bring about certain changes, as a result of introduction of economic reforms and liberalisation of the Indian economy. Objectives After studying this unit, you should be able to: · Describe the provisions relating to an authorized person · Explain the regulation and management of foreign exchange · Enumerate the directorate of enforcement · Define miscellaneous provisions 11.2 Definition under the Act Authorised Person. It means an authorised dealer, money changer, offshore banking unit or any other person for the time being authorised under the Act to deal in foreign exchange or foreign securities.

Capital account transaction. It means a transaction which alters the assets or liabilities, including contingent liabilities, outside India or assets or liabilities in India of persons resident outside India, and includes transactions referred to in Sec.6(3). Currency. This expression includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, travellers’ cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instrument as may be notified by the Reserve Bank. Vide Notification No. FEMA 15/2000/RB dated May 3, 2000, RBI has notified ‘debit cards’, ‘ATM’ cards or any other instrument by whatever name called that can be used to create a financial liability, as ‘currency’. Currency notes. It means and includes cash in the form of coins and bank notes. Currency account transaction. It means a transaction, other than a capital account transaction and without prejudice to the generality of the foregoing, such transaction includes – (i) payments due in connection with foreign trade, other current business, services and short term banking and credit facilities in the ordinary course of business; (ii) payments due as interest on loans and as net income from investments; (iii) remittances for living expenses of parents, spouse and children residing abroad; and (iv) Expenses in connection with foreign travel, education and medical care of parents, spouse and children. Export. ‘Export’ with its grammatical variations and cognate expressions, means. (i) the taking out of India to a place outside India any goods, (ii) provision of services from India to any persons outside India. Foreign currency. It means any currency other than Indian currency. Foreign security. The expression means any security, in the form of shares, stocks, bonds, debentures, or any other instrument denominated or expressed in foreign currency and includes securities expressed in foreign currency, but where redemption or any form of return such as interest or dividend is payable in Indian currency. Indian currency. It means currency which is expressed or drawn in Indian rupees but does not include special bank notes and special one rupee notes issued under Sec.28A of the Reserve Bank of India Act, 1934. Person resident outside India. It means a person who is not resident in India. Transfer. The expression ‘transfer’ includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer or right, title, possession or lien. Definitions of certain other terms used under FEMA Regulations are: Non-resident Indian (NRI). It means a person resident outside India who is a citizen of India or is a person of Indian origin. Overseas Corporate Body (OCB). The expression means a company, partnership firm, society and other corporate body owned directly or indirectly to the extent of at least 60 per cent by non-resident Indians. Further, the expression includes overseas trusts in which not less than 60 per cent beneficial interest is held by non-resident Indians directly or indirectly but irrevocably. Person of Indian Origin (PIO). It means a citizen of any country other then Bangladesh or Pakistan, if (a) he at any time held Indian passport; or (b) he or either of his parents or any of his grandparents was a citizen of India by virtue of the Constitution of India or the Citizenship Act of 1955; or (c) the person is a spouse of an Indian citizen or a person referred to in (a) and (b).

Convertible currency/Hard currency. Certain currencies are freely convertible i.e. one can exchange these currencies with any other currency without any restriction. Major among these are: Dollars (USA), Pound Sterling (UK), Euro (European Common Currency), Deutsche Mark – DM (Germany), Yen (Japan), Franc (France), Lira (Italy) etc. This is often called ‘hard currency’. Self Assessment Questions 1. FERA stands for (a) Foreign Exchange Revenue Act (b) Foreign Exchange Regulation Act (c) Foreign Exchange Regional Act (d) None 2. In which year FEMA replaces the FERA (a) 1973 (b) 1974 (c) 1998 (d) 1999 3. Means of Indian currency (a) Currency which is expressed or drawn in yen (b) Currency which is expressed or drawn in dollar (c) Currency which is expressed or drawn in Euro (d) Currency which is expressed or drawn Indian rupees 4. PIO stands for (a) Pakistan Indian Organization (b) Pakistan Indian Origin (c) Person of Indian Origin (d) None 11.3 Provisions Relating to an Authorised Person 11.3.1 Authorised person

in all his dealings in foreign exchange or foreign security. To ensure compliance of FEMA provisions [Sec. To open NRO. for the purpose of securing compliance with the provisions of this Act and of any rules.3. notification. require that person to make such declaration and to give such information. if he has reason to believe that any such contravention or evasion as aforesaid is contemplated by the person. report the matter to the Reserve Bank. NRE.11) The Reserve Bank may. NRSR and FCNR accounts. [Sec. Not to engage in unauthorized transactions [Sec.2 Duties of an authorised person The duties of an authorised person as provided in the Act are summarised hereunder: 1. think fit to give. To comply with RBI directions [Sec. Self Assessment Questions . 11. before undertaking any transaction in foreign exchange on behalf of any person. 4. regulations. 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.3. 11. direction or order made thereunder. from time to time. comply with such general or special direction or order as the Reserve Bank may. regulation.10(4)]. NRNR. To sell or purchase foreign exchange for current account transactions. authorise any person to be known as authorised person to deal in foreign exchange or in foreign securities. 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. on an application made to it in this behalf. notifications or directions made thereunder. an authorised person is not allowed to credit the account of any person without any corresponding remittance from any place outside India. Receive any payment by order or on behalf of any person resident outside India in any name. 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.6]. An authorised person shall. 2.4 Bank’s powers to issue directions to authorised persons (SEC.3. 3. The authorization shall be in writing and shall be subject to the conditions laid down therein.5] 5. [Sec. [Sec. To deal in or transfer any foreign exchange or foreign security to any person [Sec. 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. notification. To sell or purchase foreign exchange for permissible capital account transactions. the authorised person shall refuse in writing to undertake the transactions and shall. money changer or offshore banking unit or in any other manner as it deems fit. as an authorised dealer. Except with the previous permission of the Reserve Bank. 3. An authorised person shall.10(4)].3(c)] However.3(a)] 2. Where the said person refuses to comply with any such requirement or makes only unsatisfactory compliance therewith.Sec.10 provides that the Reserve Bank may.10(5)]. regulation. direction or order made thereunder. 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.3 Powers of the authorised person 1. 11.

5 Export of goods and services Sec.4.5. own.13 provides that if any person contravenes any provision of the Act. 11. any asset outside India by any person.3 Current account transactions Sec.4.4. 11. 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. Sec. 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.7 deals with export of goods and services. (True/False) 11.1 Dealings in foreign exchange etc.7 deals with export of goods and services. 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. possess or transfer any foreign exchange. Foreign currency means any currency same as Indian currency. hold. 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. foreign security or any immovable property situated outside India. (Sec. Sec.1 Penalties Sec.3-9 deal with regulation and management of foreign exchange.5 explains dealings in current account transactions.4. __________ explains dealings in current account transactions. he shall be liable for penalty upon adjudication. Every exporter is required to furnish to Reserve Bank or any other authority as prescribed.5 Contravention and Penalties [Secs.13 to 15] 11. 11. (True/False) 8. the value which the exporter having regard to prevailing market conditions expects to receive on sale of the goods in a market outside India.5.4 provides that except as otherwise provided in the Act.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. rules.2 Holding of foreign exchange etc. An authorized person is allowed to credit the account of any person without any corresponding remittance from any place outside India. regulation etc. (True/False) 6. 11.6 provides that any person may sell or draw foreign exchange to or from an authorised person for a capital account transaction. no person resident in India shall acquire.4. Self Assessment Questions 7.4 Regulation of capital account transactions Sec. 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. 11. 11.4 Regulation and Management of Foreign Exchange Secs. (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. or contravenes any condition subject to which the authorization is granted by RBI. which may extend upto thrice the sum involved in such .

he shall be liable to civil imprisonment.contravention where such amount is quantifiable or upto two lakh rupees where the amount is not quantifiable. the penalty of Rs. relieves the accused person from further proceedings for that contravention.5.14 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. 11. Further. ____________ after the first day during the period in which the contravention continue shall be imposed.6 Adjudication and Appeal [Secs. 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. 11. It may further direct that the foreign exchange holdings. However. Again. 300 per day (b) Rs. (a) Rs. 500 per day after the first day during the period in which the contravention continues shall be imposed. the penalty of Rs. 500 per day (d) Rs. of the persons committing the contravention or any part thereof. any contravention so compounded.1 Appointment of adjudicating authority .5.2 Enforcement of the orders of adjudicating authority Sec.15 empowers the ____________. 200 per day 10. Sec. The arrest warrant may be issued by the Adjudicating Authority if the defaulter fails to make an appearance in pursuance of the notice issued by him. Any contravention under Sec.3 Power to compound contraventions Sec. security or any other money or property in respect of which the contravention has taken place shall be confiscated to the Central Government.13 provides that any adjudicating authority may. if any. 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.16-35] 11. 11.6. in addition to the penalty. If the contravention continues. The arrest warrant issued by an Adjudicating Authority may be executed by any other Adjudicating Authority within whose jurisdiction the defaulter may for the time being be found.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. If the contravention continues. 400 per day (c) Rs. Sec. 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. direct that any currency. the defaulter shall not be arrested or detained in civil prison. shall be retained outside India in accordance with the directions made in this behalf.

On receipt of an appeal.4 Powers of appellate tribunal and special director (appeals) Sec. The Appellate Tribunal and the Special Director (Appeals) shall have. (f) reviewing its decisions.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. (c) receiving evidence on affidavits.3 Establishment of appellate tribunal Sec. for the purposes of Sec. The appeal shall be filed in the prescribed form and the manner accompanied by the prescribed fees. 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.17 empowers the Central Government to appoint one or more special Directors to hear the appeals against the orders of the Adjudicating Authorities. The Special Director (Appeals) shall have the powers of a civil court and the proceeding before him shall be deemed to be judicial proceedings. the same powers as are vested in a civil court under the Code of Civil Procedure. The Central Government while issuing notification to this effect shall also specify the matter and places over which the Special Director (Appeals) have jurisdiction. in respect of the following matters: (a summoning and enforcing the attendance of any person and examining him on oath. 1908 while trying a suit. under obligation to specify the jurisdiction of the Adjudicating Authority. the Appellate Tribunal and the Special Director (Appeals) shall have all powers of a civil court. and (i) any other matter which may be prescribed by the Central Government. the Special Director (Appeals) after hearing the parties may pass such orders as he thinks fit confirming. . (e) issuing commissions for the examination of witnesses or documents. 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. 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. 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. (d) subject to the provisions of Secs.229 of the Indian Penal Code. 3.Sec. These are summarised as under. however. modifying or setting aside the order appealed against.6. (b) requiring the discovery and production of documents. (g) dismissing a representation of default or deciding it ex parte.6.28 provides for powers of the Appellate Tribunal and Special Director (Appeals). for the purpose of discharging its functions under this Act.123 and 124 of the Indian Evidence Act. 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. 2. The Adjudicating Authority cannot hold any enquiry. 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. 11. for this purpose.2 Appeal to special director (appeals) Sec.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) 11.13. The Adjudicating Authority has been entrusted with powers of a civil court and all proceedings before it shall be deemed to be judicial proceedings within the meaning of Sec. 1. (h) setting aside any order of dismissal of any representation for default or any order passed by it ex parte. unless a complaint is made in writing by an officer authorised by a general or special order of the central government. The Appellate Tribunal and Special Director (Appeals) while disposing of an appeal. The Central Government is. Copies of the orders of the Special Director (Appeals) shall be sent to the parties concerned and to the concerned Adjudicating Authority. 11. 1872 requisitioning any public record or document or copy of such record or document from any office.13.6. The person alleged to have committed the contravention will be given a reasonable opportunity of being heard before imposing any penalty under Sec.193 and Sec.

to any other Bench.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. IPC stands for (a) International Personal Computer (b) Indian Personal Computer (c) International Penal Code (d) Indian Penal Code 12.6.8 Members. 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 Power of chairperson to transfer cases Sec.6. the Chairperson may.7 Decision to be by majority Sec.6.34 .9 Civil court not to have jurisdiction Sec.21 of the Indian Penal Code. (a) Sec. 11. to be public servants Sec. the Chairperson may transfer any case pending before one Bench.11. 11. and after hearing such of them as he may desire to be heard.6.29 provides that where Benches are constituted. 11. etc.30 provides that on the application of any of the parties and after notice to the parties. 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. 11. or on his own motion without such notice. Members and other officers and employees of the Appellate Tribunal.10 Appeal to high court Sec.5 Distribution of business among benches Sec.31 provides that if the members of a Bench consisting of two members differ in opinion on any point.35 (b) Sec. from time to time.35 provides that any person aggrieved by any decision or order to the Appellate Tribunal may file an appeal to the High Court. by notification.6. for disposal.6. the Special Director (Appeals) and the Adjudicating Authority shall be deemed to be public servants within the meaning of Sec. make provisions as to the distribution of the business of the Appellate Tribunal amongst the Benches and also provide for the matters which may be dealt with by each Bench. 11.33 provides that the Chairperson. including those who first heard it. Self Assessment Questions 11. they shall state the point or points on which they differ. Such appeal must be filed within 60 days from the date of communication of the decision or order of the Appellate Tribunal.

