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

expressly or by implication. made applicable.3. they cannot substitute their opinions for the established rule of law. Judicial precedents are an important source of law Judicial precedents are another important source of law.1. Personal law Many times. (b) judicial precedents (stare decisis). (e) The Supreme Court. it becomes a custom. It is sometimes called ‘enacted law’ as it is brought into existence by getting Acts passed by the legislative body. ‘Customary Law’. Thus. 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”. only such decisions which lay down some new rules or principles are treated as judicial precedents. the Constitution empowers the Parliament and state legislatures to promulgate law for the guidance or conduct of persons to whom the statute is. This is known as the doctrine of ‘stare decisis’. were there is a settled rule of law. ‘Statute’ – an important source of law The statutes or the statutory law or the legislation is the main source of law. Which one of the following possess the power of supreme legislation in India: (a) The President. in the words of Keeton. it is the duty of the judges to follow the same. 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. (ii) Secondary sources. may be divided into two broad categories: (i) Primary sources and. These rules of law are known as judicial precedents. Mohammedan and Christians. In simple words. (c) The Rajya Sabha. established by usage and regarded as legally binding by those to whom the rules are applicable. In such cases.2 Secondary sources of Indian law . 2. may be defined as “those rules of human action. It is a generally observed course of conduct by people on a particular matter. (c) statutes and (d) personal law. as administered by Indian courts. 1. This law is created by legislation such as Parliament. (d) The Parliament. However. we follow the personal laws of Hindus. Customary law Customs have played an important role in making the law and therefore is also known as customary law. the courts are required to apply the personal law of the parties. with people therein subject to a uniform system of law administered by some authority of the state. When a particular course of conduct is followed again and again. (b) The Lok Sabha. 1.3. In India. “it is the uniformity of conduct of all persons under like circumstances”. It is called Statute Law because it is the writ of the state and is in written form (jus scriptum). The literal meaning of this phrase is “stand by the decision”.1 Primary sources of Indian law The primary sources of Indian law are: (a) customs.3 Sources of Indian Law The main sources of modern Indian Law. 1. Thus in certain matters. A _______________ is a territorial division. a point of issue between the parties to a dispute is not covered by any statute or custom.

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

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

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;

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. As regards reasonableness of law’s coverage. it is found that the existing law is incapable of tackling certain changes. they would have certain remedies under the law. Therefore. . The Indian Legal System handles cases in two separate ways _______________ and criminal. then it must accommodate them by amendments thereto. (ii) Flexibility and (iii) Reasonable application and coverage. and consequences for non-compliance of those requirements. And. Activity 3: Suggest your overview on “The right has a source either in a contract.(b) Both written and unwritten law. Out of the following. Wide publicity should be given to the law enacted so as to give an opportunity to those affected by it to know its requirements. a law that a large number of persons consider to be unreasonable will soon become ineffective. For example. However. 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. if at a later stage. (c) Unwritten law (d) Written law. Self Assessment Questions 13. New inventions are being made. which one is not the source of English law? (a) Common law (b) Business law (c) Equity (d) Statute law 1. 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 old doctrine of “ignorance of law is no excuse” stands on its own feet. or in a customs. Law must be reasonable both in its application and coverage. business people enter into contracts on the premise that if the other party fails to keep its promise. or in natural law”. Law must be flexible enough to meet changing conditions.7 Essentials of Law There are certain essentials which must be present in law in order to make it effective. 11. Law must be such that one is enabled to predict with some accuracy the legal consequences of an action. These are: (i) Predictability. The world is changing.

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

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

and it was ultimately the eighth or ninth draft which was finalised.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. 3. Refer 1.3 – The main sources of modern Indian Law. as administered by Indian courts.. Refer 1. for the first few projects.2 – How legal provisions affect the business what are their objectives. and were to be given every facility by the government. (iii) the high cost of the project. and (iii) business persons and the state. (ii) Secondary sources. Refer 1. Some of the counts on which the project was criticised were: (i) the social and environmental aspects of the project. draft agreements were prepared from time to time. may be divided into two broad categories: (i) Primary sources and. started construction in Maharashtra. Also. dealers.BJP combine ordered a review of the project. There is nothing to show that anybody was being favoured for any specific reason. Refer 1. (c) 16. when it threw out a petition filed against the project by one of the leaders of BJP. on the 695. the first few private sector projects were to be given the status of pioneer projects what later came to be known as “fast track” ones. Question Describe various reasons behind the increment in cost of Enron plant in Maharashtra. (ii) business persons and their customers.4 – Explain the various legal constraints of business in today’s scenario. (b) 13. 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. Refer 1. (d) 15. Firstly. etc. 2. 6. “The proposal was deliberated at length for two and a half years.11. it is pertinent to refer to the ruling by the Bombay High Court in 1994.” 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. Nothing was done secretly. The Congress leaders alleged that cancelling the project was a politically-motivated decision. (ii) the alleged bribes paid by Enron. 5. and (v) the absence of competitive bidding. Refer 1.4 – 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. Enron cannot be blamed for government policies. the government would not go in for public tendering. MW gas fired plant. Naturally. But the new government of Maharashtra-the Shiv Sena . suppliers. which is one of the largest integrated natural gas companies in the world. (d) 14. In a strongly worded verdict the court had said. 4. Secondly. (iv) the lack of transparency.6 – Effect of possession in the business. Mini-case The Enron Development Corporation of USA. in April 1995. There was total transparency at every stage of negotiation. (b) Answers to Terminal Questions 1. . (c) 12.

5 Consent and Free Consent Meaning of consent Free consent 2.3 Proposal (or Offer) and Acceptance Modes of making an offer Acceptance of an offer Completion of communication of offer and acceptance (Sec.1 Introduction Objectives 2.6 Consideration (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. no contract” (Secs.(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) . 23-25 and 185) Meaning of consideration “No consideration.2 Meaning and Essentials of a Valid Contract Contract Agreement Essentials of a contract Classification of contracts 2.

62) Discharge of contracts by impossibility of performance Discharge of a contract by operation of law Discharge of contracts by breach 2.12 Remedies for Breach of Contract 2.26-30) Agreements against public policy (Secs.14 Summary 2.10 Performance of Contracts (Secs.31) Essential characteristics of a contingent contract 2.9 Quasi Contracts Meaning of quasi contracts Cases which are treated as quasi contracts 2.31-36) Contingent contract defined (Sec.7 Agreements Declared Void (Secs.11 Different Modes of Discharge of Contracts (Secs.8 Contingent Contract (Secs.26-28) Agreement in restraint of trade 2.15 Terminal Questions .13 Freedom to Contract Freedom to contract is a myth or an illusion What is a standard form contract? 2.37-67) Meaning of performance of contract Meaning of offer to perform Who must perform the promise under a contract? 2.2.73-75) Discharge of contracts by performance or tender Meaning of mutual consent (Sec.

the business executives. then the other party has a remedy. If the party. X has a remedy against it.. One of them makes a proposal (or an offer) to the other. purchase or sale of a share of a company or a plot of land. the proposal is said to be accepted. Sometimes we do not even realize that we are making a contract. you came to know about the law and basic concepts of law. corporate counsels. In this unit you will study how to enter into the contracts. you should be able to: · Describe the essentials of a valid contract · Enumerate the capacity of contract · Define acceptance · Define consent 2. In this context.2(b). As there is a breach of promise by the promisor (the Airlines). To constitute a contract. X) has a legal remedy. In the case of people engaged in business. Some of these are made consciously.2 Meaning and Essentials of a Valid Contract 2. confer legal rights on one party and subjects the other party to some legal obligation. Thus. and with a lawful object. with a view to obtaining the assent of that other to such act. if they are made by free consent of parties. to do something. made between at least two parties by which rights are acquired by one and obligations are created on the part of another. the other party to the contract (i. they carry on business by entering into contracts. etc. fails to do that.2 Agreement Sec. Example: D Airlines sells a ticket on 1 January to X for the journey from Mumbai to Bangalore on 10 January. for a lawful consideration.2. buying a book. there must be an agreement between two or more . In this unit you will study about the contract of law.16 Answers 2. e. for example.2.1 Introduction In the previous unit. Objectives After studying this unit. When the person to whom the proposal is made signifies his assent thereto. Enforceability by law: The agreement must be such which is enforceable by law so as to become a contract. In case the Airlines fails to fulfil its promise. The Airlines is under an obligation to take X from Mumbai to Bangalore on 10 January.2. A proposal. enforceable by law. contracts.. the word ‘promise’ is defined by Sec. hiring a taxi. A corresponding duty is imposed on the Airlines. which had agreed to do something.e.1 Contract A contract is an agreement.10 provides that all agreements are contracts.g. and are not expressly declared by law to be void. 2.3 Essentials of a contract Sec. competent to contract. Thus. In a contract there are at least two parties.2(b)). entrepreneurs. there are certain agreements which do not become contracts as this element of enforceability by law is absent. 2. In any case. and professionals in different fields deal frequently with contracts. Thus.2. when accepted becomes a promise (Sec.2(e) defines an agreement as “every promise and every set of promises forming consideration for each other”. X has a right against the Airlines to be taken from Mumbai to Bangalore on 10 January. howsoever made.

the meaning of which is not certain or capable of being made certain. Informal contracts are those for which the law does not require a particular set of formalities or special language. amounts to offer by conduct. etc.3. avoided) at the will of one or more of the parties. then the contract may be either voidable. void. The best example of formal contracts is negotiable instruments. An agreement. 2. A contract to constitute a valid contract must have all the essential elements discussed earlier.e.2. advertisements.2 Acceptance of an offer . 2. telegrams. If one or more of these elements are missing. is valid. (iv) Unenforceable. The offerer or proposer expresses his willingness “to do” or “not to do” (i.2(i) A voidable contract is one which may be repudiated (i. A promise for a promise is a good consideration. Implied offer: It is an offer made by conduct. 2. However. void. illegal or unenforceable. in no case. No one can enter into a contract with himself. (True/False) 3. An agreement is composed of two elements – offer or proposal by one party and acceptance thereof by the other party. (iii) Void. An offer can be either express or implied. silence of a party can. A stranger to consideration cannot maintain a suit. Express offer: It means an offer made by words (whether written or oral). A formal contract is one to which the law gives special effect because of the formalities or the special language used in creating it.3).than two parties. An offer is synonymous with proposal. and specific or general.e.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. Offer by abstinence: An offer can also be made by a party by omission to do something. Formal and informal contracts: This is another way of classifying contracts on the basis of their formation.3. The written offer can be made by letters. (True/False) 2.2(a)). Effect of absence of one or more essential elements of a valid contract: If one or more essentials of a valid contract are missing. The oral offer can be made either in person or over telephone. (ii) Voidable. This includes such conduct or forbearance on one’s part that the other person takes it as his willingness or assent. (True/False) 2. 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. telex messages. Self Assessment Questions 1. As per Sec. abstain from doing) something with a view to obtain acceptance of the other party to such act or abstinence (Sec...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. such as cheques. the contract is either voidable.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. Classification according to validity: Contracts may be classified according to their validity as (i) Valid. but not by others.

(True/False) 5. the communication of the offer is complete when B receives the letter.1 Persons who are competent to contract Any one cannot enter into a contract. The acceptance of an offer may be express or implied. (i) As against the offer or and (ii) As against the acceptor. He does not have lucid intervals.When the person to whom the offer is made signifies his assent thereto. The communication of acceptance is complete.11). Thus. The offeree is deemed to have given his acceptance when he gives his assent to the proposal. when it comes to the knowledge of the offer or. The completion of communication of acceptance has two aspects. however the minor can make the other party bound by the contract.2(b)). 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. Does this mean that a minor is not competent to contract? No. Every person is competent to contract if he (i) is of the age of majority. (ii) As against the acceptor. 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. the offer is said to be accepted (Sec. He is incapable of entering into a contract and therefore a contract with an idiot is void. Where A proposes by a letter to sell his car to B at a certain price. Implied acceptance: Acceptance is implied when it is said to be gathered from the surrounding circumstances or the conduct of the parties..3 Completion of communication of offer and acceptance (Sec. The communication of acceptance is complete (i) As against the offer or when it is put into a course of transmission to him so as to be out of the power of the acceptor. (True/False) 2. The contract law defines maturity as the age of majority.4 Capacity to Contract 2. Self Assessment Questions 4. and (iii) is not disqualified from contracting by any law to which he is subject (Sec.4. he must be competent to contract according to the law.4. An idiot is a person who is of permanently unsound mind.2 Capacity of a minor to enter into a contract Age of a person determines enough maturity to make a contract. (ii) is of sound mind.4) It is necessary to communicate offer to the offeree and the acceptance to the offeror. 2. A proposal when accepted becomes a valid contract even though acceptance is not in the prescribed mode. . 2.3. 2. he must be of sound mind so as to be competent to contract. viz. A test of soundness of mind has been laid down by law. but he is not bound by the contract. when it comes to his knowledge.3 Mental incompetence prohibits a valid contract A person who is not of sound mind may not enter into a contract. a minor may make a contract.4. acceptance is the act of giving consent to the proposal. 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. That usually is 18 years. A lunatic is a person who is mentally deranged due to some mental strain or other personal experience. Communication of offer is complete when the letter of offer is posted. The liability for necessaries of life supplied to persons of unsound mind is the same as for minors. (True/False) 6. as against the person to whom its made.

Self Assessment Questions 7. It is essential to the creation of a contract that both parties agree to the same thing in the same sense. Meaning of coercion (Secs. The party making it believes it to be true.A person who is drunk.5 Consent and Free Consent 2. fraud is different from misrepresentation. .15). (iv) any other act fitted to deceive. (v) any such act or omission as the law specifically declares to be fraudulent. (Sec.2 Free consent For a contract to be valid it is not only necessary that the parties consent but also that they consent freely.5. The consent of the offeree to the offer by the offer or is necessary. In this way. the promisor is not responsible for non-performance. A consent is said to be free when it is not caused by: (i) coercion.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. 2. Thus. (iv) misrepresentation or (v) mistake. (ii) active concealment of a fact by one having knowledge or belief of the fact. When two or more persons agree upon the same thing in the same sense they are said to consent.5. (True/False) 8. 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. Meaning of ‘mistake’ (Secs. free consent is one of the essentials of a valid contract.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. Meaning of misrepresentation (Secs. Such a statement is made innocently.1 Meaning of consent Offer by one party is accepted by the other party. Where there is a consent but no free consent the contract is voidable at the option of the party whose consent was not free. (True/False) 2. (ii) undue influence. When the promisee does not accept the offer of performance. A married woman cannot enter into a contract. Like fraud. (iii) promise made without any intention of performing it. (iii) fraud. 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.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. Meaning of fraud (Secs.18-19) Misrepresentation is also known as simple misrepresentation whereas fraud is known as fraudulent misrepresentation.

right.Self Assessment Questions 9.e.20). (True/False) 10. If the offeree does not accept the offer according to the mode prescribed by the offeror. Consent obtained by fraud makes the agreement void.2(d). trade or business of any kind is.2 “No consideration.7 Agreements Declared Void (Secs.7.1 Agreements against public policy (Secs. not open to the courts to enter into any question of reasonableness or otherwise of the restraint [Khemchand v. interest or profit accruing to one party.1 Meaning of consideration One of the essential elements of a valid contract is that it must be supported by consideration. .27 provides that “every agreement by which any one is restrained from exercising a lawful profession. to that extent.6 Consideration (Secs. This something or consideration need not be in terms of money. (True/False) 2. qualified or unqualified. These are as follows: (i) Trading with enemy: (ii) Agreements for stifling prosecution.26-30) The Act declares certain agreements to be void. or inconvenience that may have or may have been occasioned to the other party in respect of the promise. are void. (iii) Contracts in the nature of champerty and maintenance. (iv) agreements made without consideration (Sec. i. (1942) Sind. 114]. “something in return”. 2. (vi) Agreements in restraint of marriage of any person other than a minor is void.2 Agreement in restraint of trade Sec. (iii) agreements. 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.10 and 25) A promise without consideration cannot create a legal obligation. Past consideration is no consideration.. (True/False) 11.25). loss or responsibility given.7. Self Assessment Questions 12. the offer does not lapse automatically. detriment.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. (ii) agreements. This “something” may even be some benefit. part of consideration of which is unlawful (Sec. A person who makes a promise to do or abstain from doing something usually does so as a return of equivalent of some loss. no contract” (Secs. damage. The term consideration is used in the sense of quid pro que. 2. or some forbearance. (True/False) 13. (v) Agreements in restraint of parental rights are void. Dayaldas. 23-25 and 185) 2. suffered or undertaken by the other party. the object or consideration of which is unlawful (Sec. Some other agreements which are declared to be void are explained below. (iv) Agreement for the sale of public offices and titles are void. Also a promise by one party may be consideration for the promise of other party. All agreements in restraint of trade. It is.6. whether general or partial. In simple terms consideration is what a promisor demands as the price for his promise. therefore.24). Cancellation of a contract by mutual consent of the parties is called waiver.23). void”. 2. An attempt to deceive which does not deceive is not fraud. (True/False) 2. Some of the agreements which are against public policy and have been declared to be void by law.6.

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.e. (True/False) 15.31-36) 2. but are still recognised as enforceable like contracts.. An agreement to agree is a valid contract. Self Assessment Questions 16. quasi contract is “a situation in which law imposes upon one person.8.000 if B’s house is burnt. although no contract. i. if some event. 2. on grounds of natural justice.8 Contingent Contract (Secs. an obligation similar to that which arises from a true contract. (iii) The event must be collateral.9. (True/False) 17. it is not a contingent contract. A person who is usually of unsound mind cannot enter into a contract even when he is of sound mind. (ii) The event must be uncertain.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. Social agreements are enforceable in courts. (True/False) 2. in courts. Payments made by a debtor are always appropriated in chronological order.9. According to Dr Jenks. express or implied. This is a contingent contract. incidental to the contract. Example: A contracts to pay B Rs 10. 2. collateral to such contract does or does not happen.9 Quasi Contracts 2. If the event is bound to happen and the contract has got to be performed in any case.2 Cases which are treated as quasi contracts Following are the cases which are to be deemed quasi contracts: . (True/False) 2.8.Self Assessment Questions 14. has in fact been entered into by them”.1 Contingent contract defined (Sec.31) A contingent contract is a contract to do or not to do something.

A may perform this promise either personally delivering the items to B or causing it to be delivered to B through someone. Self Assessment Questions 18.10. (True/False) 21. or some law (Sec.11. then the promisor may employ a competent person to perform the promise. Reimbursement to a person paying money due by another in payment of which he is interested. the contract comes to an end. 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.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. then A must perform this promise personally. (iii) In case of death of the promisor. This is called as ‘Tender’ or ‘Attempted Performance’.000. pays it. Thus.68). (ii) If there is no such intention of the parties. Self Assessment Questions 20. where A contracts to sell his car to B for Rs 1. (vi) breach. (True/False) 2. the person who furnished such supplies is entitled to be reimbursed from the property of such incapable person (Sec. (i) In case. (v) operation of law. A person who is interested in the payment of money which another is bound by law to pay. is entitled to be reimbursed by the other.10. and B is bound to pay Rs 1. therefore. 2. A dies before that day.1 Meaning of performance of contract A contract creates obligations. there was an intention of the parties that the promise must be performed by the promisor himself. Commercial impossibility does not make the contract void. If a valid tender is made and is not accepted by the promisee. A threat to commit suicide does not amount to coercion. (True/False) 2.2 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. A’s legal representatives are bound to deliver the goods to B. Thus.37-67) 2. 2. If a person. 2. or any one whom he is legally bound to support is supplied by another person with necessaries suited to his condition in life.000. incapable of entering into a contract. (ii) tender. If A has promised to deliver some items of grocery to B. 2. where A promises to paint a picture for B. as soon as the car is delivered to B and B pays the agreed . (iv) subsequent impossibility. ‘Performance’ of contract means the carrying out of obligations under it. such promise is to be performed by him only. then the promisor may employ a competent person to perform the promise.10. Claim for necessaries supplied to a person incapable of contracting or on his account. the legal representative must perform the promise unless a contrary intention appears from the contract. A promises to deliver goods to B on a certain day on payment of Rs 1.000 to A’s representatives.11 Different Modes of Discharge of Contracts (Secs. and who. (True/False) 19.10 Performance of Contracts (Secs. (Sec. the promisor shall not be responsible for non-performance nor shall he lose his rights under the contract.69).1.37).73-75) A contract may be discharged by (i) performance.85. If there is no such intention of the parties. (iii) mutual consent.1 Discharge of contracts by performance or tender The obvious mode of discharge of a contract is by performances that is where the parties have done whatever was contemplated under the contract. The liability of joint promisors is joint and several.

rescission. mutual consent or impossibility or operation of law.5 Discharge of contracts by breach A breach of contract is one party’s failure. without a legal excuse. A contract may terminate by mutual consent in any of the six ways viz.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. alteration and remission.4 Discharge of a contract by operation of law Discharge by operation of law may take place in four ways: (i) By death. the original contract is discharged.price for it. the contract). The breach of contract may arise in two ways: (i) anticipatory and (ii) actual.11. 2.62) If the parties to a contract agree to substitute a new contract for it. Actual breach of contracts: The actual breach can occur by (i) failure to perform as promised. that party may proceed in several ways: (i) the other party may urge the breaching party to reconsider the breach.11. If a promisor tenders performance of his promise but the other party refuses to accept. (iii) the other party may bring the breaching party to an agency for alternative dispute resolution. From there. if a person does not perform his part of the contract at the stipulated time. then this amounts to a breach of contract on the part of the promisor. A contract terminates by breach of contract. (ii) if it is a contract with a merchant.11. 23.11. novation. There are two types of impossibility: (i) Impossibility may be inherent in the transaction (i. Novation means substitution of a new contract for the original one. the promisor stands discharged of his obligations. the other party is no longer obligated to keep its end of the bargain. (True/False) 2. A contract terminates by breach of contract. In such a case the aggrieved party is freed from all his obligations under the contract. Death of the promisor results in termination of the contract in cases involving personal skill or ability. The tender or offer of performance has the same effect as performance. the other party may get help from consumers’ associations. to live up to any of its promises under a contract. Thus. Self Assessment Questions 22. or to rescind it or alter it.. 2. or (v) the other party may sue for other remedies. ____________ means substitution of a new contract for the original one.2 Meaning of mutual consent (Sec. he will be liable for its breach. the contract comes to an end by performance. (ii) By insolvency. 2. (ii) Impossibility may emerge later by the change of certain circumstances material to the contract. The failure to perform means that one party must not have performed a material part of the contract by a stated deadline. 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. 2. The consequence of this is that the promisee becomes entitled to certain remedies. waiver and merger. (iv) the other party may sue for damages. The insolvency law provides for discharge of contracts under certain circumstances so where an order of discharge is passed by an insolvency court the insolvent stands discharged of all debts incurred previous to his adjudication. .e. (ii) making it impossible for the other party to perform.12 Remedies for Breach of Contract When someone breaches a contract. or (b) during the performance of the contract. 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. (iii) By merger. the other party may treat the contract as rescinded. Rescission of the contract: When a breach of contract is committed by one party.

Self Assessment Questions 24.14 Summary The law of contract in India is contained in the Indian Contract Act.1 Indian Contract Act. The freedom of the parties is limited by four factors. (True/False) 25. and an employer cannot. The main kind of damages awarded in a contract suit are ordinary damages. A contract is imposed by a party having a strong bargaining power on a party having a weak bargaining power.1 Freedom to contract is a myth or an illusion The freedom of the parties is limited by two factors.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. (True/False) 2.75 are awarded according to certain rules as laid down in Secs. This Act is based mainly on English common law. (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. Damages under Sec.13. (True/False) 2. from his standpoint.73-74. 2. Damages under Sec. rather they are one-sided contracts.Damages (Sec. Glossary Contract: An agreement enforceable by law is a contract. induce his employees to enter into any contract favourable to the employer.13 Freedom to Contract 2. The act is not exhaustive. Many of the contracts now being entered into by consumers are not the result of individual negotiations. therefore. with certain blanks to be filled in. 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. the freedom to contract is restricted. which is to a large extent made up of judicial precedents.73-74. containing terms and conditions. It is prepared by the business people. There are three remedies under the Specific Relief Act. (iii) The aggrieved party is required to take reasonable steps to keep his losses to the minimum. 1963. (True/False) 27. Self Assessment Questions 26. Therefore. 1872). The customer has only to sign it. (there being a separate contract act in England).13. 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.2 What is a standard form contract? A standard form contract is a document which is generally printed. The idea is to compensate the aggrieved party for the loss he has suffered as a result of the breach of the contract. There are certain laws for the protection of the employees. 1872.75): 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. What is the most common remedy for breach of contracts: The usual remedy for breach of contracts is suit for damages. Sec. .75 are awarded according to certain rules as laid down in Sec.

False 7. Give some example of ordinary damages. Void Contract: A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable. Distinguish between a wagering agreement and a contingent contract. False 9.16 Answers Answers to Self Assessment Questions 1. 7. “Freedom to contract is a myth or an illusion”. False 8. 1872.15 Terminal Questions 1. When is an offer to be accepted? 5. 4. 2. Valid Contract: Contracts which satisfy all the essential elements of a valid contract are enforceable in a court of law. False 4. True . 6. Describe the rules regarding communication of offer and acceptance. What do you mean by contract? What test would you apply to ascertain whether an agreement is a contract? 2. True 2. 2. Enumerate some of the contracts which are expressly declared to be void by the Indian Contract Act. “All agreement are not contracts but all contacts are agreements”. Discuss. Comment. 8. False 5. False 3. 3. What are the different modes of discharge of contracts? Explain the discharge of contract by performance or tender.Agreement: Every promise and every set of promises forming the consideration for each other is an agreement. False 6. Can ordinary damages be claimed for any remote or indirect loss or damages by reason of the breach? 9. False 10.

3 – Offer is not only one of the essential elements of a contract but it is the basic building block also. made between at least two parties. False 16.. True 24. Refer 2. 5.8 – A contingent contract is a contract to do or not to do something. 2. True 25. True 22. Refer 2. False 13. False 17.2 – A contract is an agreement. 7. False Answers to Terminal Questions 1.3 – It is necessary to communicate offer to the offeree and the acceptance to the offeror. Novation 23.11 – A contract may be discharged by (i) performance. Refer 2.11. True 19. False 20. 6. True 27. True 26. True 14. Refer 2. 4. 3. True 21. False 18. False 12. (ii) tender . Refer 2.2 – Avoidable contract is one which may be repudiated at the will of one or more of the parties.2 – The agreement must be such which is enforceable by law so as to become a contract. enforceable by law. Refer 2. Refer 2. False 15.

Carlill brought a claim to court. Question Do you agree to what the company says? Justify." Mrs. On a third request for her reward. She claimed £100 from the Carbolic Smoke Ball Company.1 Introduction Objectives 3. The barristers representing her argued that the advertisement and her reliance on it was a contract between her and the company. 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. Address: "Carbolic Smoke Ball Company.73-74. "27. London.2 Purpose and Meaning of the Contract of Guarantee . Louisa Elizabeth Carlill saw the advertisement.8. It claimed to be a cure for influenza and a number of other diseases. and so they ought to pay. 9. The company argued it was not a serious contract. they replied with an anonymous letter that if it is used properly the company had complete confidence in the smoke ball’s efficacy. 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.) MB0051-Unit-03-Contracts of Guarantee and Indemnity Unit-03-Contracts of Guarantee and Indemnity Structure: 3. 10s. Mrs. 1891. Refer 2.13 – The freedom of the parties is limited by two factors. £100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza colds. The Company published advertisements in the Pall Mall Gazette and other newspapers on November 13. Princes Street. Mini-case The Carbolic Smoke Ball Company made a product called the "smoke ball". shewing our sincerity in the matter. During the last epidemic of influenza many thousand carbolic smoke balls were sold as preventives against this disease. They ignored two letters from her husband. It was squeezed at the bottom to release the vapours into the nose of the user. or any disease caused by taking cold. and in no ascertained case was the disease contracted by those using the carbolic smoke ball. This would cause the nose to run. The tube was then inserted into the user’s nose. 1892. according to the printed directions supplied with each ball. after having used the ball three times daily for two weeks. Refer 2. The smoke ball was a rubber ball with a tube attached. Regent Street. The ball can be refilled at a cost of 5s. bought one of the balls and used three times daily for nearly two months until she contracted the flu on January 17. making it the cheapest remedy in the world at the price. who had trained as a solicitor. Hanover Square. and hopefully flush out the cold. post free. One carbolic smoke ball will last a family several months.75 are awarded according to certain rules as laid down in Secs. It was filled with carbolic acid (phenol). £1000 is deposited with the Alliance Bank. (Hint: summarize this case in your word. In fact the inflammation caused by the device would have probably increased susceptibility to catching influenza.12 – Damages under Sec.

e..9 Answers 3.6 Contract of Indemnity Meaning of indemnity Rights of the indemnified (i.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.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 3.1 Introduction .126) Fiduciary relationship 3. Liabilities and Discharge of Surety Rights against the creditor Rights against the principal debtor Rights against co-sureties Liability of surety Discharge of surety 3. the indemnity holder) Rights of the indemnifier Commencement of indemnifier’s liability 3.8 Terminal Questions 3.5 Rights.

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

under certain circumstances. a contract of guarantee must be in writing. Specific guarantee is different from continuing guarantee. 3. viz.1 Oral or written guarantee A contract of guarantee may either be oral or in writing (Sec. a surety may be called upon to pay though principal debtor is not liable at all.3 Fiduciary relationship A contract of guarantee is not a contract “uberrimae fidei” (requiring utmost good faith).000 to C and guarantees that C will repay the amount within the agreed time and that on C failing to do so. the principal debtor and the surety. though a creditor should always prefer to put it in writing to avoid any dispute regarding the terms. it is clear that in a contract of guarantee there must. between the debtor and the creditor.. the primary liability is of the surety. A specific guarantee once given is irrevocable. Self Assessment Questions 1.3.2 Specific and continuing guarantee From the point of view of the scope of guarantee a contract of guarantee may either by specific or continuing. There must be a distinct promise on the party of the surety to be assumable for the debt. but is an independent contract. Therefore. 3. Nevertheless. (True/False) 3. the original contract between the debtor and creditor may be about to come into existence.2. Example: When A requests B to lend Rs10. In a contract of guarantee there are three parties. 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. there is an implied contract also between the principal debtor and the surety.2 Definition and nature of the contract of guarantee (Sec. So where guarantee is given for good conduct of an employee. A guarantee is a “specific guarantee”. The person who gives the guarantee is called ‘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. the surety would expect not to exist. It is not necessary that the principal contract. and the person to whom the guarantee is given is called the ‘creditor’. 3. the guarantee is not valid if that other person does not join (Sec. However. In case of an oral agreement the existence of the agreement itself is very difficult to prove.126). be two contracts. the person for whom the guarantee is given is called the ‘principal debtor’. must exist at the time the contract of guarantee is made.144). he will himself pay to B.2. Similarly. 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. a principal contract between the principal debtor and creditor. (True/False) 2. The contract of surety is not a contract collateral to the contract of the principal debtor. in effect. if it is intended to be applicable to a particular debt and thus comes to end on its repayment. of a third person in case of his default”. As per the Indian law.3 Kinds of Guarantee 3. the employer’s failure to inform the surety of any breach on the part of employee. A contract of guarantee may be either oral or in writing. or discharge the liability. Also. where X guarantees the existing and future liabilities of A to B upto a certain amount which limit has already been exceeded.126) A contract of guarantee is defined as “a contract to perform the promise. under the circumstances. Similarly. . (True/False) 3. there is a contract of guarantee.In this unit our primary concern is with the contracts of guarantee which are used for securing loan. From the above discussion. A creditor must disclose all those facts which. and a secondary contract between the creditor and the surety. etc.3. the contract of guarantee can be avoided on the ground of concealment of a materiel fact. the creditor. For a contract of guarantee. will discharge the surety.

A guarantee which extends to a series of transactions is called a “continuing guarantee” (Sec. A will not get any dividend unless Y has been fully paid. 50. 20. where X owes Y Rs 50.000 out of Rs. 30. a continuing guarantee can be revoked regarding further transactions (Sec.000. so far as regards future transactions. A had stood surety for the whole debt of Rs 50. 3..000 to Y.000 = Rs. i. he will get Rs. 30. 10.000 from X’s estate.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.Example: A guarantees the repayment of a loan of Rs. A guarantee regarding the conduct of another person is a continuing guarantee. If on the other hand.000 which was not guaranteed. ¼ of Rs. to the amount of Rs. as a revocation of a continuing guarantee. Self Assessment Questions 4. 10. 30.000 for any tea he may from time to time supply to C. The guarantee in this case is a specific guarantee. Afterwards B supplies C with tea to the value of Rs.000 and from X’s estate Rs. 30.. The guarantee given by A was a continuing guarantee and he is accordingly liable to B to the extent of Rs.3.000. Unlike a specific guarantee which is irrevocable.000 paid by A to Y. 10. 5.000. 12.000 to B by C (a banker). 10. For instance.e. 30. The death of the surety operates.000 or whether he has guaranteed the full amount of Rs.500 being ¼ of Rs.000 and A has stood as surety for Rs.500. 30. continuing guarantee cannot be revoked regarding transactions that have ready taken place. i.000 subject to a limit of Rs.000. C fails to pay. 7. being ¼ of the balance. a tea-dealer. 50.129) Example: A guarantees payment to B. Since after paying Rs. (Sec.000 and C pays B for it. A contract of guarantee is for the security of the ……………… (a) Buyer (b) Seller (c) Debtor (d) Creditor 5. then Y can get Rs. the question may arise whether A has guaranteed Rs. 50.131). A can claim from X’s estate. This can happen only if X’s estate declares a higher dividend. Continuing guarantee is a: .130). 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. Rs.000 subject to a limit of Rs. 50.000. However. 30. 30.000 the full amount of guarantee from A and Rs.000 then Y can recover from A Rs. B supplies C with tea of the value above Rs. 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. 15. in the absence of any contract to the contrary.000 – Rs. 30.

