You are on page 1of 149

1

CC-302 LEGAL ASPECTS OF BUSINESS INDEX NO. 1 2 3 CONTENTS INDIAN CONTRACT ACT,1872 SPECIAL CONTRACTS INDIAN COMPANIES ACT, 1956 NEGOTIABLE INSTURMENT ACT, 1881 5 6 7 8 9 10 11 12 SALE OF GOODS ACT,1930 CONSUMER PROTECTION ACT,1986 INFORMATION TEC!NOLOG" ACT, 2000 T!E PATENTS ACT,1970 T!E TRADE MAR#S ACT T!E COP"RIG!TS ACT,1957 EN$IRONMENT PROTECTION ACT PRACTICAL PROBLEMS AND SOLUTIONS PAGE NO 1-27 28-53 5 -80 81-89 90-96 97-106 107-11 115-119 120-126 127-133 13 -139 1 0-1 6

INDIAN CONTRACT ACT, 1872


Q1. Define Contract. Explain the essential elements of a valid contract? A1. Contract in simple language is called an Agreement. Sec: 2(h). An agreement enforceable by Law is a contract. According to Salmond: - An agreement creating legal obligations between the parties is called contract. Thus we can say that C !"#AC" $ A%#EE&E!"' (E%A( )(*%A"* ! A%#EE&E!":+ Sec 2(c) !ery promise and e!ery set of promises" forming the consideration for each other" is an agreement. Agreement is an accepted offer when accepted becomes an Agreement. Therefore A%#EE&E!"$ ,,E# ' ACCE-"A!CE . C !"#AC" $ ,,E# ' ACCE-"A!CE ' (E%A(

)(*%A"* !

o Thus !ery Contracts are agreements but all agreements are not contracts. #n order to
ma$e a !alid Contract" the parties must ha!e intention to create legal relationship. There must be legal enforceability of an Agreement then only it can became a !alid Contract.

o %hen the parties ha!e no intentions to create legal relations" the Agreement is mere a
social agreement or domestic Agreement or a friendly Agreement. &or e.g. ' in!ites ( to a Tea party. ( accepts the ) and reaches to the place. ' is not found there" now ( cannot sue against ' because the parties do not ha!e any intention to create legal relationship. *ere Agreement was mere &riendly Agreement. +oreo!er" According to Section ,-./ A contract which ceases to be enforceable by law becomes !oid when it ceases to be enforceable. /o0 Contract is made -ossi1le? ,,E# 2 -# - SA( %hen one party as$s to do something he is said to ha!e made an offer. According to Section ,-a/ %hen one person signifies to another his willingness to do or to abstain from doing anything" with a !iew to obtaining the assent of that other to such act or abstinence" he is said to ma$e a proposal. ACCE-"A!CE According to Section ,-b/ %hen one person to whom the proposal is made" signifies his accent there to the proposal is said to be accepted. A proposal when accepted becomes a promise. ,,E# . ACCE-"A!CE may be #. by oral ##. by written ###. by conduct

3 ESSE!"*A( E(E&E!"S 0/ , A 3A(*D C !"#AC" ,,E# . ACCE-"A!CE: + 42(a)5 2(1)6 There must be minimum two parties entering into a Contract. )ne party is offeror and other is Acceptor. )ffer when accepted becomes an Agreement. Such an )ffer and Acceptance must be !alid and not illegal. The terms of )ffer must be definite 1 certain. )ffer may be conditional. )ffer may be specific or general. )ffer 1 Acceptance may be --- )ral" %ritten or by conduct &or e.g.: - A as$s to 2 %ell you sell me your Scooter at 3s.,4"4445. 2 said (es. This is an )ral offer 1 Acceptance. #t is a !alid Contract. (E%A( E!, #CEA)*(*"7: + An Agreement nforceable by Law is Contract. Section 6,-h/7.The agreement becomes a contract only if it is legally enforceable. According to Section ,-./.A Contract which ceases to be enforceable by law" becomes !oid when it ceases to be enforceable. Also an agreement ha!ing no intention to create legal rights 1 obligations are mere Social Agreements or 8omestic Agreements or &riendly Agreements. &or e.g.: - An in!itation to a &riend for a cup of tea is not a C. #t is mere friendly Agreement. ,or e.8.: + *n )alfo9r 32s )alfo9r: A husband promised his wife to pay his wife a household allowance of 9 :4 e!ery month. Later" the husband failed to pay the amount. The wife sued for Allowance. *eld" Ag. %as not ha!ing any intention to create legal relations" it was mere 8omestic Agreement. (A:,;( C !S*DE#A"* !: + The Agreement to be enforceable by Law" must be supported by consideration. Consideration means something in return of something -;uid <ro ;uo./ The Agreement is legally enforceable only when both the parties get something in return. A promise to do something" getting nothing in return" is usually not enforceable by Law. Consideration must be Lawful. #t may be past" present or future. CA-AC*"7 , -A#"*ES: + 4S:116 The parties must be competent to enter into a Contract. According to Section 00 !ery person is competent to Contract who is of the age of ma.ority according to the law to which he is sub.ect" and who is of sound mind" and is not dis>ualified from contracting by any law to which he is sub.ect. Therefore" the following persons cannot enter into a Contract: +inors ?nsound mind 8is>ualified by law. ,#EE C !SE!": + 6S:0: to 0AB ,4 to ,,7

,/

:/

=/

@/

a. b. c. d. e. C/ D/ A/

4 #t is essential that the consent obtained must be free. According to Section 0: " Two or more persons are said to consent when they agree upon the same thing in the same sense. According to Section 0= : Consent is said to be &ree when it is not caused by --Coercion" as defined in section: 0@" or ?ndue influence" as defined in S:0C" or &raud" as defined in S:0D" or +isrepresentation" as defined in S:0A" or +ista$e" sub.ect to the pro!isions of Sec: ,4",0 and ,,. Consent obtained without &ree Consent is not enforceable. (A:,;( )<EC" 6Section ,:7 The ob.ect of Agreement must be Lawful. #t must not be ---#llegal " #mmoral" and opposed to public policy. !ery Agreement of which the ob.ect is unlawful is !oid. CE#"A*!"7 , "E#&S: + The Agreement must be definite and certain. #t should not be !ague. 6Sec: ,E7. &or e.g.: -A agrees to sell 2 044 tons of )il" There is nothing whate!er to show $ind of oil was eFtended. The Agreement is !oid. Agreement" the meaning of which is not certain" or capable of being made certain" is !oid. C !SE!S;S AD *DE&: + The parties entering into Contract must ha!e consensus ad idem. #t means they must thin$ same thing in same sense. &or e.g.: - A offer 2 to sell his car at 3s.A4"444 accepts the offer thin$ing it to be +aruti instead of &iat. *ere there is no Consensus ad idem. - SS*)*(*"7 , -E#, #&A!CE: + 4S:=>6 The Agreement must be capable of being performed. An Agreement. to do an impossible act is !oid. 6Sec:@C7 &or e.g.: - A agrees with 2 to put life into 2Gs dead wife" the agreement. is !oid as it is impossible to perform. S/ ;(D ! " )E 3 *D : + 4S: 2> to ?@6 The Agreement. must not be eFpressed declared be !oid. &ollowing are some Ag. which are eFpressly declared to be !oid: Agreement in restraint of marriage 6S:,C7 Agreement in restraint of legal of Trade 6S:,D7 Agreement in restraint of legal of <roceedings 6S:,A7 Agreement ha!ing uncertain meaning 6S:,E7 %agering Agreements 6S::47

E/

04/ A. 2. C. 8. . 00/

(E%A( , #&A(*"*ES: + The Agreement must be oral or written. 2ut there are certain agreements which re>uire written documents.

5 Q2. :hat do Ao9 mean 1A offer? Explain the essentials of valid offer? A2. &eanin8: At the formation of e!ery agreement there must be definite offer by one person to another and its un>ualified acceptance by the person to whom the offer is made. An offer is a proposal by one party to another party to enter into a legally binding agreement with him. Definition: Accordin8 to BSection 2(a)C A person is said to have made a proposal5 0hen he Hsignifies to another his 0illin8ness to do or a1stain from doin8 anAthin85 0ith a vie0 to o1tainin8 assent of that other to s9ch an act or a1stinenceD. Example: IAI says to J2I" H%ill you purchase my car for 3s @4"444K-. IAI" in this case" is ma$ing an offer to J2I as he signifies to I2I his willingness to sell his car to J2I for 3s @4"444K-" with a !iew to obtaining 2Is assent to purchase the car. The person ma$ing the offer is $nown as the offeror" and the person to whom the offer is made is called the offeree or proposee. %hen the offeree accepts the offer" he is called the acceptor or promisee. BSection2(c)C E Essentials of a valid offer: A !alid offer must comply with following rules. 0. ffer m9st 1e capa1le of creatin8 le8al relationship: An offer must be of such a nature as would result in a !alid contract when accepted by the party to whom it is made. A social in!itation" e!en if it is accepted" does not create a legal relationship because it is not so intended. #n other words in!itation to a friend for a cup of tea is a mere social in!itation and as such an in!itation" e!en if accepted" does not create legal relations. ,. "he terms of offer m9st 1e definite and certain: The terms of offer must be definite" unambiguous and certain and not loose and !ague. #f the terms of an offer are !ague its acceptance cannot create contractual relationship. :. "he offer m9st 1e comm9nicated: An offer to be complete must be communicated to the person to whom the offer is made. ?nless an offer is communicated" there can be no acceptance of the offer. An acceptance of the offer in the ignorance of the offer is no acceptance and does not confer any right upon the acceptor. Case (a0: (alman 3. %a9ri D9tt ,acts: L sent his ser!ant L in search of his missing nephew. L then announced a reward for information concerning the boy. L traced the boy in the ignorance of any such announcement. Subse>uently" when he came to $now of this reward" he claimed it. Decision: #t was held that he was not entitled to the reward" as an acceptance of the offer in the ignorance of the offer is no acceptance. "he offer maA 1e conditional: A proposer is at liberty to ma$e an offer sub.ect to certain conditions. #f the conditions are properly communicated so that the offeree should ha!e $nown them" he cannot plead the ignorance of the conditions and such conditions will be binding to the offeree. "he offer maA 1e 8eneral or specific: %hen the offer is made to a definite person or any class of the persons it is called specific offer. #t can be accepted by the person to whom it is made. )n the other hand when the offer is made to general public at large it is

=.

@.

6 called general offer. #t can be accepted by any person. #f the certain person accepts it than it results in to a !alid contract. C. "he offer m9st 1e made 0ith a vie0 to o1tainin8 assent: An offer must be addressed to another person with a !iew to obtaining his assent thereto and thereby creating legal relationship between them. %hen it is made merely with a !iew to disclosing the intention of ma$ing an offer" or is made for soliciting information" it is not an offer. ffer m9st thr9st the 19rden of acceptance: )ffer should not contain a term" Hnoncompliance of which" may be assumed to amount to acceptanceH. Thus" a man cannot say that if he fails to hear from the other party within a wee$" he shall consider the offer as being accepted. Statement of -rice is not an offer: Tender or a price list is not an offer. #t is only a mere in!itation to an offer. A9ction is not an offer: The person shows intention to certain goods. )ne who bids price is said to ha!e made the offer. %hether to accept such amount is the discretion of the person who puts the articles for auction.

D.

A. E.

Q?. Define the term acceptance? Disc9ss the essentials of valid acceptance? A?. &eanin8: An agreement emerges from the acceptance of the offer. )ffer creates no legal rights until acceptance. Acceptance is an eFpression by the offeree of his willingness to be bound by the terms of the offer. Definition: According to Section 2(1) of the #ndian Contract Act" 0AD,. HThe proposal is said to be accepted when the person to whom the proposal is made signifies his assent thereto. A proposal when accepted becomes a promise.H Acceptance can be gi!en by eFpress words spo$en" in writing and by conduct. M Essentials of 3alid Acceptance. 0. Acceptance m9st 1e a1sol9te and 9nF9alified: An acceptance must be absolute and un>ualified of all the terms of the offer. A conditional acceptance is no acceptance. &or e.g. ' ma$es the proposal to gi!e a pen for 3s.@4. ( agrees to purchase on a condition to gi!e money after two months. This is the case of conditional acceptance and as stated abo!e conditional acceptance is no acceptance. *t m9st 1e expressed in some 9s9al manner: #f the offeror prescribes the mode of acceptance the acceptance must be gi!en accordingly" e.g. if the offeror says" H%ire 3eplyH and the reply is sent by post" there is no acceptance of the offer. Thus acceptance must be according to the mode prescribed by the offeror. *t m9st 1e 1A the partA named in the offer: An offer made to a particular person is to be accepted by him alone" because he is the only party intended to accept. *owe!er" if it is made generally" any member of the public may accept it. Fample: % offers by ad!ertisement a reward of @ pounds to anyone who will bring his lost dog. Any member of the public can accept this offer.

,.

:.

=.

7 An acceptance m9st 1e comm9nicated to the offeror: The acceptance must be communicated to the offeror. The acceptor should signify his intention to accept the proposal. +ere mental acceptance is no acceptance. #t must be e!idenced by words or by conduct. &or e.g. T ma$es proposal to S to purchase the house. S says to his relati!es that sale of house is made. TIs proposal is not said to ha!e been accepted. As S informed his relati!es about the sale of the house and not the offeror T about it. 2esides this" acceptance can be communicated by post also. Communication of acceptance by post is considered to be complete as against the proposer as soon as the letter of acceptance is posted. Acceptance can 1e made 1A acceptin8 consideration: An offeree recei!es consideration shown in the proposal. #t is acceptance of the proposal. .g.: < informs ; that his house rent is 3s. D44K- instead of 3s. @44K- ; pays rs.D44K- here" ; accepted the proposal of <. Acceptance m9st 1e 0ithin a reasona1le time: The acceptance must be made while the offer is still in force i.e. before the offer lapses. #f any time limit is prescribed in the offer" it should be accepted within the prescribed time limit. *owe!er" if no time limit is prescribed" it must be accepted within the Hreasonable timeH. %hat is a Hreasonable timeH" depends upon the circumstances of each case. Acceptance cannot 1e in i8norance of an offer: Acceptance cannot precede the offer nor acceptance in total ignorance of an offer result in a contract. Silence 0ill not amo9nt to acceptance: )ffer made to another will not ripen into agreement merely because offeree sends no reply. Fample: A offers his watch for sale to 2 at 3s.@44. A says" H#f # do not hear anything from you" it will be deemed that you accepted my proposalH. 2 does not reply within the stipulated period. #n this circumstance it cannot be said that 2 accepted the proposal.

@.

C.

D. A.

QG. Disc9ss the position of minor 9nder the *ndian Contract Act. AG. Accordin8 to Section: 1@" an Agreement becomes a Contract if it is entered into between the parties competent to contract. oCapacity refers to competency to contract. oCapacity means physical 1 mental capacity. Sec: 11 !ery person is competent to contract who is of the age of ma.ority according to the law to which he is sub.ect and who is of sound mind" and is not dis>ualified from contracting by any law to which he is sub.ect. *ence following are not competent to enter into a contract : +#N)3S ?NS)?N8 +#N8 8#S;?AL#&# 8 2( LA%. &*! #S According to #ndian +a.ority Act: 0AD@" Sec: ?

8 !ery person domiciled an #ndia is deemed to ha!e attained his ma.ority when he has completed his age of 0A years and not before. #9les H (a0s for &inorIs A8reement:+ 1) &inorIs A8 is Void ab intio oToday an agreement with or by a minor is !oid and inoperati!e abintio. &ormerly it was not so. o<ri!y Council held in case of +ohri OKs 8harmadas Lhose P 0E4: that minorGs contract is !oid ab initio. o#n this case" a minor mortgaged his house in fa!our of money-lender to secure a loan of 3s. ,4"444 out of which" the money-lender paid to minor a sum of 3s. A"444. Subse>uently" the +inor sued for setting aside the mortgage" stating that she was under-aged when he made a mortgage. o*eld" the mortgage was cancelled and the Contract was !oid. 2) A &inor can 1e a promise or a 1eneficiarA oThere is nothing which depri!es a minor from becoming a beneficiary. oThus an Agreement under which a +inor in whose fa!our a mortgage has been eFecuted can be enforced by law. oSimilarly" a promissory note eFecuted in fa!our of a minor can be enforced. o*e can draw" negotiate or endorse a negotiable instrument. ?) !o #atification (approval) oA minor on attaining ma.ority cannot ratify an Agreement entered into while he was a minor oSince minorGs Agreement is !oid ab initio" it cannot be !alidated by any subse>uent action. o&or eg :- A <romissory note was gi!en by a person attaining ma.ority as renewal of another promissory note gi!en by him during his minority in consideration -return of / of money them borrowed. *eld" as the consideration for the promissory note is only the note eFecuted during minority" the fresh promissory not was unenforceable. G) Claim for !ecessaries oA +inor is liable to pay out of his property for Necessaries supplied to him or to any one whom the +inor is bound to support. 6S:CA7 oThe claim arises not from Contract but form ;uasi-Contract 6#mplied Contract7 o*owe!er" only the property of the +inor is liable. +inor personally is not liable. oThe term Necessaries is not defined in #ndian Contract Act. oThe nglish sale of goods Act states in Sec : , Loods suitable to the condition in life of such infant or the person" and to his actual re>uirement at the time of sale and deli!ery oNecessaries may also be teaching" medical legal ad!ice" etc. =) !o Estoppel oA +inor falsely representing himself of age of ma.ority has induced a person to enter into a Contract with him" can any time plead his minority" as defense oThere cannot be estoppel against a minor.

oThus" a Contract entered into by a +inor is a complete nullity.


>) !o #estit9tion or Compensation o#f a +inor has recei!ed any benefit under a !oid Agreement" he cannot be as$ed to compensate for it. oSec : C@ to restore or compensate does not apply for minor o&or eg: - +" a minor obtains loan by mortgaging the property. +inor is not liable to refund the loan. Not only this" e!en mortgaged property cannot be made liable to pay for the debt. 6+ohribibi !Ks 8harmadas ghose P0E4:7 J) !o Specific -erformance oThere can be no specific performance of the Agreement entered into by a m as they are !oid ab initio. o#f a person after attaining ma.ority pays a debt incurred during his minority" he cannot subse>uently bring a suit for the refund of this amount. K) !o *nsolvencA oA minor cannot be ad.udged insol!ent oThis is because he is incapable of contracting debts. L) &inor as a -artner oA minor cannot become a partner in his own right as he is incapable of entering into Contract under section 00. o2ut a m maybe entered into the benefits of a partnership with the consent of other partners. 6Sec ::4 of <artnership Act 7 1@) &inor as an A8ent oAn Agent is simply a connecting lin$ between the principal and the third party. oSince the parties to a contract here are principal and the third party" they should be competent to Contract. oAn Agent" being not a party to a Contract can be either a ma.or or a minor. 11) &inor alon8 0ith a maMor o%here a Contract is entered into by a minor and a ma.or .ointly with another person" the minor is not liable under the contract. o*owe!er" Contract can be enforced against the ma.or if his liability can be separately ascertained. 12) &inorIs 89ardian oAn Agreement by a minor is !oid" but an Agreement by his guardian on his behalf is !alid pro!ided P -a/ The contract is within the scope of authority of guardian B and -b/ The contract is for the benefit of the minor. 1?) (ia1ilitA for "orts o<ri!ilege of #nfancy is used only as a shield and not a Sword. oA minor is liable for Torts.

10

o&or eg : #n the case of <ennin8s v2s #9ndall+1JLL" 3undall" a minor entered into a
Contract to hire a horse for riding *e rode the horse negligently and thereby caused the in.ury to the horse. 3undall was not held liable" since he was doing the act which was permitted by the contract. o&or eg :- *n case of )9nard v2s /a88is" *aggis" a minor entered into a contract to hire horse for riding" 2urnard" the owner of the horse ga!e specific instruction. Not to .ump *orse. *aggis lent the horse to a friend who used it for .umping. The horse was in.ured and $illed. *eld" *aggis was liable since .umping of horse was prohibited by contract and e!en though he did not performed it. Q= A=. :hat is consideration. Explain its in8redients. Explain the exceptions to the statement N!o consideration5 no contract.O

o o o o o o o

Consideration is one of the essential re>uirements to support a Contract. #t is the sign and symbol of e!ery bargain. Consideration means Jsomething in return of somethingG #n Latin" it is >uid pro >uo An agreement without consideration is normally !oid. Consideration is the cause of all promises. An Agreement without consideration is a base of na$ed promise and ex nudo pacto non oritio action i.e.:- cannot be held to be binding upon the parties o &or eg: A agrees to sell his car to 2 for 3s.@4" 444. Car is consideration for 2 and 3s. @4"444 is consideration for A. o According to section:, -d/ :- %hen at the desire of the <romisor" the promisee or any other person" has done or abstained from doing" or does or abstains from doing" or promises to do or abstain from doing" or promises to do or abstain from doing" something" such an act or abstinence or promise is called a consideration for the promise . (e8al r9les 2 Essentials of Consideration 1) *t maA move at the desire of the -romisor :+

o Consideration must ha!e been done at the desire or re>uest of the <romisor. o #f act is done at desire of a third party or without the desire of the <romisor" it will not
be a good consideration o Acts done !oluntarily or gratuitously do not constitute good consideration. o &or eg :- *n case of D9r8a -rasad v2s )aldev P1KK@ 2alde! constructed a mar$et at the desire of the collector of the district" 8urgaprasad promised to pay 2alde!" a commission on articles sold through 8Gs agency" in the mar$et. This was in considered of money spend by 2 on the construction of the mar$et. *ere <romisor was collector and not 8urgaprasad. *ence Consideration Can mo!e only from collector. *eld. Agreement %as !oid as there was no Consideration between 8urgaprasad 1 2alde!. 2) *t maA move from the promise or anA other person :+ o ?nder nglish law Consideration +ust mo!e from the promise o 2ut under #ndian law" Consideration +ay mo!e from the promise or any other person e!en a stranger.

11

o !en a stranger to Consideration Can sue on the Agreement. o *owe!er" Stranger to contract cannot such on the Agreement. o &or eg B #n the case of ChinnaAa v2s #amaAAa P1KK2
An old lady '" by a deed of gift made o!er certain property to her daughter (" under the direction that she -(/ should pay her aunt Q - sister of old lady '/" a certain sum of money e!ery year. The same day daughter ( entered into an Agreement with aunt Q to pay her agree amount. Later" daughter ( refused to gi!e money on agreement that no consideration was passed from aunt Q to daughter (. *ence it is not Contract. *owe!er" it was held that consideration may mo!e from the promise or any other person. *ence Consideration *ad already been passed from old lady ' to daughter (. *ence Q is stranger to Consideration but not stranger to contract. Therefore she is entitled to get money from daughter (. ?) *t maA 1e past5 -resent or f9t9re o The words in Sec :, -d/ RR has done or abstained" or does or abstainsB or promises to do or abstain from doing R.. o #t indicates that Consideration according to : types. #t may be P <ast" <resent or &uture (a) -ast Consideration o %hen the Consideration of one party was gi!en before the date of the promise it is said to be past. o &or eg: A finds the purse of 2" and returns it -without eFpecting any reward/. A promised to pay him some money. The Consideration of 2 is past Consideration. (1) -resent Consideration :+ o Consideration %hich mo!es simultaneously with the promise is called <resent Consideration )r Fecuted Consideration o &or e.g.: ' buys an article from shop and pays the price immediately. #t is present Consideration. (c) ,9t9re Consideration:+ o %hen the consideration is to be mo!e at a future date" it is future or Fecutory consideration. o &or eg. < promises to pay money after a wee$ for goods to be deli!ered by a ; after two days" it is a !alid Contract ha!ing future or eFecutory consideration. G)

o o o o o o

NSomethin8O need not 1e AdeF9ate Consideration means Jsomething in returnG. This JsomethingG need not necessarily gi!en. The Law simply pro!ides that a Contract must be supported by consideration. So long as consideration eFists" court are not concerned with its ade>uacy The courts do not eFist to repair bad-bargain. Acc to section : ,@ Fplanation : , An Agreement to which the consent of the promises is freely gi!en is not !oid merely because the consideration is inade>uate.

12

o &or eg. A agree to sell a horse worth 3s.04" 444 &or 3s.044. AGs consent was freely
gi!en. The Agreement is Contract in spite of the inade>uate consideration. =) *t m9st 1e #eal and not *ll9sorA

o The consideration to be !alid must be real and not be illusory or sham. o The following considerations are not 3eal. o o
<hysical #mpossibility:&or e.g. A promises to find lost treasure by magic to 2. the consideration is physically impossible. Legal #mpossibility:&or e.g.:- A owes -liable/ 3s.@44 to 2. *e promises to pay 3s.044 to C" the nephew of 2" who in turn promises to discharge A from the debt. This is legally impossible because Contract cannot gi!e a legal discharge for debt due to 2. 6 *ar!ey !Ks gibbons P 0CD@ 7 Already Fisting 8uty:%here a promise is already under an eFisting public duty" an eFpress promise to perform that duty will not amount to consideration. &or eg. JAG promises to pay J2G" a witness in a trial" certain sum of money. J2G had already recei!ed a subpoena to appear before the court. *ere consideration is not real. #llusory or sham: &or eg: - Two of the crew of a hip deserted -left/ the ship half the way in a !oyage. The captain there by promised to di!ide the salary of those two crews among other remaining crews" if they brought the !essel home. The other crews could not re>uire the amount as Consideration was illusory they were already under obligation to bring the !essel home. *t m9st not 1e *lle8al5 *mmoral or opposed to p91lic policA

o o o

>)

o Consideration Li!en must be lawful o %here Consideration is illegal" immoral or opposed to public policy" the courts do not o o o o o o o
0/ ,/ :/ =/ @/ allow an action on such contract. 6Sec :,:7 No Consideration No Contract According to section: ,@" An Agreement without consideration is normally !oid. Leneral rule is that if there is no Consideration There cannot be a contract. According to Salmond : A promise without Consideration #s a gift ?nder 3oman Law : An Agreement without Consideration #s nudum pactum - na$ed agreement/ *owe!er" there are eFceptions to the general 3ule No Consideration No Contract. EQCE-"* !S " "/E #;(E: N! C !S*DE#A"* ! ! C !"#AC"O The following are cases where a Contract is enforceable e!en if there is no consideration :Natural lo!e 1 Affection 6sec :,@ -0/7 Ooluntary Ser!ices 6,@-,/7 To pay a time-barred debt 6,@-:/7 Agency 60A@7 Completed gift 6 Fplanation :0 sec :,@7

1) !at9ral love . Affection :+ 42=(1)6

13

o According to section : ,@-0/


%here an agree is eFpressed in writing and registered under the law for the time being in force for the registration of documents and is made on account of natural lo!e and affection between the parties standing in a near relation to each other is enforceable e!en if there is no consideration o #ngredients of section :,@ -0/ :0. The parties to agreement must stand in near relation to each other. ,. Agreement must be made on account of natural lo!e and affection :. Agreement should be in form of a written document =. 8ocument must be registered. o &or eg :- *n case of #aMl9RhA Devi v2s )hootnath P1L@@ An Agreement entered into by husband 2hootnath with his wife 3a.lu$hy during >uarrels and disagreements" whereby 2 promised to gi!e some property to wife 3. *ere Agreement is !oid because parties do not ha!e natural lo!e and affection though they are husband and wife. 2) 3ol9ntarA Services :+ 42= (2)6 o According to section : ,@-,/ :%here it is a promise to compensate wholly or in part" a person who has already !oluntarily done something for the <romisor " or something which the <romisor was legally compellable to do" is enforceable e!en though without Consideration o &or eg: - A finds 2Gs purse and gi!es it to him. 2 promises to gi!e A 3s :4K- This is Contract. o &or eg: - A supports 2Gs minor son. 2 promises to pay AGs eFpenses in doing so. This is Contract ?) "o paA a time+1arred de1t :+4s:2=(?)6 o A promise by a debtor to pay a time-barred debt is enforceable pro!ided it is made in writing and signed by the debtor or his Agent. o The promise may be to pay the whole or any part of the debt. o The debt must be such of which the creditor might ha!e enforced payment but for the law for the limitation of suits. o A debt is barred by limitation if it remains unpaid or unclaimed for a period of three years. Such a debt becomes legally irreco!erable. o &or eg: 8 owes c 3s.0"444 but the debt is barred by the limitation Act. 8 signs a written promise to pay c 3s.@44 on account of the debt. This is a contract e!en if without consideration. G) A8encA :+ 4s.1K=6 o According to section 0A@ No consideration is necessary to create an agency. =) Completed %ift :+ 4s : 2= Explanation :16 o The rule No consideration" no Contract does not apply to completed gifts. o Fplanation:0 of Sec:,@ states Nothing in this section shall affect the !alidity as between the donor and the done" of any gift actually made.

14 Q>. Define consent. :hen consent is said to 1e free? A>. o Consent in general" means an agreement. o Accordin8 to section 1? : Two or more persons are said to consent when they agree upon the same thing in the same sense. o Accordin8 to section 1G :Consent is said to be free when it is not caused by : 0. coercion as defined in sec. 0@" or ,. undue influence as defined in sec. 0C" or :. fraud as defined in sec. 0D" or =. misrepresentation as defined in sec. 0A" or @. mista$e" sub.ect to the pro!isions of sec. ,4" ,0 and ,,. o #f there is no consent" there is no contract. o %hen the consent is caused by coercion" undue influence" fraud or misrepresentation" then the contract becomes !oidable. o %hen the consent is caused by mista$e" then the contract becomes !oid. o *ence" the following are the possible alternati!es when the consent is not free : 1) Coercion o %hen the person is forced to enter into a contract under a threat" it is said coercion o Accordin8 to section 1= : Coercion is committing" or threatening to commit" any act forbidden by the #ndian <enal Code 0AC4" or the unlawful detaining" or threatening to detain" any property" to the pre.udice of any person whate!er" with the intention of causing any person to enter into an agreement. o #t is immaterial whether the #ndian <enal Code is or is not in force in place where the coercion is employed. o &or e.g.: A threatens to $ill 2 if he does not lend 3s. 0444 to C. 2 agrees to lend the amount to C. The agreement is entered into under coercion. o Threat to commit a suicide is also coercion. 2) ;nd9e *nfl9ence o Sometimes a party is compelled to enter into an agreement against his will as a result of unfair persuasion by the other party. o This happens when a special $ind of relationship eFists between the parties such that one party is in a position to eFercise undue influence o!er the other. o Accordin8 to section 1> : A contract is said to be induced by undue influence where the relations subsisting between parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair ad!antage o!er the other. o &or e.g. A spiritual guru induced his de!otee to gift to him the whole of his property in return of a promise of sal!ation of the de!otee. *eld" the consent of the de!otee was gi!en under undue influence. ?) ,ra9d o Accordin8 to section 1J : &raud means and includes any of the following acts committed by a party to a contact" or with his conni!ance or by his agent with intent to decei!e or to induce a person to enter into a contract: 1. the suggestion that a fact is true when it is not true and the person ma$ing the suggestion does not belie!e it to be true

2. fact ?. G. =.

15 the acti!e concealment of a fact by a person ha!ing $nowledge or belief of the a promise made without any intention of performing it any other act fitted to decei!e any such act or omission as the law specially declares to be fraudulent.

G) &isrepresentation o +isrepresentation is a false statement which the person ma$ing it honestly belie!es to be true or which he does not $now to be false.. o Accordin8 to section 1K : There is a misrepresentation P 1. %hen a person positi!ely assets that a fat is true when his information does not warrant it to be so" thought he belie!es it to be true. 2. %hen there is any breach of duty by a person which brings an ad!antage to the person committing it by misleading another to his pre.udice. ?. %hen a party cause" howe!er" innocently" the other party to the agreement to ma$e a mista$e as the substance of the thing which is the sub.ect of the agreement. o +isrepresentation is also called an innocent fraud. =) &istaRe o +ista$e is erroneous belief about something or +ista$e may be -a/ of law" or -b/ of fact.

16 QJ. :hat is performance of contract? Disc9ss the provisions relatin8 to performance of contract 9nder *ndian Contract Act5 1KJ2? AJ &EA!*!% , -E#, #&A!CE The term IperformanceI means that the parties to the contract ha!e fulfilled or carried out their respecti!e obligations arising out of the contract. &or eFample" A contracts to sell his boo$ to 2 for 3s. @4. A deli!ers the boo$ and 2 ma$es the payment" the contract is discharged by performance. Section ?J of the #ndian Contract Act lays down the obligations of the parties regarding performance. #t pro!ides that" the parties to a contract must either perform" or offer to perform" their respecti!e promises" unless such performance is dispensed with or eFcused under the pro!ision of this Act" or any other law. "7-ES , -E#, #&A!CE &rom Section :D it can be inferred that the performance may be either actual or attempted. Act9al performance: %hen a party to a contract has done" what he had underta$en to do and there remains nothing to be done by him the promise is said to ha!e been actually performed and the liability of such a party comes to an end. &or eFample A who is indebted to 2 for 3s. 0"444" promises to repay the amount after two months. A repays the amount on the due date. This is actual performance. . Attempted -erformance: Sometimes" when the performance becomes due" the promisor offers to perform his obligation but the promisee refuses to accept the performance. This is $nown as Iattempted performanceI or tender. &or eFample" A. promises to deli!er certain goods to 2. A ta$es the goods to the appointed place during business hours but 2 refuses to ta$e the deli!ery of goods. Thus" A has done what he was re>uired to do under the contract" #t is an attempted performance. #n case of an attempted performance" the promisor shall not be held liable for non- performance as an attempted performance or tender is as good as performing the contract. Section ?K of the Contract Act pro!ides. %here a promisor has made an offer of performance to the promisee" and the offer has not been accepted" the promisor is not responsible for non performance" nor does he thereby lose his rights under the contract. S*!DS , "E!DE#

Tender or attempted performance can be of two types -i/ tender of goods and ser!ices and -ii/ tender of money. "ender of 8oods and services: A. contract to deli!er goods or render some ser!ice is completely discharged when the goods are tendered for acceptance according to the terms of the contract. #f the goods or ser!ices are refused" they need not be offered again and the promisor is discharged from his liability. At the same time" he may file a suit against the promisee for non-acceptance. "ender of moneA: %here the debtor -promisor/ ma$es a !alid tender i.e." offers to pay the amount to the creditor and the creditor refuses to accept the same" the debtor is not discharged from his liability to pay the amount. #n other words" a tender of money does not amount to discharge of the debt. The debtor continues to be liable for the payment of debt.

17 2ut" the debtor will not be liable for interest from the date of a !alid tender i.e." no interest shall become payable from the date of the re.ection of a !alid tender of money. E,,EC" , #E,;SA( " -E#, #& -# &*SE :/ ((7 %hen a party to a contract has refused to perform" or disabled himself from performing his promise in its entirety" the promisee may put an end to the contract. 2ut" if the promisee has signified by words or conduct" his ac>uiescence in the continuation of the contract" he cannot terminate it. &or eFample" A5 a singer" enters into a contract with )" the manager of a theatre" to sing at his theatre two nights e!ery wee$ during the neFt two months" and ) engages to pay her at the rate of 3s. 044 for each night. )n the siFth night A willfully absents herself from the theatre. #n such a situation" ) is at liberty to put an end to the contract" #f howe!er" with the consent of )" A sings on. the se!enth night" ) has signified his ac>uiescence in the continuation of the contract and" therefore" he cannot now put an end to it. of course" ) is entitled to compensation for damage sustained by him through ATs failure to sing on the siFth night. :/ CA! DE&A!D -E#, #&A!CE?

-romisee: Normally" the promisee is the only person who can demand performance of the promise under a contract. A third party cannot demand performance of the contract e!en if it was made for his benefit. &or eFample" A .promises 2 to pay 3s. @44 to C. The person who can demand performance is 2 and not C. (e8al #epresentative: #n the case of death of the promisee" his legal representati!e can demand performance" unless a contrary intention appears from the contract or the contract" is of a personal nature. &or eFample" A agrees to marry 2. *owe!er" before marriage ta$es place. 2 dies. Since it is a contract" of personal nature the legal representati!e of 2 cannot demand performance of the promise from A. "hird -artA: #n some eFceptional cases" the third party can also demand performance of the contract e!en though he is not a party to the contract. <oint -romises: %hen a person has made a promise to two or more persons .ointly" then" unless a contrary intention appears from the contract" the performance of the promise may be demanded either -i/ by all the promisees .ointlyB or -ii/ in case of death of any of .oint promisees" by the representati!es of such deceased person .ointly with the sur!i!ing promisees" or -iii/ in case of death of all .oint promisees" by representati!es of all of them .ointly. Thus" the right of .oint promisees is only .oint and any of them cannot demand performance unless it was so agreed. &or eFample" A for a consideration of 3s. @"444 lent to him by 2and C" promises 2and C .ointly to repay them 3s. @"444 plus interest on a specified day. 2 dies. The right to claim performance rests with 2Is representati!e .ointly with C during his life time" and after CIs death it would lie with the representati!es of 2 and C .ointly. :/ &;S" -E#, #&?

Normally" the contract should be performed by the promisor himself *owe!er" in certain casesB it can also be performed by his agents or legal representati!es. #t all depends upon the intention of the parties. Normally a contract can be performed by the following persons. -romisor himself: #f from the nature of the contract it appears that it was the intention of the

18 parties that the promise should be performed by the promisor himself" such promise must be performed by the promisor. This usually applies to contracts in!ol!ing personal s$ill" taste or art wor$. &or eFample" A promises to paint a picture for 2. As this promise in!ol!es personal s$ill of A" it must be performed by A. -romisor or A8ent: %here the contract does not in!ol!e personal s$ill of the promisor" the contract could be performed by the promisor himself or by any competent person employed by him for the purpose" &or eFample" A promises to I pay to 2 a sum of money" A may perform this promise either by paying the money personally to 2 or by causing it to be paid to 2 by his authoriSed agent. (e8al #epresentatives: The contracts which do not in!ol!e any personal s$ill or taste may be performed by his .legal representati!e after the death of the promisor. &or eFample" A promises to deli!er goods to 2 on a certain day on payment of 3s. ,"444. A dies before the said day. AIs legal representati!es are liable to deli!er the goods to 2 and 2 is bound to pay 3s. ,"444 to AIs representati!es. #f" howe!er" the contract in!ol!es some personal s$ill or taste" it comes to an end with the death of the promisor. "hird -erson: #n some cases" a contract may be performed by a third person pro!ided the promisee accepts the arrangement. According to Section =0" once the promisee accepts the performance from a third person" he cannot compel the promisor to perform the contract again. -erformance of <oint -romises: According to section =," when two or more persons ha!e made a .oint promise" the .oint promisors must fulfil the promise .ointly during their life time. And if any one of them dies" then his legal representati!es and sur!i!ors must .ointly fulfil the promise. &or eFample" A." 2 and C .ointly promise to pay 3s. :"444 to 8. A dies. 2 and C along with AIs legal representati!e are .ointly and se!erally liable to pay the amount to 8. This rule is called Ide!olution of .oint liabilitiesI. #t is howe!er" sub.ect to the condition that no other intention appears from the contract. #n other words" if a contrary intention appears from the contract then the rule gi!en abo!e shall not apply. #n case the .oint promisors do not perform their promise .ointly" then Section =: comes into operation. #t pro!ides I%hen two or more persons ma$e a .oint promise" the promisee may" in the absence of eFpress agreement to the contrary" compel any one or more of such .oint promisors to perform the whole of the promise. Thus" the" liability of .oint promisors is .oint and se!eral and any of the .oint promisors can be compelled to perform. &or eFample" A5 2 and C .ointly promised to pay 3s. :"444 to 8. #n this case 8 may compel either A" or 2 or C to pay the entire amount of 3s. :"444. "*&E . -(ACE , # -E#, #&A!CE #t is for the parties to a contract to decide the time and place for the performance of the contract. The rules regarding the time and place of performance are gi!en in sections =C to @4 of the Contract Act. These are as follows: -erformance of a promise 0ithin a reasona1le time: According to Section G> where the time for performance is not specified in the contract and the promisor himself has to perform the promise without being as$ed for by the promisee" the contract must be performed within a reasonable time. The >uestion Iwhat is a reasonable timeI is" in each particular case" a >uestion of fact. Thus" it is clear from this pro!ision that if time for performance is not stated" the contract is not bad for want of certainty.

19 -erformance of promise 0here time is specified: Sometimes" the time for performance is specified in the contract and the promisor has underta$en to perform it without any application or re>uest by the promisee. #n such cases" the promisor must perform his promise on that particular day during the usual hours of business and at a place where the promise ought to be performed (Section GJ). -erformance of promise on application 1A the -romisee: #t may also happen that the day for the performance of the promise is specified in the contract but the promisor has not underta$en to perform it without application or demand 1 by the promisee. #n such cases" the promisee must apply for performance at a proper place and within the usual hours of business. (Section GK) -erformance of promise 0here no place is specified and also no application is to 1e made 1A promisee: %hen a promise is to be- performed without application or demand by the promisee" and no place is specified for performance" then it is the duty of the promisor to apply or as$ the promisee to fiF a reasonable place for the performance of the promise and to perform it at such place (Section GL). &or eFample" A underta$es to deli!er 0"444 $ilos of .ute to 2 on a fiFed day. A must apply to 2 to fiF a reasonable place for the purpose of recei!ing it" and must deli!er it to him at such place. -erformance of promise in the manner and time prescri1ed or sanctioned 1A promisee: Sometimes the promisee himself prescribes the manner and the time of performance. #n such cases" the promise must be performed in the manner and at the time prescribed by the promisee. The promisor shall be discharged from his liability if he performs the promise inthe manner and time prescribed by the promisee (Section =@). Examples i/ 2 owes A 3s. ,"444.A desires 2 to pay the amount to AIs account with C, a ban$er. 2" who also has an account with 2an$ C" orders the amount to be transferred to AIs credit and this is done by the ban$er. Afterwards" and before A $nows of the transfer" the 2an$ C fails. There has been a good payment by 2 and he is discharged from his obligation. -ii/ A desires 2" who owes him 3s. 044" to send him a note for 3s. 044 by post. The debt is discharged as soon as 2 puts into the post a letter containing note duly addressed to A. A--# -#*A"* ! , -A7&E!" , DE)" %here a debtor owes se!eral distinct debts to the one and the same creditor and ma$es a payment towards those debts" the >uestion may arise as to which of this particular debt" this payment is to be appropriated. The rules regarding Appropriation of payments are laid under section @E" C4 and C0. There are : aspects: De1torIs #i8ht: + 4S: =L6 #f the 8ebtor eFpressly intimates at the time of actual payment" that the payment should be applied towards the discharge of a particular debt" then the creditor must do so. #f the creditor does not agree to the proposed Appropriation" he must refuse to recei!e the payment. +aFim here is" when money is paid" it is to be applied according to gi!er not the recei!er. *owe!er" this section will not apply to a single debt payable in installments. CreditorIs #i8ht: + 4S: >@6 %here the 8ebtor does not eFpressly intimate or where the circumstances attending on payment do not indicate any intention" then the creditor may apply at his discretion to any lawful debt actually due and payable to him from the debtors. The Creditor may alter the

20 appropriation until he has declared the appropriation to the 8ebtor. *owe!er" Creditor cannot apply the payment to a disputed or unlawful debt" but he may apply it to a debt which is barred by the Law of Limitation. %hen #nterest and <rincipal amount both are due" then sub.ect to the contract contrary" the payment should be first appropriated for #nterest and after the #nterest is fully paid of" then only the principal amount. !either partAIs #i8ht: + 4S: >16 %here neither party ma$es any appropriation" the payment shall be applied in discharge of the debts in order of time" whether they are or they are not barred by the Law in force for the time being as to the limitation of suits. #f the debts are of e>ual standing -same date/ the payment shall be made in discharge of each debt proportionately. %here there is a debt carrying interest" if money is paid and recei!ed without any definite appropriation" it should be first applied in the payment of interest. QK. :hat is Dischar8e of Contract? Explain &odes of Dischar8e of Contract in detail? AK. A !alid contract creates certain obligations for the contracting parties and the parties become liable to fulfil their respecti!e promises. %hen such promises are performed" contract is said to be discharged. The term discharge of a contract means that the parties to it are no more liable under the contract. The most ob!ious or desirable method of discharge of a contract is to perform it A contract maA 1e dischar8ed in anA one of the follo0in8 0aAs: 2y performance 2y mutual agreement 2y lapse of time 2y operation of law 2y impossibility of performance 2y breach. D*SC/A#%E )7 -E#, #&A!CE The most ob!ious or natural mode of discharge of a contract is by performance. The performance may be either actual or an attempted one. D*SC/A#%E )7 &;";A( A%#EE&E!" Tust as a contract is created by means of an agreement" it can be terminated or discharged by mutual agreement. #f the parties to a contract agree to ma$e a fresh contract in place of the original contract" the original contract is discharged. A contract can be discharged by mutual agreement in any of the following ways. !ovation: The term no!ation means the substitution of a new contract for the eFisting one. This arrangement may be either between the same parties or between different parties. The consideration for the new contract is the discharge of the original contract. Since no!ation implies a new contract" all the parties to the eFisting contract must agree to it. Examples A owes money to 2 under a contract. #t is agreed between A" 2 and C that 2 shall thenceforth accept C as his debtor instead of A. The old debt of A to 2 is discharged" and a new debt from C to 2 has been contracted. This is no!ation in!ol!ing change of parties.