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.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. manager. direction or order made thereunder is a company. Reserve Bank of India. 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.36 and 38 (c) Secs. the company for the conduct of the business of the company as well as the company.8 Miscellaneous Provisions Sec. such director. Under Sec. The officer so appointed shall exercise the like powers which are conferred on the income-tax authorities under the Income-tax Act. Further. any director. subject to such conditions and limitation as the Central Government may impose. who shall be called officers of Enforcement. 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.36 to 38 make provisions as regards Directorate of Enforcement. 1961.38 and 40 (d) Secs. However such a person would not be liable to punishment if he proves that the contravention took place without his knowledge or that he exercised due diligence to prevent such contravention.36 (d) Sec.13. at the time the contravention was committed. Sec. Self Assessment Question 14. for the purposes of this Act.38 provides for empowering other officers with the same powers as are mentioned in Sec. State Government. and was responsible to.37. Sec.7 Directorate of Enforcement Secs. shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly.34 and 36 (b) Secs. In addition.32 and 34 11.(c) Sec.37. secretary or other officer of the company. the Central Government may by notification authorize any officer or class of officers in the Central Government. 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. was in charge of. not below the rank of under-secretary to Government of India to investigate any such contravention. (True/False) . Subject to such conditions and limitations as the Central Government may impose. Similarly. Self Assessment Questions 13. every person who. Directorate of Enforcement make provisions under (a) Secs.38 11. an officer of Enforcement may exercise the powers and discharge the duties conferred or imposed on him under this Act.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. where a contravention of any of the provisions of this Act or of any rule. or is attributable to any neglect on the part of.

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. 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. What are the obligations of an exporter of goods and services out of India? Explain. FERA has been replaced by Foreign Exchange Management Act (FEMA). What are the duties and powers of an ‘authorized person’ under FEMA. postal orders. 5. 1999? 2. Export: Outflow of goods and inflow of foreign currency. drafts. 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. postal notes. Can anyone file a suit against officer of the government exercising powers under FEMA? 4.11 Answers . 3. 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 11.11. The emergency powers were subsequently replaced by the Foreign Exchange Regulations Act. 1947 which came into operation on March 25. cheques. The role of authorized person. 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. letters of credit. FEMA has been brought to consolidate and amend the law relating to foreign exchange. 11. credit cards or such other similar instrument as may be notified by the Reserve Bank. bills of exchange and promissory notes.10 Terminal Questions 1. 1947. I973 known as FERA. Import: Import with its grammatical variations and cognate expressions. travellers’ cheques. Describe the penalties prescribed under FEMA for contravention of its provisions. Currency: This expression includes all currency notes. 1999. 1993.9 Summary ‘The exchange control in India was introduced on September 3. means bringing into India any goods or services. 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.

While few developed countries have actively intervened within the last decade. (b) 14. authorise any person to be known as authorised person to deal in foreign exchange or in foreign securities. intervention has been commonplace in the emerging market community. (d) 4. True Answers to Terminal Questions 1. 3. (b) 6. (d) 3. the BIS hosted a meeting of Deputy Governors of central banks from major emerging market economies to discuss foreign exchange market intervention. Directorate of enforcement 11.5 – Sec. money changer or offshore banking unit or in any other manner as it deems fit. as an authorised dealer.5 9. the outstanding exception being Japan. Refer 11. Refer full unit – Please refer full unit in this regards. please refer FEMA Act. 4.3 – Sec.10 provides that the Reserve Bank may. regulation etc.Answers to Self Assessment Questions 1. (b) 2. (d) 12. 5. Sec. (c) 10. Mini-case On 2nd and 3rd December 2004. . on an application made to it in this behalf. (a) 13. (a) 8. Refer 11. No. 2. Refer 11. rules.13 provides that if any person contravenes any provision of the Act.4 – Every exporter is required to furnish to Reserve Bank or any other authority as prescribed. 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. (c) 5. False 7.

The authors’ new estimates tentatively suggest the existence of a cumulative effect from repeated intervention (although the mechanism is not clear). or to influence the level of foreign reserves. intervention is seen as having no lasting power to influence the real exchange rate and thus competitive conditions for the tradable sector. Without a durable and independent impact on the nominal exchange rate. Poland and Thailand are particularly relevant in this regard. In the group of countries surveyed. to supply liquidity to the forex market. Disyatat and Galati’s paper surveys the available empirical evidence. A second reason is that large-scale intervention can undermine the stance of monetary policy. to dampen exchange rate volatility (in some cases to satisfy an inflation target). This meeting threw some new light on these issues. 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. the objectives of intervention are particularly varied. The papers from Israel. 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. 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. it will be clear that many important issues remain to be resolved. 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. Between the end of 2001 and the end of 2004. Yet emerging market countries do intervene . 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. A third reason is that private financial markets have enough capacity to absorb and manage shocks . the paper from Venezuela makes the interesting point that intervention might have diminishing power with repetition. and the exchange rate peg has proved reasonably durable.presumably because they believe the instrument to be an effective tool in the circumstances and for the situations they face. such research often conflates interventions for different purposes. make investors more aware of the need to hedge their own exposures. along with overview papers prepared by BIS staff. .especially empirical assessment that uses data from different episodes and different countries where policy objectives may vary. 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. intervention in the foreign exchange market is automatic or nearly so. global foreign exchange reserves grew by over US$ 1600 billion. Many observers from developed economies have publicly attributed the comparatively weak appreciation of Asian currencies against a rapidly depreciating US dollar to such intervention.There are several reasons why developed countries no longer actively intervene. 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. The difference in view is brought home by the unprecedented scale of foreign exchange reserve accumulation by the emerging market group in recent years. In flexible exchange rate cases. Mexico. In this connection. The papers from Hong Kong SAR and Saudi Arabia illustrate the point. Other country papers show that varying mixtures of objectives are quite commonplace. as noted. Is intervention more effective in emerging markets? The wide range of different objectives behind intervention in practice makes assessment difficult . Four central questions are outlined below. they contend. 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. Yet others would counter that it is better to abstain from intervention in the foreign exchange market: such a stance would. 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. and presents new evidence for the Czech koruna (the methodology requires detailed daily data on intervention and option prices. Part of this may be attributable to cases in which fixed or targeted exchange rate regimes are in place: under such a regime. In addition. reflecting reserve accumulation by emerging market economies in Asia. a point which emerges clearly from the Moreno paper and the individual country papers in this volume. Formal econometric research has usually thrown doubt on the conclusion of effectiveness of intervention in flexible exchange rate cases although. there are several examples of repeated interventions over lengthy periods. which were only available for the Czech Republic).so that there is no need to “guide” the exchange rate. and this would help the market in hedging instruments to develop. Some favour of the discussion can be gleaned from the central bank papers reproduced in this volume. the process of reserve accumulation being used to help dampen volatility when that is convenient). monetary policy actions are primarily dictated by what is needed to achieve and maintain the exchange rate target.

Emerging market economies tend to have less substitutability of assets across currency boundaries. And several of the country papers describe the application of regulatory measures to obtain influence over the exchange rate. (Hint: Interventions slow down the change in exchange rate and supply liquidity to the forex market which is crucial for the emerging markets.) 2.) Source: BIS paper no 24 MB0051-Unit-12-Companies Act. 1956 Structure: 12.12 and 33) Availability of name Floatation 12. Mihaljek’s paper shows clearly that emerging market economies typically hold very large reserves compared with market turnover. 1956 Unit-12-Companies Act. What is the effect of intervention on global economy. What do you think intervention is effective for emerging market. and the authorities tend to have greater financial – and certainly regulatory – weight relative to their private markets. (Hint: It provides more opportunities for controlling exchange rates and substituting assets across currency boundaries.3 Memorandum of Association Meaning and purpose Form and contents Alteration of memorandum 12.It remains possible that greater apparent effectiveness of intervention in emerging market cases simply reflects different structural characteristics. Questions 1.1 Introduction Objectives 12.2 Formation of a Company Promotion Registration (Secs. even if interventions are not in general large relative to turnover.4 Articles of Association Meaning and purpose Registration of articles Subject matter of articles .

13 Answers 12.10 Winding up of Companies Modes of winding up Winding up by the court 12.8 General Meetings and Proceedings Need for meetings Statutory meeting (Sec.1 Introduction .169 12.5 Prospectus Contents of a prospectus Stock Exchange Board of India guidelines relating to disclosure on prospectus 12.9 Auditor 12.11 Summary 12.165) Annual General Meeting (AGM) (Secs.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.12 Terminal Questions 12.

syndicate. 12.146). These are: (i) Promotion.” 12. These two documents are required to be submitted within thirty days of registration of the company.3). The promoter may be an individual. “any seven or more persons or where the company to be formed will be a private company. The Companies Act. 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. for convenience. if any (Sec.In the earlier units. For the purpose. 478 and 519. (ii) Particulars regarding directors. 76. you came to know about the Foreign Exchange Management Act. association. The following two documents. This definition does not bring out the meaning and nature of the company into a clear perspective. are usually delivered along with the aforesaid documents.20 states that a company cannot be registered by a name. with or without limited liability. 69.2 Formation of a Company The whole process of formation of a company may be roughly divided.2 Registration (Secs. associated for any lawful purpose may. . Also Sec. Who is a promoter? This term has not been defined under the Act. it is advisable that promoters find out the availability of the proposed name of the company from the Registrar of Companies.12 permits the formation of different types of companies. into three parts. manager and secretary. which in the opinion of the Central Government is undesirable. you should be able to: l Describe formation of company l Define shares and directors l Explain meetings and resolutions l Define auditor l Describe how to winding-up a company 12.2.2.2. (ii) companies limited by guarantee and (iii) unlimited companies. although the term is used expressly in Secs. 12.12 and 33) Secs. though not required to be filed for the purpose of registration. Objectives After studying this unit. These may be (i) companies limited by shares. Therefore. The persons who assume the task of promotion are called promoters. (ii) Registration and (iii) Floatation. (i) The address of the registered office of the company (Sec.62. 1956.3 Availability of name Sec. The vast majority of companies in India are with limited liability by shares. 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. In this unit you will study about the Companies Act.1 Promotion Promotion is a term of wide import denoting the preliminary steps taken for the purpose of registration and floatation of the company. two or more persons.303). partnership or company. three names in order of priority should be filed.12 states that.

it defines as well as confines the powers of the company. 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. Thus.12.4 Floatation When a company has been registered and has received its certificate of incorporation. It tells us the objects of the company’s formation and the utmost possible scope of its operations beyond which its actions cannot go. with ‘limited’ as the last word of the name in the . it can go ahead with raising capital sufficient to commence business and to carry it on satisfactorily.3. C. How may partners involved in the case of private company? (a) 2 (b) 4 (c) 5 (d) 7 12. a supplier of goods or money. Sec. D and E in Schedule I to the Act. It enables shareholders. creditors and all those who deal with the company to know what its powers are and what is the range of its activities. Sec. 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. 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. that will be ultra vires (beyond powers of) the company and so void. the intending shareholder can find out the field in.2.3 Memorandum of Association 12. it is ready for ‘floatation’. Thus. divided into paragraphs. The persons who assume the task of promotion is known as __________ (a) Acceptors (b) Motivators (c) Promoters (d) None 2. Also. who will attest the signature. any one dealing with the company. as may be applicable in the case of the company. Each of the members must take at least one share and write opposite his name the number of shares he takes. 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. Sec.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. It must be done at least 3 days before allotment. 12.15 requires the memorandum to be printed. Self Assessment Questions 1.2 Form and contents Sec. or in Forms as near thereto as circumstances admit. The memorandum serves a two-fold purpose. that is to say. If anything is done beyond these powers.14 requires that the memorandum of a company shall be in such one of the Forms in Tables B.3.13 requires the memorandum of a limited company to contain: (i) the name of the company. say.

In this case.146). The change of name becomes effective on the issue of fresh certificate of incorporation. The procedure depends on whether the change is within the jurisdiction of same registrar of companies (Sec. in which the registered officer of the company is to be situated.3. town or village.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..146) or whether the shifting is to the jurisdiction of another registrar of companies in the same state (Sec. (b) In the opinion of the Central Government.146) also require confirmation by the Regional Director. (ii) the name of the State. In case of too similar names. A name shall be said to be calculated to deceive where it suggests some connection or association with the existing company. (iii) Within 30 days of the removal of the registered office. and (v) the amount of the authorised share capital.e. (c) Shifting of the registered office from one place to another within the same state (Sec. The change of name must be communicated to the Registrar of Companies within 30 days of the change.25 as an ‘association not for profit’ [Sec. These provisions are explained herein below: Change of name.146 and Sec. (iv) the declaration that the liability of the members is limited. an application is to be made in the prescribed . The promoters are free to choose any suitable name for the company provided: (a) the last word in the name of the company. Sec. 12.20(1)]. For this purpose. Every company shall: (a) paint or affix its name and the address of its registered office and keep the same painted or affixed.23(1)]. within 30 days after the date of the change. 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. the procedure is: (i) a special resolution is required to be passed at a general meeting of the shareholders. Publication of name (Sec. divided into shares of fixed amounts. when public company is converted into a private company or vice versa).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. stating separately ‘Main objects’ and ‘other objects’. notice of the change should. if limited by shares or guarantee is ‘limited’ unless the company is registered under Sec. The company may do so anytime.13(1) (a) & 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. A resolution passed by the Board of directors shall be sufficient.case of a public company and ‘private limited’ as the last words in the case of a private company. the name chosen is not undesirable [Sec. be given to the Registrar who shall record the same (Sec. These contents of the memorandum are called compulsory clauses and are explained below: The name clause. Too similar name. However.147).146). 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. (b) Change of registered office from one town or city or village to another town or city or village in the same State (Sec. notice of the new location has to be given to the Registrar who shall record the same. the resemblance between the two names must be such as to be calculated to deceive. Change of registered office.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.17A). (ii) a copy of it is to be filed with the Registrar within 30 days.25].3 Alteration of memorandum Sec. (iii) the objects of the company. This may include: (a) Change of registered office from one premises to another premises in the same city. However.

