Mehul Sonaria

Master of Business Administration- MBA Semester 3

MB0050 Legal Aspect of Business
1) Explain the performance of contracts.
Performance of Contracts
Definition
Sections 37-67 of the Contracts Act deal with the performance of a contract. A
contract creates obligations. Performance of a contract takes effect when the parties
to the contract fulfill their obligations within the time and manner specified under the
contract. The parties to a contract must either perform or offer to perform their
respectie promises unless such performance is dispensed with or e!cused under
the proisions of law "Section 37#.
Offer of performance
$t ma% happen that the promisor offers performance of his&her obligation under the
contract at the proper time and place' but the promisee refuses to accept the
performance. This is called (tender) or (attempted performance). $f a alid tender is
made and is not accepted b% the promisee' the promisor shall not be responsible for
non-performance nor shall he&she lose his&her rights under the contract "Section 3*#.
Onus of performance
The promise ma !e performed ! the promisor himself"herelf# his"her agent or his"her legal
representati$e. %n case there &as an intention of the parties that the promise must !e
performed ! the promisor himself"herself# such a promise is to !e performed ! him"her
onl. Thus# &here A promises to paint a picture for B# then A must perform this promise
personall. %f there is no such intention of the parties# then the promisor ma emplo a
competent person to perform the promise. %f A had promised to deli$er some items of grocer
to B# A ma perform this promise either personall or ha$e it deli$ered to B through
someone. %n case of death of the promisor# the legal representati$e must perform the promise
unless a contrar intention is mentioned in the contract.
2) Elaborate the rights of surety
+ights of suret% ma% be classified under three heads,
+ights against the creditor
+ights against the principal debtor
+ights against co-sureties
Rights against the creditor
$n case of fidelit% guarantee' the suret% can direct a creditor to dismiss the emplo%ee
whose honest% he&she has guaranteed' in the eent of proen dishonest% of the
emplo%ee. The creditor)s failure to do so will e!onerate the suret% from his&her
liabilit%.
Rights against the principal debtor
Right of subrogation Section -./ proides that where a suret% has paid the
guaranteed debt on the due date or has performed the guaranteed dut% on the
default of the principal debtor' he&she is inested with all rights that the creditor has
against the debtor. $n other words' the suret% is subrogated to all rights that the
creditor had against the principal debtor. 0ence' if the creditor loses or without the
consent of the suret% parts with an% securities "whether known to the suret% or not#'
the suret% is discharged to the e!tent of the alue of such securities "Section -.-#.
1urther' the creditor must hand oer to the suret% the securities in the same condition
as the% formerl% stood in his&her hands.
Right to be indemnified The suret% has a right to recoer from the principal
debtor the amount that he&she has rightfull% paid under the contract of guarantee.
Rights against co-sureties
Right of contribution 2here a debt has been guaranteed b% more than one
person' the% are called co-sureties. Section -.6 proides for a right of contribution
between them. 2hen a suret% has paid more than his&her share or a decree has
been passed against the suret% for more than his&her share' he&she has a right of
contribution from the other sureties who are e3uall% bound to pa% with him&her.
3) Discuss the termination of bailment.
On the expiry of the stipulated period 2here a bailment is for a specific
period' it comes to an end on the e!pir% of the specified period.
Example: A room cooler is hired b% 4 from 5 for si! months. 6n the e!pir% of
si! months' 4 must return the cooler to 5.
On the accomplishment of the specified purpose $n case the bailment is for
specific purpose' it terminates as soon as the purpose is accomplished.
When bailees act is inconsistent with the conditions of bailment $f the
bailee does an% act with regard to the goods bailed' inconsistent with the
conditions of the bailment' the bailor ma% terminate the bailment "Section -73#.
Example: A lets 8 for hire a horse for his own riding. 8 dries the horse in his
carriage. A will hae the option to terminate the bailment.
A gratuitous bailment may be terminated at any time (ection !"#$
0oweer' if premature termination causes an% loss to the bailee e!ceeding the
benefit deried from the bailment' the bailor must indemnif%. 1urther' a gratuitous
bailment terminates b% death of either the bailor or the bailee "Section -69#.
') Explain the performance of a contract of sale of goods.
Duties of the seller and the buyer
$t is the dut% of the seller to delier goods and the bu%er to accept and pa% for
them' in accordance with the terms of the contract of sale "Section 3-#. 0oweer'
no delier% need be gien' if the bu%er is not willing to pa% the price' nor need the
bu%er pa% the price' unless the seller is read% and willing to gie delier%' as
unless otherwise agreed' delier% and pa%ment of price are concurrent conditions
"Section 39#.
The seller has the dut% of giing delier% of goods according to the,
- Terms of the contract' and
- +ules contained in the Act.
The bu%er of goods has to pa% for the goods' accept delier% and pa%
compensation to the seller in case he&she wrongfull% refuses to accept delier%.