21 A owes 2 3s. 04"444. A enters into an agreement with 2 and gi!es 2 a mortgage of his estate for 3s. @"444 in place of the debt of 3s. 04"444. This arrangement constitutes a new contract and terminates the old. #escission: 3escission means cancellation of the contract. #f by mutual agreement the contracting parties agree to rescind the contract" the contract is discharged. A contract can be rescinded before the performance becomes due. Non-performance of a contract by both the parties for a long period" without complaint" amounts to implied rescission. #escission is different from novation in the sense that in case of novation a ne0 contract is s91stit9ted for the ori8inal contract 0hereas in rescission the ori8inal contract is cancelled and no ne0 contract is made. Alteration: #t means a change in one or more of the terms of a contract with consent of all the parties. Alteration has the effect of terminating the original contract. #n an alteration there is a change in the terms of a contract but no change of parties to it. #n no!ation there may be change of parties. #emission: #t means the acceptance of a lesser sum than what was contracted for or a lesser fulfillment of the promise made. According to section C:5 e!ery promisee may remit or dispense with it" wholly or in part" or eFtend the time of performance" or accept any other satisfaction instead of performance. Example: A owes 2 3s. @"444. A pays to 2 3s. :"444 who accepts it in full satisfaction of the debt. The whole debt is discharged. :aiver: %ai!er means abandonment or intentional relin>uishment of a right under the contract. %hen a party wai!es his rights under it" the other party is released from his obligation. &or eFample" A promises to paint a picture for 2. 2 afterwards forbids him to do so. A is no longer bound to perform the promise. D*SC/A#%E )7 (A-SE , "*&E The rights and obligations under a contract can be enforced only within a specified period called the Iperiod of limitationI. The Limitation Act has prescribed the period of limitation for !arious contracts: ,or example" period of limitation for eFercising right to reco!er an immo!able property is twel!e years and right to reco!er a debt is three years. After the eFpiry of this limitation period" the contractual rights Cannot be enforced. #n other words" if a debt is not reco!ered within three years of its payment becoming due" the debt becomes time barred and is discharged by lapse of time. D*SC/A#%E )7 -E#A"* ! , (A: A contract may be discharged by operation of law in the following cases. Death of the -romisor: Contracts in!ol!ing the personal s$ill or ability of the promisor come to an end with the death of the promisor. *nsolvencA: %hen a person is declared insol!ent by Court" he is discharged from his obligation eFisting at that time. So" if a promisor is declared insol!ent" he is discharged from his liability. &er8er: %hen an inferior right accounting to a party in a contract merges into the superior

22 rights accruing to the same party" the earlier contract is discharged. ,or example5 A too$ a land on lease from 2. Subse>uently" A purchases that !ery land. Now A becomes the owner of the land and the earlier contract of lease stands terminated. &aterial alteration: #n a written contract if any party ma$es some material alteration in the terms of the contract without the appro!al of the other party" the contract stands terminated. A material alteration is one which !aries the rights" liabilities or the position of the parties as such" one should note that immaterial alterations" such as correcting the clerical errors or the spelling of a name has no effect on the !alidity of the contract. D*SC/A#%E )7 *&- SS*)*(*"7 , -E#, #&A!CE &or a contract to be !alid it must be capable of being performed. 2ut sometimes" due to some reasons which are beyond the control of the parties" the performance of a contract becomes impossible. #n such cases" the contract is discharged on the ground of impossibility of performance. Section @C of Contract Act pro!ides that an agreement to do an act impossible in itself is !oid. This rule is based on the principle that law does not recogniSe the impossible and what is impossible does not create any obligations. *mpossi1ilitA maA 1e of t0o tApes: (i) initial and (ii) s91seF9ent. *nitial impossi1ilitA: #t means impossibility at the time of ma$ing the contract. %hether the fact of impossibility is $nown or un$nown to the parties" the agreement is !oid ab initio. &or eFample A agrees with 2 to disco!er a treasure by magic. The agreement is !oid due to initial impossibility. S91seF9ent or S9pervenin8 *mpossi1ilitA: #mpossibility which arises subse>uent to the ma$ing of the contract is called super!ening impossibility. #f the contract was capable of performance at the time of ma$ing it" but subse>uently because of some e!ent -o!er which neither party has any control/ the performance becomes impossible or unlawful" the contract becomes !oid and the parties are discharged from their obligations. *t can 1e noticed that s9pervenin8 impossi1ilitA is different from initial impossi1ilitA. *n case of initial impossi1ilitA the a8reement is void a1+initio 0hile in case of s9pervenin8 impossi1ilitA the contract 1ecomes void. Conditions for the contract 1ecomin8 void The contract will become !oid on the ground of super!ening impossibility only if the following conditions are satisfied. The act should ha!e become impossible. The impossibility should be by reason of some e!ent which the promisor could not pre!ent. The impossibility should not be self-induced by the promisor #easons for S9pervenin8 *mpossi1ilitA The performance of a contract may become subse>uently impossible due to any of the following reasons B 8estruction of the Sub.ect +atter" 8eath or <ersonal #ncapacity" Change of Law" Cessation of the state of things" 8eclaration of war etc. Effects of S9pervenin8 *mpossi1ilitA Contract 1ecomes void: %hen the performance of a contract becomes .subse>uently impossible or unlawfulB the contract becomes !oid -section @C -- para ,/. Compensation for !on+performance: %hen the promisor alone $nows that the performance is impossible or unlawful" he must compensate the promisee for any loss which he might ha!e suffered on account of non-performance -section @C para :/.

23 )enefit to 1e #estored: %hen a contract becomes !oid" any person who has recei!ed any ad!antage under such contract is bound to restore it" or to ma$e compensation for it" to the person from whom he recei!ed it -section C@/. &or eFample" A contracts to sing for 2 at a concert for 3s. 0"444" which is paid in ad!ance" A is too ill to sing. A must refund the ad!ance of 3s. 0"444 to 2. D*SC/A#%E )7 )#EAC/ , C !"#AC" %hen a contract is made" the parties to it are eFpected to perform it" unless they are eFcused. #f any party refuses or fails to perform his part of the contract" a breach of contract occurs and the contract is discharged. #n case of breach the aggrie!ed party is relie!ed from performing his obligation and gets a right to proceed against the party at fault. A breach of contract may arise in two ways: -i/ actual breach and -ii/ anticipatory breach. Act9al )reach: Actual breach of contract may ta$e place either on the due date of performance or during the course of performance. &or eFample" A agreed to deli!er 044 bags of rice to 2 at a certain price on 04th Tuly. #f A refuses or fails to deli!er the goods on time" there occurs an actual breach. #f the promisor has performed part of the contract and then refuses or fails to deli!er the remaining goods" it is also actual breach of contract. AnticipatorA )reach: Anticipatory breach occurs when the party declares his intention of not performing the contract before the performance is due. This intention may be declared eFpressly or impliedly. &or eFample" A agrees to supply certain goods to 2 on 04th Tuly. 2efore this date A informs 2 that he shall not supply the goods. #f" instead of" eFpressly informing 2 about his intention of not performing the contract" A does something which ma$es it impossible for him to performB this will also amount to anticipatory breach. #f in the eFample gi!en abo!e" A sells all the goods before the said date to < at a higher price" this action of A clearly indicates his intention. Thus a breach of contract operates a discharge of contract. #n case of breach" the aggrie!ed party gets the right to claim compensation or damages from the defaulter. QL. Descri1e different remedies availa1le in case of 1reach of contract? Ans. %hen a contract is bro$en by a party" there are se!eral courses of action -remedies/ which the other party may pursue. These remedies include: 3escission of the contract Suit for damage Suit for specific performance Suit for in.unction Suit upon >uantum meruit #ESC*SS* ! , "/E C !"#AC" %hen a party to a contract has refused to perform" or disabled himself from performing his promise in its entirety" the promisee may put an end to the contract. This is called right of rescission. #t means setting aside of the contract. #n such a case aggrie!ed party is discharged from all the obligations under the contract. &or eFample" A promises to supply the furniture 2Is new office on a certain day. 2 promises to pay for the furniture on its receipt. A does not supply the furniture on the agreed date. 2 is discharged from the liability of paying the price and can rescind the contract.

24 Thus" in the abo!e eFample 2 shall not only be entitled to rescind the contract but also to claim compensation for the damage which he has sustained because of the nonsupply of furniture by A on the specified date.

S;*" , # DA&A%ES #n the e!ent of breach of contractB the aggrie!ed party besides rescinding the contract can claim for damages. 8amages are monetary compensation allowed for loss suffered by the aggrie!ed party due to the breach of contract. The ob.ect of the court in awarding damages for breach is that the aggrie!ed party may be put in the financial position which would ha!e eFisted had there been no breach of contract. The law does not punish a party because he has bro$en a contract but if" by reason of his wrongful act" the other party has suffered any pecuniary -monetary/ loss" the court will compel the party in breach to compensate the loss by paying damages to the other party. /AD(E7 3E#S;S )AQE!DA(E CASE #n #ndia" the rules relating to damages are based on the .udgement in nglish case of *adley !. 2aFendale. ,acts *Is mill was stopped due to the brea$down of a shaft. *e deli!ered the shaft to 2" a common carrier" to be ta$en to a manufacturer to copy it and ma$e a new one. * had not made it $nown to 2 that delay would result in a loss of profits. 2y some neglect on the part of 2" the deli!ery of the shaft was delayed in transit beyond a reasonable time. ,indin8s *eld" 2 was not liable for loss of profits during the period of delay as the circumstances communicated to 2 did not show that a delay in the deli!ery of shaft would entail loss of profits to the mill. Thus where two parties ha!e made a contract which one of them has bro$en" the damages which the other party ought to recei!e in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally i.e." according to the usual course of things" from such breach of contract itself. "7-ES , DA&A%ES #n case of the breach of contract following different types of damages can be awarded to the aggrie!ed party. They are )rdinary 8amages Special 8amages Femplary or <uniti!e or Oindicti!e 8amages Nominal 8amages 8amages for 8eterioration Caused by 8elay 8amages for #ncon!enience and 8iscomfort Li>uidated 8amages and <enalty Stipulations for #nterest #D*!A#7 DA&A%ES )rdinary damages are. those which naturally arise in the usual course of things from such breach.

25 The measure of ordinary damages is the difference between the contract price and the mar$et price on the date of the breach. #f the seller retains the goods after the breach" he cannot reco!er from the buyer and further loss if the mar$et falls" nor is he liable to ha!e the damages reduced if the mar$et rises. &or Fample" A contracts to deli!er 044 bags of rice at 3s. 044 per bag on a future date. )n the due dates he refuses to deli!er. The mar$et price on that day is 3s. 004 per bag. The measure of damages is the difference between the mar$et price on the date of the breach and the contracted price i.e." 3s. 004-044 U 3s. 04.

S-EC*A( DA&A%ES %hen there are certain special or eFtraordinary circumstances present and their eFistence is communicated to the promisor" the non-performance of the promise entitles the promisee to not only the ordinary damages but also special damages that may result there from. &or eFample" A" who is a builder" agrees to erect and finish a house by 0 Tanuary in order that 2" may gi!e possession of it at that time to C" to whom 2 has contracted to let it. A is informed of the contract between 2 and C. A builds the house so badly that it falls down before 0 Tanuary and has to be rebuilt by 2. As a conse>uence" 2 loses the rent which he was to ha!e recei!ed from C" and is obliged to ma$e compensation to C for the breach of his contract. Thus A must ma$e compensation to 2 for the cost of rebuilding the house" for the rent lost" and for the compensation made to C. EQE&-(A#7 # -;!*"*3E # 3*!D*C"*3E DA&A%ES They are not proportionate to the actual pecuniary loss sustained by the aggrie!ed party but are inflicted by way of punishment. These are normally awarded in case of: A 1reach of promise to marrA5 or :ron8f9l dishono9r of a cheF9e 1A a 1anRer. The measure of damages in case of breach of promise to marry is dependent upon the se!erity of the shoc$ to the sentiments and goodwill of the promisee. #n case of wrongful dishonour of a che>ue" the rule is- smaller the amount of the che>ue" larger will be the amount of damages awarded and !ice !ersa. ! &*!A( DA&A%ES Nominal damages are awarded in case of breach of contract where there is only a technical !iolation of the legal right" but no substantial loss is caused thereby. The damages granted in such cases are called nominal because they are !ery small" say" a rupee. #t may be noted that the aggrie!ed party cannot claim these damages as a matter of right. #t is always at the discretion of the court whether or not to award nominal damages. DA&A%ES , # DE"E#* #A"* ! CA;SED )7 DE(A7 #n the case of deterioration caused to goods by delay" damages can be reco!ered from carrier e!en without notice. The word IdeteriorationI implies not only physical damages to the goods but also loss of special opportunity for sale. Case: :ilson v. (ancashire and 7orRshire #ail0aA CompanA

26 The plaintiff had bought !el!et for ma$ing caps for sale during the spring season. 2ut" due to delay in transit" he was unable to utiliSe it for ma$ing caps for sale during the season. #t was held that the fall in !alue of the cloth arri!ed after the season amounted to a deterioration for which the plaintiff was entitled to reco!er damages without notice.

DA&A%ES , # *!C !3E!*E!CE A!D D*SC &, #" %hen a party has suffered physical discomfort and incon!enience as a result of breach of contract" that party can mo!e a suit for claiming compensation. *owe!er" according to the general rule" the moti!e or the manner of breach do not affect the measure of the damages. CASE: (/ ))S 3. ( !D ! . S.:. -A*( .C .) *" with his wife and children too$ a tic$et for a midnight train" to be transported to a particular place where he li!ed. They were" howe!er" transported to a wrong place and they had to wal$ se!eral miles on a driSSling night. * was awarded compensation for incon!enience but nothing for the medical eFpenses of his wife who caught cold" as this conse>uence was too remote. (*Q;*DA"ED DA&A%ES . -E!A("7 Some time" in order to a!oid delay in the assessment and payment of damages" at the time of formation of contract" the parties to a contract mutually agree to stipulate or specify sum" which will become payable by the party guilty of breach. #f the specified sum represents a fair and genuine pre-estimate of the damages li$ely to result due to breach" then it is called li>uidated damages. )n the other hand" if the sum fiFed at the time of formation of contract is disproportionate to the damages li$ely to occur" the sum is deemed to be a penalty. The amount is so pro!ided to ensure performance of the contract. ?nder nglish law" li>uidated damages are enforceable but penalty cannot be claimed. #n #ndia" howe!er" there is no such distinction recognised between penalty and li>uidated damages. The courts in #ndia allow only Ireasonable. compensationI -section D=/. S"*-;(A"* !S , # *!"E#ES" A stipulation for payment of interest in case of default is not in the nature of a penalty" if the interest is reasonable. #f the court. finds that the rate of interest is eForbitant and is penal in character it may grant some relief. A stipulation in a bond for payment of compound interest on failure to pay simple interest at the same rate as was payable upon the principal is not a penalty. 2ut a stipulation in a bond for the payment of compound interest at a rate higher than that of simple interest is a penalty and the party may be relie!ed against. Q1@. :hat is Q9asi Contracts? Disc9ss its provisions 9nder *ndian Contract Act51KJ2? A1@. o%hen one person obtains a benefit at the eFpense of the another and the circumstances are such that he should" e>uitably" pay for it" the law will compel payment. !en though there is no contract between the parties.

27

oSuch relationships are termed as ;uasi Contracts because although there is no


agreement or contract between them" they are in same position as if there is Contract. oActually" essentials of !alid Contract are lac$ing" but as circumstances are similar to Contract" they are termed as ;uasi Contracts. oThe term ;uasi Contract is deri!ed from the 3oman Law. o;uasi contracts are not contractual in law" but in fact. oLaw of ;uasi Contract is also $nown as Law of 3estitution. oThe following are ;uasi Contract 1. Necessaries P CA 2. 3eimbursement P CE ?. Non-gratuitous PD4 G. &inder of Loods PD0 =. +ista$e or coercion PD, 1)

o o o o

!ecessaries P >K #f a person incapable of entering in to a C. or any one whom he is legally bound to support" is supplied by another person with necessaries suited to conditions of his life" the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable persons. &or e.g. A supplies 2" a lunatic with necessaries. A is entitled to be reimbursed from 2Gs property. The term JNecessariesG is not defined in #ndian Contract Act: 0AD,. #t includes articles re>uired to maintain a particular position in which he is. JNecessariesG may include goods and ser!ices i.e. teaching" medical ad!ice etc.

2) #eim19rsement:+>L o A person who is interested in the payment of money" which another is bound by Law to pay" and who therefore pays it" is entitled to be reimbursed by the other. o *owe!er" the following are essential re>uirements. o The payment must be made such as the other party was bound by Law to pay o &or e.g. 2roo$Gs wharf Ltd. %as the owner of a wear house. Loodman 2ros.-L/ imported certain goods and $ept them in wear house. The goods were stolen without any negligence as part of %. the authorities made a demand on % for payment of custom duties which % paid. *eld" % could reco!er the amount form L. 6 2roo$s wharf Ltd. OKs Loodman 2ros. P 0E:D 7 -i/ The payment made must be bonafide -ii/ The payment must be made to another person and not to himself. &or e.g. A canal Co. owned a canal and was under a statutory duty to $eep the bridge on the canal under repair. The bridge fell into disrepair and +accles &ield corporation-+/ called upon canal Co. failed to do so" + repaired the bridge themsel!es and bring an action to reco!er the amount. *eld" here payment is !oluntary and hence" + cannot reco!er. 6 +acclesfield Corporation !Ks Lreat Central 3ailway P 0E00 7 ?) !on P %rat9ito9s: + o %here a person lawfully does anything for another person or deli!ers anything to him" not intending to do so gratuitously and such other person en.oy the benefit

28 thereof" the latter is bound -who has en.oyed/ is bound to ma$e compensation to the former in respect of" or to restore" the thing so done or deli!ered. 6Sec: - D47 o &or e.g.: - A sa!es 2Gs property from fire. A is not entitled to compensation from 2" if circumstances show that he intended to act gratuitously. o *owe!er" the following are the essentials of see: D4 -i/ The thing must be done lawfully : &or e.g.: - A managed the property of his wife and sister-in-law and was under an impression that he will recei!e remuneration. *e was entitled to claim reasonable remuneration. -ii/ #t must be by person not intending to act gratuitously B &or e.g.: - <ollangee 1 Sons -p/ enters into a Contract with Lonawalla municipality -L/ to construct a mar$et. The C)NT3ACT was in writing but it did not bear seal of municipality to ma$e it binding on L according to +unicipality Act. < construct the mar$et accordingly and L ta$es the possession there of but refuses to pay < as agreed for its construction. *eld" < is entitled to recei!e the dues. 6 <ollangee 1 Sons OKs A Lonawala +unicipality7 G) ,inder of 8oods: +Section J1 o A person who finds goods belonging to another and ta$es them into his custody" is sub.ect to the same responsibility as a bailee 6 Sec: - D07 o *e is bound to ta$e as much care of the goods" as a man of ordinary prudence would ta$e care of his own goods. o *e must also ta$e necessary steps to trace the true owner" if he does not" he will be guilty. o Till the owner is found out" the property in goods will !est with the finder and he can $eep with him against the whole world. -eFcept true owner/ o &or e.g.: - #n case of *ollins OKs &owler: *ollins pic$ed up a diamond from &owlerGs shop and handed it to & to $eep it till the true owner appears. #n spite of se!eral ad!ertisement" no one appeared to claim. *ollins claims the diamond" and & refuses. o *eld" the finder of goods is *ollins and so he can $eep with himself against the whole world eFcept true owner. & must return it to *. =) &istaRe or Coercion+Section J2 o A person to whom money has been paid or anything deli!ered" by mista$e or coercion" must repay or return it to the person who paid it by mista$e or coercion. o &or e.g . A pays some money to 2 by mista$e. #t is really due to C. 2 must refund money to A. C" howe!er cannot reco!er the amount from 2" as there is no pri!ity of contract.

29

SPECIAL CONTRACTS
Q1. Explain the Contract of *ndemnitA . %9arantee 9nder Special Contracts? A1 C !"#AC" , *!DE&!*"7 &EA!*!% V The term IindemnityI simply means to ma$e good the loss or to compensate the party who has suffered some loss. V The term Icontract of indemnityI is defined in Section 0,= of the #ndian Contract Act as follows: V HA contract by which one party promises to sa!e the other from loss caused to him by the conduct of the promisor himself or by the: conduct of any other person" is called a contract of indemnity.H -A#"*ES V The person who promises to compensate for the loss is called the Hindemnifier. V The person to whom this promise is made or whose loss is to be made good is $nown as Hindemnity-holderH or HindemnifiedH. V &or eFample" A contracts to indemnify 2 against the conse>uences of any proceedings which C may ta$e against 2 in respect of a certain sum of money. This is a contract of indemnity" *ere A is the indemnifier and 2 is the indemnified. E!, #CEA)*(*"7 V To enforce such contracts it is necessary that all the essentials of a !alid contract must be present. #n case any one of the essential is missing" the contract cannot be enforced. V Thus if the ob.ect or consideration of an indemnity agreement is unlawful" it cannot be enforced. V &or eFample" A as$s 2 to beat C" promising to indemnify him against the conse>uences this cannot be enforced. Suppose 2 beats C and is fined 3s. @44" 2 cannot claim this amount from A" because the ob.ect of the agreement is unlawful. SC -E V All contracts of insurance -eFcept Life #nsurance/ are also contracts of indemnity. V #n an auction sale there is an implied contract of indemnity between the auctioneer and the person who as$s him to sell goods. V A promise to ma$e good the loss arising from any cause whatsoe!er e.g. fire" perils of sea" accidents etc. are also considered to be contract of indemnity. *&-(*ED C !"#AC" , *!DE&!*"7 V Section CE of the Contract Act implies a duty to indemnity in case a person who is interested in the payment of money which another is bound by law to pay" has paid the amount. V Similarly" in an auction sale there is an implied contract of indemnity between the auctioneer and the person who as$s him to sell goods. V &or eFample" A" an auctioneer" sold certain goods on the instructions of 2. Later on" it is disco!ered that the goods belonged to C and not 2. So" C reco!ered damages from A for selling the goods belonging to him. *ere A is entitled to reco!er the compensation from 2.

30 #n the abo!e case there was an implied promise to compensate the auctioneer for any loss which he may suffer on account of the defecti!e title of 2.

#*%/"S , *!DE&!*"7 / (DE# V #n pursuance of Section 0,@ of the Act the indemnity-holder may reco!er from the indemnifier -promisor/" the following amounts" pro!ided the acts within the scope of his authority : 0. *e is entitled to reco!er all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applied. ,. *e is entitled to reco!er from the indemnifier all costs which he had paid in bringing or defending any suit in respect of contracts of indemnity. #n bringing or defending the suit the indemnity-holder must not contra!ene the orders of the indemnifier and he must act in the same way as a prudent man would ha!e acted under similar circumstances in his own case. :. *e is entitled to reco!er from the indemnifier" all the amount which he had paid under the terms of the compromise of such suit. *owe!er" it is essential that the compromise must not be contrary to the orders of the indemnifier and in compromising the suit" he must act as a prudent man. This right is also a!ailable to the indemnity-holder when he paid any amount under any compromise entered by him and authoriSed by the indemnifier. *!DE&!*,*E#IS (*A)*(*"7 0. An important >uestion in this connection is when does the indemnifier become liable to pay" or" when is the indemnity-holder entitled to reco!er his indemnity5 ,. The indemnity-holder is entitled to abo!e-mentioned rights as soon as his liability has become certain" although lie has himself paid nothing. :. #ndemnity is not necessarily gi!en by repayment after payment. #ndemnity re>uires that the party to be indemnified shall ne!er be called upon to pay. =. Thus" if the indemnity-holder has incurred an absolute liability" he is entitled to as$ the indemnifier to sa!e him from that liability and pay it off. @. #n simple words" the liability of indemnifier commences as soon as the liability of the indemnity-holder becomes absolute. C !"#AC" , %;A#A!"EE

&EA!*!% V According to Section 0,C of the #ndian Contract Act" IA contract of guaranteeI is a contract to perform the promise" or discharge the liability" of a third person in case of his default. V The person who gi!es the guarantee is called the surety. V The person in respect of whose default the guarantee is gi!en is called the <rincipal 8ebtor. V The person to whom the guarantee is gi!en is called the Creditor. V &or eFample" if A" and his friend 2 enter a traderIs shop" and A as$s the trader" supply the articles re>uired by 2" and if he does not pay you. # will. #t is a contract of guarantee. V The primary liability to pay is that of 2 but if he fails to pay" A becomes liable to pay. )n the other hand" if A says to the trader" Hlet him -2/ ha!e the goods" # will sec you are paidH" the contract is one of indemnity and not a contract of guarantee.

31 C &-E"E!C7 , -A#"*ES V A contract of guarantee is an agreement and as such all the essentials of !alid contract must be present. V &or instance" the contracting parties should be competent to contract. Suppose in the abo!e-mentioned eFample 2 is a minor i.e." incompetent to contract. V #n such a situation A would be regarded as the principal debtor and he will become personally liable to pay. V Thus" the incapacity of the principal debtor does not affect the !alidity of a contract of guarantee. The re>uirement is that the creditor and the surety must be competent to contract. ESSE!"*A( ,EA";#ES , C !"#AC" , %;A#A!"EE V There should be eFistence of a debt" for which some person other than the surety should be primarily liable. V #t is not necessary that the surety should be benefited in respect of consideration. V All the essentials of a !alid contract should be present. V Creditor and surety must be competent i.e." principal debtor need not be competent to contract. V SuretyIs liability is dependent on principal debtorIs default. V Luarantee must not be obtained by misrepresentation. V Luarantee must not be obtained by concealment of material facts. Q2. Distin89ish 1et0een Contract of *ndemnitA and Contract of %9arantee? A2. "he points 0hich differentiate the contract of indemnitA from 89arantee are 8iven 1elo0. -A#"*ES #n a contract of indemnity there are only two parties i.e." indemnifier and the indemnified while in contract of guarantee there are three parties principal debtor" creditor and the surety. ! . , C !"#AC"S #n a contract of indemnity there is only one contract" whereas in a contract of guarantee" there are three contracts. :/ *S (*A)(E #n a contract of indemnity the indemnifier underta$es to sa!e the indemnified from any loss caused to him by the conduct of indemnifier himself or the conduct of any other person" while in a contract of guarantee" the surety underta$es for the payment of debts of principal debtor" if the principal debtor fails to pay it. !A";#E , (A*)*(*"7 #n a contract of indemnity" the liability of indemnifier is primary and independent" while in a contract of guarantee the liability of surety is secondary i.e." it arises only on the default of principal debtor. The primary liability is that of the principal debtor. "7-E , )(*%A"* ! #n a contract of indemnity" indemnifierIs liability arises only on the happening of a contingency" while in a contract of guarantee there is an eFisting duty or debt" the performance of which is guaranteed by the surety.

32 *!*"*A"*3E #n a contract of indemnity" indemnifier acts independently without any re>uest of the debtor or the third party" while in a contract of guarantee the surety guarantees at the re>uest of principal debtor. C !SEQ;E!CE #n a contract of guarantee" if the principal debtor fails to pay and the surety discharge his debt" the surety can proceed against the principal debtor in his own right" while in a contract of indemnity" the indemnifier cannot sue the third party in his own name unless there is an assignment #n indemnifierIs fa!our. #f there is no such assignment" the indemnifier must bring the suit in the name of indemnified Q?.Explain tApes of %9arantees 9nder *ndian Contract Act5 1KJ2? /o0 can the contin9in8 89arantee 1e revoRed? A?. A guarantee may be specific or continuing. S-EC*,*C %;A#A!"EE A specific guarantee co!ers only one transaction or ob.ecti!e" is limited to a certain sum of money and is limited as to time. Any amount paid towards the ad!ance by the borrower in his debt account with the creditor will go to reduce the guarantorIs liability. C !"*!;*!% %;A#A!"EE A continuing guarantee is defined in Section 0,E of the #ndian Contract Act. #t co!ers a series of transactionsB sub.ect to the limit as mutually agree upon" irrespecti!e of the payments towards the ad!ance and irrespecti!e of the fluctuations of the balance in the debtorIs account between debit and credit. %hether a guarantee is a continuing guarantee or not depends upon the construction of the document. #f there are se!eral documents co!ering a debt and guarantee" all the documents must be read as whole. #n case of ambiguity in the contract" the nature of the contract is to be determined basing upon the surrounding circumstances. #n Nottingham *ide Co. !s. 2ottrill it was held that the following words used in a guarantee made the guarantee a continuing one: H*a!ing e!ery confidence in him" he as but to call on us for a che>ue and ha!e it with pleasure for any account he may ha!e with you and when to the contrary we will write to youH. #E3 CA"* ! , "/E C !"*!;*!% %;A#A!"EE #n the case of a <artnership firm" a Continuing guarantee is re!o$ed on the reconstruction of the firm. According toH Section :A of the #ndian <artnership Act" a continuing guarantee gi!en to a firm or to a third party in respect of the transaction of the firm" is" in the absence of agreement to the contrary re!o$ed as to future transaction from the date of any change in the constitution of the firm. #n Neel Comul +oo$er.ee !s. 2ipro 8as +oo$er.ee" IAI was surety for I2I" who was a cashier in N.C. +oo$er.ee 1 Co. The firm was thereafter reconstituted. #t was held that the continuing guarantee was re!o$ed by the change of the constitution of the firm and IAI was not liable for any misappropriation or defalcation by I2I after the date of the change of the constitution of the firm. #n +ontosh Wumar Chater.ee and Another !s. Central 2an$ and others" the Calcutta *igh Court held that Hwhen there is arrangement for an o!erdraft in a current account up to a

33 specified limit and se!eral ad!ances" not eFceeding that limit in their liability less the credits" are made" such ad!ances are not each a separate loan but are component parts of a single loan. #t was also held that when a guarantee is gi!en in respect of such an o!erdraft" it is a continuing guarantee co!ering the running and fluctuating account and securing the general debit balance at any time" sub.ect howe!er" to the limit specified.H &E"/ DS , #E3 CA"* ! , C !"*!;*!% %;A#A!"EE A continuing guarantee may be re!o$ed in two ways: V by the surety gi!ing notice oral or in writing to the creditor as to future transactions -Section 0:4/ and V in the absence of a contract to the contrary" by the death of the surety as to future transactions -Section 0:0/. #t should be noted that the notice of re!ocation must be gi!en according to the terms of the contract. #f the contract of guarantee re>uires three monthIs notice" the surety must gi!e a three monthIs notice. #n %all +uhammed !s. Lanpat" it was held that a notice re!o$ing a guarantee gi!en .ust a day before the performance of the contract is not illegal. #f there are more than one surety" the notice must be gi!en by or on behalf of all the co-sureties. Notices by one co-surety do not determine the guarantee. The death of the surety terminates his guarantee as to future transaction in the absence of a contract to the contrary. *is estate is" howe!er bound to all transactions entered into before the death of the surety. #n se!eral Court decisions it has been held that if the consideration for the continuing guarantee is one and whole" in that case the guarantee does not come to an end by the death of a surety" and the estate of the deceased surety continues to be liable for future transaction as well. %here two sureties gi!e .oint and se!eral continuing guarantee" the death of one of them does not terminate the liability of the sur!i!or.. The lunacy of the surety terminates the guarantee as to future ad!ances. C !S*DE#A"* ! , %;A#A!"EE HAnything done" or any promise made" for the benefit of the principal debtor" may be a sufficient consideration to the surety for gi!ing the guaranteeH. #t is rele!ant to discuss following illustrations in this regard. I2I re>uests IAI to sell and deli!er to him goods on credit. IAI agrees to do so" pro!ided IC will guarantee the payment of the price of the goods. IC promises to guarantee the payment in consideration of IAIs promise to deli!er the goods. This is a sufficient consideration of ICIs promise. IAI sells and deli!ers goods to I2I. IC afterwards" without consideration agrees to pay for them in default of I2I. The agreement is !oid. #n a contract of guarantee it is not necessary that all the material facts be disclosed unless it is in nature of an insurance. #n other words a contract of guarantee is not a contract of ?berrimae &idei. The following case aptly describes this. ( !D ! %E!E#A( &!*);S C &-A!7 C engaged < as a cler$ to collect money for him. < misappropriated some of CIs receipts and failed to account for them. This sum was made good by <Is relations and C agreed to retain < in his ser!ice on ha!ing a fidelity guarantee. S ga!e his guarantee for <Is duly accounting. C did not ac>uaint S with <Is pre!ious dishonesty. *eld" the guarantee could not be enforced against S owing to the nondisclosure of <Is pre!ious dishonesty.

34 Q?. Explain !at9re of S9retATs (ia1ilitA? :hat are his ri8hts? A?. According to Section 0,A" the liability of the surety is co-eFtensi!e with that of the principle debtor" unless otherwise pro!ided by the contract. The liability of the surety is normally to the same eFtent as that of the principal debtor. The surety cannot howe!er" be made liable beyond what he had earlier contracted to. The surety may howe!er" limit his liability to a part of the entire debt. The eFtent of liability of a surety assumes importance when the principal debtor is declared insol!ent. A reduction in the liability of the principal debtor -for eFample" after the creditor has reco!ered a part of the sum due from him out of his property/ will result in a proportionate scaling down of the suretyIs liability. #t has been specifically pro!ided in the contract that the suretyIs liability arises only when the principal debtor is made liable" the surety continues to be liable in the gi!en instances: V death of the principal debtorB V discharge of the principal debtorIs liability by operation of lawB and V creditorIs failure to sue the principal debtor within the period of limitation. V release of one of the co-sureties by the creditor. (*&*"A"* ! , S;#E"7TS (*A)*(*"7 #n the first instance" the guarantee gi!en is restricted to a part of the debt whereas in the second instance the guarantee gi!en is for the entire debt sub.ect to a limit. This will result in the following conse>uences: V where guarantee is gi!en for a part of the debt. *ere" <rem will be able to reco!er 3s.@"444 from the Srinath -surety/ and 3s.D@4 -0 K=th of the balance of 3s.:"444/ from ArunIs estate. After ma$ing the payment" Srinath -surety/ steps in the shoes of the creditor and can reco!er 3s. 0",@4 -i.e." lK=th of 3s.@"444/ from ArunIs estate. V where guarantee is gi!en for the entire debt sub.ect to a limit" <rem will succeed in reco!ering 3s.@"444 from Srinath -i.e. the guaranteed amount/ and 3s.,"444 -lK=th of the entire debt of 3s.A"444/ from ArunIs estate. Srinath will not get any di!idend from ArunIs estate till the full amount of 3s.A" 444 is paid to <rem. #*%/"S , "/E S;#E"7

#i8ht a8ainst the Creditor The surety can eFercise the following two rights against the creditor: V Section 0=0 pro!ides that a surety is entitled to all the securities of the principal debtor in the possession of the creditor at the time when the contract of surety is entered into. This right can be eFercised by the surety irrespecti!e of whether he is aware of the eFistence of the security or not. V Secondly" in case the creditor loses or parts with the security without the consent of the surety" then the surety is discharged to the eFtent of the !alue of the security. #i8hts a8ainst the -rincipal De1tor According to Section 0=4 of the Contract Act" soon after discharging the liability of the principal debtor" the surety steps into the shoes of the creditor and can eFercise all the rights which the creditor himself would ha!e eFercised against the principal debtor. This right of the surety is called the right of subrogation.

35 #i8ht to *ndemnitA : According to Section 0=@" in e!ery contract of guarantee there is an implied promise by the principal debtor to indemnify the surety" and the surety is entitled to reco!er from the principal debtor whate!er sum he has rightfully paid under the guarantee" but no sums which he has paid wrongfully. Thus a surety is entitled to full indemnification -i.e." he can reco!er not only the amount paid to the creditor but also any interest thereon/. *owe!er" Section 0=@ lays down certain restrictions as to what the surety can claim. V A surety can claim only that amount which he has actually paid to the creditor. V *e cannot claim amounts paid by him negligently or wrongfully. #i8hts of s9retA on paAment or performance: %here a guaranteed debt has become due" or default of the principal debtor to perform a guaranteed duty has ta$en place" the surety" upon payment or performance of all that he is liable for" is in!ested with all the rights which the creditor had against the principal debtor -Section 0=4/. *e is also entitled to reco!er from the principal debtor whate!er sum he has rightfully paid under the guarantee" but no sums which he has paid wrongfully -Section 0=@/. S9retATs ri8hts a8ainst the co+s9reties: %hen a surety has paid more than his share of debt to the creditor" he has a right of contribution from the co-sureties who are e>ually bound with him in absence of any agreement to the contrary. #f they are bound in different sums" they are liable to pay e>ually as far as the limits of their respecti!e obligations permit -Section 0=D/. As between co-sureties" there is e>uality of burden and benefit. IAI" I2I and IC are sureties for a debt due by I8I to I I. A restricts his liability to 3s.04"444" 2 to 3s.,4"444 and IC to 3s.=4"444. I8I ma$es default to the eFtent of 3s.:4"444. #n such an e!ent" IAI" I2I and IC will be liable to the eFtent of 3s.04"444 each. The position !aries in case J8I ma$es default to the eFtent of 3s.=4"444. A shall then be liable to pay 3s.04"444 and I2I and IC 3s. 0@"444 each. A suit can be filed to declare that the debtor shall be the person liable to pay debt before the payment of principal debt and on the payment of the principal debt the surety will be placed in the position of the creditor. QG. Disc9ss the provisions relatin8 to Dischar8e of S9retA 9nder *ndian Contract Act? AG. S9retA is Dischar8ed from (ia1ilitA )A #evocation V A continuing guarantee can be re!o$ed by the surety any time by gi!ing notice to the creditor. A notice gi!en" discharges the liability of the surety with respect to all future transactions. *owe!er" the surety will remain liable for those transactions prior to the re!ocation. V 2y death of the surety so far as future transactions are concerned. *owe!er" the suretyIs liability will not be discharged e!en on his death" in case there is a contract to that effect. V 2y No!ation - where a new contract substitutes the old contract by which the liability under the old contract stands canceled. )A Cond9ct of the Creditor V Any !ariance made without the suretyIs consent" in the terms of the contract between the principal debtor and the creditor" discharges the surety as to transactions subse>uent to the !ariance.

V V

36 The !alidity of a contract of guarantee will not be affected in case there is a written contract of guarantee and there is no !ariance of the same in writing. %here the creditor enters into an agreement with the principal debtor releasing him from his liability" the surety stands discharged. The following illustration aptly discusses this. IAI gi!es guarantee to IC for goods to be supplied by IC to J2G JCG supplies goods to I2G and afterwards I2I becomes embarrassed and contracts with his creditors -including CIs/ to assign to them his property in consideration of their releasing him from their demands. *ere" I2I is released from his debt by the contract with ICG and IAI is discharged from his surety ship. #t has already been discussed that as per Section 0,A the liability of a surety is coeFtensi!e with that of the principal debtor. *ence" if the principal debtor isdischarged from his liability by !irtue of an agreement between him and the creditor" then the surety also will stand discharged. Another eFplanation for the discharge of the surety is as follows: As per Section 0=4" the surety can claim reimbursement from the principal debtor after ma$ing payment to the creditor. #f the principal debtor is no more liable" then the remedy of the surety will be affected. This would result in a discharge of his liability.

%hen the creditor compounds with principal debtor gi!ing him time to pay his debt the surety stands discharged.

Accordin8 to Section 1?=5 the follo0in8 circ9mstances 0ill lead to a dischar8e of s9retATs lia1ilitA. %hen the creditor compounds with the principal debtor. %hen the creditor agrees not to sue the principal debtor: A contract between the creditor and the debtor" wherein the creditor agrees not to sue the debtor will discharge the surety from his liability. V %here the creditor" by his act or failure to perform his duty to the surety impairs the remedy a!ailable to the surety against the principal debtor" the surety is discharged. Also" any act of the creditor which by implication releases the principal debtor from liability" will discharge the surety from his liability. #n *ewison !s. 3ic$ets" goods were gi!en on hire purchase basis. The payment of the installments was guaranteed by a third person. %hen the debtor failed to ma$e payment" the creditor determined the agreement" seiSed the goods and sued the surety on his guarantee. #t was held that as the creditor had determined the agreement" the surety cannot be held liable. %here the creditor loses or disposes off" without the consent of the surety any security pledged with him" the surety stands discharged to the eFtent of !alue of the security so lost or disposed.

)A *nvalidation of Contract V A guarantee obtained by means of either misrepresentation or concealment of material fact which the creditor was aware of" at the time of entering into the contract" in!alidates the guarantee and discharges the surety.

V V

37 %here there is no consideration between the creditor and the principal debtor" the surety is discharged. %here a person gi!es guarantee on the condition that the creditor shall not act upon it until another person .oins in as co-surety" the guarantee is not !alid if that other person does not .oin.

Q=. A=.