_____________ 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. (a) Memorandum of understanding (b) Memorandum of association (c) Memorandum of unions (d) None 4. however.] 12. C.4. The Articles of association of a company have a contractual force between company and its members as also between the members inter se in relation to their rights as such members. Articles cannot supersede the objects as set out in the memorandum of association [Birds Investments Ltd. or (iii) it may set out is own articles and adopt part of Table A. Self Assessment Questions 3.3 Subject matter of articles The articles of a company usually deal with the following matters: . it does not register its own articles.I. Further.4.4. The alternatives (ii) and (iii) are often employed. v. If.26 states that a public company limited by shares may register articles of association signed by the subscribers to the memorandum. 147 Cal. because of economy in printing and also because any provision of Table A is legally beyond any doubt. 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. _________ tells us the objects of the company’s formation and the utmost possible scope of its operations beyond which its actions cannot go. (ii) it may wholly exclude Table A and set out its own regulations in full. 12. Such certificate shall be conclusive evidence of the compliance of all requirements under the Act. and partial adoption of Table A has particular advantage for small companies. They are subordinate to and are controlled by memorandum. rights. 12. (1965) 35 Comp.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.form and the confirmation shall be communicated within four weeks. Table A will still apply automatically unless it has been excluded or modified.T. then the articles given in Table A of Schedule I automatically becomes applicable. 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. Cas. There are actually three possible alternatives in which such company may adopt articles: (i) it may adopt Table A in full or. even if it does register articles of its own.2 Registration of articles Sec. They define the duties.4 Articles of Association 12.

the amount of capital issued and the classes of shares into which the capital is divided. company’s lien on shares. poll. 3. 5. Change of name must be communicated to the Registrar Companies within ________________ of the change. voting. calls and forfeiture of shares for non-payment of calls. the execution or adoption of a preliminary agreement. 8. it may be a circular or even a notice. proxy.5. circular. a prospectus is not merely an advertisement. Thus. as per Sec. appointment and powers of directors. means any document described or issued as prospectus and includes any notice.1.1 Contents of a prospectus . resolution. 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. the rights of each class of shareholders and the procedure for variation of their rights. 4. 9.5 Prospectus A prospectus. the increase and reduction of share capital. general meetings. transfer and transmission of shares. 10. (2) The aforesaid invitation is made to the public. 6. notices. A document shall be called a prospectus if it satisfies two things: (1) It invites subscriptions to share or debentures or invites deposits. number.2(36). if any. 12. (a) 20 days (b) 15 days (c) 10 days (d) 30 days 6. 7. the allotment of shares. minutes. the business of the company. Self Assessment Questions 5. quorum. 2. 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. exercise of borrowing powers including issue of debentures.

5. (iii) Means of Financing (including contribution of promoters). (vii) Name and address of auditors and lead managers.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”. (1969) 2 Comp. ___________ lays down that the matters and reports stated in Schedule II to the Act must be included in a prospectus. (vi) Date of closing of the issue. This definition does not bring out the meaning of a share in its true perspective. 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. 12. Terms of the present issue. 4. If no rating has been obtained. Particulars of the issue.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. General information.73. Under this head information is given about (i) Name and address of registered office of the company. this should be answered as ‘No’.6 Shares Sec. (iv) Declaration about the issue of allotment letters/refunds within a period of 10 weeks and interest in case of any delay in refund. subscribed and paid-up capital.56 lays down that the matters and reports stated in Schedule II to the Act must be included in a prospectus.Sec. L. In the first part brief particulars are to be given about matters mentioned below: 1.T. (i) Authorised.5. (iii) Any special tax benefits. East India Distilleries (1957) 27 Comp. 3.J. 6. 2. (ii) How to apply. Outstanding litigations relating to financial matters or criminal proceedings against the company or directors under Schedule XIII. SEBI stands for (a) Stock Exchange Board of India (b) State Exchange Board of India (c) Stock Exchange Bank of India (d) None 12. (v) Date of opening of the issue. under Sec.I. (ix) Names and address of the underwriters and the amount underwritten by them. (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. But a share is not a negotiable instrument [C. v. The format of a prospectus is divided into three parts. 175]. in addition to the requirements of Schedule II to the Act. (i) Terms of payment. (ii) Project cost. Associated Industrial Dev. giving separately reservation for preferential allotment to promoters and others. (ii) Size of the present issue. 8. (i) objects. (ii) Name/(s) of stock exchange/(s) where application for listing is made. Co. Cas. A share of a company in the hands of a shareholder signifies a bundle of rights and obligations [Viswanath v. Self Assessment Questions 7. Capital structure of the company. 19] . (viii) Whether rating from CRISIL or any rating agency has been obtained for the proposed debentures/preference shares issue. contain/specify certain particulars as are announced from time to time. at the prescribed rate. issued.

12.85).6 Non-voting shares ‘Non-voting shares’ as the term suggests are shares which carry no voting rights. 1999.87(1)].4 Cumulative Convertible Preference Shares (CCPs) The Government vide its guidelines dated 19th August. they are usually called founder’s shares. Sec.83 requires that each share in a company having a share capital must be distinguished by its appropriate number.6. called cumulative convertible preference shares. etc. preference and Cumulative Convertible Preference Shares (CCPS). the Board of Directors have to comply with the provisions of law as regards depreciation. The Companies (Amendment) Act. 12. 12.6. As deferred shares are normally held by promoters and directors of the company.6.6. 1999 amended Sec.6.2 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.83 requires that each share in a company having a share capital must be distinguished by its appropriate number.90). 12. These are contemplated as altogether a different class of shares which may carry additional dividends in lieu of the voting rights. The rate of dividend is not fixed. Thus. 1985 permitted issue of another class of shares by public limited companies. 12.6. and (3) Deferred or Founders’.Sec.1 Classes of shares The most common classes of shares are: (1) Preference. Self Assessment Questions 16. A public company and a private company which is a subsidiary of a public company may not issue shares other than equity.86.6.3 Equity share ‘Equity share’ means a share which is not preference share (Sec. CCPS stands for (a) Constant Convertible Preference Shares . Before recommending dividend on equity shares. transfer of a minimum amount to reserves. (2) Equity or Ordinary. 2000 provided for issue of such type of equity shares under Sec. The Board of Directors recommend the rate of dividend which is then declared by the members at the Annual General Meeting.– 79A was inserted for this purpose. A new Sec. 12. it may issue what are known as deferred shares. allowed issue of sweat equity shares subject to fulfillment of certain conditions.7 Sweat equity shares The Companies (Amendment) Act.82 to the effect that for the word ‘shares’. The holders of equity shares have voting rights in proportion to the paid-up equity capital of the company [Sec. the words ‘shares and debentures’ shall be substituted. The Companies (Amendment) Act. (True/False) 17.5 Deferred or founder’s shares A pure private company can issue shares of a type other than those discussed above (Sec. 12.

of the term has been given. directors are the persons who direct. But the Act gives no further guidance on the function. therefore. 20. (True / False) 12. If they misapply company’s money. 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. For instance. they enter into contracts on behalf of the company and in the name of the company. Such cases are: l They are trustees of money which comes to their hands or which is actually under their control. by whatever name called. _____________ defines a director. to make calls. Sec. In reality. (ii) trustees. Although directors are not trustees in the real sense of the term.(b) Constant Convertible Permanent Shares (c) Cumulative Convertible Preference Shares (d) None 18. whenever there is clash of his personal interests with that of the company. The directors act as agents of the company.7 Directors Sec. The directors of company are collectively referred to as the ‘Board of Directors’. a person is a director if he does whatever a director normally does.8 General Meetings and Proceedings . 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. Self Assessment Questions 19. l They are trustees for exercising powers conferred on them for the benefit of the company." This is a definition based purely on function. judicial pronouncements have described them as (i) agents. manage or superintend a company’s affairs. They appoint the company’s officers and recommend the rate of dividend. they have to make good the same as if they were trustees. powers to allot shares.291 has entrusted the management of the affairs of the company in their hands. The holders of equity shares have voting rights. They chalk-out the general policy of the company within the framework of the Memorandum of the Company. either statutory or judicial. therefore. forfeit shares should be exercised bona fide in the interests of the company. The directors have also been described as trustees. (True / False) 12. as no formal definition. or (iii) managing partners.2(13) defines a director as including "any person occupying the position of director. The exact position of ‘director’ is hard to define. they occupy an office of the trust and are in certain respects in the position of trustees for the company. conduct. However. he should keep in mind the company’s interests. duties and position of a director. l They stand in a fiduciary relationship to the company and.

8. (ii) Annual General Meeting. (iii) at the registered office of the company or at some other place within the city. (iii) At least 21 days before the day of meeting. change in the objects or shift of registered office or alteration of capital. An EGM may be called: (i) by the Directors of their own accord. it need not hold any such meeting in the year of its incorporation or in the following year. who may so allow for any special reason. 2. 3. However. be held valid if consent is accorded thereto by members of the company holding 95% or more of the voting rights (Sec.165) Some of the most important legal provisions regarding the statutory meeting are: (i) It is required to be held only by a public company having a share capital. The meeting must be held in each calendar year and not more than fifteen months shall elapse between two meetings.8.4 Extra-ordinary Meeting (EGM) – Sec. The legal provisions as regards such meetings are: 1. 12.166-168) As the name signifies. All business transacted at such meetings is called special business. whether public or private. The meeting must be held (i) on a day which is not a public holiday. this is an annual meeting of a company. The provisions relating to this meeting are: 1. In this context meetings of shareholders and of directors becomes necessary. (iii) by the requisitionists themselves. [Sec. town or village in which the registered office is situated. The various provisions of law empower shareholders to do certain things. A shorter notice may. The Act has made provisions for following different types of meetings of shareholders: (i) Statutory Meeting. (iii) Extraordinary General Meeting.291 empowers the Board of Directors to manage the affairs of the company. (ii) during business hours.166(2)]. It must act through some human intermediary. having a share capital or not. (ii) by the Directors on requisition. limited or unlimited must hold this meeting. The Board of Directors may call a general meeting of the members at any time by giving not less than 21 days notice. 2. (iv) by the Tribunal. every item on the agenda must be accompanied by an ‘Explanatory Statement’.171). Every company. cannot act itself.8. and (iv) Class Meetings. They are specifically reserved for them to be done in company’s general meetings. however. (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. EGM is convened for transacting some special or urgent business that may arise in between two AGMs. 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. 12. Self Assessment Questions . The maximum gap between two such meetings may be extended by three months by taking permission of the Registrar. In this Part meetings of shareholders are taken up and later in Part 14.12. for instance.3 Annual general meeting (AGM) (Secs. meetings of directors are discussed. 12. Therefore.169 Clause 47 of Table A (Schedule – I) provides that all general meetings other than AGMs shall be called the EGMs.2 Statutory meeting (Sec. A private company or a public company registered without share capital is under no obligation to hold such a meeting. Sec. a notice of the meeting is to be sent to every member stating it to be a Statutory Meeting.1 Need for meetings A company is an artificial person and therefore.8.

_____________ empowers the Board of Directors to manage the affairs of the company. Is it compulsory for every company to appoint qualified auditors to do the audit of the accounts maintained by the company? (True / False) 2. However. then the company in general meeting may do so. after a period of one year from the commencement of the Amendment Act is holding any security in that company. inform the registrar in writing that he has accepted the appointment or has refused the same. Every auditor of a company has right of free and complete access at all times to the books. Every auditor so appointed. The first auditors hold office until the conclusion of the first AGM of the company. How many days before of statutory meeting a notice to be sent to every member of the company. (True / False) 12. A person will not be eligible for appointment as an auditor of a company if be. Self Assessment Questions 1.227 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. The private companies are not to be taken into account for calculating the number of companies which an auditor can audit. 12. (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. is appointed and he takes control of the company. collects its assets. (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. (a) 11 days (b) 31 days (c) 41 days (d) 21 days 22. if the Board of Directors do not appoint the first auditors. accounts and vouchers of the company whether kept at the head office or elsewhere. called a ‘liquidator’.21. must within thirty days of the receipt from the company of the intimation of his appointment. An administrator. The first auditors(s) can be appointed by the Board of Directors within one month of the date of the incorporation of the company. accounts and vouchers of the company whether kept at the head office or elsewhere.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. Also. 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. Powers and duties or obligations of auditors Sec.9 Auditor It is compulsory for every company to appoint qualified auditors to do the audit of the accounts maintained by the company. pays its debts and finally distributes any .