Not to release or discharge the principal debtor. may be impaired. In other words. 3. or give time to. the legal consequence of which is the discharge of the principal debtor”. Not to change any terms of the original contract. the debtor may die or become insane or insolvent or his financial position may become weaker in the meanwhile.136 states that if the creditor makes an agreement with a third party. 5. 2. 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. Example: A gives a guarantee to banker C for repayment of the debt granted to B. This right. Here B is released from his debt by the contract with C and A is discharged from his suretyship. . The creditor is entitled to demand payment from the surety as soon as the principal debtor refuses to pay or makes default in payment. The creditor is under an obligation not to release or discharge the principal debtor. Sec. the creditor is entitled to proceed in the surety’s insolvency and claim the pro rata dividend. The banker pays X Rs. unless the surety assents to such contract”. in the absence of a provision to the contrary. Example: A banker contracts to lend X Rs. discharge the surety (Sec. without the surety’s consent. Sec. or not to use the principal debtor. If the time for repayment is extended.2 Obligations imposed on a creditor in a contract of guarantee 1. there are certain exceptions. discharges the surety as to the transactions subsequent to the variance”.000 on March 4. 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. Not to compound. surety is not discharged even if his consent has not been sought.000 on January 1.4.4. 5. however. by which the creditor makes a composition with or promises to give time to. by which the principal debtor is released. B later contracts with his creditors (including C.(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. but not with the principal debtor. Where surety is insolvent.137). discharges the surety. A guarantees repayment. or agree not to sue the principal debtor. with one effect that the surety’s remedy to recover the money in case the principal debtor defaults. However.135 provides. Sec. The liability of the surety cannot be postponed till all other remedies against the principal debtor have been exhausted. to give extension of time to the principal debtor.1 Rights of a creditor 1. 3. 2. does not. The creditor also has a right of general lien on the securities of the surety in his possession. “any variance made. These are: a) Sec. 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.4 Rights and Obligations of the Creditor 3. b) Mere forbearance on the part of creditor to sue the principal debtor.134 states: “The surety is discharged by a contract between the creditor and principal debtor. but it cannot sue A as the guarantee is from March 4. or to enforce any other remedy against him.133 provides. or by any act or omission of the creditor. in the terms of the contract between the principal debtor and the creditor. “A contract between the creditor and the principal debtor.

1. but owing to his misconduct and willful negligence. for the amount paid in excess of Rs.000 each. 1. B in that of Rs 20. C in that of Rs 40.2 Rights against the principal debtor a) Right of subrogation: Sec. if D makes default to the extent of Rs 40. they are called co-sureties.000.000 and B and C Rs 15.147 to contribute equally.000.138). B and C are liable. (ii) rights against the principal debtor and (iii) rights against co-sureties. they are bound under Sec. enter into three several bonds. So. 3.e. conditioned for D’s duly accounting to E. When a *surety has paid more than his share or a decree has been passed against him for more than his share. b) Where. the co-sureties have guaranteed different sums. the surety is subrogated to all the rights which the creditor had against the principal debtor. In other words.5. 3.000. Further. the other co-surety (or co-sureties) thereby is not discharged. then A is discharged from liability on the note. Example: A. Examples: (i) A. The creditor does not a right of general lien on the securities of the surety in his possession.139). 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. he has a right of contribution from the other sureties who are equally bound to pay with him. B and C are each liable to pay Rs 10. as between themselves to pay Rs. E defaults in making payment. In the event of principal debtor being a minor. 3.141). The creditor’s failure to do so will exonerate the surety from his liability.c) If the creditor releases one of the co-sureties. A in the penalty of Rs 10. 4. namely. if the creditor loses. Self Assessment Questions 6.000. the surety can direct creditor to dismiss the employee whose honesty he has guaranteed. i. 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.146 provides for a right of contribution between them. B and C are sureties to D for the sum of Rs. Where a debt has been guaranteed by more than one person. 3.3 Rights against co-sureties a) Right of contribution.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. creditor cannot recover his money from the surety. together with a bill of sale of B’s furniture.000 each and if any one of them has to pay more than his share. (True/False) 3. the creditor must hand over to the surety. he is invested with all the rights which the creditor has against the debtor.5. which gives power to C to sell the furniture and apply the proceeds in discharge of the note. Liabilities and Discharge of Surety Rights of a surety may be classified under three heads: (i) rights against the creditor.000. B and C as sureties for D.000 lent to E.000. A. 1. E makes default to the extent of Rs 30. in the event of proved dishonesty of the employee. Not to do any act inconsistent with the rights of the surety (Sec. Sec. A. (ii) In the above example. The co-surety released by the creditor is also not released from his liability to the other sureties (Sec. the securities in the same condition as they formerly stood in his hands. subject to the limit fixed by their guarantee and not proportionately to the liability undertaken. Rs..5 Rights. 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.000 he can claim contribution from the others. C sells the furniture.1 Rights against the creditor In case of fidelity guarantee. A is liable to pay Rs 20. .5.000. (True/False) 7. Subsequently. only a small price is realised.

(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. By compounding with. The creditor may file a suit against the surety without suing the principal debtor. Moolaki Raman (A. Example: A. 3. B allows a customer to overdraw and the bank loses a sum of money. A contract between the creditor and the principal debtor by which the creditor makes a composition with. as to future transactions. the liability of the surety is co-extensive with that of the principal debtor (Sec. made without the surety’s consent.5. a guarantor for a minor cannot be held liable.000. But A is liable to B for Rs 2.133). discharges the surety. for twelve months. the liability of the surety is coextensive with that of the principal debtor. If a minor could not default. Position of surety in case of a minor principal debtor. . The liability of a surety is called as secondary or contingent. the liability of the guarantor being secondary liability does not arise at all. The creditor is even not bound to give notice of the default to the surety. The death of the surety operates. or not to sue the principal debtor. B discounts bill for C to the extent of Rs 2. by which the principal debtor is released. By variance in terms of the contract (Sec. unless it is expressly provided for.134). though a minor debtor is not liable. in the sense that the surety will be liable for all those sums for which the principal debtor is liable. The same view has been endorsed by the Madras High Court in the case of Edavan Nambiar v. Example: A guarantees to B the payment of a bill of exchange by C. by notice to the creditor. Further. or agreeing not to sue. The revocation discharges A from liability to B for any subsequent discount. at the end of the three months. Example: A becomes surety to C for B’s conduct as a manager in C’s bank. Any variance. It was held that unless the contract otherwise provides. or by any act or omission of the creditor. Shripat I. 2. 10 Bom. the surety is liable for all those amounts the principal debtor is liable for. that B’s salary shall be raised and that he shall become liable for one-fourth of the losses on overdrafts.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. The surety is discharged by any contract between the creditor and principal debtor. Shivappa Manju and in Pestonji Mody v.130). 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. By the death of surety (Sec.4 Liability of surety Unless the contract provides otherwise. 1927 the surety can be held liable. A revokes the guarantee. where the creditor holds securities from the principal debtor for his debt. or promises to give time to. without A’s consent.I. The bill is dishonoured by C. the due payment of all such bills to the extent of Rs 5. unless the contract specifically so provides. in consideration of B’s discounting. A is discharged from his suretyship by the variance made without his consent and is not liable to make good this loss. By release or discharge of principal debtor (Sec.000.R. By notice of revocation (Sec.135). In Manju Mahadeo v. the acceptor. 164). as his liability arises only on default by the principal debtor. Afterwards B and C contract. The surety shall. however. Meherbai it was held that as under Sec. Afterwards.R.L. In other words. discharges the surety as to transactions subsequent to the variance. 1957 Mad. 3. in the absence of any contract to the contrary. A continuing guarantee may at any time be revoked by the surety. the creditor need not first exhaust his remedies against the securities before suing the surety. in the terms of the contract between the principal debtor and the creditor. 4. the liability of the surety begins and runs co-extensive with the liability of the principal debtor. bills of exchange for C. principal debtor (Sec. 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.3. as a revocation of a continuing guarantee. But the later decisions of the Bombay High Court have taken a contrary view. at A’s request. But as soon as the principal debtor defaults. guarantees to B. 5.128).000 on default of C. so far as regards future transactions.5. According to the decision of the Bombay High Court in Kashiba v. the legal consequence of which is the discharge of the principal debtor.131). or giving time to.128.

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.. (ii) All costs of suit which he may have to pay to such third party. (True/False) 3.6.. the promisee). 3. (True/False) 10. the surety is discharged. If the creditor does any act which is inconsistent with the right of the surety. A contract of indemnity may arise either by (i) an express promise or (ii) operation of law. 3. viz. are similar to the rights of a surety under Sec.139).6. (True/False) 9. Sec. Loss of security.141. e. The liability of a surety is secondary.1 Meaning of indemnity Secs. Self Assessment Questions 8. 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.3 Rights of the indemnifier The Act makes no mention of the rights of indemnifier. 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 indemnifier promises to make good the loss of the indemnified (i. However. 7. These are two parties in a contraction of identity indemnifier and indemnified.e.6.6. 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. the surety is discharged to the extent of the value of the security. The surety is a favoured debtor. By creditor’s act or omission impairing surety’s eventual remedy (Sec. 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.. his rights.g.124 and 125 provide for a contract of indemnity. unless the surety consented to the release of such security (Sec. This is a contract of indemnity. 3.124 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.4 Commencement of indemnifier’s liability . A contract of insurance is a glaring example of such type of contracts.141).6 Contract of Indemnity 3. the duty of a principal to indemnify an agent from consequences of all lawful acts done by him as an agent.. in such cases.2 Rights of the indemnified (i. 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. The contract of indemnity. (iii) All sums which may have been paid under the terms of any compromise of any such suit. must have all the essentials of a valid contract. Between co-sureties there is equality of burden and benefit.6. 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.e. like any other contract.

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

Define contract of indemnity. True 3. False 8. 4.8 Terminal Questions 1. Describe the rights of the indemnifier and the indemnity holder. False 4. Discharge of Surety from Liability: A surety is said to be discharged when his liability as surety comes to an end. True 7. 5. What is a ‘Continuing guarantee’? When it can be worked? 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. Explain the circumstances under which a surety may be discharged from the liability by the conduct of the creditor. True 11. False 2.9 Answers Answers to Self Assessment Questions 1. (d) 5. 3. Operation of law Answers to Terminal Questions . True 9. (a) 6. Distinguish between a contract of guarantee and a contract of indemnity. 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. 3. True 10. Continuing Guarantee: A guarantee which extends to a series of transactions is called a continuing guarantee. What do you mean by contract of guarantee? 2. (c) 12.

148) Kinds of bailments .1 Introduction Objectives 4. Refer 3. 4. I paid by Western Union. 3.3 – The scope of guarantee a contract of guarantee may either by specific or continuing. His is a fraudulent company!" If you think their price is very attractive and want to deal with them. the duty of a principal to indemnify an agent from consequences of all lawful acts done by him as an agent. The supplier explained that it’s his company’s policy was to issue original invoices only when quantities are above 5 units. Refer 3. So it is a commonly used payment method for con-artists. with no way of tracing the person who picked it up.6 – A contract of indemnity may arise either by (i) an express promise or (ii) operation of law. Mini-case "I didn’t receive the products. the fraudster is pretending to be a US company. but all his registered information is false. Western Union is a dangerous payment method. Refer 3. but I have refused.5 – Rights of a surety may be classified under three heads: (i) rights against the creditor. He told me to pay for another 2 units for another $150 USD. but actually it is Chinese Company. The criminal remains anonymous.2 Bailment and its Kinds Definition of bailment (Sec. Questions 1.2 – The contracts of guarantee are among the most common business contracts and are used for a number of purposes. it can be picked up anywhere in the recipient’s country. it is very necessary for you to verify that they are legitimate company and their contact information is correct. This can be judged easily by calling his company telephone number or by searching the company name on related state government websites. Refer 3. In this case. Analyze the ways in which a person can find out the whether the company is fraudulent.g. (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. He registered on your website as a US company. e. Refer 3.. So try to avoid adopting this payment method and consider other more secure payment methods like escrow. 2.1. All his information is fraudulent. 5. (ii) rights against the principal debtor and (iii) rights against co-sureties.6 – Student describe own. What would you understand if the seller requests you to send payment to another country instead of his registered country showed on the website? (Hint: Refer First Para of case) 2. The supplier said the goods were detained in the Customs Office because Customs didn’t find the original invoice attached to the goods.

8 Rights and Duties of Pledgor and a Pledgee Duties of a pledgee Duties of a pledgor Rights of a pledgor 4. you came to know about the contract of law and guarantee of contract.11 Answers 4.3 Duties and Rights of Bailor and Bailee Duties of a bailor Duties of a bailee Rights of a bailee Rights of a bailor 4. At one time or another.9 Summary 4.6 Pledge or Pawn 4.1 Introduction In the previous unit. Traders often store their surplus goods in warehouses. you enter into a legal relationships. and factory owners often send machinery back to vendors for repairs.7 Pledge by Non-owners 4. Objectives After studying this unit.4 Termination of Bailment 4. In this unit you will study about the contract of bailment. Bailments are quite common in business also. you should be able to: · Describe the bailment and its types · Explain the duties and rights of bailor · Define pledge .10 Terminal Questions 4.5 Finder of Lost Goods 4. Also.4. called bailment and pledge. and utilize the services of cold storages for keeping their goods to be taken back as and when required. goods are pledged for securing loans.

agrees to hold them on behalf of C. or something to be done about them.148) Bailment is defined as the “delivery of goods by one to another person for some purpose. (ii) A delivers a wrist watch to B for repairs. For example. as soon as the time of use for. Example: A holding goods on behalf of B. i. 4. where one person. 4. (vii) Delivery of goods as security for the repayment of loan and interest thereon. or condition on which they were bailed. (i) Deposit. the delivery of goods is upon a contract that when the purpose is accomplished. there is a constructive transfer of possession from C to A. In bailment. be actual or constructive. (v) A delivers some gold biscuits to B. The essence of bailment is delivery of goods by one person to another for some temporary purpose. Self Assessment Questions 1. (v) Delivery of goods for being transported. pledge. (iv) A delivers a suit-length to a tailor for stitching.. however. The explanation to the above Section points out that delivery of possession is not necessary. Goods lent to a friend gratis to be used by him. Delivery of goods.. (iii) A lends his book to B for reading. when the purpose is accomplished. (vi) Delivery of goods to a carrier for the purpose of carrying them from one place to another. Return of specific goods (in specie) is an essential characteristic of bailment. The person delivering the goods is called the ‘bailor’ and the person to whom the goods are delivered is called the ‘bailee’. it is agreed that it will be returned. in return for payment of money. From the definition of bailment. (iv) Pawn or Pledge. The bailee is under an obligation to re-deliver the goods. they shall be returned to the bailor. it is only the possession of goods which is transferred and not the ownership thereof. Deposit of goods with another by way of security for money borrowed.e. i. 2. bailor. for making jewellery. Ownership of goods. where a watch is delivered to a watch repairer for repair. for dry cleaning.149). (i) A delivers some clothes to B. upon a contract that they shall. on the receipt of the agreed or reasonable charges. after repair.2 Bailment and its Kinds 4. where an equivalent and not the same is agreed to be returned. i.e. Delivery of good is essential for effecting bailment. Delivery of goods by one person to another for the use of the former. (vi) Delivery of goods as in (v) above. (iii) Hire. (True/False) 3. Actual delivery may be made by handing over goods to the bailee. by the bailee for reward. EXCEPT: (a) Commodatum . there is no bailment.2. but without reward. already in possession of goods contracts to hold them as bailee. All are the kind of bailments. be returned or otherwise disposed of according to the directions of person delivering them”. 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.e. a jeweller. the following characteristics should be noted: 1. Thus. a dry cleaner. his business is to transfer possession and not ownership. therefore the person delivering the possession of goods need not be the owner. Placing of ornaments in a bank locker is not a contact of bailment.1 Definition of bailment (Sec. (ii) Commodatum. Delivery of goods may. in their original or altered form. Return of goods in specie. In a bailment. has elapsed or been performed”. 3. The goods are delivered for some purpose and it is agreed that the specific goods shall be returned.2 Kinds of bailments Bailments may be.. Bailment is based on a contract. Let’s illustrate. classified into six kinds as follows. (True/False) 2.2. Goods lent to the bailee for hire.· Explain the pledge by non-owner 4.

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

3 Rights of a bailee 1. a right to retain such goods until he receives due remuneration for the service he has rendered in respect of them”. the bailee’s rights. 4. In the absence of any contract to the contrary. on the other hand. Thus.4 Rights of a bailor .160). or causes them any injury.181). 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. Example: A leaves a cow in the custody of B to be taken care of. he is responsible to the bailor for any loss. the right of lien is extinguished.161). in the absence of a contract to the contrary. belonging to another. a bailee can sue bailor for (a) claiming compensation for damages resulting from non-disclosure of faults in the goods. If a third person wrongfully deprives the bailee of the use or possession of the goods bailed. whatever is obtained by way of relief or compensation in such a suit shall. 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. These include: bankers. Particular Lien is conferred upon a bailee by virtue of the provisions of Sec. in accordance with the purpose of the bailment. 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. Now.. 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. until some debt or claim is paid. 5. and (c) for extraordinary expenses. the bailor is entitled to be compensated by the bailee for the loss of the goods.171 empower certain categories of bailees to exercise a general lien. for which they were bailed has been accomplished. It reads: “Where the bailee has. be dealt with according to their respective interest (Sec. General Lien means the right to retain goods not only for demands arising out of the goods retained but for a general balance of account in favour of certain persons. The property so retained has. (b) for breach of warranty as to the title and the damage resulting there from. 180-181). Right against wrongful deprivation of or injury to goods (Secs. It is the duty of the bailee to return. means the right to retain the particular goods in respect of which the claim is due. Lien may be of two types: (i) General Lien and (ii) Particular Lien. the goods bailed. or according to his directions. 4. 4.163). Lien is a right in one person to retain that which is in his possession. rendered any service involving the exercise of labour or skill in respect of the goods bailed. once the debt is satisfied or obligation discharged. without demand. if looked from the point of view of bailee. The cow gives birth to a calf. lien is available only until the debt or claim is satisfied. Particular Lien. 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. as soon as the time for which they were bailed has expired. Since.3.Example: A bails 100 bales of cotton marked with a particular mark to B. B is bound to deliver the cow as well as the calf to A. factors. mixes the 100 bales with other bales of his own bearing a different mark. to be returned to or kept at the disposal of the owner (i. Lien. The duties of the bailor are. B.170-171). Another right of bailee is the right of lien (Secs.170. any increase or profit which may have accrued from the goods bailed. wharfingers. then. bailor). he has. To return any accretion to the goods bailed (Sec. in fact. without A’s consent.3. These bailees can retain all goods of the bailor so long as anything is due to them. unless there is a contract to the contrary. The provisions of Sec. as between the bailor and the bailee. If bailee fails to return the goods at the proper time. Bailee’s right of lien is particular in certain cases whereas general in other cases. or the purpose. destruction or deterioration of the goods from that time (Sec. To return the goods bailed without demand (Sec. 3. or deliver according to the bailor’s directions.e. (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). 2. the bailee is bound to deliver to the bailor. attorneys of High Court and policy brokers.

Where bailment is for a specific period. 2.162). Example: A room cooler is hired by X from Y for a period of 6 months. Self Assessment Questions 4. . inconsistent with the conditions of the bailment. 4. By bailee’s act inconsistent with conditions of bailment.. However. a gratuitous bailment terminates by the death of either the bailor or the bailee (Sec. if premature termination causes any loss to the bailee exceeding the benefit derived from the bailment.5 Finder of Lost Goods Finding is not owning. the bailor must indemnify the borrower for the loss if he compels an immediate return (Sec. he enjoys certain rights also. The bailor can enforce. (True/False) 4. Bailee need not return to the bailor any accretion to the goods on completion of the contract of bailment. bailment without reward). A shall have the option to terminate the bailment. it comes to an end on the expiry of the specified period. (True/False) 5. In case of gratuitous bailment (i. all duties or liabilities of the bailee. the bailor must indemnify.1. A gratuitous bailment may be terminated at any time (Sec. On the accomplishment of the specified purpose. the bailee) loss exceeding the benefit derived by him from the bailment. In case. even though he lent it for a specified time or purpose.. 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. B drives the horse in his carriage. Example: A lets to B for hire. (True/False) 4. A gratuitous bailment can be terminated by the bailor even before the stated time.e. However. besides the responsibility of exercising reasonable efforts in finding the real owner. the bailor can demand their return whenever he pleases.159).4 Termination of Bailment A contract of bailment terminates or comes to an end under the following circumstances: 1. But if. 2.153). by suit. Self Assessment Question 6. 3. bailment is for specific purpose it terminates as soon as the purpose is accomplished. a horse for his own riding. On the expiry of 6 months X must return the cooler. On the expiry of the stipulated period. A bailee has a general lien on the goods bailed.159). His rights are summed up hereunder.e. the borrower has acted in such a manner that the return of the thing before the specified time would cause him (i. the bailor may terminate the bailment (Sec. Further. If the bailee does any act with regard to the goods bailed. on the faith of such bailment.

Delivery of goods may. and lien which is not of ordinary nature and so long as his loan is not repaid. Self Assessment Questions 7. 2. and is a valid pledge. Example: A businessman pledged a railway receipt to a bank. He acquires a special property. cannot sue for such compensation. and that the pledge of the railway receipt to the bank. lender can sell the goods and prove for the balance of the debt. where sugar pledged with the Bank was seized by the Government of Bihar. A finder. (i) when the thing is in danger of perishing or of losing the greater part of its value. a specific reward has been offered by the owner for the return of the goods lost. Held. State of Bihar and Ors.169). Similarly. the finder may sue for such reward and may retain the goods until he receives it. constituted a valid pledge of the goods. The person. in case the borrower makes a default in payment. duly endorsed.172. The goods are in the possession of the creditor and therefore. be actual or constructive. . however. 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. is called the ‘pledgor’ and the person to whom the goods are so delivered is called the ‘pledgee’. Thus. Advantages of pledge. A finder of lost goods may retain the goods until he receives the compensation for money spent in preserving the goods and/or amount spent in finding the true owner. The owner of the goods can create a valid pledge by transferring to the creditor the documents of title relating to the goods. if the owner cannot with reasonable diligence be found or if he refuses. 2. that the railway receipts in India are title to goods. in Bank of Bihar v. to pay the lawful charges of the finder. A person who delivers the goods as security is known as: (a) Pledgee (b) Pledgor (c) Bailor (d) None 4. It offers the following advantages: 1. A finder may sell goods when they are in danger of perishing or losing the greater part of their value. 3. (1971) Company Cases 591.1. In the case of insolvency of the borrower. Delivery essential. But where. The Official Assignee contended that the pledge of the railway receipt was not valid. duly endorsed. the finder may sell it. It is only a qualified property that passes to the pledgee. however. pledge is perhaps the most satisfactory mode of creating a charge on goods. The ownership remains with the pledgor. When a thing which is commonly the subject of sale is lost.168). To a creditor. amount to two-third of its value. (True/False) 8. no other creditor or ‘authority’ can take away the goods or its price.6 Pledge or Pawn Sec. 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. who delivers the goods as security. (ii) when the lawful charges of the finder in respect of the thing found. if any. upon demand. Right to retain the goods (Sec. they can be disposed of after a reasonable notice. defines a pledge as the bailment of goods as security for payment of a debt or performance of a promise. 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. Later he was declared bankrupt. it amounts to constructive delivery. 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. Right to sell (Sec. Stocks cannot be manipulated as they are under the lender’s possession and control.

169 (d) Sec. can create a valid pledge. 2. Where a mercantile agent is.178-A). such a transaction would fall outside this section.30 of the Sale of Goods Act. means a mercantile agent having. Such a pledge shall. b) Acting in the ordinary course of business.178). in the customary course of business as such agent. when acting in the ordinary course of business of a mercantile agent. Therefore. For a pledge by a mercantile agent to be valid the following conditions must be satisfied: a) Good faith. if he does the business outside his business premises or out of business hours. A ‘mercantile agent’ as per Sec. The ownership of the goods bailed passes to the bailee. in the following cases. who obtains possession of goods with the consent of the seller. However. 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.7 Pledge by Non-owners The general rule is that it is the owner of the goods who can ordinarily create a valid pledge. 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. Under Sec. Provide your view on this.167 (c) Sec.4. 3. however. Right to sell comes under which section. Pledge by a mercantile agent. any pledge made by him. Self Assessment Questions 9. with the consent of the owner. Once again. in possession of goods or the documents of title to goods. The mercantile agent must have acted in the ordinary course of his business. (a) Sec. 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 . 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. before sale. even a pledge by nonowners shall be valid: 1. shall be as valid as if he were expressly authorised by the owner of the goods to make the same.2(9) of the Sale of Goods Act.170 4.168 (b) Sec. Pledge by seller or buyer in possession after sale. 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. Pledge by a person in possession under a voidable contract (Sec. and a buyer. (True/False) 10. 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. The onus of proving both these facts rests upon the person disputing the validity of the pledge. a seller left in possession of goods after sale. 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. 1930.

The pledgee is required to take as much care of the goods pledged to him as a person of ordinary prudence would. of a similar nature. However.e. In Morvi Mercantile Bank Ltd v. However. The pledgee has a right to claim any damages suffered because of the defective title of the pledgor. in the absence of a contract to that effect.173]. but the full value of the consignment. (b) he can supervise the sale to see that it fetches the right price. 4. 4. 2.. Thus. i. 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. If.175). A mercantile agent comes under _______________.176. A pledge by a mercantile agent to be valid if he must be in good faith and ________________. . but for the interest of the debt and all necessary expenses incurred by him in respect of the possession or for the preservation of the goods pledged. but such contract. the amount over and above his interest is to be held by him in trust for the pledgor. explosives or fragile.1 Duties of a pledgee 1.179).8. retain the goods pledged for any debt or promise other than the debt or promise for which they are pledged. Pawnee’s right of retainer [Sec.176 in case the pledgor fails to pay his debt or complete the performance of obligation at the stipulated time. In case of injury to the goods or their deprivation by a third party. the pledgee must be informed. cannot be set aside. In case the goods pledged when sold do not fully meet the amount of the debt. any damage as a result of non-disclosure shall have to be compensated by the pledgor. Self Assessment Questions 11. 5.8 Rights and Duties of Pledgor and a Pledgee According to Sec. It is the duty of the pledgor to disclose any defects or faults in the goods pledged which are within his knowledge. 4. or (ii) sell the goods pledged on giving the pledgor a reasonable notice of sale. the pledgee can proceed for the balance. 3. if the goods are of an abnormal character says. Similarly. i. a reasonable notice must be given to the pledgor so that: (a) the pledgor may meet his obligation as a last chance. on the other hand. take of his own goods. 12. the sale made by the pledgee without giving a reasonable notice to the pledgor is not void. A pledgee has a right to recover any extraordinary expenditure incurred for the preservation of the goods pledged (Sec. not only for payment of the debt or the performance of the promise. Where a person pledges goods in which he has only a limited interest. he would have all such remedies that the owner of the goods would have against them. that has to be accounted for to the pledgor. the pledge is valid to the extent of the interest. under similar circumstances. Before sale can be executed.000 – the amount due to it. shall be presumed in regard to subsequent advances made by the pawnee. Pledge by co-owner in possession. Rs 35. A pledgee’s rights are not limited to his interests in the pledged goods.e.000.. there is any surplus. Union of India. The pawnee may retain the goods pledged. The pledgee will be liable to the pledgor for the damages.b) the pawnee act is good faith and without notice of the pawnor’s defect of title. in the absence of anything to the contrary. In case the pledgor fails to inform such faults or abnormal character of the goods pledged. 4. Pledge by a person having limited interest (Sec. In addition to the rights mentioned in Sec. However. a pledgee may further pledge goods to the extent of the amount advanced thereon. Sec. 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.174 provides that the pawnee shall not. the Supreme Court held that the bank (pledgee) was entitled to recover not only Rs 20. a pledgee has the following rights: 1. 5.

has elapsed or been performed. the bonus shares are the property of the pledgor and not the pledgee. 4. any shortfall has to be made good by the pledgor. (True/False) 4. If any loss is caused to the goods because of mishandling or negligence on the part of the pledgee. Where the pledgee has exercised his right of sale of goods. 3.2 Duties of a pledgor 1. The pledgee must not put the goods to an unauthorised use.9 Summary The bailee is under an obligation to re-deliver the goods. the pledgor has a right to claim the same. In case of sale.8. The pledgee is bound to return the goods on payment of the debt. The pledgor has a right to claim any accruals to the goods pledged. in their original altered form. Thus. The pledgee has a right to claim any damages suffered because of the defective title of the pledgor. 2. Self Assessment Questions 13. (True/False) 14. or condition on which they were bailed. Bailment is usually based on a contract. . 3.2.8.3 Rights of a pledgor 1. the bailor is responsible for the damage arising to the bailee directly from such faults. He has a right to receive a reasonable notice in case the pledgee intends to sell the goods. Any accruals to the goods pledged belong to the pledgor and should be delivered accordingly. If the goods are bailed or hire or reward. 4. as soon as the time of use for. if the security consists of equity shares and the company issues bonus shares to the equity shareholders. The pledgee is bound to return the goods on payment of the debt. He is liable for any loss caused to the pledgee because of defects in his (pledgor’s) title to the goods. 4. 5. 3. He must disclose to the pledgee any material faults or extraordinary risks in the goods to which the pledgee may be exposed. He is responsible to meet any extraordinary expenditure incurred by the pledgee for the preservation of the goods. 4. the pledgor is entitled to receive from the pledgee any surplus that may remain with him after the debt is completely paid off. 2. and in case he does not receive the notice he has a right to claim any damages that may result. 4. The pledgor has a right to claim back the security pledged on repayment of the debt with interest and other charges.

False 10. Bailee: The person to whom the goods are delivered is called the bailee. What do you mean by bailment? What are the requisites of a contract of bailment? Explain. (b) 9. what rights does the pledge have in the pledge? 4. 3. True 2. 2. (d) 4. 4. (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. 4. be returned or otherwise disposed of according to the direction of the person delivering them. Acting in the ordinary course of business .11 Answers Answers to Self Assessment Questions 1. Distinguish between ‘gratuitous bailment’ and ‘bailment for hire’. 6. False 5. What are the respective rights and duties of a pawnor and a pawnee? 5. Describe the characteristics of pledge. True 7. True 8. False 6.10 Terminal Questions 1. True 3. Pledge: The bailment of goods as security for payment of a debt or performance of a promise is called pledge. When a pledger fails to redeem his pledge. Comment. Bailor: The person delivering the goods is called the bailor. “Bailor is liable to the bailee for loss caused by faults in the goods bailed whether the bailor was aware of the same or not”.

4. is called the ‘pledgor’ and the person to whom the goods are so delivered is called the ‘pledgee’. and the LIC representative told that he was communicating the decision taken by the corporation. as compared with the previous year’s Rs 27. "at this time".12. However. at the rate of one per cent of the company’s profit. Market observers indicated that LIC could push for a poll on the proposal.A. respectively.80 crore to a maximum of Rs 2. Refer 4. Refer 4. Refer 4. Refer 4.8 – According to Sec. when the multinational sent letters to shareholders inviting them into their fold. Refer 4. Kewal Handa’s salary.50 per share. The other enabling resolution was with reference to resident non-executive directors Mr. that there was no intention to delist. 1930 13. Mr. True 14.6 – To a creditor. Mr. said a shareholder who has been holding a Pfizer share since the beginning. He was. 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.38 per cent in Pfizer.2(9) of Sales of Goods Act. Pradip Shah. who delivers the goods as security. effective for a five-year period starting December 2003. upon a contract that they shall. . LIC totally holds 14. It offers the following advantages. he said. 5.6 – The person.A.3 – Candidate give answer by their experience through the study of this unit. 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. when the purpose is accomplished. given its equity holding.2 – Bailment is defined as the “delivery of goods by one to another person for some purpose. Pfizer’s Chairman.50 per share. however. were expressing their unhappiness over the dividend. 6. 3. 2. up to Rs 50 lakh a year. The company explained that the commission for non-executive directors was upped to Rs 20 lakh a year in 2004. along with some other shareholders.3 – The bailor is bound to disclose to the bailee faults in the goods bailed. R. He. R. seeking to raise their commission. Shareholders should be part of the good and bad times of the company. Sec. Refer 4. from the present 41 per cent. be returned or otherwise disposed of according to the directions of person delivering them”. proposing that it be increased from its 2007-level of Rs 1. The dividend for the year ended 2008 was Rs 12. On Pfizer Inc’s recently announced plan to raise stake in its Indian subsidiary to 75 per cent. clarified that there were no motives behind the company’s actions and dividends were generous when the circumstances warranted it. Shah and Mr. True Answers to Terminal Questions 1. unable to give reasons behind the decision. of which the bailor is aware and which materially interfere with the use of them or expose the bailee to extraordinary risks. pledge is perhaps the most satisfactory mode of creating a charge on goods. Shah.176 in case the pledgor fails to pay his debt or complete the performance of obligation at the stipulated time.50 crore a year.

3 Kinds of Agencies Express agency (Sec. the applicable milestone for Pfizer for reverse book building was 75 per cent.4 Classification of Agents Special and general agents Mercantile or commercial agents Non-mercantile or non-commercial agents . he said. (Hint: Summarize the LIC responsibilities in Pfizer.2 Agent and Agency (Sec. Question Discuss LIC’s role in Pfizer.237) Agency by holding out Agency of necessity (Sec.1 Introduction Objectives 5.187) Implied agency (Sec. Creeping acquisition and buyback was allowed only till 75 per cent. Detailing Pfizer’s plans to expand its domestic reach.Unlike info-tech companies. including 100 for just retail sales. Handa said that they would increase the product portfolio and value offerings from the company. Mr.) MB0051-Unit-05-Contract of Agency Unit-05-Contract of Agency Structure: 5.196-200) Agency coupled with interest 5. he said. The company was planning to increase its field force by 300 people. Also.189) Agency by ratification (Secs.187) Agency by estoppel (Sec. he clarified.182) Who can employ agent? Who may be agent? 5. Pfizer was also evaluating the possibility of merging Duchem (that has pharma and animal health businesses) with itself.