:hat is )ailment? State the D9ties And #i8hts of )ailor And )ailee 9nder Contract of )ailment? 2ailment and <ledge are special types of contracts which are regulated by Sections 0=A to 0A0 of the #ndian Contract Act" 0AD,. The word IbailmentI ta$es its roots from the &rench word IbailorI which means Ito deli!erI. According to Section 0=A" Hbailment is the deli!ery of goods by one person to another for some purpose" upon a contract that they shall" when the purpose is accomplished" be returned or otherwise disposed of according to the directions of the person deli!ering themH. The person deli!ering the goods is called the IbailorI and the person to whom they are deli!ered is called the IbaileeI. Thus" the essentials of a bailment can be summariSed as under: V &irstly" there should be deli!ery of goods for some purpose. The deli!ery of goods should not be accompanied by transfer of ownership. V Secondly" the goods should either be returned to the bailor after the purpose has been accomplished or it should be disposed off according to the bailorIs directions. 8eli!ery of goods in a contract of bailment may be actual or constructi!e. Actual deli!ery ta$es place when goods are physically deli!ered to the bailee. &or eFample" deli!ery of gold to a goldsmith for ma$ing .ewels constitutes actual deli!ery. )n the other hand" in constructi!e deli!ery" there is no physical transfer of goods. <ossession of goods is handed o!er to the bailee without actually transferring them physically. &or eFample" IAI sells his wal$man to HCH. HCH re>uests IAI to $eep the wal$man with him for two wee$s instead of deli!ering it to him immediately. *ere IAI holds the wal$man as a bailee. %here the owner retains control o!er the goods there is no bailment. The position would be similar if a loc$er in a safe deposit !ault is gi!en by a ban$ to a customer along with the $ey without which the loc$er cannot be opened. Classification of )ailment 2ailments may be for V eFclusi!e benefit of the bailorB V eFclusi!e benefit of the baileeB V mutual benefit of the bailor and the baileeB V gratuitous bailmentB where there is no consideration between the partiesB and V Non-gratuitous bailment or bailment for reward. The rights and duties of bailor and bailee are contained in Sections 0@4 to 0C= of the Act. %e shall first discuss the duties and rights of a bailor.

38 D9ties of a )ailor The bailor is bound to disclose to the bailee faults in the goods bailed" of which the bailor is aware" and that which materially interferes with the use of them" or eFposes the bailee to eFtraordinary ris$s. "he follo0in8 ill9stration is relevant in this re8ard: IAI lends a horse" which he $nows to be !icious" to I2I. *e does not disclose the fact that the horse is !icious. The horse runs away. I2I is thrown and in.ured. IAI is responsible to I2I for the damage sustained. #n a contract of bailment" the bailee will ha!e to bear all the ordinary-eFpenses incurred" while the bailor will be responsible for any eFtraordinary eFpenses incurred by !irtue of the bailment. #n case of a gratuitous bailment" it is the duty of the bailor to bear the ordinary and reasonable eFpenses incurred by the bailee. The bailor is responsible to the bailee for any loss sustained by him in the following instances: %here the bailor is not entitled to ma$e the bailment" or to recei!e bac$ the goods" or to gi!e directions" regarding them. <remature termination of a gratuitous bailment. #t is the duty of bailor to recei!e bac$ the goods after the purpose is achie!ed.

#i8hts of )ailor V The bailor is entitled to enforce by suit all the liabilities or duties of the bailee" as his rights. V V V The bailor can terminate the bailment if the bailee does" with regard to the goods bailed" any act which is inconsistent with the terms of the bailment -Section 0@:/. 8emand return of goods lent gratuitously. The bailor can sue a third party who by his act causes any in.ury o the bailee the possession and use of good bailed.

D9ties of )ailee V According to Section 0@0" the bailee should ta$e such care of the goods as a man of ordinary prudence would ta$e of his own goods. #f the bailee has not acted in a prudent manner" he cannot be eFcused by pleading that he had ta$en similar care of his own goods also" and his goods" ha!e also been lost or damaged along with those of the bailor" or that the bailor had the $nowledge that his goods were being $ept in a negligent manner. Some cattle belonging to IAI were with I2I. %ithout any negligence on 2Is part the cattle were stolen. 2 did not inform the owner or the police or ma$e any effort to reco!er them" because he thought it would be useless to do so. *eld" I2I was liable for the loss" unless he could pro!e that e!en if he had reported the loss the cattle still could not ha!e been reco!ered. V The bailee should not ma$e any unauthoriSed use of goods. &or eFample : I+I lends a car to INI for his own use. INI rents it out to I'I. I'I dri!es with care" but the car accidentally falls and has to be repaired. INI is liable to ma$e compensation to I+I for the damage caused to the car. #n case the bailee ma$es unauthoriSed use of the goods bailed" the bailor may resort to either of the following two remedies. *e may terminate the

39 bailment or may reco!er compensation for the loss caused due to unauthoriSed use of the goods. V The bailee should not miF the goods of the bailor with his own goods" but $eep them separate from his own goods. %here the bailee miFes the bailorIs goods with those of his own with the bailorIs consent" then the bailor and the bailee shall ha!e an interest in the miFed goods in proportion to their respecti!e shares. %here he miFes the goods without the consent of the bailor" two possibilities may arise. - The goods can be separated. - The goods cannot be separated. :here the 8oods can 1e separated: %here the goods of the bailor and the bailee can be separated" then they will remain the owners in accordance with their respecti!e shares. *owe!er" the costs of separation as well as any damage arising from the miFture will ha!e to be borne by the bailee. :hen the 8oods cannot 1e separated: The bailor can reco!er damages from the bailee for the loss of the goods.

V V

The bailee should not set up an ad!erse title of the goods bailed claiming them to be his. The bailee not only has to return the goods bailed but also any accretion to the goods.

#i8hts of )ailee The duties of the bailor are the rights of the bailee. V 8eli!ery of goods to one of se!eral .oint bailors of goods. #n the absence of any agreement to the contrary. V According to Section 0CC" if the bailor has no title to the goods" and the bailee" in good faith" deli!ers them bac$ to" or according to the directions of" the bailor" the bailee is not responsible to the owner in respect of such deli!ery. According to Section 0CD" if a person other than the bailor" claims the goods bailed" the bailee may apply to the court to stop the deli!ery of the goods to the bailor" and to decide the title to the goods. According to Section 0A4" if a third person wrongfully depri!es the bailee of the use or possession of the goods bailed to him" he has" the right to bring an action against that party. The bailor can also bring a suit in respect of the goods bailed. The bailee is also entitled to reco!er necessary eFpenses incurred on bailment. *e can also reco!er compensation from the bailor in case he incurs a loss owing to the defecti!e title of the bailor. 3etain the goods -lien/ till his dues are paid" in other words eFercise a general lien. The bailee may also eFercise a particular lien when the contract re>uires him to use his s$ills. %eneral lien entitles the bailee to retain goods of the bailor for a Igeneral balance of accountI. *ere" the bailee may retain not only those goods of the bailor in respect of

40 which some particular ser!ice has been rendered" but also other goods in the possession of the bailee belonging to the bailor. The right of general lien is conferred on ban$ers" factors" wharfingers" attorneys of *igh Court and policy bro$ers. This right is conferred only to the abo!e specified and none else unless there is an eFpress contract to that effect. ,or example: A deli!ers a rough diamond to 2" a .eweller" to be cut and polished which is accordingly done. 2 is entitled to retain the stone till he is paid for the ser!ices he has rendered. #i8hts of ,inder of %oods %hen a person finds an article and ta$es it into his custody" he assumes the role of a bailee. *e then has the same responsibilities li$e any other bailee. The rights a!ailable to him are: V V V According to Section 0CA" the finder of goods can eFercise lien o!er the goods till the owner reimburses the eFpenses incurred for the safe custody of the goods. %here the owner has announced a reward for reco!ery of the lost article" the finder has the right to retain the goods till he recei!es the award. The finder has a right to sell the article: - if the owner cannot be found pro!ided the bailee has made reasonable effortsB if the owner refuses" upon demand" to pay the lawful charges of the finderB the article is of perishable nature or that which loses most of its !alue with passage of timeB or if the lawful charges of the finder in respect of the goods found" amount to two thirds of their !alue.

Q>. :hat is -led8e? State the #i8hts and D9ties of -a0nee and -a0nor? A>. According to Section 0D," bailment of goods as security for payment of a debt or performance of a promise is called HpledgeH. The bailor is" in this case" called the H<ledgerH or H<awnorH and the bailee is called the H<ledgeeH or H<awneeH. #n a pledge" the pawnor deposits any type of mo!able property with the pawnee. #n other words" actual transfer of possession should ta$e place. Essentials of a -led8e maA 1e s9mmariUed as: V V V V There should be a deli!ery of goods. The purpose of deli!ery should be to ma$e the goods bailed ser!e as security for the payment of a debt" or performance of a promise. 8eli!ery of the goods by the pawnor to the <awnee is essential. An agreement to transfer possession in future is not pledge. %hen the goods are pledged" the <awnee becomes a secured creditor and has a prior claim o!er the goods pledged. #n Bank of India vs. Binod Steel Limited, it was

41 held that when certain mo!ables were pledged with a ban$" the same could not be sold to meet the liability of other creditors" unless the claim of the ban$ was fully satisfied. V The owner of the goods or any person authoriSed mentioned below by him in that behalf can pledge the goods. V A mercantile agent. V A person in possession under a !oidable contract. V A person with a limited interest V A seller in possession after sale V A buyer in possession after sale. <ledge by Non-owners The general rule is that it is the owner who can ordinarily create a !alid pledge. 2ut in the following cases e!en a non-owner can create a !alid pledge: V -led8e 1A mercantile a8ent: %here a mercantile agent is" with the consent of the owner" in possession of goods or the documents of title to goods" any pledge made by him" when acting in the ordinary course of business of mercantile agent" shall be as !alid as if he were eFpressly authoriSed by the owner of the goods to ma$e the pledge: pro!ided that the pawnee acts in good faith and has not at the time of the pledge notice that the pawnor has no authority to pledge. -led8e 1A seller after sale or 19Aer in possession 1efore sale " pro!ided the pawnee has acted in good faith without any notice of sale to the buyer o!er the goods or lien of the seller. :here a person pled8es 8oods in 0hich he has onlA a limited interest " the pledge is !alid to the eFtent of that interest. %oods can 1e pled8ed 1A a co+o0ner in possession. :hen the pa0nor has o1tained possession of the 8oods pled8ed 1A him 9nder a contract voida1le 9nder Section 1L or Section 1L+A5 and the contract has not been rescinded at the time of the pledge" the pawnee ac>uires a good title to the goods pro!ided he acts in good faith and without notice of the pawnorIs defect of the title.

V V V

#i8hts and D9ties of -a0nee V The pawnee has a right to retain the goods not only for payment of the principal debt or for performance of a promise but also for any eFpenses incurred or interest accrued thereon. The pawnee can sue the pawnor to reco!er from him any eFtraordinary eFpenses incurred by him for the preser!ation of the goods pledged. %hen the goods pledged ha!e been obtained by the pawnor under a !oidable contract and where such contract has not been rescinded at the time of pledge" the

V V

42 pawnee ac>uires a good title to the goods" pro!ided he has acted in good faith and has no $nowledge of the defecti!e title. V %hen the pawnor defaults in payment of debt or fails to perform his part of the promise" the pawnee can initiate a suit against the pawnorB retain the goods as a collateral securityB sell the goods pledged after gi!ing the pawnor a reasonable notice of saleB and reco!er from the pawnor any deficit between the debt due and sale price.

#i8hts and D9ties of -a0nor V V The pawnor can get bac$ the goods pledged on his performance of promise or repayment of loan and interest. #n case the pawnor ma$es default in payment" he can still pay the pledged amount and redeem the goods pledged at any subse>uent time. *owe!er" he can eFercise his right to redeem only before the pawnee has made an actual sale of the goods. The right to redeem the pledged goods will be in!alidated when the pawnee sells the goods in eFercise of his right under Section 0DC. The right of redemption of goods also includes a right to any accretion to the goods pledged. &or eFample" if shares are pledged and during that period the company issues bonus and right shares" then the pawnor will be entitled to the same on redemption. The pawnor can o!ersee whether the pawnee preser!es and maintains the goods properly. The pawnor has rights of an ordinary debtor which he has ac>uired by !arious statutes for the protection of debtors.

V V

QJ. :hat is (ien? Disc9ss its tApes? AJ. Lien is the right of a person -usually the creditor/ to retain the possession of the goods and securities belonging to another person -the debtor/ till the amounts due to him from such owner are fully realiSed. The lien can be defined as HThe right to retain the lawful possession of the property of another until the owner fulfills a legal duty to the person holding the property" such as the payment of lawful charges for wor$ done on the property. A mortgage is a common lienH. A lien has .udicially been defined as Ha right in one man to retain that which is in his possession belonging to another until certain demands of the person in possession are satisfiedH. #n its widest meaning the term HlienH includes e!ery case in which real or personal property is charged with the payment of any debt or dutyB e!ery such charge being denominated a lien on the property. #n a more limited sense it is defined to be a right of detaining the property of another until some claim be satisfied. &or eFample: The transporter of goods retains the possession of the goods that he has carried to the

43 destination till the amount of freight is paid to him. The tailor retains the dress stitched by him till the ser!ice charges for ma$ing the dress is paid to him. The right of eFercising Lien may arise in three ways: V 2y eFpress contract in between the parties V &rom implied contract in accordance with the general or particular usage of tradeB V 2y legal relation between the parties. #n order to create a !alid lien" the following factors are essential. V The party who ac>uired the property should ha!e the absolute title of ownership o!er that propertyB V That the party claiming the lien should ha!e an actual or constructi!e possession of property or goods with the assent of the party against whom the claim is madeB V The lien should arise upon an agreement" eFpress or implied and not be for a limited or specific purpose inconsistent with the eFpress terms or the clear" intent of the contractB e.g." when goods are deposited to be deli!ered to a third person or to be transported to another place. "he Effect of (ien #n general" the right of the holder of the lien is confined to the mere right of retainer. 2ut when the creditor has made ad!ances on the goods of a factor" he is generally in!ested with the right to sell. #n the absence of eFpress contract a lien does not of itself carry -sub.ect to a few eFceptions/ a right of sale of goodsKproperty on the part of the lienee. -The person who eFercises the right/. *owe!er" when such right of sale is incorporated as a matter of special contract in between the owner and the lienee" the lienee will ha!e to closely obser!e the contractual rights gi!en to him and should be careful to ser!e any notices of his intention to sell the goodsKproperty according to the terms of the contract and he should follow the necessary procedures stipulated by the contract meticulously. There are two $inds of lienB Hparticular lien and general lienH. -A#"*C;(A# (*E! A person claims the right to retain property in respect of money or labor eFpended on such particular property. This right is $nown as particular lien. #n #ndian law" particular lien is a!ailable to all the classes of people other than those mentioned in Section 0D0 of the #ndian Contract Act. The creditor with a particular lien can retain the possession of the goods only till the dues from the debtor for a particular debt for which the securities were handed o!er ha!e been satisfied. *e can not retain them for arty dues from th debtor on other accounts. Fample: A" the goldsmith is gi!en the gold by 2" the owner to con!ert it in the form of golden ornaments. *e can retain the possession of the ornaments only till the ser!ice charges for ma$ing those ornaments are paid by the owner" but not for any other liability to be discharged by the owner of the golden ornaments. %E!E#A( (*E! HA general lien is one which the holder thereof is entitled to enforce as a security for the performance of all the obligations" or all of a particular class of obligation which eFist in his fa!or against the owner of the propertyH.

44 A general lien is a lien in respect of all monies owed to the lienee. A particular lien is limited to monies owed to the lienee in respect of the goods o!er which the lie-is sought to be eFercised. ,or example: I'I has borrowed from the ban$ in the form of two types of loans" one is the agricultural loan for culti!ation of crop and the other is a personal loan against the security of his gold ornaments to meet his personal eFpenditure The agricultural loan has become due for repayment. #f there is no specific agreement in between the ban$ and the borrower in consistent with the lien" when the personal loans is repaid" the ban$ can eFercise the right of general lien by retaining the possession of golden ornaments after the borrower repays the entire liability in his personal loan till the dues accrued in the agricultural loan are repaid. 2ut" the ban$ can not eFercise the right of lien when the agricultural loan is not due for repayment at the time when the personal loan is closed. #n #ndian law" the general lien is a!ailable only to a select class of people. Section 0D0 of the #ndian Contract Act pro!ides" that ban$ers" factors" wharfingers" attorneys of a *igh Court and policy bro$ers may" in the absence of a contract to the contrary" retain" as a security for a general balance of account" any goods bailed to them. Accordingly" the ban$ers can retain the goods and securities which come into their possession in the course of their dealings as ban$ers for a general balance due from the customers" pro!ided there is no arrangement inconsistent with the lien. No agreement is necessary for the creation of the lien. QK. Explain &eanin8 and !at9re of A8encA? /o0 is it created? AL. *!"# D;C"* ! +odern business is growing and becoming competiti!e day by day. To $eep pace with this de!elopment it is not possible for a businessman to carry on all his business transactions on his own. This impossibility necessitates him to allow another person to wor$ on his behalf. This means he is delegating some of his powers to another person to carry on some of his business transactions on his behalf. *ere" the other person is an agent and the person who delegated the powers is the principal. The contract which binds the principal and agent is called an agency. ,or Example: ' Co. engages the ser!ices of ( firm to sell its products. *ere ' is the principal" ( is the agent and the contract between them is the contract of agency. The #ndian Contract Act" 0AD, is the rele!ant statute which regulates the contract of agency. The pro!isions of Section 0A: to Section ,:A of the Act regulate the contract of agency. &EA!*!%A!D!A";#E ,A%E!C7 Section 0A, of the #ndian Contract Act" 0AD, defines an Agent and <rincipal as: HAgentH means a person employed to do any act for another or to represent another in dealing with the third persons and the H<rincipalH means a person for whom such act is done or who is so represented. +ere designation of a person as an IAgentI in an agreement does not by itself ma$e him an agent" and his position depends on the nature of legal relationship.

45 According to Section 0A, of the Contract Act" an agent is defined as a person employed to do any act for another or to represent another in dealings with third persons. The persons for whom such act is done" or who is so represented" is called the IprincipalI. #n a contract of agency" it is the agent who brings about a legal relationship between two persons. #t should be noted that an agent is not merely a connecting lin$ between the principal and a third person. The agent is also capable of binding the principal by acts done within the scope of his authority. An agent does not act on his own behalf but acts on behalf of his principal. *e either represents his principal in transactions with third parties or performs an act for the principal. The >uestion as to whether a particular person is an agent can be !erified by finding out if his acts bind the principal or not. Essential *n8redients of Contract of A8encA V According to Section 0A:" any person who is of the age of ma.ority and is of sound mind may employ an agent. V According to Section 0A= of the Act" between the principal and the third persons" any person may become an agent. 2ut no person who is a minor and of unsound mind can become an agent. According to Section 0A@ of the Act" no consideration is necessary to create an agency. #t is not essential that a contract of agency be entered into. #t is sufficient if a person acts on behalf of another and is accepted by the latter.

V V

Creation of A8encA An agency can be created either in writing or orally. An oral appointment is a !alid appointment e!en though the contract of Agency by which the agent is authoriSed has to be in writing. EQ-#ESS A%#EE&E!" An Agency may be created either by Fpress agreement" i.e." an agreement is said to be eFpress when it is gi!en by words spo$en or written. -Section 0AD/ ?nder normal circumstances" agency is created by an eFpress agreement" specifying the scope of the authority of agent. The agent may" in such a case" be appointed either by word of mouth or by an agreement in writing. *owe!er" in certain cases" e.g. to eFecute a deed for sale or purchase of land" the agent must be appointed by eFecuting a formal power of attorney on a stamped paper. *&-(*ED A%#EE&E!" #mplied agreement" i.e." by inference from the circumstances of the case and things spo$en or written" or the ordinary course of dealing. -Section 0AD/ #mplied Agency comes into eFistence where there is no eFpress agreement appointing a person as agent. #t arises from the conduct" situation or relationship of parties. This means the authority to act as an agent may be inferred from the nature of business" the circumstances of the case" the conduct of the principal or the course of dealing between the parties.

46 *ll9stration: ' who" resides in Ahmedabad" owns a shop in *yderabad. *e !isits his shop occasionally. The shop is managed by ( who orders goods from Q in the name of ' for and pays the amount out of 'Is funds with 'Is $nowledge. This means ( has an implied authority from ' to order goods from Q in the name of '. *mplied a8encA incl9des: V A8encA 1A Estoppel or /oldin8 o9t: %hen a person" by his conduct or by statement" leads willfully another person to belie!e that a certain person is his agent" he is estopped from denying subse>uently that such person is not his agent. A8encA 1A !ecessitA: %here there is no opportunity of communicating to the concerned parties about any urgency and a person in such a situation acts as the agent for the benefit of the other" agency by necessity is said to ha!e arisen. A8encA in Emer8encA: An agent has authority in an emergency" to do all such acts for the purpose of protecting his principal from loss as would be done by a person of ordinary prudence" in his own case" under similar circumstances. As per Section 0AE of the #ndian Contract Act" 0AD," an agent has authority" in an emergency" to do all such acts for the purpose of protecting his principal from loss as would be done by a person of ordinary prudence" in his own case" under similar circumstances. Illustration: IAI consigns pro!ision to I2I at Wol$ata" with directions to send them immediately to IC" at Cuttac$. I2I may sell the pro!isions at Wol$ata" if they can not bear the .ourney to Cuttac$ without spoiling. A8encA 1A #atification: %here acts are done by one person on behalf of another but without his $nowledge or authority" he may elect to ratify or to disown such acts. #f he ratifies them" the same effects will follow as if they had been performed by his authority. The ratification may be eFpress or implied.

QL. :rite ExplanatorA note on Different tApes of A8ents? AL. An agent is employed to bring the principal into legal relations with third persons or to represent him in dealings with third persons. *e is bound to follow all the lawful instructions of the principal but he is not sub.ect to the direct control and super!ision of the principal. *e may wor$ for se!eral principals at the same time. *owe!er" a principal is liable for the acts of his agent done within the scope of his authority. An Agent is classified on two different aspects - on the basis of authority and on the basis of nature of wor$. ,i89re Classification of A8ents on the 1asis of A9thoritA Leneral Agent Special Agent ?ni!ersal Agent

%eneral A8ent *e is entrusted to perform all the wor$s connected with a particular business or employment" for eFample" a manager of a firm. *e can ma$e his principal responsible for all the acts done

47 in course of performance of such particular business or employment. *ere" the >uestion of authoriSation is immaterial pro!ided the third party acts bonafide" because it is deemed that the third party assumes that such an agent is authoriSed to do all that which is usual for a general agent to do. Thus" he is an agent who has authority to do all acts connected with a particular trade" business or employment. The principal may limit the authority of such an agent. ?nless the principal puts an end to the authority" it shall be assumed to be continuous. Special A8ent *e is entrusted to do some particular wor$ or represent his principal in some particular transaction. An agent employed to sell a motor car is the best eFample. Soon after such wor$ is completed" the authority of such an agent comes to an end. #f such an agent does or performs an act which is outside the pur!iew of his authority then he is personally liable for the same and the third parties are not entitled to assume that the agent has unlimited powers. Thus" it is always ad!isable for the third party to ma$e necessary en>uiry as to the eFtent of an agentIs authority before entering into any contract with him. ;niversal A8ent *e is an agent whose authority is unlimited. This means he is an agent who is authoriSed to do all such acts which his principal can lawfully do and can delegate. Thus" he en.oys eFtensi!e powers to transact e!ery $ind of business on behalf of the principal. Thus" he is an agent whose authority to act for the principal is unlimited. *e has authority to bind his principal by any act which he does" pro!ided the act -i/ is legal" -ii/ is agreeable to the law of the land. The distinction between general and uni!ersal agents is that the general agent can do e!erything related to particular business or employment" whereas a uni!ersal agent can do e!erything relating to e!erything of his principal. ,i89re Classification of A8ents on the 1asis of !at9re of :orR +ercantile Agents &actor Commission Agent 8el Credere Agent 2ro$er Non-+ercantile Agents Auctioneer

&ercantile A8ents As per Section ,-E/ of the Sale of Loods Act" 0E:4 a +ercantile Agent is one who has authority either to sell goods or to buy goods or to raise money on the security of goods. They are of four $inds based on the nature of wor$ they perform: V ,actor: *e is a mercantile agent to whom goods are entrusted for sale with wide discretionary powers. *e may sell such goods on his own name and may pledge the goods as well on such terms as he thin$s fit. &urther" he has a general lien on the goods of his principal for the general balance of account between him and the principal. V Commission A8ent: *e is the mercantile agent who buys or sells goods for his principal on terms as he thin$s fits and recei!es commission for such wor$ done. #t is immaterial whether he possess such goods or not.

48 Del Credere A8ent: The term del Credere means Iof entrustingI. Normally the duty of an agent is to enter into an agreement with the third person on behalf of his principal and he is not personally liable for the defaults of third persons towards his principal. *owe!er" del credere agent is a mercantile agent" who for additional consideration or eFtra commission from his principal" underta$es to perform the financial obligations of such third person in case such third person fails to fulfill the same. Thus" he occupies the position of surety as well as of an agent. #n case a del credere agent is made to pay an amount to his principal on default of such third person" he cannot reco!er this amount from such third person later. *is compensation is the eFtra commission that he was getting. Thus" the difference between the del credere agent and an ordinary agent is that the former acts also as a guarantor of the sol!ency of the third person while the latter acts only as a contracting lin$ between the principal and the third person. )roRer: *e is the mercantile agent who is employed to negotiate and ma$e contracts for the purchase and sale of goods. *e has neither control nor possession of goods. *e ser!es as a connecting lin$ and tries to bring out a business contract between the principal and the third party. #n case the deal materialiSes then he recei!es the commission called bro$erage. A9ctioneer: *e is an agent entrusted with the possession of goods for sale to the highest bidder in public competition and authoriSed only to deli!er the goods on receipt of the price. &urther he has implied authority to sign a contract or memorandum of sale on behalf of the !endor and the purchaser. Thus" an auctioneer is an agent appointed by a seller to sell his goods by public auction for a reward generally in the form of a commission. *e is primarily the agent of the seller" but after the sale has ta$en place" he becomes the agent of the purchaser also. *e has the authority to recei!e the price of the goods sold. *e can also sue for the price in his own name.

!on+mercantile A8ents Non-mercantile agent is an agent who recei!es commission from his principle eFecuting of a specified wor$. They may be called as commission agents" estate agents" house agents" law agents" election agents" ad!ocates" company secretaries. etc. Some of them are eFplained below: V Commission A8ent: *e is an agent who transacts business for another for a commission. Commission Agent is distinguished from an )rdinary Agent" because he can purchase goods for himself at a price fiFed by his principal and later on can sell to another person at a profit. *e is not bound to re!eal such profit to his principal since such profit is not made in the course of agency. &urther" a commission agent is an agent to his principal as such upto the point of sale of goods of his principal and thereafter he becomes a debtor. This clearly re!eals that a commission agent is not a fiduciary agent. V Estate A8ent: *e is an agent authoriSed by his principal to dispose of his property" upon which" is paid commission on agreed terms by his principal. #t is the duty of e!ery estate agent to intimate his principal about the best offer recei!ed by him at any time prior to entering into a contract for the sale of such property. Election A8ent: A candidate at an election may appoint an election agent in the prescribed manner. %hen such appointment is made" notice of the appointment must be

49 gi!en to the returning officer in the prescribed manner. Sub.ect to the pro!isions of the #ndian <artnership Act" 0E:, an agent can delegate his authority as discussed below: S91+A8ent A sub-agent is a person appointed by an agent to wor$ for the business of agency. *e acts under the control and super!ision of an agent. That means the agent acts as a principal for the sub-agent -Section 0E0/. Q1@ Explain D9ties and #i8hts of A8ent and -rincipal 9nder the Contract of A8encA? A1@ D9ties of A8ent V An agent is bound to conduct the business of his principal according to the directions gi!en" or in the absence of directions" according to the custom which pre!ails in doing business of the same $ind at the place where the agent conducts such business. V ,or Example: IAI" was instructed to warehouse some drapery goods for <" at a particular place. *e warehoused a portion of them at another place where they were destroyed by fire without any negligence on the part of IAI. *eld" IAI was liable to I<I for the !alue of the goods destroyed. #n case the agent does not follow the instructions of the principal or in case there are no instructions" he departs from the commonly established practice" he will be liable to compensate the principal for any loss incurred because of the departure. #f the agent adheres to the instructions gi!en by the principal he cannot be made liable if conse>uences turn out to be different from those contemplated by the principal. An agent is under no obligation to follow instructions which are unlawful. *owe!er" he will be liable if: he sells goods at a rate below than that fiFed by the principalB he fails to insure goods as instructed by his principal and the goods are lostB he warehouses goods at a place different from that directed by his principal and the goods are destroyedB or he purchases a larger >uantity than directed to do so. V An agent is bound to conduct the business of the agency with as much s$ill as is generally possessed by persons engaged in similar business unless the principal has notice of his want of s$ill. The following illustration aptly discusses this. IAI" an agent for the sale of goods" ha!ing authority to sell on credit" sells to I2I on credit" without ma$ing the proper and usual in>uiries as to the sol!ency of I2I. I2I" at the time of such sale is insol!ent. IAI must ma$e compensation to his principal in respect of any loss thereby sustained. An agent is bound to render proper accounts to his principal" and has duty" irrespecti!e of any contract to that effect" to produce !ouchers by which items of disbursement are supported as part of the obligation to render proper accounts to the principal on demand. 6Section ,0:7

50 The agent is not discharged from his duty by merely submitting accounts. *is duty also consists in eFplaining them where!er necessary. V #t is the duty of an agent" in cases of difficulty" to use all reasonable diligence in communicating with his principal and see$ing to obtain his instructions -Section ,0=/. #f an agent deals on his own account in the business of the agency" without first obtaining the consent of his principal and ac>uainting him with all material circumstances which ha!e come to his own $nowledge on the sub.ect" the principal may repudiate the transaction" if the case shows" either that any material fact has been dishonestly concealed from him by the agent" or that the dealings of the agent ha!e been disad!antageous to him. -Section ,0@/ #n an emergency situation" the agent should eFercise reasonable diligence and sound discretion and adopt a course which appears best to him under the said circumstances. *e will be .ustified in this and shall ha!e discharged his duties" though subse>uent e!ents may demonstrate that some other course would ha!e been a better option. #f an agent" without the $nowledge of his principal" deals in the business of the agency on his own account instead of on account of his principal" the principal is entitled to claim from the agent any benefit which may ha!e resulted to him from the transaction. -Section ,0C/. A transaction made by an agent wherein he sells his own property to the principal is not ipso facto !oid for failure to disclose a material fact. #t is only !oidable at the option of the principal. 2ut a transaction which places the agentIs duty in conflict with the principalIs interest will be presumed to be disad!antageous to the principal. An agent should not set up an ad!erse title to the goods which he recei!es from the principal as an agent. An agent is duty bound to pay sums recei!ed to the principal on his account. *owe!er" the agent can deduct his lawful charges i.e." eFpenses properly incurred by the agent and the remuneration if any. The principal cannot reco!er money recei!ed by the agent on behalf of the principal in cases where the contract of agency itself is illegalB the agent has lawfully repaid the money to the third person from whom he recei!ed it. The principal cannot sue the agent for reco!ery of money until the latter has recei!ed the same. *owe!er" if the agent does not account for a reasonable time" it will be presumed that he has recei!ed the money. 8emand may not be necessary to claim the money" though it is re>uired if the principal wants to claim the interest thereon. V V V An agent should protect and preser!e the interests of the principal in case of his death or insol!ency. An agent must not use confidential information entrusted to him by his principal for his own benefit or against the principal. The agent must not ma$e secret profit from the eFtract agency. *e must disclose any eFtra profit that he may ma$e.

V V

V V

51 An agent must not allow his interest to conflict with his duty for eFampleB he must not compete with his principal. An agent must not delegate his authority to a sub-agent. This rule is based on the principle Delegatus non protest delegare - A delegate cannot further delegate -Section 0E4/. The eFception to this rule is when delegation is allowed by the principal or the trade custom or usage sanctions delegation or when delegation is essential for proper performance or where emergency renders it imperati!e or where nature of the wor$ is purely ministerial and where the principal $nows that the agent intends to delegate.

#i8hts of A8ent V The agent has a right to retain any sums recei!ed on account of the principal in the business of the agency" all moneys due to himself in respect of his remuneration and ad!ances made or eFpenses properly incurred by him in conducting such business. V The agent has a right to recei!e remuneration. #t is rele!ant to discuss the following case in this regard. An agent who does not conduct his business in a proper manner" cannot claim remuneration in respect of that part of the business affected by his misconduct. 3ight of lien: #n the absence of any contract to the contrary" an agent is entitled to retain goods" papers and other property" whether mo!able or immo!able" of the principal recei!ed by him until the amounts due to himself from commission" disbursements" and ser!ices in respect of the same has been paid or accounted for to him. The lien eFercised by an agent can be either a particular lien or a general lien. The right of lien cannot be eFercised where goods ha!e been secured by misrepresentation or where the agent has obtained the goods without the authority of the principal. The property on which lien is claimed should belong to the principal. The property on which lien is claimed should ha!e been recei!ed by the agent in his capacity as an agent and not otherwise. The agent should be holding the property for and on behalf of the principal and not a third party. The right of lien is lost if: the agent parts with the goods !oluntarilyB he wai!es or abandons his lien or ta$es another securityB the principal repays the amount dueB or the agent enters into an agreement which is inconsistent with the lien. The employer of an agent is bound to indemnify him against the conse>uences of all lawful acts done by such agent in eFercise of the authority conferred upon him. The agent has a right to recei!e compensation for in.uries sustained due to neglect or want of s$ill on part of the principal. Section ,,@ pro!ides that an agent can claim compensation under this Section only if he pro!es: that some in.ury was caused to himB the in.ury was caused because of the negligence of the principal. The agent cannot reco!er compensation from the principal if the in.ury has been caused because of the nature of his employment. 3ight of stoppage of goods in transit: This right is a!ailable to the agent in the following two cases:

52 where he has bought goods for his principal by incurring a personal liability" he has a right of stoppage in transit against the principal" in respect of the money which he has paid or is liable to payB where he is personally liable to the principal for the price of the goods sold" he stands in the position of an unpaid seller towards the buyer and can stop the goods in transit on the insol!ency of the buyer.

#i8hts of -rincipal #i8ht "o #ep9diate "he "ransaction #f an agent deals on his own account in the business of the agency" without first obtaining the consent of his principal and ac>uainting him with all material circumstances which ha!e come to his own $nowledge on the sub.ect" the principal has a right to repudiate the transaction" if the case shows" either that any material fact has been dishonestly concealed from him by the agent" or that the dealings of the agent ha!e been disad!antageous to him. -Section ,0@/ An agent in a fiduciary position" is duty bound to transact the agency wor$ in the interest of his principal business and not otherwise. That means he is not entitled to do anything for his persona7 benefit out of his principal business. The principal may repudiate such agentIs transaction if he can pro!e that: V a material fact has been dishonestly concealed from himB or V the dealing of the agent has been disad!antageous to him. Illustration: ' appoints ( to sell her estate at Ahmedabad. Subse>uently" ( disco!ered a mine in her principalIs estate. %ithout disclosing this fact to her she buys the estate for herself. The principal may repudiate the transaction. "o Claim AnA #es9lted )enefit ,rom A8encA #f an agent" without the $nowledge of his principal" deals in the business of the agency on his own account instead of on account of his principal" the principal is entitled to claim from the agent any benefit which may ha!e resulted to him from the transaction. -Section ,0C/ The agentIs relationship with the principal is fiduciary in nature. That means he shall perform his agency wor$ in absolute good faith and thereby shall not ma$e any secret profit out of his agency business. Secret profit means any ad!antage obtained by the agent o!er and abo!e his agreed remuneration in the course of his agency business. Wnowledge ac>uired by an agent in the course of his agency business and applied for his own benefit does not result into any secret profit unless he uses the principalIs property or ma$es any di!ersions of his principalIs business opportunities to obtain such benefit. Thus" the principal has e!ery right to obtain an account of secret profits and reco!er them and resist a claim for remuneration. #i8ht "o #ecover Dama8es #f the principal suffers any loss due to disregard by the agent of the directions I: the principal" or by not following the custom of trade in the absence of directions by the principal" or where the principal suffers due to lac$ of re>uisite s$ill" care. or diligence on the part of the agent" he can reco!er damages accruing as a result from the agent. "o #esist A8entTs Claim ,or *ndemnitA %here the principal can show that the agent has acted on his own behalf and not on the behalf of the principal" he can resist the agentIs claim for indemnity against liability incurred.

53 D9ties of -rincipal V "o indemnifA a8ainst conseF9ences of all la0f9l acts of a8ent: The principal is bound to indemnify the agent against the conse>uences of all lawful acts done by such agent in eFercise of the authority conferred upon him. -Section ,,,/ *ll9stration: ' employs ( to enter into contract with Q for purchase of 044 rice bags for her. Subse>uent to the contract entered with Q by (" ' refuses to ta$e the deli!ery of such rice bags from him. Q sues ( against such refusal. ( is made liable to pay Q and ' is made liable to pay ( towards damages" costs and eFpenses incurred on such refusal. *owe!er" where a person -principal/ appoints an agent to do a criminal act then the principal is not liable to the agent" either upon an eFpress or an implied promise" to indemnify him against the conse>uences of that act -Section ,,=/. The liability here refers only to the liability eFisting between the principal and agent i.e." the liability to indemnify. This does not preclude the principal from liability under other Acts. "o indemnifA a8ainst conseF9ences of a8ent acts done in 8ood faith: The principal is re>uired to indemnify the agent against the conse>uences of acts done in good faith. According to Section ,,: of the Contract Act" where one person employs another to do an act and the agent does the act in good faith" the employer is liable to indemnify the agent against the conse>uences of that act though it causes an in.ury to the rights of third persons. Thus" Section ,,: entitles the agent to claim compensation in respect of acts done in good faith though they cause in.ury to the rights of third persons. "o paA compensation a8ainst a8entTs inM9rA: The principal must ma$e compensation to his agent in respect of in.ury caused to such agent by the principalIs neglect or want of s$ill. -Section ,,@/. !ery principal owes to his agent the duty of care not to eFpose him to unreasonable ris$s. "o paA the a8ent the commission or other rem9neration a8reed. Explain the provisions related to "ermination of A8encA 9nder *ndian Contract V Act5 1KJ2? According to Section ,40" an agency is terminated: V by an agreement between the parties" or V by the principal re!o$ing his authorityB or V by the agent renouncing the business of agencyB or V by the business of agency being completedB or V by either the principal or the agent dying or becoming of unsound mindB or V by the principal being ad.udicated an insol!ent under the pro!isions of any Act for the time being in force for relief of insol!ent debtors. Thus Agency may be terminated by Agreement" 3e!ocation of authority by the <rincipal and by operation of Law. V A8reement: The relation of principal and agent li$e any other agreement may be terminated at any time and at any stage by the mutual agreement between the principal and the agent.

Q11 A11

54 #evocation of a9thoritA 1A the principal: Section ,4: pro!ides that a principal may re!o$e the authority of the agent any time before the authority has been eFercised so as to bind the principal. *owe!er" where the agent has himself an interest in the property which forms the sub.ect matter of the agency" the agency cannot" in the absence of an eFpress contract" be terminated to the pre.udice of such interest. %here the authority gi!en to the agent has been partly eFercised" it cannot be re!o$ed with regard to acts already done in the agency 6Section ,4=7. %here there is an eFpress or implied contract that the agency should be continued for a fiFed period of time" the principal must ma$e compensation to the agent or the agent to the principal" as the case may be" for any pre!ious re!ocation or renunciation of the agency without sufficient cause 6Section ,4@7. )A operation of la0: There are certain circumstances where agency is terminated by operation of law such as: o )n performance of the contract. %here an agent is appointed to perform a specified transaction" his authority comes to an end on the completion of the said transaction. o )n eFpiry of time. o %hen the agent or the principal dies or becomes of unsound mind. The death of the agent terminates his authority. o The death of one of the .oint agents will terminate the agency only as far as he is concerned" while it will continue to be !alid as regards the other sur!i!ing agents in the absence of a contrary intention. o )n the insol!ency of the principal. o )n the destruction of the sub.ect matter. o )n the principal becoming an alien enemy. o )n the dissolution of a company. o )n termination of sub-agentIs authority. *rrevoca1le A8encA %hen an agency cannot be put an end to" it is said to be irre!ocable agency. An agency is irre!ocable where the agent himself has an interest in the property which forms the sub.ect-matter of the agency. Such an agency cannot" in the absence of an eFpress contract" be terminated to the pre.udice of such interest. *ll9stration: AI gi!es authority to I2I" to sell IAIs land" and to pay himself" out of the proceeds" the debts due to him from IAI. IAI cannot re!o$e this authority" nor can it be terminated by his insanity or death. %hen agent has incurred a personal liability the agency becomes irre!ocable. The principal cannot re!o$e the authority gi!en to his agent after the authority has been partly eFercisedB so far as regards such acts and obligations as arise from acts already done in the agency. -Section ,4=/ "ime :hen "ermination "aRes Effect The termination of the authority of an agent does not" so far as regards the agent ta$e effect before it becomes $nown to him. As regards third persons" it terminates when it comes to their notice.