The statutory process by which this is achieved is called ___________.433.surplus among the members in accordance with their rights. C.2 Winding up by the court Winding up by the Court.11 Summary A company is an association of many persons who contribute money or money’s worth to a common stock. The statutory process by which this is achieved is called ‘liquidation’. An association of persons. also called compulsory winding up. 12. its members are not as such liable for its debts. B. being a separate person. A voluntary winding up under the supervision of the Court. may be ordered in cases mentioned in Sec. having its own entity separate from its members. Winding up of a company differs from insolvency of an individual inasmuch as a company cannot be made insolvent under the insolvency law. Compulsory winding up under an order of the Court. 12. even a solvent company may be wound up. 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. Shares in a company are transferable. if any. The Court will make an order for winding up on an application by any of the persons enlisted in Sec. An administrator. once incorporated under the Companies Act. and who share the profit and loss arising there from.439. unpaid on the shares respectively held by them. A company limited by shares is a registered company having the liability of its members limited by its memorandum of association to the amount. Self Assessment Questions 18. and employs it in some business.10. Besides. 12. Glossary . called a (a) Liquidator (b) Advisor (c) Financer (d) None 19. subject to the cost of doing so.10.1 Modes of winding up A company may be wound up in any of the following two ways: A. Voluntary winding up. The company. 1956 become a legal entity.

A company limited by shares intends to buy some of its own shares. 4. True .56 8. What do you mean by memorandum of association? What does it contain? 5. (c) 2. 3. How is an auditor appointed? What are the matters to be stated in his report? 12. Prospectus: Any document described or issued as a prospectus and includes any notice. 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. Sec. Who is a promoter? Also explain the duties and liabilities of promoters. Write a short note on statement in lieu of prospectus.16 5.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. circular. A 3. Distinguish between a public limited company and private limited company. (c) 7.12 Terminal Questions 1. (a) 9. Sec. What are the characteristics of a company? 2. What are the different kinds of general meetings of a company? 8. 6. advertisement or other document inviting from the public.13 Answers Answers to Self Assessment Questions 1. (b) 4. 12. (d) 6. Suggest 7. Private Company: A company where the minimum number of member is two and maximum fifty.

69. Refer 12. True 14. Salomon was also the managing director of the company. He sold his business for a sum of £30. Refer 12. (ii) Registration and (iii) Floatation. Salomon. Refer 12. the total assets of the company amounted to £6. Refer 12. Refer 12.050. Refer 12. 4. 76. Sec.6 – Refer Share Section of this unit. True 12.10. Sec. (d) 15. 5. and (iv) Class Meetings. 2.8 – The Act has made provisions for following different types of meetings of shareholders: (i) Statutory Meeting.000 shares of £1 each and issue of debentures worth £10.000 owing to unsecured trade creditors. At the time of winding up.2 – Promoter term is used expressly in Sec. (ii) Annual General Meeting. 3. 8.000 secured by floating charge on the company’s assets in favour of Mr. Liquidation Answers to Terminal Questions 1.000 to a company formed by him along with his wife. into three parts.2 – Private company at least two members and public at least 7 members. for convenience. True 18.2(13) 13. The company almost immediately ran into difficulties and eventually became insolvent and winding up commenced. a daughter and four sons. 6. Salomon and £8. its liabilities were £10. (c) 11. Mr.291 16.000 secured by the debentures issued to Mr.2 – The whole process of formation of a company may be roughly divided. 7. Refer 12. (a) 19. True 17.9 – It is compulsory for every company to appoint qualified auditors to do the audit of the accounts maintained by the company. These are: (i) Promotion. . All the other shareholders subscribed for one share of £1 each. 478 and 519. The purchase consideration was satisfied by allotment of 20. (iii) Extraordinary General Meeting.62.5 for more detail.3 – The Memorandum of Association of a company is its charter which contains the fundamental conditions upon which alone the company can be incorporated. Mini-case Salomon carried on business as a leather merchant. Refer 12.

36) . £6.8 Electronic Governance [Secs.16) 13.35 to 39] Certifying authority to issue digital signature certificate (Sec.15) Security procedure (Sec.050 on the ground that the company was a mere alias or agent for Salomon.4) Legal recognition of digital signatures (Sec. (Hint: Yes Please follow the case.4 Information Technology Act 13.) MB0051-Unit-13-Information Related Laws Unit-13-Information Related Laws Structure: 13.6) 13.6 Commencement and Application 13.4 to 16] Legal recognition of electronic records (Sec.5) Use of electronic record and digital signatures in government and its agencies (Sec.10 Digital Signature Certificates [Secs.7 Digital Signature 13.3 Benefits of the RTI 13. Question Do you agree to the claims of the unsecured trade creditors? Comment.2 Right to Information Act 13.14 to 16] Secure electronic record (Sec.5 Objectives of the Act 13.9 Secure Electronic Records and Secure Digital Signatures [Secs.35) Representations upon issuance of digital signature certificate (Sec. viz.The unsecured sundry creditors claimed the whole of the company’s assets.14) Secure digital signature (Sec.1 Introduction Objectives 13.

61) Appeal to high court (Sec.51) Salary.66) Publishing of information which is obscene in electronic form (Sec.58) Right to legal representation (Sec. allowances and other terms and conditions of service of presiding officer (Sec.57) Procedure and powers of the tribunal (Sec.59) Limitation (Sec.55) Staff of the cyber appellate tribunal (Sec.70) Penalty for misrepresentation (Sec.48) Composition of cyber appellate tribunal (Sec.11 Cyber Regulations Appellate Tribunal Establishment of cyber appellate tribunal (Sec.71) .67) Power of the controller to give directions (Sec.Revocation of digital signature certificate (Sec.50) Term office (Sec.54) Orders constituting appellate tribunal to be final and not to invalidate its proceedings (Sec.63) 13.68) Directions of controller to a subscriber to extend facilities to decrypt information (Sec.38) 13.65) Hacking with computer system (Sec.69) Protected system (Sec.60) Civil court not to have jurisdiction (Sec.62) Compounding of contraventions (Sec.49) Qualifications for appointment as presiding officer of the tribunal (Sec.65 to 78] Tampering with computer source document (Sec.56) Appeal to cyber regulations appellate tribunal (Sec.12 Offences [Secs.52) Resignation and removal (Sec.

Therefore the masters have the rights to know how the Govts. actions or lack of actions and policies.16 Answers 13. But ironically. accountability of the government and promoting people’s basic rights to know about government’s decisions. 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. The Right to Information (RTI) Act has been in existence for over a year.73) Publication for fraudulent purpose (Sec.76) Penalties and confiscation not to interfere with other punishments (Sec.Breach of confidentiality and privacy (Sec.14 Summary 13. India is a democracy and people are the masters. meant to serve them. & other .1 Introduction In the earlier units. you came to know about the FEAM and Companies Act.77) Power to investigate offences (Sec. As early as in 1976. remains hardly known to people for whose benefit it was introduced in the first place. In Indian democratic system.78) 13. Legislations centred on RTI are in full force in many countries of the world specially in the ones which are developed and ruled democratically. this Act which is full of significance in creating conditions for good governance. the right of every citizen to know information is no doubt a revolutionary step.13 Shortcomings of the Information Technology Act. the Supreme Court said that people can not speak or express themselves unless they know. Objectives After studying this unit. Article 19 (1) says that every citizen has freedom of speech and expression..72) Penalty for publishing digital signature certificate false in certain particulars (Sec. you should be able to: · Explain Right to Information Act · Describe the benefits of RTI · Explain Information Technology Act 13.15 Terminal Questions 13. 2000 13.75) Confiscation (Sec. In this unit you will study about the information related laws. are functioning.2 Right to Information Act Right to information is a part of fundamental rights under Article 19 (1) of the Constitution.74) Act to apply for offence or contravention committed outside India (Sec.

RTI Act. 2005. The act extends to the whole of India except the State of Jammu and Kashmir. alertness which are the major ingredients for smooth & effective functioning of public authority. What rights are available under RTI Act. 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. 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. 2005. · Encourages public authority to be sensible and to make optimum use of limited fiscal resources. works. vitality. Self Assessment Questions 1.2005. Coverage of the Act: The RTI Act covers all level of Govt. 2005 and became operational on 12. This has widened the path of corruption in manifold. 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.administrative bodies. · Inspect any Govt. · Free flow of information can tackle any disaster there by enables sustained development and growth. 2005 was implemented in our country on 15th June. Every citizen of India are empowered to seek information from public authority. State. · Reminds public authorities their power and duty including channels of supervision and accountability. It also covers NGOs – that are financed substantially with public funds provided by Govt. it should not be misinterpreted rather it makes the administration more responsive and removes sloth. · Take samples of materials of any Govt. . work. – Center. · Increases efficiency. District and Local self Governing Bodies like Panchyat and Municipal bodies.3 Benefits of the RTI The various benefits of the RTI are: · Enhances transparency. documents. 2. 2005 empowers every citizen to: · Ask any questions from the Government or seek any information. For this openness and change of attitude is required. · Inspect any Govt. (True/False) 13. Since the Act imposes liability on public authority. 2005 was implemented in our country on 15th June. 2005 Right to Information Act. · Take copies of any Govt. documents. ___________ is a part of fundamental rights under Article 19 (1) of the Constitution. · Effective information flow helps citizen to secure their right and entitlement. Maximum possible information must be disclosed voluntarily. RTI Act.10. credibility and legitimacy of public authority.

Although the law came into operation on October 17. cyber harassment. (iii) to facilitate electronic storage of data in place of paper-based methods of storage of data. commonly referred to as “electronic commerce”. 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 IT Act does give extraterritorial jurisdiction to law enforcement agencies. (True/False) 6. Not only from the perception of the common man. the Indian Evidence Act. The Indian IT Act also needs to evolve with the rapidly changing technology environment that breeds new forms of crimes and criminals.. Another major hurdle is the reluctance on the part of companies to report the instances of cyber crimes. 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. it does not expressly talk of cyber defamation.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. 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. which have not been addressed in the IT Act. RTI ____________ transparency & credibility of public authority. India enacted the IT Act and became part of a select group of countries to have put in place cyber laws. 2000 provides for punishment to whoever transmits or publishes or causes to be published or transmitted. which involves the use of alternatives to paper-based methods of communication and storage of information. 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. 1934. 2000. and . law enforcing agencies and even the judiciary. cyber nuisance. 13. as they don’t want to get negative publicity or worse get entangled in legal proceedings. Information Technology Act apply more than 43 countries in the world. The prime reason for this is the fact that the IT Act is a set of technical laws. The Indian IT Act also needs to evolve with the rapidly changing technology environment that breeds new forms of crimes and criminals. cyber defamation and the like. and the Reserve Bank of India Act.4 Information Technology Act In May 2000.Self Assessment Questions 3. In all these years. (True/False) 13. but also from the perception of lawyers. Effective information flow helps citizen to secure their ______________ and _____________. 1891. at the height of the dot-com boom. despite the growing crime rate in the cyber world. Though Section 67 of the Information Technology Act. the Banker’s Books Evidence Act. We are now beginning to see new categories and varieties of cyber crimes. but such powers are largely inefficient. it still has an element of mystery around it. (iv) to amend the Indian Penal Code. (ii) to facilitate electronic filing of documents with the government agencies. 1872. Self Assessment Questions 5. 4. This is because India does not have reciprocity and extradition treaties with a large number of countries. This includes cyber stalking.