Secs. you came to know about the bailment and guarantee of contract. The Indian Contract Act. To meet the rising demand.11 Terminal Questions 5. These helpers or “servants” as they were called performed whatever physical tasks were assigned to them.9 Power of Attorney Meaning A power of attorney may be special or general Registration 5. In this unit you will study about the contract of agency.12 Answers 5.6 Principal’s Duties to the Agent and his Liability to Third Parties Duties of a principal Liability of principal to third parties Undisclosed principal Concealed principal 5.10 Summary 5.182 to 238 deal with the subject of agency. Before the Industrial revolution. Objectives .190-195) 5. manufacturers and shopkeepers began to hire others to work for them.201) When termination of agency takes effect? 5.7 Personal Liability of Agent 5.Sub-agent and substituted agent (Secs. there arose the problem of distribution of goods. 1872. business was carried on largely by individual artisans in their homes and in small family operated shops. As population and trade expanded and division of labour and specialisation became the order of the day.1 Introduction In the previous units.8 Termination of Agency Circumstances under which agency terminates or comes to an end (Sec.5 Duties and Rights of Agent Duties of agent Rights of agent 5. makes provisions as regards agency. under the close personal supervision of the “master”.

either by word of mouth or by writing.000. Example: Rahim appoints Kiran. Anil appoints Bharat. Thus. there is no bar to the appointment of a minor as agent. 5. If agent acts for a minor or lunatic.187) A person may be appointed as agent. Thus.2. to sell his Maruti Car on his behalf. The person for whom or on whose behalf he acts is called the Principal. a minor. 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. Thus.3. to sell his car for not less than Rs 90. there are different kinds of agency. no person who is not of the age of majority and of sound mind can become agent.e. For example. Kiran sells it for Rs 80. 5.000.2 Agent and Agency (Sec. the relation between principal and agent). 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. (True/False) 5. he will be personally liable to the third party. The usual form of a written contract of agency is the power of attorney on a stamped paper. A principal can always revoke agent’s authority. since Kiran is a minor and a contract with a minor is void abinitio.183). No qualifications as such are prescribed for a person to be agent except that he has attained majority and is of sound mind.1 Express agency (Sec. No particular form is required for appointing agent.184). as to be responsible to his principal (Sec. agent is a person who acts in place of another. a broker. 5. may employ agent (Sec.. (True/False) 2. a minor or a lunatic cannot contract through agent since they cannot contract themselves personally either. However. in considering the contract of agency itself (i.2. Anil is the Principal and Bharat is his agent. This relationship is based upon an agreement whereby one person acts for another in transaction with a third person. The relationship between Anil and Bharat is called Agency. Self Assessment Questions 1. A substituted agent is as good agent of the agent as a sub-agent. it is immaterial whether or not the agent is legally competent to contract. Thus. 5.2 Implied agency (Sec.187) . Thus.3.3 Kinds of Agencies A contract of agency may be created by an express agreement or by implication (implied agreement) or by ratification.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.2 Who may be agent? Since agent is a mere connecting link or a ‘conduit pipe’ between the principal and the third party.After studying this unit. the contractual capacity of the agent becomes important.182) Agent is “a person employed to do any act for another or to represent another in dealings with third person”.

If he so elects. (True/False) 5. Implied agency. 5. therefore.237) When a person has.6 Agency by ratification (Secs. Example: Lallan makes an offer to Badal. to ratify the act of the agent.196 permits the principal. 5. Self Assessment Questions 3. he is estopped from subsequently denying it. it will have the same effect as if the act was originally done by his authority. On one occasion. If he does anything beyond the specified act. One broad classification of agents is: (i) mercantile or commercial agents and (ii) nonmercantile or non-commercial agents. where the agent has himself an interest in the subject-matter of the agency. An ostensible agency is as effective as an express agency. An offer once accepted cannot be withdrawn. Sec. However. The principal is precluded from denying the truth of agency which he himself has represented as a fact. (True/False) 4.3.Implied agency arises from the conduct. A special agent.4. 5. Lallan is bound by the offer.196-200) Where agent does an act for his principal but without knowledge of authority.3 Agency by estoppel (Sec. the principal is not held bound by the transaction.189) This arises where there is no express or implied appointment of a person as agent for another but he is forced to act on behalf of a particular person. by his conduct or statements. induced others to believe that a certain person is his agent. 5. Example: Puran allows his servant Amar to buy goods for him on credit from Komal and pay for them regularly.4 Agency by holding out Though part of the law of estoppel. he runs the risk of being personally liable since the principal may not ratify the same. has only a limited authority to do the specified act. Another classification of agents is: (1) general and (2) special.1 Special and general agents A special agent is a person appointed to do some particular act or enter into some particular contract. or where he exceeds the given authority. The servant purchases good on credit pocketing the money. Ratification tantamounts to prior authority. the agency is one coupled with interest.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. thus rendering the revocation of the offer inoperative. therefore.3.4 Classification of Agents Agents may be classified from different points of view.3. some affirmative conduct by the principal is necessary in creation of agency by holding out. Puran pays his servant in cash to purchase the goods. Managing Director of a company. Badal accepts the offer though he has no authority to do so. 5.3. 5. In other words. if he so desires. . The ratification by the company relates back to the time Badal accepted the offer. Agency in such a case is said to be created by ratification.3. includes agency by estoppel. although it is not a fact. Komal can recover the price from Puran since through previous dealings Puran has held out his servant Amar as his agent.5 Agency of necessity (Sec. agency by holding out and agency of necessity. situation or relationship of parties. but the company ratifies Badal’s acceptance. Lallan subsequently withdraws the offer.

(iv) where the nature of the job assigned to the agent is purely clerical and does not involve the exercise of discretion. factor.190 deals with the circumstances as to when and how far agent can delegate his duties.4. Also. He can even sell the goods on credit and in his own name. unless expressly authorised to do. e. Pakka and Katcha Adatias and indentor. attorneys. he cannot delegate his authority. (v) in an unforeseen emergency.4. A factor has a general lien on the goods in his possession. A commission agent is not liable in case the third party fails to carry out the agreed obligation. The governing rule is enshrined in a maxim ‘a delegate cannot further delegate’. A factor. banker. He then sends the particulars of the same to both parties. Agent cannot renounce his agency. His lien in case of goods in his possession is a particular lien. del credere agent. 5. (b) goods.. But where the wife lives apart under no justifiable circumstances. A broker has no possession of goods or property. or (d) the trader had been expressly told not to give credit to his wife.190-195) The general rule is that agent cannot appoint agent. Agent being merely a connecting link is never personally liable. auctioneer. But this presumption may be rebutted and the husband may escape liability if he can prove that (a) he had expressly forbidden his wife from purchasing anything on credit or from borrowing money.5. because of lack of time. The usual method of dealing by a broker is to make entries of the terms of contract in a book. The remuneration that he gets for the purpose is called the commission. A commission agent is agent who is employed to buy or sell goods or transact business.5 Duties and Rights of Agent 5. i. called a del credere commission.3 Non-mercantile or non-commercial agents Some of the agents in this category are: wife. the husband is liable to provide for her maintenance. Sec. (ii) Where the wife lives apart from the husband. 5.1 Duties of agent The duties of agent towards his principal are: . 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.g. A factor is a mercantile agent who is entrusted with the possession of goods with an authority to sell the same.2 Mercantile or commercial agents A mercantile or commercial agent may assume any of the following forms: broker. estate agent. he assigns the job to another equally competent typist Bharat. she has an implied authority to bind the husband for necessaries. commission agent. 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). however. purchased were not necessaries.5.. If he does not provide further maintenance. the delegation is valid. (c) he had given sufficient money to his wife for purchasing necessaries. guarantees the performance of the contract by the other party. However. counsels (advocates). A commission agent may have possession of the goods or not. (True/False) 6. (iii) the nature of agency is such that it cannot be accomplished without the appointment of a sub-agent. Agent may appoint agent in the following circumstances: (i) where expressly permitted by the principal. He is also authorised to raise money on their security. Hence. through no fault of hers.e. Self Assessment Questions 5. The document sent to the seller is called the sold note and the one sent buyer is called the bought note. in consideration of an extra remuneration. called the memorandum book and to sign them. 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. A del credere agent is one who. she is agent. cannot barter the goods. sub-agency is not generally recognised. Agent being a delegate cannot transfer his duties to another. (True/False) 5.4 Sub-agent and substituted agent (Secs. He is merely a connecting link between the engager and a third party. she is not her husband’s agent and thus cannot bind him even for necessaries. (ii) where the ordinary custom of the trade permits delegation. he would be bound to pay her bills for necessaries. if Anthony is appointed to type certain papers.4.

however. The agent has to render proper accounts. in communicating with his principal and in seeking to obtain his instructions. to use all reasonable diligence. the principal can claim from the agent any benefit which he might have obtained. deduct his lawful expenses and remuneration. 2. He can. the agent is not supposed to deviate from the directions of the principal even for the principal’s benefit.212). until the amount due to himself for commission. If he does so.5. By a special contract. 5.213). To communicate with the principal in case of difficulty (Sec. Agent should not deal on his own account without first obtaining the consent of his principal.220). To conduct the business of agency according to the principal’s directions (Sec. however. In case of emergency. But the remuneration does not become payable unless he has carried out the object of agency. however.214).221). agent is entitled to retain goods. He becomes agent by necessity. 9. papers and other property. Pawan may. The agent should conduct the business with the skill and diligence that is generally possessed by persons engaged in similar business. Right to remuneration (Secs. any loss occasioned thereby shall have to be borne by the agent. it can be enjoyed by the agent only where the goods or papers are in actual or constructive possession of the . 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. a broker. 3. Since. 5. Rendering of accounts does not mean showing the accounts. Not to make any secret profits. Agent may retain.209). 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.2 Rights of agent Agent has a number of rights these are: 1. Agent is entitled to his agreed commission or remuneration and if there is no agreement. Not entitled to remuneration for misconduct (Sec. 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. in case of difficulty. Not to disclose confidential information supplied to him by the principal. to buy a particular house for him. 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. do with regard to his own business. compel him to sell it to Pawan at the price he bought. This lien of the agent is a particular lien confined to all claims arising in respect of the particular goods and property. This is known as agent’s right of retainer.1. 3. 4. Right of lien (Sec. to a reasonable remuneration. agent may get a general lien extending to all claims arising out of the agency. Not to deal on his own account. It is the duty of agent. his agent. on discovering that Amar has bought the house. but maintaining proper accounts supported by vouchers. except where the principal knows that the agent is wanting in skill (Sec. Amar tells Pawan that it cannot be bought. under similar circumstances. 2. Agent should deliver to the principal all moneys including secret commission received by him. If he does so. i. everything consistent with the proved facts will be presumed against him. In the absence of any contract to the contrary. Example: Pawan directs Amar. 7. out of any sums received on account of the principal in the business of the agency. To render proper accounts (Sec. but buys the house for himself. the word ‘lien’ means retaining possession. disbursements and services in respect of the same has been paid or accounted for to him..211). 8.217). 6. except where there is a contract to the contrary. The duty of the agent must be literally complied with. 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. If the agent fails to keep proper accounts of the principal’s business.e. whether movable or immovable of the principal received by him. Example: Pawar appoints Amar. Right of retainer (Sec.219-220). the agent can do all that a reasonable man would. whereas any surplus must be accounted for to the principal.

can proceed against him on the contract. so much only of what he does as is within his authority. del credere agent. he may exercise the unpaid seller’s right of stopping the goods in transit in case of buyer’s insolvency. his lien is not affected by the loss of possession. 5.223). 3.222). (b) Where agent holds himself liable to his principal for the price of the goods sold.6. 2. The principal is bound by any notice or information given to the agent in the course of business transacted by him. can be separated from the part which is beyond his authority.1 Duties of a principal The rights of agent are in fact the duties of the principal.225).2 Liability of principal to third parties 1. (True/False) 5. Thus a principal is (i) bound to indemnify the agent against the consequences of all lawful acts done by such agent in exercise of the authority conferred upon him (Sec. The agent can stop the goods while in transit in two cases: (a) Where he has purchased goods on behalf of the principal either with his own funds. he stands towards the principal in the position of an unpaid seller. 5. . (ii) liable to indemnify agent against the consequences of an act done in good faith. or by incurring a personal liability for the price.223 provides an option to the third parties to either sue the principal or agent or both. The principal will be liable even for misrepresentations made or frauds committed by agent in the business of agency for his own benefit. Like an unpaid seller. Agent being a mere connecting link binds the principal for all his acts done within the scope of his authority (Sec. The third parties. An agent coupled with interest is irrevocable. The principal remains liable to the third parties even where his name was not disclosed. 5. But misrepresentations made or frauds committed by agents in matters beyond their authority do not affect their principals (Sec. Self Assessment Questions 7. is binding as between him and the principal (Sec. 7.222-224). therefore. he enjoys the right of stopping the goods in transit if in the meantime the principal has become insolvent.6. Agent can never delegate his authority.238). Right of stoppage in transit. 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 Principal’s Duties to the Agent and his Liability to Third Parties 5. Sec. which is within his authority. The right of lien will. (True/False) 8. For example. The liability of the principal continues even in cases where agent is held personally liable. Where agent exceeds his authority and the part of what he does. (iii) bound to compensate his agent in respect of injury caused to such agent by the principal’s neglect or want of skill (Sec. Right of indemnification (Secs. 4.227). be lost where he parts with the possession of goods or papers. 6. The principal is bound to indemnify agent against the consequences of all lawful acts done by the agent in exercise of authority conferred on him.agent. But if the possession is obtained from the agent by fraud or unlawful means.226). though it causes an injury to the rights of third persons (Sec. on discovering his name. 4.

4 Concealed principal Where agent conceals not only the name of the principal but the very fact that there is a principal. The liability of an undisclosed principal is similar to that of a disclosed principal unless there is a _____________ making the agent liable. 5. in the absence of a contract to the contrary.3 Undisclosed principal Where agent.6. In such a case. for instance. the undisclosed principal must exist and must also be the principal at the time the contract is made. Being only a medium. However. if there is an agreement to the effect. (3) where the principal. Sec. such a principal is called an undisclosed principal. 10. he can. 5. He cannot be brought into existence as a principal after the contract has been concluded. The third parties. express or implied. where principal is a minor. neither personally enforce contracts entered into by him on behalf of his principal. (True/False) 12. (a) Broker (b) Advisor . cannot be sued. The liability of an undisclosed principal is similar to that of a disclosed principal unless there is a trade custom making the agent liable. though discloses the fact that he is agent working for some principal. the principal is called a concealed principal. conceals the name of the principal.230).7 Personal Liability of Agent Agent is only a connecting link between the principal and third parties. it may be inferred that agent can enforce contracts personally and be held bound for contracts entered into on behalf of his principal.5. Self Assessment Questions 11. (2) where the agent does not disclose the name of his principal. From the above discussion. The principal is not liable for _____________ acts done by the agent at the instance of the principal.6.230 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. must look to the agent for payment or performance and the agent may sue or be sued on the contract. nor is he personally bound by them (Sec. the third parties are not aware of the existence of the principal and regard the agent as the person contracting for himself. A wife can always pledge her husband’s credit. A ______________ is a mercantile agent engaged to buy and/or sell property. though disclosed. thus. Self Asessment Qestions 9.

by a letter revokes B’s authority. should take all reasonable steps for the preservation of property.208). Self Assessment Questions 13. revoke the authority of the agent at any time. On revocation by the principal. Example: A directs B to sell goods for him and agrees to give B 5% commission on the price fetched by the goods. On the performance of the specific purpose. on behalf of the legal representatives of the principal (s. by notice. Where agent is appointed to do a particular act. agency terminates when that act is done or when the performance becomes impossible. Insolvency of the principal. As regards third parties. 5. 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. agent. not terminates the agency.8. If principal can cause termination of agency by revocation. The termination of the authority of agent causes the termination of authority of all sub-agents appointed by him. A afterwards. the principal must be compensated (Sec. they can continue to deal with the agent till they come to know of the termination of the authority (Sec.209) 5. agency is for a fixed period and the agency is renounced without a sufficient cause.(c) Agent (d) None 5. however. 6. Insanity or death of the principal or agent. so far as regard the agent. The principal may.8 Termination of Agency 5. not of the agent. 3. 2.1 Circumstances under which agency terminates or comes to an end (SEC.208).201) 1. Death or insanity of the principal or the agent. The sale is binding on A and B is entitled to five rupees as his commission. B. takes effect before it becomes known to him (Sec. (True/False) 5. it comes to an end on the expiry of that time. terminates the agency.9 Power of Attorney 5. The termination of the authority of agent does not. On the expiry of fixed period of time. But. Insolvency of the principal. in such a case. 2.8. Where. 3.2 When termination of agency takes effect? 1. When the agency is for a fixed period of time. An agency shall also terminate in case the subject matter is either destroyed or rendered unlawful. Where the agent is appointed to do a single act. but before he receives it. Death or insanity of the principal or the agent.205). agency may be revoked any time before the commencement of the act. Notice of revocation is essential to the agent as well as to the third parties. By renunciation of agency by the agent. terminates the agency. In case of a continuous agency. 4.1 Meaning . agent may renounce his agency by giving a sufficient notice to that effect. (True/False) 14. 7. sells the goods for Rs 100.9. after the letter is sent.

If the deed conferring power relates to several transactions it is general power of attorney. In common parlance. as including “any instrument not chargeable with a fee under the law relating to court fees for the time being in force. A person cannot enter into a contract as his own and later shift it to another. requires that where a document is presented for registration by the agent of a person entitled to present it for registration.” which empowers “a specified person to act for and in the name of the person executing it”. 1908.9. 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. Unregistered power executed in a foreign country before a notary public can be used by the agent for presentation of document for registration. or the power agent or the power of attorney agent. 1908. The amount of stamp duty varies with different types of powers as described in the Stamp Act and varies among different States of India. such agent must be duly authorised by power of attorney executed and authenticated in manner as mentioned in Sec. The power of attorney is required to be engrossed on non-judicial stamp paper. The power of attorney. 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. which deals with the subject.10 Summary The agent must contract as agent he must not allow the third party to imagine that he is the principal. Such certified copies are equal to originals and are binding on all. it would require registration.3 Registration As a general rule. whether movable or immovable of the principal received by him. The person executing the deed is known as the _______________.A power of attorney is defined by Sec. Such a power of attorney is to be executed before and authenticated by a registrar or sub-registrar.33 of the Act. The power of attorney is required to be engrossed on ______________. until the amount due to himself for commission. Sec.4 of the Power of Attorney Act. 16. however.. The power of attorney is required to be engrossed on non-judicial stamp paper. 5. executed before a notary public in India will not enable the agent to present any document for registration under the Registration Act.9. it is known as special power of attorney. It is the Powers of Attorney Act. papers and other property. Further Sec. 5. Self Assessment Questions 15. 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. In the absence of any contract to the contrary agent is entitled to retain goods. A commission agent is agent who is employed to buy or sell goods or transact business. And so also a power creating a charge in favour of the donee upon an immovable property referred to therein.32 (c) of the Registration Act. Glossary . The person executing the deed is known as the Principal or donor and the one in whose favour it is executed is the agent.2(21) of the Stamp Act. 1882.2 A power of attorney may be special or general If the deed conferring power by one to another relates to one single transaction. 5. but does not define it.

True 5. (a) 13.12 Answers Answers to self assessment questions 1. What do you mean by agency by estoppel? In what way does it differ from agency by holding out? 2. 5. trade custom 11. True . 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. False 2. True 8. False 7. False 12. 3. True 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. Describe the rights of agent against his principal. 5. What do you mean by del credere agent? 5. Agency by Express Agreement: An agency by express agreement is created when by spoken or written words an express authority is given to an agent.” Comment. criminal 10. “Agent having an authority to do an act has authority to do every lawful thing which is necessary in order to do such act. 4. False 6. False 3. Describe the meaning of ‘agency by ratification’. False 9.Agent: An agent is a person employed to do any act for another or to represent another in dealing with the third persons.11 Terminal Questions 1. What conditions must be fulfilled for a valid ratification? Explain the effect of a valid ratification.

000. Aviva Life Insurance (formerly. HDFC Standard Life. "An agent rebates in order to shorten his sales cycle. The person for whom or on whose behalf he acts is called the Principal. 5. if he so desires. guarantees the performance of the contract by the other party.2 – When a person has. "There has to be a change in awareness level for all customers to refrain from rebating. Head-Corporate Communications. he is estoppels from subsequently denying it. in consideration of an extra remuneration. 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. 3. Refer 5. which is any way extremely difficult to monitor. In India. That this practice is illegal. Alegion Risk Management Services (which proposes to become a general insurance . Director. Refer 5. or where he exceeds the given authority." Ms Ghoshal said." Max New York Life’s spokesman echoes similar views. "This industry has been with a monopoly player. Mini-case Over the years. However. However. the principal is not held bound by the transaction. in an e-mail to Business Line. After all. Non-judicial stamp paper Answers to Terminal Questions 1." says Ms Suniti Ghoshal. If the customer can pay substantial amounts for premium. At the Life Insurance Executive Council.196 permits the principal.6 – A special agent is a person appointed to do some particular act or enter into some particular contract. 4. Sec. Why prohibit rebating only in the insurance industry. there are two views over whether the law should prohibit this `rebating’. "They can explain the customer as to why he needs to pay the agent for his service." There are others who believe that rebating should continue to be illegal. This shortening of process often leads to misrepresentation resulting in poor service quality. is a fact. Refer 5. the agent is paying out of his pocket.5 – Agent is a person who acts in place of another. Head-Retail Sales. called a del credere commission. Other insurance companies agree. Refer 5.4 – A del credere agent is one who. "We as an industry are also establishing a code of conduct against such practices. Dabur CGU Life Insurance). Advocates of this view point out that in most countries. it has been almost a standard practice for the agents of Life Insurance Corporation to give their customers a part of their commission. although they all agree that monitoring this is almost impossible. and therefore not a matter of opinion. when discount is a way of life in all other industries? But insurance companies do not like it. Raveendran. to ratify the act of the agent. hence certain things have only been done without being questioned much. Says Mr N. by his conduct or statements. says that his company actually dismissed an agent for rebating. insurance companies are even allowed to extend credit to their customers for premiums. 2. says Ms Ghosal. induced others to believe that a certain person is his agent. Principal or donor 16. False 15. Rebating is in a way an informal credit extended to the customer by the agent. no matter how difficult it is to monitor.8 – Where agent does an act for his principal but without knowledge of authority.14. At Aviva. another point of view of the same issue is that there is no point in prohibiting rebating by agents." says a spokesman of Max New York Life Insurance. They usually paid the first quarter’s premium on behalf of the customer. we have recommended that the penalty for rebating be increased from Rs 500 to Rs 10. the Financial Planning Advisers are trained to handle such demands. However. Most life insurance companies support banning of rebating. a claim is payable if and only if the premium has been received in full. Refer 5. or not. Mr Dilip Gazaaro.

broker).4 Partnership Deed A partnership can be formed either by oral or written agreement Partnership agreements and contract law 6. He says that there would come a time. (Hint: Basically financial advisor is a main person who involve more and more in the planning of insurance sector).1 Introduction Objectives 6. MB0051-Unit-06 -Law of Partnership Unit-06 -Law of Partnership Structure: 6. "Legalising rebating would drive away the serious agents who do not usually give rebates". you don’t necessarily go to the doctor who charges the least. when the society matures enough to be willing to pay for a service. Question Discuss the financial planning advisor role in insurance industry.6 Relations of Partners to Third Parties . After all. that rebating will automatically go away.58-59) Application for registration Registration of firms is optional 6.3 Registration of Firms (Secs.5 Relations of Partners to one Another Rights of partners Duties of partners 6.2 Meaning and Nature of Partnership Formation of partnerships Duration of partnership Partnership at will Particular partnership Limited partnership 6. But legalising rebating would push back the arrival of such a time.

In this unit you will study about the law of partnership.26-27) 6. 1932. Partnership is a time-honoured form of business organisation and one that is still much in use in India.44) 6. you came to know about the contract of agency.11 Answers 6. Sec. it was embodied in Chapter XI of the Indian Contract Act.3 provides that the provision of the Indian Contract Act. you should be able to: l Explain the nature of partnership l Define partnership deed .1 Introduction In the earlier units.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 6.9 Summary 6.10 Terminal Questions 6. 1932. Prior to the enactment of this Act. 1872. Objectives After studying this unit. Therefore.Implied authority of a partner Liabilities of a partner Liability of a firm for wrongful acts of a partner (Secs. shall apply to the contract of partnership unless any provision thereof is inconsistent with the provisions of the Indian Partnership Act.8 Dissolution Dissolution of firm and dissolution of partnership Dissolution of firm Dissolution by court (Sec. The law relating to partnership in India is contained in the Indian Partnership Act. A contract of partnership is a special contract.

Unless the person joins for the purpose of carrying on a business. The partnership agreement may be express (i. 1956. 6. sharing of losses is not. A partnership is an extension of agency for which no consideration is necessary. the arrangement did not make creditors partners with A in business [Cox v. 4. 1. A company. a person may become a partner with another even in a particular adventure or undertaking (Sec. Though the word ‘business’ generally conveys the idea of numerous transactions. 4. owed money to several creditors. a partnership to arise.C. it is always advisable to have the partnership agreement in writing.e. 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. Example: A. An agreement presupposes a minimum number of two persons. But whereas the sharing of profits is an essential element of partnership. because one person cannot become a partner with himself. These elements must be present so as to form a partnership and are discussed below. 6. it will not amount to partnership. 268]. sharing of profits also involves sharing of losses. As regards maximum number of partners in a partnership firm. Partnership is an association of two or more than two persons. an alien enemy cannot. Held. No consideration is required to create partnership. As mentioned above. The agreement must be to carry on some business. Partnership must be the result of an agreement between two or more persons. However. Thus..8). These persons must be natural persons having legal capacity to contract. The joint carrying on of a business alone is not enough. A person of unsound mind is not competent to enter into a partnership. Similarly. On analysis of the definition. a partnership firm cannot be a partner of another partnership firm. Therefore. The following points must be kept in mind: 1. (1860) 8 H. 1956 can enter into a contract of partnership.2(b)]. 3. The agreement must be to share profits of the business. 5. Hickman.2. Sec. He agreed to pay his creditors out of the profits of his business (run under the creditors’ supervision) what he owed to them. 2. An alien friend can enter into partnership.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. 2. a company (which is an artificial person) cannot be a partner. The Act provides that a minor may be admitted to be benefits of partnership. There must be at least two persons who should join together to constitute a partnership. at least two persons must make an agreement. Partnership is the result of an agreement between two or more persons (who are known as partners after the partnership comes into existence). certain essential elements of partnership emerge. there must be an agreement to share profits arising from the business. incorporated under the Companies Act. 3.11 of the Companies Act. . while constituting a 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.. Unless otherwise so agreed. occupation or profession [Sec. puts the limit at 10 in case of banking business and 20 in case of any other business. The term ‘business’ includes every trade.l Explain the relations of partners to others l Describe the changes in a firm 6. or by any of them acting for all”. a trader.L.

4. (ii) the place or the principal place of business of the firm. stating: (i) the firm’s name.3.2 Duration of partnership The duration of partnership may or may not be fixed. The firm cannot.3.7. In a limited partnership. 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. (True/False) 6.2.8 a particular partnership is one which is formed for a particular adventure or a particular undertaking. The statement must be signed by all the partners. (iv) the date when each partner joined the firm. there will be at least one general partner whose liability is unlimited and one or more special partners whose liability is limited. (True/False) 2. 6.2.58 lays down the procedure for registration of partnership firms.1 Application for registration Sec. An unregistered partnership firm is not illegal but its rights are not enforceable.59).3 Registration of Firms (Secs. (iii) the names of any other places where the firm carries on business.69 has effectively. he registers the firm by recording an entry of the statement in a register called the Register of Firms and shall file the statement (Sec. a statement in the prescribed form and accompanied by the prescribed fee. 6. (v) the names in full and addresses of the partners and (vi) the duration of the firm. Therefore such a partnership has no fixed or definite date of termination. the liability of certain partners is limited to the amount of capital which they have agreed to contribute to the business. An unregistered partnership is illegal. Such a partnership is usually dissolved on the completion of the adventure or undertaking.6. Registration is effective from the date when the Registrar files the statement and makes entries in the Register of Firms. Accordingly death or retirement of a partner does not affect the continuance of such a partnership. It may be constituted even for a particular adventure.3 Partnership at will In accordance with Sec. 6. Self Assessment Questions 1. When the Registrar of Firms is satisfied that the provisions of Sec. It is optional and there is no penalty for non-registration. ensured registration of firms by introducing certain disabilities that an unregistered firm suffers from. 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.2 Registration of firms is optional The Act does not provide for compulsory registration of firms. a partnership is called a partnership at will where. or by their agents especially authorised in that behalf and duly verified. But at the same time Sec. He then issues under his hand a Certificate of registration.58-59) 6. Self Assessment Questions 3. A firm cannot sue a person for the price of goods it ______________.58 have been duly complied with. (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. 6.2.5 Limited partnership In this type of partnership.2.4 Particular partnership In accordance with Sec.

written agreement is not compulsory. But in England.11(1)].1 Rights of partners Subject to the contract between the partners. the law requires all partnership agreements to be in writing. shall have the meanings assigned to them in that Act”.5. 1872. But in order to avoid misunderstanding and litigation.13(b)]. he is bound by the majority decision. the provisions of the Indian Contract Act. To take part in the conduct of the firm’s business [Sec. As a partnership agreement is a contract. 1899. shall continue to apply to firms.5 Relations of Partners to one Another The relation of the partners of a firm to one another arises through an agreement between them. (True/False) 6. Such an agreement may be express or may be implied from the course of dealings between them. Where there is no specific agreement or where the agreement is silent at a certain point. no change can be made in the nature of the business without the consent of all the partners [Sec. the relations of partners to one another as regard their rights and duties are governed by Secs. 2. 1872 save insofar as they are inconsistent with the provisions of this Act. However.3 provides that the unrepealed provisions of the Indian Contract Act.12(a)]. .12(d)]. 6.6. every partner has the following rights: 1. 1872. To share equally in the profits [Sec.2 Partnership agreements and contract law Sec. are applicable to it. The partnership deed is required to be stamped according to the provisions of the Stamp Act. it is desirable to enter into a written agreement which is called Partnership deed or agreement. USA and India. A firm is liable for the wrongful acts of a partner. It is obligatory for a firm to be registered under the Indian Partnership Act.4 Partnership Deed 6. Also Sec. It may be varied by their consent and such consent may be expressed or may be implied by a course of dealings [Sec.9-17 of the Act. but in case of difference of opinion regarding ordinary matters of the business. Each partner should possess a copy of the Deed.4. 4.1 A partnership can be formed either by oral or written agreement In France and Italy.4.2(e) provides that “expressions used but not defined in this Act and defined in the Indian Contract Act. 3. (True/False) 6. The Indian Partnership Act has effectively ensured the registration of firms without making it compulsory. or where no agreement exists. To express his opinion on any matter. 6.12(c)]. To have access to and inspect and copy any of the books of the firm [Sec. Self Assessment Questions 5. (True/False) 7.

in an emergency. To continue in the partnership. . not to be expelled. (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.33(i)].11(2)]. by the wrongful act or omission of a partner acting in the ordinary course of the business of a firm. 6. To rank as a joint owner of the property of the firm.6. To be indemnified by the firm in respect of liabilities incurred by him in the ordinary course of business [Sec. 6.e. he shall account for and pay to the firm all profits made by him in that business [Sec. Secs. the firm is liable therefore to the same extent as the partner.13(c)]. however.13(e)]. Thus. in view of Sec.5.2 Liabilities of a partner Liability of a partner stems from not complying with his duties under the Partnership Act.26-27) Where. loss or injury is caused to any third party or any penalty is incurred. It is express.. a partner has a duty not to carry on any business other than that of the firm while he is a partner [Sec. (i) They are bound to (a) carry on the business of the firm to the greatest common advantage. (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. (True/False) 6. the law presumes that every partner has the power to do certain acts unless negative by an express agreement.13(a)]. 8.6.9 provides for general duties of partners.18 every partner is the agent of the firm for the purposes of the business of the firm. a partner shall be liable for (i) not carrying on the business of the firm to the greatest common advantage.5. Self Assessment Questions 8.10).2 Duties of partners Sec. be oral or written. 6. i.1 Implied authority of a partner A partner’s authority may be express or implied. 7. (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. 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. 9. be expelled if a power to expel is conferred upon the partners and power is exercised bona fide by a majority of partners [Sec.3 Liability of a firm for wrongful acts of a partner (Secs. (v) If a partner carries on any business competing with that of the firm.e.6. It is implied when the law impliedly gives certain powers to a partner. however. (iv) If restrained by an agreement with other partners. (iii) To attend diligently to his duties in the conduct of the firm’s business without any remuneration [Sec. A person can be admitted as a partner in a firm with the consent of the majority of partners. 6. The agreement may. To do.6 Relations of Partners to Third Parties Subject to Sec. or with the authority of his partners. 6. A minor can be a partner in a firm.16(b)]. A partner may.. all such acts as are reasonably necessary to protect the firm from loss.19 and 22 deal with the subject of implied authority of a partner.9. (True/False) 9. when it is fixed between the partners by mutual agreement.

(True/False) 12. a partner may retire in accordance with the terms of that agreement. Sec. Liability of the retired partner. 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.32 clearly comprehends a situation where a partner may retire without dissolving the firm. This is because there is no privacy of contract between the creditor and the new partner. 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. At the same time. the acts of the old partners cannot be ratified by the new partner.196 of the Indian Contract Act. There can be thirty partners in a firm. viz. The liability of a new partner ordinarily commences from the date when he is admitted as a partner. (ii) change in the nature of business or undertakings and (iii) change in the constitution of a firm. Sec. which provides that for the purpose of ratification of agency. the partners may carry on the business even after the expiry of the fixed period and the partnership becomes ‘partnership at will’. (b) there is an implied agreement to the above effect.31 provides that subject to a contract between partners and to the provisions regarding minors in a firm. Sec. However.7 Changes in a Firm The Act contemplates the following changes in a firm: (i) change in the duration of a firm. (True/False) 6. the principal must be in existence at the time when the act was done. (iii) where the partnership is at will. The firm is reconstituted by the remaining partners.. Sec. Such an agreement may be implied by a course of dealing between such third party and the remaining partners. 1872.7.1 Rights and liabilities of incoming partners Sec. (i) he may retire at any time with the consent of all other partners. 6. 6. a partner may retire by giving to his partners a notice of his intention to retire. (This implies the principle of novation).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.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.Self Assessment Questions 10. it comes to an end.7. A firm can enter into a partnership agreement with another firm. after the third party had knowledge of the retirement. ‘Partnership’ and ‘firm’ are synonymous.3 Expulsion of a partner . When the fixed period is over. no new partner can be introduced into a firm without the consent of all the existing partners.32 contemplates three ways in which a partner may retire from the firm. A partnership may be entered into for a fixed period of time.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.2 Rights and liabilities of a retired partner An outgoing partner means a partner who has retired from a firm. 6. (True/False) 11. unless he agrees to be liable for obligations incurred by the firm prior to that date. (ii) where there is an agreement between the partners about retirement. This is in accordance with Sec.

be dissolved with the consent of all the partners. This applies to all cases whether the firm is for a fixed period or otherwise. It follows that if the dissolution of partnership is not between all the partners. in the absence of a contract to the contrary. mortgage or charge. A public notice of the death of a partner is not required.42(c) provides that a firm is dissolved by the death of a partner. Sec. Proviso to Sec. or (iii) inspect books of the firm.7.8. 6. (True/False) 6. (True/False) 14. it is called dissolution of the firm. The transfer may be absolute or partial.8 Dissolution 6. Thus. 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. There is no question of ‘reconstituted firm’ in such a case. a partner may be expelled from the firm if (i) the power of expulsion is conferred by a contract between the partners. Sec.2 Dissolution of firm When the relationship existing between all the partners of the firm comes to an end. The test of good faith will be satisfied if (i) the expulsion is in the interest of the partnership.4 Insolvency of a partner Sec. Sharing of profits is a conclusive evidence of partnership. 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. . Dissolution of partnership may involve merely a change in the relation of the partners and not the dissolution of the firm.1 Dissolution of firm and dissolution of partnership Sec. is not entitled to (i) interfere in the conduct of business of the firm or (ii) require accounts of the firm. A partner is not entitled to claim remuneration. 2. (ii) the power is exercised by a majority of the partners and (iii) the power is exercised in good faith.39 provides that the dissolution of partnership between all the partners of a firm is called the “dissolution of the firm”. By agreement.7.6 Transfer of partner’s interest A partner may transfer his interest in the firm by sale. 6. But as the partnership relationship is based on mutual confidence.5 Death of a partner Sec. By mutual consent. the assignee of a partner’s interest cannot enjoy the same rights and privileges as the assignor. The contract providing for dissolution may have been incorporated in the partnership deed itself or in a separate agreement. dissolution of firm always implies dissolution of partnership. A firm may be dissolved in any of the following ways: 1.33 provides that a partner may not be expelled from a firm by a majority of partners except in exercise. Self Assessment Questions 13. It naturally involves closing down the business. at any time.7. during the continuance of the firm. but dissolution of partnership need not lead to dissolution of firm.Sec.35 deals with a situation where after the death of a partner. of powers conferred by the contract between the partners. It is to be noted that ordinarily but not invariably. in good faith. Thus. 6.40 provides that a firm may.29 provides that the transferee. Sec. 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.8. Sec.40 also provides for the dissolution of a firm in accordance with a contract between the partners. 6.45 lays down an identical rule applicable to a case where the death of a partner has caused dissolution of the firm. but it would nevertheless be “dissolution of partnership”. it would not amount to “dissolution of firm”.34 provides that where a partner in a firm is adjudicated insolvent. (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.