V V

55

56

3% INDIAN COMPANIES ACT, 1956


Q1. Define CompanA? Disc9ss its tApes A1. A company is a !oluntary association of indi!iduals for profit" ha!ing common capital of transferable shares and the ownership is the condition of membership. #t is an artificial person created by Law with a distinct name" common seal" limited liability of members and en.oys perpetual succession. Definition 9nder the CompanAIs Act5 1L=> The Companies Act" 0E@C" lays down procedures by which a company can be brought into eFistence. Anybody who wants to incorporate a company can do so by ta$ing necessary steps outlined therein. 2y far the largest number of companies is incorporated under the Companies Act. These companies may be called registered companies. #n the following pages all references to companies relate to companies incorporated in this manner. "Apes of companA -rivate companA: According to section : -0/ of Companies act 0E@C.the company is pri!ate when its minimum number of members is two and maFimum cannot be more than @4 and the minimum paid up capital is 3s 0 la$h" pri!ate CompanyIs shares are not freely transferable and cannot in!ite public to subscribes its shares and debentures. <ri!ate co. need not old statutory meeting and can commence the business after obtaining #ncorporation certificate pri!ate co. must ha!e minimum , directors and can a lot the share soon after its incorporation pri!ate co. cannot in!ite deposits from public. The >uorum for pri!ate co. general meeting is two. &ormation of pri!ate co. is simple and p!t company is suitable for small scale business. -91lic companA: According to section : -0/ the company other than pri!ate co. is called public company. #n public company minimum no of members are se!en and maFimum no limit i.e. unlimited public companies shares freely transferable sub.ect to rule in articles of association" public co. collects capital through public issue. So it is compulsory for e!ery public company to prepare prospectus public co. can commence its business only after Trading certificate from registrar of company. #t is compulsory for public co. to hold statutory meeting >uorum -minimum attendance/ for public co. meeting is @.public co. must ha!e at least : directors and its minimum paid up capital is 3s @la$h. Deemed p91lic companA: According to section =:A of companies act 0E@C"a pri!ate company was considered as con!erted automatically into a public company under certain circumstances such as company called 8eemed public company. These circumstances are: 0. Not less than ,@X of paid up share capital of p!t company is held by one or more public after ad!ertisement. ,. %hen p!t company holds ,@X or more of the paid up share capital of public co. :. %hen <!t Company accepts deposits from public after ad!ertisement. %here its a!erage annual turno!er is not less than 3s ,@ crore for the last : financial years. The company -Amendment/ Act ,444 has deleted the concept of a pri!ate company deemed to be public. Therefore at presenting #ndia" deemed public co. do not eFist. #n addition to the type of companies discussed abo!e you must ha!e come across many other types of companies li$e: Lo!ernment company" Statutory company" Chartered company"

57 &oreign company" #ndian company" +ultinational corporation" *olding company" and Subsidiary company. %overnment CompanA: Any company in which at least @0X of the paid up capital is held by the Lo!ernment is $nown as go!ernment company. Fample: #ndian Telephone #ndustry -#T#/" 2harat *ea!y lectronics Limited -2* L/ etc. A company is called a ILo!ernment CompanyI under Section C0D of the Companies Act" 0E@C" if at least @0 per cent of its share capital is held by the Central Lo!ernment" a State Lo!ernment or the Central Lo!ernment and any number of State Lo!ernments. Stat9torA CompanA: #n this case" a special law is passed to establish the company. This is done only in special cases when it is necessary to regulate the wor$ing of the company for some specific purposes. Famples of such companies in #ndia are: the #ndustrial &inance Corporation" the Life #nsurance Corporation of #ndia" the Air #ndia" etc. Such companies are also called statutory companies. Chartered CompanA: A company created under a special charter granted by the $ing or >ueen of ngland. Fample- ast #ndia Company. *istorically" most of the early companies were set up through a 3oyal Charter. &or eFample" the ast #ndia Company" the Chartered 2an$ of Australia" #ndia and China" etc." were incorporated by the grant of a special 3oyal Charter" in #ndia" this form of organisation does not eFist now because there is no monarchy. !en in ngland" this method is rarely used now. Companies of this $ind may be called chartered companies ,orei8n CompanA: A company which is incorporated in a country outside #ndia and ha!ing business operation is #ndia" is $nown as &oreign company. Fample- Citi 2an$" L. . Capital" *onda +otors etc *ndian2Domestic CompanA: A company registered in #ndia as per the #ndian Companies Act is $nown as #ndianKdomestic company Fample- Associated Cement Company -ACC/" Tata #ron and Steel Company -T#SC)/ etc. &9ltinational Corporation (CompanA): A company which is registered in one country but carries on business in a number of other countries. /oldin8 and S91sidiarA CompanA: #f a company controls another company" the controlling company is termed as J*olding CompanyG and the company so controlled is called a Jsubsidiary companyG Companies 0ith 9nlimited lia1ilitA: #n this case" the liability of the members is unlimited as is the case in partnership or sole proprietorship. The members can be called upon to pay an unlimited amount -e!en from their pri!ate estates/ to satisfy the creditors of the company when it is wound up. Such companies are rare. arly in their history" these companies were called .oint stoc$ companies. Companies 0ith lia1ilitA limited 1A 89arantee: #n this case" the members agree to pay a sum in addition to the amount of the shares held by them if need arises" in order to pay the creditors of the company. The additional amount payable by members is laid down in the +emorandum or Articles of Association. This type of company is formed mostly when the wor$ is of nonprofit ma$ing nature" such as Chambers of Commerce.

58 Companies limited 1A 89arantee maA 1e 0ith share capital or 0itho9t share capital: %here the company does not ha!e a share capital" it raises its capital through entrance fees and subscriptions. This form is used mostly for clubs and charitable organisations. The amount guaranteed by shareholders is called up when the company is wound up and its assets do not realiSe enough money to pay off its liabilities. Companies 0ith lia1ilitA limited 1A shares: #n this case the liability of the members is limited only to the amount of the shares held by them. Q2.State the Characteristics or ,eat9res of the companA? A2. The &eatures of the company are enumerated as under: 0. 3ol9ntarA association: A company is a !oluntary association because any person of any caste or creed religion can buy the shares at any time and shares may be sold at his freewill sub.ect to rules of company act 0E@C. ,. !9m1er of mem1ers: &or the pri!ate company at least , members and maFimum should be @4. 2ut in case of public company minimum is D and maFimum no limit. :. %overnin8 la0: All registered companies in #ndia ha!e to functions according to pro!isions of company law 0E@C i.e. #ndian companies operating their business in #ndia. =. #e8istration: 3egistration of all companies is compulsory according to procedure laid down in companies Act 0E@C. 3egistrar of companies -3)C/ issues certificate of incorporation to newly formed company sub.ect to fulfillment of certain legal re>uirements. @. (a0f9l o1Mect: The eFact nature of business should be clearly specified in the memorandum of association" the ob.ect must be lawful. C. Artificial person: Company is an artificial person created by law. #t doesnGt ha!e a physical eFistence. Therefore it cannot perform acti!ities li$e natural person. *owe!er it can enter into contract with :rd parties e.g. it can buy and sell property" borrow money. D. Stat9torA o1li8ations: Company has to functions according to legal pro!isions of companies act to protect the interest of shareholders e.g. shareholders meetings must be held in time" audit of company aKc is compulsory" certain documents are re>uired to be filled with registrar and so on. These eFamples are called statutory obligations. A. #e8istered office: All companies must ha!e a registered office and its address should be clearly specified in memorandum of association. All records" boo$s of accounts should be properly classified in office. +oreo!er all the correspondence between the registrar and company and company with all other parties ta$es place through office. E. Common seal: #t is a rubber stamp or the signature of company. The company is an artificial person who cannot sign and a common seal is re>uired to be affiFed on all important documents of the company. Common seal remains in the safe custody of the company secretary.

59 04. "ransfera1ilitA of share: The share is transferable -mo!able/ property. #n case of public company" the members can freely sale -transfer/ their shares sub.ect to rules and regulations but pri!ate companyGs shares are not freely transferable. 00. Separation of o0nership and mana8ement: 8ue to large membership the CompanyGs management is in the hand of elected representati!es called directors and ownership is in the hand of shareholders. 0,. (imited lia1ilitA: The shareholders liability is limited up to the eFtent of face !alue of share purchased by member i.e. the shareholders pri!ate properly is not in danger. The debts of the company to be settled from companyGs property and not firm the personal properties of shareholders. 0:. (e8al stat9s: Company has its own separate status in the eyes of law i.e. the companyGs liabilities are its own i.e. shareholders cannot act on behalf of the company and not liable for the debts of company" shareholders cannot bind the company by their acts. 0=. -erpet9al s9ccession: The death insol!ency or insanity of any of its members does not result into dissolution of company en.oys a continuous and stable life because it is an artificial person and en.oys long corporate life. ;:. Fplain the formation procedure of the company. A:. 2y incorporation" a company comes in to eFistence. #t becomes a separate corporate entity. The promoters follow following procedure to obtain the certificate of incorporation. -roced9re -ropose a name: The promoters ascertain and decide upon the name of the company. ApplA for the license: #f the proposed company" wants to run any industry for the establishment of which license is re>uired under #ndustries -8e!elopment and 3egulation/ Act" 0E@0 then they should apply to the concerned +inistry of the Central Lo!ernment. -repare reF9isite doc9ments: The promoters should prepare and finally get printed the CompanyIs +emorandum and Articles of Association. ,ile necessarA doc9ments: 2efore a company is registered" it is desirable to ascertain from the 3egistrar of Companies if the proposed name of the company is appro!ed. Then the following documents duly stamped together with the necessary fees are to be filed with 3egistrar. 0. The +emorandum of Association duly signed by the subscribers. ,. The Article of Association" if any signed by the subscribers to the +emorandum of Association.

60 :. The agreement" if any" which the company purposes to enter into with any indi!idual for appointment as its managing or whole-time director or manager. =. A list of directors who ha!e agreed to become the first directors of the company and their written consent to act as directors and ta$e up >ualification shares. @. A declaration stating that all the re>uirements of the Companies Act and other formalities relating to registration ha!e been complied with. Such declaration shall be signed byAn ad!ocate of the Supreme Court or *igh Court. An attorney or pleader entitled to appear before a *igh Court. A Chartered Accountant practicing in #ndia and who is engaged in the formation of the Company. Any person who is named in the Article of Association as a director" manager" or secretary of the Company. 1tainin8 Certificate of *ncorporation: :hen the re>uisite documents are filed with the 3egistrar along with the fees prescribed" the 3egistrar shall satisfy himself that the statutory re>uirements regarding registration ha!e been duly complied with. #f the 3egistrar is satisfied as to the compliance of statutory re>uirements" he retains and registers the +emorandum" the Articles and other documents filed with him and issues a Icertificate of incorporationI" i.e. certificate of the formation of the company. 2y issuing certificate of incorporation the 3egistrar certifies Hunder his hand that the company is incorporated and in the case of a limited company" that the company is limitedH. A public limited company can commence the business or borrow the money only after it obtains the certificate of commencement of business. These formalities are as follows. :here the companA has iss9ed a prospect9s: BSection 1GL(1)C: Companies" which intend to in!ite the general public for subscription of their shares or debentures" will ha!e to appoint underwriters or bro$ers for the sale of their shares or debentures ma$e an application to stoc$ eFchange for getting their shares or debentures listed and issue the prospectus to the general public. #t must also ensure that statutory declaration that is filed with the registrar is !erified by one of the directors" or secretary" pro!ision as to minimum subscription and no refund in case of failure to apply are properly recorded in the statutory declaration" which is to be !erified and filed with the registrar of the companies. :here the companA does not iss9e the prospect9s: BSection 1GL(2)C: Such a company must file following documents with the registrar of the companies: A statement in lieu of prospectus. A statutory declaration !erified by one of the director or secretary in which it should state the amount directors must ha!e paid for the shares ta$en or contracted to be ta$enB #f the 3egistrar of the companies is satisfied" then the company shall be issued a C 3T#&#CAT )& C)++ NC + NT )& 2?S#N SS" which will entitle the company to start its business or borrow money.

QG. :hat is &emorand9m of Association? Disc9ss vario9s cla9ses of &emorand9m of Association. AG. +emorandum of Association is the main document of the company" which defines its constitution and ob.ects and lays down the fundamental conditions upon which alone the company is allowed to be formed. #t is correctly termed as the charter of the constitution of the company as he defines the scope of its acti!ity and also states that anything beyond it is

61 unauthoriSed and illegal. According to Section ,-,A/ of the Companies Act" +emorandum of Association is defined as H+emorandum of Association as originally framed or as altered from time to time in pursuance of any pre!ious Companies Law or of this Act.H Thus +emorandum of Association is a public document binding on the company and the members specifying the scope of the acti!ities of the company and also anything beyond which is illegal or unauthoriSed. The memorandum shall be one of the forms gi!en in Tables 2" C" 8" and in schedule 0 of the Act. The +emorandum of Association must be printed" di!ided into paragraphs" numbered consecuti!ely and signed by each subscriber -se!en or more in case of a public company/" who must add his name" address and description in the presence of at least one witness who is to attest the signature. Cla9ses of &emorand9m of Association: +emorandum of Association must ha!e the following clauses: 0.Name clause. ,.3egistered office or Situation clause. :.)b.ect clause. =.Liability clause. @.Capital clause. C.Subscription clause. 1. !ame Cla9se: + The Company is a legal entity. Therefore" it must ha!e its name to establish its identity. The name of the company should not be similar to the name of the another company nor in the opinion of Central Lo!ernment be undesirable or which will mislead the public and its use has been" therefore" prohibited by the Lo!ernment under the mblems and Names -<re!ention of #mproper ?se/ Act" 0E@4. The companyIs name must display prominently the suffiF ILtd.I )r J<!t. Ltd.I *owe!er the company can change its name by passing a special resolution and obtaining the appro!al of the Central Lo!ernment. #e8istered ffice Cla9se: - +emorandum of Association must state the name of the State in which the registered office of the company is situated. This clause is important as it mentions the residence for the purpose of the communication with the company. #t determines the .urisdiction of the company and also mentions the place where all the records of company are maintained. %here the company wants to change its registered office from one state to another then it can do so by passing a special resolution as well as by confirmation of Company Law 2oard. Such confirmation will be gi!en pro!ided debenture holders and creditors are satisfied and such alteration is fair. 1Mect Cla9se: + #t is the most important clause in the +emorandum of Association. #t defines and limits the scope and sphere of the operation of the company. #t eFplains to the members the scope of acti!ities of the company. #t affords protection of its funds. #t states the main ob.ects as well as incidental ob.ects of the company. The transaction which does not fall within the scope of the main ob.ects of the company will not be !alid and binding on the company simply because it is not beneficial for the company. As regards to the alteration of ob.ect clause a special resolution must be

2.

?.

62 passed and the confirmation by the Company Law 2oard must also be obtained. The alteration is done to obtain a main purpose by new means or to enlarge the area of its operation" or to restrict the ob.ects or sell or dispose of or amalgamate the underta$ing. G. (ia1ilitA Cla9se: + The liability clause states that the member or the shareholder will be liable to pay only the unpaid !alue of shares held by him. #f it is a company limited by guarantee" +emorandum of Association must further state that each member underta$es to contribute to the assets of the company at the time of the winding up while he is a member. )rdinarily this clause cannot be altered eFcept that the liability of the directors may be made unlimited under certain circumstances. Capital Cla9se: + Amount of share capital with which the company is to b e registered and its di!ision into shares of a fiFed amount must be stated in the +emorandum of Association of a company limited by shares. Capital clause can be !aried or capital can be reduced -by special procedure/ or the rights of the shareholders are !aried or create Ireser!e liability.I S91scription Cla9se: + +aFimum se!en members in a public company and two members in a pri!ate company are shown in a +emorandum. A declaration is to be gi!en. Such declaration is to be signed by a member in presence of a witness. +oreo!er the details as regards to name" address" age" and business of the promoters are also recorded under this clause.

=.

>.

Q=. :hat are Articles of Association? State the contents of Articles of Association? Differentiate 1et0een &emorand9m and Articles of Association? A= A#"*C(ES , ASS C*A"* ! (A A) The Articles of Association of a company contains the !arious rules and regulations for the day to day management of the company. These rules are also called the bye-laws. #t co!ers !arious rights and powers of its members" duties of the management and the manner in which they can be changed. #t defines the relationship between the company and its members and also among the members themsel!es. The rules gi!en in the A)A must be in conformity with the +emorandum of Association. Articles of Association of a company generally contain rules and regulations with regard to the following matters: 0. <reliminary contracts ,. ?se and custody of common seal :. Allotment" calls and lien on shares =. Transfer and transmission of shares @. &orfeiture and re-issue of shares C. Alteration of share capital D. #ssue of share certificates and share warrants

63 A. Con!ersion of shares into stoc$ E. <rocedure of holding and conducting company meetings 04. Ooting rights and proFies of members 00. ;ualification" appointment" remuneration and power of 8irectors 0,. 2orrowing powers and methods of raising loans 0:. <ayment of di!idends and creation of reser!es 0=. Accounts and audit 0@. %inding up. A company can register its own Articles of Association or adopt Table A" which contains a model set of rules as gi!en in the Schedule # of the Companies Act. After $nowing about the meaning and the contents of +emorandum of Association and Articles of Association you must be thin$ing" how these two documents are different from each other. Let us ha!e a comparison between these two. D*,,E#E!CE )E":EE! & A A!D A A No. 8ifference +emorandum of Association Articles of Association based on 0 Sub.ect +atter #t contains aims and ob.ecti!es of Articles of Associations contain rules the company. for implementation of the aims and ob.ecti!es contained in the +emorandum of Association. , 3elationship #t defines the relationship between Articles defines the relationship the company and outsiders. between the company and its members. : Amendment #t is !ery difficult to amend the The rules gi!en in the articles can be aims and other pro!isions of the easily amended by a special +emorandum of Association resolution. = Limitations The pro!ision gi!en in the The rules gi!en in the Articles of +emorandum of Association can Association can neither be outside not be outside the scope of the scope of companies Act nor the Companies Act. +emorandum of Association. @ )bligation #t is obligatory for a company to #t is not obligatory to submit this prepare and submit this document document to 3egistrar of Companies. to the 3egistrar of Companies. The company may adopt Table A of the companies Act. Q>. Explain provisions relatin8 to -rospect9s in Companies Act5 1L=>? A>.

64 According Section ,-:C/ of the Companies Act" 0E@C" H<rospectusH means any document described or issued as prospectus and it includes any -i/ notice" -ii/ circular" -iii/ ad!ertisement or -i!/ other documents in!iting the deposits from the public or offers from the public for subscription or purchase of shares or debentures of the company. Thus a document is called a prospectus if it satisfies two things: 0. #t is a in!itation to purchase or subscribe shares or debentures of the company and ,. The in!itation is made to the public. &atters incl9ded in -rospect9s: + <rospectus of the public limited company includes following matters: 0. +ain ob.ect of the company. ,. Number and classes of shares. :. Names of directors. =. +inimum subscription. @. <articulars of !arious contracts. C. Name of underwriters. D. stimated preliminary eFpenses. A. Ooting rights and !arious reports that are to be set out. ConseF9ences of false and misleadin8 statements made in the prospect9s: + The law re>uires that the person who issues the prospectus should not mislead the public by false or misleading statements. &eanin8 of false and misleadin8 statement: According to Section C@ of the Companies Act" 0E@C" 0. A statement in prospectus is deemed to be misleading or untrue if the statement is misleading in form and in conteFt in which it is included. ,. %here the omission from the prospectus of any matter is calculated to mislead" then the prospectus shall be deemed to be a prospectus in which an untrue statement is included. #i8hts and lia1ilities arisin8 from false and misleadin8 statements: Se!eral types of rights and liabilities arise from the false and misleading statements. They are broadly of three types. They are as follows: 1. Civil liabilities: 3ight and liabilities of shareholder against the company P -a/ The shareholders are entitled to rescind the contract to ta$e up the shares. -b/ The shareholders can claim the damages for the deceit when the statement is fraudulent.

2. 3ights and liabilities of shareholders against the directors and the promoters-a/ The shareholders can claim the damages for the misleading statements made in the prospectus. -b/ Shareholders can also claim the damages for not complying with the pro!isions of Section @C of Companies Act" 0E@C relating to contents of the prospectus.

65 #n the aforesaid situation" the defenses a!ailable to the directors are: i.e. the director may escape by -i/ withdrawal of the consent. *e may escape by saying that the prospectus was. issued without his consent.-ii/ *e may say that prospectus was issued without his $nowledge" -iii/ *e was ignorant of untrue statements made in the prospectus" -i!/ *e has reasonable ground to belie!e the statements" as true" as the statements were gi!en by the eFperts. ?. 3ights and liabilities of the company against the directors or the promoters#n the situation of misleading statements made in a prospectus" the company can -a/ 3epudiate -cancel/ the contract" or -b/ Claim the damages. Criminal liability: According to Section C: of Companies Act" 0E@C" any person who authoriSes the issue the prospectus containing any fraudulent statements" then he is liable for (a) imprisonment for two years" or (1) fine of 3s. @444K- or both.
QJ. Define &eetin8? Explain differeGnt Rinds of CompanA &eetin8s? AJ.

*ntrod9ction: A company is an association of se!eral persons. 8ecisions are made according to the !iew of the ma.ority. Oarious matters ha!e to be discussed and decided upon. These discussions ta$e place at the !arious meetings which ta$e place between members and between the directors. Needless to say" the importance of meetings cannot be under-emphasiSed in case of companies. The Companies Act" 0E@C contains se!eral pro!isions regarding meetings. These pro!isions ha!e to be understood and followed. &or a meeting" there must be at least , persons attending the meeting. )ne member cannot constitute a company meeting e!en if he holds proFies for other members. &eanin8: The management of a companyIs business is necessarily left to the discretion of the directors. *owe!er the ultimate control of the actions of the 2oard of directors is !ested in the members or shareholders of the company" and from time to time they must meet to ratify" or eFpress their disappro!al of" the directorsG past conduct" and to consider their future plans. The members eFpress their will at general meetings by passing resolutions. Shortly after the formation of a public company" a statutory meeting is held. This is the first general meeting of the company. Then each year an annual general meeting is summoned to consider the routine matters relating to the report of the directors" appointment of directors and auditors" accounts and declaration of a di!idend. #n addition" occasions may arise when it is necessary to consult the members on some urgent and unusual matter which .ustifies the summoning of an eFtraordinary meeting. &urther" there are class meetings of shareholders of different classes of shares" and of creditors and debenture-holders. 8irectors of the company also ta$e decisions in 2oard meetings. Sinds of CompanA &eetin8s: 2roadly" meetings in a company are of the following types:&eetin8s of &em1ers: These are meetings where the members K shareholders of the company meet and discuss !arious matters. +emberGs meetings are of the following types:-

66 S"A";" #7 %E!E#A( &EE"*!% A public company limited by shares or a guarantee company ha!ing share capital is re>uired to hold a statutory meeting. Such a statutory meeting is held only once in the lifetime of the company. Such a meeting must be held within a period of not less than one month or within a period not more than siF months from the date on which it is entitled to commence business i.e. it obtains certificate of commencement of business. #n a statutory meeting" the following matters only can be discussed:-a/ &loatation of shares K debentures by the company -b/ +odification to contracts mentioned in the prospectus The purpose of the meeting is to enable members to $now all important matters pertaining to the formation of the company and its initial life history. The matters discussed include which shares ha!e been ta$en up" what money has been recei!ed" what contracts ha!e been entered into" what sums ha!e been spent on preliminary eFpenses" etc. The members of the company present at the meeting may discuss any other matter relating to the formation of the Company or arising out of the statutory report also" e!en if no prior notice has been gi!en for such other discussions but no resolution can be passed of which notice ha!e not been gi!en in accordance with the pro!isions of the Act. A notice of at least ,0 days before the meeting must be gi!en to members unless consent is accorded to a shorter notice by members" holding not less than E@X of !oting rights in the company. A statutory meeting may be ad.ourned from time to time by the members present at the meeting. The 2oard of 8irectors must prepare and send to e!ery member a report called the HStatutory 3eportH at least ,0 days before the day on which the meeting is to be held. 2ut if all the members entitled to attend and !ote at the meeting agree" the report could be forwarded later also. The report should be certified as correct by at least two directors" one of whom must be the managing director" where there is one" and must also be certified as correct by the auditors of the company with respect to the shares allotted by the company" the cash recei!ed in respect of such shares and the receipts and payments of the company. A certified copy of the report must be sent to the 3egistrar for registration immediately after copies ha!e been sent to the members of the company. A list of members showing their names" addresses and occupations together with the number shares held by each member must be $ept in readiness and produced at the commencement of the meeting and $ept open for inspection during the meeting. #f default is made in complying with the abo!e pro!isions" e!ery director or other officer of the company who is in default shall be punishable with fine upto 3s. @44. The 3egistrar or a contributory may file a petition for the winding up of the company if default is made in deli!ering the statutory report to the 3egistrar or in holding the statutory meeting on or after 0= days after the last date on which the statutory meeting ought to ha!e been held. Contents of Stat9torA #eport m9st provide the follo0in8 partic9lars:+ -a/ The total number of shares allotted" distinguishing those fully or partly paid-up" otherwise than in cash" the eFtent to which partly paid shares are paid-up" and in both cases the consideration for which they were allotted.

67 -b/ The total amount of cash recei!ed by the company in respect of all shares allotted" distinguishing as aforesaid. -c/ An abstract of the receipts and payments upto a date within D days of the date of the report and the balance of cash and ban$ accounts in hand" and an account of preliminary eFpenses. -d/ Any commission or discount paid or to be paid on the issue or sale of shares or debentures must be separately shown in the aforesaid abstract. -e/ The names" addresses and occupations of directors" auditors" manager and secretary" if any" of the company and the changes which ha!e ta$en place in the names" addresses and occupations of the abo!e since the date of incorporation. -f/ <articulars of any contracts to be submitted to the meeting for appro!al and modifications done or proposed. -g/ #f the company has entered into any underwriting contracts" the eFtent" if any" to which they ha!e not been carried out and the reasons for the failure. -h/ The arrears" if any" due on calls from e!ery director and from the manager. -i/ The particulars of any commission or bro$erage paid or to be paid" in connection with the issue or sale of shares or debentures to any director or to the manager. -./ The auditors ha!e to certify that all information regarding calls and allotment of shares are correct. -roced9re at the meeting: At the commencement of the statutory meeting" the 2oard shall produce a list showing the names" addresses and occupations of the members of the company and number of shares held by them respecti!ely. The list shall remain open and accessible to any member of the company during the continuance of the meeting. Disc9ssion of matters relatin8 to formational aspect: The members present at the meeting shall be at liberty to discuss any matter relating to the formation of the company. They may also discuss any matter arising out of the statutory report. <re!ious notice for such discussion is not necessary. *owe!er" no resolution may be passed of which notice has not been gi!en in accordance with the pro!isions of the Act. AdMo9rnment: The meeting may ad.ourn from time to time. At any ad.ourned meeting" any resolution -of which notice has been gi!en/" whether before or after the former meeting" may be passed. An ad.ourned meeting shall ha!e the same powers as the original meeting. The ob.ect of the ad.ournment may be to pro!ide members with additional information as to the companyIs affairs. ConseF9ences of defa9lt: #f default is made in complying with the pro!isions of Sec. 0C@" e!ery director or any other officer of the company who is in default shall be punishable with fine which may eFtend to 3s. @44. #f default is made in deli!ering the statutory report to the 3egistrar or in holding the statutory meeting" the company may be wound up by the Court.

68 The Court ordinarily does not ta$e such a serious !iew of the default. #t may" howe!er" direct the company to deli!er the statutory report or hold the statutory meeting" as the case may be. 1Mect of the meetin8 and report: The ob.ect of the statutory meeting and forwarding of statutory report to members isY -a/ To put the members of the company in possession of all the important facts relating to the company" what shares ha!e been ta$en up" what money recei!ed" what contracts entered into" and what sums spent on preliminary eFpenses" etc. -b/ To pro!ide the members an opportunity of meeting and discussing the management" methods and prospects of the company. -c/ To appro!e the modification of the terms of any contract named in the prospectus. A!!;A( %E!E#A( &EE"*!% +ust be held by e!ery type of company" public or pri!ate" limited by shares or by guarantee" with or without share capital or unlimited company" once a year. !ery company must in each year hold an annual general meeting. Not more than 0@ months must elapse between two annual general meetings. *owe!er" a company may hold its first annual general meeting within 0A months from the date of its incorporation. #n such a case" it need not hold any annual general meeting in the year of its incorporation as well as in the following year only. #n the case there is any difficulty in holding any annual general meeting -eFcept the first annual meeting/" the 3egistrar may" for any special reasons shown" grant an eFtension of time for holding the meeting by a period not eFceeding : months pro!ided the application for the purpose is made before the due date of the annual general meeting. *owe!er" generally delay in the completion of the audit of the annual accounts of the company is not treated as Hspecial reasonH for granting eFtension of time for holding its annual general meeting. Lenerally" in such circumstances" an AL+ is con!ened and held at the proper time . all matters other than the accounts are discussed. All other resolutions are passed and the meeting is ad.ourned to a later date for discussing the final accounts of the company. *owe!er" the ad.ourned meeting must be held before the last day of holding the AL+. A notice of at least ,0 days before the meeting must be gi!en to members unless consent is accorded to a shorter notice by members" holding not less than E@X of !oting rights in the company. The notice must state that the meeting is an annual general meeting. The time" date and place of the meeting must be mentioned in the notice. The notice of the meeting must be accompanied by a copy of the annual accounts of the company" directorGs report on the position of the company for the year and auditorGs report on the accounts. Companies ha!ing share capital should also state in the notice that a member is entitled to attend and !ote at the meeting and is also entitled to appoint proFies in his absence. A proFy need not be a member of that company. A proFy form should be enclosed with the notice. The proFy forms are re>uired to be submitted to the company at least =A hours before the meeting. The AL+ must be held on a wor$ing day during business hours at the registered office of the company or at some other place within the city" town or !illage in which the registered office of the company is situated. The Central Lo!ernment may" howe!er" eFempt any class of companies from the abo!e pro!isions. #f any day is declared by the Central go!ernment to be a public holiday after the issue of the notice con!ening such meeting" such a day will be treated as a wor$ing day.

69 A company may" by appropriate pro!isions in its its articles" fiF the time for its annual general meeting and may also by a resolution passed in one annual general meeting fiF the time for its subse>uent annual general meetings. Companies licensed under Section ,@ are eFempt from the abo!e pro!isions pro!ided that the time" date and place of each annual general meeting are decided upon beforehand by the 2oard of 8irectors ha!ing regard to the directions" if any" gi!en in this regard by the company in general meeting. #n case of default in holding an annual general meeting" the following are the conse>uences:-a/ Any member of the company may apply to the Company Law 2oard. The Company Law 2oard may call" or direct the calling of the meeting" and gi!e such ancillary or conse>uential directions as it may consider eFpedient in relation to the calling" holding and conducting of the meeting. The Company Law 2oard may direct that one member present in person or by proFy shall be deemed to constitute the meeting. A meeting held in pursuance of this order will be deemed to be an annual general meeting of the company. An application by a member of the company for this purpose must be made to the concerned 3egional 2ench of the Company Law 2oard by way of petition in &orm No. 0 in AnneFure ## to the CL2 3egulations with a fee of rupees fifty accompanied by -i/ affida!it !erifying the petition" -ii/ ban$ draft for payment of application fee. -b/ &ine which may eFtend to 3s. @"444 on the company and e!ery officer of the company who is in default may be le!ied and for continuing default" a further fine of 3s. ,@4 per day during which the default continues may be le!ied. -9rpose of holdin8 Ann9al %eneral &eetin8: #t is only at the annual general meeting of a company that the shareholders can eFercise any control o!er the affairs of the company. They can confront the directors" their elected representati!es" at least once a year. They also get an opportunity to discuss the affairs and re!iew the wor$ing of the company. They can also ta$e the necessary steps for the protection of their interests. They may" for eFample" refuse to reelect a director whose actions and policy they disappro!e They can also ta$e up any other business relating to the affairs of the company for discussion. Appointment of auditors is also made at the annual general meeting. Annual accounts are presented for the consideration of shareholders and di!idends are declared in the annual general meeting. )9siness transacted at these meetin8s: At e!ery AL+" the following matters must be discussed and decided. Since such matters are discussed at e!ery AL+" they are $nown as ordinary business. All other matters and business to be discussed at the AL+ are special business. The following matters constitute ordinary business at an AGM:-a/ Consideration of annual accounts" directorGs report and the auditorGs report -b/ 8eclaration of di!idend -c/ Appointment of directors in the place of those retiring -d/ Appointment of and the fiFing of the remuneration of the statutory auditors. #n case any other business -special business / has to be discussed and decided upon" an eFplanatory statement of the special business must also accompany the notice calling the meeting. The notice must also gi!e the nature and eFtent of the interest of the directors or manager in the special business" as also the eFtent of the shareholding interest in the company of e!ery such person. #n case appro!al of any document has to be done by the members at the

70 meeting" the notice must also state that the document would be a!ailable for inspection at the 3egistered )ffice of the company during the specified dates and timings. EQ"#A #D*!A#7 %E!E#A( &EE"*!% !ery general meeting -i.e. meeting of members of the company/ other than the statutory meeting and the annual general meeting or any ad.ournment thereof" is an eFtraordinary general meeting. Such meeting is usually called by the 2oard of 8irectors for some urgent business which cannot wait to be decided till the neFt AL+. !ery business transacted at such a meeting is special business. An eFplanatory statement of the special business must also accompany the notice calling the meeting. The notice must should also gi!e the nature and eFtent of the interest of the directors or manager in the special business" as also the eFtent of the shareholding interest in the company of e!ery such person. #n case appro!al of any document has to be done by the members at the meeting" the notice must also state that the document would be a!ailable for inspection at the 3egistered )ffice of the company during the specified dates and timings. The Articles of Association of a Company may contain pro!isions for con!ening an eFtraordinary general meeting. g. #t may pro!ide that Hthe board may" whene!er it thin$s fit" call an eFtraordinary general meetingH or it may pro!ide that Hif at any time there are not within #ndia" directors capable of acting who are sufficient in number to form a >uorum" any director or any two members of the company may call an eFtraordinary general meetingH. ExtraordinarA %eneral &eetin8 on #eF9isition : The members of a company ha!e the right to re>uire the calling of an eFtraordinary general meeting by the directors. The board of directors of a company must call an eFtraordinary general meeting if re>uired to do so by the following number of members:-a/ members of the company holding at the date of ma$ing the demand for an L+ not less than one-tenth of such of the !oting rights in regard to the matter to be discussed at the meeting B or -b/ if the company has no share capital" the members representing not less than one-tenth of the total !oting rights at that date in regard to the said matter. The re>uisition must state the ob.ects of the meetings and must be signed by the re>uisitioning members. The re>uisition must be deposited at the companyIs registered office. %hen the re>uisition is deposited at the registered office of the company" the directors should within ,0 days" mo!e to call a meeting and the meeting should be actually be held within =@ days from the date of the lodgment of the re>uisition. #f the directors fail to call and hold the meeting as aforesaid" the re>uisitionists or any of them meeting the re>uirements at -a/ or -b/ abo!e" as the case may be" may themsel!es proceed to call meeting within : months from the date of the re>uisition" and claim the necessary eFpenses from the company. The company can ma$e good this sum from the directors in default. At such an L+" any business which is not co!ered by the agenda mentioned in the notice of the meeting cannot be !oted upon. -o0er of CompanA (a0 )oard to rder Callin8 of ExtraordinarA %eneral &eetin8: #f for any reason" it is impracticable to call a meeting of a company" other than an annual general meeting" or to hold or conduct the meeting of the company" the Company Law 2oard may" either i/ on its own motion" or ii/ on the application of any director of the company" or of any member of the company" who would be entitled to !ote at the meeting" order a

71 meeting to be called and conducted as the Company Law 2oard thin$s fit" and may also gi!e such other ancillary and conse>uential directions as it thin$s fit eFpedient. A meeting so called and conducted shall be deemed to be a meeting of the company duly called and conducted. -roced9re for Application 9nder Section 1K>: An application by a director or a member of a company for this purpose is re>uired to be made to the 3egional 2ench of the Company Law 2oard before whom the petition is to be made in &orm No 0 specified in AnneFure ## to the CL2 3egulations with a fee of 3s,44. The petition must be accompanied with the following documents P -a/ -b/ -c/ -d/ !idence in proof of status of the applicant. Affida!it !erifying the petition. 2an$ draft e!idencing payment of application fee. +emorandum of appearance with copy of the 2oardIs resolution or eFecuted !a$alat nama" as the case may be.

DE)E!";#ES / (DE#IS &EE"*!% A company issuing debentures may pro!ide for the holding of meetings of the debenture holders. At such meetings" generally any matters pertaining to the !ariation in terms of security or to alteration of their rights are discussed. All matters connected with the holding" conduct and proceedings of the meetings of the debenture holders are normally specified in the 8ebenture Trust 8eed. The decisions at the meeting made by the prescribed ma.ority are !alid and lawful and binding upon the minority. -9rpose of holdin8 De1ent9re holder meetin8 -a/ The meeting of debenture holders is held in accordance with the conditions contained in the debenture trust deed. -b/ These meetings are called from time to time where the interests of debenture holders are in!ol!ed e.g. at the time of reconstruction" reorganiSation" amalgamation or winding up of the company. -c/ The rules and regulations entered in the trust deed relate to notice of the meeting" resolutions" >uorum of the meeting and writing and signing of +inutes. C#ED*" #IS &EE"*!% Sometimes" a company" either as a running concern or in the e!ent of winding up" has to ma$e certain arrangements with its creditors. +eetings of creditors may be called for this purpose. .g. ?Ks :E:" a company may enter into arrangements with creditors with the sanction of the Court for reconstruction or any arrangement with its creditors. The court" on application" may order the holding of a creditorsGs meeting. #f the scheme of arrangement is agreed to by ma.ority in number of holding debts to !alue of the three-fourth of the total !alue of the debts" the court may sanction the scheme. A certified copy of the courtIs order is then filed with the 3egistrar and it is binding on all the creditors and the company only after it is filed with 3egistrar. Similarly" in case of winding up of a company" a meeting of creditors and of contributories is held to ascertain the total amount due by the company and also to appoint a li>uidator to wind up the affairs of the company.

72 -9rpose of holdin8 these meetin8s Sec. :E0 pro!ides that where a compromise or arrangement is proposed between a company and its creditors" meeting of creditors may be called by the company on its own or by an application by any creditor. The meetings of creditors are also held when the company has gone into li>uidation. These meetings are held to estimate the total amount due by the company to its creditors and to appoint li>uidators to ensure that the company closes down the business legally as per Companies Act 0E@C. C(ASS &EE"*!%S Class meetings are meetings which are held by holders of a particular class of shares" e.g." preference shareholders. Such meetings are normally called when it is proposed to !ary the rights of that particular class of shares. At such meetings" these members discuss the pros and cons of the proposal and !ote accordingly. -See pro!isions on !ariations of shareholderGs rights/. Class meetings are held to pass resolution which will bind only the members of the class concerned" and only members of that class can attend and !ote. ?nless the articles of the company or a contract binding on the persons concerned otherwise pro!ides" all pro!isions pertaining to calling of a general meeting and its conduct apply to class meetings in li$e manner as they apply with respect to general meetings of the company. ?nder the Companies Act" class meetings of !arious $inds of shareholders and creditors are re>uired to be held under different circumstances. ?nder Sec. 04C" class meetings of the holders of different classes of shares are to be held if the rights attaching to these shares are to be !aried. Similarly" under Sec. :E=" where a scheme of arrangement is proposed" meetings of the se!eral classes of shareholders and creditors are re>uired to be held. Also at the time of winding up. the meetings of creditors and members" for certain purposes" are held. <rima facie" a class meeting should be attended by the members of the class in order that the discussion of the matters which the meeting has to consider may be carried on unhampered. The presence of a number of persons with conflicting interests would render it impossible for members of the class ade>uately to discuss the matter from their point of !iew. And if the presence of outsiders is retained in spite of the ascertained wish of the constituents of the meeting for their eFclusion" it cannot be said that a separate meeting of the class had been duly held. 2ut where the constituents of the meeting meet together and no one in fact raises any ob.ection to the presence of strangers or outsiders within the same four walls" there is no reason why their meeting should not be a perfectly good meeting &EE"*!% , ) A#D , D*#EC" #S The directors are a body to whom the duty of managing the general affairs of the company is entrusted. They act as the agents of the company as company cannot do any act on its own. Therefore" wide powers ha!e been !ested in the board of directors in regard to management of the company. &or efficient management of the affairs of the company" the directors are re>uired to meet fre>uently to discuss and re!iew important matters and to decide number of meetings.

73 -eriod: Sec. ,A@ of-the Act pro!ides that a board meeting must be held at least once in e!ery three months" and at least four such meetings must be held in a calendar year. The central go!ernment may eFempt by notification in )fficial LaSette any company from the abo!e pro!isions" if the company does not ha!e enough wor$ to .ustify eFpenditure on >uarterly meeting of the board. !otice: Notice of e!ery meeting of the board of directors of company shall be gi!en in writing to e!ery director in #ndia at his usual address in #ndia. The Companies Act does not specify any period of notice for board of directors. #f directors are informed that in future the meetings will be held on second +onday of e!ery month it is sufficient compliance of the statute. #t is not re>uired that the meeting of board of directors should be held only in the city where the registered office of the company is situated. #t can be held at any place. Q9or9m: The >uorum for a meeting of the board of directors of company shall be one-third of its total strength -Any fraction contained in that one-third being rounded off as one/ or two directors whiche!er is higher. #f the number of interested directors eFceeds or is e>ual to or two-thirds of the total strength" then remaining directors who are not interested being not less than two shall be the >uorum. The >uorum is re>uired to be present throughout the conduct of the meeting. The decision of the board will be in!alid if the >uorum is not maintained. #f the meeting cannot be held for want of >uorum it stands ad.ourned till the same day m the neFt wee$ at the same time and place. Chairman: !ery meeting of the beard must ha!e a chairman to preside o!er it. The articles usually name the chairman who shall preside o!er the board meeting. #f the articles do not name the chairman" the director may elect a chairman of the meeting. Lenerally" The chairman of the board also presides at general meeting of the company. #esol9tions: At the meetings of the board the decisions are ta$en by passing resolutions on the matters placed before the meeting for consideration. The board may pass resolution by circulation in case it is not possible to hold a board meeting for any reason. A resolution is deemed to be passed when the draft together with the necessary papers is circulated among the directors present in #ndia and number among whom it is circulated is not less then >uorum fiFed for board meeting" and it has been appro!ed by ma.ority. Certain powers of the board can be eFercised by means of passing resolutions at boardIs meeting. These are 0. the power to ma$e call" ,. the power to issue debentures :. the power to borrow money" =. the power to fill up casual !acancy" etc. The >uestion arising at the meeting of the board of directors is decided by a single ma.ority. ach director has one !ote and the chairman in case of need may eFercise casting !ote. *owe!er" the Act re>uires unanimous consent of all the directors in >uestion matters
QK. State the #eF9isites of a valid &eetin8? AK.

A meeting can !alidly transact any business if the following re>uirements are satisfied. 0. The meeting must be duly con!ened by a proper authority. ,. A proper notice must be ser!ed in the prescribed manner. :. A >uorum must be present =. A chairman must preside. @. +inutes of the proceedings must be $ept.