2(h) of the Indian Succession Act. 1881. Authentication is a process used to confirm the identity of a person or to prove the integrity of information. 13. it applies to any offence or contravention thereunder committed outside India by any person. 1925 including any other testamentary disposition by whatever name called. Self Assessment Question . A trust is defined in the _________________.13 of the Negotiable Instruments Act. RTI extends to _____________ of India. IT Act provides legal recognition for transactions carried out by means of __________ and other means of __________________. The “hash function” means an algorithm mapping or translation of one sequence of bits into another. Self Assessment Questions 7. 8. (iii) a trust as defined in Sec. 1882.7 Digital Signature Authentication of electronic records. IT Act facilitates electronic storage of data in place of ____________ methods of storage of data. Subject to the provisions of section 3 any subscriber may authenticate an electronic record by affixing his digital signature. 13. 10. 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.6 Commencement and Application It extends to the whole of India and save as otherwise provided in this Act. (ii) a power-of-attorney as defined in Sec.3 of the Indian Trust Act. (iv) a will as defined in Sec. The authentication of message involves determining its source and verifying that it has not been modified or replaced in transit.1A of the Power of Attorney Act. (vi) any such class of documents or transactions as may be notified by the Central Government in the Official Gazette. 1882. This Act is not applicable to the following: (i) a negotiable instrument (other than a cheque) as defined in Sec. (b) that two electronic records can produce the same hash result using the algorithm.(v) to provide for matters connected therewith or incidental thereto. Self Assessment Questions 9. (v) any contract for the sale or conveyance of immovable property or any interest in such property.

means affixing of his handwritten signature or any mark on any document and the expression “signature” shall be construed accordingly. 13.9. as the case may be. was – (a) unique to the subscriber affixing it.15) If.16) . 13. such requirement shall be deemed to have been satisfied if such information or matter is (a) rendered or made available in an electronic form. sanction or approval by whatever name called in a particular manner.8. then such digital signature shall be deemed to be a secure digital signature.9. authority.6) Where any law provides for the following: (a) the filing of any form. then notwithstanding anything contained in such law.4) Where any law provides that information or any other matter shall be in writing or in the type.14 to 16] 13.4 to 16] 13. such requirement shall be deemed to have been satisfied if such filing. and (b) accessible so as to be usable for a subsequent reference. 13. body or agency owned or controlled by the appropriate Government in a particular manner. (c) the receipt or payment of money in a particular manner. at the time it was affixed.3 Security procedure (Sec.1 Secure electronic record (Sec. (True/False) 13. by application of a security procedure agreed to by the parties concerned. Legal recognition of electronic records come under _____________. issue. (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. Authentication is not a process used to confirm the identity of a person. 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.9.9 Secure Electronic Records and Secure Digital Signatures [Secs. Self Assessment Question 12. 13.3 Use of electronic record and digital signatures in government and its agencies (Sec.8 Electronic Governance [Secs. such requirement shall be deemed to have been satisfied.14) Where any security procedure has been applied to an electronic record at a specific point of time.8.5) 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. is effected by means of such electronic form as may be prescribed by the appropriate Government. (b) capable of identifying such subscriber. written or printed form. grant.2 Secure digital signature (Sec. with reference to a person. 13.11.1 Legal recognition of electronic records (Sec. then such record shall be deemed to be a secure electronic record from such point of time to the time of verification. it can be verified that a digital signature. application or any other document with any office.8. (b) the issue or grant of any licence. The expression “signed” as used above shall.2 Legal recognition of digital signatures (Sec. receipt or payment. notwithstanding anything contained in such law. then.

2 Representations upon issuance of digital signature certificate (Sec.36) A Certifying Authority while issuing a Digital Signature Certificate shall certify that: (a) it has complied with the provisions of this Act and the rules and regulations made thereunder. 13. by notification. 13. listed in the Digital Signature Certificate. Any person may make an application to the Certifying Authority for the issue of a Digital Signature Certificate. known as the presiding officer and be appointed.3 Revocation of digital signature certificate (Sec. or (c) upon the dissolution of the firm or winding up of the company where the subscriber is a firm or a company.11 Cyber Regulations Appellate Tribunal 13.10 Digital Signature Certificates [Secs.48) The Central Government shall. to be paid to the Certifying Authority. (b) the level of sophistication of the parties with reference to their technological capacity.2 Composition of cyber appellate tribunal (Sec. Self Assessment Question 13. by notification. and (f) it has no knowledge of any material fact. . and (f) the procedures in general use for similar types of transactions or communications. Self Assessment Questions 14. 13. (e) the cost of alternative procedures. (True/False) 15. (d) the subscriber’s public key and private key constitute a functioning key pair. (c) the subscriber holds the private key corresponding to the public key.1 Establishment of cyber appellate tribunal (Sec. which. (True/False) 13.10. (c) the volume of similar transaction engaged in by other parties. by the Central Government.49) The Tribunal shall consist of one person only.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. 13. (d) the availability of alternatives offered to but rejected by any party. Such an application is to accompany such fee not exceeding Rs 25000 as may be prescribed by the Central Government. (e) the information contained in the Digital Signature Certificate is accurate.11. including – (a) the nature of the transaction.11.1 Certifying authority to issue digital signature certificate (Sec.10.10. (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. or (b) upon the death of the subscriber.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. if it had been included in the Digital Signature Certificate would adversely affect the reliability of the representation made in (a) to (d) above. A Certifying Authority may not revoke a certificate.35 to 39] 13.38) 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. Secure digital signature come under __________________.

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. modifying or setting aside the order appealed against. pass such orders thereon as it thinks fit. However. resign his office. 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. may.8 Staff of the cyber appellate tribunal (Sec. after giving the parties an opportunity of being heard. no such appeal shall lie from an order made by an adjudicating officer with the consent of the parties. These employees and officers shall discharge their functions under general superintendence of the Presiding officer. Further.3 Qualifications for appointment as presiding officer of the tribunal (Sec.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. by order. 13.11.54) The Presiding officer may by notice in writing addressed to the Central Government. it shall be guided by the principles of natural justice and subject to the other provisions of this and of any rules.9 Appeal to cyber regulations appellate tribunal (Sec.52) The salary and allowances payable to. 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. allowances and other terms and conditions of service of presiding officer (Sec.11. 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.11.60) . 13.11.11.56) The Central Government shall provide the Tribunal with such officers and employees as that Government may think. or is qualified to be. the Tribunal may.11. 13. gratuity and other retirement benefits of the presiding officer shall be such as may be prescribed.57) Any person aggrieved by an order made by controller or an adjudicating officer may prefer an appeal to the Tribunal.55) No order of the Central Government appointing any person as the presiding officer shall be called in question.58) The Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure. remove the Presiding officer on the ground of proved misbehaviour or incapacity.11. 13. 13. 13. whichever is earlier.11 Right to legal representation (Sec.13.51) 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.5 Salary.50) A person shall not be qualified for appointment as Presiding officer unless he: (a) is.6 Resignation and removal (Sec. 13.11.11. confirming. On receipt of an appeal. a judge of a High court. The Central Government. 13.12 Limitation (Sec. and the other terms and conditions of service including pension.11.10 Procedure and powers of the tribunal (Sec.4 Term office (Sec. or has been. Also. the Tribunal shall have powers to regulate its own procedure including the place at which it shall have its sittings. 13. Instead. However.7 Orders constituting appellate tribunal to be final and not to invalidate its proceedings (Sec.

63) Any contravention under this Part may. 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.12.The provisions of the Limitation Act. be compounded by the controller or the adjudicating officer. 13.65 to 78] 13.11. 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. Further.1 Tampering with computer source document (Sec.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.11. 13. apply to an appeal made to the Tribunal. or with fine which may extend up to Rs 2 lakh. see or hear the matter. 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. However.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. or computer system or computer network). 13.15 Compounding of contraventions (Sec. no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act. . 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.14 Appeal to high court (Sec.12 Offences [Secs. computer commands. when the computer source code is required to be kept or maintained by law for the time being in force. shall be punishable with imprisonment up to 3 years. 1963 shall.12. 13. 13. to read.2 Hacking with computer system (Sec.3 Publishing of information which is obscene in electronic form (Sec. 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. commits hacking. destroys or alters or intentionally or knowingly causes another to conceal. or with both.65) Whoever knowingly or intentionally conceals.13 Civil court not to have jurisdiction (Sec. (or computer program. destroy or alter any computer source code used for a computer. as the case may be. 13. design and layout and program analysis or computer resource in any form. as for as may be. Right to legal representation comes under ______________. The expression “computer source code” means the listing of programs.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. (True/False) 17.67) Whoever publishes or transmits or causes to be published in the electronic form. Self Assessment Questions 16.11.12. either before or after the institution of Adjudication proceedings.

11 Act to apply for offence or contravention committed outside India (Sec.12.12 Confiscation (Sec. computer system or computer network located in India. book. and he. for reasons to be recorded in writing by order.70) The appropriate government may declare any computer.13. (empowered under the Act) who has secured access to any electronic record. the controller or the certifying Authority for obtaining any licence or Digital Signature Certificate. 13.10 Publication for fraudulent purpose (Sec. or with fine which may extend to Rs 1 lakh.8 Breach of confidentiality and privacy (Sec. correspondence.71) Whoever makes any misrepresentation to. discloses the same to any other person shall be punished with imprisonment for a team which may extend to 2 years. information. In such a case. the security of the state.5 Directions of controller to a subscriber to extend facilities to decrypt information (Sec. shall be punished with imprisonment for a term which may extend to 2 years.4 Power of the controller to give directions (Sec. 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. It may authorise persons to have access to the protected system.9 Penalty for publishing digital signature certificate false in certain particulars (Sec.12. friendly relations with foreign states or public order or for preventing incitement to the commission of any cognizable offence.12. or with both. document or other material. direct any agency of the government to intercept any information transmitted through any computer resource. or suppresses any material fact from. then he shall be punished with an imprisonment for a term which may extend to 7 years. 13.68) The controller may. 13.12.12. 13. 13. computer system or computer network to be a protected system. If he fails to provide the necessary assistance.74) Whoever knowingly creates. 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.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. the subscriber or any person in charge of the computer resource shall extend all facilities and technical assistance to decrypt the information. 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. or with both. 13. it is necessary that the act or conduct constituting the offence or contravention involves a computer. by order.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. or with fine which may extend to Rs 1 lakh.12. or with fine which may extend to Rs 1 lakh. or (b) the subscriber listed in the certificate has not accepted it. 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. without the consent of the person concerned. For this application.12.6 Protected system (Sec.12.75) The provisions of this Act shall apply also to any offence or contravention committed outside India by any person irrespective of his nationality. 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. rules or any regulations made thereunder. 13. or with both.76) . 13.72) Any person.7 Penalty for misrepresentation (Sec. register.12.

The Act is not applicable to negotiable instruments. copyright. floppies. tape drives or any other accessories related thereto. 1999. contracts for sale or conveyance of immovable property or any interest in such property.13 Penalties and confiscation not to interfere with other punishments (Sec. 1957. concurrent claims and cybersquatting. including infringement. these issues are tackled by the US Anti-Cybersquatting Consumer Protection Act. These are: 1. Thus under IT Act. 2000 is silent as regards taxation of goods and services traded through e-commerce. Hacking with computer system comes under _____________. computer system. shall be liable to confiscation.. 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. 2. 2000 The Act does not cover certain aspects of e-commerce.14 Power to investigate offences (Sec. This Act is a powerful deterrent to cybersquatting. rules. The IT Act makes no provision for jurisdictional aspects of electronic contracts. compact disks. Self Assessment Questions 18. testamentary dispositions (wills). such as intellectual property rights.000 per mark against the guilty parties. The Act does not address itself to internet related issues such as domain names and cyber squatting. No provision has been made for payment of stamp duty on electronic documents.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. . neither any protection for domain names nor action against cybersquatting is available.78) Notwithstanding anything contained in the Code of Criminal Procedure. a police officer not below the rank of Deputy Superintendent of Police shall investigate any offence under this Act. trade marks and patents). as it provides for the levy of damages upto US$ 300.13 Shortcomings of the Information Technology Act. however. i.Any computer. in respect of which provision of this Act. The IT Act. There have arisen many disputes about domain names globally.12. Thus infringement of copyright on e-commerce will be governed by the Copyright Act. No person shall publish a Digital Signature Certificate. jurisdiction of courts and tax authorities.. 5. In India. The banks cannot extend their services to the online medium of payments. order or regulations made thereunder has been or is being contravened. 13.e. 3. (i. 4.12. trusts.e. 19. 13. (True/False) 13. cybersquatting can be opposed by relying on the provisions of the Trade Marks Act. power of attorney. 1999. 6. 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. In USA.

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. Describe the provisions as regards secure electronic records and secure digital signatures. cheques. Explain some offences in detail. 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. 13. retrieving. thereby proving that the sender signed it and that the message has not been tampered with. Hence. Right to information 2. The private key and the public key are unique to the subscriber and constitute a functioning key pair. IT Act. Decryption: Decryption is the reverse process of converting encoded data to its original un-encoded form. 13. (True/False) 22. etc.16 Answers Answers to Self Assessment Questions 1. IT Act has been passed to promote efficient delivery of the Government services by means of reliable electronic records. 2000 was passed which is based on the __________ Model law on electronic Commerce. The Controller shall be the repository of all Digital Signature Certificates issued under this Act. 13. 2. Describe the process of digital signature certificate.14 Summary The Information Technology Act. 3. bills of exchanges. This is used to ensure authenticity. 4. In the case of immovable property. Explain available rights under RTI Act. certain documents are required to be compulsory registered with competent authorities of the government. IT Act excludes the provisions related to the negotiable instruments like promissory notes. True . Authentication of electronic records is a process used to confirm the identity of a person or to prove the integrity of information. transmitting. storing. such as capturing. 6. 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. Describe the objectives of IT Act. What do you mean by digital signature? 5. these documents are excluded. 2000. 2005. Glossary Information Technology: Hardware and software that perform data processing tasks. plaintext.15 Terminal Questions 1. manipulating or displaying data. (True/False) 21.Self Assessment Questions 20.

Refer 13.4 – 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. Section 66 19. Refer 13. True 7. right. 2. which involves the use of alternatives to paper-based methods of communication and storage of information. True 6. Indian Trust Act. Section 59 18.3. . Refer 13. UNCITRAL Answers to Terminal Questions 1.2 – Full knowledge please refer 13. 1882 11. Refer 13. commonly referred to as “electronic commerce”. True 21. 3. True 22. enhances 4. True 17. entitlement 5. electronic communication 9. 4. False 16. electronic data interchange.2. True 15. whole 10. True 20. paper-based 8.7 – Authentication is a process used to confirm the identity of a person or to prove the integrity of information. Electronics governance 13. False 12. Section 15 14.7 and 13.8 for detail.