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. c) Misconduct of a partner affecting the business. however. because trading with an alien enemy is against public policy. 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. But.. Price. The suit for dissolution under this ground can be brought by a partner other than the guilty partner. 5. the court may dissolve a firm on any of the following grounds: a) If a partner has become of unsound mind. if the partnership relates to more than one adventure.41 calls this as compulsory dissolution. have been held to be sufficient reasons for dissolution. etc. Partners becoming alien enemies. Sec. Self Assessment Questions . because no new partner is introduced thereby. Continuous refusal by a partner to attend to his duties in the partnership business. The court may order for dissolution of partnership. Sec. in such a case. the court will not order dissolution. in any way (e. may be made by any of the partners and not by the incapacitated partner. b) Permanent incapacity of a partner. d) Willful and persistent disregard of partnership agreement by a partner. e) Transfer of interest or share by a partner. unless a very special case is made out for dissolution. In the case of insanity of a dormant partner. disappearance of the substratum of the business. The court can order dissolution even though the partnership is for a fixed period [Rehmat-un-nisa-v. mortgage or charge). the court may order dissolution. In such a case partnership is dissolved. the court may order dissolution. Sec. If a partner is guilty of conduct which is likely to affect prejudicially the carrying on of the business of the firm.44) At the suit of a partner. 6. The application in this case may be made by any of the partners or by the next friend of the insane partner. by sale. If all the partners or all the partners but one become insolvent. transfer even the whole of his share to a partner in the firm. the court may dissolve the partnership. the fact of hostility between the partners which makes cooperation between them impossible. If a partner transfers. 380]. 42 Bom. 4.3. if a partner becomes permanently incapable of performing his duties as a partner.3 Dissolution by court (Sec. By the insolvency of all the partners but one. Dissolution on this ground has been granted in case of deadlock in the management. The transfer of a part of his share by a partner to any third party is not permissible unless otherwise agreed. partners not on speaking terms. A partner can. The court can order dissolution on any other ground which in the opinion of the court is a fit ground for dissolution of partnership.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. 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.8. The application for dissolution. f) The court can also dissolve partnership where the business of the firm cannot be carried on save at a loss. g) Just and equitable.41 also covers cases of partnership between persons some of whom become alien enemies by a subsequent declaration of war.g. By business becoming illegal. If a partner willfully and persistently commits a breach of the partnership agreement regarding management.

(c) What are the advantages of registration of a partnership firm? 3. sole proprietorship. The rights and obligations of the partners towards each other and towards the firm can be determined by an oral or written agreement.9 Summary The relationship of partnership arises from an agreement between the persons concerned not from status.. True 3. 6. or corporation. Agreement as made between the persons must be valid and enforceable by law. (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. partnership.15. agreement in writing must be preferred. What is meant by dissolution of a firm? Is it different from the dissolution of partnership? 6. means to end a legal entity or agreement such as a marriage. Firm: Any business entity such as a corporation. Dissolution of firm by agreement come under ________________.11 Answers Answers to Self Assessment Questions 1. (a) Explain the procedure for getting a partnership firm registered. 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. Dissolution of firm always implies dissolution of partnership. (ii) compulsorily by the court? 5. Register of firms . adoption. 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. This agreement may be oral or written. In what circumstances is partnership dissolved: (i) automatically. A partnership is formed by an agreement between the partners. False 2. or "private equity" "investment (firm) organization" Dissolution: Dissolution (law). To avoid future complications and dispute amongst the persons constituting partnership. 6. What is meant by the implied authority of a partner to bind the firm? State the acts of a partner for which he does not have the implied authority to bind the firm. (True/False) 16. in law. 6. When is such a registration treated as complete? (b) State the effects of nonregistration of a firm. 4. limited liability company. Proprietorship: A proprietorship is a company which is not registered with the state as a limited liability company or corporation. To avoid future dispute it is always advisable to have partnership expressed in writing.10 Terminal Questions 1.

3. She wanted to join one of the Big Four firms with the long-term goal of becoming the next C.. Refer 6.6 – A partner’s authority may be express or implied. mortgage or charge). supplied 5. True 7. True 15. False 9. Her professor had once told the class.8 – When the relationship existing between all the partners of the firm comes to an end. It is express. True 8. Sec. or by any of them acting for all”. False 10.jet setting. 6.2 – A partnership is defined as “the relationship between persons who have agreed to share profits of a business carried on by all." He was talking about careers! China said.3 – Sec. It naturally involves closing down the business. globe trotting and knowledgeable. when it is fixed between the partners by mutual agreement.g. Mini-case If she weren’t a shade confused. by sale. False 11. Refer 6. "For chartered accountants there are a plethora of opportunities in the new international trading regime. Refer 6.39 provides that the dissolution of partnership between all the partners of a firm is called the “dissolution of the firm”. Refer 6. in any way (e. you should do what the heart tells you. 2. True 16. Refer 6. "In life. it is called dissolution of the firm. At the campus interview her senior had picked a job for Rs 9 lakh and gosh he wasn’t even a rank holder.40 Answers to Terminal Questions 1.4. 5. was her inspiration and she wished to be like him . she wouldn’t be Wafers! Her uncle." Wafers agreed. 4. Refer 6. True 12.58 lays down the procedure for registration of partnership firms.8 – Sec. False 6. She recalled reading in the ICAI . Wafers knew that the industry offered fat pay packs but her heart actually lay in consulting. a star CFO.8 – If a partner transfers. Prahalad. False 14. K. True 13. his whole interest in the partnership to a third party.

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

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

Contingent goods are the goods the acquisition of which by the seller depends upon a contingency which may or may not happen [Sec.6). future and contingent. or is not capable of being fixed. 4.4. goodwill. Also known as deposit. Self Assessment Questions 3. or (b) generic and unascertained. As to how the price is to be fixed Secs. 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.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. Example: In a particular trade. he is not bound to accept payment by cheque. Generic or unascertained goods are goods indicated by description and not specifically identified. therefore. there is a usage to deduct discount in determining the price. the price may (i) either be fixed by the contract. who owns a TV show room. the contract is void ab initio. Thus. . may be the subject matter of a contract of sale. This painting is classified as contingent goods. Example: Anthony.4. Specific goods means goods identified and agreed upon at the time a contract of sale is made [Sec. Example: Kulkarni agrees to sell future crop of a particular agricultural field in the next season. it is paid by the buyer in advance as security for the due performance of his part of the contract.g. Instances of goods possessed but not owned by the seller are sales by agents and pledges. Landed property. water. and where it goes off by the seller’s default he must return the earnest money. has 20 TV sets and agrees to sell any one of them to Bharti. does not constitute goods. sells it to her.1 Meaning Price means the money consideration for the sale of goods. by a valuer or (iii) determined by the course of dealings between the parties. electricity are all goods and therefore.2(6)]. In general.patents. According to Sec. Contingent goods is a part of __________________ goods. Price is an integral part of a contract of sale. Earnest money. 7. Existing goods may be either specific or _______________. Contingent goods are a part of future goods. Example: Alka agrees to sell to Bhola a certain painting only if Chetan..6(2)]. i. The usage is implied by the course of dealings between the parties. the deposit unless otherwise agreed is forfeited to the seller.9 and 10 lay down certain rules. Ascertained goods. It is not paid as part payment of price. its present owner. But if the sale goes off through buyer’s fault. since which particular TV set shall become the subject matter of sale is not individualised at the time of the contract of sale.e.3. e.9.2(14)]. it is only the movables. Future goods means goods to be manufactured or produced or acquired by the seller after making the contract of sale [Sec. If price is not fixed. 7. 7. This is an agreement to sell future goods.4 Meaning of Price 7. copyright.. The contract is for unascertained goods. If the transaction goes through.2 Classification of goods Goods may be classified as existing. Existing goods are those which are owned or possessed by the seller at the time of the contract (Sec. the earnest money is adjusted against the price. or (ii) agreed to be fixed in a manner provided by the contact. Existing goods may be either (a) specific or ascertained. gas. things which can be carried from one place to another that form ‘goods’.

e. e. i. provide for them. (True/False) 6. Price is an _______________ of a contract of sale. quality of the goods to be supplied. The implied conditions: (i) condition as to title (Sec. i.. In such situations.15). Where the contract of sale is not severable and the buyer has accepted the goods or part thereof.. All stipulations cannot be treated on the same footing. the buyer is active and is either waiving the condition or electing to treat the breach of condition as a breach of warranty. Doctrine of caveat emptor The doctrine of caveat emptor is a fundamental principle of the law of sale of goods. parties make certain stipulations. Conditions and warranties may be either express or implied. Consideration in a contract of sale of goods can also be paid partly in money and partly in goods. therefore.e.g. may permit repudiation of the contract in spite of the acceptance of the goods by the buyer. The buyer must inspect the goods to find out if they will suit his purpose. Implied conditions and warranties [Secs. (iii) condition as to quality or fitness for buyer’s purpose (Sec.. (ii) sale by description (Sec. If the buyer decides to waive the condition.. he cannot later on insist that the condition be fulfilled. the agreement may provide otherwise. However. an implied condition or warranty may be negative by an express term to the contrary. It means ‘CAUTION BUYER’. 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. Some may be intended by the parties to be of a fundamental nature. Under certain circumstances a breach of condition is to be treated as a breach of warranty. e. will be regarded as a breach of the contract.16(2)]. but of a subsidiary or inferior character..g. Where the buyer treats the breach of condition as a breach of warranty. ‘let the buyer beware’. Express condition or warranty. or (b) elect to treat the breach of the condition as a breach of warranty. time of payment. agree to certain terms.16(1)). e. Sec. (iv) condition as to merchantable quality [Sec. in a contract of sale of a car. In other words.5 Conditions and Warranties (Sec.. he has to give a notice to the seller to that effect. Express and implied conditions and warranties. the buyer may either (a) waive the condition. (vi) implied condition in the case of sale by sample (Sec. i.e. Similarly.14-17]. These circumstances are: i) Where a contract of sale is subject to any condition to be fulfilled by the seller. it may be agreed that delivery of goods shall be made or taken on or before a certain date. the right to repudiate the contract is deemed to have been lost. i.62 recognizes the following two principles: (i) what is expressed makes what is implied to cease and (ii) custom and agreement overrule law. express warranty as to its soundness may be incorporated.Self Assessment Questions 5. The former stipulations are called ‘conditions’ and the latter ‘warranties’.e.13). . the breach of which. it is no part of the seller’s duty to point out defects of his own goods. Some may be intended by the parties to be binding. They are said to the ‘express’ when the terms of the contract expressly. ii) There is also a compulsory treatment of breach of condition as a breach of warranty. (v) condition as to wholesomeness. These may be of any kind that the parties may choose to agree upon.17). 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.11-17) In a contract of sale. However.15). the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty. Breach of condition to be treated as breach of warranty (Sec. 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.g. 7.14). (vii) implied condition in the case of sale by sample as well as description (Sec.

2. 7. Sec. however. property in the goods is not transferred to the buyer unless and until the goods are ascertained (Sec. The ___________ is a fundamental principle of the law of sale of goods. The ‘possession’ of goods refers to the custody of goods.6 Passing of Property in Goods 7.6. In the case of specific goods in a deliverable state.20). though normally a person who is in possession of the goods shall also be its owner but it need not necessarily be so. Sec. The fact that the time of payment or the delivery of the goods or both are postponed does not affect the passing of the property. The unconditional appropriation of goods may be made either by the seller with the buyer’s assent or by the buyer with the seller’s assent. The ‘ownership’ of goods is different from ‘possession’ of goods. property passes only when such thing is done and the buyer has notice thereof (Sec. Unconditional appropriation. 8. provide for them.Self Assessment Questions 7. Conditions and warranties are said to the _____________ when the terms of the contract expressly.6. Where he appropriates the goods to the contract. When there is a contract for the sale of unascertained goods.1 Meaning of ‘property in goods’ The phrase ‘property in goods’ means ownership of goods. These rules for different kinds of goods are summarised below: Specific or ascertained goods. 7.2 Rules regarding passing of property in goods from the seller to the buyer Secs. the property passes at the time the contract (unconditional) is made (Sec. Unless a contrary intention appears.18 to 25 lay down the rules which determine when property passes from the seller to the buyer. Normally goods shall be appropriated by the seller. the property shall pass to the buyer only when the latter has assented to the appropriation. 1. In the case of specific goods to which something has to be done by the seller to put them in a deliverable state. Whether the . The intention of the parties is ascertained from the terms of the contract. the property in them is transferred to the buyer at such times as the parties to the contract intend it to be transferred. In a sale of specific or ascertained goods.20-24). may be given before or after appropriation. The assent. Specific goods not in a deliverable state.23 provides that in the case of sale of unascertained goods or future goods by description. either by the seller with the assent of the buyer or by the buyer with the assent of the seller. property passes to the buyer when goods of that description in a deliverable state are unconditionally appropriated to the contract.18).21). Unascertained or future goods. Specific goods in a deliverable state.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 conduct of the parties and the circumstances of the case. the undermentioned rules are applicable for ascertaining the intention of the parties (Secs.

Where goods are in the possession of the buyer.) or Free on Airport (F. that is. 10.27 lays down a general rule as to transfer of title. No one can give a better title than what he himself has.8 Performance of a Contract of Sale of Goods The contract of sale of goods is to be performed. 7.8. and (ii) rules contained in the Act.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. Self Assessment Questions .7 Transfer of Title by Non-owners (Secs. Insurance and Freight (C. Self Assessment Questions 11.8. Self Assessment Questions 9. These terms reflect a number of conditions which are either attached by the parties or by custom and practice of business people. as the case may be. accept delivery and pay compensation to the seller in case he wrongfully refuses to accept delivery.32).A. 7. 7. ‘memo dat quod non habet’ which means that no one can give what he himself has not. though he has purchased in good faith and for value.31).F.2(2)]. The _______________ of goods refers to the custody of goods. In this context.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.) and Ex-Ship.I. has no title. If the seller. 7.appropriation is done by the seller or the buyer.31-44 provide for the duties of the seller and the buyer and the rules regarding delivery of goods. 27-30) Sec. The most usual of such contracts are: (i) Free on board (F. The seller has the duty of giving delivery of goods according to the (i) terms of the contract. or he has defective title.O. no delivery need be given. Sec. the assent of the other party must be obtained. The buyer of the goods has the duty to pay for the goods. nor need the buyer pay the price.2 Delivery Delivery is defined as a voluntary transfer of possession from one person to another [Sec.O. if the buyer is not willing to pay the price. This rule is expressed by the maxim.) and (ii) Cost.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. he may do the appropriation. _______________ lays down a general rule as to transfer of title. therefore. delivery and payment of price are concurrent conditions (Sec.B. in accordance with the terms of the contract of sale (Sec. it is only the owner of goods who can transfer a good title. the buyer’s title will be equally wanting or defective.8. 7. _______________ lay down the rules which determine when property passes from the seller to the buyer. unless the seller is ready and willing to give delivery. Secs. However. as unless otherwise agreed.

13. 7. (a) where the goods have been sold without any stipulation as to credit. Lien can be exercised only for nonpayment of the price and not for any other charges due against the buyer.. (i) if the goods are of a perishable nature. 7.5 Right of resale (Sec. the seller. the seller cannot claim lien for godown charges for storing the goods in exercise of his lien for the price. The rights against the goods are as follows: 7. (b) where the goods have been sold on credit. For Example. In a contract of sale.56).9. (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. (ii) Rights under the Sale of Goods Act. 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.10 Remedies for Breach of a Contract In addition to the rights of a seller against goods provided in Secs.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. 7. (iii) suit for interest (Sec. i. 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. 7. buyer has to pay for it. 1872. 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. . can resell the goods. (ii) damages for non-acceptance of goods (Sec. namely. 1930: (a) rights against the goods. the seller has the following remedies against the buyer personally. (True/False) 15. _____________ is defined as a voluntary transfer of possession from one person to another. but the term of credit has expired. 7.4 Right of stoppage in transit This right of the unpaid seller consists in preventing the goods from being delivered to the buyer and resuming and regaining their possession while in transit.9.73-74 of the Indian Contract Act. without any notice to the buyer and (ii) in other cases after notice to buyer calling upon him to pay or tender the price within a reasonable time and upon failure of the buyer to do so. 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.50).9. to recover damages for breach of contract.56).9. ______________ provide for the duties of the seller and the buyer. Self Assessment Questions 14.3 Lien on goods (Secs.9. 47-49) The word lien means to retain possession of.55). (i) suit for price (Sec. if seller is under an obligation to deliver goods. In case buyer fails or refuses to pay.e.47 to 54.54) The unpaid seller.12. as unpaid seller. namely: (i) Rights under the Secs. retaining them till the price is paid. (True/False) 7. shall have certain rights. The right of lien by an unpaid seller can be exercised for the non-payment of price of goods and other charges. (b) rights against the buyer personally.9 Unpaid Seller and his Rights A contract is comprised of reciprocal promises. (c) where the buyer becomes insolvent.

. 7. The amount of damages is to be determined in accordance with the provisions laid down in Sec.10. the seller has a further right to claim interest on the amount of the price.2 Suit for damages for non-acceptance (Sec. (True/False) 7. the seller tenders the goods to the buyer and the buyer wrongfully refuses or neglects to accept and pay the price.56) Where the buyer wrongfully neglects or refuses to accept and pay for the goods. then he cannot claim interest.58). where there is an available market for the goods 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. Thus.61). the sale is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner. (vi) anticipatory breach (Sec. Self Assessment Questions 16. the seller may sue him for damages for non-acceptance.11 Sale by Auction (Sec. The interest may be calculated from the date of the tender of the goods or from the date on which the price was payable.e. the seller or any person on his behalf may bid at the auction. each lot is deemed prima facie. 7. the seller can sue the buyer for the price of the goods. Where the property in the goods has not passed to the buyer and the price was not payable without passing of property. until such completion any bidder may withdraw his bid. 1872. 2.57). It is obvious that the unpaid seller can claim interest only when he can recover the price. (ii) right of recovery of the price. Example: A sold certain goods to B for Rs 5.61) When under a contract of sale.7. In the absence of a contract to the contrary.000 and the price was agreed to be paid before the expiry of ten days of the contract. (True/False) 17. (vii) recovery of interest (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. Where the property in goods has not passed to the buyer. (iv) suit for breach of condition. Risk follows ownership. .1 Suit for price (Sec. B fails to pay the price within the stipulated time.73 of the Indian Contract Act.10. if the seller’s remedy is to claim damages only. 1872.60).10. 7. the difference between the market price and the contract price can be recovered. the seller can only sue for damages and not for the price. 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. as a rule.59). When the goods are put up for sale in lots. the seller cannot file a suit for the price. the court may award interest at such rate as it thinks fit on the amount of the price.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. to be the subject matter of a separate contract of sale. 3. (v) suit for breach of warranty (Sec.73 of the Indian Contract Act.3 Suit for interest (Sec.64) In the case of sale by auction the following rules apply: 1. It is also the practice to say ‘three times’. The amount of damages is not to be determined in accordance with the provisions laid down in Sec. (iii) specific performance (Sec. his only remedy is to claim damages.10. i. At an auction.

In contract of sale. There are can be an ‘agreement to sell’ goods. 6. Goods may be classified as existing. Sale is to be distinguished from an agreement to sell. On the other hand. (True/False) 19. Condition: A condition is a stipulation essential to the main purpose of the contact. (True/False) 7.4. Goods: Goods mean every kind of movable property other than actionable claims and money. What are the essentials of a contract of sale under the Sale of Goods Act. 5. the breach of which gives rise to a right to treat the contract as repudiated. If the seller makes use of pretended bidding to raise the price. 1930.12 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. Where the sale is not notified to be subject to a right to bid on behalf of the seller. These stipulations are technically known as conditions and warranties. State the circumstances under which a condition can be waived and treated as a warranty. or for the auctioneer knowingly to take any bid from the seller or any such person. the property in goods is transferred from the seller to the buyer. Explain the rules relating to delivery of goods. 4. A ‘Hire-purchase agreement’ is a bailment plus an agreement to sell. 1930? 2. it shall not be lawful for the seller to bid for himself or to employ any person to bid at such sale. the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated. . 5. Distinguish between condition and warranty. 3. regarding fixation of price. Where under a contract of sale. Describe firefly the rules regarding the transfer of ownership from the seller to the buyer. future and contingent. These conditions and warranties may be express or implied. Warranty: A warranty is a stipulation collateral to the main purpose of the contract. 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. Any sale contravening this rule shall be treated as fraudulent. parties make certain stipulations All stipulations are not treated on the same footing. sale is voidable at the option of the buyer. Self Assessment Questions 18. The sale may be notified to be subject to a reserved or upset price. Describe the rules as given in 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.13 Terminal Questions 1. it is a called a sale. 7.

Delivery 14. Secs. 7. What remedies are available to a seller fro breach of contract of sale? 8. False 3. False 15. Express 8. True 2.27 12. Secs.14 Answers Answers to Self Assessment Questions 1. True 19. True 16. Distinguish between the right of lien and stoppage in transit. True 18. False Answers to Terminal Questions . False 17.31-44 13. Sec. 7. Doctrine of caveat emptor 9. Ascertained 5.6. Describe the law which governs the sale of goods by auction.18 to 25 11. True 6. Possession 10. Future 4. Integral part 7.

Refer 7. that is.8 – Him/herself 7. On the passing of 30th June 2006.27 lays down a general rule as to transfer of title. the facts of the case are as follows. Further.the place where the message is received is where the contract is accepted. His Honour suggested that he would employ an analogy to telexes . upon its withdrawal from the contract.10 – In addition to the rights of a seller against goods provided in Secs. or is not capable of being fixed. 3. Refer 7. on 8th February 2005. if the Federal Court position in this regard is to be followed.47 to 54. each lot is deemed prima facie. Olivaylle did just that .2 – Sec.to which Flottweg took issue and proceedings were commenced. In this case. Flottweg’s acceptance was communicated by email (sent in Germany) to Olivaylle at its olive grove in Victoria.2 – Price means the money consideration for the sale of goods.6 – In a sale of specific or ascertained goods. to be the subject matter of a separate contract of sale. 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. failing which Olivaylle asserted that it would withdraw from the contract and demand the return of its deposit. 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.56).11 – When the goods are put up for sale in lots.1.56). 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. it appears that a contract will be deemed to be made. 4. Question . (iii) suit for interest (Sec. the property in them is transferred to the buyer at such times as the parties to the contract intend it to be transferred. Olivaylle paid a deposit of approximately [euro] 140. Refer 7. Price is an integral part of a contract of sale. The judge also made an important observation about the acceptance of agreements in the age of email communications. 5. If price is not fixed. entitled to its deposit back and was not required to make any further payments under the contract. a large international manufacturer of such equipment. Olivaylle’s case was that the requisite "reasonable period of grace" had expired. Refer 7. 2. Refer 7. Essentially. the seller has the following remedies against the buyer personally.55). the contract is void ab initio. (i) suit for price (Sec. Prior to entering into the contract. 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. Refer 7. Refer 7.4 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’. it is only the owner of goods who can transfer a good title. entered into a written contract with Flottweg. in order to give business efficacy to the contract. Thus. While waiting for the first stage of the grove to reach maturity. 8. (ii) damages for non-acceptance of goods (Sec. Mini-case In the recent decision of Olivaylle Pty Ltd v Flottweg GMBH & Co KGAA (No 4) (2009) 255 ALR 632.7 – Sec. it was an implied term of the contract that Olivaylle was. The director and controlling mind of Olivaylle sought to establish a large olive grove and olive oil manufacturing plant in central western Victoria. the director of Olivaylle tendered for a number of international producers of equipment for the processing of olives and. entitling it to terminate or "withdraw" from the contract. 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.5 – Under certain circumstances a breach of condition is to be treated as a breach of warranty. Refer 7. and therefore the law that applies will be. where the email acceptance was received. 6. Briefly. rather than the postal acceptance rule which states that acceptance occurs at the time and place where the letter was posted.

4 Promissory Notes and Bills of Exchange Promissory note Bill of exchange 8.3 Important Terms Ambiguous instrument (Sec.21-25) .20) Capacity of parties to the negotiable instrument 8.Is it right on he part of the Olivaylle to nominate 30th June 2006 as the reasonable period of grace? Why? (Hint: Refer para 2 in the case) MB0051-Unit-08-Law of Negotiable Instruments Unit-08-Law of Negotiable Instruments Structure: 8.1 Introduction Objectives 8.8 Presentment Maturity (Secs.85) 8.2 Negotiable Instrument 8.5 Cheques Specimen of a cheque Requisites of a cheque 8.17) Inchoate stamped instruments (Sec.6 Holder and Holder in due Course 8.7 Negotiation of a Negotiable Instrument Meaning of negotiation Negotiation and assignment Endorsement Forged endorsement (Sec.

100) 8.14 Answers 8. cheques and promissory notes have been dealt with in considerable detail in this Act. 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. In this unit you will study law relating to negotiable instruments is primarily contained in the Negotiable Instruments Act. In this unit you will study about the law of negotiable instruments.2 Negotiable Instrument . you came to know about the law of sales of goods.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. 1881.12 Summary 8.1 Introduction In the earlier units. The term ‘instrument’ means ‘any written document by which a right is created in favour of some person’. which came into force on 1st March. Bills of exchange.Presentment for payment 8. 1882.9 Dishonour Dishonour of a bill Noting Protesting (Sec.13 Terminal Questions 8.

Thus.3 Capacity of parties to the negotiable instrument The capacity of a party to draw. bank drafts. which does not have these characteristics. is not negotiable. The holder can sue in his own name.1 Ambiguous instrument (Sec. upon it a negotiable instrument.3. dividend warrants. An ___________ is one which may be construed either as a promissory note or as a bill of exchange. at this election treat it as either and the instrument shall be thenceforward treated accordingly. 1872. he thereby gives prima facie authority to the holder thereof to make or complete. 8. 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.3 Important Terms 8.2 Inchoate stamped instruments (Sec. Regarding such instruments. bearer debentures. Self Assessment Questions 3. Freely transferable. bank notes. i.11 of the Indian Contract Act. for any amount specified therein but not exceeding the amount covered by the stamp. Holder’s title free from defects. whereby rights are created in favour of one and obligations are created on the part of another. 4. Self Assessment Questions 1. or (b) by endorsement and delivery.. The term ‘negotiability’ means that not only is the instrument transferable by endorsement and/or delivery. can be transferred any number of times. but is assignable. ____________ is one who receives the instrument for value and without any notice as to the defect in the title of the transferor. There are certain instruments which are recognised as negotiable instruments by usage. Another feature of a negotiable instrument is that its holder in due course can sue on the instrument in his own name. 3. the transferee takes it subject to all equities and liabilities of the transferor. share warrants. 5.3.e. Thus. Sec.20) An inchoate instrument means an instrument that is incomplete in certain respects.17 provides that the holder may.e. Thus. Where one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments then in force in India and either wholly blank or having written thereon an incomplete negotiable instrument. A negotiable instrument is subject to certain presumptions.13.. a bill of exchange drawn by a person upon himself may be construed as a promissory note. An instrument is called ‘negotiable’ if it possesses the following features: 1. persons of unsound mind and persons forbidden under any other Act like insolvency to make a valid contract. A negotiable instrument can be transferred infinitum.3. A negotiable instrument need not be in writing. to enable the transferee to get a title in the instrument. The word ‘negotiable’ means transferable from one person to another either by mere delivery or by endorsement and delivery. bill of exchange and cheque are negotiable instruments by statute as they are so recognised by Sec. . Promissory note. 8. Sec. i.An ‘Instrument’ as referred to in the Act is a legally recognised written document. scripts and treasury bills are negotiable by usage. 2. (True/False) 2.17) An ambiguous instrument is one which may be construed either as a promissory note or as a bill of exchange. till its maturity. if negatively interpreted prohibits minors. 8. Transferability may be by (a) delivery. make or endorse a negotiable instrument is coextensive with his capacity to enter into contract. but that its holder in due course acquires a good title notwithstanding any defects in a previous holder’s title. as the case may be. An instrument may possess the characteristics of negotiability either by statute or by usage. accept. An instrument.

4).” But.” (vii) “I promise to pay B Rs 500 and to deliver to him my white Maruti Car 1 January next. 8. 3. 5.” (ii) “I am liable to pay you Rs 500”. containing an unconditional order. a certain person. Specimen of a bill of exchange . (iii) “I promise to pay B Rs 500 and all other sums which shall be due to him. The following are two illustrations of promissory notes. or to the bearer of the instrument’. 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. The endorsee – the person in whose favour the note is negotiated by indorsement.” Specimen of a promissory note Parties to a promissory note 1. provided he leaves me enough to pay that sum.4. 8. Where A signs instruments in the following terms: (i) “I promise to pay B or order Rs 500. signed by the maker.O. 2. for value received.1 Promissory note A promissory note is an instrument in writing (not being a bank or a currency note) containing an unconditional undertaking.4 Promissory Notes and Bills of Exchange 8. signed by the maker to pay a certain sum of money to.U. I. 4. (I owe you) Rs 1000. The endorser – the person who endorses the note in favour of another person. the following are NOT promissory notes: (i) “Mr B. a certain person or to the bearer of the instrument (Sec. The payee – the person to whom the amount of the note is payable.” (ii) “I acknowledge myself to be indebted to B in Rs 1000. The maker – the person who makes the note promising to pay the amount stated therein. to be paid on demand. An inchoate instrument means an instrument that is ___________ in certain respects.” (iv) “I promise to pay B Rs 500. directing a certain person to pay a certain sum of money only to or to the order of.4.4.5 as ‘an instrument in writing.2 Bill of exchange A ‘bill of exchange’ is defined by Sec. first deducting thereout any money which he may owe me.” (vi) “I promise to pay B Rs 500 seven days after my marriage with C. or to the order of.