74 -roper a9thoritA: The proper authority to con!ene a general meeting -whether statutory" annual general or eFtraordinary/ of a company is the 2oard of directors. The 2oard should pass a resolution to call a general meeting" at a duly con!ened meeting of the 2oard. #f the directors do not call the meeting" the members or the Company Law 2oard may call the meeting. #f some defect in the appointment or >ualification of the directors present at the 2oard meeting comes to light after the 2oard has acted bona fide" such a defect is not necessarily fatal to the !alidity of their resolution to call the meeting. !en if the meeting of the 2oard at which it is resol!ed to call a general meeting is not properly con!ened or constituted" the general meeting called by the 2oard can act !otice of meetin8: A proper notice of the meeting should be gi!en to the members and all others who are entitled to attend the meeting. (en8th of notice: Not less than ,0 daysI notice. A general meeting of a company may be called by gi!ing not less that ,0 daysI notice in writing to the members. The use of the word ImayI in Sec. 0D0 does not mean that the notice can be dispensed with. The eFpression Hnot less than ,0 daysI noticeH implies notice of ,0 whole or clear days. <art of the day" after the hour at which the notice is deemed to ha!e been ser!ed" cannot be combined with the part of the day before the time of the meeting" or the day of the meeting" to form one day. ach of the ,0 days must be a full or a calendar day" so that notice can be said to be not less than ,0 days notice. The period of ,0 days is computed from the date of receipt of the notice by the members. #t eFcludes the day of ser!ice of the notice and the day on which the meeting is to be held. Notice is deemed to ha!e been recei!ed by the members at the eFpiration of =A hours after the letter containing it is posted. Q9or9m: The word >uorum has a Latin origin literally meaning Iof whomI. #t is the minimum number of members of any body of society whose presence is necessary for the transaction of business. %hen members assemble at the registered office of the company in response to the notice calling a general meeting" the first thing to do is to see whether the >uorum is complete or not. The Articles of Association generally lay down the >uorum in the absence of which the meeting will not be properly constituted. #f the Articles do not pro!ide otherwise" fi!e members present personally -proFies not included/ in the general meeting of a public limited company will constitute the >uorum. #n case of a pri!ate limited company" the personal presence of two members will constitute the >uorum. #f the >uorum is not complete" the chairman and members will wait for half an hour after the scheduled time for the meeting. #n case the meeting has been called on the basis of a re>uisition" it shall stand dissol!ed if the >uorum is not complete e!en within half an hour of the time of the meeting. #f" howe!er" the meeting has been con!ened by the management" it shall be ad.ourned to the same day in the neFt wee$" at the same time and place unless the 2oard fiFes some other time" day and place for it. The ad.ourned meeting can proceed to business if the >uorum is not complete within half an hour. #n case of meetings called or directed to be called by the Court or the Central Lo!ernment" the >uorum shall be fiFed by the order under which the meeting is held. Chairman: The chairman is the person responsible for the proper conduct of the proceedings. A meeting cannot be said to ha!e been propErly constituted without somebody in the chair to regulate its conduct. The first chairman of the company is generally named in the Articles. #n most of the companies" the chairman of the 2oard of 8irectors presides o!er their general meeting too. #f the chairman of the company is not present within fifteen minutes of the time fiFed for a meeting" the directors present shall elect one from amongst themsel!es to the chair. 2ut if no director is willing to preside" the members present shall elect one of themsel!es to be the chairman of the meeting" unless the Articles pro!ide

75 otherwise. Duties of the chairman as covered in the agenda 0. *e must act at all times bona fide and in the interests of the company as a whole. ,. *e must ensure that the meeting is properly con!ened and constituted" i.e. a proper notice has been gi!en" the rules as to >uorum are obser!ed" and his own appointment is in order. :. *e must ensure that the proceedings at the meeting are properly and regularly conducted. =. *e must ensure that the pro!isions of the Act and the Articles are obser!ed" and the business is ta$en in the order set out in the agenda. @. *e must see that all the business transacted at the meeting is within the scope of the meeting. C. *e must preser!e and maintain order #n the meeting and decide any points of order submitted to him. D. *e must ascertain the sense of the meeting properly with regard to any >uestion before it. *e must do so by putting the motions in their proper form" and declare the result of the !oting. A. *e must decide incidental >uestions arising for decision during the meeting. E. *e must eFercise his casting !ote bona fide in the interests of the company. 04. *e must eFercise correctly his powers of ad.ournment and of ta$ing a poll. *e must see that any disorderly persons are remo!ed" and where it is impossible to maintain order" he should ad.ourn the meeting. !en if the rele!ant rules do not gi!e him the power to ad.ourn the meeting he may do so in the e!ent of disorder. The ad.ournment must be no longer than he considers necessary and he must" so far as possible" communicate his decision to those present 00. *e must gi!e the members who are present a reasonable and sufficient opportunity to eFpress their !iews on the motion or resolution before the meeting. *e must not allow discussion eFcept upon a motion or resolution. 2ut at the eFpiration of a reasonable time he is entitled" if he thin$s fit to put a resolution to the meeting that the discussion be terminated 0,. *e must also ta$e care that the rights of the minority are not ignored. Cond9ct of the meetin8: The way in which a meeting is to be conducted is a matter for the chairman" with the assent of the persons properly present to be determined in the light of the general law and the companyIs Article of Association.
QL. :rite Short notes on the follo0in8? 1. &in9tes 2. -roxies ?. #esol9tions AL. 1. &in9tes

After the chairman settles in the chair" he calls the meeting to order. The secretary presents the minutes of the last meeting before the members present for confirmation. +inutes of the proceedings of meetings are statutorily re>uired to be maintained under Section 0E: of the Companies Act. ?nder this section the minutes of a meeting must be recorded within fourteen days of the meeting concerned.

76 The minutes must be recorded in a proper minuteGs boo$ which has pages consecuti!ely numbered. <asting of minutes to any other boo$ is prohibited. The minutes of each meeting are re>uired to contain a fair and correct summary of the proceeding of the meeting. The chairman en.oys absolute discretion regarding the eFclusion of matters which are irrele!ant or are detrimental to the interests of the company. ?nder Sec. 0E= of the Act" minutes of meetings $ept in accordance with the pro!isions of Section 0E: -signed by the chairman in confirmation thereof/ shall be e!idence of the proceedings recorded therein. The minutes of general meetings are re>uired to be $ept at the registered office of the company and must be open to inspection by members without charge at least for two hours e!ery day. #f a member wants a copy of the minutes" he can get it within se!en days of the re>uest on payment of :D paise per hundred words or fractions thereof -Section 0EC/. +inutes of proceedings at a company meeting should Hconsist of a record of business transacted by the meeting as a whole and would -eFcept in odd cases/ eFclude any reference to conduct or e!ents which are not themsel!es items of transacted business.Z +inutes may be of two types: +inutes of narrationYThese are records of e!ents or items of business which do not re>uire formal resolutions" such as the notation of the members present" recording of apologies for non-attendance" statements of proposers and seconders of motions" etc." and -b/ +inutes of resolutionYThese set out a statement of what was resol!ed and may" or may not" be accompanied by a statement indicating the mo!er and seconder. Si8nin8 of &in9tes: +inutes are a record of proceedings at a meeting including decisions arri!ed at such meeting. They show clearly what was done at the meeting. +inutes indicate the proceedings of the meetings of company. They are-the official records of all decisions ta$en at !arious meetings of the company. +inutes may enable a member to get a clear idea about the matters discussed in the past. #t is essential to get the minutes of a meeting confirmed in the neFt meeting of the same type and be signed chairman. +inutes are documentary e!idence and can be submitted in a court as e!idence. They should be clear and precise about the-business transacted at the meeting. (e8al -rovisions 0. !ery company within :4 days of the meeting -Leneral meetingK8irectorsI meeting/ should ma$e an entry in the minutes boo$ $ept for this purpose. ,. The minute of each meeting must contain a fair and correct summary of the proceedings thereof. :. All appointments of officers made at the meeting must be included in the minutes. =. #n the case of the meeting of directors or a committee of the board" the minutes shall also contain the names of directors present at the meeting and in the case of each resolution passed at the meeting the names of directors if any dissenting from or not concurring in respect of each resolution" @. Those details may not be included in the minutes" which are defamatory of any person or irrele!ant or detrimental to the interest of the company in the opinion of the chairman of the meeting. C. The minute must be signed by the chairman of the meeting. D. The confirmed minutes should be $ept at the registered office of the company A. #t should be $ept open during business hours for inspection by any member without charge. E. +embers of the company are not entitled to inspect the minutes of its 2oardIs meeting.

77 "Apes of &in9tes &in9tes of #esol9tions: #n these minutes" only the decisions ta$en and the resolution passed at a meeting are recorded. The details of the discussion are not recorded. &in9tes of the !arration: These minutes describe in brief entire decision ma$ing process. #t tells the Iwhole storyI" i.e." the nature of discussion" remar$s of spea$ers for both for and against each motion" the manner of !oting" etc. #nspection of minutes of proceeding of a general meeting of a company must be $ept at the registered office and must be open during business hours to the inspection of any member free of charge.
2. -roxies

The term proFy is used to refer to the person who is nominated by a shareholder to represent him at a general meeting of the company and also to the instrument through which such a nominee is named to be authoriSed to attend a meeting. ?nder Section 0DC -0/ e!ery member of the company is entitled to appoint another person -member or a non-member/ to attend a general meeting and !ote if need be. ?nless a pro!ision to the contrary is made in the Articles" the members of companies not ha!ing a share capital cannot appoint proFies to represent them. Similarly" a member of a pri!ate limited company cannot nominate more than one proFy for the same meeting. As for the rights of the proFy" such a nominee cannot spea$ at the general meeting for which he is nominated nor can he !ote unless there is a poll [i.e." !otes are cast in a prescribed form according to each shareholderIs holdings/. The Act 6under Section 0DC -,/7 eFpressly re>uires that a statement" that a member entitled to attend and !ote is entitled to appoint a proFy instead of himself and that a proFy need not be a member" must be displayed with reasonable prominence in the notice for th meeting concerned. 8efault in respect of this re>uirement is punishable with fine of to 3s. @44. Table IAI lays down that an instrument appointing a proFy must be deposited with the company not less than =A hours before the time for the meeting. Any pro!ision in the Articles of a company re>uiring the proFy form to be deposited earlier than =A hours will be in!alid. #n case of a poll" the proFy form can be re>uired to be deposited not less than ,= hours before the time fiFed for the poll. The Act also re>uires that an instrument appointing a proFy must be in writing and must be signed by the appointer or his legally authoriSed representati!es. The form for proFy is gi!en in Schedule #' of the Act" though a company may adapt it to its own circumstances. #f officers or an officer of a company in!ites a member to appoint a person or any of a group of persons as proFies at the eFpense of the company" he or they will be liable to a fine up to one thousand rupees. This fine will not be imposed if the member concerned himself re>uested the company to send a list of persons a!ailable to be nominated as proFies and such a list is freely made a!ailable to e!ery member. +embers can inspect proFy forms twenty-four hours before the meeting if they ha!e already gi!en a notice for this purpose three days in ad!ance of the meeting. Two types of proFies may be distinguished" A proFy authoriSed to !ote only upon a particular resolution is called a Ispecial proFyI while a proFy empowered to !ote on all resolutions in a meeting may be called a Igeneral proFyI.
?. #esol9tion

A resolution means a formal eFpression of the opinion of a meeting. #t is a motion carried and passed by a meeting. #t is a collecti!e decision ta$en at the meeting with the re>uired ma.ority. The resolutions passed by a company in meetings are of two $inds" namely" ordinary resolution and special resolution. rdinarA #esol9tion

78 This is a resolution passed at a meeting by a simple ma.ority of !otes" including the casting !ote of the chairman" if any. The following are some of the eFamples of acts" which a company can do by passing an ordinary resolution: 0. To change its name where it has been registered with a name !ery nearly li$e that of another eFisting company. ,. To authoriSe the issue of shares at a discount. :. To alter the share capital by increase" consolidation and con!ersion of shares into shares of larger amount" con!ersion of fully paid shares into stoc$ or !ice-!ersa" subdi!ision of shares and cancellation of unissued shares. =. To adopt the annual accounts of the company. @. To appoint directors. C. To remo!e a director. D. To appoint the auditor at the annual general meeting. A. To declare di!idend recommended by the directors. E. To wind-up the company !oluntarily when the period fiFed for its duration has eFpired. Special #esol9tion #t is a resolution which is passed at general meeting by a ma.ority of three fourth of the members present. The notice of the general meeting at which a special resolution is to be mo!ed must eFpressly state that the resolution is to be mo!ed as a special resolution. A company can do the following acts only by passing special resolution: 0. To transfer the registered office of the company from one state to another or to alter its ob.ects. ,. To alter the Articles of Association. :. To reduce share capital. =. To shift the registered office from one place to another in the same state. @. To ma$e the liability of directors or managers unlimited. C. To appro!e the ma$ing of loans to other companies. D. To resol!e that the company be wound up by the court. A. To wind up a company !oluntarily. #esol9tion reF9irin8 special notice %here any pro!ision in Companies Act or in the Articles re>uires that a special notice must be gi!en for any resolution" notice or the intention to mo!e the resolution is gi!en to the company at least 0= clear days before the meeting at which it is be mo!ed. A special notice therefore means 0= clear daysI notice. Special notice must be gi!en in the following cases: &or appointment as auditor of a person other than a retiring auditor" or &or remo!al of a director and appointment of a new person as director in place of the remo!ed director. #mmediately" after receipt of a special notice the company must gi!e its members notice of such resolution atleast se!en days before the meeting or if that is not practicable it must gi!e them notice thereof either by ad!ertisement in a newspaper ha!ing an appropriate circulation or in any other mode allowed by the Articles. #t should be noted that the resolutions re>uiring special notice might be either ordinary resolutions or special resolutions Q1@. Explain provisions related to -osition5 Appointment and #emoval of director. A1@.

79 The administration of the company is in the hands of the directors. They ta$e decision on policy matters. They are not paid ser!ants. They ser!e in three different ways: -A/ As a trustee -2/ As an agent -C/ As a <artner As a "r9stee: The directors are not owner of the company and they do not function as an owner" while entering into contract with the third person. The directors ha!e to use their powers in the interest of the company. The directors are eFpected to show the capacity and diligence as a trustee. #f the directors misuse the position" they are held liable. The directors are the trustees in connection with the transfer and distribution of shares. The directors ha!e to disclose the details of his interest. As an A8ent: The position of director is li$e an agent. They ha!e to function as per the pro!isions contain in the Articles of the company and the Company Law. Their actions are not their personal transactions" but they are the transactions done for and on behalf of the company. As a -artner: 8irectors held shares. The members of the company also hold share. The directors wor$ as the representati!es of the members. Thus" they are li$ed partners of the members of the company. The powers of the directors are decided from the articles under the Companies Law" 0E@C. *is liability is limited to the eFtent of the holding of the shares. Thus" the directors are a trustee an agent both. Section ,-0:/ defines director as Hdirector includes any person occupying the position of a director by whate!er name called.H 8irector is not ser!ant of the company. *e is rather an officer of the company. The articles of association of the company and pro!isions of the companies Act will go!ern the selection of the directors of the company. The management or the affairs of the company will be in the hands of the directors. The directors are collecti!ely called the 2oard of 8irectors. The 2oard of 8irectors is the companyIs eFecuti!e authority. The articles will determine the number of directors to be appointed to the 2oard of 8irectors of a company. As per the Act" minimum three directors will be there in a public company and two directors in a pri!ate company. Appointment of the directors The different modes of appointment of directors are as follows: 0. ,irst Directors: <erson named in the articles of association as directors become the first director of the company or in the absence of the pro!ision in the articles regarding persons to be appointed first 8irectors" the subscribers to the memorandum of association will become the first directors. ,. Appointment 1A election: The members at the general meeting of the company will elect the directors. This is the most common and usual mode of appointing directors. Section ,@@ pro!ides for the procedure for election. :. Appointment 1A nomination 1A )oard of Directors: The 2oard of 8irectors will fill up the casual !acancy arising among the directors by nomination. 8irectors so appointed will remain in the office only for the uneFpired period for which the director whose post is !acant" would ha!e remained in the office. =. Appointment 1A nomination 1A Central %overnment: ?nder Section =4A of the Act" the Central Lo!ernment can nominate some directors to the 2oard in case of mismanagement and oppression.

@.

C.

D. A.

80 Appointment 1A nomination in stat9torA corporations: Certain statutory corporations possess similar powers e.g. the #ndustrial &inance Corporations Act of 0E=D empowers the Corporation to nominate a director to the 2oard of a company to which it has ad!anced moneys. Appointment on the 1asis of F9alification shares: %here a person holds minimum number of shares as pro!ided in the articles then he is said to ha!e obtained I>ualification sharesI. A person can be appointed as a director on the basis of such >ualification shares. Appointment on the 1asis of consent filed: A person intending to be appointed as a director must sign and file with the company his consent to act as such" if appointed" unless he himself notifies his candidature to the company. Appointment of alternate directors: The 2oard of 8irectors of a Company" may" if so authoriSed by its articles or by resolution passed by a company in general meeting" appoint alternate director during absence of the eFisting director for a period not less than three months from the State in which meeting of the 2oard are ordinarily held. The alternate director cannot hold office longer than the original director. *e will !acate his office if and when the original director returns to the Stat.

DisF9alification of Directors According to Section ,@: of the Companies Act" 0E@C" only indi!idual can be appointed as the director. *owe!er a person shall not be capable of being appointed as director of the company" if 0. *e has been found to be of unsound mind by a Court of competent .urisdiction and the finding is in force. ,. *e is insol!ent. :. *e has applied to be ad.udicated as an insol!ent and his application is pending. =. *e is con!icted by a Court" of any offence in!ol!ing moral turpitude and sentenced in respect thereof" to imprisonment for not less than siF months and period of fi!e years has not elapsed from the date of the eFpiry of the sentence. @. *e has not paid any call in respect of shares of the company held by him whether alone or .ointly with others and siF months ha!e elapsed from the last date fiFed for the payment of the call. C. An order dis>ualifying him from appointment as director has been passed by a Court in pursuance of Section ,4: and is in force unless the lea!e of the court has been obtained for his appointment in the pursuance of that Section. #emoval of Directors The shareholders" the Central Lo!ernment or the court may remo!e the directors. The rules regarding the remo!al of the directors are as follows: #emoval+T1A shareholders: A company may by ordinary resolution remo!e a director before the eFpiry of period of office eFcept in .the following cases Directors 0ho cannot 1e removed: An additional director appointed by the Central Lo!ernment under Section =4A in case of mismanagement and oppression/ cannot be remo!ed. #n a pri!ate company a director appointed for life and holding office as such on 0st April 0E@, cannot be remo!ed by memberIs resolution. %here the articles of a company pro!ide for the election of directors by proportional representation" a director elected by that method cannot be remo!ed by the resolution. Special !otice for removal of directors: Special notice must be gi!en of the resolution to

81 remo!e a director" copy of which must be gi!en to the director concerned. The meeting which remo!es a director can elect another in his place if the7 director was originally appointed by the election. #em9neration to the director for this removal: #f a director" by an agreement or otherwise entitled to recei!e compensation for the premature termination of his ser!ice he can enforce his claim notwithstanding the remo!al by the resolution. #emoval 1A the Central %overnment: The Central Lo!ernment shall by order remo!e from the office any directors against whom there is a decision of the *igh Court" holding that he is not a fit or proper person to hold the office of director #emoval 1A Co9rt: Section =4, read with Sections :ED and :EA gi!es wide power to the court including the remo!al of the directors. Q11. Explain -o0ers5 #i8hts5 D9ties and (ia1ilities of Director 9nder *ndian Companies act5 1L=>? A11 -o0ers of the Directors: Section ,E0 of the Companies Act" 0E@C"- lays down that sub.ect to the pro!isions of the articles" the 2oard of 8irectors of a company shall be entitles to eFercise all such powers and to do all such acts and things as the company is authoriSed to eFercise and do. -o0ers to 1e exercised 1A the )oard of Directors: Section ,E, of the Companies Act pro!ides that the 2oard of 8irectors shall eFercise the following powers on behalf of the company and it shall do so only by resolutions passed at the meeting of the 2oard: (a) +a$e calls on shareholders. (1) #ssue debentures. (c) 2orrows the money other than on debentures. (d) #n!est the funds of the company" (e) +a$e loans Some of the powers may be delegated to a committee of directors" to the +anaging 8irector" +anager etc. (imitations on the po0ers of the )oard: &ollowing restrictions are placed on the powers of the 2oard under Section ,E: of the Act. The 2oard of 8irectors of a public company or a pri!ate company shall not" eFcept with the consent of the company in general meeting(1) Sell" lease or otherwise dispose of the whole underta$ing. (2) 3emit or gi!e time for repayment of any debt due by a director. (?) #n!est or borrow money in the contra!ention of Companies Act" 0E@C. (G) Contribute after the commencement of this Act" to charitable or other funds any amount" the aggregate of which will" in any financial year" eFceed" fifty thousand rupees or fi!e percent of its a!erage net profit during the three financial years immediately preceding" whiche!er is greater. #i8hts of the Directors 0. A director !alidly appointed and if he is not otherwise dis>ualified to ta$e part in discussion in the 2oardIs meetings" he is entitled to attend the meetings of the 2oard and participate in the discussion of the companyIs affairs. ,. A director is entitled to recei!e remuneration fiFed by the articles or otherwise" but sub.ect to the pro!isions of the Act. :. +anaging 8irector and the %hole-time director may be gi!en compensation by the company if the company terminates the ser!ices of such a director prematurely. The amount of compensation which will be paid to the director concerned must not eFceed the amount of remuneration which he would ha!e earned if he had been in the office for the uneFpired residue office term of office or three years whiche!er is shorter.

82 D9ties of the Directors The important duties of the directors are as follows: 0. !ery director should wor$ in the manner decided on business lines. ,. !ery director must act in good faith and in the interest of the company. :. 8irectors must eFercise the reasonable care" which an ordinary man might be eFpected to ta$e in the circumstances. =. A director is eFpected to eFhibit that degree of s$ill" which can be reasonably eFpected from a person of his $nowledge and eFperience. *e is not liable for mere errors of .udgment. @. *e has to attend periodical board meetings and meetings of any committee to which he is appointed. C. #t is obligatory on the directors to disclose certain facts -pertaining to contract or arrangement proposed to be entered into by the company/ to the company under the pro!isions of the Act. D. *e has to send his consent for the post of directors to the 3egistrar. !ery director is obliged to ta$e >ualification shares of directorship in accordance with the pro!isions of Articles of Association of the company. A. !ery director must pay his share money according to the call of the 2oard of 8irectors. E. 8irectors must not participate in the meeting of the 2oard of directors when they discuss his contract with a company. 04. #n case of failure to perform his duties by the director" he will be guilty of negligence and if the company suffers any damages on account of such negligence" the director will be obliged to compensate the company. (ia1ilities of the Directors The liabilities of the directors are di!ided in two parts: -i/ Ci!il liabilities -ii/ Criminal liabilities and -iii/ ?nlimited liability. Civil iabilities A director may be liable to pay compensation to company and to outsiders in case of (1) any false statement made in the prospectus. (2) where the directors eFceed the authority for entering into the contract. (?) for any ultra !irus act of the company. (G) where a director is negligent and the company suffers the loss due to the negligence of directors. (=) if the director ma$es any secret profit in connection with the affairs of the company. (>) if the directors commit any breach of trust relating to the properties and funds of the company. (J) if any act of misfeasance is committed by the director and thereby any loss is caused to the company. Criminal iabilities The Companies Act imposes criminal liabilities upon the directors for the breach of certainconditions. Oarious pro!isions of the Act pro!ide for the imposition of fine for criminal performance of the prescribed duties. #mprisonment is also pro!ided for in certain cases !iS. false statement in prospectus" failure to $eep certain registers" falsification of boo$s and reports" etc. )n any proceedings against any director or officer of the company for. negligence" breach of duty" misfeasance" the court can eFcuse him from any liability if it is of

83 opinion that such director or officer has acted honestly and reasonably and that ha!ing regard to all the circumstances of the case" he ought fairly to be eFcused. 2ut in criminal proceedings" the court has no power to grant relief from any ci!il liability. !nlimited liability of directors #t may be pro!ided in the memorandum of association that the liability of the directors or any director or manager may be unlimited.

84

% NEGOTIABLE INSTRUMENTS ACT, 1881


Q1. :hat is a !e8otia1le *nstr9ment? Explain characteristics. A1. DE,*!*"* ! (SEC ?) Negotiable #nstruments means a promissory note" bill of eFchange or che>ue either payable to order or to bearer. *owe!er this definition is not eFhausti!e because there are certain instrument which courts ha!e considered as Negotiable #nstrument. &or eg P 3ailway 3eceipt" share warrant" debenture warrant" etc. An nglish author" Thomas" has described in his boo$ <rinciples of 2an$ing" Negotiable #nstrument as under A Negotiable #nstrument is an instrument whose title can be passed freely from one person to another person by endorsement and deli!ery and the amount of instrument can be reco!ered by the holder in his own name and the holder in due course gets a better title than the holder" e!en though the title of the holder -transferor/ may be defecti!e. C/A#AC"E#*S"*CS The following are the characteristics of a negotiable instrument : 0/ &reely Transferable ,/ <resumptions :/ 3eco!ery =/ *older can file a suit 1) ,reelA "ransfera1le The property -)wnership/ in a Negotiable #nstrument passes from one person to another by deli!ery if the instrument is payable to bearer and by endorsement and deli!ery if it is payable to order. 2) -res9mptions Certain presumption apply to all Negotiable #nstrument unless contrary pro!ed such as to the date" consideration" acceptance" endorsement or stamp. ?) #ecoverA The holder in due course can sue upon a Negotiable #nstrument in this own name for the reco!ery of the amount. +oreo!er" he need not gi!e notice of transfer to the party liable on the instrument to pay such holder in due course shall ha!e better title o!er #nstrument &ree from all prior defects. G) /older can file a s9it in his o0n name The holder of Negotiable #nstrument can file a suit in his own name" if it is dishonored or if he has not been paid money. *e is not affected by certain defenses against pre!ious holders. &or e.g. fraud. Q2. :hat is meant 1A Crossin8 a CheF9e? *ndicate its different tApes? A2. DE,*!*"* ! (SEC >) A che>ue is a bill of eFchange drawn upon a specified ban$er and payable on demand. A che>ue is a species of bill of eFchange.

85 C# SS*!% , C/EQ;E There are two types of che>ue: 1) pen cheF9e A che>ue which is payable in cash across the counter of the ban$ is called an open che>ue. #f its holder loses it its finder may go the ban$ and get payment unless its payment has been stopped. 2) Crossed cheF9e #t is one on which two parallel trans!erse lines with or without the words 1 Co. are drawn. The payment of such a che>ue can be obtained only through a ban$er. #t affords security and protection to the owner of the che>ue. "7-ES , C# SS*!% There are two types of crossing. (1) %eneral Crossin8 A che>ue is said to be crossed generally where it bears across its face an addition of the words and company between two parallel trans!erse lines either with or without the words Not Negotiable. Specimen )<T#)NS #N T* S<AC 0/ Weeping it blan$ ,/ %riting Jand companyG :/ %riting J1 Co. =/ %riting JNot NegotiableG @/ %riting JNot Negotiable 1 Co.G C/ %riting JNKN 1 Co.G -meaning" JNot Negotiable 1 Co.G/ (2) Special Crossin8 #f a che>ue across its face an addition of the name of ban$er eight with or without the words Not Negotiable the che>ue is said to be crossed specially. Trans!erse lines are not Necessary in case of a special crossing. The payment of a specially crossed che>ue can be obtained only through the particular ban$er whose name appears between the lines. Specimen )<T#)NS #N T* S<AC 0/ %riting J2an$ of +aharashtraG ,/ %riting J2an$ of +aharashtra Not NegotiableG :/ %riting J2an$ of +aharashtra for AKc <ayeeG (?) #estrictive Crossin8 %hen the words AKc payee are added to the general or special crossing it is called 3estricti!e crossing. )<T#)NS #N T* S<AC 0/ %riting JAKc <ayeeG ,/ %riting JAKc <ayee Not NegotiableG :/ %riting J2an$ of +aharashtra AKc 3a.endra <atel Q?. :rite short note on: Different tApes of Endorsements? A?. "Apes of Endorsement Any negotiable #nstrument can be endorsed by any of the following types:

86 1) Endorsement in f9ll %hen a drawer or any other party signs an instrument and specifies the amount too be paid to a party or to his order" it is endorsement in full. e.g. - A draws a bill <ay +r. 3amesh shah or to his order and then signs it" this is endorsement in full. 2) Endorsement in 1lanR %hen a drawer or some other party authoriSed .ust signs a Negotiable #nstrument it is called an endorsement in blan$. ?nder such an endorsement" the name of the party in whose fa!our a Negotiable #nstrument is made will not be specified i.e. the space for name is $ept blan$. The person holding an instrument is entitle to get payment on its. ?) #estrictive endorsement Any endorsee to a Negotiable #nstrument has a right of further negotiation but sometimes this right may be restricted or ta$en away by words eFpressed in the instrument. this is restricti!e endorsement. #f pre!ents further negotiation of instrument. .g. <ay to 3a.endra <atel only" <ay 2 on behalf of A. G) ,ac9ltative endorsement %hen an endorser of Negotiable #nstrument %ai!es has right or repudiates any liability in clear words" it is called facultati!e endorsement. g <ay to <rati$ <ari$h or on his order without recourse to me =) Conditional endorsement %hen any ndorsement of Negotiable #nstrument is made by an endorser inserting a condition" it is conditional ndorsement. The condition referred to will be operati!e between endorser and endorsee. This will not ha!e any payment on its maturity. #f such an instrument is re.ected" the holders cannot hold the endorser to be liable. g. <ay to +ahesh Shah 3s.04"444 on arri!al of the ship Oi$rant <ay to A 3s.@4"444 when construction of dam is completed. QG. :rite Short !ote: Acceptance for hono9r 9nder the !e8otia1le *nstr9ments Act5 1KK1? AG. Acceptance for /ono9r Lenerally" the drawee to a bill of eFchange should accept it. 2ut when he refuses to accept a third party to such a bill may accept it for its drawer or endorser" this is called Acceptance for honour. Any third party to instrument and not liable on it can accept it for honour by ma$ing a note on it with permission of the holder. Elements of Acceptance of /ono9r 0/ The acceptance for honour can be made for honour of any party to the bill of eFchange. ,/ The acceptance for honour can be affected only with the permission of the holder of bill. :/ A bill should ha!e been noting and protest about its non-acceptance. =/ The acceptance for honour can be alone before the lapse of date of payment on bill. @/ The person accepting a bill for honour must ma$e a note on it. C/ Any person not liable in connection with the bill can accept it for honour. D/ The acceptor for honour becomes liable only when the bill of eFchange is dispatched to for presented at the place of payment on the !ery neFt day of its maturity.

87 Q=. :rite Short !ote: Acceptance for -aAment? A=. According to Sec 00: of Negotiable #nstrument Act" %hen a person responsible to pay on an instrument refuses to pay after its acceptance and if the payment is made by a third party for his honour" payment for honour can be said to ha!e affected. Elements of Acceptance for -aAment 0/ The protest and noting should be with Notary public about non-payment of bill of eFchange. ,/ The payment should ha!e been made for the honour of any person liable to ma$e payment on an instrument. :/ The acceptor for honour and his agent should declare the party for whose honour payment is made and the Notary public should register such a declaration. =/ Any person liable or otherwise in connection with the instrument can ma$e payment for the honour. Q>. :rite Short !ote: /older in d9e co9rse (/*DC) 9nder the !e8otia1le *nstr9ments Act Also Explain the -rivile8es availa1le to /older in D9e Co9rse? A>. ?nder Sec-E of this act there is pro!ision as to the *older in due course Any <erson is a holder in due course if he fulfills the following Conditions. 0. #f he became the possessor of Negotiable #nstrument <ayable to bearer or the payee or endorsee if payable to order for a Oaluable Consideration ,. #f he became the holder of the instrument before its maturity. :. #f he became the holder of the instrument in good faith-without sufficient cause to belie!e that any defect eFisted in the title of the person from whom he deri!ed his title. A holder of Negotiable #nstrument will not be a holder in-due course if" 0. *e has obtained the instrument by gift or for an ?nlawful Consideration or" ,. *e has obtained the instrument after itGs maturity or :. *e has not obtained the instrument bona fide -rivile8es of a holder in d9e co9rse (/*DC) Thus a holder in due course is an innocent person who has paid !aluable consideration and is gi!en special pri!ileges under negotiable instrument act. *e is called protected child of negotiable instrument Act. The following are the pri!ileges of *#8C 1) (ia1ilitA of prior parties !ery prior party to negotiable instrument is liable there on to a holder in due course until the instrument is duty satisfied. 2) )etter title )nce a negotiable instrument passes through the hands of a holder in due course it gets cleaned of its defects. Thus any defect in the title of the transferor will not affect the rights of the holder in due course. ?) *nchoate Stamped instr9ment A person" who has signed and deli!ered to another a stamped but $ept the amount column blan$. %hen such instrument is possessed by holder in due course he can fill in amount being sufficient to the stamp and can reco!er it from the ma$er or drawer of such Negotiable #nstrument.

88 G) ,ictitio9s -aAee An instrument drawn in fa!our of <ayee the acceptor or ma$er can not ma$e a plea as against the holder in due-course that the payee or drawer of an instrument was fictitious. =) *nstr9ment 1tained 1A ;nla0f9l means . Consideration The person Liable on a Negotiable #nstrument can not ma$e pleas against a holder in due Course that it was obtained from him by means of an offence" or fraud or for an ?nlawful Consideration. >) Estoppel a8ainst denAin8 ori8inal 3aliditA of instr9ment #n a suit filed by holder in due course the ma$er" drawer or acceptor of a note" bill or che>ue can not deny the !alidity of the instrument as originality. J) Estoppel a8ainst denAin8 capacitA of paAee to indorse #n a suit by holder in due course the ma$er of note" drawer or acceptor of bill cannot deny the capacity of payee at the date of note or bill to indorse the same. K) !e8otia1le *nstr9ment 0itho9t consideration %hen Negotiable #nstrument is made" drawn" accepted or transferred without consideration" it creates no obligation of payment between parties to the transaction but the N# gets into the hands of holder in due course" he can reco!er the of the prior parties. QJ.Define )ill of Exchan8e and Disc9ss its Essentials? AJ. Definition (Sec =) A 2ill of Fchange is an instrument in writing containing an unconditional order signed by the ma$er directing a certain person to pay a certain sum of money only to" or to the order of" a certain person or to the bearer of the instrument. Essentials of a )ill of Exchan8e 0/ #t must be in writing. ,/ :/ =/ #t must contain law order to pay. The order must be unconditional. Three partiesB The person who ma$es it is called 8rawer The person who is directed to pay is called the 8rawee The person to whom the payment is to be made is called <ayee. #t must be signed by the 8rawer. The sum payable must be certain. #t must contain an order to pay money. )ther formalities such as number" date" place" consideration and necessary stamp must be properly complied with.

@/ C/ D/ A/

89 QK. Define CheF9e 0ith its characteristics and distin89ish it from )ill of Exchan8e? AK. 8efinition -Sec C/ A che>ue is a bill of eFchange drawn upon a specified ban$er and payable on demand. A che>ue is a species of bill of eFchange. Essentials of a CheF9e 0/ #t must be writing. ,/ #t must contain an unconditional order to pay. :/ #t is always drawn on a specified ban$er. =/ #t must be signed by the drawer. @/ +oney must be certain. C/ )ther formalities relating to number" date" place" consideration must be properly complied with. Difference 1et0een )ill of Exchan8e and CheF9e. Sr. !o. CheF9e )ills of Exchan8e 0 Che>ue is always drawn on a A bill may be drawn on any specified ban$er <erson including a ban$er. , Acceptance is not re>uired as it is A bill must be accepted before the drawee payable on demand can be called upon to ma$e payment for it. : #t is payable on demand and &or ma$ing the payment after its therefore it is not entitled to any acceptance" a drawee may ha!e three days days of grace. of grace. = The drawee of a che>ue is not A bill must be duly presented for payment necessarily discharged from his to the drawee otherwise the drawee of the liability by delay of the holder in bill will be discharged from liability. presenting it for payment. @ #t may be crossed A bill of eFchange cannot be crossed" crossing is not necessary. C A Che>ue does not re>uire any A bill must be stamped stamp. D A che>ue is not re>uired to be #f a bill is dishonoured it re>uires to be noted or protested. noted and protested. QL. Define -romissorA !ote and Disc9ss its essentials? AL. Definition (Section G) A promissory note is an instrument in writing -not being a ban$ note or a currency note/ containing an unconditional underta$ing signed by the ma$er to pay a certain sum of money only to" or to the order of a certain person" or to the bearer of the instrument.

90 The person who ma$es the promissory note and promises to pay is called +a$er. The person to whom the payment is to be made is called the <ayee. &or e.g. - A signs instrument stating # promise to pay 2 or order 3s.@44. Essential Elements of -romissorA !ote The following are the essential elements K characteristics of promissory note: 0/ *t m9st 1e 0ritten (in 0ritin8): +ere !erbal engagement to pay is not enough. %riting include print or type writing or by pencil or in$. ,/ -romise to paA: #n such a note" there must be a promise or underta$ing to pay the money. A mere ac$nowledgment of debt is not enough. :/ -romise m9st 1e 9nconditional and a1sol9te: The promise to pay the money must be unconditional for e.g.-# promise to pay ' a sum of 3s.@44 when con!enient or ablethis is not a <romissory note. =/ @/ "he promise m9st 1e si8ned: This instrument must be signed by the ma$er otherwise it is incomplete and of no effect. &oneA m9st 1e certain: #n <romissory note" the money for which the promise has been gi!en must be certain and must not be capable of contingent for e.g.Hpromise to pay A 3s.0444 and all other sums due to him. This is not a <romissory note. -romise to paA moneA onlA: The payment must be in the legal tender of money of #ndia. #f there is promise to pay something other than the money or in addition to money" it cannot be a <romissory Note. "he paAee m9st 1e certain: The instrument must contain certainty as the who is the payee. %here the ma$er and payee cannot be identified with certainty from the instrument" the instrument is not a <romissory Note. ther formalities: <romissory Note must fulfill other formalities li$e number" date" place" consideration and a necessary stamp. *t cannot 1e made paAa1le to 1earer or demand: This restriction has been imposed by the 3eser!e 2an$ of #ndia Act 0E:=.

C/

D/

A/ E/

Q1@. Distin89ish 1et0een -romissorA !ote and )ill of Exchan8e? A1@. Definition (Section G): A promissory note is an instrument in writing -not being a ban$ note or a currency note/ containing an unconditional underta$ing signed by the ma$er 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 person who ma$es the promissory note and promises to pay is called +a$er. The person to whom the payment is to be made is called the <ayee. &or e.g.- A signs instrument stating # promise to pay 2 or order 3s.@44. Definition (Sec =) A 2ill of Fchange is an instrument in writing containing an unconditional order signed by the ma$er directing a certain person to pay a certain sum of money only to" or to the order of" a certain person or to the bearer of the instrument.

91 Difference 1et0een -romissorA !ote and )ill of Exchan8e Sr. !o. )ill of Exchan8e -romissorA !ote 0 As to the parties these are three There are two parties. -a/ +a$er -b/ <ayee parties.-a/ 8rawer -b/ 8rawer -c/ <ayee , There is unconditional order to pay There is unconditional promise to pay money money. : A party who has shown as 8rawee Acceptance is not necessary. should accept the 2ill and therefore acceptance is necessary. = The liability of the drawee is The ma$er of a note is primarily and primary and absolute whereas that absolutely liable to ma$e payment. of drawer is secondary and conditional. @ #n a bill" the drawee and the payee A note cannot be made payable to the may be one and same person. ma$er himself. C After the acceptance on the date of &or ma$ing the payment of a note" no. maturity" the drawee is granted three days of grace are gi!en i.e. it is payable for ma$ing the payment as days of on days demand. grace. D #f the bill is dishonoured protest and #f the note is dishonoured no protest or noting is compulsory notice is re>uired. A #f the bill is foreign bill" three copies &or <romissory Note" no copy is re>uired. are re>uired. Q11. :rite Short !ote on: &aterial Alteration? A11. ?nder sec AD of this Act" the pro!ision is made for +aterial Alteration in Negotiable #nstrument. Any change which may effect important changes in the liabilities of the parties to a Negotiable #nstrument are called alterations. 2ut if such changes are made affected before ma$ing the instrument with the consents of all parties to it" they are not called material alteration. Any +aterial alteration of a Negotiable #nstrument renders the same as !oid as against anyone who is a party there to. The parties can ma$e the following changes: 0/ To ma$e an instrument with incomplete stamps declaring it as complete ,/ To ma$e a simple endorsement as complete ndorsement :/ To cross a che>ue =/ To ma$e the acceptance of instruments conditional The liabilities of parties do not change or comes to an end by such material alteration. +oreo!er" change in date" place of payment" rate of interest" parties are also called material alterations. Q12.:rite Short !ote on P &at9ritA . DaAs of 8race? A12. The +aturity of a <romissory Note or bill of eFchange is the date on which it falls due-sec,,. !ery instrument payable otherwise than on demand" is entitled to three days of grace.

92 These days of grace were originally allowed as a gratuitous fa!our to the debtor. ,ollo0in8 instr9ment are not entitled to NdaAs of 8raceO+ -0/ a che>ue -,/ a bill or note payable at sight or on presentment or on demand -:/ a 2ill or Note in which no time is mentioned ,ollo0in8 instr9ments are entitled to NdaAs of 8raceO. -0/ a bill or note payable on a specified day -,/ a bill or note payable after sight -:/ a bill or note payable at a certain period after date. -=/ a bill or note payable at a certain period after the happening of certain e!ent. Calc9lation of date of mat9ritA: + Sec+ 2? to 2= 0. #f <romissory Note or bill is made payable a stated number of months after date or sight. #t becomes payable after the corresponding date of month after the stated number of months. e.g. a bill dated" 0 st Tanuary ,44E is made payable three months after date" if fall due on =th April P ,44E. ,. #f the month in which the period would terminate has no corresponding day the period is held to terminate on the last day of such month. :. The day on which the instrument is presented for acceptance is to be eFcluded. e.g. a bill payable thirty days after sight is presented for sight on 0 st +archG,44E it falls due on :rd AprilG,44E. =. %hen the day on which a bill or note is at maturity is a public holiday the instrument is deemed to be due on the neFt preceding business day. e.g. a bill dated 0 st +archG,44E is payable three month after date it falls due on = th TuneG,44E" if =th Tune" ,44E happens to be holiday it will fall due on : rd TuneG ,44E the preceding wor$ing day.

93

5% SALE OF GOODS ACT, 1930


Q1. :hat is Contract of Sale? /o0 the Contract of Sale is made? Distin89ish 1et0een Sale and A8reement to Sell? A1. #t is a contract whereby the seller transfers the property or agrees to transfer the property in the goods to the buyer for the price. A contract of sale is made by an offer to buy or sell the goods for the price and the acceptance of such an offer. #t may pro!ide for the immediate deli!ery of the goods or immediate payment of the price or both. #t may also pro!ide for deli!ery or payment by installments or that the deli!ery may be postponed if the installments are not paid for. #t may be made in writing or by word of mouth or partly in writing and partly by word of mouth. #t may also be implied by the conduct of the parties. "ale and Agreement to "ell: %here under the contract of sale the property in the goods is transferred from the seller to buyer" the contract is called the sale. 2ut where the transfer of the property in the goods is to ta$e place at the future time or the sub.ect to some condition thereafter to be fulfilled the contract is called an agreement to sell. An agreement to sell becomes the sale when the time elapses or the conditions are fulfilled sub.ect to which the property in the goods is to be transferred. !o. 0 , : = @ -oints Nature 3ight Sale A8reement to Sell #t is an eFecutory contract. #t creates the .us in personam only a personal right <roperty in the goods passes at a later date #t is a future sale -i/#n case of buyerGs breach" seller can sue only for unli>uidated damages -ii/ #f seller commits a breach" buyer has only a personal remedy for damages. #f the goods are destroyed" the loss falls on the seller" e!en though they are in possession with the buyer #f the buyer becomes insol!ent without paying for the goods" the seller may refuse to deli!er the goods unless paid for

#t is an eFecuted contract #t creates .us in rem right against the entire world Transfer <roperty in the goods passes instantly ffect #t is a present sale 3esult -i/ #f buyer fails to pay for the goods the seller can sue him for the price -ii/ #f seller commits a breach" buyer can sue for damages and claim deli!ery of the goods. 3is$ #f the goods are destroyed" the loss falls on the buyer e!en though they are in possession of the seller #nsol!ency of #f the buyer becomes buyer insol!ent before he pays for the goods" the seller -in absence of lien etc/ must

94 deli!er goods Seller is only entitled to claim rateable di!idend for the price due #nsol!ency of #f the seller becomes seller insol!ent" buyer being the owner of the goods would be entitled to reco!er the goods" form the ).3. of the seller 3ight to 2uyer can pursue the pursue property 3ight to claim Seller ac>uired a right on unpaid seller against the goods

E 04

#f the buyer who has paid the price finds that the seller has become insol!ent he can claim only rateable di!idend and not the goods" since ownership has not passed to the buyer No >uestion of pursuing since the goods are not identified Seller can claim only damages.