Mini-case Bennett. Coleman & Co. The Bennett. Ltd.com" and "timesofindia. Coleman & Company filed two complaints.2 Inventions not Patentable 14.12 for detail.com" for its respective newspapers ‘The Economic Times’ and ‘The Times of India". Refer 13.7 Patents of Addition 14. one against Steven S Lalwani and the second against Long Distance Telephone Company who had got sites registered as "theeconomictimes.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. The defendants suggested that any misleading impression would be dispelled by the different design of the website. Ltd.10) 14.) MB0051-Unit-14-The Patents Act Unit-14-The Patents Act Structure: 14.5 Provisions for Secrecy of Certain Inventions 14.6) Form of application (Sec.8 Restoration of Lapsed Patents . Question What should be the court order in this case in your opinion? (Hint: Court give decision in favour of Bennet Coleman & Co.com" and "thetimesofindia. The traffic to these sites was redirected to other sites of Lalwani and the Long Distance Telephone Company. held two domain names "economictimes. Refer 13.9) Contents of specification (Sec.1 Introduction Objectives 14. 6.com".3 Applications for Patents Persons entitled to apply for patents (Sec.6 Grant of Patents and Rights Conferred Thereby 14.7) Information and undertaking regarding foreign applications (Sec.4 Representation and Opposition Proceedings 14. The complainant claimed that the registration and use of the domain names by Lalwani and the Long Distance Telephone Company was in bad faith.8) Provisional and complete specification (Sec.5.

Consequently.12 Terminal Questions 14. 1970 extends to the whole of India. As a consequence.11 Summary 14. Assignee: It includes an assignee of the assignee and the legal representative of a deceased assignee and references to the assignee of any person include references to the assignee of the legal representative or assignee of that person.13 Answers 14. as amended and modified from time to time. 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. 1995. Objectives After studying this unit. . 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. inter alia. 2004. the law was required to be amended further in respect of India’s obligations under the TRIPs Agreement.14. 1970. The Act describes the procedure for the grant of patent and protects his rights against infringement.9 Compulsory Licenses 14. The Patents (Amendment) Act 1999 had. 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. India as joined the Budapest Treaty and its provisions are applicable to India.1 Introduction In the earlier units. 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). commencing from January 1. 2004 on December 26. provided for the modalities for a 10-year transition facility (which India had negotiated at the time of its accession to the WTO). The objective is to protect the intellectual property rights of a person to whom the patent has been granted. The Patents Act. 2005. 1977. 2000 (in respect of amendments notified in 2002). due from January 1. The Act came into force from 21st September.10 Suits Concerning Infringements of Patents 14. you came to know about the law of Company act and information related laws. 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.

1956. Patent Agent: It means a person for the time being registered under this Act as a patent agent. Patentee: It means the person for the time being entered on the register as the grantee or proprietor of the patent.133.25 by the controller to examine the opposition to the patent granted and submit its report to the controller. Self Assessment Questions 1.133.617 of the Companies Act. 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.Controller: It means the Controller General of Patents. i. 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. or on the licensee and persons authorised by him. Capable of industrial application: In relation to an invention. to the exclusion of all other persons (including the patentee). 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. Invention: It means a new product or process involving an inventive step and capable of industrial application. Convention country: The expression convention country is defined in Sec. Government undertaking: It means any industrial undertaking carried on (i) by a department of the Government. And “exclusive licensee” shall be construed accordingly. Patent cooperation treaty: It means the patent cooperation treaty done at Washington on 19 June 1970 as amended and modified from time to time. Opposition board: It means an opposition board constituted under Sec. which is a signatory to an international. . ____________ is a new product or process involving an inventive step and capable of industrial application. regional or bilateral treaty. Design and Trade Marks. any right in respect of the patented invention. 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. Patent: It means a patent for any invention granted under this Act. means that the invention is capable of being made or used in an industry. the subject matter has not fallen in public domain or that it does not form part of the state of the art. Application for a patent made by a foreign national is known as ________________. 2. or (iii) by a Government company as defined in Sec. respectively.e. International application: It means an application for patent made in accordance with the Patent Cooperation Treaty.. Exclusive licence: It means a licence from a patentee which confers on the licensee. an article or process in respect of which a patent is in force. It also includes the any institution which is financed wholly or for the major part by the government. Patented article and Patented process: It mean. 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. Convention application: It means an application for a patent made by a foreign national of a convention country.

6) A patent application can be made by (a) any person claiming to be the true and first inventor of the invention. animal or plant life or health or to the environment. The application is to be made in the prescribed form (available in the patent office). shall be deemed to be an application under this Act..7) Every application for a patent shall be for one invention only.e. therapeutic. diagnostic.14.2 Form of application (Sec. there shall be furnished with the application and within such period as may be prescribed after the filing of the application. and is to be filed in the patent office. 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. who immediately before his death was entitled to make such an application. . (b) an invention. Sec. (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.3 Applications for Patents Secs. The patent application may be made by any of the above persons either alone or jointly with any other person. machine or apparatus unless such known process results in a new product or employs at least one new reactant.1 Persons entitled to apply for patents (Sec. surgical.3. are not patentable: (a) an invention which is frivolous or which claims anything obvious or contrary to the well established natural laws. (h) any process for the medicinal. _______________ of an abstract theory cannot be called as invention. curative. (d) the mere discovery of any new property or new use for a known substance or of the mere use of a known process. 14.3. (g) a method of agriculture or horticulture. if a corresponding application has also been filed before the Controller of India. 4. (c) the mere discovery of a scientific principle or formulation of an abstract theory. or (c) the legal representative of any deceased person. 14. prophylactic. the proof of the right to make the application. 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. (f) the mere arrangement or re-arrangement or duplication of known devices each functioning independently of one another in a known way. 3 – 5 deal with this topic. Where an application is made by virtue of an assignment of the right to apply for a patent for 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.2 Inventions not Patentable Three sections i. Self Assessment Questions 3.6 to 11 deal with applications for patents. 14. as may be filed designating India. Every international application under the patent cooperative treaty for a patent. 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.

if the Controller may require that an application should be further supplemented by a model or sample of anything illustrating the invention. 14. can be made to the controller where an application for a patent has been published but a patent has not been granted. any person interested may give notice of opposition to the controller on the same eleven grounds. available within any local or indigenous community in India. if the Controller so requires.14. . It should describe the invention and begin with a title sufficiently indicating the subject matter to which the invention relates. Opposition to grant of patent (Sec. or (b) nondisclosure or wrongful mentioning in the complete specification. Any drawings so supplied shall. a complete specification shall be filed within 12 months from the date of filing of the application.4 Provisional and complete specification (Sec. be supplied for the purpose of any specification. source and geographical origin of biological material used in the invention and anticipation of invention by the knowledge. 14. (True/False) 6. If the specification or other documents are amended by the order of the controller. the application shall be deemed to be abandoned. 26 and 28 deal with the matters relating to opposition to grant of patents.5 Contents of specification (Sec. on the ground of (a) patentability including novelty. Self Assessment Questions 5.4 Representation and Opposition Proceedings Secs. 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.25).25. Further. such model or sample shall not be deemed to form part of the specification. in any particular case. Pre-grant opposition: A representation.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.10) A description of the invention is called the ‘specification’. The controller is empowered to order either to maintain or to amend or to revoke the patent on the recommendation of the opposition board.3 Information and undertaking regarding foreign applications (Sec.8) The Act makes special provisions for patent applications. the patent shall stand amended accordingly. 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.3. the foreign patent-applicant is required to give an undertaking that he would keep the Controller informed in writing of the details and development in any patent application filed outside India. In 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. by way of opposition. and shall. Drawings may. inventive step and industrial applicability. unless the Controller otherwise directs. be deemed to form part of the specification. The controller shall consider and dispose of such representation in such manner and within such period as may be prescribed. If the complete specification is not so filed. However.3. This section provides for pre-grant opposition procedure. Every application for a patent shall be for one invention only. Contents of specification comes under ………………. oral or otherwise. and post-grant opposition procedure for revocation of a patent. 14. Further. Every foreign application shall be accompanied by a statement setting out detailed particulars of such application.3.

then he may give directions for prohibiting or restricting the publication of information with respect to the invention or the communication of such information. then the controller shall not grant permit without the prior approval of the central government. Where in respect of an application for a patent. is relevant for defence purposes or atomic energy. No person resident in India shall. shall be liable to be revoked. 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. 35 to 42 make certain provisions for secrecy of certain inventions. The controller is empowered to order either to maintain or to amend or to revoke the patent on the recommendation of the opposition board. 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. Further. (True/False) 14. (e) the invention as claimed by the applicant in his complete specification is obvious and does not involve any inventive step.8 or has furnished the information which in any material particular was false to his knowledge.6 Grant of Patents and Rights Conferred Thereby .39). the application for patent shall be deemed to have been abandoned and the patent granted. Further.(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. Self Assessment Question 7. however. 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. except under the authority of a written permit by the controller. If the invention. (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. 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. (True/False) 14. Secs.35 (regarding secrecy of certain inventions) in relation to the application in 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 8.5 Provisions for Secrecy of Certain Inventions Secs. (f) the invention is not patentable or its patenting is prohibited under the Act. not less than six weeks before the application outside India. (d) the invention as claimed in the complete specification was publicly known or publicly used in India before the applicant’s claim. Residents not to apply for patents outside India without prior permission (Sec. (h) the applicant has failed to disclose to the controller the information required by Sec.33 to 42 make certain provisions for secrecy of certain inventions. if any.

Self Assessment Question 9. Every patent shall be dated as of the date on which the application for patent was filed. The patent shall be granted as expeditiously as possible to the applicant.47). on the date of such commencement.45). Amendment of patent granted to deceased applicant (Sec. Subject to the provision of this act. specification and other documents related thereto shall be open for public inspection. Grant of patents to be subject to certain conditions (Sec. offering for sale. Further a patent shall be granted for one invention only. the controller shall publish the fact that the patent has been granted and thereupon the application. the term of every patent granted after the commencement of the patents (amendment) Act.44). the exclusive right to prevent third parties.7 Patents of Addition Secs. The government may manufacture or import the patented invention for the purpose of its own use. 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. An application may be for a patent in respect of any improvement in or modification of a patented invention (known as main invention). Further. The date of every patent shall be entered in the Register maintained in the Patient office.54 to 56 deal with patents of addition.48 are subject to certain conditions. Rights of patentee. (or in the case of a body corporate. from the act of making. or (b) the application has not been found to be in contravention of any of the provisions of the Act. and from the act of using. The Controller may grant the patent for the improvement or modification as a “patient of addition” the term . 2002. ______________ deal with the grant of patents and the rights conferred on the patentee.Secs. Grant of patents (Sec. the exclusive right to prevent third parties. (b) where the subject matter of the patent is a process. selling or importing for these purposes that product in India. The rights granted to a patentee under SEC.46). Similarly. and the term of every patent which has not expired and has not ceased to have effect. using. offering for sale. Section 48 provides that the following rights are conferred on a patentee: (a) where the matter of the patent is a product. any patented process or product may be used for the purpose of experiment or research or imparting of instructions to pupils. at any time after a patent has been sealed the patentee dies. extent and effect of patent (Sec. Where. 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.43). selling or importing for those purposes the product obtained directly by that process in India. from the act of using that process. Date of Patent (Sec. 14. Every patent shall be in the prescribed form and shall have effect throughout India. who do not have his consent.53).43 to 53 deal with the grant of patents and the rights conferred on the patentee. on the grant of the patent. shall be 20 years from the date of filling of the application for the patent. Form. Term of Patent (Sec. who do not have his consent.

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. 3.9 Compulsory Licenses Sec. 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. (True/False) .62). (True/False) 14. or (iii) the patented invention is not worked in the territory of India.60). Where a patent has ceased to have effect by reason of failure to pay any renewal fee within the prescribed time. The Controller shall give to both the applicant and the opponent an opportunity of being heard before he decides the application.61). Rights of Patentees of lapsed patents which have been restored under _________________ 14.84 provides as follows: 1.of the patent of addition shall run concurrently and terminate with the main patent. or (ii) the patented invention is not available to the public at a reasonably affordable price. Any person interested may oppose the restoration. whether in such a licence or otherwise or by reason of his having accepted such a licence.60 – 62 make provision as regards restoration of patents which have been lapsed. At any time after the expiration of 3 years from the date of the sealing of a patent. may grant a licence upon such terms as he may deem fit. 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. Rights of Patentees of lapsed patents which have been restored (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. Self Assessment Question 11. The controller. 2. When a patent is restored. If the Controller is satisfied that the failure to pay the renewal fee was unintentional he shall advertise the application. 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. Procedure for disposal of applications for restoration of lapsed patents (Sec. 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. No renewal fee is payable for the patent of addition so long as the main patent remains in force. Self Assessment Question 12. Self Assessment Question 10. then an application may be made to the Controller within 18 months for the restoration of the patent. Application for restoration of lapsed patents (Sec. An application may be for a patent in respect of any improvement in or modification of a patented invention. the rights of the patentee shall be subject to such provisions as may be prescribed.8 Restoration of Lapsed Patents Secs. 4.