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

an order asking the banker to pay a specified amount with interest. Written instrument. 8. 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..6 defines a cheque. To avoid any mistake. Although.2 Requisites of a cheque The requisites of a cheques are: 1. to or to the order of the person named therein or to the bearer. It is. Similarly. in essence.5 Cheques A cheque is the usual method of withdrawing money from a current account with a banker. The Amendment Act 2002 has substituted new section for Sec. is not a cheque as the sum payable is not certain. A cheque must contain an unconditional order. is an order by the customer of the bank directing his banker to pay on demand. Generally. 2. not necessary that the word order or its equivalent must be used to make the document a cheque. If the word “please” precedes “pay” the document will not be regarded as invalid merely on this account. 4. the name and address of the banker should be specified.8. Thus.5.6. and is generated. written and signed in a secure system ensuring the minimum safety standards with the use of digital signature and asymmetric crypto system. The order must be only for the payment of money and that too must be specified. however. the order to bank is expressed by the word “pay”. A cheque must be an instrument in writing. the rate of interest not specified.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. orders asking the banker to deliver securities or certain other things cannot be regarded as cheques. Sec. legally. These forms are printed on special security paper which is sensitive to chemicals and makes any chemical alterations noticeable. 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. the specified amount. On a specified banker only. A cheque must be drawn on a specified banker. 3. Unconditional order. law does not lay down any restrictions and therefore cheque may be written either with (a) pen (b) typewriter or may be (c) printed. A cheque. 8. Savings bank accounts are also permitted to be operated by cheques provided certain minimum balance is maintained. ‘A cheque in the electronic form’ means a cheque which contains the exact mirror image of a paper cheque. Regarding the writing materials to be used.5.

the transferee of a post-dated cheque. the acceptor and all the intermediate endorsers continue to remain liable to the holder in due course until the instrument is duly satisfied. every prior party to a negotiable instrument. without consideration and thus becomes the holder.5. Where the note. till the date mentioned. (True/False) 8. he will be able to establish his claim even against the real owner of that instrument. local authorities. if payable to bearer. ‘Person’ should not be understood in a limited sense including only human beings. is stopped from asserting. etc. A cheque to be valid must be payable on demand and not otherwise.9). he will not be entitled to enforce his claim against its real owner. its holder is the person so entitled at the time of such loss or destruction. Payable on demand. According to Sec.9. the maker or drawer. . Self Assessment Questions 8. Payee to be certain. Privileges of a holder in due course A holder in due course is given certain additional privileges under the Act. Use of the words ‘on demand’ or their equivalent is not necessary. 6. a person. if he is a holder in due course. he may be a holder but will not be called a holder in due course. The drawer of a cheque is expected to date it before it leaves his hands. A cheque to be valid must be payable to a certain person. A post-dated cheque cannot be honoured.. acquires a better title than its transferor. if he is a holder in due course as per Sec. 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. A cheque that bears a date earlier than six months is a stale cheque and cannot be claimed for. So where a lost negotiable instrument is transferred to a person who takes it. on the other hand. who signed and delivered to another a stamped but otherwise inchoate (incomplete) instrument. The drawer can date a cheque with the date earlier or later than the date on which it is drawn. 1.3. the instrument is payable on demand (Sec. like that of the cheque on which payment is due. A post-dated cheque is as much negotiable as a cheque for which payment is due. A cheque bearing an earlier date is antedated and the one bearing the later date is called post-dated.8. is “a person who for consideration became the possessor of a promissory note.e. When the drawer asks the banker to pay and does not specify the time for its payment. 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. 2. bill of exchange or cheque.. before the amount mentioned in it becomes payable and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title (Sec. i. 7.19). Dating of cheques. A cheque without a date is considered incomplete and is returned unpaid by the banks. One can get a post-dated cheque encashed across the bank counter at any time. say. where a person receives a negotiable instrument without consideration. bill or cheque is lost or destroyed. if payable to order. As per Sec. But.. Thus. A cheque must always be crossed to make it a valid instrument.6 Holder and Holder in due Course According to Sec.e. Privilege against inchoate stamped instruments. The life of a cheque is three months from the date of issue. are valid instruments being payable to legal persons. The term in fact includes ‘legal persons’ also. except at the personal risk of the bank’s manager. 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. (True/False) 9. as against a holder in due course. institutions. Thus. clubs.20. i. or the payee or endorsee thereof. A ‘holder in due course’. which are not available to a holder. (True/False) 10. Besides. instruments drawn in favour of a body corporate.

or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument. But where the instrument has been endorsed in blank. Thus. The person to whom the instrument is endorsed is called the endorsee.4 Forged endorsement (Sec.7. Usually the endorsement is on the back of the instrument. if such an instrument is negotiated by way of a forged endorsement. 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. Where no space is left on the instrument. When a negotiable instrument is made.7 Negotiation of a Negotiable Instrument 8. Any person acquiring it takes it free of all defects. 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’. However.43). is “when the maker or holder of a negotiable instrument signs the same otherwise than as such maker.3. A negotiable instrument payable otherwise than to bearer can be negotiated only by indorsement and delivery. Self Assessment Questions 11. 8. then the plea of absence of consideration cannot be raised against him or against any subsequent holder deriving title from him (Sec. When an instrument is negotiated. because the endorsement is nullity. the acceptor cannot be relieved from his liability to the holder in due course. 8. (True/False) 8. though it may be even on the face of it. however. bill of exchange or cheque. 12. drawn accepted or transferred without consideration and the negotiable instrument gets into the hands of a holder in due course. This attached slip of paper is called ‘Allonge’. the endorsee will acquire no title even though he be a purchaser for value and in good faith. 5.2 Negotiation and assignment Both the assignment and negotiation involve the transfer of the right to receive the payment of debt.15.53). 6. it cannot be endorsed or negotiated except by an endorsement signed by the person to whom or to whose order the instrument is payable. for the purpose of negotiation. the rights. Where a bill of exchange is drawn by a fictitious person and is payable to his order. it is purged of all defects. Where an instrument is negotiated to a holder in due course.46). An endorsement according to Sec.7. The holder in due course shall. A ______________ is “a person who for consideration became the possessor of a promissory note. its transferee gets good title irrespective of the defective title. Fictitious drawer or payee. have to prove that the instrument was endorsed by the same hand as drawer’s signature (Sec. on the back or face thereof or on a slip of paper annexed thereto. the endorsement may be made on a slip of paper attached to it. All types of bills are entitled for three days of grace. 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.42).3 Endorsement An endorsement is the mode of negotiating a negotiable instrument. . Right of an endorsee from a holder in due course.85) In case an instrument is endorsed in full. he is said to endorse the same and is called the endorser”. which the transferee of an instrument by negotiation acquires are substantially superior to those of an assignee. 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. unless he was himself a party to the fraud (Sec. 4. 8. if any.7.

as the case may be. notes.1 Maturity (Secs. Maturity date is not required to be determined in the case of cheques. Before discussing the presentment for payment. . (True/False) 8. by the holder or his agent. 8.9 Dishonour 8. as the case may be. A post dated cheque is valid and negotiable. acceptor or drawee thereof. Self Assessment Questions 15. An _____________ is the mode of negotiating a negotiable instrument. A negotiable instrument is said be dishonoured by nonpayment when the maker. Self Assessment Questions 13.Example: A bill is endorsed. X endorses it in blank and it comes into the hands of Y. B. It is due for payment as soon as it is issued. The presentment for payment must be made during the usual hours of business. The drawer is liable only if the instrument is dishonoured by non-payment. Sec.9.22).92). 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. (True/False) 16. “pay to X or order”.1 Dishonour of a bill A bill of exchange may be dishonoured either by non-acceptance or by non-payment. However. the parties to the instrument other than the maker. etc. during banking hours (Sec. as the holder.64). 8.. acceptor or drawee. A payee of a cheque is entitled to claim interest. Therefore most of the provisions relating to presentment for payment are linked with the maturity of the instrument. does not derive his title through the forged endorsement to Y. makes default in payment upon being duly required to pay the same (Sec. The date on which payment of an instrument falls due is called maturity (Sec. and at a banker’s premises. A forges Y’s endorsement and transfers it to B.21-25) Cheques are always payable on demand but other instruments like bills. who simply delivers it to A. In case of default. 8.8 Presentment Presentment of a negotiable instrument is made for two purposes: (i) for acceptance and (ii) for payment. acceptor or drawee are not liable to such holder (Sec. Therefore the question of maturity arises only in the case of a note or bill payable ‘After sight’ or ‘After date’ or at a certain period after the happening of an event which is certain to happen.65). 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. their liability can be invoked only if the holder gives them notice of such dishonour.2 Presentment for payment A negotiable instrument must be presented for payment to the maker. it is necessary to refer to the maturity of the instrument. (True/False) 14.21 provides that a note or bill ‘at sight’ or ‘on presentment’ is payable on demand. may be made payable on a specified date or after the specified period of time.8.

Crossing on cheque is a direction to the paying banker by the drawer that payment should not be made across the counter. should get the bill or promissory note ‘noted’ by the notary public.3 Protesting (Sec. that addition shall be deemed a crossing. Specimen of general crossing . When the protest is drawn up it relates back to the date of noting. or of two parallel transverse lines simply.99). If the instrument has been expressly dishonoured. if any.123 defines crossing as.When a negotiable instrument is dishonoured by non-acceptance or non-payment.9. the reason why the holder treats it as dishonoured. Self Assessment Questions 17. a person. crossing of cheques serves as a measure of safety against theft or loss of cheques in transit. ‘Noting’ must be made within a reasonable time after dishonour. After the noting has been made.100) The protest is the formal notarial certificate attesting the dishonour of the bill and based upon the noting. and the cheque shall be deemed to be crossed generally. 8. and the notary’s charges should be mentioned. the holder must give notice of dishonour to the drawer and all other parties whom he seeks to make liable. 8.10. Where an instrument is dishonoured. The term general crossing implies the addition of two parallel transverse lines. notes down in his register the date of its dishonour and the reason.10.9. besides giving the notice as referred to above. given by the acceptor. The _____________ is the formal notarial certificate attesting the dishonour of the bill and based upon the noting. Sec. 8. 18. the holder. who is not entitled to receive its payment. It is a peculiar method of modifying the instrument to the banker for payment of the cheque. 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. ‘not negotiable’.” A cheque that is not crossed is a called an open cheque. Every notary is required to have and use a seal. 8. The notary public presents the instrument. “Where a cheque bears across its face an addition of the words ‘and company’ or any abbreviation thereof.2 Noting Noting is a convenient method of authenticating the fact of dishonour. A negotiable instrument is said be ____________ by non-payment.10 Crossing of Cheques 8. between two parallel transverse lines.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. is prevented from getting the cheque encashed at the counter of the paying banker. either with or without the words. 8. the formal protest may be drawn up by the notary at his leisure. The payment on a crossed cheque can be collected only through a banker.3 Types of crossing Crossing may be either (1) General or (2) Special.10. and an act can only be deemed a notarial act if it is done by a notary under his signature and official seal. By crossing a cheque.2 Significance of crossing As payment cannot be claimed across the counter on a crossed cheque.

. A distinguishing feature of special crossing is that it includes the name of some bank or the other. Payment in due course What is a payment in due course is defined in Sec. 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’. Thus. and the cheque shall be deemed to be crossed specially. A cheque having the cross mark such as ‘X’ is not generally regarded as a _______________.10 and has been given above. A payment before maturity is not a payment in due course. an addition of the name of banker. 8. Specimen of special crossing Self Assessment Questions 19. and to be paid to that banker”. It is necessary that a payment to constitute a payment in due course should be made at or after maturity. Thus. ‘paying banker’ is a banker upon whom a cheque is drawn. it makes the cheques more safer.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. The drawing of two parallel lines is not necessary in case of a specially crossed cheque.‘Special Crossing’ implies the specification of the name of the banker on the face of the cheque. that addition shall be deemed a crossing. Sec. For example. (True/False) 20. payment of a post dated cheque is not a payment in due course. 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. Payment must be in accordance with the apparent tenor of the instrument.

promissory notes and goods. where a peon of a company presents a cheque for a big amount on behalf of the company. Cheque: A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable. A thief is not said to be in possession of the instrument. Payment must be made in money only. bill of exchange or cheque payable either to order or to bearer. which is contrary to the past experience. 22. When there exists suspicious circumstances and the paying banker fails to make any enquiry as to them. ___________ is a banker upon whom a cheque is drawn. 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. Thus. Money includes bank notes or currency notes but excludes cheque. 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. 5. bills of exchange. The banker can disregard the direction only at his own risk and responsibility. So. 3. It extends to the whole of India except the State of Jammu & Kashmir. So payment is not in due course. It means an instrument possessing the quality of Negotiability is entitled to be called negotiable instrument.g. A payment is not a payment in due course if it is made to a person entitled to receive it.. . where a banker makes payment on a cheque materially altered. The term Negotiable Instrument consists of two parts viz. Payment must be made to the person in possession of the instrument.2. bill of exchange or promissory note). 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. Negotiable and Instrument..10. Glossary Negotiable Instrument: Means a promissory note. 1881 came into force on 1st March 1881. Payment must be made in good faith and without negligence.12 Summary The Negotiable Instrument Act. Self Assessment Questions 21. 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. A payment is a payment in due course if it is made to a person entitled to receive it. 4. (True/False) 8. Promissory Note: A promissory note is an instrument in writing containing an unconditional undertaking signed by the maker to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument. the banker should conduct proper enquiry before making payment on such a cheque. Payment must be made in money only unless the payee agrees to accept payment in some other form (e. 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. under Sec. the payment is not in due course. without exercising due care. payment in due course means payment in accordance with the apparent tenor of the instrument made in good faith and without negligence.

True 7.14 Answers Answers to Self Assessment Questions 1. Explain the provisions relating to ‘Noting’ and ‘Protesting’ of a bill which has been dishonoured by the acceptor. “A cheque is a bill of exchange drawn on a banker”. Holder in due course 12. How does a promissory note differ from a bill of exchange? 4. Ambiguous instrument 4. What do you mean by negotiable instruments? 2. What do you mean by negotiation? How it differs from assignment? 7. 3. False 11. 8. False 6. False 10. True . What is a bill of exchange? Describe its characteristics. A holder in due course 3. Define the term ‘holder’. Describe briefly the meaning of ‘general’ and ‘special’ crossing and “crossing after the issue of a cheque”. 1881. 6. False 9.8. Comment. “Issue of a cheque that bounces is an offence”. Incomplete 5. 8. Comment 5. Name the instruments which are recognized as negotiable instruments by the Negotiable Instruments Act. False 2.13 Terminal Questions 1. 9. True 8. ‘holder for value’ and ‘holder in due course’. False 13.

He received a cheque of amount Rs. but didn’t get any satisfactory response from help line. Refer 8.5 – Refer Sec. False Answers to Terminal Questions 1. Protest 19. 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. 7.2 – Refer Business Law book by SS Gulshan 3. 6000 dated as 2-sep-2009 from City Limouzines India Ltd. Refer 8. Endorsement 15.9 – Noting is a convenient method of authenticating the fact of dishonour. Refer 8.2 – An ‘Instrument’ as referred to in the Act is a legally recognised written document. Refer 8." .” 6. she hanged the phone with stating that "We will dispatch a letter after 20th Sep then check. 5. signed by the maker.5 as ‘an instrument in writing. Dishonoured 18.11 – Refer Business Law book by SS Gulshan.8. a certain person. He called on City Limouzines India Ltd help line for same.5 of this unit.8. Refer 8.7 – The transfer of an instrument by one party to another so as to constitute the transferee a holder thereof is called ‘negotiation’. Crossed cheque 21. 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 8.14. 2.4 – A ‘bill of exchange’ is defined by Sec. & deposited same cheque on 7-Sep-2009 in his Bank. or to the bearer of the instrument’. Refer 8. False 16. Refer 8. which has been bounced with narration "Insufficient Balance". True 17. Refer 8. whereby rights are created in favour of one and obligations are created on the part of another. directing a certain person to pay a certain sum of money only to or to the order of.10 – Refer Business Law book by SS Gulshan. containing an unconditional order. 8. True 20. Mini-case Deepak is a client of City Limouzines India Ltd. 4. 9.6 – According to Sec. Paying banker 22.

2 Important Terms 9. there are cases of cheque bouncing & dishonour. What precautions & remedies would you suggest for the investors to get them protection from such fraud companies? (Hint: Refer 8. if company is going to Fraud then it will impact all investors. (Hint: recall consumer protection act again) 2. Questions 1.13] Power of the district forum [Sec. Thinking this. It is very serious case.13(4)] Reliefs available to consumers (Sec.4 Nature and Scope of Remedies Available to Consumers Who can file a complaint? [Sec.com" but till date I am not getting any revert from company. But I am unable to understand that how a cheque of amount Rs. he lodges a complaint the consumer court requesting them to take legal action against City Limouzines India Ltd. What penalties should be forced on the company? (Hint: Refer 8.Deepak states that. 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: 9.3 Rights of Consumers 9. and ISO approved company.1 Introduction Objectives 9. Every now & then.14) Time-frame for decisions of consumer courts Appeal to state commission Appeal to national commission . Analyse the legal actions which should be taken by the Consumer court for the protection of Investors. as per his knowledge and as per company websites "City Limouzines" India Ltd.12] Where to file a complaint? How to file a complaint? Procedure on admission of complaint [Sec.11 of this unit) 3.

speedy and inexpensive redressal to the consumers’ grievances. l It covers all sectors whether private. public or co-operative. you should be able to: l Define important terms related to consumer l Explain Rights of consumers l Analyze the remedies available for consumer 9. 1986 was born.Appeal to the supreme court against the orders of national commission Limitation period (Sec. l It envisages establishment of consumer protection councils at the Central and State levels whose main object shall be to promote and protect the rights of the consumers. you came to know about the law of negotiable instruments.6 Terminal Questions 9. Objectives After studying this unit. 1986 was substantially amended in 1991. The Consumer Protection Act.24A) Vacancies or defects in appointment not to invalidate order (Sec. which are punitive or preventive in nature the provisions of this Act are compensatory in nature. Unlike other laws.5 Summary 9. Australia and New Zealand. l It confers certain rights on consumers. the USA. l The provisions of this Act are in addition to and not in derogation of the provisions of any other Act.7 Answers 9. In this unit you will study about the Consumer Protection Act. The main objective of this Act is to provide better protection to the consumers.29A) 9.1 Introduction In the earlier units. The Act intends to provide simple. The Consumer Protection Act. Complainant: A complainant means any of the following and having made a complaint: .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. 1993 and 2002. It is described as a unique legislation of its kind ever enacted in India to offer protection to the consumers. The Act is claimed to have been designed after an in-depth study of consumer protection laws and arrangements in UK.

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

National Commission: ‘National Commission’ means the National Consumer Disputes Redressal Commission established under clause (c) of Sec. Consumer Protection Act. where a manufacturer dispatches any goods or parts thereof to any branch office maintained by him. 1930. But. ‘Goods’ means every kind of movable property other than actionable claims and money. ‘Goods’ under this Act shall have the same meaning as assigned to them under the Sale of Goods Act. and includes stock and shares. 1993 and 2002 (c) 1992. 1993 and 2001 (b) 1991. Consumer Protection Act.9. Self Assessment Questions 1. The expression ‘Manufacturer’ for the purpose of this Act. Accordingly. Any of the following made a complaint EXCEPT (a) A consumer (b) The Central Government (c) In case of death of consumer.Goods. 1993 and 2001 9.6 of the Act recognizes the following six rights of consumers: . 1986 was amended in (a) 1991. 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. 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. means any of the following persons: (i) A person who makes or manufactures any goods or part thereof. growing crops. (iii) A person who puts or causes to be put his own mark on any goods made or manufactured by any other manufacturer. his legal heir or representative (d) None 3. applies to (a) All products and services (b) Only physical products (c) Only services (d) Only certain products and service 2.2(7) of the Sale of Goods Act. 1930]. the Consumer Protection Act. 1986 extended a statutory recognition to the rights of consumers.3 Rights of Consumers For the first time in the history of consumer legislation in India. (ii) A person who does not make or manufacture any goods but assembles parts thereof made or manufactured by others. 1993 and 2002 (d) 1992. 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. Manufacturer. Sec. The Government vide powers conferred upon it under the said clause established a National Commission in 1987.

as the case may be.12) Any of the following persons may file a complaint under the Act: . 9. telephones. Right to be informed. State and National levels. Right to safety. wherever possible. At the District level there are to be District Fora as the redressal fora. purity.. the right to be protected against the marketing of goods and services which are hazardous to life and property. the right to be informed about the quality. standard and price of goods or services. access to a variety of goods and services at competitive prices.1 Who can file a complaint ? (Sec. potency. there is a National Consumer Disputes Redressal Commission to be known as National Commission. Right to be heard. access to a variety of goods and services at competitive prices.4 Nature and Scope of Remedies available to Consumers To provide simple. the Act envisages a three-tier quasi-judicial machinery at the District. railways. The State Government may. the consumers’ interests will receive due consideration at appropriate forums. wherever possible. 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. Right to consumer education: It means the right to acquire the knowledge and skill to be an informed consumer. i. i.. 4. In case of monopolies. so as to protect the consumer against unfair trade practices.e. say.4. Right to choose: It means right to be assured. Right to seek redressal: It means the right to seek redressal against unfair practices or restrictive trade practices or unscrupulous exploitation of consumers. __________ means right to be assured. 5. 2. 9. there are to be similar redressal commissions to be known as State Commissions and at the National level. etc. it means right to be assured of satisfactory quality and service at a fair price. quantity.. It also includes right to be represented in various forums formed to consider the consumers’ welfare.e. i. speedy and inexpensive redressal of consumer grievances.. It also includes right to fair settlement of the genuine grievances of the consumers.e. Self Assessment Questions 4. if it deems fit.1. 3. 6. At the State level. establish more than one District Forum in a District.

3 How to file a complaint? There is no fee for filing a complaint before any of the aforesaid bodies. where there are numerous consumers having the same interest. on behalf of. In case of death of a consumer. Where a joint petition is filed on behalf of a large number of victims.4. in support of the allegations contained in the complaint.21]. Every complaint shall be accompanied with such amount of fee as prescribed. 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. [Sec.17]. The National Commission shall also have the jurisdiction to entertain appeals against the orders of any State Commission [Sec.4 Procedure on admission of complaint (Sec. 3.21]. the complaint can be filed before the State Commission [Sec. 9. (e) the relief which the complaint is seeking. 9. One or more consumers. 2.1. (c) the facts relating to complaint and when and where it arose.12. The complaint should be addressed to the President of the Forum/Commission. if any. presently. any voluntary consumer association registered under the Companies Act. However. Any recognised consumers association namely. On receipt of a complaint. claimed exceeds rupees twenty lakhs but does not exceed rupees one crore. the District Forum may proceed with the complaint in the manner as provided under the Act. Rs 20 lakhs but does not exceed Rs one crore. (b) the name. 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. 2. The Central or the State Government. 3. complaint can be filed before the National Commission [Sec. It provides as follows: 1.2 Where to file a complaint? 1. the District Forum may. wholly or in part. (d) documents. The complaint can also be sent by post to the appropriate Forum/Commission.13) . The complainant or his authorised agent can present the complaint in person.4. It is not necessary that the consumer is a member of such an association. description and address of the complainant. 1956 or any other law for the time being in force. as far as they can be ascertained. A complaint should contain the following information: (a) the name. the matter can be heard by the State Commission [Public Health Engineering Department v Uphokta Sanrakshan Samiti (1992)]. 2.17].4. The Amendment Act. 9. description and address of the opposite party or parties. his legal heir or representative can file a complaint. all consumers so interested. with the permission of the District Forum. The State Commission shall also have the jurisdiction to entertain appeals against the orders of any District Forum within the State.11). If the value of the goods or services and compensation. 2002 has amended Sec. arises (Sec. or for the benefit of. 3. 4. claimed does not exceed rupees twenty lakhs. as the case may be. If the value of the goods or services and the compensation. if any. by order. if any. Where a complaint is allowed to be proceeded with. if any. a complaint shall not be rejected unless an opportunity of being heard has been given to the complainant. In case the total compensation claimed exceeds. allow the complaint to be proceeded with or rejected. it is the total amount of compensation claimed in the petition (and not the individual claims) that will determine the question of jurisdiction. claimed exceeds Rs one crore. If the value of goods or services and the compensation.

1. (iii) the reception of evidence on affidavits.4. the charges paid by the complainant. (c) to return to the complainant the price. (ii) the discovery and production of any document or other material object producible as evidence. (g) not to offer the hazardous goods for sale. on admission of a complaint referred to him under (a) above. 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.6 Reliefs available to consumers (Sec. (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. (iv) the requisitioning of the concerned analysis or test from the appropriate laboratory or from any other relevant source.14 [Clause (g)]. (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.14) If. (h) to withdraw the hazardous goods from being offered for sale. namely: (a) to remove the defect pointed out by the appropriate laboratory from the goods in question. (ii) Where the opposite party. for payment to the appropriate laboratory for carrying out the necessary analysis or test in relation to the goods in question [Clause (d)]. or as the case may be. (e) to remove the defects in goods or deficiencies in the services in question. the District Forum may require the complainant to deposit to the credit of the Forum such fees as may be specified.13. 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)].4. (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. the District Forum shall proceed to settle the consumer disputes in the manner specified in clauses (c) to (g) hereunder. namely: (i) the summoning and enforcing the attendance of any defendant or witness and examining the witness on oath. 1908 while trying a suit in respect of the following matters.e. and (vi) any other matter which may be prescribed. (iv) If any of the parties disputes the correctness of the findings of the appropriate laboratory. 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. 2. (ii) Before any sample of the goods is referred to any appropriate laboratory under clause (c)..13(4)] District Forum shall have the same powers as are vested in a civil court under the Code of Civil Procedure. after the proceeding conducted under Sec. Procedure in respect of goods where the defect alleged requires analysis or testing: (i) Where a complainant alleges a defect in the goods which cannot be determined without proper analysis or test of the goods. It shall then refer the sample so sealed to the appropriate laboratory along with a direction that such laboratory make an analysis or test. or omits or fails to take any action to represent his case within the time given by the District Forum. the District Forum shall require the opposite party or the complainant to submit in writing his objections in regard to the report made by the appropriate laboratory [Clause (f)]. denies or disputes the allegations contained in the complaint. 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.5 Power of the district forum [Sec. 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)]. seal it and authenticate it in the manner prescribed. warrant conferring authority) for the examination of any witness. 9. (f) to discontinue the unfair trade practice or the restricted trade practice or not to repeat them. whichever may be necessary. (ha) to cease manufacture of hazardous goods . (b) to replace the goods with new goods of similar description which shall be free from defects. the District Forum shall obtain a sample of the goods from the complainant. or disputes the correctness of the method of analysis or test adopted by the appropriate laboratory. 9. On receipt of the report from the appropriate laboratory. (v) issuing of any commission (i.

unless the appellant has deposited 50 per cent of the amount or Rs. 55000 whichever is less. Sec. (i) to provide for adequate costs to parties. In (a) above. not complying with such order. within a period of 30 days from the date of the order.4.4.4.7 Time-frame for decisions of consumer courts The complaint should be decided by the Redressal Forum. the State Commission or the National Commission. (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.10 Appeal to the supreme court against the orders of national commission Any person. as it deems fit. may order the property of the person.4. 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. the State Commission may entertain an appeal after the expiry of the said period of 30 days if it is satisfied that there was sufficient cause for not filing it within that period. . the District Forum or the State Commission or the National Commission. may prefer an appeal against such order to the Supreme Court. 9. No appeal by a person who is required to pay any amount in terms of an order of the State Commission.11 Limitation period (Sec. Where an interim order made under this Act is not complied with.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.and to desist from offering services which are hazardous in nature. 2002 has substituted Sec. 9. 9. 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. aggrieved by an order made by the National Commission. 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. 9. as the case may be. It provides as follows: 1. 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. Enforcement of orders of the District Forum.19].23]. However. as far as possible. 9. the District Forum shall have the power to grant punitive damages.29A) No Act or proceeding of the District Forum.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. (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. shall be entertained by the National Commission.4. to be attached. The Amendment Act.24A) The District Forum.4. 9.25 by a new section.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.12 Vacancies or defects in appointment not to invalidate order (Sec.

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

(c) Agricultural Products and Graduate and Marketing Act.22 D (d) Sec. to be too expensive and time consuming for lay consumers. Service: Service means service of any description which is available to potential users and includes. 1986. etc which to some extent protect consumer interests. (d) None 9.(c) Sec. the need for a more simpler and quicker access to redressal to consumer grievances was felt and accordingly. Consumer: Any person who buys any goods for consideration which has been paid or promised or partly paid and partly promised. denies or disputes the allegation contained in the complaint. This leaves the consumer in a difficult position with very few avenues for redressal. which involved lengthy legal process proving. Glossary Complaint: Complaint many allegation in writing by a complainant with a view to obtaining any relief under the Act. the Trade and Merchandise Marks Act. However. 1986. these laws required the consumer to initiate action by way of a civil suit. we have the Indian Contract Act. it lead to the legislation of the Consumer Protection Act. Consumer Dispute: Dispute where the person against whom a complaint has been made. the Sale of Goods Act. AGMARK stands for (a) Agricultural Process and Grading and Marketing Act. the Standards of Weights and Measures Act. the Dangerous Drugs Act. . The need to recognize and enforce the rights of consumers is being understood and several laws have been made for this purpose. 1992 (c) Amendment Act. (a) Amendment Act. 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.22 A 10.28 A inserted in which amendment of Consumer Protection Act. 1991 (b) Amendment Act. but not limited. the Indian Standards Institution (Certification Marks) Act. In India. Sec. the principle of “consumer is king” is now accepted. the Agricultural Produce (Grading and Marketing) Act. Therefore. the Prevention of Food Adulteration Act. 2002 11.5 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”. 1993 (d) Amendment Act. 9. often sellers make exaggerated claims and advertisements. The onset on intense competition also made producers aware of the benefits of customer satisfaction and hence by and large.6 Terminal Questions 1. which they do not intend to fulfill. Describe the main features of the Consumer Protection Act. (b) Agricultural Products and Grading and Marketing Act.

Refer Unit – Study first this unit and give answers. Explain the procedure District Forum follows on receipt of a complaint from a consumer. (b) Answers to Terminal Questions 1. (d) 3. What sort of complaint may be lodged under the Act? 9. (a) 8. (2) It covers all sectors whether private. public or co-operative. (c) A person sending a telegram.3 – Please study consumer right. . (c) 9.2. (a) 7. Refer 9. 1986. 4. (b) 4. Refer 9. Examine the rights of a consumer enshrined under the Consumer Protection Act. 6. Right to choose 6.7 Answers Answers to Self Assessment Questions 1. (a) 10. 2. (c) 5. (a) 2. 3.3 – The main features are: (1) It applies to all goods and services unless specifically exempted by the Central Government. (b) A person who registers himself for a telephone connection. 1986 seeks to achieve? 3. Can the following be regarded as consumers? (a) A patient of a government hospital. What are the objects which the Consumer Protection Act. (d) 11. 5.

2. and the food retail industry. including restaurants and grocery stores. 3. 6. Canada’s reputation for high quality food had been damaged by the "tainted tuna" scandal. resources were not only scarce but shrinking. b) Canadian producers/processors were vulnerable to trade challenges in a fragmented system.g. p. (Moore and Skogstad. fluid milk. where separate agencies were spun off from government. They decide whether and how to inspect local operations.4. Refer 9.3 – Refer power of district forum. including local food processing. 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. Some 77 pieces of legislation govern food inspection among three levels of government. . Refer 9. d) Closer integration of the US and Canadian markets under free trade agreements made the industry anxious to reduce the costs and inefficiencies resulting from differing provincial standards e. 5. quality and grading standards for products sold interprovincially and internationally and administers regulations aimed at preventing the production or sale in Canada of dangerous. 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. 10 provincial. Federal responsibility centres on export and inter-provincial trade: protecting and expanding export markets for Canadian food products. In addition. the federal government sets food safety. not for trade protection purposes. adulterated or misbranded products. Provinces and municipalities are responsible for: The intraprovincial aspects of the food industry. b) The 1994 SPS Agreement required that countries use their food safety and animal. the food service industry. This could drag down Canadian food standards to the lowest common denominator. Mini-case Governmental responsibility for food in Canada is divided among the federal. plant and health regulations only to the extent necessary to protect human. as well as dairies and meat plants whose products are sold within the province. Resources for additional inspection of fish products were not available. 5. The Government wanted to reform its public service along the lines achieved in the United Kingdom and New Zealand. animal life or health. c) Gaps resulting from non-inspection or non-rigorous inspection were perceived by processors as a weak link. 130) The federal government of Canada faced a number of food security problems in the early 1990s. 4. and facilitating interprovincial trade. 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. Refer 9. despite the small percentage of overall production represented and assurances outlined in the Auditor General of Canada’s 1994 Report.4 – Nature and Scope of Remedies Available to Consumers.3 – Refer consumer rights. and thousands of municipal governments. which facilitated adoption of innovative reform measures: 1. three territorial.

b) Improved capacity to respond to outbreaks of food-borne illness and threats to the food system presented by medicated feeds and antibiotic residues. The Auditor General also has authority to conduct periodic value-for-money audits of the Agency. and so can hire and fire its own employees. It was so well accepted internationally that Canadian meat packing plants were subsequently required to conform to US regulations requiring large American meat packing plants to implement a HACCP plan by January 1998. most notably the capacity to retain revenues. developed for the US space program. One such risk-based tool. 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. and solutions suggested in the winning Liberal platforms in the 1993 and 1997 elections were renewal of the federation. 8. 10. 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. Improved capacity to respond to outbreaks of food-borne illness and threats to the food system presented by medicated feeds and antibiotic residues. Employing the Auditor General of Canada’s definition of the public interest when assessing ASDs. Protecting the public interest is a major concern in creating alternate Service Delivery Agencies (ASDs) in Canada. Separation of health risk analysis from risk management. maintenance of public service values and adequate control over public funds and assets. National unity was threatened. thereby fulfilling a World Health Organization principle. and Agriculture and Agri-Food Canada into one self-standing Agency effective April 1. The Auditor General of Canada was appointed as an external auditor under the CFIA Act. Separation of health and safety standard setting from inspection. Question . rather than working through the Public Service Commission. 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. permitting new flexibilities for inspection. d) Separation of health risk analysis from risk management. e) Reduced criticism of conflict of interest because the same department was responsible for promoting and regulating an industry (fisheries). tuberculosis in cattle and zoonotic diseases such as salmonella enteritidis in poultry. The Agency reports not to a deputy minister but directly to the Minister of Agriculture and Agri-Food. permitting new flexibilities for inspection. The Government of Canada consolidated all of its food inspection and quarantine services from Health Canada. 7. 11. 1997. Risk assessment methods allowed the allocation of food inspection resources on a risk basis. the Hazard Analysis Critical Control Point (HACCP) system. c) Separation of health and safety standard setting from inspection. Reduced criticism of conflict of interest because the same department was responsible for promoting and regulating an industry (fisheries). It also has a number of financial flexibilities not available to government departments. The Agency has separate employer status. the CFIA addressed whether there was an appropriate focus on public objectives. On all counts the CFIA’s self-assessment concluded it was serving the public interest. was deemed more effective than existing systems in ensuring food safety. including better coordination of services and reduction in overlap and duplication among governments. A more integrated and comprehensive approach (gate-to-plate) to trichinosis in swine. Fisheries and Oceans. for its fish inspection program. 9. Canada was the first government to adopt this system. tuberculosis in cattle and zoonotic diseases such as salmonella enteritidis in poultry.6. 12. thereby fulfilling a World Health Organization principle.

8 Miscellaneous Provisions Power to grant interim relief Power to award compensation Appearance before commission .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.) MB0051-Unit-10-The Competition Act.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.5 Regulation of Combinations (Secs.2 Definitions 10.5 and 6) 10.4 Prohibition of Abuse of Dominant Position 10.3 Prohibition of Anti-competitive Agreements 10.1 Introduction Objectives 10. (Hint: It is a self-standing agency with a separate employer status and more financial flexibilities. 2002 Unit-10-The Competition Act. 2002 Structure: 10.1.19 Procedure for investigation of combination 10.

2002. It received the assent of the President of India on 13th January. you came to know about the Consumer Protection Act. appoint. Unless the context otherwise requires. 2003.9 Finance. It shall come into force on such date as the Central Government may. by notification in the Official Gazette. It includes any arrangement or understanding or action in concert – (1) Whether or not.11 Terminal Questions 10. or (2) whether or not such arrangement. voting rights or assets of any enterprise.1 Introduction In the earlier units. Agreement.2 defines various expressions used in the Act. Accounts and Audit Grants by Central Government Constitution of fund Accounts and audit 10. understanding or action is intended to be enforceable by legal proceedings. or (2) Control over management or control over assets of any enterprise. . Objectives After studying this unit.10 Summary 10. It means.12 Answers 10. these expressions are defined as below. understanding or action is formal or in writing. The Competition Act.2 Definitions Sec. 2002 extends to the whole of India except the State of Jammu and Kashmir. Acquisition. In this unit you will study about the Competition Act. 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. acquiring or agreeing to acquire – (1) Shares.Review of orders of commission Rectification of orders Execution of orders of commission Appeal 10. directly or indirectly. such arrangement.

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

19 enumerates the factors which are to be kept in mind by the Commission while determining whether an agreement has an appreciable adverse effect on competition or not under s.8(2) (d) Sec. Sec. Factors which cause adverse effect on competition. Director General appointed under. investment or provision of services. supply. distribution. or decision taken by any association of enterprises or association of persons. or number of customers in the market or any other similar way. Any agreement entered into in contravention of this provision shall be void.8(1) (b) Sec. supply. acquisition or control of goods or provision of services. including cartels. (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. Value of sales of goods or service includes in (a) Product (b) Service (c) Turnover (d) Profit 4. Further.3. this section also specifies certain activities which shall be presumed to have an appreciable adverse effect on competition.3 provides for prohibition of entering into anti-competitive agreements. Self Assessment Questions 3. engaged in identical or similar trade of goods or provision of services shall be presumed to have an appreciable adverse effect on competition of it: (a) directly or indirectly determines purchase or sale prices. or type of goods and services. technical development. (c) shares the market or source of production or provision of services by way of allocation of geographical area of market. which causes or is likely to cause an appreciable adverse effect on competition within India. Any agreement between enterprises or persons referred (a) Bid-rigging (b) Bid-singing (c) Bid-locking .3 Prohibition of Anti-competitive Agreements Sec.16(2) (c) Sec. Thus no enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production.(c) Competition Collaboration of India (d) Computer Competition of India 2. (a) Sec. (b) limits or controls production.16(1) 10. markets. Activities having adverse effect on competition. storage.