Q2. Explain the S91Mect &atter of Sale? A2. Loods form the sub.ect matter of the contract of sale. They mean e!ery $ind of the actionable claims and money. They include the following: Stoc$ and Shares. Lrowing crops. Lrass. Things attached to or forming the part of land which are agreed to be se!ered before the sale or under the contract of the sale. Ty#es of Goods: Existin8 %oods: The goods which are owned and possessed by the seller at the time of the sale are called eFisting goods. These goods may be specific" ascertained or unascertained. ,9t9re %oods: The goods which the seller does not possess at the time of the contract and which will be manufactured" ac>uired or produced by him at some future date is called future goods. Contin8ent %oods: The goods the ac>uisition of which by the seller depends upon the contingency which may or may not happen are called the contingent goods. $rice of the Goods The price of the goods in the contract of the sale must be eFpressed in terms of money. #t +ay be fiFed by the contract itself. +ay be left to be fiFed in an agreed manner. +ay be determined from the course of dealing between the parties. %here the price is not determined in accordance with the abo!e pro!isions" the buyer may pay the seller the reasonable price. Q?. :rite short note on Conditions . :arranties? A?. A stipulation in a contract of sale with reference to goods which are the sub.ect thereof may be a condition or the warranty. A condition is a stipulation essential to the main purpose of the contract. #ts breach gi!es the right to the buyer to treat the contract as repudiated. A warranty is a stipulation collateral to the main purpose of the contract. #ts breach gi!es rise to

95 the claim for the damages but not the right to re.ect the goods and treat the contract as repudiated. %&#ress and 'm#lied Conditions and (arranties #n a contract of sale" conditions and warranties may be eFpressed or implied. Fpress conditions and warranties are those which are agreed upon between the parties at the time of the contract. #mplied conditions and warranties are those which are implied by law unless the parties stipulate to the contrary. 'm#lied Conditions: Condition as to title: #n a contract of sale" there is an implied condition on the part of the seller that #n case of a sale" he has a right to sell the goods" and #n case of the agreement to sell" he will ha!e the right to sell the goods at the time when the property is to pass. Condition as to Sale 1A Description: %here there is a contract of sale of the goods by description" there is an implied condition that the goods shall correspond with the description. #f the sale is by sample as well as by the description" the goods shall correspond both with the sample and the description. Condition as to Q9alitA or fitness: The condition as to >uality or the fitness is implied where: The goods sold are such as the seller deals in the ordinary course of the business" The buyer relies on the sellerGs s$ill and the .udgment as to the fitness of the goods for any particular purpose. The buyer eFpressly or impliedly ma$es $nown to the seller that he wants the goods for the particular purpose. Condition as to &erchanta1ilitA: %here the goods are bought by description from a seller who deals in the goods of that description -whether he is the manufacturer or producer or not/" there is an implied condition that the goods shall be of merchantable >uality. Condition implied 1A C9stom: An implied condition as to >uality or fitness for a particular purpose may be anneFed by the usage of the trade. Condition as to Sale 1A Sample: #n the case of contract for sale by sample there is an implied condition: That the bul$ shall correspond with the sample in the >ualityB That the buyer shall ha!e the reasonable opportunity of comparing the bul$ with the sampleB and That the goods shall be freed from any defect" rendering them unmerchantable" which would not be apparent on a reasonable eFamination of the sample. Condition as to :holesomeness: #n case of eatables and pro!isions" there is an implied condition that the goods shall be wholesome and fit for the human consumption. 'm#lied (arranties: #n contract of sale" unless there is a contrary intention" there is an implied warranty that A. The buyer shall ha!e and en.oy >uiet possession of the goods.

2.

96 The goods are free from any charge or encumbrance in the fa!our of the third party.

QG. Explain Doctrine of Caveat Emptor? AG. #t means let the buyer beware. #t means that the buyer should eFamine the goods thoroughly while purchasing it. #f the goods turn out to be defecti!e or do not suit his purpose or if he depends upon the own s$ill and .udgment and ma$es the bad selection" he cannot blame anybody eFcepting himself. &or #nstance: * sent to mar$et :, pigs to be sold by the auction. The pigs were sold to % with all faults and the errors of description. *e $new that the pigs were suffering from the swine fe!er" but he ne!er disclosed it to %. held" that there was no implied warranty by * and the sale was good and * was not liable in the damages. -%ard O. *obbs/ Exceptions: The doctrine of Ca!eat mptor does not apply in the following situations: A. #n case of #mplied Conditions and %arranties. 2. %hen the buyer intimates the purpose to the seller and depends upon his s$ill and .udgment. C. %hen there is usage of the trade. 8. %hen there is fraud by the seller. . %here the goods are bought by the description from then seller who deals in the goods of that description. Q=. N!o seller can 8ive to 19Aer a 1etter title than 0hat he himself hasO Explain. # Q=. :rite a short note on: Sale 1A non+o0ners. A=. According to Section ,D to :4 of the #ndian Sale of Loods Act" 0E:4 No seller can gi!e to buyer a better title than what he himself has. The law has been passed with a !iew to protecting the interests of the owner. .g. person A can not sell to some other person" 2 a house owned by C as he does not ha!e ownership title on that property. *owe!er" there are the following eFceptions to this rule:0nership 1A Estoppels: This means that suppose a person A buys property from 2 who is not the owner of the property but the person who is the real owner of the property either by his action or rewards creates an impression on the mind of A that 2 is the real owner of the property then A ac>uire of a clear title of the property that he has purchased from 2. &ercantile A8ent: According to Section ,D to the #ndian Sale of Loods" when a mercantile agent has aright to sell a particular property" then the buyer of the property gets clear title e!en when he has purchased the goods from the agent. *owe!er" he must be an agent as defined by the act and must be in possession of goods or documents of the title of goods with the ownerGs consent. Sale 1A Moint o0ners: %hen one of the .oint owners of a property sells the property on behalf of all the owners and a if the buyer purchases it without his prior $nowledge that the

97 co-owner does not ha!e a right to sell the property" gets a .oint right" against all the owners" but not a sound right. Sale of 8oods p9rchased from voida1le contract: Suppose that a person A purchases a tape recorder from some other person 2 through undue influence. Now this is a !oidable contract. 2ut suppose that" some other person C purchases this tape recorder from the A without his $nowledge of the !oidable contract" and then he gets a sound ownership right. Sale of the 8oods 1A seller after a sale: *ere" suppose that a person A purchases some goods from 2 but does not ta$e the deli!ery of the goods and so 2 sells the goods to some other person C. *ere" C will get a clear title and A can not as$ for the deli!ery of the goods or possession of the goods from C. *owe!er" he has a right to as$ for damages from 2. %oods sold 1A 19Aer after sale: According to section :4-,/ when a person A has purchased goods from 2 and is in possession of goods or documents showing that he is the owner of the goods sells the goods directly or through his agent to some other person C" then C gets a clear tile. Sale 1A 9npaid seller: %hen a buyer has not paid the price or tendered the payment" to the seller then the seller has aright to stop the goods in transit resell them" and to $eep the goods in lien. So when he sells the goods to some third person without informing the original buyer then the new buyer gets a clear titleK the buyer has a right to as$ for damages in the e!ent of non intimation. Sale 1A official receiver: %hen a person has gone ban$rupt and the possession of his is ta$en change by an official recei!er then a person who purchases goods from the recei!er gets a clear ownership title. Sale in open marRet: This eFception has been recogniSed by the 2ritish Act. According to his eFception when a person buys goods from open mar$et where goods ha!e been openly eFposed then buyer gets a clear ownership title. *owe!er here again the eFception does not apply to sale of a horse. Q>. :ho is 9npaid Seller? :hat are the ri8hts of 9npaid seller or vendor? A>. Any seller who has sold goods but has not recei!ed the amount of price fully or any part of it or when the negotiable instrument gi!en by the buyer has been dishonored or in case of credit sale the period of credit has eFpired and no payment is recei!ed by the seller then such a seller is said to be unpaid seller as per the sale of goods Act. The rights of an unpaid seller are basically di!ided in to two categories as follows: #i8ht a8ainst the 8oods #i8ht of (ien: This means that the seller can $eep the goods in his possession till the price is paid by the buyer. *owe!er" this right will apply when:0. There is no condition of selling the goods on credit. ,. The goods ha!e been sold on credit but the time limit of credit has eFpired. "he (ien is lost 9nder the follo0in8 cases:+ 0. Then the seller deli!ers the goods to the carrier for transport.

,. :. =.

98 %hen the buyer has obtained possession of goods lawfully. %hen the seller himself gi!es up the right of lien. Lien is lost by stoppels. This means that the seller beha!es in such a manner so as to gi!e an impression to third party that he has wai!ed the lien.

Stoppa8e in "ransit: + (Section =@) This means to stop the goods from being deli!ered when they are in the course of transportation. This right will arise under the following circumstances:1. 2. ?. agent. G. =. The buyer must ha!e become insol!ent. The goods are stopped according to the pro!isions of the law. The seller has sold the goods to the buyer but the seller is unpaid. *e must ha!e parted with the goods. The goods must be in transit. They ha!e not yet reached the buyer or his

The seller can stop the goods in transit and $eep them under his lien till the price is paid" or the price has been tendered. The seller may actually $eep the goods with him or may gi!e a notice about the stoppage to the buyer. ()) #i8ht to resale: The seller has also the right to resale the goods. *owe!er the pro!isions are as under: #. #f the goods are perishable in nature" the seller can immediately dispose of the goods: ##. #n other cases" he has to gi!e a notice to the buyer about his intension to resell the goods. The buyer may pay the price in reasonable time. #f the price is not paid" the seller can sell the goods. ###. The seller can reco!er damages from the buyer. #f the seller re-sells the goods without a notice to the buyer he can not reco!er damages. +oreo!er" he has to surrender profit on the sale to the buyer. #O. #f in the original contract of sale" there is a pro!ision for the re-sale the seller can sell the goods without a notice to the buyer and can also reco!er damages. O. The seller can reco!er damages from the buyer if the buyer does not pay or tender the price. #i8hts a8ainst the 19Aer #. ##. ###. #f the goods ha!e already passed to the buyer" then seller can sue for the price. #f the payment is to be made. )n a certain day irrespecti!e of the date of deli!ery and if the payment is not made on that date" the seller can sue for the price e!en though the goods are in his possession. #f the buyer wrongly refuses to accept the goods" the seller can reco!er the damages from the buyer.

QJ. :rite a short note P Sale 1A a9ction AJ. Section JG of #ndian Sale of goods Act" 0E:4 mentions the following rules about the sale by auction A. #9les re8ardin8 the 8oods: %hen the goods are put in different lots" ordinarily they are considered to be the sub.ect matter of different contracts.

).

99 Completed Sale: #n any auction the sale of goods is said to be completed when the auctioneer announces the sale to be completed by $noc$ing his hammer. 2efore the sale is completed the bidder can withdraw his offer and the auctioneer can also withdraw the goods from the auction. #i8ht of the seller to 1id: %hen the right is reser!ed any person can bid on behalf of the seller or any other person appointed by the seller to sell the goods. &inim9m price: The auctioneer has a right to announce the reser!e or the up set price for the goods to be auctioned. The announcement is to be made before the sale starts. -retended 1iddin8: #f the auctioneer ma$es the use of pretended bidding to raise the price of his product" the contract becomes !oidable at the option of the buyer. *mplied conditions: %hen an auctioneer sells goods" there are some implied conditions such as he has aright to sell the goodsB the buyer will get the peaceful possession etc. -rice: +oreo!er" according to the law the bidder who has failed to pay the price shall continue to be liable to pay the price e!en when the goods are sold are sold to some third party. *e will ha!e to pay the difference the price that he has offered and the price which the auctioneer actually gets.

C. D.

E. ,.

%.

QK. :rite a short note + &arRet vert (-9rchase from open marRet) AK. According to #ndian Sale of Loods Act" a seller can not gi!e a better title of his goods to the buyer than what he himself has. This is not applicable to goods bought from the open mar$et. *owe!er here it should be noted that this eFception is recogniSed only in ?W and not in #ndia. According to this eFception the buyer gets a better title than the seller" pro!ided the following conditions are satisfied. #. ##. ###. #O. O. The goods must ha!e been sold at proper time. They should not ha!e been sold on a Sunday. The goods should ha!e been property displayed in the open mar$et. The buyer should not be aware of the defecti!e title of the seller. 2ona fides of the buyer should be honest. The buyer gets a clear title e!en when the goods deli!ered to him are stolen goods.

100

6% T!E CONSUMER PROTECTION ACT, 1986


Q1. Explain the o1Mectives of Cons9mer -rotection Act5 1LK>? A1. *ntrod9ction: #n the trade" there are two parties - one is buyer and the other is seller. 2ut when the buyer becomes the ultimate user of goods and ser!ices then buyer will be called consumer. The buyer must get the full satisfaction from the goods or ser!ices under the consideration of the payment of price. 2ut sometimes with the intension to earn maFimum profit and perfect competition" the trader manufacturer or retailer ha!e not pro!ided the >uality" >uantity or the basic characteristic of the goods or ser!ices. *ence the consumer cannot able to get the full satisfaction from the product or ser!ice and he may feel that he has been cheated by the trader" manufacturer or retailer. ?nder this situation he may get .ustice under consumer protection act formed by Central Lo!t" of #ndia in 0EAC. 1Mects of the Act: The act has been mainly made to create awareness among the consumers about their rights and to pro!ide simple and speedy redressal -solution/ of consumerIs disputes. #i8hts of cons9mer: 1. <rotection against the mar$eting of Loods and Ser!ices which are *aSardous to the life and property. 2. 3ight to be informed about the >uality" >uantity" purity" potency" standard and price of the goods or ser!ice. ?. 3ight of protection against unfair trade practices. G. 3ight to ha!e access to !ariety of goods and ser!ices at reasonable or competiti!e rates. =. 3ight to see$ redressal against unfair trade practice or restricti!e trade practice or eFploitation of consumers. >. 3ight to be heard and to be assured that the consumerIs interest will recei!e due consideration in the appropriate forum. J. 3ight to ha!e" consumer education. Q2. State the vario9s definitions contained in Cons9mer -rotection Act5 1LK>? A2. Cons9mer: A consumer for the purpose of goods means" Any person" who a. 2uys any goods for consideration which has been paid or promised or partly paid and partly promised or under any system of deferred payment. b. #ncludes" any user of such goods other than the person who buys them" when such is made with the appro!al of the buyer. The person claiming himself as I consumerI should satisfy that -i/ There must be a sale transaction between the seller and the buyer" -ii/ The sale must be of goods" -iii/ The buying of goods must be for consideration. -i!/ The consideration has been" paid or promised or partly paid and partly promised or under any system of deferred payment.

101 The user of the goods may also be a consumer" when such use is made with the appro!al of the buyer. Cons9mer for the p9rpose of TserviceT means any person who hires or a!ails the ser!ices of any eFpert in that particular field or facility from an eFpert for the consideration. -!/ :ho is not a cons9mer? A person is not a consumer if he obtains goods for resale or for any commercial purpose. %hen the manufacturer sells the goods to the wholesaler" who in turn sells the goods to a retailer" the wholesaler will be eFcluded from the definition of the word consumer as he has brought the goods for resale or for commercial purpose. HA person buying the goods for resale or for commercial purposes" e!en if for consideration" is not a consumer. Commercial purpose is a mercantile acti!ity" ha!ing profit as the main aim. #t includes all business acti!ities. .g. A purchase of a car by a company for use by its business" by director and mployees is purchased for commercial purpose. D-ersonD incl9des: (1) A firm whether registered or not (2) A *indu undi!ided family (?) A co-operati!e society. (G) !ery other association or persons whether registered or not. Any person has to be consumer first as per definition of the 0ord5 Wcons9merI as gi!en under the Consumers <rotection Act to get remedy. D%oodsD meaning of the word HLoodsII under the Consumer <rotection Act are the same as defined in the sale of goods Act of 0E:4. DServiceD means ser!ice of any description which is made a!ailable to potential users and includes the pro!ision of facilities in connection with ban$ing" financing" insurance" transport" processing supply of electrical or other energy" board or lodging or both" -housing construction/ entertainment" amusement or the pur!eying of news or other information but does not include the rendering of any ser!ice free of charge or under a contract of personal ser!ice. Contract of personal ser!ices is eFcluded from the definition" A ser!ice offered by an Ad!ocate to the client or ser!ice rendered by a pri!ate tutor is therefore not included the definition. DCons9mer disp9teD Sec , -0/ -e/ HConsumer 8isputeH means a dispute where the person against whom a complaint has been made" denies or disputes the allegations contained in the complaint. DComplainantD means 0/ A consumer or" ,/ Any !oluntary consumer association registered under the Companies Act or under any other law or the time being in force or :/ The Central Lo!ernment or the State Lo!ernment" or =/ )ne or more consumers" ha!ing the same interest" A person see$ing redressal of his complaint" must come within any of the abo!e mentioned categories" otherwise he has no Locus Standi to proceed with the case before i.e. consumer 3edressal &orum. DComplaintD means any allegation in writing made by a Complaint #n regard to one or

102 more of the following: i/ Any unfair trade practices or a restricti!e trade practice has been adopted by any trader. ii/ The goods bought by him or agreed to be bought by him" suffer from one or more defects" iii/ The ser!ice hired or a!ailed of or agreed to be hired or a!ailed of him suffer from deficiency in any respect" i!/ a tracer has charged for the goods mentioned in the complaint a price in eFcess of the price fiFed by law or displayed on the goods or any pac$ing containing such goods. !/ Loods which will be haSardous to life and safety when used or being offered for sale to the public in contra!ention of the pro!ision of any law. D&an9fact9rerO means a person who 0/ +a$es or manufacturers any goods or part of it or ,/ Assembles parts of any goods which are made or manufactured by others and claims the end product to be goods manufactured by himself or :/ <uts his own mar$ on any goods made or manufactured by any other manufacturer and claims such goods to be goods made or manufactured by himself. %here a manufacturer dispatches any goods or parts thereof to any branch office maintained by him" such branch office is not the manufacturer" e!en though the parts dispatched are assembled at such branch office and are sold or distributed from such branch office. DDefectD [Sec. , -0/ -f/\means any fault" imperfection or shortcoming in the >uality" >uantity" potency" purity or standard which is re>uired to be maintained by or under any law for the time being in force or under any contract" eFpress or implied or as is claimed by the trader in relation to any goods. N DeficiencAD: [Sec. , -0/ -g/\ 8eficiency means any fault" imperfection or shortcoming or inade>uacy in the >uality" nature and manner of performance which is re>uired to be maintained or has been underta$en to be performed by a person in pursuance of a contract or otherwise in relation to any ser!ice. #estrictive "rade -ractice (#"-): #t means a trade practice- which tends to bring about manipulation of price or its conditions of deli!ery or to affect the flow of supply in the mar$et relating to goods or ser!ices in such a manner as to impose on the consumer un.ustified cost due to delay beyond the period or any trade practice which re>uires a consumer to buy" hire or a!ail of any goods or ser!ices. &or e.g.: The retailer charged more price from the consumer mentioned under maFimum retail price printed on the goods. ;nfair trade practice (;"-): #t means a trade practice which for the purpose of promoting the sale" use or supply any goods or any ser!ices" adopts any unfair method or unfair practice by ma$ing a wrong statement or misleading publications or gifted priSes or hoarding of goods or spurious goods. Appropriate (a1oratorA: #t means a laboratory or organisation recogniSed by the Central Lo!t" or the state Lo!t" to analySe the test of any goods with a !iew to determining whether such goods suffer from any defects or not.

103 Q?. :rite a note on 9nfair trade practice? A?. &eanin8: As per definition no. E" the trader has committed unfair trade practice in the following circumstances. 1. &aRin8 statements: i/ %hen trader ma$es false representation that the goods or ser!ices are of a particular standard or >uality" ii/ A trader falsely represents any second hand goods as new goods" iii/ Trader ma$es a false or misleading representation concerning the need of any goods. i!/ A trader gi!es false warranty of a product. !/ A trader materially misleads the public concerning the price at which a product gi!es false or misleading facts. ,. -91lication: %hen a trader permits the publication or any ad!ertisement whether in any newspaper or otherwise for the sale of supply at a bargain price of goods or ser!ices that are not intended to be offered for sale or supply at the bargain price. %ift and priUes: %hen a trader permits the offer of gift" priSe other items with the intention of creating impression that something is being gi!en or offered free of charge when it is fully or party co!ered by the amount. Sale or S9pplA of 8oods: %hen a trader permits the sale or supply of goods $nowing that the goods do not comply with the standards prescribed by competent authority relating to its performance. /oardin8 of 8oods: %hen a trader permits the hoarding or destruction of goods if such hoarding or destruction is intended to raise the cost of goods. Sp9rio9s 8oods: +anufacture of spurious goods or offering such goods for sale or adapting decepti!e practices in the pro!ision of ser!ices.

:.

=.

@. C.

QG. :hat is Central Cons9mer -rotection Co9ncil? Explain its ri8hts5 po0ers and proced9re 9nder cons9mer protection Act. 1LK>? # :rite a note and C.C.-.C.? AG. *ntrod9ction: As per common introduction" &ramed by Central Lo!t" of #ndia by notification for the <rotection of consumer" is called Central Consumer <rotection Council. 0. The Central Lo!t" shall establish a Council by notification $nown as C.C.<.C ,. The Central Council shall consists of the following members a/ The minister in charge of the consumer affairs in the Central Lo!t." who shall be called Chairman. b/ )ther members official or non-official as may be prescribed pro!ided it should not be eFceeded 0@4 members. The +inister #n charge" +inister of state" A members of parliament" secretary of national commission" representati!e of Central Lo!t" not eFceeding ,4" the registrar the

104 representati!e of the consumer organiSations not less than :@ representati!e of women not less than 04" representati!e of farmers not eFceeding ,4 and persons capable of representing consumers interest not eFceeding 0@. The term of the council shall be : years and any member may resign from the council by writing under his hand to the Chairman of Central Council. The !acancies so caused shall be filled by the Central Lo!t" and Central Lo!t. +ay constitute among the member of the council" a standing wor$ing group not eFceeding :4 members. -roced9re for meetin8s: The Central Council shall meet at least once e!ery year. +eetings shall be held of such time and place as the chairman may thin$ fit and he shall obser!e the procedure in regard to the transaction of its business as may be prescribed. 1Mects: The ob.ects of the Central Council shall be to promote and protect the rights of consumers which are as follows: 1. The right to be protected against the mar$eting of goods and ser!ices which are haSardous to life and property. 2. The right to be informed about the >uality" >uantity" potency" parity" standard and price of goods or ser!ices so as to protect the consumer against unfair trade practices. ?. The right to be assured to a !ariety o9 goods and ser!ices at competiti!e prices. G. The right to be heard and to be assured that consumerIs interest will recei!e due consideration at appropriate forum. =. The right to see$ redresses or restricti!e trade practices or eFploitation of consumer. >. The right to consumer education. Concl9sion: The CC<C is an institution or council is wor$ing eFclusi!ely" for the protection of the basic rights of consumers. Such councils" Assure to the consumerI about their basic rights and 3e>uirements. Cons9mer disp9te redressal a8encies To pro!ide simple" speedy and ineFpensi!e redressal of consumer grie!ances" the Act en!isages a three tier >uasi-.udicial machinery at the district" state and national le!el. At the district le!el there will be H8istrict &orumH to entertain consumer complaints where the !alue of goods or ser!ices and compensation does not eFceed rupees twenty la$hs -3s.,4" 44"444/: At the state le!el there will be IState CommissionI to deal with the complaints where the claim eFceeds rupees twenty la$hs but does not eFceed rupees one crore. At the national le!el there is a INational Commission for complaints eFceeding 3upees one crore. Q=. :hat is district for9m? Explain its constit9tion5 o1Mects and po0er 9nder cons9mer protection act P 1LK>? # :rite a note on district for9m? A=. &eanin8: A .udicial authority appointed under any law for the protection the consumer and to gi!e

105 .ustice to e!en" consumer under consumer protection act EAC is called district forum. Composition: ach district forum shall consist of a person who is >ualified to be a district .udge who shall be its president and two other members. )ne of them shall be a woman" shall ha!e the following >ualification. 0/ Not less than :@ years of age. ,/ <osses a bachelor degree from a recogniSed uni!ersity. :/ <ersons of ability" integrity and ha!e $nowledge and eFperience of at least 04 years in dealing with problems relating to economics law commerce" accountancy industry public affairs or administration. Appointment: !ery appointment shall be made by State Lo!t. on the recommendation of selection committee consisting of the following: 0/ <resident of State commission Chairman. ,/ Secretary of law department of the state P member. :/ Secretary in charge of the department dealing with consumer affairs in the state members. !ery member of the district forum shall hold office for a term of fi!e years or up to the age of C@ years whiche!er is earlier. A member shall be eligible for reappointment for another term of fi!e years or up to the age of C@ years whiche!er is earlier. The salary payable of the members of the district forum may be prescribed by the state go!t. #esi8nation: A member may resign his office in writing addressed to the state go!t. #f resignation is accepted" his office shall be !acated and the state Lo!t. may fill up the !acancy by appointing an appropriate persons. DisF9alification: A person shall be dis>ualified for appointment as member if he" 0/ *as been con!icted and sanctioned to imprisonment for an offence in!ol!ing moral turpitude. ,/ #s insol!ent. :/ #s of unsound mind and declared by a competent court. =/ *as been remo!ed as dismissed from the ser!ice of the go!t. @/ *as such other dis>ualification as may be prescribed by the state go!t. Complaint A8ainst service: The district forum shall refer a copy of complaint to the opposite party directing him to gi!e his !ersion within a period of :4 days and where the opposite party denies or disputes the allegations or fails to ta$e any action to represent his case then the district forum shall proceed to settle the consumer dispute on the basis of e!idence. <9risdiction of the district for9m: The 8istrict &orum shall ha!e .urisdiction to entertain complaints where the goods or ser!ices and the compensation" ii any claimed does not eFceed rupees twenty la$hs. "erritorial <9risdiction:+

106 Section 00 sub sec. ,/ pro!ides that a complaint shall be instituted in a 8istrict &orum within the local limits of whose .urisdiction. -a/ The opposite party or each of the opposite parties at the time of institution of the complaint - -i/ actually and !oluntarily resides or -ii/ carries on business or -iii/ has a branch office] or -i!/ personally wor$s for gain. -b/ %here there are more than one opposite parties" any of the opposite parties at the time of the institution of the complaint - -i/ actually and !oluntarily resides or. -ii/ Carries on business or -iii/ ha!e a branch office or -i!/ personally wor$s for gain. -c/ The cause of action" wholly or in part arises. -roced9re on receipt of complaint: The pro!isions of sec. 0: lay down the procedure which is to be followed by the 8istrict &orum on the receipt of a complaints under the Act" where a complaint does not re>uire analysis or testing of the goods" it should be decided as far as possible within a period of E4 days trap- the date of the notice recei!ed by the opposite party and within 0@4 days if it re>uires analysis or testing of goods. -o0er of district for9m: The district forum shall ha!e the same powers as the ci!il court is carrying which are as follows: 0/ Li!e summons for attendance of any defendant or witness. ,/ 8isco!er any documents or other material ob.ects as e!idence. :/ 3eception of e!idence on affida!its. =/ #f the district forum is satisfied that the goods complained suffer from any of the defects then it shall issue order to the apposite party to do following things: i/ To remo!e the defect pointed out by the appropriate Laboratory. ii/ To replace the goods with the new goods of the similar description. iii/ To return to the complainant the prices and the charges paid by complainant. i!/ To remo!e the defects in goods or deficiencies in the ser!ice. !/ To discontinue the unfair trade practice or restricti!e trade practice. !i/ Not to affirm haSardous goods or ser!ices for sale. Appeal: Any person aggrie!ed by an order made by the district forum may prefer an appeal to the state commission within a period of :4 days. No appeal shall be entertained unless the appellant had deposited @4X of that amount or 3s. ,@444 whiche!er is less. Concl9sion: 8istrict forum established by state Lo!t" has .udicial authority for pro!iding .ustice to the genuine consumer or party those who are aggrie!ed under consumer protection act -0EAC. Q>. Explain meanin8 composition5 proced9re and appointment of mem1ers of state commission in detail? # :rite a note on state commission? A>. &eanin8 A forum or commission of members established by state Lo!t. to pro!ide .ustice to the aggrie!ed person from the order of district forum is called state commission or state forum.

107 Composition ach state commission shall consists of a person who is a .udge of high court as president of commission by the state go!t. and not less than two members out of which one shall be a woman who shall ha!e the following >ualifications. 0/ Not less than :@ yeas of age. ,/ <ossess a bachelor degree from a recognised uni!ersity. :/ <erson of ability" integrity. =/ *a!e ade>uate $nowledge and eFperience of last 04 years in dealing with problems relating to economies" law commenceB accounts" and industry. @/ Not more than @4X of the members shall be from .udicial bac$ground. Appointment !ery" appointment shall be made by state Lo!t" on the recommendation of a selection committee consisting of the following. <resident of the State Commission Chairman Secretary of the law department of the state - member" Secretary in charge of department dealing with consumer affairs in state member. #esi8nation A member may resign his office in writing under his hand addressed to the state go!t. after acceptance his office shall become !acant and !acancy may be filled up by a >ualified person. DisF9alification as mem1er A person shall be dis>ualified as member if he *as been con!icted to imprisonment for an offence" #s a discharged insol!ent5 is of unsound mind" *as been remo!ed or dismissed from the ser!ice of Lo!ernment. -o0ers: The .urisdiction powers and authority of the state commission may be eFercised by benches" constituted by. president with one or more members and if the opinion of member differs then president shall refer the case and gi!e his best .udgment" They can eFercise the case of appellant who is aggrie!ed from the order of district forum. "he State Commission shall have M9risdiction a/ To entertain -i/ complaints where the !alue of the goods or ser!ices and compensation" if any claimed eFceeds rupees twenty la$hs but does not eFceed rupees one crore and -ii/ appeals against the orders of any 8istrict &orum within the State and -b/ To call for the records and pass appropriate orders in any consumer dispute which is pending before or has been decided by any 8istrict &orum within the State where it appears to the state commission that such 8istrict &orum has eFercised the .urisdiction not !ested in it by law" or has failed to eFercise a .urisdiction so !ested or has acted in eFercise of itIs .urisdiction illegally or with material irregularity. Thus" the State Commission has been !ested with three types of .urisdiction namely -0/ )riginal .urisdiction -,/ Appellate .urisdiction" 1 -:/ 3e!isional .urisdiction.

108 SalarA and term of the office The salary and other allowances of the members of the state commission shall be prescribed by the state commission. !ery member of the state commission shall hold office for a. term of fi!e years or up to the age of CD years whiche!er is earlier and member" shall be eligible to reappoint for another team of fi!e years or the age of CD years whiche!er is earlier. Appeal #f the appellant aggrie!ed from state commission order then they can apply to the national commission within :4 daysI from the order recei!ed from state commission. Concl9sion State commission is a .udicial authority ahead them district forum established by state Lo!t" for the time being gi!es the protection under consumer protection act -0EAC by passing the order which may be conferred to national commission. QJ. :rite a note on "he !ational Commission? AJ. Composition of the national commission -0/ The National Commission shall consist ofB a. A person who is or has been a .udge of the Supreme Court" to be appointed by the Central Lo!ernment who shall be its <resident" pro!ided that no appointment under this clause shall be made after consulting the Chief Tustice of #ndia. b. &our members who shall be persons of ability" integrity and standing and has ade>uate $nowledge or eFperience of" or ha!e shown capacity in dealing with" problems relating to economics. Law" commerce" accountancy" industry" public affairs or administration" one of whom shall be a woman. <ro!ided that e!ery appointment made under the clause shall be made by the Central Lo!ernment on the recommendation of a selection committee consisting of the following" namely: A person who is a Tudge of the Supreme Court" to be nominated by the Chief Tustice of #ndia P Chairman The Secretary in the 8epartment of Legal Affairs in the Lo!ernment of #ndia - +ember" Secretary of the 8epartment dealing with consumer affairs in the Lo!ernment of #ndia - member. -,/ The salary or honorarium and other allowances payable to and the other terms and conditions of ser!ice of the members of the National Commission shall be such as may be prescribed by the Central Lo!ernment. -:/ !ery member of the National Commission shall hold office for a term of fi!e years or up to the age of se!enty years" which e!er is earlier and shall not be eligible for reappointment. "erms and conditions of service of the president and mem1ers of the national commission 2efore appointment" the president and the member of the National Commission shall ha!e to ta$e an underta$ing that he does not and will not ha!e any such financial or other interest

109 as is li$ely to Haffect pre .udicially his functions as a member. The terms and conditions of ser!ice of the <resident and the members shall not be !aried to their disad!antage during their tenure of office. 3acancies in office A !acancy in the office of the <resident or member may occur by the eFpiry of the term" or by death" resignation" or by remo!al. A !acancy so caused shall be filled up by fresh appointment by the central go!ernment. <9risdiction of the !ational Commission The .urisdiction of the National Commission may be classified into three categories namely. -0/ )riginal .urisdiction: - to entertain complaints where the !alue of the goods or" ser!ices and compensation" if any" claimed eFceeds rupees one crore. -,/ Appellate Turisdiction: - to entertain appeals against the order of any State Commission. -:/ 3e!isional Turisdiction - This is limited to consumer disputes where in" a state commission. -i/ *as eFercised a .urisdiction not !ested in it by law or -ii/ *as failed to eFercise .urisdiction so !ested or -iii/ *as acted in the eFercise of its .urisdiction illegally or with material irregularity The National Commission can eFercise its power in re!ision only under the abo!e stated situations.

110

7% INFORMATION TEC!NOLOG" ACT, 2000


Q1. Explain the ,rame0orR of cA1er la0s in *ndia as 8overned 9nder *nformation "echnolo8A Act5 2@@@? A1. The #T Act is a comprehensi!e piece of legislation" which aims at policing some of the acti!ities o!er the #nternet. The fundamental approach of the Act is towards !alidating and legaliSing electronic and on-line transactions. 2usiness transaction costs will be reduced and transaction !olumes will grow manifold. %hile legislation will always be lagging behind as time and technology progress" the <arliament must ensure that it $eeps amending old laws and enacting new laws to $eep pace with the e!er-changing standards. At the same time" #ndian law must be compatible with international standards that are prescribed and that may be prescribed in the future. This is essential if we desire to effecti!ely regulate this boundless world. %ith the e!olution of information technology" paperless documents replaced paper documents. As a result" modern authentication tools !iS. electronic signatures are slowly substituting the traditional authentication tools -handwritten signatures. The electronic signature co!ers digital signature techni>ues" biometrics and other signatures that use computer medium. To enable communication on electronic medium" where indi!iduals may not actually communicate with each other" digital signatures are in !ogue. A small change or amendment of an enactment or the legislation of a new law brings forth the relati!e changes in the pro!isions of the other enactments. 3espect for a new law or amendments in an eFisting law will be there only when the rele!ant pro!isions in the procedural laws -li$e #<C" Cr<C" Limitation Act etc./ are made in time to suit the re>uirements of the society as a whole. The ob.ecti!e of the #nformation Technology Act is to pro!ide legal recognition for transactions carried out by means of electronic data interchange and other means of electronic communication" commonly referred to as Helectronic commerceH" which in!ol!e the use of alternati!es to paper-based methods of communication and storage of information" to facilitate electronic filing of documents with the Lo!ernment agencies and further to amend the #ndian <enal Code #AC4" the #ndian !idence Act. 0AD," the 2an$ersI 2oo$s !idence Act" 0AE0 and the 3eser!e 2an$ of #ndia Act" 0E:= and for matters connected therewith or incidental thereto. The information technology has influenced many other substantial laws li$e Consumers <rotection Act" 0EAC" #ncome TaF Act" 0EC0 Negotiable #nstruments Act" 0AA0 etc.

Q2. Explain the provisions relatin8 to Electronic %overnance 9nder *nformation "echnolo8A Act5 2@@@? A2. E(EC"# !*C % 3E#!A!CE ,*#S" -A#" #t co!ers the pro!isions related to the Legal recognition of lectronic records" 8igital Signatures" ?se of lectronic records and 8igital Signatures in Lo!ernment and its Agencies" 3etention of lectronic 3ecords" and 3ules 3elated to the <ublication of the

111 lectronic 3ecords in the lectronic LaSette. SEC !D -A#" #t co!ers the pro!isions related to Attribution" Ac$nowledgement and 8espatch of lectronic 3ecords. "/*#D -A#" #t eFplains the pro!isions relating as to how to secure the lectronic 3ecords" 8igital Signature and the <rocedure relating to the same. ,*#S" -A#" E(EC"# !*C #EC #DS A!D D C;&E!"S A record is the documentation of a transaction that happens as a result of someone ta$ing a particular action at a particular time - so it is the evidence, the proof" of what has happened" who was in!ol!ed and when. There ha!e been discussions during the past decade of what a record is in an electronic en!ironment. lectronic records are eFtremely good at generating and storing data" but much less ade>uate at identifying when that data could be considered a record. Differences 1et0een #ecords and Doc9ments <urpose: records are $ept to pro!ide e!idence of business acti!ityB documents may be $ept for a wide range of purposes" including for use of the information they contain and for recycling into other documents. ConteFt: records are created in the course of business and thereby document business transactionsB documents may or may nor be created in the course of business and be connected with a business transaction. )n this basis" most records are also documents and some documents are also records. 2ut a document only functions as a record if it was created or recei!ed in the course of business and has been $ept as e!idence of that business acti!ity. #n other words" a document becomes a record when it ta$es part in a business transaction and is $ept to pro!ide e!idence. )ne creates a document when one composes an electronic mail messageB it becomes a record when one sends it. &eanin8 of Electronic #ecord The meaning of electronic record has to be understood in the light of the conteFt it is used. lectronic record as a mere document might not be much rele!ant or significant whereas electronic record as a document of e!idence needs a .udicious eFplanation and legal recognition. #n general an Helectronic recordH is simply a record" which is...communicated and maintained by means of electronic e>uipment.H A9thentication of "ransactions and #ecords Section : of Chapter ## of the #nformation Technology Act" ,444 deals with authentication of electronic records and transactions. Sub.ect to the pro!isions" any subscriber may authenticate an electronic record by affiFing his digital signature. The authentication shall be effected by the use of asymmetric crypto system and hash function that en!elops and transforms the initial electronic record into another electronic record.

112 #eco8nition for "ransactions and #ecords Section = of the Act confers recognition for electronic records rendered or made a!ailableKaccessible so as to be usable for subse>uent references. Section @ recogniSes the digital signature as e>ual to affiFing signature. Section C enables electronic go!ernance by permitting the filing of any form" application or other documents" creation" retention or preser!ation of records" issue or grant of any license or permit or receipt or payment in go!ernment offices and its agencies through the means of electronic form. Section D deals with retention of electronic records that represent accurately the information originally generated" sent or recei!ed. Section A confers recognition for electronic gaSette. The date of publication is deemed to be the date of gaSette. Section 04 states that the public does not ha!e the right to insist that documents should be accepted in electronic form by Lo!ernment by !irtue of Sections C" D" A referred abo!e. <owers are !ested with central go!ernment to ma$e rules in respect of digital signatures also. SEC !D -A#" Attri19tion of Electronic #ecords Section 00: An electronic record shall be attributed to the originator if it fulfills the following conditions: Sent by the originator himself or a person who had authority to act on behalf of originator to operate. Sent by an information system programmed by or on behalf of the originator to operate automatically. AcRno0led8ment of #eceipt of Electronic #ecord Section 0, states that if the originator stipulates that electronic record shall be binding on receipt of ac$nowledgement of record" it is binding only on receipt of ac$nowledgement. "ime and -lace of Despatch and #eceipt of Electronic #ecord Section 0: states that the receipt of electronic record occurs at the time when electronic record enters designated computer resource -if no specific timing is mentioned/. #f the record is recei!ed through other than designated computer resource - time is deemed when electronic record is retrie!ed by the addressee. <rincipal place of business is considered for the originator or the addressee. #f no place of business is mentioned" usual place of residence is ta$en. &or body corporates - place where it is registered is accepted. "/*#D -A#" A9thentication Authentication may be described as Ha process of certifying the identity of the senderKrecipient of the message" willing to be bound by the act and not deny the later his authorship and the time of eFistence of the actH. Authentication is generally" the process to corroborate the identity of a person or to attest the integrity of specific information.

113 <articularly" in the case of a message" it entails determining its source and pro!iding assurance that the message has not been modified or replaced in transit. )A a9thentication is meant: V 8ata )rigin Confirmation which assures the identity of the sender and the source of a message V 8ata #ntegrity that ensures the !eracity of the contents to assure that the data has not been altered by unauthoriSed means. V Non-repudiation imposes obligation on the author by binding the parties to the act so that the parties cannot later deny the act. Sec9ritA -rovisions + Sec9re Di8ital Si8nat9re Section 1=: Through a security procedure agreed by the parties concerned it can be !erified that a digital signature at the time it was affiFed was V ?ni>ue to the subscriber affiFing it. V Capable of identifying such subscriber. V Created in a manner or using a mean under eFclusi!e control of the subscriber. V The procedure should be such that if an electronic record was altered" the digital signature would be in!alidated. Then such digital signature shall be deemed to be a secure" digital signature. Section 1> enables Central Lo!ernment to lay down in the areas of security pro!isions ha!ing regard to commercial circumstances. Conditions for iss9in8 Di8ital Si8nat9re Certificate Section ?= stipulates the following re>uirements to be !erified by certifying authority for issuing the certificate. V applicant holds the pri!ate $ey corresponding to public $ey to be listed in 8igital Signature Certificate. V applicant holds a pri!ate $ey which is capable of creating a digital signature. V public $ey to be listed in certificate can be used to !erify a digital signature affiFed by a pri!ate $ey of the applicant. Section ?> stipulates the particulars to be incorporated in 8igital Signature Certificate. V Compliance with pro!isions of Act" rules and regulations. V Acceptance of the certificate by the subscriber. V *olding of pri!ate $ey by subscribers corresponding to public $ey. V <ublic $ey and pri!ate $ey constitute a functioning $ey pair. V Accuracy of information in the certificate. V Certifying authority has no $nowledge of any material fact which if included would ad!ersely affect the reliability of representation. Section ?J also pro!ides for suspension of 8igital Signature Certificate in public interest or at the re>uest of subscriberKauthoriSed agent. Section ?K deals with re!ocation of 8igital Signature Certificate by subscriber or authoriSed agent under the following e!ents. V 8eath of a subscriber V %inding up of a firmKcompany. Certifying authority is also allowed under this Section to re!o$e the certificate issued after satisfying the following:

V V V

114 Concealment of material facts Non-compliance of re>uirements Certifying authority security system or pri!ate $ey was compromised affecting reliability of the 8igital Signature Certificate.