104 to 115 deal with the subject of suits concerning infringement of patents. However. 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). The Patents (Amendment) Act 1999 had. This section allows import of patented commodity from anywhere in the world where it is cheaper.104 to 116 (b) Secs.14. provided for the modalities for a 10-year transition facility (which India had negotiated at the time of its accession to the WTO). 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. 2004. Consequently. Invention: It means a new product or process involving an inventive step and capable of industrial application.104 to 117 (c) Secs. 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. Such type of imports are known as ‘parallel imports’ and is a powerful tool that helps in price control.104 to 115 14. 1995. ___________ deals with the subject of suits concerning infringement of patents. and therefore the act of such import will not be considered to be an infringement of the patent. even though it is patented here. inter alia. . (True/False) 14. 2004 on December 26. As a consequence. if any as the court thinks fit) and damages or an account of profit. including an injunction (subject to such terms. this provicsion is made from the user’s point of view. In other words. 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. Glossary Patents: A patent for any invention granted under the patent act. (a) Secs. 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.107A). 2005.104 to 118 (d) Secs.10 Suits Concerning Infringements of Patents Secs. Section 106 empowers the court to grant relief in cases of groundless threats of infringement. Section 104 provides for the jurisdiction of a court for suits to be instituted for infringement of a patent. commencing from January 1. the law was required to be amended further in respect of India’s obligations under the TRIPs Agreement. 2000 (in respect of amendments notified in 2002). Foreign exporter must be duly authorized under the law of export. Certain acts not to be considered as infringement (Sec.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). Self Assessment Questions 13. 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. due from January 1.

Convention application 2. 14. What do you mean by Patent? 2.Patentee: It means the person for the time being entered on the register as the grantee or proprietor of the patent. True . Write short notes on: (a) Revocation of patents (b) Register of patents (c) Relief for infringement 14. Mention the inventions which are not patentable under the Act. Sec.43 to 53 10. Formulation 5. 3. Describe the procedure for obtaining a patent.62 12. Invention 3. False 9. Describe the provisions as regards examination of application for the grant of a patent. patented 4. True 6. True 13. 5.12 Terminal Questions 1. Section 10 7. True 11. True 8. Secs. 4.13 Answers Answers to Self Assessment Questions 1.

and schizophrenia.1 Introduction Objectives 15.2 Copyright. and 2024." the company CEO. 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. respectively. The granted claims of the patents include therapeutic agents.14) . For detail please refer full unit. useful in the treatment of neurodegenerative disorders like alzheimer’s. it added. Refer 14. the filing added.2 – for more detail 4. "The company gets three patents .6 – Secs. parkinson." Suven said in a filing to the Bombay Stock Exchange. Suven has a total of seven granted EPO patents on new chemical entities. 3. Refer 14. said. its Ownership and Term Works in which copyright subsists (Sec.13) Meaning of copyright (Sec. These patents are exclusive intellectual property of Suven and are achieved through internal discovery research efforts. 2022. (d) Answers to Terminal Questions 1.EP1537113. 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. With these new patents. Mr Venkat Jasti. 5.) MB0051-Unit-15-The Copyright Act Unit-15-The Copyright Act Structure 15.43 to 53 deal with the grant of patents and the rights conferred on the patentee. Refer 14.3 – Secs.6 to 11 deal with applications for patents.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. EP1704154 and EP1856132 and the said are valid until 2023.14.

33) 15. 1957.17) Term of copyright 15.37) Performer’s right (Sec. It extends to the whole of India and came into force on January 21.1 Introduction In the earlier units.32) 15.31A) Licence to produce and publish translation (Sec. 1958. The Act has been amended in 1983.3 Licences Licence by owners of copyright Compulsory licence in works withheld from public Compulsory licence in unpublished Indian works (Sec.8 Civil Remedies for Infringement 15.Ownership of copyright (Sec. Objectives After studying this unit you should be able to: · Define copyright · Describe copyright societies . 1984. you came to know about the patent act. 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. The law relating to copyright is contained in the Copyright Act. in this unit you learn about the concept of copyright act.11 Answers 15.4 Copyright Societies Registration of a copyright society (Sec.5 Rights of Broadcasting Organisation and of Performers Broadcasting reproduction rights (Sec.7 Infringement of Copyright 15.10 Terminal Questions 15.38) 15.6 International Copyright 15.9 Summary 15.

· Explain international copyrights · Describe civil remedies for infringement 15.2 Copyright, its Ownership and Term This part enumerates works in which copyright subsists and works in which it does not subsist. Further, it gives the meaning of copyright. Also, the term and ownership of copyright are discussed. 15.2.1 Works in which copyright subsists (Sec.13) Copyright subsists throughout India in the following classes of work: (a) original, literary, dramatic, musical and artistic works; (b) cinematograph films; and (c) sound recordings. The terms ‘literary works’, ‘dramatic work’ and ‘musical work’ have already been defined in Part -1. However, copyright shall not subsist in any work specified above (other than foreign works or works of certain international organisations) unless – (i) in the case of a published work, the work is first published in India, or where the work is first published outside India, the author was a citizen of India on the date of publication, and if dead on that date, on the date of his death; (ii) in the case of an unpublished work (other than a work of architecture), the author is at the date of making of the work, a citizen of India or domiciled in India, and (iii) in the case of a work of architecture, the work is located in India. The copyright in a cinematograph film or a sound recording shall not affect the separate copyright in any work in respect of which or substantial part of which, the film, or as the case may be, the sound recording is made. 15.2.2 Meaning of copyright (Sec.14) The term ‘copyright’ means the exclusive right, by virtue of, and subject to the provision of the Act: (a) in the case of literary, dramatic or musical work, not being a computer programme – (i) to reproduce the work in any material form including the storing of it in any medium by electronic means; (ii) to issue copies of the work to the public not being copies already in circulation; (iii) to perform the work in public, or communicate it to the public; (iv) to make any cinematograph film or sound recording in respect of the work; (v) to make any translation of the work; (vi) to make any adaptation of the work; (vii) to do, in relation to a translation or an adaptation of the work, any of the acts specified in relation to the work in (i) to (vi); (b) in the case of computer programme – (i) to do any of the acts specified in clause (a) above; (ii) to sell or give on hire, or offer for sale or hire any copy of the computer programme, regardless of whether such copy has been sold or given on hire on earlier occasions; (c) in the case of an artistic work – (i) to reproduce the work in any material form including depiction in three dimensions of a two – dimensional work or in two dimensions of a three – dimensional work; (ii) to communicate the work to the public; (iii) to issue copies of the work to the public not being copies already in circulation; (iv) to include the work in any cinematograph film; (v) to make any adaptation of the work; (vi) to do in relation to an adaptation of the work any of the acts specified in relation to the work in (i) to (iv) above; (d) in the case of a cinematograph film – (i) to make a copy of the film, including a photograph of any image forming part thereof; (ii) to sell or give on hire; or offer for sale or hire, any copy of the film, regardless of whether such copy has been sold or given on hire on earlier occasions; (iii) to communicate the film to the public. (e) In the case of a sound recording – (i) to make any other sound recording embodying it; (ii) to sell or give on hire, or offer for sale or hire, any copy of the sound recording regardless of whether such copy has been sold or given on hire on earlier occasions; (iii) to communicate the sound recording to the public. 15.2.3 Ownership of copyright (Sec.17)

The author of the work is recognised to be the first owner of the copyright therein. This is however, subject to some exceptions given below: 1. In the case of a literary, dramatic or artistic work made by the author in the course of his employment or apprenticeship under the proprietor of a newspaper, magazine or similar periodical, for the purpose of publication, the said proprietor shall be the first owner of the copyright in the work (in the absence of any agreement to the contrary) insofar as the copyright relates to the publication in the newspaper, magazine or other periodical. Except in such cases, the author will be the first owner of the copyright in the work. 2. If the photograph is taken or a painting or portrait is drawn or an engraving or cinematograph film is made on payment at the instance of any person, such person, in the absence of any agreement to the contrary, shall be the first owner of the copyright therein. 3. If a work is made in the course of the author’s employment under a contract of service or apprenticeship, the employer (not being the proprietor of a newspaper, magazine or periodical) in the absence of any agreement to the contrary, the employer shall be the first owner of the copyright therein. 4. If any person has delivered any address or speech in public, then he shall be the first owner of the copyright. However, if the address or speech is delivered on behalf of any other person, then such other person shall be the owner of the copyright therein. 5. In the case of government work, the government is the owner of the copyright in the absence of any agreement to the contrary. 6. In the case of a work made or first published by or under the direction or control of any public undertaking, such public undertaking shall, in the absence of any agreement to the contrary, be the first owner of the copyright therein. 15.2.4 Term of copyright Sec.22 provides that copyright shall subsist in any literary, dramatic, musical or artistic work (other than a photograph) published within the lifetime of the author until 60 years from the beginning of the calendar year next following the year in which the author dies. Sec.23 provides for the term of copyright in anonymous and pseudonymous works. In the case of a literary, dramatic, musical or artistic work (other than a photograph), which is published anonymously or pseudonymously, copyright shall subsist until 60 years from the beginning of the calendar year next following the year in which the work is first published. Sec.24 provides for term of copyright in posthumous works. Where copyright subsists at the date of death of the author and adaptation of which has not been published before that date, the copyright will subsist until 60 years of from the beginning of the calendar year next following the year in which the work is first published. Self Assessment Questions 1. Ownership of copyright comes under ______________. 2. Copyright means the exclusive right, by virtue of, and subject to the provision of the Act. (True / False) 15.3 Licences 15.3.1 Licence by owners of copyright Sec.30 provides that the owner of the copyright in any existing work or the prospective owner of the copyright in any future work may grant any interest in the right by licence in writing signed by him or by his duly authorised agent. But in the case of a licence relating to copyright in any future work, the licence shall take effect only when the work comes into existence. 15.3.2 Compulsory licence in works withheld from public Sec.31 provides that at any time during the term of copyright in any Indian work which has been published or performed in public a complaint may be made to the Copyright Board that the owner of copyright in the work

(a) has refused to re-publish or allow the republication of the work or has refused to allow the performance in public of the work and by reason of such refusal the work is withheld from the public; or (b) has refused to allow communication to the public by broadcast of such work or in the case of a sound recording the work recorded in such sound recording, on terms which the complainant considers reasonable. 15.3.3 Compulsory Licence in unpublished Indian works (Sec.31A) Where in the case of an Indian work, the author is dead or unknown or cannot be traced or the owner of the copyright in such work cannot be found, any person may apply to the Copyright Board for a licence to publish such work or translation thereof in any language. Before making an application, the applicant shall publish his proposal in one issue of a daily newspaper in the English language having circulation in the major part of the country and where the application is for the publication of a translation in any language, also publish his proposal in one issue of any daily newspaper in that language. 15.3.4 Licence to produce and publish translation (Sec.32) Any person may apply to the Copyright Board for a licence to produce and publish a translation of a literary or dramatic work in any language after a period of 7 years for the first publication of the work. Also, an application may be made for a licence to translate foreign literary or dramatic work, after three years from its publication. Every application shall state the proposed retail price of copy of the translation of the work.

Self Assessment Question 3. Every application shall state the proposed retail price of copy of the translation of the work (True / False) 15.4 Copyright Societies 15.4.1 Registration of a copyright society (Sec.33) No person or association of persons shall commence or carry on business of issuing or granting licences in respect of any work in which copyright subsists or in respect of any other rights conferred by this Act except under or in accordance with the registration granted by the Central Government. The Central Government may, having regard to the interests of the authors and other owners of rights under this Act, the interest and convenience of the public and in particular of the groups of persons who are most likely to seek licences in respect of the relevant rights and the ability and professional competence of the applicant, register such association of persons as a copyright society subject to such conditions as may be prescribed. However, the Central Government shall not ordinarily register more than one copyright society to do business in respect of the same class of works. The Central Government may, if it is satisfied that a copyright society is being managed in a manner detrimental to the interests of the owners of rights concerned, cancel the registration of such society after such inquiry as may be prescribed. Further, if the Central Government is of the opinion that in the interests of the owners of rights concerned, it is necessary so to do, it may suspend the registration of such society pending enquiry for such period not exceeding one year. In such a situation, the Government shall appoint an administrator to discharge the functions of the copyright society.