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

or (ii) the group. have or would have (A) either in India. or is being acquired. in aggregate. Exemption: Any person or enterprise.1 Establishment of commission Sec.5 by the board of directors of the enterprises concerned with such merger or amalgamation. to which the enterprise remaining after the merger or the enterprise created as a result of the amalgamation.5. or (B) in India or outside India. may. distribution.6. being a party to a combination. in which enterprise whose control has been acquired. the assets of the value of more than US $ two billion or turnover more than six billion US $. 4000 crores or turnover 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 Commission shall be a body corporate by the aforesaid name having perpetual succession and a common seal with power to acquire. Sec.6. (c) Merger or Amalgamation: Any merger or amalgamation in which (i) the enterprise remaining after merger or the enterprise created as a result of the amalgamation. in aggregate. distribution or trading of a similar or identical or substitutable goods or provision of a similar or identical or substitutable service. Sec. inter alia. However. at his or its option. Sec.7 provides for the establishment of the Competition Commission of India. 1000 crores or turnover more than Rs. or (B) in India or outside India.5 deals with combination of _____________. (b) execution of any agreement or other document for acquisition or acquiring of control referred to in Sec. in aggregate. 10. have (A) either in India. the assets of the value of more than Rs.2 Duties of commission .44 provides for penalty for making false statements or omission to furnish material information by a person. within seven days of: (a) approval of the proposal relating to merger or amalgamation referred to in Sec. shall be void. 4000 crores or turnover more than Rs. 1000 crores or turnover more than Rs. Self Assessment Questions 7. the assets of the value of more than US $ 500 million or turnover more than US $ 1500 million or (ii) the group. or (B) in India or outside India. 12000 crores. as the case may be. who or which proposes to enter into a combination. 3000 crores. if (i) the enterprise over which control has been acquired along with the enterprise over which the acquirer already has direct or indirect control jointly have – (A) either in India. hold and dispose of property.6 Competition Commission of India 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. the assets of the value of more than US $ 500 million or turnover more than US $ 1500 million. Such a combination. as the case may be. disclosing the details of the proposed combination. 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. the assets of the value of more than Rs. give notice to the commission. would belong after the merger or the amalgamation. the commission can establish offices at other places in India. as the case may be. the assets of the value of more than Rs. would belong after the acquisition jointly have or would jointly have (A) either in India.6. the assets of the value of more than US $ 2 billion or turnover more than US $ 6 billion. 10. 3000 crores.(b) Acquisition of control over production. or (B) in India or outside India. the assets of the value of more than Rs. if entered into. 12000 crores. The place of head office of the commission shall be decided by the Central Government.

control and combination (Sec. The jurisdiction. or personally work for gain.18 above.6. Inquiring into certain agreements (Sec.22 contains provisions relating to constitution of Benches of the Commission. actually and voluntarily resides.3 Benches of commission Sec.6. or the respondents who do not reside. or carry on business. or (b) any of the respondents. where there are more than one. as the case may be. 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.19) 2. (ii) promote and sustain competition. as aforesaid. 10. arises.33) 5. Powers and functions of commission With a view to perform the duties as enumerated in Sec. Power to award compensation (Sec. at the time of the initiation of the enquiry or institution of complaint or making of reference. Self Assessment Questions 9. where there are more than one.19) 3. Commission shall maintain proper accounts and other relevant records and prepare an annual statement of accounts under section. as the case may be. . in markets in India. The Benches shall be constituted by the Chairperson and each Bench shall consist of not less than two Members. acquiesce in such institution. 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.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. or (c) the cause of action. Power to regulate its own procedure (Sec. 2. powers and authority of the Commission may be exercised by Benches thereof.37) 10. or each of the respondents.34) 6. or personally works for gain. It provides as follows: 1. 3.36) 7. Power to grant interim relief (Sec. they shall state the point or points on which they differ.18 provides that it shall be the duty of the Commission to (i) eliminate practices having adverse effect on competition. Every Bench shall consist of at least one Judicial Member.24 provides that if the Members of a Bench differ in opinion on any point. Power to review its own orders (Sec. (iii) protect the interests of consumers and (iv) ensure freedom of trade carried on by other participants. wholly or in part. at the time of the initiation of enquiry or institution of the complaint or making of reference.Sec. including those who first heard it.5 Jurisdiction of bench Sec. Inquiring whether an enterprise enjoys dominant position (Sec. or carries on business.20) 4.6. Inquiring into acquisition. These are: 1. 10. the Commission is conferred with certain powers.4 Procedure for deciding a case where members of a bench differ in opinion Sec.

under Sec.19 provides as follows: 1.19 Sec.20 provides that the Commission may.(a) 51 (b) 53 (c) 54 (d) 52 10. On receipt of a complaint or a reference from the Central Government or a State Government or a statutory authority or on its own knowledge or information. 10.7.9 (c) Sec.1 Enquiry into certain agreements and dominant position of enterprises Sec. . consumer or their association or trade association.7 (b) Sec. 10. The Director General shall. if the Commission is of the opinion that there exists a prima facie case.5. or (b) a reference is made to it by the Central Government or a State Government or a statutory authority. it shall direct the Director General to cause an investigation to be made into the matter.2 Enquiry into combination by commission Sec. CCI established under (a) Sec.7. 2.3 or 4 either on its own motion or on (a) receipt of a complaint from any person.8 (d) Sec.7. upon its own knowledge or information relating to acquisition or acquiring of control or merger or amalgamation under Sec.19 provides that the Commission may enquire into any alleged contravention of the provisions contained in Secs.3 Procedure for enquiry on complaints under Sec.7 Enquiry into certain Agreements and Dominant Position of Enterprise and Combinations 10.19. on receipt of the direction submit a report on his findings within such period as may be specified by the Commission.6 11. 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. enquire into whether such a combination has caused or is likely to cause an appreciable adverse effect on competition in India.

8. If. it shall dismiss the complaint and may pass such orders as it deems fit. as the case may be. 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. 7.1 Power to grant interim relief . including imposition of costs. 2. Issue of Notice: Where the Commission is of the opinion that a combination is likely to cause. Prohibition of entering into anti-competitive agreement comes under (a) Sec. for bringing the combination to the knowledge or information of the public and persons affected or likely to be affected by such combination. if necessary. 6.3.2 (b) Sec. it shall direct the complainant to proceed with the complaint.2 (1) (d) Sec. in such manner. as it thinks appropriate. 3. or has caused an appreciable adverse effect on competition within the relevant market in India. the complainant shall be given an opportunity to rebut the findings of the Director General. Self Assessment Questions 12. Written Objection: The Commission may invite any person or member of the public. the Commission is of the opinion that further enquiry is called for. 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. an appreciable adverse effect on competition. The Commission: if it is prima facie of the opinion that the combination has. to file his written objections. the Commission agrees with the recommendation of the Director General. as to why investigation in respect of such combination should not be conducted. within seven working days from the date of receipt of the response of the parties to the combination.3 10.8 Miscellaneous Provisions 10.6(2) (c) Sec. affected or likely to be affected by the said combination. after hearing the complainant. 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. it shall dismiss the complaint. it shall. If.29 provides as follows: 1. before the Commission within fifteen working days from the date on which the details of the combination were published under (2). Where on receipt of a complaint under Sec. or is likely to have. if any. 5. direct the parties to the said combination to publish details of the combination within ten working days of such direction. 10.7.4 Procedure for investigation of combination Sec. the Commission is of the opinion that there exists no prima facie case. after hearing the complainant. 4.19.

8. the Commission may entertain a review application after the expiry of the said period of thirty days. 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. that an act in contravention of Sec.3 or Sec.8.3 or Sec.6 has been committed and continues to be committed or that such act is about to be committed. 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.Sec. 10. 10. it may. 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. where it deems it necessary and a copy of such order granting temporary injunction shall be sent to the concerned authorities. 10.4 or Sec. grant a temporary injunction restraining any party from importing such goods until the conclusion of such enquiry or until further orders. if it is satisfied that the applicant was prevented by sufficient cause from preferring the application in time. 2. 2. without giving notice to the opposite party.4 Review of orders of commission Sec.2 Power to award compensation Sec. Without prejudice to any other provisions contained in this Act. by such person as a result of any contravention of the provisions of Sections 3 to 6 having been committed by such enterprise.6. apply to the Commission for review of its order and the Commission may make such order thereon as it thinks fit. it is proved to the satisfaction of the Commission. 10. grant a temporary injunction restraining any party from carrying on such act until the conclusion of such enquiry or until further orders. Where during an enquiry before the Commission. by order. after an enquiry made into the allegations mentioned in the application made under (1). in the . without giving notice to the opposite party. the Commission may amend any order passed by it under the provisions of this Act. With a view to rectifying any mistake apparent from the record. by order. The Commission may. (b) an amendment for rectifying any such mistake which has been brought to its notice by any party to the order. pass an order directing the enterprise to make payment to the applicant. the Commission may. 2. However. within thirty days from the date of the order. may. Subject to the other provisions of this Act. 10.8. by affidavit or otherwise. 34 provides as follows: 1.8. 38 provides as follows: 1.5 Rectification of orders Sec. 35 provides that a complainant or defendant or the Director General may either appear in person or authorise one or more chartered accountants or company secretaries or cost accountants or legal practitioners or any of his or its officers to present his or its case before the Commission.3 Appearance before commission Sec. 33 provides as follows: 1.8. 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.6 Execution of orders of commission Sec.4 or Sec. the Commission may make (a) an amendment under (1) of its own motion. where it deems it necessary.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.

Additional. (True / False) 10. if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period. is situated. (a) in the case of an order against a person referred to in Sec. that subordinate office.100 of the Code of Civil Procedure. within the local limits of whose jurisdiction.8. . such order to the High Court or the principal civil court. 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.50 provides that Central Government may after due appropriation made by Parliament by law in this behalf. 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. 14. 10. (b) the other expenses of the Commission in connection with the discharge of its functions and for the purposes of this Act. 2.9 Finance. Joint. 1908.9. the Supreme Court may. 51 provides as follows: 1. (c) the fees received under this Act. Self Assessment Questions 13. (d) the interest accrued on the amounts referred to in clauses (a) to (c). (b) the monies received as costs from parties to proceedings before the Commission. 10. Deputy or Assistant Directors General.event of its inability to execute it. _____________ 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. allowances and pension payable to the Director General. where the person concerned voluntarily resides or carries on business or personally works for gain.2. the place. 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.2 Constitution of fund Sec. allow it to be filed within a further period not exceeding sixty days. (b) in the case of an order against any other person. 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. The Fund shall be applied for meeting (a) the salaries and allowances payable to the Chairperson and other Members and the administrative expenses including the salaries. as the case may be. the Registrar and officers and other employees of the Commission. Accounts and Audit 10.1 Grants by Central Government Sec. is situated. 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.9. However.7 Appeal Sec. 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.

appoint. The Monopolistic and Restrictive Trade Practice Act. India has responded to globalization by opening up its economy.11 Terminal Questions 1. in connection with the audit of the Government accounts and. The accounts of the Commission shall be audited by the Comptroller and Auditor-General of India at such intervals as may be specified by him and any expenditure incurred in connection with such audit shall be payable by the Commission to the Comptroller and Auditor-General of India. privileges and authority in connection with such audit as the Comptroller and Auditor-General of India generally has. if not all. The accounts of the Commission shall be audited by the Comptroller and Auditor-General of India. 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. 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.3 Accounts and audit Sec. accounts.9. 10. 16. For this it is necessary that the Indian market should prepare itself competition from within the country and outside. The Fund shall be administered by a committee of such Members of the Commission as may be determined by the Chairperson. in particular. Self Assessment Questions 15. removing controls and resorting to liberalization. It shall come into force on such as the Central Government may. by notification in the Official Gazette. through a purchase acquisition or a pooling of interests.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. 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. 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. . 2002 extends to the whole of India except the state of Jammu and Kashmir. Describe the provisions as regards prohibition of anti-competitive agreements. The committee (3) shall spend monies out of the Fund for carrying out the objects for which the Fund has been constituted.10 Summary The Competition Act. Although the stock market is seen as "high risk" this depends very much on timing and the sort of shares you invest in. 10.3. (True / False) 10. of the target company’s ownership stakes in order to assume control of the target firm. connected vouchers and other documents and papers and to inspect any of the offices of the Commission. shall have the right to demand the production of books. Glossary Acquisition: A corporate action in which a company buys most. ____________ provides that the Commission shall maintain proper accounts and other relevant records.

(a) 11. Sec. Enterprises and persons 9. (d) 10. Explain the power if the Competition Commission to enquires into anti-competitive agreements and dominant position of enterprises. (c) 4. Under what situations. Describe the provisions as regards duties of the Director General to investigate contravention of the provision of the Act. 9.40 14. What are the consequences for a person who contravenes the orders of the Commission? 10. True 15.12 Answers Answers to Self Assessment Questions 1. (c) 6. Describe the provisions as regards ‘Benches of Commission’ and ‘Distribution of business of Commission amongst Benches’.2. (d) 3. (b) 8. Sec. 7. Is there any restrictions and other terms and conditions of service of Chairperson and other members? 5. 6.52 . (a) 5. What are the circumstances under which combination is construed? 3. 4. (b) 2. Dominant position 7. the Central Government can order division of enterprise enjoying dominant position? 8. (d) 12. (d) 13. Explain the provisions relating to regulation of combinations.

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. The company had sought permission to change Article 131 (a).) 4. it will have the right to appoint majority of REL’s directors on the board of the company.16. REL had. REL Chairman and Managing Director. Refer 10. Question . Refer 10. of which REL is a subsidiary. It had also said that RIL had not been consulted by REL before the proposed re-amendment of the relevant articles of association.000-crore Reliance Group. 131 (a) (ii) and 131 (aa). Vice-Chairman and the directors appointed by him. REL sought to vest these powers with its prime shareholder.6 – (Sec. inter alia. the largest shareholder in Reliance Energy.3 – (Sec.) 2. Refer 10.3 or 4 either on its own motion. Refer 10. choose the Vice-Chairman of the company and even decide the tenure of the Chairman.24-per cent REL shareholders who voted in favour of the changes to its Articles of Association.6 – (With a view to perform the duties as enumerated in Sec. Reliance Industries had earlier said that it had not sought in any withdrawal of powers conferred on Mr Anil Ambani. RIL was among the 97.) 6. asked shareholders to mail their votes through postal ballot for a change in its Articles of Association. Refer 10. Earlier these powers were vested with Mr Anil Ambani. through a postal ballot.3 provides for prohibition of entering into anti-competitive agreements. by way of a special resolution.6. Refer 10.8 – (Sec. 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. The result of which was announced today.6 – (Sec.18 above.) 7.) 3. has voted in favour of entrusting itself with the power to appoint the majority of directors on the REL board. Refer 10.29 provides this) 9. a set of rules that govern day-to-day workings of a company. the Commission is conferred with certain powers.5 – (Sec.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. According to sources. which allowed Mr Anil Ambani the power to appoint onethird or majority of the total directors on REL’s board.8 – (Please refer commission in this unit) Mini-case Reliance Industries. Reliance Industries. 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.19 provides that the Commission may enquire into any alleged contravention of the provisions contained in Secs.5 deals with combination of enterprises and persons. Refer 10.6 – (Yes please follow this unit for more knowledge) 5.) 8.5 – (Sec. True Answers to Terminal Questions 1. Refer 10.

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.2 Definition under the Act 11.11) 11.13 to 15] Penalties Enforcement of the orders of adjudicating authority Power to compound contraventions 11. 1999 Unit-11-The Foreign Exchange Management Act.) MB0051-Unit-11-The Foreign Exchange Management Act.6 Adjudication and Appeal [Secs. 3) Holding of foreign exchange etc. Current account transactions Regulation of capital account transactions Export of goods and services 11. 1999 Structure: 11.Why does Reliance want alteration in Reliance Energy’s articles? (Hint: due to the conflict between the ambani brother.4 Regulation and Management of Foreign Exchange Dealings in foreign exchange etc. (Sec.16-35] Appointment of adjudicating authority Appeal to special director (appeals) .5 Contravention and Penalties [Secs.1 Introduction Objectives 11.

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

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.3.3. Self Assessment Questions . 3.11) The Reserve Bank may. report the matter to the Reserve Bank. think fit to give. An authorised person shall. NRSR and FCNR accounts. an authorised person shall not engage in any transaction involving any foreign exchange or foreign security which is not in conformity with the terms of authorization under this section. [Sec. 2. comply with such general or special direction or order as the Reserve Bank may. To sell or purchase foreign exchange for permissible capital account transactions. on an application made to it in this behalf. To sell or purchase foreign exchange for current account transactions.4 Bank’s powers to issue directions to authorised persons (SEC.10(4)].Sec. notifications or directions made thereunder.3 Powers of the authorised person 1. 4. direction or order made thereunder. Not to engage in unauthorized transactions [Sec.3.10(5)]. To deal in or transfer any foreign exchange or foreign security to any person [Sec. regulations.3(c)] However. money changer or offshore banking unit or in any other manner as it deems fit. Receive any payment by order or on behalf of any person resident outside India in any name.6]. the authorised person shall refuse in writing to undertake the transactions and shall.10(4)]. notification. NRNR.2 Duties of an authorised person The duties of an authorised person as provided in the Act are summarised hereunder: 1. in all his dealings in foreign exchange or foreign security. [Sec. An authorised person shall. as an authorised dealer. before undertaking any transaction in foreign exchange on behalf of any person. To ensure compliance of FEMA provisions [Sec. To open NRO. 11. if he has reason to believe that any such contravention or evasion as aforesaid is contemplated by the person. 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. 11. an authorised person is not allowed to credit the account of any person without any corresponding remittance from any place outside India.3(a)] 2. require that person to make such declaration and to give such information. from time to time. Except with the previous permission of the Reserve Bank. NRE. regulation. direction or order made thereunder. To comply with RBI directions [Sec. The authorization shall be in writing and shall be subject to the conditions laid down therein. Where the said person refuses to comply with any such requirement or makes only unsatisfactory compliance therewith. 11. regulation.10 provides that the Reserve Bank may. give to the authorised persons any direction in regard to making of payment or the doing or desist from doing any act relating to foreign exchange or foreign security. for the purpose of securing compliance with the provisions of this Act and of any rules. 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. [Sec. notification. 3.5] 5. authorise any person to be known as authorised person to deal in foreign exchange or in foreign securities.

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. or (c) receive otherwise than through an authorised person any payment by order or on behalf of any person resident outside India in any manner.4. (Sec. Sec.5 Contravention and Penalties [Secs. he shall be liable for penalty upon adjudication. no person resident in India shall acquire. (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.7 deals with export of goods and services. Also it empowers the central government to impose reasonable restrictions for current account transaction in the public interest in consultation with the Reserve Bank of India by making appropriate rules.2 Holding of foreign exchange etc. rules. own.5 explains dealings in current account transactions.3-9 deal with regulation and management of foreign exchange. (True/False) 8. 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. hold.5. any asset outside India by any person.13 to 15] 11.1 Dealings in foreign exchange etc. foreign security or any immovable property situated outside India. 11. possess or transfer any foreign exchange. An authorized person is allowed to credit the account of any person without any corresponding remittance from any place outside India.6 provides that any person may sell or draw foreign exchange to or from an authorised person for a capital account transaction.4. regulation etc.4 Regulation and Management of Foreign Exchange Secs. or contravenes any condition subject to which the authorization is granted by RBI.4 provides that except as otherwise provided in the Act. 11. (True/False) 6. Foreign currency means any currency same as Indian currency.4 Regulation of capital account transactions Sec. 11. 11.7 deals with export of goods and services. (True/False) 11. Sec.4. 11. Self Assessment Questions 7.1 Penalties Sec.5.4.13 provides that if any person contravenes any provision of the Act. the value which the exporter having regard to prevailing market conditions expects to receive on sale of the goods in a market outside India. 11. 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.5 Export of goods and services Sec. Every exporter is required to furnish to Reserve Bank or any other authority as prescribed.3 Current account transactions Sec. __________ explains dealings in current account transactions. which may extend upto thrice the sum involved in such .4.3) 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.

____________ after the first day during the period in which the contravention continue shall be imposed. If the contravention continues. in addition to the penalty. 11.6.13 provides that any adjudicating authority may. 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. any contravention so compounded. relieves the accused person from further proceedings for that contravention.contravention where such amount is quantifiable or upto two lakh rupees where the amount is not quantifiable. The Adjudicating Authority may issue a warrant for the arrest of a defaulter if it is satisfied by affidavit or otherwise that the defaulter is likely to abscond or leave the local limits of the jurisdiction of the Adjudicating Authority with the intention of delaying the execution. The 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. 200 per day 10. Further. 11. the penalty of Rs.3 Power to compound contraventions Sec. Sec. Sec. Again. the defaulter shall not be arrested or detained in civil prison.2 Enforcement of the orders of adjudicating authority Sec.1 Appointment of adjudicating authority .13 may be compounded on an application made by the person committing such contravention within 180 days from the date of receipt of application.6 Adjudication and Appeal [Secs. Any contravention under Sec. 11. Self Assessment Questions 9. he shall be liable to civil imprisonment. 300 per day (b) Rs. security or any other money or property in respect of which the contravention has taken place shall be confiscated to the Central Government. It may further direct that the foreign exchange holdings.5. However. shall be retained outside India in accordance with the directions made in this behalf. direct that any currency. (a) Rs. 500 per day (d) Rs.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.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. 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. 400 per day (c) Rs. if any.15 empowers the ____________.16-35] 11. of the persons committing the contravention or any part thereof. If the contravention continues. the penalty of Rs. 500 per day after the first day during the period in which the contravention continues shall be imposed.

for the purpose of discharging its functions under this Act. (d) subject to the provisions of Secs. On receipt of an appeal. These are summarised as under. 2. (b) requiring the discovery and production of documents. under obligation to specify the jurisdiction of the Adjudicating Authority. (e) issuing commissions for the examination of witnesses or documents. and (i) any other matter which may be prescribed by the Central Government.6. the Appellate Tribunal and the Special Director (Appeals) shall have all powers of a civil court. 1872 requisitioning any public record or document or copy of such record or document from any office. The Appellate Tribunal and the Special Director (Appeals) shall have. 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.229 of the Indian Penal Code. 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. (f) reviewing its decisions.123 and 124 of the Indian Evidence Act.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. in respect of the following matters: (a summoning and enforcing the attendance of any person and examining him on oath.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) 11.4 Powers of appellate tribunal and special director (appeals) Sec. The Central Government is.17 empowers the Central Government to appoint one or more special Directors to hear the appeals against the orders of the Adjudicating Authorities.6. The Special Director (Appeals) shall have the powers of a civil court and the proceeding before him shall be deemed to be judicial proceedings. 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. 1. the same powers as are vested in a civil court under the Code of Civil Procedure.Sec. (h) setting aside any order of dismissal of any representation for default or any order passed by it ex parte. for the purposes of Sec. The Adjudicating Authority cannot hold any enquiry. unless a complaint is made in writing by an officer authorised by a general or special order of the central government. 11.13.16 empowers the Central Government to appoint by notification in the Official Gazette as many Adjudicating Authorities as it may think fit for holding enquiries. The person alleged to have committed the contravention will be given a reasonable opportunity of being heard before imposing any penalty under Sec. The appeal shall be filed in the prescribed form and the manner accompanied by the prescribed fees. . The Central Government while issuing notification to this effect shall also specify the matter and places over which the Special Director (Appeals) have jurisdiction. the Special Director (Appeals) after hearing the parties may pass such orders as he thinks fit confirming. for this purpose. The Appellate Tribunal and Special Director (Appeals) while disposing of an appeal. modifying or setting aside the order appealed against. 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.3 Establishment of appellate tribunal Sec. Copies of the orders of the Special Director (Appeals) shall be sent to the parties concerned and to the concerned Adjudicating Authority. (g) dismissing a representation of default or deciding it ex parte.6. 1908 while trying a suit.193 and Sec.28 provides for powers of the Appellate Tribunal and Special Director (Appeals). however. 11. 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. 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. 3. (c) receiving evidence on affidavits.

Such appeal must be filed within 60 days from the date of communication of the decision or order of the Appellate Tribunal. to any other Bench. the Special Director (Appeals) and the Adjudicating Authority shall be deemed to be public servants within the meaning of Sec.6. the Chairperson may. they shall state the point or points on which they differ.6.6. and make a reference to the Chairperson who shall either hear the point or points himself or refer the case for hearing on such point or points by one or more of the other members of the Appellate Tribunal and such point or points shall be decided according to the opinion of the majority of the members of the Appellate Tribunal who have heard the case. IPC stands for (a) International Personal Computer (b) Indian Personal Computer (c) International Penal Code (d) Indian Penal Code 12.10 Appeal to high court Sec.21 of the Indian Penal Code.5 Distribution of business among benches Sec. including those who first heard it.33 provides that the Chairperson.6 Power of chairperson to transfer cases Sec. to be public servants Sec. by notification.7 Decision to be by majority Sec. from time to time. 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.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.35 provides that any person aggrieved by any decision or order to the Appellate Tribunal may file an appeal to the High Court. 11.34 . and after hearing such of them as he may desire to be heard. 11. etc. Members and other officers and employees of the Appellate Tribunal. (a) Sec.6.8 Members. or on his own motion without such notice.31 provides that if the members of a Bench consisting of two members differ in opinion on any point. the Chairperson may transfer any case pending before one Bench. Which section provides that any person aggrieved by any decision or order to the Appellate Tribunal may file an appeal to the High Court. for disposal.9 Civil court not to have jurisdiction Sec. 11.6.35 (b) Sec.6. Self Assessment Questions 11. 11. 11.30 provides that on the application of any of the parties and after notice to the parties.11.29 provides that where Benches are constituted.

37. not below the rank of under-secretary to Government of India to investigate any such contravention.38 and 40 (d) Secs. every person who. or is attributable to any neglect on the part of. an officer of Enforcement may exercise the powers and discharge the duties conferred or imposed on him under this Act. State Government. Similarly. 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. was in charge of. the Central Government may by notification authorize any officer or class of officers in the Central Government. 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. Subject to such conditions and limitations as the Central Government may impose.13.36 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. direction or order made thereunder is a company.42 makes a provision in the case of contravention by companies where a person committing a contravention of any of the provisions of this Act or of any rule. the company for the conduct of the business of the company as well as the company. 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. The officer so appointed shall exercise the like powers which are conferred on the income-tax authorities under the Income-tax Act. In addition. where a contravention of any of the provisions of this Act or of any rule.37.7 Directorate of Enforcement Secs.(c) Sec. Under Sec. Sec. 1961.32 and 34 11.38 provides for empowering other officers with the same powers as are mentioned in Sec. any director. at the time the contravention was committed. secretary or other officer of the company. 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. Directorate of Enforcement make provisions under (a) Secs. and was responsible to. Self Assessment Question 14.38 11.36 and 38 (c) Secs. Further. manager. shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly. subject to such conditions and limitation as the Central Government may impose.8 Miscellaneous Provisions Sec. Sec. Reserve Bank of India. for the purposes of this Act.36 to 38 make provisions as regards Directorate of Enforcement. who shall be called officers of Enforcement.36 (d) Sec. 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.34 and 36 (b) Secs. Self Assessment Questions 13. manager. such director. (True/False) .

What are the duties and powers of an ‘authorized person’ under FEMA. money orders. 1947 which came into operation on March 25. 1999? 2.11. 1947. cheques. travellers’ cheques. This Act witnessed comprehensive revision in the wake of the changed needs of the economy during the post-independence period and was replaced by the Foreign Exchange Regulations Act. Currency: This expression includes all currency notes. FERA has been replaced by Foreign Exchange Management Act (FEMA). Write short note on: (a) Foreign Exchange (b) Currency (c) Indian Currency (d) Foreign Currency (e) Security (f) Overseas Corporate Body 11. means bringing into India any goods or services. Glossary Foreign Exchange Management Act: Foreign exchange management act is to facilitate external trade and payments and to promote the orderly development and maintained of foreign exchange in India. 1993. 11. postal notes. 1939 as a war time measure in the early period of Second World War under the powers conferred by the Defence of India Rules.11 Answers .10 Terminal Questions 1. drafts. letters of credit. Import: Import with its grammatical variations and cognate expressions. the provisions of contravention and penalties and the procedures of adjudication and appeal and the power of directorate of enforcement dealt at great length in this act. The 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. bills of exchange and promissory notes. The emergency powers were subsequently replaced by the Foreign Exchange Regulations Act. 5. Describe the penalties prescribed under FEMA for contravention of its provisions. What are the obligations of an exporter of goods and services out of India? Explain. 1999. FEMA has been brought to consolidate and amend the law relating to foreign exchange. 3.9 Summary ‘The exchange control in India was introduced on September 3. postal orders. Can anyone file a suit against officer of the government exercising powers under FEMA? 4. The role of authorized person. Export: Outflow of goods and inflow of foreign currency. credit cards or such other similar instrument as may be notified by the Reserve Bank. I973 known as FERA. 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.

No. (a) 8. the outstanding exception being Japan. 3. intervention has been commonplace in the emerging market community.13 provides that if any person contravenes any provision of the Act. 5. a declaration containing true and correct particulars regarding the amount representing the full export value or if the full export value of the goods is not ascertainable at the time of export. Refer 11. Directorate of enforcement 11. (a) 13.Answers to Self Assessment Questions 1. regulation etc. authorise any person to be known as authorised person to deal in foreign exchange or in foreign securities. False 7. the BIS hosted a meeting of Deputy Governors of central banks from major emerging market economies to discuss foreign exchange market intervention. Mini-case On 2nd and 3rd December 2004.5 – Sec. 2. Refer full unit – Please refer full unit in this regards. (c) 10. .10 provides that the Reserve Bank may. 4.5 9. Refer 11. While few developed countries have actively intervened within the last decade. rules. (b) 2. True Answers to Terminal Questions 1. as an authorised dealer. (d) 12.4 – Every exporter is required to furnish to Reserve Bank or any other authority as prescribed. (b) 14. please refer FEMA Act. Refer 11. on an application made to it in this behalf. (d) 4. (c) 5.3 – Sec. money changer or offshore banking unit or in any other manner as it deems fit. (b) 6. (d) 3. Sec.

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

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 . 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.It remains possible that greater apparent effectiveness of intervention in emerging market cases simply reflects different structural characteristics. What is the effect of intervention on global economy.12 and 33) Availability of name Floatation 12. 1956 Structure: 12. Mihaljek’s paper shows clearly that emerging market economies typically hold very large reserves compared with market turnover. 1956 Unit-12-Companies Act.) 2. (Hint: Interventions slow down the change in exchange rate and supply liquidity to the forex market which is crucial for the emerging markets.) Source: BIS paper no 24 MB0051-Unit-12-Companies Act.2 Formation of a Company Promotion Registration (Secs.1 Introduction Objectives 12. (Hint: It provides more opportunities for controlling exchange rates and substituting assets across currency boundaries. Questions 1. And several of the country papers describe the application of regulatory measures to obtain influence over the exchange rate. Emerging market economies tend to have less substitutability of assets across currency boundaries.3 Memorandum of Association Meaning and purpose Form and contents Alteration of memorandum 12.

165) Annual General Meeting (AGM) (Secs.8 General Meetings and Proceedings Need for meetings Statutory meeting (Sec.12.1 Introduction .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 12.7 Directors 12.10 Winding up of Companies Modes of winding up Winding up by the court 12.11 Summary 12.13 Answers 12.12 Terminal Questions 12.166-168) Extra-ordinary Meeting (EGM) Sec.5 Prospectus Contents of a prospectus Stock Exchange Board of India guidelines relating to disclosure on prospectus 12.169 12.9 Auditor 12.

.In the earlier units. are usually delivered along with the aforesaid documents. 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. into three parts. manager and secretary. which in the opinion of the Central Government is undesirable. 12. These may be (i) companies limited by shares. The promoter may be an individual.3).62.3 Availability of name Sec. though not required to be filed for the purpose of registration. Who is a promoter? This term has not been defined under the Act. (ii) Particulars regarding directors. 478 and 519. associated for any lawful purpose may.2. if any (Sec. 12. 76. 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. In this unit you will study about the Companies Act.” 12. Objectives After studying this unit.20 states that a company cannot be registered by a name. you came to know about the Foreign Exchange Management Act.12 permits the formation of different types of companies.2 Formation of a Company The whole process of formation of a company may be roughly divided.2. (i) The address of the registered office of the company (Sec. “any seven or more persons or where the company to be formed will be a private company.303). (ii) Registration and (iii) Floatation. The vast majority of companies in India are with limited liability by shares. partnership or company. The persons who assume the task of promotion are called promoters.12 states that. with or without limited liability. This definition does not bring out the meaning and nature of the company into a clear perspective. These two documents are required to be submitted within thirty days of registration of the company.2 Registration (Secs. although the term is used expressly in Secs.12 and 33) Secs.2. (ii) companies limited by guarantee and (iii) unlimited companies. Therefore. 1956. Also Sec. two or more persons.1 Promotion Promotion is a term of wide import denoting the preliminary steps taken for the purpose of registration and floatation of the company. it is advisable that promoters find out the availability of the proposed name of the company from the Registrar of Companies. For the purpose. 69. The following two documents. association.146). 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. The Companies Act. three names in order of priority should be filed. for convenience. syndicate. These are: (i) Promotion.

If anything is done beyond these powers. 12. 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. C. it defines as well as confines the powers of the company. with ‘limited’ as the last word of the name in the . 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. D and E in Schedule I to the Act. that is to say.3. it is ready for ‘floatation’. The persons who assume the task of promotion is known as __________ (a) Acceptors (b) Motivators (c) Promoters (d) None 2.3 Memorandum of Association 12. It must be done at least 3 days before allotment. How may partners involved in the case of private company? (a) 2 (b) 4 (c) 5 (d) 7 12. it can go ahead with raising capital sufficient to commence business and to carry it on satisfactorily. any one dealing with the company. say. The memorandum serves a two-fold purpose. or (ii) Submit a ‘statement in lieu of prospectus’ in case capital has been arranged privately. Also. that will be ultra vires (beyond powers of) the company and so void. 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. 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.3. Sec.4 Floatation When a company has been registered and has received its certificate of incorporation.12.2 Form and contents Sec. who will attest the signature. It tells us the objects of the company’s formation and the utmost possible scope of its operations beyond which its actions cannot go.13 requires the memorandum of a limited company to contain: (i) the name of the company. Each of the members must take at least one share and write opposite his name the number of shares he takes.2. Thus.14 requires that the memorandum of a company shall be in such one of the Forms in Tables B.15 requires the memorandum to be printed. as may be applicable in the case of the company. divided into paragraphs. Sec. Thus.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. or in Forms as near thereto as circumstances admit. creditors and all those who deal with the company to know what its powers are and what is the range of its activities. Self Assessment Questions 1. It enables shareholders. the intending shareholder can find out the field in. a supplier of goods or money.