Section G2 imposes certain obligations on the subscriber also. !ery subscriber shall eFercise a reasonable care to retain control of a pri!ate $ey corresponding to a public $ey listed in a certificate. V #f the pri!ate $ey is compromised" the subscriber shall communicate without any delay to the certifying authority. Subscriber shall be liable till he informs the certifying authority Q? Explain the provisions relatin8 to cA1er re89lation appellate tri19nal 9nder *nformation "echnolo8A Act5 2@@@? A? C7)E# #E%;(A"* ! A-EE(A"E "#*);!A( ES"A)(*S/&E!" V The Central Lo!ernment shall establish one or more Appellate Tribunals to be $nown as Cyber 3egulations Appellate Tribunal. The matters and places in relation to which the Cyber Appellate Tribunal may eFercise .urisdiction shall be specified by the Central Lo!ernment -Sec =A/. A cyber Appellate Tribunal shall consist of one person only to be $nown as the <residing )ffice -Sec.=E/ the >ualification of the <residing )fficer shall be a Tudge of a *igh Court or a member of the #ndian Legal Ser!ice holding a post in Lrade-0 of that ser!ice for at lest three year -Sec.@4/. The <residing )ffice shall hold office for" a term of fi!e years or until he attains the age of C@ years -See @0/ no order of Central Lo!ernment appointing any person as the <residing )ffice of a Cyber Appellate Tribunal shall be called in >uestion in any manner. The Tribunal shall ordinarily hold its sittings at New 8elhi" *owe!er" if at any time the presiding )ffice is satisfied that it is necessary to ha!e sittings of the Tribunal at nay other place" the <residing )fficer may direct to hold the sittings at any such appropriate place -3ule 0:/. A--EA( " A--E((A"E "#*);!A(

Any person aggrie!ed by an order made by an ad.udicating office may prefer an appeal to the Cyber Appellate Tribunal. !ery appeal shall be filed within a period of =@ days from theI date of the receipt of the order by the aggrie!ed person. -# CED;#E , # ,*(*!% A--(*CA"* ! V An application to the Tribunal shall be presented to the 3egistrar in &orm -# anneFed to the C3AT 3ules in person or through a legal practitioner. The application shall be presented in siF complete sets in a paper boo$ form along with one empty full siSe en!elope bearing full address of the respondent -3ule :/. !ery application shall be accompanied by a fee of 3s. ,444 -3ule C/.

115 V The 3egistrar shall endorse on e!ery application the date on which it is presented. #f on scrutiny" the application is found to be in order" it shall be duly registered and gi!en a serial number. #f the application is found to be defecti!e and the defect is formal in nature" the 3egistrar may allow the party to rectify the same. #f the defect is not formal in nature" the 3egistrar may allow the applicant such time to rectify the defect as he may deem fit The 3egistrar shall decline to register the application if the applicant fails to rectify the defect. An appeal from this order shall *e to the Tribunal within 0@ days and the decision of the Tribunal shall be final -3ule =/. !ery application shall set forth concisely under distinct heads the grounds of such application which shall be numbered consecuti!ely and typed in double space on one side of the paper. !ery application shall be accompanied by a paper boo$ containing a certified copy of the order against which the application has been filed and copies c documents relied upon by the applicant. The documents anneFed may be attested by an Ad!ocate or a LaSetted )fficer -3ule A/. An application shall be based upon a single cause of action. A copy of the application in the paper boo$ shall be ser!ed on each of the respondents by the 3egistrar. The applicant shall pay a fee for ser!ice or eFecution of processes -3ule04/. #DE#S V )n receipt of an appeal" the Cyber Appellate Tribunal may" after gi!ing the parties to the appeal" and opportunity of being heard" pass such orders thereon as it thin$s fit" confirming" modifying or setting aside the order appealed against. The appeal filed before the Cyber Appellate Tribunal shall be dealt with by it as eFpeditiously as possible and ndea!our shall be made by it dispose of the appeal finally within siF months form the date of receipt of the appeal. !ery order of the Tribunal shall be in writing and shall be signed and dated by the <residing )fficer. - :E#S V V The cyber appellate tribunal shall not be bound by the procedure laid down by the code of ci!il procedure" 0E4A but shall be guided by the principles of natural .ustice. The cyber appellate tribunal shall ha!e same powers as are !ested in a ci!il court under the Code of Ci!il <rocedure" 0E4A" while trying a suit" in respect of the following matters" namelyB V summoning and enforcing the attendance of any person and eFamining him on oathB V re>uiring the disco!ery and production of documents or other electronic recordsB V recei!ing e!idence on affida!itsB V issuing commissions for the eFamination of witnesses or documentsB V re!iewing its decisionsB

116 V V dismissing an application for default or deciding it eFpertsB any other matter which may be prescribed /*%/ C ;#"

A--EA( "

Any person aggrie!ed by any decision or order of the Cyber Appellate Tribunal may file an appeal to the *igh Court within siFty days from the date of communication of the decision or order of the Cyber Appellate Tribunal to him on any >uestion of fact or law arising out of such order -Sec. C,/. QG.Explain vario9s cA1er offences and penalties descri1ed 9nder *nformation "echnolo8A Act5 2@@@? AG. The Act pro!ides for stringent punishment for Cyber crimes li$e theft of data" hac$ing and tampering with the confidentiality of the data. The Act also creates a legal framewor$ for electronic transactions and usage of the digital signatures. The #nformation Technology Act" ,444 is a ma.or enactment initiati!e to pro!ide legal framewor$s for security pro!isions of e-commerce in harmony with international cyber laws. 2an$erIs !igilance has to co!er new areas coming under e-commerce with the support of the #nformation Technology Act. #n the conteFt of low computer literacy le!el of customers" the present law could ser!e thee purpose ade>uately. #t is e>ually important to note that ma.ority of the legal claims fall under the pur!iew of eFisting Acts li$e #ndian Contracts Act" Negotiable #nstruments Act and Sale of Loods Act and there is no conflict between these laws and the #nformation Technology Act. The #nformation Technology Act has only enabled the insertion of suitable clauses to en!elope the electronic forms of ban$ing transactions" which are otherwise already co!ered in the eFisting laws. <robably" in the years to come when electronic ban$ing ta$es full shape" codification of !arious pro!isions of different enactments under a comprehensi!e legislation may become necessary. The following tables summariSe the nature of !arious cyber crimes and penalties imposed under #T Act" ,444. )ffences and <enalties under #.T. Act" ,444 ffence -enaltA Section Dama8in8 comp9ter2SAstem2Data2!et0orR Compensation up to rupees one =: %ithout the permission of the owner or person crore to the person affected. in charge of a computer system Securing access to the system. 8ownloading data or copying them. #n.ecting !irus. 8enial of access to other authoriSed persons. Changing the series a!ailed by the person to the account of another person by tampering or manipulating the computerK system or networ$.

117 !on+compliance 0ith #eportin8 SAstem &ailure to furnish any documentKreturn Not eFceeding 3s.0.@4 la$h for ==-a/ or report to the controller of certifying each failure. authority. &ailure to file any returns or furnish any Not" eFceeding 3s. @"444 per day ==-b/ information" boo$s or other during the period of noncompliance. documents within the time stipulated. &ailure to maintain boo$s of account or ?p to 3s. 04"444 per day. record. Compensation up to 3s. ,@"444 to the affected person or a penalty up to 3s.,@" 444. #mprisonment up to : years or fine upto 3s., la$h or with both. ==-c/ =@

Contra!ention of any rules or regulations for which no specific penalty is pro!ided elsewhere in the Act. "amperin8 Tampering with computer source document or concealing" destroying" altering the document

C@

/acRin8 #mprisonment up to : years or CC-4,/ *ac$ing with computer system causing fine upto 3s., la$h or both. wrongful loss or damage to public or any person. or deleting" altering" destroying any information residing in the computer. #mprisonment upto @ years and fine upto 3s. 0 la$h for first <ublishing or transmitting obscene material in con!iction. electronic form. #mprisonment upto 04 years 1 fine upto 3s., la$h for second and subse>uent con!ictions. &isrepresentation to Controller of CertifAin8 A9thoritA +isrepresentation or suppression of material #mprisonment upto , years or facts to the controller of certifying authority to fine upto 3s. l la$h or both. obtain 8igital Signature Certificate. ,alse *nformation in Di8ital Si8nat9re Certificate <ublishing 8igital Signature Certificate with #mprisonment upto , years or false particulars. fine upto 3s. l la$h or both. )reach of ConfidentialitA Securing access to electronic record disclosing electronic recordK information documents. &is9se of Di8ital Si8nat9re Certificate Creating" publishing or ma$ing a!ailable a 8igital Signature Certificate for any fraudulent or unlawful purpose #mprisonment upto , years or fine upto 3s. l la$h or both. D= #mprisonment upto , years or fine upto 3s. l la$h or both. "ransmission of 1scene &aterial CD

D0

D:

D,

118

8% T!E PATENTS ACT, 1970


Q1. :hat is patent? Explain the proced9re for o1tainin8 patent? A1. :ho can applA for -atent? An application for a patent for an in!ention may be made by a person claiming to be the true and first in!entor of the in!ention or his assignee" or by the legal representati!e of any deceased person who immediately before his death is entitled to ma$e such an application. The term true and first in!entor means that the claimant has to be the actual in!entor and not merely be the first importer of the in!ention or the first person to whom the in!ention is communicated from outside #ndia. #n case the in!entor is employee of an organiSation" the in!entions made during the employment would be patentable in the name of the employee. *owe!er" the ownership of the patent -i.e. rights of using" manufacturing" selling etc./ will be dependent on the terms of contract between the employee and employer. #t is a common practice in the 318 organiSations to $eep the ownership rights with the employer though the patent is in the employeeGs -in!entorGs/ name. ,ilin8 a -atent Application There is only one application filed for one in!ention. This must be done in a prescribed form along with the prescribed fees in the appropriate patent office. #t should be accompanied by a pro!isional or a complete specification. #f the application is filed by the assignee" it must be accompanied with the proof of the right to ma$e the application. !ery application must state that the applicant is in possession of the in!ention and shall name the owner claiming to be the true and first in!entor. %here the true and first in!entor is not the applicant" a declaration is re>uired that the applicant belie!es the person so named to be the true and first in!entor. !ery international application under the <atent Co-operation Treaty -<CT/ for a patent designating #ndia shall be deemed to be an application under the #ndian <atents Act if a corresponding application has also been filed before the Controller in #ndia. 3ecently the %orld #ntellectual <roperty )rganiSation -%#<)/ has launched the facility of electronic patent filing under <CT. Typically" the form of application for grant of an #ndian patent as$s for -i/ full name" address" nationality of the applicant-s/ and in!entor-s/" -ii/ patent specifications" and -iii/ whether an application has been made or patent granted in a <CT or a con!ention country" which affords to citiSens of #ndia" or applicants for patents in #ndia. Similar pri!ileges as granted to its own citiSens in matters of patent and which has been so notified by the Central Lo!ernment with rele!ant dates. ,ilin8 of -rovisional and Complete Specification A specification is an accurate description of the patent stating how the in!ention can be carried out by the method best $nown to the applicant. The specification ends with a claim or claims defining the scope of the in!ention for which protection is claimed. !ery application must be accompanied by a pro!isional or a complete specification. #t is possible to file the application with pro!isional specifications. 2ut it is necessary to file the complete specifications within one year of filing the original patent application. The application is deemed to be abandoned if this condition is not met. The twel!e months limit can be eFtended to 0@ months if an application is made to the Controller with such re>uest and the prescribed fee is paid. A complete specification filed may include claims in respects of de!elopments of or additions to the in!ention described in pro!isional specification. The in!entor is entitled to apply for a separate patent in respect of such

119 de!elopmentsKadditions. #n case of a con!ention application the patent application must be accompanied with complete specifications only. The claimKclaims of a complete specification relate to a single in!ention" or to a group of in!entions" which form a single in!enti!e concept e.g. in an instrument there may be A or 04 different in!entions used. All these could be separately patentedB or they can be patented together as a groupB if they form an integrated instrument. The specification must contain the following: Title" sufficiently indicating the sub.ect-matterB 3ele!ant drawingsB &ull and particular description of the in!entionB #ndian <atent Law 8etails of its operation or use and the method by which it is to be performedB 8isclosure of the best method of performing the in!entionB Claims defining the scope of the in!ention substantiated by the disclosureB Abstract pro!iding technical information on the in!entionB 8eclaration as to the in!entorship of the in!ention. #f an in!ention is an impro!ement in or modification of another in!ention" for which the patent has been obtained or has been applied for" the Controller may grant the patent for modificationKimpro!ement" as a patent of additionB howe!er the patentee for both the original patent and the patent of addition has to be the same. ach claim of a complete specification has a priority date. #n a simple case" where a complete specification is filed in pursuance of a single application with a pro!isional specification" the priority date of a claim is the date of the filing of the application. This is true if the claim is Jfairly basedG on the matter disclosed in the specification. *owe!er" in some cases" the priority date may be different than the date of filing. A detailed discussion of the issue is not within the scope of the present course. -91lication of the Application Normally e!ery patent application is published after 0A months of filing the application and ob.ections are in!ited. The patent application shall not be open to the public for eighteen months after the date of filing" or date of priority" whiche!er is earlier. *owe!er" if the in!ention is considered rele!ant for defence purposes" the Controller may issue direction to prohibit or restrict such publication. #n the case of secrecy direction" the application will be published when the secrecy directions cease to operate. The publication will include the particulars of the date of application" number of application" name and address of the applicant and an abstract. ?pon publication of an application" the patent office" on payment of the prescribed fees" will ma$e the specification and drawings" a!ailable to the public. #f the specification mentions a biological material" which is not a!ailable to the public" the applicant is re>uired to deposit the material in an authoriSed depository institution. &rom this institute" the biological material mentioned in the specification is made a!ailable to the public" as necessary. Examination of the Application &or granting a patent" eFamination of the application is a mandatory step. *owe!er" such eFamination is ta$en up only if the applicant or any other interested person ma$es a re>uest in the prescribed manner for such eFamination within =A months from the date of filing of the patent application. #f such re>uest is not made within the prescribed time" the patent application is treated as withdrawn. %hen the patent application is in respect of an in!ention for a chemical substance used as an intermediate in the preparation of a

120 medicine or drug including insecticides etc used for protection or preser!ation of plants" the re>uest for eFamination has to be made within a period of 0, months from :0st 8ecember" ,44E or within =A months from the date of the application" whiche!er is later. #f such a re>uest is not so made" the application shall be treated as withdrawn. After a re>uest for eFamination is made" the Controller refers the application" specification and the related documents to an eFaminer for ma$ing a report within 0A months on: a/ whether these are in accordance with the re>uirements of the #<AB b/ whether there is any lawful ground of ob.ection to the grant of the patentB c/ whether the in!ention has been anticipated by publication before the date of filing of applicantGs complete specificationB and d/ on any other matter which may be prescribed. )f these matters" Search for anticipation by pre!ious publication and by prior claim is important. This search re>uires in!estigation in the publications and specifications of prior applications and specifications of patents already granted to see whether the same in!ention has already been published or claimed or is the sub.ect matter of eFisting or eFpired patents. #f the eFaminer raises any ob.ections" the Controller will communicate the gist of the ob.ections to the applicant. #f the ob.ections raised by the eFaminer are remo!ed satisfactorily within 0, months" the Controller will accept the complete specification. #f the ob.ections are not remo!ed satisfactorily" the application is refused after gi!ing an opportunity of hearing to the applicant. Acceptance and Advertisement of Complete Specifications )nce the complete specification is accepted" Controller notifies it to the applicant and also ad!ertises it in the )fficial LaSette. )n ad!ertisement" the application and the specification with the drawings" if any" are open for public inspection. &rom the date of ad!ertisement of the acceptance of the complete specification and until the date of sealing of the patent" the applicant will ha!e the li$e pri!ileges and rights as if a patent for the in!ention had been sealed on the date of ad!ertisement. *owe!er" the applicant is not entitled to initiate any proceedings for infringement until the patent has been sealed. pposition to the %rant of -atent Any person interested in opposing the grant of patent may gi!e notice to the Controller of such opposition within = months from the date of ad!ertisement of the acceptance on the grounds li$e: the in!ention was wrongfully obtained by the in!entorKapplicantB the in!ention" as claimed in any claim of the complete specification has been anticipated in a specification filed for another patent earlierB or the in!ention as claimed in any claim was publicly $nownKused in #ndia before the priority date of the claimB or the sub.ect of the patent is not an in!ention" within the meaning of the ActB or the information furnished is falseB or geographical origin of biological material is not disclosed or falsely disclosedB or in the case of a con!ention application -an application filed in #ndia following a patent application for the same in!ention made in a con!ention country/" the application was not made in the prescribed time. Con!ention country means a country notified as such by the Central Lo!ernment )n receipt of the notice of opposition" the Controller shall notify the applicant of it and may gi!e opportunity of hearing to both parties" and arri!e at a decision.

121 %rant and Sealin8 of -atent *ndian -atent (a0 %here the application for a patent along with complete specification has been accepted either without opposition or after the opposition" a patent shall be granted if the applicant ma$es a re>uest in the prescribed manner for a grant of patent. The re>uest has to be made within siF months from the date of ad!ertisement of the acceptance of the complete specification. The patent so granted shall be sealed with the seal of the patent office and the date of sealing of patent shall be entered in the register. Q2.:hat amo9nts to infrin8ement of -atents? Descri1e the remedies availa1le in respect of infrin8ement of patents? A2. A patentee has an eFclusi!e monopoly rights o!er the patented in!ention to ma$e" use" sell or distribute the in!ention in #ndia. #f any person" other than the patentee or assignor or mortgagor" !iolates this eFclusi!e right" there will be infringement of patent rights. %hether the alleged act of a person amounts to an infringement or not depends upon the eFtent of the monopoly right conferred by the patent. These can be inferred from the specification and claims made by the patentee contained in the patent application. An important pro!ision pertains to the burden of proof in case of infringement. #f the patent pertains to a process for ma$ing a product" and a person ma$es an identical product" then in a case of infringement he is obliged to pro!e that the process used to ma$e the product" is different from the patented process. *owe!er" the patentee has to pro!e that the product being made by the infringer is identical to the product from his process. *e also has to pro!e that he is not able to determine the process used by the infringer through reasonable efforts. The following acts of the defendant can amount to infringement: colourable imitation of patented in!entionB or copying essential features of patented in!entionB or !ariation of non-essential features of patented in!entionB or chemical or mechanical e>ui!alents. S9it for *nfrin8ement %hen any person infringes the rights of the patentee" a suit for infringement of patent should be instituted in the 8istrict Court ha!ing .urisdiction to try the suit. A suit for infringement can be instituted only if the patent has been sealed. The patentee cannot institute a suit for infringement during the period between date of ad!ertisement of acceptance of the complete specification and the date of sealing of patent. *owe!er" he can claim damages sustained due to infringement during the said period in a separate suit after sealing of patent. A suit for infringement of a patent" whose term has eFpired" can be instituted for claiming damages if the infringement occurred during the term of patent. #n case the patent was wrongfully obtained by the patentee and was later granted to the true and first in!entor" a suit for infringement occurring before the grant of patent cannot be instituted. %here a patent had lapsed but was subse>uently restored" the proceedings for infringement cannot be instituted against any infringement committed between the date on which the patent ceased to ha!e effect and the date of ad!ertisement of application for restoration.

122 Acts not Constit9tin8 *nfrin8ement %here the patented in!ention is merely used for the purpose of eFperiment or research or for imparting instruction to pupils" it does not amount to infringement of patents. Similarly" any act of ma$ing" using or selling a patented in!ention solely for de!elopment of information re>uired under any rele!ant law does not amount to infringement. Also the importation of patented products by any person from a person who is duly authoriSed by the patentee will not constitute infringement. (imitation -eriod for *nstit9tion of *nfrin8ement S9it The period of limitation for instituting a suit for infringement is : years from the date of infringement. *owe!er" it is not necessary to send a notice of infringement to the defendant before filing the suit for infringement. #elief in S9it for *nfrin8ement The patentee" on being successful in a suit for infringement is entitled to an in.unction -or restraining/" damages or accounts" and otherwise. J#n.unctionG is a normal remedy" though discretionary on the part of the Court. #t stops the infringement during the pendency of the proceedings. J8amagesG account for the loss in money terms suffered by the owner of the patent due to infringement. JAccountsG relates to the account of net profits earned by the defendant -infringer/. #f there are no profits" JaccountsG is not a remedy. 8amages and Accounts are alternati!e remediesB the owner can chose only one of them" not both. J)therwiseG as a remedy is a general pro!ision which authoriSes the court to grant such other reliefs as it may deem necessary for complete redressal of the complaint. &or eFample" the court may order that the infringing goods or materials and implements shall be seiSed" forfeited or destroyed.

123

9% T!E TRADE MAR#S ACT


Q1. :hat is a trademarR? :hen can 0e saA that a trademarR is a 8ood trademarR? State the f9nctions of trademarR? A1 A "rademarR A trade mar$" as currently recognised in #ndia" is a !isual symbol -in the form of a word" a name" a de!ice" a symbol" or a label/ which identifies any merchantIs or manufacturerIs goods or ser!ices and distinguishes them from similar goods or ser!ices of competitors in the trade. #t may include shape of goods" their pac$aging and combination of colours. The Act ma$es a distinction between a t rade mark and a ell-kno n trade mark. #f a substantial segment of public associates a trade mar$ with a particular class of goods and ser!ices" and if this trade mar$ is used for other goods or ser!ices" and the public is inclined to associate the new goodsKser!ices with the earlier goodsKser!ices" then the mar$ is a well $nown trade mar$. #f the proprietor of a trade mar$ is an association of persons" who do not ma$e a partnership within the meaning of the #ndian <artnership Act" 0E:," the trade mar$ is called a collective marR. A special class of trade mar$s is termed as certification trade marRs. These trade mar$s do not indicate the origin of the goods" but are certified by the proprietor of the mar$ as conforming to certain characteristics" li$e >uality" ingredients" geographical origin etc. Agmar$ used for food items in #ndia is a certification mar$. A trade mar$ is a sign used on" or in connection with the mar$eting of goods. Saying that the sign is used on the goods means that it may appear not only on the goods themsel!es but also on the container or wrapper of the goods. Saying that the sign is used in connection ith the marketing of the goods refers mainly to the appearance of the sign in ad!ertisements -in newspaper" on tele!ision" etc./ or in the windows of the shops in which the goods are sold. %here a trade mar$ is used in connection with ser!ices" it may be called service marR" e.g. ser!ice mar$s used by hotels" restaurants" airlines" tourist agencies. The worth of a trade mar$ may amount to huge sums. According to 2usiness %ee$K#nterbrandGs Annual 3an$ing of the 044 2est Llobal 2rands" ,44:" the !alue of the brand name HCoca-ColaH is estimated to be ^D4 billion and that of HNescafeH ^0, billion_ A person who sells his product under a particular trade mar$ ac>uires an eFclusi!e right to the use of the mar$ in relation to those goods. Such a right can be registered under the new Trade +ar$ Act 0EEE" which repealed the Trade +ar$ and +erchandise +ar$s Act 0E@A. A registered trade mar$ can be protected against unauthoriSed use by others by an action for infringement. An unregistered trade mar$ can also be protected against unauthoriSed use by others by an action of passing off. A trader is guilty of passing off" if he attempts to pass off his goods by misrepresentation that leads the consumer to belie!e that the goods are the same as those of another better-$nown trader in those goods. &or eFample" using Coco Cola to cause confusion with Coca Cola is an action of passing off. A %ood "rademarR

124 A trade mar$ should be distincti!e. 8istincti!eness may be inherent or ac>uired. An in!ented word may be inherently distincti!e as a trade mar$ e.g. 3#N. )ther trade mar$s may ha!e ac>uired distincti!eness through usage e.g. TATA" 3eliance" 3e!lon. +ost brands ac>uire distincti!eness through use. A brand may depend on the class of goods e.g. *aw$ins and <restige are two distincti!e brands in pressure coo$ers. #f the trade name is a word" it should be short and easy to spell" pronounce and rememberB if it is a de!ice it should be eFpressible in a word. The word should be an in!ented word. Qen" A!on" 3#N" &leF are all fine eFamples. The mar$ can be denied if it is not considered distincti!e. A trade mar$ consisting of parts of a chain wheel and chain to co!er a business in chains and chain wheels is not considered distincti!e. *owe!er" distincti!eness alone is not sufficient for registration of a trade mar$. #t may also depend on whether other traders" without any improper moti!es want to use the same mar$. ,9nctions of "rade &arR A trade marR performs five main f9nctions: a. To identify the origin or source of goods and ser!ices and distinguish them from similar products or ser!ices of other enterprises. Trade +ar$s facilitate the choice to be made by the consumer when buying certain products or ma$ing use of certain ser!ices. b. To signify that all goods bearing the same trade mar$ ha!e a single source. c. To signify that all goods bearing the same trade mar$ are of the same >uality. *owe!er" it is to be understood that there is no legal obligation on the trade mar$ owner to maintain a specific >uality. #n fact the *ouse of Lords" ?W has appro!ed application of some trade mar$ to products of different >uality in different countries. The brand owner is free to enhance or reduce the >uality of the product. The chec$ against deterioration of >uality lies with the consumer. #f a brand does not gi!e at least the >uality that the consumer associates with it" she will switch on to another brand. *owe!er" the brand owner is bound to offer the >uality features as declared under trade description. d. To ser!e as the principal instrument in ad!ertising and selling of goods and ser!ices. e. A fifth function" particularly in the case of registered trade mar$s" has ac>uired importance o!er the years" !iS. to protect the trade and business interests of the owner of the brand" as also the goodwill associated with the brand" in case of infringement of trade mar$. Q2. /o0 are "rademarRs re8istered 9nder the "rademarRs Act? A2. #n #ndia an office of the 3egistrar of trade mar$ s has been established for the maintenance of the Trade +ar$ 3egistry. Controller Leneral of <atents and 8esigns is also the 3egistrar of Trade +ar$s. The 3egister of Trade +ar$s contains the record of all registered trade mar$s" with names" addresses and description of proprietors and users" assignments and transmissions" and conditions and limitations and the name of

125 registered users. Any person who claims to be a proprietor of a trade mar$ can apply to the 3egistrar of Trade +ar$s for its registration. The application may be made in the name of an indi!idual" partners of a firm" a Corporation" any Lo!ernment 8epartment" a trust or .oint applicants claiming to be the proprietor of the trade mar$. Application 0. Application in the prescribed form has to be filed in the office of the Trade +ar$ 3egistry within whose territorial limits the principal place of business in #ndia of the applicant" or the first applicant in the case of .oint applicants" is situated. The 3egistrar is re>uired to classify goods and ser!ices in accordance with the international classification for registration of trade mar$s. A single application is sufficient for registration of a trade mar$ for different classes of goods and ser!icesB howe!er" the fee is payable for each class separately. ,. !ery application for registration of a trade mar$ shall contain a representation of the mar$ in the place pro!ided in the form for the purpose. &i!e additional representations of the mar$ ha!e to be supplied with the application.

The application can either be accepted completely or accepted sub.ect to amendments or re.ected. #t is possible that an application is accepted and later" before registration" the acceptance is found to be in error. #n such a case the 3egistrar" after hearing the applicant may withdraw the acceptance. Advertisement Soon after acceptance" the application is ad!ertised in the Trade +ar$s Tournal to pro!ide the public an opportunity to oppose the registration. Any person may" within three months from the date of the ad!ertisement or within such further period not eFceeding one month" gi!e notice in writing to the 3egistrar of opposition to the registration. %hen the procedure for registration" including the opposition" if any" is satisfactorily complete" the 3egistrar is mandated to register the mar$. "ime -eriod The registration of a trade mar$ is for a period of ten years" but it may be renewed from time to time indefinitely. Q?. :hich Rinds of "rademarRs are re8istera1le and not re8istera1le 9nder the "rademarRs Act? A?. A trade mar$ which consists of at least one of the following essential characteristics can be registered. a. The name of a company" indi!idual or firm represented in a particular or special mannerB b. The signature of the applicant for registrationB c. )ne or more in!ented wordsB

126 d. )ne or more words ha!ing no direct reference to the character or >uality of the goods eFcept the eFceptions listed in the neFt sectionB e. Any other distincti!e trade mar$B and f. A trade mar$ which has ac>uired distincti!eness by use o!er a prolonged period of time. A part of trade mar$ can be registered separately in addition to a whole trade mar$ if it satisfies the re>uirements of registration of a trade mar$. The Act also pro!ides for registration of the same or similar trade mar$ by more than one proprietor in the case of honest concurrent use or other special circumstances. "#ADE&A#SS ! " #E%*S"E#A)(E The Act debars a trade mar$ from registration if it is not distincti!e" or consists eFclusi!ely of mar$s or indications which ha!e become customary in the current language and practice. Also" mar$ falling in any of the following categories is not registerable: a mar$ which is identical with or decepti!ely similar to a trade mar$ already registered in respect of the same goods or goods of the same descriptionB a mar$ the use of which would be contrary to any law or which would be disentitled for protection in a court of lawB ` a mar$ comprising or containing scandalous or obscene matterB a mar$ comprising or containing any matter li$ely to hurt the religious susceptibilities of any class or sectionB a word which is the commonly used and accepted name of any single chemical element or compound" in respect of chemical substancesB and a geographical name or a surname or a personal name or any common abbre!iation thereof or the name of a sect" caste or tribe in #ndia. Shape trade mar$s attract prohibition from registration in certain conditions which may arise in a !ery limited number of cases" and it would be difficult in those cases to satisfy the distincti!eness criterion. A mar$ cannot be registered as a trade mar$" if it consists eFclusi!ely of the shape of goods which results from the nature of goods themsel!es. &or eFample" shape of an apple used for apples or their pac$agingB which is necessary to obtain a technical result. An eFclusi!ely technical shape will be the one if no other shape will perform its functionB which gi!es substantial !alue to the goods. There may be difficulty in interpreting this pro!ision.

127 The word eFclusi!ely is to be noted here. #f a mar$ has a shape of any of the descriptions gi!en abo!e but has other additional features" it could be considered for registration sub.ect to other essential >ualifications for a trade mar$. Also" an unregistered trade mar$ can continue to ha!e a shape of a description that ma$es it ineligible for registration. "here are also relative 8ro9nds for ref9sal of re8istration. #f a trade mar$ is identical with an earlier trade mar$" or if it is similar to an earlier trade mar$ and co!ers identical goods and ser!ices so as to cause confusion in the mind of the public" it will not be registered. #f a trade mar$ has similarity or identity with an earlier well-$nown trade mar$ but is sought to be applied to a different category of goods" it will not be registered" as it see$s to eFploit a well $nown brand for an unfair ad!antage or may harm the reputation of the earlier" well $nown trade mar$. #f a trade mar$ !iolates any law" in particular the law of passing off protecting an unregistered trade mar$" or the law of copyright" it shall not be registered. The Act pro!ides for registration of same or similar trade mar$ by more than one proprietor in case of honest" concurrent use. The trade mar$ is considered to be an incorporeal property of the owner of the trade mar$. So it is assignable and transmissible as in the case of other forms of property. 2ut considering the peculiarities of the property in trade mar$" it is sub.ect to a number of restrictions on assignability. A registered trade mar$ has to be used on the goods it was applied for. #f it is not used for long" it can be ta$en off the register on application made by any aggrie!ed person to the 3egistrar or to the Appellate 2oard on the ground that the owner of the trade mar$ had no intention to use it while registering it. Similar and DeceptivelA Similar "rade &arRs The word similar is not defined in the Act. *owe!er" a trade mar$ is said to be decepti!ely similar to another mar$ if it so nearly resembles that other mar$ as to be li$ely to decei!e or cause confusion. The decepti!ely similar mar$ includes not only confusion but deception also. Near resemblance is mentioned in the Act in connection with registered trade mar$s in the name of the same proprietor which may closely resemble each other" so as to decei!e or cause confusion in the mind of a user. The 3egistrar may re>uire them to be registered as associated trade mar$s. The following factors are to be ta$en into consideration when deciding the >uestion of similarity: The nature of the mar$sB The degree of resemblanceB The nature of goods in which they are li$ely to be used as trade mar$sB

128 The similarity in nature" character and nature of goods in which it is usedB The nature of the potential class of consumersB and The !isual and phonetic similarity.

QG. Explain the provisions relatin8 to infrin8ement of "rademarRs? Also state the provisions relatin8 to the offences and penalties in respect of infrin8ement of "rademarR? AG. *nfrin8ement #f a person" who is not the owner of a registered trade mar$" without permission from the owner uses the same trade mar$" or a decepti!ely similar trade mar$ in the course of trade" he infringes the trade mar$ and is liable to be sued for legal remedies by the rightful owner" or persons so authoriSed. No action for infringement is a!ailable in respect of unregistered trade mar$sB howe!er" common law rights for action against Jpassing offG are not affected. Specifically" infringement is caused in the following cases: the mar$ is identical and is used for similar goodsKser!icesB the mar$ is similar to the registered mar$ and is used for the same or similar goodsKser!ices as co!ered by the registered trade mar$B the mar$ is identical with the registered trade mar$ and is used for identical goodsB and the mar$ is therefore li$ely to cause confusion on the part of the public. #f a trade mar$ has a reputation in #ndia" the use of a mar$ identical with or similar to it" on goods or ser!ices which are different" constitutes infringement as such use" without due cause" would ta$e unfair ad!antage of a reputed trade mar$ or harm its distincti!e character. The Act prohibits adoption of a registered trade mar$ by another person as trade name" i.e. the name of an enterprise. A suit for infringement of registered trade mar$ must be filed in the district court within whose territorial .urisdiction" the plaintiff -or if there are more than one such person" any one of them/ instituting the suit or proceeding actually and !oluntarily resides or carries on business or personally wor$s for gain. ffences and -enaltA )alsifying and falsely a##lying Trade Mar*s A person ma$ing a registered trade mar$ or a decepti!ely similar mar$ is deemed to falsify a trade mar$ if he is doing it without the consent of the proprietor of the trade mar$. Any alteration" addition" effacement of a genuine trade mar$ also amounts to its falsification. A person who" without authorisation" applies registered trade mar$ or a decepti!ely similar mar$ to goods or ser!ices or any pac$age containing goods is deemed to falsely apply the genuine trade mar$. #f any person uses any pac$age bearing a mar$ which is

129 identical with or decepti!ely similar to the registered trade mar$ for the <urpose of pac$ing" filling or wrapping any goods other than the genuine goods of the proprietor of the trade mar$ he is guilty of falsely applying the trade mar$. )ffence under the Act is committed if a person ma$es" disposes of" or has in his possession" any die" bloc$" machine" plate or other instrument for the purpose of falsifying or of being used for falsifying a trade mar$: applies any false trade description to goods or ser!ices" or applies a false indication of the country or place where the goods were produced or name and address of the manufacturer" or of the person for whom they are produced. tampers with" alters or effaces an indication of origin which has been applied to any goods to which it is re>uired to be applied"

The abo!e mentioned offences shall be punishable with imprisonment for a term of minimum of siF months but which may eFtend to three years and with a minimum fine of fifty thousand rupees but which may eFtend to two la$h rupees. &or ade>uate and special reasons mentioned in the .udgement" the court may impose a sentence of imprisonment for a term of less than siF months or a fine of less than fifty thousand rupees. <enalty for selling goods or pro!iding ser!ices to which false trade mar$ or false trade description is applied is punishable with imprisonment for a minimum term of siF months but which may eFtend to three years and with a minimum fine of fifty thousand rupees but which may eFtend to two la$h rupees. nhanced penalty can be imposed on second or subse>uent con!iction. Such offences shall be punishable with imprisonment for a term between one to three years and with fine between one la$h rupees to two la$h rupees. A person" who represents an unregistered trade mar$ as a registered trade mar$" shall be punishable with imprisonment for a term which may eFtend to three years" or with fine" or with both. The penalty for falsification of entries in the register is imprisonment for a term" which may eFtend to two years" or a fine" or both. The use of words" which may falsely suggest that a personGs place of business is officially connected with the trade mar$ office" attracts imprisonment for a term up to two years or a fine or both. #f the person committing an offence under this Act is a company" the company as well as e!ery person in charge of" and responsible to" the company for the conduct of its business at the time of the commission of the offence shall be deemed to be guilty of the offence. A company means any corporate body and includes a firm or other association of indi!iduals. Abetment of any offence is punishable as if the abetter himself committed that offence.

130

10% T!E COP"RIG!TS ACT, 1957


Q1.:hat is copAri8ht? State the criteria for the entitlement of copAri8ht? A1. *ntrod9ction The word copy has a range of meanings: transcript" imitation" reproduction of an original writing or painting etc. Creators of literary artistic or musical wor$s in ancient times did not worry about their wor$ being copied. *owe!er" the >uestion of copyright came to the fore when the printing technology made its appearance. The first to be affected ad!ersely by printing were the authors whose boo$sKwor$s could be copied in large numbers by unauthoriSed persons" who would reap the benefits depri!ing the authors of .ust rewards of their intellectual wor$. Later as technology ad!anced" se!eral other categories of originators of intellectual wor$s were included under copyright: literary" dramatic" musical" artistic" cinematograph film" sound recording. 2roadly spea$ing" copyright is an eFclusi!e right granted by law for a specified period to the creator of a wor$ of thought against any form of copying by an unauthoriSed person. ?nder copyright" se!eral acts are defined which are prohibited to pre!ent what would amount to copying. The things for which copyright subsists emerge from ideas" concepts" thoughts etc. that are common to all" but these things ha!e been put in a fiFed form using oneGs mental faculty. "he *ndian (a0 )nly original wor$s are entitled for protection under the Act. Copyright is not concerned with literary >uality" or artistic merit or originality of thought in the wor$. #deas are not protected by copyrightB only the material form of their eFpression is protected pro!ided sufficient labour" s$ill and .udgment has been eFercised. Two authors writing independently on the same theme would produce two independent wor$s and copyright in each wor$ would belong to the respecti!e author. S91Mect &atter of CopAri8ht The copyright shall subsist in the following classes of wor$: )riginal literary" dramatic" musical and artistic wor$sB Cinematograph films Sound recording Literary wor$ includes computer programmes and compilations including databases. 8ramatic wor$ includes any piece for recitation" choreographic wor$ or entertainment in a dumb show" scenic arrangement or acting" the form of which is fiFed in writing or otherwise. +usical wor$ includes graphical notation of musicB it does not include any wor$ or action intended to be sung" spo$en or performed with the music. Artistic wor$ means a painting" a sculpture" a drawing -including a diagram" map" chart" plan/B an engra!ingB a photographB a wor$ of architecture ha!ing an artistic character or design" including its modelB any other wor$ of craftsmanship. Cinematograph film means any wor$ of !isual recording on any medium produced #ndia through a process from which a mo!ing image may be produced by any means and includes a sound recording accompanying such !isual recording.

131 Sound recording means recording of sounds on any medium" from which the original sound may be reproduced regardless of the medium of record or of the method used to reproduce the sounds. &eanin8 of CopAri8ht "he copAri8ht means excl9sive ri8ht to do or a9thoriUe to do the follo0in8 acts: In the case of literary, dramatic or musical ork: to reproduce the wor$ in any material form" this includes storing it by electronic meansB to perform the wor$ in public or communicate it to the publicB to ma$e any cinematograph film or sound recording in respect of that wor$B to ma$e any translation or adaptation of the wor$ or to do any of the abo!e acts in respect to any translation or adaptation of the wor$.

In the case of computer programmes: any of the acts specified abo!eB to sell or commercially rent any copy of the computer programme.

In the case of artistic ork: to reproduce the wor$ in any material form" including depiction in :-8 of a ,-8 wor$ or in ,-8 of a :-8 wor$B to communicate the wor$ to the publicB to include the wor$ in any cinematograph filmB to ma$e an adaptation of the wor$ andKor to do any of the wor$ mentioned abo!e in respect of the adaptation.

In the case of cinematograph film: to ma$e a copy of the film" including a photograph of any images forming part of the filmB to sell or hire any copy of the filmB to communicate the film to the public. In the case of sound recording: to ma$e any sound recording embodying itB to sell or gi!e on hire or offer for sale any copy of the sound recordingB to communicate the sound recording to the public. Thus" Copyright in a wor$ is not a single right" but it bundles se!eral rights together" including a negati!e right. 2roadly" these rights can be grouped as follows: the right of publicationB the neighbouring -related/ rightsB

132 the right to pre!ent anybody from altering the content of the wor$ that may damage the authorGs reputationB and the right of authorship or the right of paternity.

!en after a copyright is assigned wholly to another person" the author of the wor$ retains the right to the claim for authorship of the wor$ and the right to restrain or claim damages in respect of any distortion" mutilation" modification that are pre.udicial to the honour or reputation of the author. The author has the right to prosecute anybody who publishes the wor$ without the authorGs consent. The artist who performs the drama or music has no right and there is no copyright in the performance as such" e!en though the dramatic wor$ and music and lyrics can be copyrighted. Criteria for Entitlement for a CopAri8ht #n order to be entitled for a copyright in a wor$ in #ndia" its author must fulfil certain other >ualifications besides the originality of the wor$ in respect of form of eFpression. These re>uire that the wor$ be published in #ndia" or if it is first published outside #ndia" the author" at the time of publication" be a citiSen of #ndia" or if the wor$ is published posthumously" the author at the time of death be a citiSen of #ndia. #n the case of unpublished wor$ the author must be a citiSen of #ndia" or domiciled in #ndia" at the time of ma$ing the wor$. *owe!er" this does not apply to wor$s of architecture. The abo!e mentioned re>uirements do not apply to wor$s of foreign authors or of foreign organisations. *owe!er" the Central Lo!ernment may eFtend the copyright protection under the Act to such wor$s sub.ect to certain conditions on the basis of reciprocal arrangement with foreign countries in respect of grant of copyright to #ndian authors in those countries similar to those granted to their own nationals. Q2. State the provision relatin8 to the #e8istration of the CopAri8hts? A2. The author or publisher of any wor$ or the owner of the copyright in any wor$ may apply to the 3egistrar of Copyright in prescribed form" accompanied by due fees" to enter the particulars of the wor$ under the 3egister of Copyrights. The 3egistrar" after holding such en>uiry as he deems fit" may enter the particulars of the wor$ in the register. There is pro!ision for correction of entries in the register" or rectification of the 3egister. !ery entry mode in the 3egister" or any correction or rectification is re>uired to be published by the 3egistrar in the official LaSette. 3egistration confers a bundle of rights in relation to the copyright" as discussed. *owe!er" it is not necessary to register the wor$ for copyright. There is nothing in the Act" which ma$es registration of copyright as a precondition for a!ailing of the remedies for infringement. 3egistration only pro!ides prima facie e!idence of particulars entered" without the necessity of further proof by way of production of the original. Q?. Explain the provisions relatin8 to infrin8ement of copAri8hts? A?.