Control over the copyright society by the owner of rights (Sec. full and detailed information concerning all its activities in relation to the administrator of their rights. and (c) provide to such owners regular.35). any such sound recording or visual recording referred to in (c) or (d) above.5 Rights of Broadcasting Organisation and of Performers 15. . Every copyright society shall be subject to the collective control of the owners of rights under this Act whose rights it administers. This right will subsist for 25 years from the year of broadcasts.Administration of rights of owner by copyright society (Sec. 15.1 Broadcasting reproduction rights (Sec. if anybody does the following acts without licence from the owner of the right. or (e) sell or hire to the public. or (c) make any sound recording or visual recording of the broadcast. Self assessment questions 4. where it was licensed for any purpose not envisaged by such licence.37) Every broadcasting organisation shall have a special right known as “Broadcasting Reproduction Right” in respect of its broadcasts.4A).5. Payment of remuneration by copyrights society (Sec. The society shall (a) obtain the approval of such owners of rights for its procedures of collection and distribution of fees.5. But he shall have the right to withdraw such authorisation without prejudice to the rights of the copyright society under the contract. he will be deemed to have infringed the broadcast reproduction rights: (a) re-broadcast the broadcast. Payment of remuneration by copyrights society come under _________. or (b) cause the broadcast to be heard or seen by the public on payment of any charges. During this period. he will be deemed to have infringed the performer’s right: (a) makes a sound recording or visual recording of the performance. or (d) make any reproduction of such initial recording or visual recording where such initial recording was done without licence or. The Central Government shall not ordinarily register more than one copyright society to do business in respect of the same class of works. or offer for such sale or hire. Self Assessment Question 6. or (b) reproduces a sound recording or visual recording of the performance which was made without the performer’s consent. (b) obtain their approval for the utilisation of any amounts collected as fees for any purpose other than distribution to the owner of rights.34). without the consent of the performer. (True / False) 15. 5. does any of the following acts in respect of the performance or any substantial part thereof. Every broadcasting organisation shall have a special right known as _____________ in respect of its broadcasts. A copyright society may accept from an owner of rights exclusive authorisation to administer any right in any work.38) If any person during the subsistence of a performer’s right.2 Performer’s right (Sec. 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.

unless he was not aware and had no reasonable ground for believing that such communication would be an infringement of copyright. whether of that work or of any other work. Certain acts not to be infringement of copyright. . musical or artistic work in any work prepared by the Secretariat of a Legislature exclusively for the use of its members.41 provides that works made or published by certain International Organisations are granted copyright protection in India. (ii) criticism or review. Sec. destruction or damage in order only to utilise the computer programme for the purpose for which it was supplied. dramatic. the Central Government passed the copyright (International Organisations) Order (1958) under which copyright protection was granted to certain International Organisations.15. ________________ provides that works made or published by certain International Organisations are granted copyright protection in India. musical or artistic work for the purpose of a judicial proceeding or for the purpose of a report of a judicial proceeding.6 International Copyright Sec. These are: (a) A fair dealing with a literary. either for the purpose of trade or to such an extent as to affect prejudicially the owner of the work. 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.52). (iii) exhibits in public by way of trade any infringing copies of the work. 15. any place to be used for the communication of the work to the public. This section specifies acts which do not constitute an infringement of copyright. or (ii) by broadcast or in a cinematograph film or by means of photographs. or (ii) to make back-up copies purely as a temporary protection against loss. (e) The reproduction or publication of literary. 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 in the form of a cinematograph film shall be deemed to be infringing copyright. (b) The making of copies or adaptation of a computer programme by the lawful possessor of a copy of such computer programme. not being a computer program. from such copy (i) in order to utilise the computer programme for the purpose for which it was supplied. (c) A fair dealing with a literary. The reproduction of a literary. dramatic. musical or artistic work. Accordingly. dramatic. or (ii) distributes. (Sec. dramatic.51 provides that copyright in a work shall be deemed to be infringed in the following cases: (a) when any person without a licence from the owner or the Registrar of copyrights does anything. musical or artistic work for the purpose of reporting current events – (i) in a newspaper. 8. the exclusive right to do which is by this Act conferred upon the owner of copyright. Self Assessment Questions 7. dramatic. ___________ authorises the Central Government to extend copyright protection to foreign works. including research.7 Infringement of Copyright Sec. for the purposes of (i) private use. Accordingly the Central Government made the International copyright order. (d) The reproduction of a literary. or permits for profit. 1991. magazine or similar periodical.40 authorises the Central Government to extend copyright protection to foreign works.

if the performance is given to a non-paying audience or for the benefit of a religious institution. (iv) any judgment or order of a court. or of a cinematograph film or a sound recording. dramatic or musical work. dramatic or musical work by the staff and students of the institution. council. map. unless the author of such article has expressly reserved to himself the right of such reproduction. unless the reproduction or publication of such report is prohibited by the Government. and has paid in the prescribed manner to owner of rights in the work. (g) The reading or recitation in public of any reasonable extract from a published literary or dramatic work. (ii) the person making the sound recordings has given a notice of his intention to make the sound recordings. has provided copies of all covers or labels with which the sound recordings are to be sold. at the rate fixed by the Copyright Board in this behalf. 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. (o) The publication in a newspaper. in the course of the activities of educational institution of a literary. (r) The reproduction or publication of (i) any matter which has been published in any Official Gazette except an Act of a Legislature. or (ii) as part of the activities of a club or similar organisation which is not established or conducted for profit. . dramatic or musical work in a certified copy made or supplied in accordance with any law for the time being in force. of short passages from published literary or dramatic works. social or religious topics. magazine or other periodical of a report of a lecture delivered in public. royalties in respect of all such sound recordings to be made by him. magazine or other periodical of an article on current economic. if the audience is limited to such staff and students. (l) The causing of a recording to be heard in public by utilising it. (j) The performance. (i) The reproduction of a literary. or (ii) as part of the questions to be answered in an examination. museum or other institution to which the public access. (k) The making of sound recordings in respect of any literary. musical or artistic work (i) by a teacher or a pupil in the course of instruction. (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. dramatic or musical work kept in a library. (iii) the report of any committee. 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. (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. the tribunal or other judicial authority. political. tribunal or other judicial authority. sheet of music. dramatic. 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. (m) The performance of a literary. (n) The reproduction in a newspaper. (p) The making of not more than three copies of a book (including a pamphlet. of an unpublished literary. as the case may be. unless the reproduction or publication of such judgment or order is prohibited by the court. commission. (h) The publication in a collection. (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.(f) The reproduction of any literary. 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. or (iii) in answer to such questions. (q) The reproduction for the purpose of research or private study or with a view to publication. dramatic or musical work by an amateur club or society. board or other like body appointed by the Government if such report has been laid on the Table of Legislature. 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. therein.

plan. of any mould.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. 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 such work is permanently situated in a public place or any premises to which the public has access. if such inclusion is only by way of background or is otherwise incidental to the principal matters represented in the film. cast. and (c) the name and address of the owner of the copyright in such work. 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. 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. 1952. Self Assessment Questions 9. the following particulars are to be displayed in the video film. dramatic. (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. 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. or (ii) any other artistic work. (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. or other artistic work falling under Sec. However. (y) In relation to literary. a copy of the certificate granted by the Board of Film Certification. (w) The use by the author of an artistic work where the author of such work in not the owner of the copyright therein. (a) the name and address of the person who has made the sound recording. damages. musical or artistic work in the form of a cinematograph film shall be deemed to be _______________. (c) the year of its publication. drawing. The plaintiff shall not be entitled to any damages.8 Civil Remedies for Infringement Sec. accounts and otherwise as are conferred by law for the infringement of a right. Sec. 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. (z) The making of an ephemeral recording. (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. 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. Also. model or study made by him for the purpose of the work. engraving or photograph of a sculpture. (za) The performance of a literary. the exhibition of such film after the expiration of the term of copyright therein. drawing. In the case of a video film in respect of any work. sketch. (u) The making or publishing of a painting. engraving or photograph of a work of architecture or photograph of a work of architecture or the display of a work of architecture. dramatic or musical work recorded or reproduced in any cinematograph film. Reproduction of a literary.2(e) (iii). when exhibited.52A requires certain particulars to be included in sound recording and video films. . (b) the name and address of the owner of the copyright in such work. and the retention of such recording for archival purposes on the ground of its exceptional documentary character.

44 provides for a Register of copyright to be kept in the copyright office. Sec. It is enforceable as a civil matter. Describe the civil remedies available for infringement of copyright. What are the provisions as regards issue of compulsory licences of copyrights? 3.Sec. 1958. or a finite period for anonymous or corporate authorship. Glossary Copyright: The term ‘copyright’ means the exclusive right. after which time the work is said to enter the public domain. the names and addresses of authors. International Copyright: Sec. 15. 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. such as the right to be credited for the work. The reproduction of the artistic work in form of a movie is the infringement of the copyright. 1984. Infringement of copyright: when any person without a licence from the owner or the Registrar of copyrights does anything. the exclusive right to do which is by this Act conferred upon the owner of copyright. 55. Self Assessment Questions 10.72 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. Secs. 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. It extends to the whole of India and came into force on January 21. Copyright has been internationally standardized. (True / False) 15. may. publishers and owners of copyright and certain other prescribed particulars are entered in the Register. Sec. . lasting between fifty to a hundred years from the author’s death. appeal to the High Court.44 to 50 deal with the registration of copyright. with the Copyright Board.40 authorises the Central Government to extend copyright protection to foreign works. any person aggrieved by any final decision or order of the Copyright Board. Further. The Act has been amended in 1983. The names or titles of the works.9 Summary The law relating to copyright is contained in the Copyright Act. Some jurisdictions also recognize "moral rights" of the creator of a work. including its publication.71 provides that if any person is aggrieved by an order made by the court under s. Copyright applies to any expressible form of an idea or information that is substantive and discrete. 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. 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. distribution and adaptation. What is the importance and meaning of copyright? 2. within 3 months from the date of such decision or order. An application can be made for a licence to translate foreign literary or dramatic work after 5 yrs from its publication.10 Terminal Questions 1. by virtue of. (True / False) 11.

2 – (The term ‘copyright’ means the exclusive right. and subject to the provision of the Act) 2.) 4.7 2. Refer full Unit . Sec.51 provides that copyright in a work shall be deemed to be infringed) 5. Refer 15. Define the following terms as used in the Copyright Act. by virtue of. Sec.8 – (Sec. True Answers to Terminal Questions 1. What are the acts which are not infringement of copyrights? 5. Refer 15.34A 5.) 3.55 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. Refer 15. 1957: (a) Artistic work (b) Cinematograph film (c) Copyright society (d) Dramatic arts 15.11 Answers Answers to Self Assessment Questions 1. True 6. damages. False 11. 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.7 – (Sec. Refer 15. Sec.4.40 8. True 3. Broadcasting reproduction right 7. Infringing copyright 10. True 4. accounts and otherwise as are conferred by law for the infringement of a right.41 9.3 – (Sec.

one widely used solution is the `Creative Commons’ licence. marched to the State Secretariat to express gratitude and appreciation for the Left Democratic Front Government’s crackdown on piracy. 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. scripts. the whole furore over the video/film piracy issue smacks of certain hypocrisy . Normally. stories and ideas from Hollywood and Bollywood. Even as conception of ideas as inviolable property is widely recognised. anyone could equally be forgiven for wondering how many of the stars at the rally. but last week saw one with a far more glamorous sheen. modified and redistributed usually free of charge . copied.000 members of the Malayalam film industry. 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. denouncing the venal pirates. A knee-jerk crackdown on video libraries at the instigation of powerful industry interests may not be the best long-term solution. ‘Copyleft’ Concept In the arena of artistic creation. Question of Ethics Honesty and integrity are values that are universally upheld. Since December 2006. as well as members of various film industry associations." ‘Huge Loss’ Such a lack of mercy is apparently dogging the Malayalam film industry. "Piracy" here refers to unauthorised reproduction and distribution of films. especially in socially responsible business activities. distributors and technicians. if the charges of its representatives are to be believed.000 video libraries have had to shut down.both on the part of the Malayalam film industry and the LDF Government. The term itself is not new. when the LDF Government gave the go-ahead to the State police to check piracy. these are mundane creations of assorted political parties. studied. directors. the Rs 100-crore turnover industry loses Rs 40 to 50 crore annually to piracy. And so. it shouldn’t be surprising that the Malayalam film industry stalwarts were shouting themselves hoarse. While no one can deny the need to protect intellectual property and ensure fair returns to its legitimate creators. nearly 30. the producers. including superstars such as Mammootty and Mohanlal. industry sources claim. Over 2. Lessons for Kerala Perhaps there are some pointers for Kerala in this experience. This point has not been made to sound facetious. Yet." in which he mentions that sections of this work "have of late been mercilessly pirated. representing producers. For a government that has recently sworn by Free and Open Source Software . Questions . scriptwriters and artists could honestly put their hands to their chests and swear that they had not stolen themes. Today.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. 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.the LDF ought to be exploring creative alternatives to the problem of film piracy.which can be used.

Elements of Mercantile Law. · S S. Rohini (2003). Tata Mc.C. Ltd. Sultan Chand and Sons. Tulsian (2002). Gulshan. · P. Business Law. (Hint: Refer basic concept of copyright) Acknowledgements. (2003).C. E-reference: · http://www. Taxmann’s. 2006. Delhi. Vikas Publishing House Pvt.com/bareacts/soga. . Business Law. Delhi. References & Suggested Readings · Aggarwal. New Delhi · Kapoor. Kucchal ( 2002).D.Graw Hill Pvt. How is copyright issue becoming a problem for film industry? (Due to illegal work and no proper format of work) 2. · M.1. New Delhi.indialawinfo. Write a note on: ‘ Piracy and Copyrights’. Student’s Guide to Mercantile and Commercial Laws. Ltd. Business Law. New Delhi.. Excel Books.. N.