Delivery
:elier% is defined as a oluntar% transfer of possession from one person to
another ;Section 9 "9#<. Section 33 proides that delier% of goods sold ma% be
made b% doing an%thing that the parties agree' shall be treated as delier% or
which has the effect of putting the goods in the possession of the bu%er or of an%
person authorised to hold them on his behalf.
Passing of property in goods in the case of foreign trade
There are certain terms that are used in the contract of sale of goods in foreign
trade. These terms reflect a number of conditions that are either attached b% the
parties or b% custom and practice of business people. =suall% such contracts are,
- 1ree on board "1.6.8.# or 1ree on Airport "1.6.A.#' and
- Cost' $nsurance and 1reight "C.$.1.# and >!-Ship.
5) Discuss the law related to the prohibition of anti-competitive
agreements.
Prohibition of Anti-competitive Agreements
Section 3 proides for prohibition of entering into anti-competitie agreements.
Accordingl%' no enterprise or person or association of enterprises&persons shall
enter into an% agreement in respect of production' suppl%' distribution' storage'
ac3uisition or control of goods or proision of serices' which causes or is likel%
to cause an appreciable aderse effect on competition within $ndia. An%
agreement entered into in contraention of this proision shall be oid.
1urther' this section also specifies certain actiities that shall be presumed to
hae an appreciable aderse effect on competition. An% enterprise or person or
association of enterprises&persons' including cartels' shall be presumed to hae
an appreciable aderse effect on competition if the% do an% of the following,
- :irectl% or indirectl% determine purchase or sale prices
- ?imit or control production' suppl%' markets' technical deelopment' inestment
or proision of serices
- Share the market or source of production or proision of serices b% wa% of
allocation of geographical area of market' or t%pe of goods and serices' or
number of customers in the market or an% other similar wa%
- :irectl% or indirectl% results in bid rigging or collusie bidding.
Factors that adversely affect competition. Section 1( enumerates the factors that are to
!e )ept in mind ! the commission &hile determining &hether an agreement has an
apprecia!le ad$erse effect on competition or not under Section 3.
) Explain the need and types of meetings!
Need for meetings
A compan is an artificial person and therefore# must act through some human
intermediar. The $arious pro$isions of la& empo&er shareholders to do certain
things. The are specificall reser$ed for them to !e done in compan*s general
meetings. Section +(1 empo&ers the Board of ,irectors to manage the affairs of the
compan. %n this conte-t# meetings of shareholders and directors !ecome necessar.
The Act has made pro$isions for follo&ing different tpes of meetings of
shareholders. /i) Statutor Meeting0 /ii) Annual 1eneral Meeting0 /iii) 2-traordinar
1eneral Meeting0 and /i$) 3lass Meetings.
Statutory meetings (Section 1!"
The most important legal proisions regarding statutor% meetings are,
$t is re3uired to be held onl% b% a public compan% haing share capital. A priate
compan% or a public compan% registered without share capital is under no
obligation to hold such a meeting.
$t must be held within a period of not less than one month and not more than si!
months from the date on which the compan% is entitled to commence business.
At least 9- da%s before the da% of meeting' a notice of the meeting is to be sent
to eer% member stating it to be a Statutor% @eeting.
#nnual general meeting (#$%" (Sections 1-1&"
As the name signifies' this is an annual meeting of a compan%. The proisions
relating to this meeting are,
>er% compan%' whether public or priate' haing a share capital or not' limited
or unlimited must hold this meeting.
The meeting must be held in each calendar %ear and not more than -7 months
shall elapse between two meetings. 0oweer' the first AA@ ma% be held within
-* months from the date of its incorporation and if such general meeting is held
within that period' it need not hold an% such meeting in the %ear of its
incorporation or in the following %ear. The ma!imum gap between two such
meetings ma% be e!tended b% three months b% taking permission of the
+egistrar' who ma% so allow for an% special reason.
- The meeting must be held
- 6n a da% that is not a public holida%
- :uring business hours
- At the registered office of the compan% or at some other place within the cit%'
town or illage in which the registered office is situated. "Section -66 "9##.
'(traordinary %eeting ('$%" Section 1)
Clause .7 of Table A "Schedule B $# proides that all general meetings other than
AA@s shall be called the >A@s. The legal proisions as regards such meetings
are,
- >A@ is conened for transacting some special or urgent business that ma%
arise in between two AA@s' for instance' change in the obCects or
shift of registered office or alteration of capital. All business transacted at such
meetings is called special business. Therefore' eer% item on the agenda must
be accompanied b% an (>!planator% Statement).
- An >A@ ma% be called b%,
- :irectors of their own accord
- :irectors on re3uisition
- +e3uisitionists themseles
- The Tribunal. The 8oard of :irectors ma% call a general meeting of the
members at an% time b% giing not less than 9- da%s notice. A shorter notice
ma%' howeer' be held alid if consent is accorded thereto b% members of the
compan% holding D7 percent or more of the oting rights "Section -7-#.
*lass %eetings
A compan has t&o classes of shares 4 e5uit shares and preference shares. The class
meetings are held for these different classes of shareholders# as and &hen their rights
are affected.