25].3. in which the registered officer of the company is to be situated. the resemblance between the two names must be such as to be calculated to deceive. In case of too similar names. (iv) the declaration that the liability of the members is limited. no approval of the Central Government is necessary if the change of the name involves only the addition or deletion of the word ‘private’ (i. the name chosen is not undesirable [Sec. an application is to be made in the prescribed . Too similar name.23(1)]. (iii) Within 30 days of the removal of the registered office. the procedure is: (i) a special resolution is required to be passed at a general meeting of the shareholders. These provisions are explained herein below: Change of name. notice of the change should.13(1) (a) & Sec. within 30 days after the date of the change.case of a public company and ‘private limited’ as the last words in the case of a private company. notice of the new location has to be given to the Registrar who shall record the same..16 provides that the company cannot alter the conditions contained in memorandum except in the cases and in the mode and to the extent express provision has been made in the Act. The promoters are free to choose any suitable name for the company provided: (a) the last word in the name of the company.147). town or village. stating separately ‘Main objects’ and ‘other objects’. A resolution passed by the Board of directors shall be sufficient.25 as an ‘association not for profit’ [Sec.3 Alteration of memorandum Sec. 12.e. Sec. For this purpose.20(1)]. and (v) the amount of the authorised share capital.146) also require confirmation by the Regional Director. The change of name becomes effective on the issue of fresh certificate of incorporation. However. These contents of the memorandum are called compulsory clauses and are explained below: The name clause. In this case.146). The company may do so anytime. The change of name must be communicated to the Registrar of Companies within 30 days of the change. (ii) the name of the State. Change of registered office. if limited by shares or guarantee is ‘limited’ unless the company is registered under Sec. Every company shall: (a) paint or affix its name and the address of its registered office and keep the same painted or affixed. Publication of name (Sec. The procedure depends on whether the change is within the jurisdiction of same registrar of companies (Sec. However.146) or whether the shifting is to the jurisdiction of another registrar of companies in the same state (Sec. when public company is converted into a private company or vice versa). be given to the Registrar who shall record the same (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. (b) In the opinion of the Central Government.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.17A). divided into shares of fixed amounts. (ii) a copy of it is to be filed with the Registrar within 30 days.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. A name shall be said to be calculated to deceive where it suggests some connection or association with the existing company. 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. (iii) the objects of the company.146 and Sec.21 provides that the name of a company may be changed at any time by passing a special resolution at a general meeting of the company and with the written approval of the Central Government. This may include: (a) Change of registered office from one premises to another premises in the same city. (c) Shifting of the registered office from one place to another within the same state (Sec.

Self Assessment Questions 3.4.1 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. (ii) it may wholly exclude Table A and set out its own regulations in full. v. They define the duties. because of economy in printing and also because any provision of Table A is legally beyond any doubt.4. and partial adoption of Table A has particular advantage for small companies. it does not register its own articles.4 Articles of Association 12. (a) Memorandum of understanding (b) Memorandum of association (c) Memorandum of unions (d) None 4. 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. C.form and the confirmation shall be communicated within four weeks. 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. They are subordinate to and are controlled by memorandum. even if it does register articles of its own.3 Subject matter of articles The articles of a company usually deal with the following matters: . 147 Cal. The alternatives (ii) and (iii) are often employed.I. rights. or (iii) it may set out is own articles and adopt part of Table A. There are actually three possible alternatives in which such company may adopt articles: (i) it may adopt Table A in full or. Cas. 12. 12. Such certificate shall be conclusive evidence of the compliance of all requirements under the Act.4. however. Further. Table A will still apply automatically unless it has been excluded or modified.26 states that a public company limited by shares may register articles of association signed by the subscribers to the memorandum. If.T. _________ tells us the objects of the company’s formation and the utmost possible scope of its operations beyond which its actions cannot go. 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. (1965) 35 Comp. _____________ 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. then the articles given in Table A of Schedule I automatically becomes applicable.] 12.2 Registration of articles Sec. Articles cannot supersede the objects as set out in the memorandum of association [Birds Investments Ltd.

appointment and powers of directors. 7. 6. 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. 2. company’s lien on shares.1. calls and forfeiture of shares for non-payment of calls. poll. voting. 4. transfer and transmission of shares. the business of the company. (a) 20 days (b) 15 days (c) 10 days (d) 30 days 6.5. circular.1 Contents of a prospectus . as per Sec. 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. number. 5. if any. 10. the rights of each class of shareholders and the procedure for variation of their rights. the amount of capital issued and the classes of shares into which the capital is divided.5 Prospectus A prospectus. the execution or adoption of a preliminary agreement. the increase and reduction of share capital. 3. resolution. 8. minutes. A document shall be called a prospectus if it satisfies two things: (1) It invites subscriptions to share or debentures or invites deposits. quorum. the allotment of shares. 12. (2) The aforesaid invitation is made to the public. notices. it may be a circular or even a notice. general meetings. Self Assessment Questions 5. proxy. Change of name must be communicated to the Registrar Companies within ________________ of the change.2(36). 9. Thus. exercise of borrowing powers including issue of debentures. a prospectus is not merely an advertisement. means any document described or issued as prospectus and includes any notice.

L. 5. subscribed and paid-up capital. Terms of the present issue. ___________ lays down that the matters and reports stated in Schedule II to the Act must be included in a prospectus. Associated Industrial Dev. (1969) 2 Comp.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. v.6 Shares Sec. (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. Self Assessment Questions 7. Cas. A share of a company in the hands of a shareholder signifies a bundle of rights and obligations [Viswanath v. This definition does not bring out the meaning of a share in its true perspective. 6. 3. (i) Authorised. (ii) Name/(s) of stock exchange/(s) where application for listing is made. issued. 8. 12. (ii) How to apply. In the first part brief particulars are to be given about matters mentioned below: 1. this should be answered as ‘No’.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”. (iv) Declaration about the issue of allotment letters/refunds within a period of 10 weeks and interest in case of any delay in refund.T. under Sec. Outstanding litigations relating to financial matters or criminal proceedings against the company or directors under Schedule XIII. Under this head information is given about (i) Name and address of registered office of the company. (viii) Whether rating from CRISIL or any rating agency has been obtained for the proposed debentures/preference shares issue.Sec. 19] . General information. If no rating has been obtained. Particulars of the issue.56 lays down that the matters and reports stated in Schedule II to the Act must be included in a prospectus. 4. (ii) Size of the present issue.73. in addition to the requirements of Schedule II to the Act. 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. at the prescribed rate. (i) Terms of payment. SEBI stands for (a) Stock Exchange Board of India (b) State Exchange Board of India (c) Stock Exchange Bank of India (d) None 12.5. (vii) Name and address of auditors and lead managers. 2. Co.J. (iii) Means of Financing (including contribution of promoters). (ii) Project cost. Capital structure of the company. But a share is not a negotiable instrument [C. The format of a prospectus is divided into three parts. (ix) Names and address of the underwriters and the amount underwritten by them.I. giving separately reservation for preferential allotment to promoters and others. (i) objects. 175]. (vi) Date of closing of the issue. (v) Date of opening of the issue. contain/specify certain particulars as are announced from time to time. East India Distilleries (1957) 27 Comp. (iii) Any special tax benefits.

83 requires that each share in a company having a share capital must be distinguished by its appropriate number.6. 12.6.6. preference and Cumulative Convertible Preference Shares (CCPS). The Board of Directors recommend the rate of dividend which is then declared by the members at the Annual General Meeting. CCPS stands for (a) Constant Convertible Preference Shares .6. etc. and (3) Deferred or Founders’. Thus.– 79A was inserted for this purpose. A new Sec. 12. These are contemplated as altogether a different class of shares which may carry additional dividends in lieu of the voting rights. 12. A public company and a private company which is a subsidiary of a public company may not issue shares other than equity. transfer of a minimum amount to reserves. (True/False) 17. 12. the Board of Directors have to comply with the provisions of law as regards depreciation. 12.87(1)]. Sec. allowed issue of sweat equity shares subject to fulfillment of certain conditions. The Companies (Amendment) Act.82 to the effect that for the word ‘shares’. (2) Equity or Ordinary.85). The Companies (Amendment) Act. The holders of equity shares have voting rights in proportion to the paid-up equity capital of the company [Sec.2 Preference share A preference share is one which carries the following two rights over holders of equity shares: (i) a preferential right in respect of dividends at a fixed amount or at a fixed rate and (ii) a preferential right in regard to repayment of capital on winding up. As deferred shares are normally held by promoters and directors of the company.6. The rate of dividend is not fixed. Before recommending dividend on equity shares. they are usually called founder’s shares. 1999.6 Non-voting shares ‘Non-voting shares’ as the term suggests are shares which carry no voting rights.4 Cumulative Convertible Preference Shares (CCPs) The Government vide its guidelines dated 19th August. it may issue what are known as deferred shares.86. called cumulative convertible preference shares.5 Deferred or founder’s shares A pure private company can issue shares of a type other than those discussed above (Sec. 12. the words ‘shares and debentures’ shall be substituted.83 requires that each share in a company having a share capital must be distinguished by its appropriate number. 1985 permitted issue of another class of shares by public limited companies.6. 12.6. 1999 amended Sec.7 Sweat equity shares The Companies (Amendment) Act.Sec. Self Assessment Questions 16.1 Classes of shares The most common classes of shares are: (1) Preference.90). 2000 provided for issue of such type of equity shares under Sec.3 Equity share ‘Equity share’ means a share which is not preference share (Sec.

_____________ defines a director. he should keep in mind the company’s interests." This is a definition based purely on function.291 has entrusted the management of the affairs of the company in their hands. forfeit shares should be exercised bona fide in the interests of the company. The holders of equity shares have voting rights. In reality. powers to allot shares. by whatever name called. Such cases are: l They are trustees of money which comes to their hands or which is actually under their control. (ii) trustees. conduct. duties and position of a director. For instance. judicial pronouncements have described them as (i) agents. l They are trustees for exercising powers conferred on them for the benefit of the company. they have to make good the same as if they were trustees. Although directors are not trustees in the real sense of the term. of the term has been given. The directors act as agents of the company. (True / False) 12. (True / False) 12.2(13) defines a director as including "any person occupying the position of director. 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. They chalk-out the general policy of the company within the framework of the Memorandum of the Company. The exact position of ‘director’ is hard to define.(b) Constant Convertible Permanent Shares (c) Cumulative Convertible Preference Shares (d) None 18. they occupy an office of the trust and are in certain respects in the position of trustees for the company. But the Act gives no further guidance on the function. The directors of company are collectively referred to as the ‘Board of Directors’.7 Directors Sec. Sec.8 General Meetings and Proceedings . they enter into contracts on behalf of the company and in the name of the company. therefore. The directors have also been described as trustees. They appoint the company’s officers and recommend the rate of dividend. to make calls. 20. But they are not trustees in the full sense of the term in as much as no proprietary rights of the company’s property are transferred to them and. l They stand in a fiduciary relationship to the company and. whenever there is clash of his personal interests with that of the company. or (iii) managing partners. However. either statutory or judicial. as no formal definition. manage or superintend a company’s affairs. If they misapply company’s money. Self Assessment Questions 19. therefore. a person is a director if he does whatever a director normally does. directors are the persons who direct.

town or village in which the registered office is situated. (iii) Extraordinary General Meeting. An EGM may be called: (i) by the Directors of their own accord. The legal provisions as regards such meetings are: 1. Therefore. (ii) by the Directors on requisition.2 Statutory meeting (Sec.291 empowers the Board of Directors to manage the affairs of the company. 2.166(2)]. However. 12. this is an annual meeting of a company. cannot act itself. 3. All business transacted at such meetings is called special business. They are specifically reserved for them to be done in company’s general meetings. and (iv) Class Meetings. 12. for instance.8. (iv) by the Tribunal. EGM is convened for transacting some special or urgent business that may arise in between two AGMs. [Sec.169 Clause 47 of Table A (Schedule – I) provides that all general meetings other than AGMs shall be called the EGMs. Sec.8.8. (iii) At least 21 days before the day of meeting. In this Part meetings of shareholders are taken up and later in Part 14. a notice of the meeting is to be sent to every member stating it to be a Statutory Meeting. (iii) at the registered office of the company or at some other place within the city.1 Need for meetings A company is an artificial person and therefore. meetings of directors are discussed.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. who may so allow for any special reason. A shorter notice may. (iii) by the requisitionists themselves. The Act has made provisions for following different types of meetings of shareholders: (i) Statutory Meeting. change in the objects or shift of registered office or alteration of capital. (ii) Annual General Meeting.3 Annual general meeting (AGM) (Secs. 2. The meeting must be held in each calendar year and not more than fifteen months shall elapse between two meetings. limited or unlimited must hold this meeting.166-168) As the name signifies.171). whether public or private. The meeting must be held (i) on a day which is not a public holiday. The various provisions of law empower shareholders to do certain things.12. having a share capital or not. be held valid if consent is accorded thereto by members of the company holding 95% or more of the voting rights (Sec. The provisions relating to this meeting are: 1. every item on the agenda must be accompanied by an ‘Explanatory Statement’.8. Every company. (ii) during business hours. In this context meetings of shareholders and of directors becomes necessary. (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. however. It must act through some human intermediary. A private company or a public company registered without share capital is under no obligation to hold such a meeting. The maximum gap between two such meetings may be extended by three months by taking permission of the Registrar. it need not hold any such meeting in the year of its incorporation or in the following year. The Board of Directors may call a general meeting of the members at any time by giving not less than 21 days notice. 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. Self Assessment Questions . 12.4 Extra-ordinary Meeting (EGM) – Sec.

then the company in general meeting may do so. However. Powers and duties or obligations of auditors Sec. Every auditor of a company has right of free and complete access at all times to the books. inform the registrar in writing that he has accepted the appointment or has refused the same. A person will not be eligible for appointment as an auditor of a company if be. accounts and vouchers of the company whether kept at the head office or elsewhere. after a period of one year from the commencement of the Amendment Act is holding any security in that company. (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. How many days before of statutory meeting a notice to be sent to every member of the company.227 enumerates some of the powers of auditors: (i) Every auditor of a company has right of free and complete access at all times to the books. Every auditor so appointed.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. must within thirty days of the receipt from the company of the intimation of his appointment. accounts and vouchers of the company whether kept at the head office or elsewhere. 12. The private companies are not to be taken into account for calculating the number of companies which an auditor can audit. (True / False) 12. An administrator. 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. Is it compulsory for every company to appoint qualified auditors to do the audit of the accounts maintained by the company? (True / False) 2. The first auditors(s) can be appointed by the Board of Directors within one month of the date of the incorporation of the company. _____________ empowers the Board of Directors to manage the affairs of the company. collects its assets.9 Auditor It is compulsory for every company to appoint qualified auditors to do the audit of the accounts maintained by the company. The first auditors hold office until the conclusion of the first AGM of the company. (ii) He has also the right to require from the officers of the company such information and explanation as may be necessary for the performance of his duties as auditor. Self Assessment Questions 1. called a ‘liquidator’. pays its debts and finally distributes any .21. Also. is appointed and he takes control of the company. if the Board of Directors do not appoint the first auditors. (a) 11 days (b) 31 days (c) 41 days (d) 21 days 22.

433. B. Voluntary winding up. unpaid on the shares respectively held by them. 12. A voluntary winding up under the supervision of the Court. and who share the profit and loss arising there from. Winding up of a company differs from insolvency of an individual inasmuch as a company cannot be made insolvent under the insolvency law. The statutory process by which this is achieved is called ‘liquidation’. Glossary . having its own entity separate from its members. 1956 become a legal entity. Compulsory winding up under an order of the Court. C. its members are not as such liable for its debts. and employs it in some business. 12.10. even a solvent company may be wound up. subject to the cost of doing so.10. An association of persons. The Court will make an order for winding up on an application by any of the persons enlisted in Sec.439.11 Summary A company is an association of many persons who contribute money or money’s worth to a common stock. may be ordered in cases mentioned in Sec. Besides. Self Assessment Questions 18. An administrator. The company. also called compulsory winding up. if any.surplus among the members in accordance with their rights. A company limited by shares is a registered company having the liability of its members limited by its memorandum of association to the amount.1 Modes of winding up A company may be wound up in any of the following two ways: A. being a separate person. once incorporated under the Companies Act. The statutory process by which this is achieved is called ___________. 12.2 Winding up by the court Winding up by the Court. In simple words winding up means applying the assets of a company in the discharge of its liabilities and returning any surplus to those entitled to it. called a (a) Liquidator (b) Advisor (c) Financer (d) None 19. Shares in a company are transferable.

Private Company: A company where the minimum number of member is two and maximum fifty. True . (c) 2. advertisement or other document inviting from the public. 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. 3. (a) 9. Suggest 7. 6. What are the characteristics of a company? 2. Sec. (d) 6.13 Answers Answers to Self Assessment Questions 1. How is an auditor appointed? What are the matters to be stated in his report? 12. circular. A company limited by shares intends to buy some of its own shares. (b) 4. 4. What do you mean by memorandum of association? What does it contain? 5.12 Terminal Questions 1.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. What are the different kinds of general meetings of a company? 8. Who is a promoter? Also explain the duties and liabilities of promoters.56 8. Write a short note on statement in lieu of prospectus. Distinguish between a public limited company and private limited company. A 3. Prospectus: Any document described or issued as a prospectus and includes any notice. 12. Sec.16 5. (c) 7.

The company almost immediately ran into difficulties and eventually became insolvent and winding up commenced. Refer 12. Sec. 69. 7.62. 6.2 – Private company at least two members and public at least 7 members. At the time of winding up. These are: (i) Promotion. 2. All the other shareholders subscribed for one share of £1 each. 76.10.000 secured by the debentures issued to Mr.2 – The whole process of formation of a company may be roughly divided. Refer 12. Refer 12.2(13) 13.5 for more detail.6 – Refer Share Section of this unit.050. (ii) Registration and (iii) Floatation. 5. into three parts. The purchase consideration was satisfied by allotment of 20. 478 and 519. Salomon was also the managing director of the company. and (iv) Class Meetings.8 – The Act has made provisions for following different types of meetings of shareholders: (i) Statutory Meeting. its liabilities were £10. (iii) Extraordinary General Meeting. Refer 12. (a) 19. Liquidation Answers to Terminal Questions 1.000 secured by floating charge on the company’s assets in favour of Mr. Refer 12. True 17.3 – The Memorandum of Association of a company is its charter which contains the fundamental conditions upon which alone the company can be incorporated. Refer 12. True 18.9 – It is compulsory for every company to appoint qualified auditors to do the audit of the accounts maintained by the company. 4. He sold his business for a sum of £30. (d) 15.2 – Promoter term is used expressly in Sec. the total assets of the company amounted to £6. Refer 12.000 shares of £1 each and issue of debentures worth £10. True 12. .000 to a company formed by him along with his wife.291 16. Salomon. a daughter and four sons. Sec. (ii) Annual General Meeting. True 14. Refer 12. Mr. (c) 11. 8.000 owing to unsecured trade creditors. for convenience. 3. Salomon and £8. Mini-case Salomon carried on business as a leather merchant.

35) Representations upon issuance of digital signature certificate (Sec.) MB0051-Unit-13-Information Related Laws Unit-13-Information Related Laws Structure: 13.1 Introduction Objectives 13.14 to 16] Secure electronic record (Sec.35 to 39] Certifying authority to issue digital signature certificate (Sec. £6.2 Right to Information Act 13.14) Secure digital signature (Sec.16) 13.050 on the ground that the company was a mere alias or agent for Salomon.6) 13.8 Electronic Governance [Secs. Question Do you agree to the claims of the unsecured trade creditors? Comment.5 Objectives of the Act 13. (Hint: Yes Please follow the case.7 Digital Signature 13.4 Information Technology Act 13.36) .9 Secure Electronic Records and Secure Digital Signatures [Secs.5) Use of electronic record and digital signatures in government and its agencies (Sec.The unsecured sundry creditors claimed the whole of the company’s assets.10 Digital Signature Certificates [Secs.4) Legal recognition of digital signatures (Sec. viz.3 Benefits of the RTI 13.6 Commencement and Application 13.15) Security procedure (Sec.4 to 16] Legal recognition of electronic records (Sec.

12 Offences [Secs.66) Publishing of information which is obscene in electronic form (Sec.52) Resignation and removal (Sec.55) Staff of the cyber appellate tribunal (Sec.61) Appeal to high court (Sec.11 Cyber Regulations Appellate Tribunal Establishment of cyber appellate tribunal (Sec.69) Protected system (Sec.Revocation of digital signature certificate (Sec.70) Penalty for misrepresentation (Sec.48) Composition of cyber appellate tribunal (Sec.58) Right to legal representation (Sec.68) Directions of controller to a subscriber to extend facilities to decrypt information (Sec.71) .57) Procedure and powers of the tribunal (Sec.49) Qualifications for appointment as presiding officer of the tribunal (Sec.62) Compounding of contraventions (Sec.67) Power of the controller to give directions (Sec.51) Salary.65 to 78] Tampering with computer source document (Sec.60) Civil court not to have jurisdiction (Sec.59) Limitation (Sec.54) Orders constituting appellate tribunal to be final and not to invalidate its proceedings (Sec. allowances and other terms and conditions of service of presiding officer (Sec.50) Term office (Sec.38) 13.63) 13.56) Appeal to cyber regulations appellate tribunal (Sec.65) Hacking with computer system (Sec.

16 Answers 13. 2000 13. 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.13 Shortcomings of the Information Technology Act. meant to serve them. actions or lack of actions and policies. accountability of the government and promoting people’s basic rights to know about government’s decisions. As early as in 1976. the right of every citizen to know information is no doubt a revolutionary step.78) 13.1 Introduction In the earlier units. you should be able to: · Explain Right to Information Act · Describe the benefits of RTI · Explain Information Technology Act 13.72) Penalty for publishing digital signature certificate false in certain particulars (Sec. this Act which is full of significance in creating conditions for good governance. India is a democracy and people are the masters. The Right to Information (RTI) Act has been in existence for over a year. Legislations centred on RTI are in full force in many countries of the world specially in the ones which are developed and ruled democratically. In Indian democratic system.75) Confiscation (Sec. Therefore the masters have the rights to know how the Govts..76) Penalties and confiscation not to interfere with other punishments (Sec.74) Act to apply for offence or contravention committed outside India (Sec. Objectives After studying this unit. & other . Article 19 (1) says that every citizen has freedom of speech and expression. the Supreme Court said that people can not speak or express themselves unless they know. you came to know about the FEAM and Companies Act.Breach of confidentiality and privacy (Sec. But ironically.77) Power to investigate offences (Sec.14 Summary 13.15 Terminal Questions 13.2 Right to Information Act Right to information is a part of fundamental rights under Article 19 (1) of the Constitution. remains hardly known to people for whose benefit it was introduced in the first place.73) Publication for fraudulent purpose (Sec. In this unit you will study about the information related laws. are functioning.

___________ is a part of fundamental rights under Article 19 (1) of the Constitution. · Inspect any Govt. · Increases efficiency. works. 2005 was implemented in our country on 15th June. alertness which are the major ingredients for smooth & effective functioning of public authority. District and Local self Governing Bodies like Panchyat and Municipal bodies. · Reminds public authorities their power and duty including channels of supervision and accountability. 2005. 2005 Right to Information Act. RTI Act. 2005 empowers every citizen to: · Ask any questions from the Government or seek any information. credibility and legitimacy of public authority. 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. it should not be misinterpreted rather it makes the administration more responsive and removes sloth. · Take samples of materials of any Govt. · Free flow of information can tackle any disaster there by enables sustained development and growth. vitality.3 Benefits of the RTI The various benefits of the RTI are: · Enhances transparency. Maximum possible information must be disclosed voluntarily. work. · Effective information flow helps citizen to secure their right and entitlement. What rights are available under RTI Act. (True/False) 13. 2.10. 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. State. Every citizen of India are empowered to seek information from public authority. Coverage of the Act: The RTI Act covers all level of Govt. The act extends to the whole of India except the State of Jammu and Kashmir. 2005 was implemented in our country on 15th June. documents. · Encourages public authority to be sensible and to make optimum use of limited fiscal resources. RTI Act. 2005.2005. 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. · Take copies of any Govt. This has widened the path of corruption in manifold. documents. For this openness and change of attitude is required. · Inspect any Govt. Since the Act imposes liability on public authority. . Self Assessment Questions 1. It also covers NGOs – that are financed substantially with public funds provided by Govt. 2005 and became operational on 12. – Center.administrative bodies.

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

(vi) any such class of documents or transactions as may be notified by the Central Government in the Official Gazette.6 Commencement and Application It extends to the whole of India and save as otherwise provided in this Act. The “hash function” means an algorithm mapping or translation of one sequence of bits into another. Self Assessment Questions 9. The authentication of message involves determining its source and verifying that it has not been modified or replaced in transit. 1925 including any other testamentary disposition by whatever name called. 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. RTI extends to _____________ of India. Authentication is a process used to confirm the identity of a person or to prove the integrity of information. Self Assessment Question . (b) that two electronic records can produce the same hash result using the algorithm. 10. This Act is not applicable to the following: (i) a negotiable instrument (other than a cheque) as defined in Sec. (ii) a power-of-attorney as defined in Sec.(v) to provide for matters connected therewith or incidental thereto. (v) any contract for the sale or conveyance of immovable property or any interest in such property.7 Digital Signature Authentication of electronic records. IT Act facilitates electronic storage of data in place of ____________ methods of storage of data. 1882. 1881.2(h) of the Indian Succession Act. it applies to any offence or contravention thereunder committed outside India by any person. (iii) a trust as defined in Sec.1A of the Power of Attorney Act. Subject to the provisions of section 3 any subscriber may authenticate an electronic record by affixing his digital signature.13 of the Negotiable Instruments Act. 1882. Self Assessment Questions 7. A trust is defined in the _________________. 13. 13. (iv) a will as defined in Sec.3 of the Indian Trust Act. 8. IT Act provides legal recognition for transactions carried out by means of __________ and other means of __________________.

13. if such information or matter is authenticated by means of digital signature affixed in such manner as may be prescribed by the Central Government. (True/False) 13. (b) capable of identifying such subscriber. Authentication is not a process used to confirm the identity of a person. (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. such requirement shall be deemed to have been satisfied if such information or matter is (a) rendered or made available in an electronic form. (b) the issue or grant of any licence.16) .3 Use of electronic record and digital signatures in government and its agencies (Sec. then such digital signature shall be deemed to be a secure digital signature. at the time it was affixed.8 Electronic Governance [Secs.8. by application of a security procedure agreed to by the parties concerned.2 Secure digital signature (Sec. authority. 13.1 Secure electronic record (Sec. The expression “signed” as used above shall.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.14) Where any security procedure has been applied to an electronic record at a specific point of time. written or printed form. 13. receipt or payment. is effected by means of such electronic form as may be prescribed by the appropriate Government.14 to 16] 13. body or agency owned or controlled by the appropriate Government in a particular manner. grant.2 Legal recognition of digital signatures (Sec. 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. 13.9. Self Assessment Question 12.8. Legal recognition of electronic records come under _____________.8. issue.3 Security procedure (Sec. with reference to a person. means affixing of his handwritten signature or any mark on any document and the expression “signature” shall be construed accordingly. as the case may be.6) Where any law provides for the following: (a) the filing of any form. permit. and (b) accessible so as to be usable for a subsequent reference.11.9 Secure Electronic Records and Secure Digital Signatures [Secs. was – (a) unique to the subscriber affixing it. then. 13.9. application or any other document with any office. (c) the receipt or payment of money in a particular manner. such requirement shall be deemed to have been satisfied if such filing. it can be verified that a digital signature. such requirement shall be deemed to have been satisfied.15) If.1 Legal recognition of electronic records (Sec.9. notwithstanding anything contained in such law. then such record shall be deemed to be a secure electronic record from such point of time to the time of verification.4 to 16] 13. sanction or approval by whatever name called in a particular manner.

and (f) the procedures in general use for similar types of transactions or communications.11.10.2 Composition of cyber appellate tribunal (Sec. Any person may make an application to the Certifying Authority for the issue of a Digital Signature Certificate. (True/False) 13. which. by the Central Government. (b) the level of sophistication of the parties with reference to their technological capacity. (c) the volume of similar transaction engaged in by other parties.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. establish one or more appellate tribunals to be known as the Cyber Regulations Appellate Tribunal.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. A Certifying Authority may not revoke a certificate. 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. to be paid to the Certifying Authority. (d) the subscriber’s public key and private key constitute a functioning key pair. listed in the Digital Signature Certificate. 13. including – (a) the nature of the transaction.10. (e) the information contained in the Digital Signature Certificate is accurate.11. (c) the subscriber holds the private key corresponding to the public key. 13. known as the presiding officer and be appointed. by notification.2 Representations upon issuance of digital signature certificate (Sec. and (f) it has no knowledge of any material fact.10. 13. (d) the availability of alternatives offered to but rejected by any party. by notification. (True/False) 15.35 to 39] 13. 13. Self Assessment Questions 14.3 Revocation of digital signature certificate (Sec. .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. or (b) upon the death of the subscriber.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.1 Establishment of cyber appellate tribunal (Sec.10 Digital Signature Certificates [Secs. if it had been included in the Digital Signature Certificate would adversely affect the reliability of the representation made in (a) to (d) above.49) The Tribunal shall consist of one person only.48) The Central Government shall. Secure digital signature come under __________________. (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. (e) the cost of alternative procedures. Such an application is to accompany such fee not exceeding Rs 25000 as may be prescribed by the Central Government. Self Assessment Question 13.1 Certifying authority to issue digital signature certificate (Sec.

Instead. These employees and officers shall discharge their functions under general superintendence of the Presiding officer. by order.12 Limitation (Sec. whichever is earlier. neither the salary and allowances nor the other terms and conditions of service of the Presiding officer shall be varied to his disadvantage after appointment. 13.11.50) A person shall not be qualified for appointment as Presiding officer unless he: (a) is. 13.57) Any person aggrieved by an order made by controller or an adjudicating officer may prefer an appeal to the Tribunal. allowances and other terms and conditions of service of presiding officer (Sec. 13. and the other terms and conditions of service including pension.11.54) The Presiding officer may by notice in writing addressed to the Central Government. 13. 13. confirming. However. 13.5 Salary. gratuity and other retirement benefits of the presiding officer shall be such as may be prescribed. On receipt of an appeal.60) . However. the Tribunal may.58) The Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure. resign his office.11. no such appeal shall lie from an order made by an adjudicating officer with the consent of the parties.56) The Central Government shall provide the Tribunal with such officers and employees as that Government may think. 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.11.11 Right to legal representation (Sec. Every appeal shall be filed within a period of 45 days from the date on which a copy of the order made by the controller or the adjudicating officer is received by the person aggrieved. it shall be guided by the principles of natural justice and subject to the other provisions of this and of any rules. the Tribunal shall have powers to regulate its own procedure including the place at which it shall have its sittings. The Central Government. remove the Presiding officer on the ground of proved misbehaviour or incapacity. modifying or setting aside the order appealed against. or is qualified to be.11.4 Term office (Sec. a judge of a High court.10 Procedure and powers of the tribunal (Sec.7 Orders constituting appellate tribunal to be final and not to invalidate its proceedings (Sec.6 Resignation and removal (Sec. pass such orders thereon as it thinks fit. after giving the parties an opportunity of being heard. 13.9 Appeal to cyber regulations appellate tribunal (Sec. or has been. Further. may.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. 13. Also.51) The Presiding officer shall hold office for a term of 5 years from the date on which he enters upon his office or until he attains the age of 65 years.13.52) The salary and allowances payable to.55) No order of the Central Government appointing any person as the presiding officer shall be called in question. 13.11. no act or proceeding before the Tribunal shall be called in question on the ground merely of any defect in the constitution of the Tribunal.11.3 Qualifications for appointment as presiding officer of the tribunal (Sec.11.8 Staff of the cyber appellate tribunal (Sec.11.11.

design and layout and program analysis or computer resource in any form. 13.11. Right to legal representation comes under ______________. 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.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. 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.67) Whoever publishes or transmits or causes to be published in the electronic form.14 Appeal to high court (Sec.The provisions of the Limitation Act. 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. The expression “computer source code” means the listing of programs. to read.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.12. as the case may be.11. 13. or computer system or computer network).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.13 Civil court not to have jurisdiction (Sec. 13.12. 13. Self Assessment Questions 16.65 to 78] 13. Every appeal shall be filed within a period of 45 days from the date on which a copy of the order made by the controller or the adjudicating officer is received by the person aggrieved.1 Tampering with computer source document (Sec. Further. computer commands. However. commits hacking.3 Publishing of information which is obscene in electronic form (Sec. 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. or with both. (True/False) 17. 13. any material which is lascivious or appeals to the prurient interest or if its effect is such as to tend to deprave and corrupt persons who are likely. see or hear the matter. either before or after the institution of Adjudication proceedings. as for as may be. such sum shall not exceed the maximum amount of the penalty which may be imposed for the contravention so compounded. destroys or alters or intentionally or knowingly causes another to conceal. (or computer program. or with fine which may extend up to Rs 2 lakh.63) Any contravention under this Part may. 1963 shall.15 Compounding of contraventions (Sec. .65) Whoever knowingly or intentionally conceals. 13.12.11.12 Offences [Secs.2 Hacking with computer system (Sec. apply to an appeal made to the Tribunal. 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. destroy or alter any computer source code used for a computer. be compounded by the controller or the adjudicating officer.

the subscriber or any person in charge of the computer resource shall extend all facilities and technical assistance to decrypt the information.76) . information. computer system or computer network located in India. 13.71) Whoever makes any misrepresentation to. or with fine which may extend to Rs 1 lakh.12. or (b) the subscriber listed in the certificate has not accepted it. 13. or with both. or with both. it is necessary that the act or conduct constituting the offence or contravention involves a computer. 13. For this application.72) Any person.75) The provisions of this Act shall apply also to any offence or contravention committed outside India by any person irrespective of his nationality. 13.12. without the consent of the person concerned. 13. the security of the state.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. 13. for reasons to be recorded in writing by order.12. the controller or the certifying Authority for obtaining any licence or Digital Signature Certificate. or with both. register. It may authorise persons to have access to the protected system. (empowered under the Act) who has secured access to any electronic record.8 Breach of confidentiality and privacy (Sec.5 Directions of controller to a subscriber to extend facilities to decrypt information (Sec. document or other material. book. direct any agency of the government to intercept any information transmitted through any computer resource.12.68) The controller may. discloses the same to any other person shall be punished with imprisonment for a team which may extend to 2 years. or with fine which may extend to Rs 1 lakh. 13. 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. computer system or computer network to be a protected system. shall be punished with imprisonment for a term which may extend to 2 years. or with fine which may extend to Rs 1 lakh. 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. In such a case.11 Act to apply for offence or contravention committed outside India (Sec.4 Power of the controller to give directions (Sec. friendly relations with foreign states or public order or for preventing incitement to the commission of any cognizable offence.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.13. then he shall be punished with an imprisonment for a term which may extend to 7 years. rules or any regulations made thereunder. If he fails to provide the necessary assistance.70) The appropriate government may declare any computer.74) Whoever knowingly creates.7 Penalty for misrepresentation (Sec.12 Confiscation (Sec. 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. 13.10 Publication for fraudulent purpose (Sec.12. by order.12.12.6 Protected system (Sec. 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. 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.12.12. or suppresses any material fact from. and he.9 Penalty for publishing digital signature certificate false in certain particulars (Sec. correspondence.