133 Anyone who !iolates the eFclusi!e rights of the owner of copyrighted wor$ for its commercial eFploitation or its communication to the public" without the authorGs consent or authority is infringing the copyright. ?nder the Act #nfringing copy means: The reproduction of literary" dramatic" musical or artistic wor$B A copy of the cinematograph film made on any medium by any meansB #n relation to sound recording any other recording embodying the same sound recording" made by any meansB #n relation to a programme or performance" which entails a broadcast reproduction right or a performerGs right" the sound recording or cinematographic film of such programme or performance. Copyright in a wor$ is infringed if any person" without due authoriSation of the owner of the copyright: 8oes any act which is against the eFclusi!e right of the copyright ownerB or <ermits for profit a place to be used for communicating the wor$ to the public" unless he was unaware that such communication to the public would be an infringement of copyrightB or Sells or hires or by way of trade displays or distributes or eFhibits in public" any infringing copy" so as to pre.udicially affect the ownerGs interest. *owe!er" import of one copy for pri!ate use is not infringement. To summariSe" the infringement occurs if any of the following acts is committed without authorisation from the author: 3eproduction of the wor$ in a material formB <ublication of the wor$B Communication of the wor$ to the publicB <erformance of the wor$ in publicB +a$ing of its translations and adaptationB and Commercially eFploiting the wor$" or trying to do so. :hat is not *nfrin8ement? A blan$et ban on reproduction of a wor$ of science" literature and arts" either in full or part may" in certain circumstances" become inimical to the public purpose that a copyright is intended to ser!e. &or eFample" such a total ban may" instead of promoting and stimulating study and research in science" humanities and arts" lead to thwart it and become counter producti!e. The Act" recogniSing such possibility" permits copying and reproduction of and from a copyrighted wor$ in certain circumstances without attracting pro!isions of infringement. The principle behind such statutory eFceptions to infringement is one of fair dealing or fair use of the copyrighted wor$" which pro!ides balance between the copyright ownerGs eFclusi!e rights" and the wider public interest. The fair use is to be determined by considering whether the part reproduced or copied is substantial and amounts to plagiarism. To determine whether the portion ta$en up from a wor$ is substantial one does not necessarily depend on the !olume of the material reproducedB it is !ery much a >uestion of the importance and the import of the part pic$ed up. Stat9torA Exceptions The Act has a long list of actions that are not to be regarded as infringement of copyright:

134 a fair dealing with a literary" dramatic" musical or artistic wor$ for pri!ate use including research" and for criticism or re!iewB in the case of a computer programme" ma$ing copies or adaptation by the lawful possessions of a copy of the programme for the original or bac$ up purposesB or for understanding its underlying principles and ideas" or for non- commercial personal useB a fair dealing of the wor$ for reporting current e!ents in newspaper or a periodical" or in a broadcast or a film or by means of a photograph. -The publication of a compilation of addresses or speeches deli!ered in public is not a fair dealing/B reproduction for the purpose of a .udicial proceeding or a report of .udicial proceedingsB or reproduction in a wor$ prepared by the secretariat of a legislature eFclusi!ely for the use of members of the legislatureB reading or reciting in public eFtracts from a published literary or dramatic wor$B publication of short passages in a collection for use in educational institutions. Not more than two such passages from wor$s by the same author can be ta$en. reproduction by a teacher or a pupil in the course of instruction" or as a part of >uestions for eFamination or in answers to such >uestionsB performance in the course of acti!ities of an educational institution" if the audience is limited to the staff and students and parents and guardians of the students and persons directly connected with the institutionB ma$ing of sound recordings in respect of any literary" dramatic or musical wor$" if the person ma$ing the recordings -i/ has gi!en a notice of his intention to ma$e the recordings" -ii/ has pro!ided copies of all co!ers or labels with which the recordings are to be sold" and -iii/ has paid due royalties to the author" at the rate fiFed by the copyright 2oard. -No recording can be made until the eFpiry of two calendar years from the end of the year in which the first recording of the wor$ was made/. <laying the recording to an audience" if it is utilised in a room in a pri!ate residence meant for the common use of residents" or in a clubKorganisation as part of the amenities pro!ided by it" and which is not conducted for profitB performance in an amateur club before a non-paying audience" or for the benefit of a religious institutionB the reproduction in a newspaper" magaSine" periodical of an article on current economic" political" social or religious topics" unless the author has reser!ed to herself the right of such reproductionB the publication in a newspaper etc. of a report of a public lectureB the ma$ing of a maFimum of three copies for use in a public library" if such wor$ is not a!ailable for sale in #ndiaB

135 the reproduction for the purpose of research andKor pri!ate study" or with a !iew to publishing an unpublished wor$ $ept in a library" museum or other public institution. *owe!er" if the identity of the author of such wor$ is $nown" such reproduction is to be made only after more than siFty years ha!e passed since the death of the authorB if there are more than one authors" the siFty year are to be counted from the death of the author who died lastB the reproduction of any matter" published in any official LaSette" eFcept an Act of a LegislatureB any Act of a Legislature" if it is reproduced with any commentary thereon or any other original matterB the report of any Committee" Commission" 2oard or a li$e body appointed by the Lo!ernment" if such report has been laid on the Table of the Legislature" unless prohibited by the Lo!ernmentB any .udgment of a .udicial authority unless prohibitedB the reproductionKpublication of a translation of an Act of Legislature" in any #ndian language if no such translation produced by the Lo!ernment eFists" or if such go!ernment translation eFists" it is not a!ailable for sale to public. *owe!er" in such cases" it is to be stated at a prominent place that such translation has not been authoriSed or accepted by the Lo!ernmentB the ma$ing or publishing of a painting" drawing or photographs of a wor$ of architectureB the ma$ing or publishing of a painting" drawing" engra!ing or photograph of a sculpture or other artistic wor$" if such wor$ is permanently located in a public placeB and the inclusion in a cinematograph film of any artistic wor$ permanently situated in a public place" or any other artistic wor$ by way of bac$ground" or if such inclusion is incidental to the principal matters represented in the film.

#t may be noted that the eFceptions to infringement in relation to a literary" dramatic" musical or artistic wor$" are e>ually applicable in relation to any translation or adaptation of such a wor$ since they >ualify as original wor$s in their own right and copyright subsists in them too. *owe!er" for publishing a translation" permission of the author of the original wor$ is necessary. QG. State the remedies availa1le in respect of infrin8ement of copAri8hts? Also state the penalties in case of infrin8ement of copAri8hts? AG. #emedies #n case of infringement of a copyright the owner of the copyright can file a suit in a district court ha!ing .urisdiction see$ing remedies by way of -i/ in.unction" -ii/ damages" -iii/ accounts or -i!/ otherwise. The owner of copyright includes an eFclusi!e licensee" and in the case of an anonymous or pseudonymous literary" dramatic" musical or artistic wor$" the publisher of the wor$"

136 until the identity of the author is satisfactorily established. #n the case of such a wor$ under .oint authorship" it is sufficient that the identity of any one author is satisfactorily established. *nM9nction is a normal remedy" though discretionary on the part of the court. #t stops the infringement during the pendency of the proceedings and ensures that no further lossKdamage is caused to the owner of the copyright during the period when the in.unction is in force. Dama8es account for the loss in money terms suffered by the owner of the copyright due to infringement. Acco9nts relates to the accounts of net profits earned by the defendant -infringer/. #f there are no profits" accounts is not ordered as a remedy. 8amages and accounts are alternati!e remediesB the owner can choose only one of them" not both. ther0ise" as a remedy" is a general pro!ision authoriSing the court to grant such other reliefGs as the court may deem necessary for complete redressal of the complaint" e.g." destruction of the infringing material. $enalties A person who $nowingly infringes or abets the infringement of a copyright is punishable with imprisonment ranging from siF months to three years" and with a fine ranging from fifty thousand rupees to two la$h rupees. #f the infringement has not been done for gain or in trade or business" the court may reduce the term of imprisonment and the amount of fine and mention the reasons for doing so in the .udgement. #n the case of second" and e!ery subse>uent" con!iction the term of imprisonment is minimum one year that may go up to three years" and the amount of fine is minimum one la$h rupees that may go up to two la$h rupees. A person who $nowingly uses on computer an infringing copy of a computer programme is punishable with a prison term ranging from se!en days to three years and a minimum fine of fifty thousand rupees which may go up to two la$h rupees. *owe!er if the use has not been for gain or in trade or business" the court may not impose a prison term and may impose a fine" which may go up to fifty thousand rupeesB the reasons for reduced sentence are to be mentioned in the .udgment. A sound recording is re>uired to display on the recording itself" and on the container" the names and addresses of the person ma$ing the recording" and the owner of the copyright" as also the year of its first publication. Similarly" a !ideo -cinematograph/ film has to show the following particulars in the film" as well as on the !ideo cassette or other container: a copy of certificate granted by the 2oard of &ilm CertificationB the name and address of the person ma$ing the film with permission from the owner of the copyright to ma$e such filmB the name and address of the copyright owner. A person ma$ing a sound recording or a !ideo film" which contra!enes these pro!isions" is punishable with imprisonment up to three years and shall also be liable to a fine.

137

11% T!E EN$IRONMENT PROTECTION ACT, 1986


Q1. State the Definitions covered 9nder the Environment -rotection Act5 1LK>? A1. This Act may be called the n!ironment -<rotection/ Act" 0EAC. #t eFtends to the whole of #ndia. #t shall come into force on such date as the Central Lo!ernment may" by notification in the )fficial LaSette" appoint and different dates may be appointed for different pro!isions of this Act and for different areas. #n this Act" unless the conteFt otherwise re>uires"a. NEnvironmentO includes water" air and land and the inter-relationship which eFists among and between water" air and land" and human beings" other li!ing creatures" plants" microorganism and propertyB b. NEnvironmental poll9tantO means any solid or gaseous substance present in such concentration as may be" or tend to be" in.urious to en!ironmentB c. NEnvironmental poll9tionO means the presence in the en!ironment of any en!ironmental pollutionB d. N/andlin8O" in relation to any substance" means the manufacture" processing" treatment" pac$age" storage" transportation" use" collection" destruction" con!ersion" offering for sale" transfer or the li$e of such substanceB e. N/aUardo9s s91stanceO means any substance or preparation which" by reason of its chemical or physico-chemical properties or handling" is liable to cause harm to human beings" other li!ing creatures" plant" micro-organism" property or the en!ironmentB f. N cc9pierO" in relation to any factory or premises" means a person who has" control o!er the affairs of the factory or the premises and includes in relation to any substance" the person in possession of the substanceB g. N-rescri1edO means prescribed by rules made under this Act.

Q2. Descri1e the -o0ers of Central %overnment and co9rt to taRe meas9res to protect and improve environment ? A2. (1) Sub.ect to the pro!isions of this Act" the Central Lo!ernment shall ha!e the power to ta$e all such measures as it deems necessary or eFpedient for the purpose of protecting and impro!ing the >uality of the en!ironment and pre!enting controlling and abating en!ironmental pollution. (2) #n particular" and without pre.udice to the generality of the pro!isions of subsection -0/" such measures may include measures with respect to all or any of the following matters" namely:-i/ co-ordination of actions by the State Lo!ernments" officers and other authorities- -a/ under this Act" or the rules made there under" or -b/ under any other law for the time

138 being in force which is relatable to the ob.ects of this ActB -ii/ planning and eFecution of a nation-wide programme for the pre!ention" control and abatement of en!ironmental pollutionB -iii/ laying down standards for the >uality of en!ironment in its !arious aspectsB -i!/ laying down standards for emission or discharge of en!ironmental pollutants from !arious sources whatsoe!er: <ro!ided that different standards for emission or discharge may be laid down under this clause from different sources ha!ing regard to the >uality or composition of the emission or discharge of en!ironmental pollutants from such sourcesB -!/ restriction of areas in which any industries" operations or processes or class of industries" operations or processes shall not be carried out or shall be carried out sub.ect to certain safeguardsB -!i/ laying down procedures and safeguards for the pre!ention of accidents which may cause en!ironmental pollution and remedial measures for such accidentsB -!ii/ laying down procedures and safeguards for the handling of haSardous substancesB -!iii/ eFamination of such manufacturing processes" materials and substances as are li$ely to cause en!ironmental pollutionB -iF/ carrying out and sponsoring in!estigations and research relating to problems of en!ironmental pollutionB -F/ inspection of any premises" plant" e>uipment" machinery" manufacturing or other processes" materials or substances and gi!ing" by order" of such directions to such authorities" officers or persons as it may consider necessary to ta$e steps for the pre!ention" control and abatement of en!ironmental pollutionB -Fi/ establishment or recognition of en!ironmental laboratories and institutes to carry out the functions entrusted to such en!ironmental laboratories and institutes under this ActB -Fii/ collection and dissemination of information in respect of matters relating to en!ironmental pollutionB -Fiii/ preparation of manuals" codes or guides relating to the pre!ention" control and abatement of en!ironmental pollutionB -Fi!/ such other matters as the Central Lo!ernment deems necessary or eFpedient for the purpose of securing the effecti!e implementation of the pro!isions of this Act. (?) The Central Lo!ernment may" if it considers it necessary or eFpedient so to do for the purpose of this Act" by order" published in the )fficial LaSette" constitute an authority or authorities by such name or names as may be specified in the order for the purpose of eFercising and performing such of the powers and functions -including the power to issue directions under section @/ of the Central Lo!ernment under this Act and for ta$ing measures with respect to such of the matters referred to in sub-section -,/ as may be mentioned in the order and sub.ect to the super!ision and control of the Central

139 Lo!ernment and the pro!isions of such order" such authority or authorities may eFercise and powers or perform the functions or ta$e the measures so mentioned in the order as if such authority or authorities had been empowered by this Act to eFercise those powers or perform those functions or ta$e such measures. G. Appointment of officers and their po0ers and f9nctions + -0/ %ithout pre.udice to the pro!isions of sub-section -:/ of section :" the Central Lo!ernment may appoint officers with such designation as it thin$s fit for the purposes of this Act and may entrust to them such of the powers and functions under this Act as it may deem fit. -,/ The officers appointed under sub-section -0/ shall be sub.ect to the general control and direction of the Central Lo!ernment or" if so directed by that Lo!ernment" also of the authority or authorities" if any" constituted under subsection -:/ of section : or of any other authority or officer. =. -o0er to 8ive directions + Notwithstanding anything contained in any other law but sub.ect to the pro!isions of this Act" the Central Lo!ernment may" in the eFercise of its powers and performance of its functions under this Act" issue directions in writing to any person" officer or any authority and such person" officer or authority shall be bound to comply with such directions. >. #9les to re89late environmental poll9tion + -0/ The Central Lo!ernment may" by notification in the )fficial LaSette" ma$e rules in respect of all or any of the matters referred to in section :. -,/ #n particular" and without pre.udice to the generality of the foregoing power" such rules may pro!ide for all or any of the following matters" namely:- -a/ the standards of >uality of air" water or soil for !arious areas and purposesB -b/ the maFimum allowable limits of concentration of !arious en!ironmental pollutants -including noise/ for different areasB -c/ the procedures and safeguards for the handling of haSardous substancesB -d/ the prohibition and restrictions on the handling of haSardous substances in different areasB -e/ the prohibition and restriction on the location of industries and the carrying on process and operations in different areasB -f/ the procedures and safeguards for the pre!ention of accidents which may cause en!ironmental pollution and for pro!iding for remedial measures for such accidents. Q?.State the provisions relatin8 to prevention5 control5 and a1atement of environmental poll9tion? A?. !he provisions relating to prevention, control, and a"atement of environmental pollution are descri"ed as under: (1) -ersons carrAin8 on ind9strA operation5 etc.5 not to allo0 emission or dischar8e of environmental poll9tants in excess of the standards + No person carrying on any industry" operation or process shall discharge or emit or permit to be discharged or emitted any en!ironmental pollutants in eFcess of such standards as may be prescribed. (2) -ersons handlin8 haUardo9s s91stances to complA 0ith proced9ral safe89ards + No person shall handle or cause to be handled any haSardous substance eFcept in accordance with such procedure and after complying with such safeguards as may be prescribed.

140 (?) ,9rnishin8 of information to a9thorities and a8encies in certain cases + -0/ %here the discharge of any en!ironmental pollutant in eFcess of the prescribed standards occurs or is apprehended to occur due to any accident or other unforeseen act or e!ent" the person responsible for such discharge and the person in charge of the place at which such discharge occurs or is apprehended to occur shall be bound to pre!ent or mitigate the en!ironmental pollution caused as a result of such discharge and shall also forthwith- a/ intimate the fact of such occurrence or apprehension of such occurrenceB and -b/ be bound" if called upon" to render all assistance" to such authorities or agencies as may be prescribed. -,/ )n receipt of information with respect to the fact or apprehension on any occurrence of the nature referred to in subsection -0/" whether through intimation under that sub-section or otherwise" the authorities or agencies referred to in sub-section -0/ shall" as early as practicable" cause such remedial measures to be ta$en as necessary to pre!ent or mitigate the en!ironmental pollution. -:/ The eFpenses" if any" incurred by any authority or agency with respect to the remedial measures referred to in sub-section -,/" together with interest -at such reasonable rate as the Lo!ernment may" by order" fiF/ from the date when a demand for the eFpenses is made until it is paid" may be reco!ered by such authority or agency from the person concerned as arrears of land re!enue or of public demand. (G) -o0ers of entrA and inspection + -0/ Sub.ect to the pro!isions of this section" any person empowered by the Central Lo!ernment in this behalf shall ha!e a right to enter" at all reasonable times with such assistance as he considers necessary" any place- -a/ for the purpose of performing any of the functions of the Central Lo!ernment entrusted to himB -b/ for the purpose of determining whether and if so in what manner" any such functions are to be performed or whether any pro!isions of this Act or the rules made there under or any notice" order" direction or authorisation ser!ed" made" gi!en or granted under this Act is being or has been complied withB -c/ for the purpose of eFamining and testing any e>uipment" industrial plant" record" register" document or any other material ob.ect or for conducting a search of any building in which he has reason to belie!e that an offence under this Act or the rules made there under has been or is being or is about to be committed and for seiSing any such e>uipment" industrial plant" record" register" document or other material ob.ect if he has reason to belie!e that it may furnish e!idence of the commission of an offence punishable under this Act or the rules made there under or that such seiSure is necessary to pre!ent or mitigate en!ironmental pollution. -,/ !ery person carrying on any industry" operation or process of handling any haSardous substance shall be bound to render all assistance to the person empowered by the Central Lo!ernment under sub-section -0/ for carrying out the functions under that sub-section and if he fails to do so without any reasonable cause or eFcuse" he shall be guilty of an offence under this Act. -:/ #f any person wilfully delays or obstructs any persons empowered by the Central Lo!ernment under sub-section -0/ in the performance of his functions" he shall be guilty of an offence under this Act. -=/ The pro!isions of the Code of Criminal <rocedure" 0ED:" or" in relation to the State of Tammu and Washmir" or an area in which that Code is not in force" the pro!isions of any corresponding law in force in that State or area shall" so far as may be" apply to any search or seiSures under this section as they apply to any search or seiSure made under the authority of a warrant issued under section E= of the said Code or as the case may be" under the corresponding pro!ision of the said law.

141 (=) -o0er to taRe sample and proced9re to 1e follo0ed in connection there0ith The Central Lo!ernment or any officer empowered by it in this behalf shall ha!e power to ta$e" for the purpose of analysis" samples of air" water" soil or other substance from any factory" premises or other place in such manner as may be prescribed. -,/ The result of any analysis of a sample ta$en under sub-section -0/ shall not be admissible in e!idence in any legal proceeding unless the pro!isions of subsections -:/ and -=/ are complied with. -:/ Sub.ect to the pro!isions of sub-section -=/" the person ta$ing the sample under sub-section -0/ shall- -a/ ser!e on the occupier or his agent or person in charge of the place" a notice" then and there" in such form as may be prescribed" of his intention to ha!e it so analysedB -b/ in the presence of the occupier of his agent or person" collect a sample for analysisB -c/ cause the sample to be placed in a container or containers which shall be mar$ed and sealed and shall also be signed both by the person ta$ing the sample and the occupier or his agent or personB -d/ send without delay" the container or the containers to the laboratory established or recognised by the Central Lo!ernment under section 0,. -=/ %hen a sample is ta$en for analysis under sub-section -0/ and the person ta$ing the sample ser!es on the occupier or his agent or person" a notice under clause -a/ of sub-section -:/" then"- -a/ in a case where the occupier" his agent or person wilfully absents himself" the person ta$ing the sample shall collect the sample for analysis to be placed in a container or containers which shall be mar$ed and sealed and shall also be signed by the person ta$ing the sample" and -b/ in a case where the occupier or his agent or person present at the time of ta$ing the sample refuses to sign the mar$ed and sealed container or containers of the sample as re>uired under clause -c/ of sub-section -:/" the mar$ed and sealed container or containers shall be signed by the person ta$ing the samples" and the container or containers shall be sent without delay by the person ta$ing the sample for analysis to the laboratory established or recognised under section 0, and such person shall inform the Lo!ernment Analyst appointed or recognised under section 0, in writing" about the wilfull absence of the occupier or his agent or person" or" as the case may be" his refusal to sign the container or containers. QG. State the provisions relatin8 to the offences5 co8niUance of offences and penalties for contravention of the provisions of the act and the r9les5 orders and directions 9nder Environment -rotection Act5 1LK>? AG. ffences 1A companies + -0/ %here any offence under this Act has been committed by a company" e!ery person who" at the time the offence was committed" was directly in charge of" and was responsible to" the company for the conduct of the business of the company" as well as the company" shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: <ro!ided that nothing contained in this sub-section shall render any such person liable to any punishment pro!ided in this Act" if he pro!es that the offence was committed without his $nowledge or that he eFercised all due diligence to pre!ent the commission of such offence. -,/ Notwithstanding anything contained in sub-section -0/" where an offence under this Act has been committed by a company and it is pro!ed that the offence has been committed with the consent or conni!ance of" or is attributable to any neglect on the part of" any director" manager" secretary or other officer of the company" such director" manager" secretary or other officer shall also deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

142 ffences 1A %overnment Departments + -0/ %here an offence under this Act has been committed by any 8epartment of Lo!ernment" the *ead of the 8epartment shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. <ro!ided that nothing contained in this section shall render such *ead of the 8epartment liable to any punishment if he pro!es that the offence was committed without his $nowledge or that he eFercise all due diligence to pre!ent the commission of such offence. -,/ Notwithstanding anything contained in sub-section -0/" where an offence under this Act has been committed by a 8epartment of Lo!ernment and it is pro!ed that the offence has been committed with the consent or conni!ance of" or is attributable to any neglect on the part of" any officer" other than the *ead of the 8epartment" such officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Co8niUance of offences + No court shall ta$e cogniSance of any offence under this Act eFcept on a complaint made by- -a/ the Central Lo!ernment or any authority or officer authoriSed in this behalf by that Lo!ernment" or -b/ any person who has gi!en notice of not less than siFty days" in the manner prescribed" of the alleged offence and of his intention to ma$e a complaint" to the Central Lo!ernment or the authority or officer authoriSed as aforesaid. -enaltA for contravention of the provisions of the act and the r9les5 orders and directions + -0/ %hoe!er fails to comply with or contra!enes any of the pro!isions of this Act" or the rules made or orders or directions issued there under" shall" in respect of each such failure or contra!ention" be punishable with imprisonment for a term which may eFtend to fi!e years with fine which may eFtend to one la$h rupees" or with both" and in case the failure or contra!ention continues" with additional fine which may eFtend to fi!e thousand rupees for e!ery day during which such failure or contra!ention continues after the con!iction for the first such failure or contra!ention. -,/ #f the failure or contra!ention referred to in sub-section -0/ continues beyond a period of one year after the date of con!iction" the offender shall be punishable with imprisonment for a term which may eFtend to se!en years.

143

12% PRACTICAL PROBLEMS AND SOLUTIONS


1. A customer after reaching home from shopping in a self-ser!ice super store realiSed that he had pic$ed up JClini$G brand of shampoo" mista$en that it was ClinicG brand. The get up and appearance of the pac$ets was similar. *e wants to return bac$ the bottle and get his money bac$. The store refuses to ta$e it bac$. 8ecide Sol9tion The shop was offering for sale .ust the things put on the shel!es. The buyer accepted the offer of buying Jclini$G by pic$ing it up and paying for it. #t is thus a !alid contract and the buyer cannot return bac$ the bottle. A battery operated tra!el lamp was being sold by a shop. #t was claimed that a 8uracell battery would last for 04 hours. %hile the claim was !alid" the light of the bulb appeared harsh and piercing to the eyes. The buyer wants to return bac$ the bulb and claim his money bac$. 8ecide. Sol9tion The claim that a 8uracell battery would last for 04 hours has been fulfilled and thus" is not contested. Light of a bulb is often bright and tends to get in the eye. )rdinarily" it can be defused by using lamp shades and other mechanisms. This may be difficult to do for a tra!el lamp. &urther" tra!el lamps are not to be used all the time. These are only for occasions when one tra!els. Thus" light being harsh would not ma$e the lamp unmerchantable. The buyer does not ha!e a remedy.

2.

?. A was offering to its buyers washing machines made in technical collaboration with the %hirlpool corporation of the ?S. After buying the washing machine" the buyer realiSed that A and %hirlpool had settled on a technical collaboration but it was yet to be effected. The buyer wants to return bac$ the washing machine and claim his money bac$. Sol9tion The seller had made a misrepresentation of fact. This would ma$e the contract !oidable. #t can be set aside on the insistence of the buyer. G. A bought an electric iron from a shop. AIs wife % was using the iron. #n the first use itself" the coil melted and ga!e % a shoc$. % had to be hospitalised. Can A return bac$ the iron and claim his money bac$5 Can % demand compensation for in.ury5 Can A demand compensation for %5 Sol9tion The iron is clearly not of mechantable >uality as it has melted in first use. Thus" A can return bac$ the iron and claim his money bac$. % cannot demand compensation as there is no contract between her and the shop$eeper. She is a stranger to the contract. As % is a stranger to the contract" she will not ha!e any remedy =. Aditya Ad!ertisement Co." in response to a tender notice dated April 0D" ,44," put in its bid for ad!ertising on the buses of the company Tramco Ltd. A bid was to be accompanied with a deposit of 3s. :4 la$hs. The bids were to be put in a boF which was to be opened at : <+" +ay ," ,44: in front of representati!es of the parties who had put in tender. The tender ad!ertisement had pro!ided that tenderers will not be

144 permitted to withdrawn their tender after the tenders were opened. #t further pro!ided that if the highest tenderer bac$ed out from ta$ing up the agency" for whatsoe!er reason" the deposit amount of 3s. :4 la$hs would be forfeited. Subse>uently" a court through an order dated +ay 0" ,44: stalled the tender. The boF was opened on +ay ," ,44: in the presence of the representati!e of the tendering parties. A total of siF responses were found. All the siF responses were put in a large en!elope and sealed with the signature of the representati!es. Aditya Ad!ertising Co. had raised the loan of :4 la$hs to put in the bid. #t wrote a letter on +ay :" ,44: to say that it could not $eep money for so long and re>uested the return of the deposit without any delay. The bus company recei!ed the letter on +ay =" ,44:. The court withdrew its order on +ay 0D" ,44: and permitted opening of the tenders in the presence of a courts nominee. Aditya Ad!ertising Co. was the highest bidder. The Tramco Ltd. insists that Aditya Co. has to ta$e up the wor$ or the :4 la$hs would be forfeited. 8ecide. Sol9tion Aditya Co and Tramco ha!e obligations to each other only if they ha!e got into a contractual relationship. &or an agreement to arise" there must be an acceptance of an offer. The fact of tenders putting in their tender is not an acceptance of any thing. Thus" a tender is only an in!itation to an offer. Thus" Aditya Co. has made an offer through a tender. *owe!er" he withdraws the offer before it could be accepted. Thus" when Tramco actually opened the tender application on +ay 0D" Aditya Co.Gs tender was already re!o$ed through its withdrawal. Thus" no contract arose between the parties. Tramco must return the security deposit. >. #-.et Ltd. in!ited tender for building a cellular phone networ$. )nly the applicants who fulfilled a minimum criterion were eligible to apply. Towards this" the potential parties were to first furnish their balance sheet for the past fi!e years" and details of pro.ects successfully completed. The successful parties were issued application form for a price of 3s. ,4" 444. #28 Constructions Ltd. was one of the se!en firms which was successful in getting an application form. #t made an application. #-.et informed the se!en parties of the !alue of each bid. #28 had bid the least. Thereafter" #28 did not hear anything from #-.et. #t wrote to #-.et and was informed that #-.et has had difficulties in raising funds for the pro.ect. 2ut the real reason was that the #-.et was negotiating with a firm which had not e!en bid for the pro.ect. The negotiations did not wor$ out. A year later" #28 saw that the same tender was being called again. #28 is aggrie!ed and contests that it has a right to be gi!en the contract. 8ecide. Sol9tion A tender is only an in!itation to ma$e offer. Thus" the applicants offer and the tender accepts. Till the time a tender accepts an application" there is no agreement. The tender is" thus" free to accept any tender or e!en re.ect all. ?nless" of course" a tender notice says that .ust the act of opening the tender and finding the best bid itself will be implied acceptance of the offer. No tender e!er ma$es this commitment. Thus" the best bid does not on its own create an agreement. #-.et is free to re.ect all applications and as$ for fresh tender. J. A fluorescent electric lamp had a 2ureau of #ndia Standards certification mar$ -#S#/ attached on the label. A buyer bought the lamp. The lamp fused after fi!e months of use. The #S# mar$ was to be gi!en to a fluorescent electric lamp only if it had a minimum life of @444 hours. The buyer is claiming a replacement from the seller. The seller says that that lamp is perfectly fine" of merchantable >uality. #t has gi!en ser!ice for fi!e months. *e further argues that #S# mar$ is a !oluntary certification scheme and casts no obligations on the seller or manufacturer. The seller says that if

145 the buyer is still not con!inced" he should claim from the manufacturer and the 2ureau of #ndian Standard. #s the bulb of merchantable >uality5 8ecide the claim of the buyer against the seller" manufacturer and 2ureau of #ndian Standards. Sol9tion Since the lamp has lasted for fi!e months" it is fit to pass as a fluorescent electric lamp. Thus" t is of merchantable >uality. The buyer has a right only against the seller since his contract is only with the seller. +anufacturer and the 2ureau of #ndian Standards are third parties. The lamp by putting the #S# mar$ describes itself as one which will last for a minimum of @444 hours. Thus" this is a sale by description where the description has not been fulfilled. Thus" the seller must replace the lamp. The buyer has no right against the manufacturer. The buyer could perhaps complain to the appropriate officers that the 2ureau of #ndian Standards was not doing its .ob properly. The officers may ta$e action against the subordinates. *owe!er" no contractual rights would arise for the buyer as he has no contract with the 2ureau of #ndian Standards. K. <ri!ate airlines carried an ad!ertisement campaign in print and tele!ision media stating: J&ly +umbai-8elhi .ust for 3s. :"444G. A potential customer" 8" called on the boo$ing office of the airlines to boo$ a tic$et. 8 learnt that the ad!ertised fare was only for the late night flight. )n deciding to tra!el by the late night flight" 8 further learnt that only = seats were to be sold at the ad!ertised price. )ther seats were to be sold at the full fare of 3s. ="444. 8 insists that the airlines sell a tic$et to him for 3s. :"444 only. Sol9tion &or 8 to ha!e a claim there should be contract. &or a contract to get formed there must ha!e been acceptance of an offer. The $ey issue in this case" thus" is whether the statement W,lA &9m1ai+Delhi M9st for #s. ?5@@@I capable of being accepted by 8 to form a contract. ?sually" such representation of fare and schedules by the airlines and railways are not intended to be offers. These are only in!itation to offer. Thus" it is 8 who ma$es an offer and the airlines may or may not accept it. L. 3a$esh was browsing through boo$s" tapes and 8O8s in a store. *e came across three-dimension 8O8 !ersion of a new film. 3a$esh $new about this new technology. The 8O8 came with goggles. The 8O8 could be played on any 8O8 player. The !iewer had to wear the goggles to get the three-dimension effect. A stic$er on the pac$age mentioned the price to be 3s. D44. 3a$esh was surprised and pleased to $now that it was selling for 3s D44. *e had seen it ad!ertised for 3s. 0@44. *e immediately pic$ed up one and put it in his shopping bas$et. *e too$ his purchase to the counter for paying. %hen the person at the counter put the bar code reader" the computer screen flashed 3s. 0C44 as the price. 3a$esh eFclaimed. *e showed the stic$er to the person at the counter. The person at the counter called his super!isor. The super!isor eFamined the stic$er and made in!estigations. #t turned out that the shop assistants had made a mista$e by putting wrong stic$er on the pac$age. )n some of the threedimension !ersion of the 8O8" they had put the stic$er meant for the ordinary !ersion -non three-dimension/ 8O8. As the shop has made a mista$e" 3a$esh maintains that he has a right to ta$e the 8O8 for 3s. D44. The shop profusely apologiSes but refuses to sell it for any price other than 3s. 0C44. 8ecide. Sol9tion

146 3a$esh would ha!e a right to ta$e the 8O8 for 3s. 0C44 only if there is an offer to these effects" followed by an acceptance" leading to an agreement. #n the arrangement of a self-ser!ice store" the putting up of things in the shop is not an offer. #t is the customer who ma$es the offer when he reaches the counter. Thus" the shop" e!en if it has made a mista$e" can refuse to sell the 8O8 to 3a$esh for 3s. D44. 1@. A.it was tired on his electric $ettle. *e had to wait for the $ettle to boil the water to switch it off. *e learnt that automatic $ettles had come in the #ndian mar$et. These $ettle are fitted with thermostat which switches off the $ettle after water has boiled. *e went to a shop" Shu!it Appliances" to buy one of these automatic electric $ettles. There were se!eral competing brands. The shop$eeper was recommending JSymonG brand. A.it" howe!er" as$ed for +oneF brand. A.it is eFtremely unhappy with the purchase. The $ettle switches off when the water is .ust about beginning to get hot. As a result" the $ettle ne!er gi!es him hot" steaming water to ma$e his coffee. 8oes A.it ha!e a remedy5 Sol9tion A.it has been sold a $ettle which does not fulfil the basic function of a $ettle" boiling water and gi!ing hot steaming water. Thus" the $ettle is not of a merchantable >uality. #n e!ery sale" it is implicit that the goods would be of merchantable >uality. Thus" A.it has a right to get a $ettle of merchantable >uality. 11. 3eynold Ltd. was importing electric iron made by <inoF Ltd. from ?W" sold under <inoF brand name. The electric iron was being sold to customers through a networ$ of retailers. 2aman bought an electric iron from one of the retailers" Asho$ lectricals. 2aman gifted the iron to a new colleague at wor$" Sumit. %hile Sumit was using it the !ery first time" there was a spar$ and fire from the iron. Sumit sustained in.uries. *is medical treatment cost him 3s. 0," 444. *e was ironing his new .ac$et" which caught fire and was completely damaged. The .ac$et had cost him 3s. C"444. Sumit feels agitated with the defecti!e and poor >uality of the product. Sumit wants to claim 3s. 0," 444 for medical bills" 3s. C" 444 for damage to his .ac$et and 3s. 0"044 2aman had spent in buying the iron. Answer the following >uestions based on the abo!e transactions. a. %hat claims could Sumit ma$e on 3eynold Ltd5 b. %hat claims could Sumit ma$e on Asho$ lectricals5 c. %hat claims could Sumit ma$e on 2aman5 d. %hat claims can 2aman ma$e on 3eynold Ltd. and Asho$ lectricals5 Sol9tion #t is only the parties to a contract who ha!e rights and obligations to each other. As Sumit has no contract with 3eynolds" he can ma$e no claims from them. -Same as abo!e/ #t is only the parties to a contract who ha!e rights and obligations to each other. As Sumit has no contract with Asho$ lectricals" he can ma$e no claims from them. 2aman and Sumit ha!e an agreement. *owe!er" it is one of gift. There is no consideration for 2aman. Thus" there is no contract between the parties. Thus" Sumit can ma$e no claims on 2aman 2aman does not ha!e a contract with 3eynolds" thus" he can ma$e no claims on them. 12. Abhay in a self-ser!ice store came across power sa!er electric bulbs. *e pic$ed up a bulb and put it in his trolley. After reaching home" he realiSed that the bulbs were not

147 of <hilips brand. The bulbs were of )Fam brand. <hilips was the only brand Abhay had seen in the mar$et. *e" thus" had no reasons to belie!e that he could be pic$ing up any other brand. Also" the bac$ground of the pac$et was green" li$e <hilips pac$ets. Abhay wants to return bac$ the bulbs but the self-ser!ice store refuses to ta$e it bac$. 8ecide. Sol9tion %hat was offered and accepted" leading to agreement and contract" by the parties was the bulb .ust the way it was. Thus" Abhay has no right to return it. 1?. A non-go!ernmental organisation bought watches to gi!e it as priSe in a sports competition. After recei!ing the priSe" a recipient realiSed that the watch was defecti!e. Can the person get remedy from a consumer court against the sellers and manufacturers of the watch5 Sol9tion The non-go!ernment organisation is consumer in relation to the seller and manufacturer. %ith in the consumer protection act" consumer includes Jany user of such goods" when such use is made with the appro!al of such personG. Since the recipient are using it with the appro!al of the Non go!ernmental )rganisation" they are also consumers and can get remedy. 1G. The *++" the manufacturers of *orlic$s" #n September 0EA@" ad!ertised a scheme called the *idden %ealth <riSe offerG for the buyers in 8elhi. The .udgement of the Supreme Court on this scheme became a landmar$ .udgement for the subse>uent cases. %hat was the $ey point of the .udgement in relation to such schemes5 Sol9tion *olding of any contest" lottery or game of chance for direct or indirect promotion of sales is an unfair trade practice. The >uestion was whether holding of such schemes" where a luc$y person could ha!e a coupon" which entitled to a priSe" was a lottery" and therefore an unfair trade practice or not. The Supreme Court ruled that this was not a lottery in the ordinary as a person did not ha!e to pay eFtra for the scheme and in any case got his moneyGs worth in the product. 1=. #n an ad!ertisement of cloth whitener" it was put up by the manufacturers of Sanco that only three to four drops of Sanco were sufficient to achie!e the desired whitening effect on the clothes as against 0@-,4 drops of an JordinaryG whitener. The manufacturers of 3eno" a competing brand" are claiming that this is disparaging 3eno. 3eno could also produce the same whitening effect in :-= drops. 8ecide. *ow would the answer be different if actually 0@-,4 drops of 3eno were needed to produce the same whitening effect5 Sol9tion &or disparaging others goods" there must be a comparison between specific goods. Since the reference here is to an JordinaryG whitener and not specifically to 3eno" this would not be a case of disparaging 3enoGs whitener. Since it is not a case of disparagement" the >uestion of actual >ualities of 3eno does not arise. Thus" it would ma$e no difference whether :-= drops of 3eno are needed or 0@-,4 drops are needed. 1>. A daily newspaper" priced at 3s. 0" started a game of Tambola. The newspaper of )ctober 0E" Sunday" carried a card which had drawn the housie s>uares. The result of each dayGs draw were published in the newspaper the neFt day. The awards included *onda city car" washing machines and tele!ision sets. The competing newspapers are

148 apprehensi!e that this would increase the circulation of the newspaper. A case of unfair trade practice is being made. 8ecide. Sol9tion *olding of any contest" lottery" game of chance" for direct or indirect promotion of sale is an unfair trade practice. The newspaper has organised housie which is clearly a game of chance. %hat we need to see is whether this is for promotion of sales of sales or not. )nce a person starts playing the game" he would need to buy the newspaper e!eryday to see the result. Thus" sales will get promoted. Second" the >uantum of priSes compared to the price of the newspaper is !ery high. This is li$ely to entice people to buy the newspaper to play the game. Thus" this is an unfair trade practice. 1J. A company altered #ts +emorandum of Association according to the procedure laid down by law and the alteration was also confirmed by the Company Law 2oard. A certified copy of the order of the Company Law 2oard was filed =-months after the order was passed by the Company Law 2oard. Can the 3egistrar register the alteration5 Sol9tion (es. *e can do so as per pro!isions mentioned under Sec.0A. As per Section 0A company shall file with the 3egistrar" a certified copy of the order of the company law board confirming the alteration within : months of the order. The registrar shall register the same and certify the registration within 0 month from the date of filing such documents. *owe!er the company can be allowed the eFtension of time if the company law board thin$s fit. 1K. A company was started with the ob.ect of building Ia hall with shopsI. The building was destroyed by fire and the company wanted to alter the ob.ects clause in the +emorandum by substituting the words Ia hall with shopsI with the words Ishops" dwelling houses and warehouses for letting purposes.I Should this alteration be allowed5 Sol9tion No" As the alteration eFceeds ob.ect mentioned by the company on its incorporation. -Strathspey <ublic Assembly etc. *all Co. Ltd. !. AndersonIs Trustees" -0E:=/ S.C. :A@/. 1L. # +ining Co. Ltd. applied to the Company Law 2oard for permission to add the following ob.ects in its +emorandum of Association" which earlier stated mining as its main purpose : -a / To sell goods on hire-purchase basis B -b/ To do all $inds of fabrication wor$s of steel" aluminum" copper" Sinc" and alloys B -c/ To buy and sell land" buildings" hotels" restaurants and business premises B and - d/ to enter in to contracts for construction of building with pri!ate people or go!ernment. %ill the Company Law 2oard appro!e this alteration5 Sol9tion No" The Company Law 2oard will only appro!e the alteration if the incidental ob.ects are in alignment of the main purpose for which the company is established.

149 2@. $ Ltd. applies to the Company Law 2oard for appro!ing an alteration in situation clause of its +emorandum and thus permitting it to change its registered office from Calcutta to 8elhi. The Lo!ernment of %est 2engal re>uests the Company Law 2oard not to allow this change" for it would lead to a loss of re!enue of the Lo!ernment. 8ecide. Sol9tion No" The re>uest of Lo!ernment of %est 2engal wonGt be considered. The change will be allowed if it is warranted by the interests of the company 63an$ &ilm 8istributors of #ndia Ltd. !. 3egistrar of Companies7.The court obser!ed that the state has no statutory right to oppose the shifting of the registered office from one state to another. +embers of the company will decide whether the registered office of the company is to be transferred from one state to another. +oreo!er the shifting should be in the interest of the company.