There have arisen many disputes about domain names globally. jurisdiction of courts and tax authorities. contracts for sale or conveyance of immovable property or any interest in such property. i. Hacking with computer system comes under _____________.13 Shortcomings of the Information Technology Act. No provision has been made for payment of stamp duty on electronic documents.e. including infringement. (i. shall be liable to confiscation. order or regulations made thereunder has been or is being contravened.. 5. 6.78) Notwithstanding anything contained in the Code of Criminal Procedure. No person shall publish a Digital Signature Certificate.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. Thus infringement of copyright on e-commerce will be governed by the Copyright Act. rules. these issues are tackled by the US Anti-Cybersquatting Consumer Protection Act. Self Assessment Questions 18.12. The Act does not address itself to internet related issues such as domain names and cyber squatting. concurrent claims and cybersquatting. 4. 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.13 Penalties and confiscation not to interfere with other punishments (Sec. cybersquatting can be opposed by relying on the provisions of the Trade Marks Act.Any computer.12. In India. (True/False) 13. 1957. The Act is not applicable to negotiable instruments. floppies.14 Power to investigate offences (Sec. 19. copyright. The IT Act. tape drives or any other accessories related thereto. 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. 1999. In USA. . as it provides for the levy of damages upto US$ 300. neither any protection for domain names nor action against cybersquatting is available. 3. 13. The IT Act makes no provision for jurisdictional aspects of electronic contracts. in respect of which provision of this Act. power of attorney. 1999. 2000 The Act does not cover certain aspects of e-commerce. These are: 1. 2.000 per mark against the guilty parties. trusts. a police officer not below the rank of Deputy Superintendent of Police shall investigate any offence under this Act. The banks cannot extend their services to the online medium of payments. 13. Thus under IT Act. This Act is a powerful deterrent to cybersquatting.e. compact disks. computer system. 2000 is silent as regards taxation of goods and services traded through e-commerce. trade marks and patents). however.. testamentary dispositions (wills). such as intellectual property rights.

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

True 6. Electronics governance 13. electronic communication 9. Section 66 19.3. 3. True 20.2. 1882 11. Section 15 14. False 16. electronic data interchange. Refer 13. UNCITRAL Answers to Terminal Questions 1.2 – Full knowledge please refer 13. Section 59 18. paper-based 8. entitlement 5. right. 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. True 17.8 for detail. True 22.7 and 13. commonly referred to as “electronic commerce”. which involves the use of alternatives to paper-based methods of communication and storage of information. Refer 13. Indian Trust Act. Refer 13. whole 10. .7 – Authentication is a process used to confirm the identity of a person or to prove the integrity of information. True 21. True 15. True 7. 4. False 12. 2. enhances 4.

6) Form of application (Sec.7) Information and undertaking regarding foreign applications (Sec.com". Ltd.6 Grant of Patents and Rights Conferred Thereby 14.12 for detail.3 Applications for Patents Persons entitled to apply for patents (Sec. The defendants suggested that any misleading impression would be dispelled by the different design of the website. Question What should be the court order in this case in your opinion? (Hint: Court give decision in favour of Bennet Coleman & Co. Refer 13.) MB0051-Unit-14-The Patents Act Unit-14-The Patents Act Structure: 14. one against Steven S Lalwani and the second against Long Distance Telephone Company who had got sites registered as "theeconomictimes. 6.10) 14.com" for its respective newspapers ‘The Economic Times’ and ‘The Times of India".10 – Any person may make an application to the Certifying Authority for the issue of a Digital Signature Certificate in such form as may be prescribed by the Central Government.2 Inventions not Patentable 14.com" and "timesofindia. The traffic to these sites was redirected to other sites of Lalwani and the Long Distance Telephone Company.5 Provisions for Secrecy of Certain Inventions 14. The Bennett.8) Provisional and complete specification (Sec. Refer 13.9) Contents of specification (Sec. held two domain names "economictimes. Coleman & Company filed two complaints. Mini-case Bennett.7 Patents of Addition 14.com" and "thetimesofindia. Ltd. Coleman & Co.5.1 Introduction Objectives 14.4 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 Restoration of Lapsed Patents .

13 Answers 14.11 Summary 14. The Act came into force from 21st September. The objective is to protect the intellectual property rights of a person to whom the patent has been granted. . the law was required to be amended further in respect of India’s obligations under the TRIPs Agreement. 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. 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. In this unit you will study about the Patents Act. 2005.12 Terminal Questions 14. as amended and modified from time to time. 2004.9 Compulsory Licenses 14. commencing from January 1.10 Suits Concerning Infringements of Patents 14. Objectives After studying this unit. Consequently. 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. provided for the modalities for a 10-year transition facility (which India had negotiated at the time of its accession to the WTO). The Patents (Amendment) Act 1999 had. due from January 1. India as joined the Budapest Treaty and its provisions are applicable to India. 1970 extends to the whole of India. you came to know about the law of Company act and information related laws. 2004 on December 26. 1970. The Act describes the procedure for the grant of patent and protects his rights against infringement. 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). As a consequence.1 Introduction In the earlier units. 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. 1995. 1977. inter alia.14. The Patents Act. 2000 (in respect of amendments notified in 2002). 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.

Convention application: It means an application for a patent made by a foreign national of a convention country.617 of the Companies Act. Exclusive licence: It means a licence from a patentee which confers on the licensee. i. which is a signatory to an international. Patentee: It means the person for the time being entered on the register as the grantee or proprietor of the patent. 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. ____________ is a new product or process involving an inventive step and capable of industrial application. Government undertaking: It means any industrial undertaking carried on (i) by a department of the Government.. 1956.133. any right in respect of the patented invention. Patent Agent: It means a person for the time being registered under this Act as a patent agent. or (ii) by a corporation established by a Central or State Act which is owned or controlled by the Government. Self Assessment Questions 1. 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. to the exclusion of all other persons (including the patentee). Application for a patent made by a foreign national is known as ________________. means that the invention is capable of being made or used in an industry. Capable of industrial application: In relation to an invention. 2. International application: It means an application for patent made in accordance with the Patent Cooperation Treaty. Convention country: The expression convention country is defined in Sec. And “exclusive licensee” shall be construed accordingly. Invention: It means a new product or process involving an inventive step and capable of industrial application. regional or bilateral treaty. or on the licensee and persons authorised by him. the subject matter has not fallen in public domain or that it does not form part of the state of the art.e.25 by the controller to examine the opposition to the patent granted and submit its report to the controller. Inventive step: It means a feature of an invention that involves technical advance as compared to the existing knowledge or having economic significance or both and that makes the invents not obvious to a person skilled in that art. It also includes the any institution which is financed wholly or for the major part by the government. Patent: It means a patent for any invention granted under this Act. It provides that any country. or (iii) by a Government company as defined in Sec. .133. Patent cooperation treaty: It means the patent cooperation treaty done at Washington on 19 June 1970 as amended and modified from time to time. respectively.Controller: It means the Controller General of Patents. Patented article and Patented process: It mean. Design and Trade Marks. Opposition board: It means an opposition board constituted under Sec. an article or process in respect of which a patent is in force. 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.

curative. _______________ of an abstract theory cannot be called as invention. 14. and is to be filed in the patent office. 3 – 5 deal with this topic.1 Persons entitled to apply for patents (Sec. therapeutic.3.3 Applications for Patents Secs. . who immediately before his death was entitled to make such an application. Self Assessment Questions 3. are not patentable: (a) an invention which is frivolous or which claims anything obvious or contrary to the well established natural laws. 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.14. prophylactic. or (b) any person being the assignee of the person claiming to be the true and first inventor in respect of the right to make such an application. The patent application may be made by any of the above persons either alone or jointly with any other person. surgical.6) A patent application can be made by (a) any person claiming to be the true and first inventor of the invention. 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. (f) the mere arrangement or re-arrangement or duplication of known devices each functioning independently of one another in a known way. An invention which claims something obvious or contrary to the well established natural laws cannot be ________________. Sec.2 Form of application (Sec. (c) the mere discovery of a scientific principle or formulation of an abstract theory. animal or plant life or health or to the environment. if a corresponding application has also been filed before the Controller of India. or (c) the legal representative of any deceased person. 4. (g) a method of agriculture or horticulture. there shall be furnished with the application and within such period as may be prescribed after the filing of the application. (b) an invention. (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. (h) any process for the medicinal. The application is to be made in the prescribed form (available in the patent office).3.e. the proof of the right to make the application.2 Inventions not Patentable Three sections i. (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. machine or apparatus unless such known process results in a new product or employs at least one new reactant. as may be filed designating India. 14..3 lists the following as not being inventions within the meaning of the Act and therefore. Where an application is made by virtue of an assignment of the right to apply for a patent for the invention.7) Every application for a patent shall be for one invention only. Every international application under the patent cooperative treaty for a patent. diagnostic.6 to 11 deal with applications for patents. shall be deemed to be an application under this Act.

Every foreign application shall be accompanied by a statement setting out detailed particulars of such application. and shall. such model or sample shall not be deemed to form part of the specification. It should describe the invention and begin with a title sufficiently indicating the subject matter to which the invention relates. be supplied for the purpose of any specification. Any drawings so supplied shall. 26 and 28 deal with the matters relating to opposition to grant of patents. 14.8) The Act makes special provisions for patent applications. Contents of specification comes under ………………. Self Assessment Questions 5. on the ground of (a) patentability including novelty. available within any local or indigenous community in India. However. a complete specification shall be filed within 12 months from the date of filing of the application.3. if the Controller may require that an application should be further supplemented by a model or sample of anything illustrating the invention. any person interested may give notice of opposition to the controller on the same eleven grounds.4 Representation and Opposition Proceedings Secs. . unless the Controller otherwise directs.4 Provisional and complete specification (Sec. The controller is empowered to order either to maintain or to amend or to revoke the patent on the recommendation of the opposition board. 14. 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. 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. Every application for a patent shall be for one invention only. If the specification or other documents are amended by the order of the controller. inventive step and industrial applicability. Opposition to grant of patent (Sec. If the complete specification is not so filed. the application shall be deemed to be abandoned. source and geographical origin of biological material used in the invention and anticipation of invention by the knowledge. The controller shall consider and dispose of such representation in such manner and within such period as may be prescribed. Further. 14. the patent shall stand amended accordingly. can be made to the controller where an application for a patent has been published but a patent has not been granted.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.3.3 Information and undertaking regarding foreign applications (Sec. and post-grant opposition procedure for revocation of a patent. oral or otherwise.25.10) A description of the invention is called the ‘specification’. in any particular case.3.14. Further. Drawings may.25). (True/False) 6. Pre-grant opposition: A representation. if the Controller so requires. or (b) nondisclosure or wrongful mentioning in the complete specification. 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. 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.5 Contents of specification (Sec. be deemed to form part of the specification. This section provides for pre-grant opposition procedure.

if any. 35 to 42 make certain provisions for secrecy of certain inventions.8 or has furnished the information which in any material particular was false to his knowledge. then he may give directions for prohibiting or restricting the publication of information with respect to the invention or the communication of such information. shall be liable to be revoked.5 Provisions for Secrecy of Certain Inventions Secs. except under the authority of a written permit by the controller. 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. or all such directions have been revoked. If the invention. then the controller shall not grant permit without the prior approval of the central government. and (b) either no direction has been given under Sec. (True/False) 14. not less than six weeks before the application outside India. the application for patent shall be deemed to have been abandoned and the patent granted. (True/False) 14.6 Grant of Patents and Rights Conferred Thereby .35 (regarding secrecy of certain inventions) in relation to the application in India. (f) the invention is not patentable or its patenting is prohibited under the Act. Further. (h) the applicant has failed to disclose to the controller the information required by Sec. 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. is relevant for defence purposes or atomic energy. The controller is empowered to order either to maintain or to amend or to revoke the patent on the recommendation of the opposition board. (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. (d) the invention as claimed in the complete specification was publicly known or publicly used in India before the applicant’s claim. (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. Residents not to apply for patents outside India without prior permission (Sec. 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. Self Assessment Question 8. Further. Secs. if in respect of an application for a patent any person contravenes any direction as to secrecy given by the Controller. Self Assessment Question 7. No person resident in India shall. Where in respect of an application for a patent. (e) the invention as claimed by the applicant in his complete specification is obvious and does not involve any inventive step. however.39). 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.33 to 42 make certain provisions for secrecy of certain inventions.(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.

Subject to the provision of this act. on the grant of the patent. the exclusive right to prevent third parties.43).53). 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). selling or importing for those purposes the product obtained directly by that process in India.54 to 56 deal with patents of addition. the term of every patent granted after the commencement of the patents (amendment) Act. ______________ deal with the grant of patents and the rights conferred on the patentee. and from the act of using. The Controller may grant the patent for the improvement or modification as a “patient of addition” the term . Every patent shall be dated as of the date on which the application for patent was filed. Amendment of patent granted to deceased applicant (Sec. The patent shall be granted as expeditiously as possible to the applicant. specification and other documents related thereto shall be open for public inspection. Section 48 provides that the following rights are conferred on a patentee: (a) where the matter of the patent is a product. Self Assessment Question 9. 2002.44). offering for sale.45). Date of Patent (Sec. or (b) the application has not been found to be in contravention of any of the provisions of the Act. shall be 20 years from the date of filling of the application for the patent. Further a patent shall be granted for one invention only.Secs. (b) where the subject matter of the patent is a process. any patented process or product may be used for the purpose of experiment or research or imparting of instructions to pupils. Similarly. Where. offering for sale. extent and effect of patent (Sec. the exclusive right to prevent third parties. Term of Patent (Sec. Rights of patentee. who do not have his consent. Grant of patents (Sec. who do not have his consent. at any time after a patent has been sealed the patentee dies. using. Every patent shall be in the prescribed form and shall have effect throughout India.48 are subject to certain conditions. Grant of patents to be subject to certain conditions (Sec. Further. 14. from the act of using that process.46).47). the controller shall publish the fact that the patent has been granted and thereupon the application. The rights granted to a patentee under SEC. and the term of every patent which has not expired and has not ceased to have effect. (or in the case of a body corporate. selling or importing for these purposes that product in India. on the date of such commencement. Form. The government may manufacture or import the patented invention for the purpose of its own use. The date of every patent shall be entered in the Register maintained in the Patient office. from the act of making.43 to 53 deal with the grant of patents and the rights conferred on the patentee.7 Patents of Addition Secs. 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.

Rights of Patentees of lapsed patents which have been restored (Sec. (True/False) . Rights of Patentees of lapsed patents which have been restored under _________________ 14. the rights of the patentee shall be subject to such provisions as may be prescribed.60). 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. An application may be for a patent in respect of any improvement in or modification of a patented invention. whether in such a licence or otherwise or by reason of his having accepted such a licence. When a patent is restored. 2. Self Assessment Question 11. 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. No renewal fee is payable for the patent of addition so long as the main patent remains in force.62). then an application may be made to the Controller within 18 months for the restoration of the patent. 4.61).of the patent of addition shall run concurrently and terminate with the main patent. Procedure for disposal of applications for restoration of lapsed patents (Sec. Self Assessment Question 10. Any person interested may oppose the restoration. Self Assessment Question 12. Application for restoration of lapsed patents (Sec. If the Controller is satisfied that the failure to pay the renewal fee was unintentional he shall advertise the application. may grant a licence upon such terms as he may deem fit. The Controller shall give to both the applicant and the opponent an opportunity of being heard before he decides the application. 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.84 provides as follows: 1. 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. Where a patent has ceased to have effect by reason of failure to pay any renewal fee within the prescribed time.60 – 62 make provision as regards restoration of patents which have been lapsed. (True/False) 14.9 Compulsory Licenses Sec. The controller. or (ii) the patented invention is not available to the public at a reasonably affordable price. 3. or (iii) the patented invention is not worked in the territory of India. 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.8 Restoration of Lapsed Patents Secs. 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. At any time after the expiration of 3 years from the date of the sealing of a patent.

Foreign exporter must be duly authorized under the law of export. this provicsion is made from the user’s point of view. Section 104 provides for the jurisdiction of a court for suits to be instituted for infringement of a patent. if any as the court thinks fit) and damages or an account of profit. provided for the modalities for a 10-year transition facility (which India had negotiated at the time of its accession to the WTO). Certain acts not to be considered as infringement (Sec.104 to 115 14. The amendments primarily focused on the obligations which came into force from 1st January 1995 (in respect of amendments made in 1999) and obligations which came into force from 1st January. Such type of imports are known as ‘parallel imports’ and is a powerful tool that helps in price control. As a consequence. . 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. ___________ deals with the subject of suits concerning infringement of patents. (True/False) 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. The Patents (Amendment) Act 1999 had.104 to 117 (c) Secs. 2000 (in respect of amendments notified in 2002).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). even though it is patented here. 1995. Self Assessment Questions 13. 2004 on December 26. including an injunction (subject to such terms. commencing from January 1. and therefore the act of such import will not be considered to be an infringement of the patent. However. Section 105 provides that a person may obtain a declaration from the court to the effect that the use by him of any process or the making.14. In other words. 2004. Consequently. 2005.104 to 115 deal with the subject of suits concerning infringement of patents.107A). This section allows import of patented commodity from anywhere in the world where it is cheaper.104 to 116 (b) Secs. (a) Secs. due from January 1.104 to 118 (d) Secs. 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. Section 106 empowers the court to grant relief in cases of groundless threats of infringement. Invention: It means a new product or process involving an inventive step and capable of industrial application. Glossary Patents: A patent for any invention granted under the patent act. the law was required to be amended further in respect of India’s obligations under the TRIPs Agreement.10 Suits Concerning Infringements of Patents Secs. inter alia. 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).

3. Section 10 7. True 13. True 8. Invention 3. True 11. Formulation 5. 14. Mention the inventions which are not patentable under the Act. Describe the procedure for obtaining a patent. False 9. Write short notes on: (a) Revocation of patents (b) Register of patents (c) Relief for infringement 14. True 6.13 Answers Answers to Self Assessment Questions 1. patented 4. What do you mean by Patent? 2. Sec.Patentee: It means the person for the time being entered on the register as the grantee or proprietor of the patent.12 Terminal Questions 1. Describe the provisions as regards examination of application for the grant of a patent. Secs.62 12. 4. True . Convention application 2. 5.43 to 53 10.

43 to 53 deal with the grant of patents and the rights conferred on the patentee.2 – for more detail 4. its Ownership and Term Works in which copyright subsists (Sec. parkinson. Mr Venkat Jasti.EP1537113. useful in the treatment of neurodegenerative disorders like alzheimer’s. Suven has a total of seven granted EPO patents on new chemical entities. The granted claims of the patents include therapeutic agents. For detail please refer full unit. 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. "The company gets three patents . 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. Refer 14." Suven said in a filing to the Bombay Stock Exchange. Refer 14. it added. and 2024. 5. Question What is the importance of these patents to Suven? (Hint: Its no one involved in the same patent.13) Meaning of copyright (Sec." the company CEO. 3.1 – Patent means a patent for any invention granted under the patent Act.2 Copyright. said.1 Introduction Objectives 15. and schizophrenia.) MB0051-Unit-15-The Copyright Act Unit-15-The Copyright Act Structure 15. the filing added.6 – Secs.6 to 11 deal with applications for patents. With these new patents. Refer 14. (d) Answers to Terminal Questions 1. 2022. These patents are exclusive intellectual property of Suven and are achieved through internal discovery research efforts.14.14) . EP1704154 and EP1856132 and the said are valid until 2023. respectively. Refer 14.3 – Secs.

The Act has been amended in 1983. 1957.11 Answers 15.4 Copyright Societies Registration of a copyright society (Sec. Objectives After studying this unit you should be able to: · Define copyright · Describe copyright societies .10 Terminal Questions 15.5 Rights of Broadcasting Organisation and of Performers Broadcasting reproduction rights (Sec. you came to know about the patent act.37) Performer’s right (Sec. in this unit you learn about the concept of copyright act.31A) Licence to produce and publish translation (Sec.6 International Copyright 15. It extends to the whole of India and came into force on January 21.7 Infringement of Copyright 15. 1992 and 1994 primarily to bring the Indian law in conformity with the international conventions in general and Bern Convention and the Universal Copyright Convention in particular. 1958.1 Introduction In the earlier units. The law relating to copyright is contained in the Copyright Act.33) 15.9 Summary 15.3 Licences Licence by owners of copyright Compulsory licence in works withheld from public Compulsory licence in unpublished Indian works (Sec.38) 15.32) 15.8 Civil Remedies for Infringement 15.17) Term of copyright 15. 1984.Ownership of copyright (Sec.

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

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

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

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

This right will subsist for 25 years from the year of broadcasts.Administration of rights of owner by copyright society (Sec. or (d) make any reproduction of such initial recording or visual recording where such initial recording was done without licence or. During this period.2 Performer’s right (Sec. (True / False) 15. if anybody does the following acts without licence from the owner of the right. Payment of remuneration by copyrights society (Sec. he will be deemed to have infringed the performer’s right: (a) makes a sound recording or visual recording of the performance.35). or (e) sell or hire to the public.4A). 15. A copyright society may accept from an owner of rights exclusive authorisation to administer any right in any work. does any of the following acts in respect of the performance or any substantial part thereof.5. any such sound recording or visual recording referred to in (c) or (d) above. or (b) reproduces a sound recording or visual recording of the performance which was made without the performer’s consent.34). Self Assessment Question 6. .5 Rights of Broadcasting Organisation and of Performers 15. full and detailed information concerning all its activities in relation to the administrator of their rights. Payment of remuneration by copyrights society come under _________. and (c) provide to such owners regular. Every copyright society shall be subject to the collective control of the owners of rights under this Act whose rights it administers. The Central Government shall not ordinarily register more than one copyright society to do business in respect of the same class of works. without the consent of the performer. or offer for such sale or hire. The society shall (a) obtain the approval of such owners of rights for its procedures of collection and distribution of fees.5. 5. where it was licensed for any purpose not envisaged by such licence. Control over the copyright society by the owner of rights (Sec.1 Broadcasting reproduction rights (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. or (c) make any sound recording or visual recording of the broadcast. (b) obtain their approval for the utilisation of any amounts collected as fees for any purpose other than distribution to the owner of rights. Self assessment questions 4. or (b) cause the broadcast to be heard or seen by the public on payment of any charges. he will be deemed to have infringed the broadcast reproduction rights: (a) re-broadcast the broadcast.38) If any person during the subsistence of a performer’s right. Every broadcasting organisation shall have a special right known as _____________ in respect of its broadcasts.37) Every broadcasting organisation shall have a special right known as “Broadcasting Reproduction Right” in respect of its broadcasts. But he shall have the right to withdraw such authorisation without prejudice to the rights of the copyright society under the contract.

either for the purpose of trade or to such an extent as to affect prejudicially the owner of the work.7 Infringement of Copyright Sec. or (ii) distributes. 8. dramatic. for the purposes of (i) private use.6 International Copyright Sec. Accordingly. magazine or similar periodical.41 provides that works made or published by certain International Organisations are granted copyright protection in India. These are: (a) A fair dealing with a literary. musical or artistic work for the purpose of reporting current events – (i) in a newspaper. (iii) exhibits in public by way of trade any infringing copies of the work. ___________ authorises the Central Government to extend copyright protection to foreign works. Accordingly the Central Government made the International copyright order. dramatic. . dramatic. dramatic. not being a computer program. 15. whether of that work or of any other work. the Central Government passed the copyright (International Organisations) Order (1958) under which copyright protection was granted to certain International Organisations. from such copy (i) in order to utilise the computer programme for the purpose for which it was supplied.15. 1991. musical or artistic work in any work prepared by the Secretariat of a Legislature exclusively for the use of its members. (Sec. or (ii) to make back-up copies purely as a temporary protection against loss. or permits for profit.52). Self Assessment Questions 7.40 authorises the Central Government to extend copyright protection to foreign works. (c) A fair dealing with a literary. (b) The making of copies or adaptation of a computer programme by the lawful possessor of a copy of such computer programme. dramatic. (ii) criticism or review. Sec. (e) The reproduction or publication of literary. ________________ provides that works made or published by certain International Organisations are granted copyright protection in India.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 a judicial proceeding or for the purpose of a report of a judicial proceeding. or (iv) imports into India any infringing copies of the work except the copy of any work for the private and domestic use of the importer. the exclusive right to do which is by this Act conferred upon the owner of copyright. The reproduction of a literary. (d) The reproduction of a literary. or (b) when any person: (i) makes for sale or hire or sells or lets for hire or by way of trade displays or offers for sale or hire any infringing copies of the work covered by copyright. musical or artistic work. any place to be used for the communication of the work to the public. unless he was not aware and had no reasonable ground for believing that such communication would be an infringement of copyright. musical or artistic work in the form of a cinematograph film shall be deemed to be infringing copyright. Certain acts not to be infringement of copyright. destruction or damage in order only to utilise the computer programme for the purpose for which it was supplied. including research. 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) 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. dramatic or musical work by the staff and students of the institution. dramatic or musical work. (p) The making of not more than three copies of a book (including a pamphlet. or (ii) as part of the questions to be answered in an examination. therein. (iii) the report of any committee. dramatic or musical work by an amateur club or society. (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. magazine or other periodical of a report of a lecture delivered in public. (q) The reproduction for the purpose of research or private study or with a view to publication. political. (l) The causing of a recording to be heard in public by utilising it. (r) The reproduction or publication of (i) any matter which has been published in any Official Gazette except an Act of a Legislature. dramatic or musical work in a certified copy made or supplied in accordance with any law for the time being in force. (o) The publication in a newspaper. board or other like body appointed by the Government if such report has been laid on the Table of Legislature. (g) The reading or recitation in public of any reasonable extract from a published literary or dramatic work. (iv) any judgment or order of a court. unless the reproduction or publication of such report is prohibited by the Government. (n) The reproduction in a newspaper. tribunal or other judicial authority. sheet of music. (ii) the person making the sound recordings has given a notice of his intention to make the sound recordings. (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. or (iii) in answer to such questions. council. (i) The reproduction of a literary. social or religious topics. (h) The publication in a collection. museum or other institution to which the public access. as the case may be.(f) The reproduction of any literary. the tribunal or other judicial authority. commission. magazine or other periodical of an article on current economic. or of a cinematograph film or a sound recording. if the performance is given to a non-paying audience or for the benefit of a religious institution. (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. royalties in respect of all such sound recordings to be made by him. of short passages from published literary or dramatic works. at the rate fixed by the Copyright Board in this behalf. if the audience is limited to such staff and students. unless the author of such article has expressly reserved to himself the right of such reproduction. unless the reproduction or publication of such judgment or order is prohibited by the court. (j) The performance. 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. of an unpublished literary. musical or artistic work (i) by a teacher or a pupil in the course of instruction. dramatic or musical work kept in a library. 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. in the course of the activities of educational institution of a literary. has provided copies of all covers or labels with which the sound recordings are to be sold. 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. 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. map. and has paid in the prescribed manner to owner of rights in the work. or (ii) as part of the activities of a club or similar organisation which is not established or conducted for profit. . (m) The performance of a literary. (k) The making of sound recordings in respect of any literary.

model or study made by him for the purpose of the work. (c) the year of its publication. 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. 15. (x) The reconstruction of a building or structure in accordance with the architectural drawings or plans by reference to which the building or structure was originally constructed. (z) The making of an ephemeral recording. (y) In relation to literary. or (ii) any other artistic work. dramatic. musical or artistic work in the form of a cinematograph film shall be deemed to be _______________. However. then the plaintiff shall only be entitled to an injunction and account of profit made by the defendant by the sale of the infringing copies as the court may in the circumstances deem reasonable.2(e) (iii). a copy of the certificate granted by the Board of Film Certification. if such inclusion is only by way of background or is otherwise incidental to the principal matters represented in the film. Reproduction of a literary.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. (a) the name and address of the person who has made the sound recording. 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. plan. 1952. cast. if such work is permanently situated in a public place or any premises to which the public has access.8 Civil Remedies for Infringement Sec. 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. drawing. In the case of a video film in respect of any work. the following particulars are to be displayed in the video film. 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. and (c) the name and address of the owner of the copyright in such work. the exhibition of such film after the expiration of the term of copyright therein. engraving or photograph of a sculpture. or other artistic work falling under Sec. (u) The making or publishing of a painting. The plaintiff shall not be entitled to any damages. accounts and otherwise as are conferred by law for the infringement of a right. and the retention of such recording for archival purposes on the ground of its exceptional documentary character. engraving or photograph of a work of architecture or photograph of a work of architecture or the display of a work of architecture.52A requires certain particulars to be included in sound recording and video films. of any mould. drawing. damages. Self Assessment Questions 9. . dramatic or musical work recorded or reproduced in any cinematograph film. (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. Also. (b) the name and address of the owner of the copyright in such 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. when exhibited.(t) The making or publishing of a painting. (za) The performance of a literary. 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. (w) The use by the author of an artistic work where the author of such work in not the owner of the copyright therein. sketch.

publishers and owners of copyright and certain other prescribed particulars are entered in the Register. 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. . 1958. An application can be made for a licence to translate foreign literary or dramatic work after 5 yrs from its publication. Sec. International Copyright: Sec. with the Copyright Board.44 provides for a Register of copyright to be kept in the copyright office. 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. after which time the work is said to enter the public domain.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. Sec. The names or titles of the works.Sec. by virtue of. Describe the civil remedies available for infringement of copyright.10 Terminal Questions 1. Glossary Copyright: The term ‘copyright’ means the exclusive right. within 3 months from the date of such decision or order. Copyright has been internationally standardized. 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. the exclusive right to do which is by this Act conferred upon the owner of copyright. What are the provisions as regards issue of compulsory licences of copyrights? 3. Copyright applies to any expressible form of an idea or information that is substantive and discrete. Self Assessment Questions 10. It extends to the whole of India and came into force on January 21. 15. Some jurisdictions also recognize "moral rights" of the creator of a work. It is enforceable as a civil matter. appeal to the High Court. (True / False) 11. distribution and adaptation.40 authorises the Central Government to extend copyright protection to foreign works. Infringement of copyright: when any person without a licence from the owner or the Registrar of copyrights does anything.44 to 50 deal with the registration of copyright. or a finite period for anonymous or corporate authorship. such as the right to be credited for the work. (True / False) 15. The Act has been amended in 1983. including its publication. 55. 1984. any person aggrieved by any final decision or order of the Copyright Board.71 provides that if any person is aggrieved by an order made by the court under s. the names and addresses of authors. Further. The reproduction of the artistic work in form of a movie is the infringement of the copyright. What is the importance and meaning of copyright? 2. 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. 1957.9 Summary The law relating to copyright is contained in the Copyright Act. lasting between fifty to a hundred years from the author’s death. may. Secs.

) 3.3 – (Sec. Refer 15.4.40 8.7 2. Sec. and subject to the provision of the Act) 2. Infringing copyright 10. Refer 15. accounts and otherwise as are conferred by law for the infringement of a right. Refer 15.7 – (Sec. 1957: (a) Artistic work (b) Cinematograph film (c) Copyright society (d) Dramatic arts 15. False 11.11 Answers Answers to Self Assessment Questions 1.51 provides that copyright in a work shall be deemed to be infringed) 5. True 4. Define the following terms as used in the Copyright Act.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. Sec.) 4. True 3. Refer 15.2 – (The term ‘copyright’ means the exclusive right. True 6. What are the acts which are not infringement of copyrights? 5. Sec. damages.8 – (Sec.34A 5. True Answers to Terminal Questions 1. Broadcasting reproduction right 7. Refer full Unit .41 9. by virtue of. 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 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.both on the part of the Malayalam film industry and the LDF Government. While no one can deny the need to protect intellectual property and ensure fair returns to its legitimate creators. including superstars such as Mammootty and Mohanlal. representing producers. And so. if the charges of its representatives are to be believed. 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. directors." in which he mentions that sections of this work "have of late been mercilessly pirated. Today. 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. "Piracy" here refers to unauthorised reproduction and distribution of films. marched to the State Secretariat to express gratitude and appreciation for the Left Democratic Front Government’s crackdown on piracy. it shouldn’t be surprising that the Malayalam film industry stalwarts were shouting themselves hoarse. Yet. ‘Copyleft’ Concept In the arena of artistic creation.000 video libraries have had to shut down.which can be used.the LDF ought to be exploring creative alternatives to the problem of film piracy. scriptwriters and artists could honestly put their hands to their chests and swear that they had not stolen themes. especially in socially responsible business activities. the whole furore over the video/film piracy issue smacks of certain hypocrisy . The term itself is not new. anyone could equally be forgiven for wondering how many of the stars at the rally." ‘Huge Loss’ Such a lack of mercy is apparently dogging the Malayalam film industry. stories and ideas from Hollywood and Bollywood.000 members of the Malayalam film industry.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. Lessons for Kerala Perhaps there are some pointers for Kerala in this experience. the Rs 100-crore turnover industry loses Rs 40 to 50 crore annually to piracy. when the LDF Government gave the go-ahead to the State police to check piracy. one widely used solution is the `Creative Commons’ licence. but last week saw one with a far more glamorous sheen. Since December 2006. modified and redistributed usually free of charge . copied. Question of Ethics Honesty and integrity are values that are universally upheld. Questions . This point has not been made to sound facetious. scripts. nearly 30. A knee-jerk crackdown on video libraries at the instigation of powerful industry interests may not be the best long-term solution. these are mundane creations of assorted political parties. as well as members of various film industry associations. Even as conception of ideas as inviolable property is widely recognised. distributors and technicians. For a government that has recently sworn by Free and Open Source Software . industry sources claim. Normally. studied. the producers. Over 2. denouncing the venal pirates.

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

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