1

In the Eye of Court, Company is an independent identity. It is an artificial person.

There is no body, soul or brain but it works like a human being. It can buy and
sell on its own name. No members have right on company except their invested
share capital. So, no share holder sells or buy the companys property. They can
only sell their bought share at its current market value. It is not just association
of persons like partnership. It has full independent legal entity. Death or birth of
new shareholder will not affect the existence of a company. Shareholders are not
also the agent of company. Company will not die with the death of any
shareholder. When any shareholder will die, his shares will transfer to other
authorize party. There are some exceptions when this rule will not apply. For
example, when any company starts acting like an agent of shareholders. At that
time, company and its shareholders will not different. At that time, its liability will
be unlimited. The following are the main characteristics and distinctive features
of a company form of enterprise: 1. An Association of Persons: At least two
persons or seven persons must come together to form a private or a public
company respectively. A single individual cannot constitute a company. This is
the reason why a company is called on Association of Persons. 2. Incorporated
Association: A company comes into existence only after a certificate of
incorporation has been obtained from the Registrar of Joint Stock Companies.
Without incorporation, it has no legal existence. Artificial Legal Person: A
company is an artificial person created by law to achieve the objectives for which
it is formed. A company exists only in the contemplation of law. It is artificial
person in the sense that it is created by a process other than natural birth and
does not possess the physical attributes of a natural person. It is invisible,
intangible, immortal and exists only in the eyes of law. It has no body, no soul
and no conscience; it is regarded as an artificial person. 4. Distinct Legal Entity: A
company is a legal person having a juristic personality entirely distinct and
independent of the individual persons who are its members. It enjoys in many
respects the right of a natural person in the eyes of law. It can own property,
conduct a lawful business, enter into contracts with others, buy, sell and hold
property, all in its own name under its own seal. It can file a suit against others
and can be sued against. 5. Perpetual Succession: A company has perpetual
existence i.e. its existence is not affected by the death or lunacy or insolvency or
retirement of its member. Members may come and go, but the company
continues its operations so long as it fulfils the requirements of the law under
which it has been formed. Thus, a company has a perpetual succession
irrespective of its membership. 6. Limited Liability: Liability of members of a
limited company is limited to the face value of the shares subscribed by each of
them. Members cannot be asked to pay anything more than what is due or
unpaid on the shares of the company held by them. In no case the personal
property of the members of a company can be attached to satisfy the claims of
creditors of a company.
Transferability of Shares: Members of a public limited company are free to
transfer the shares held by them to any one members for either to purchase or
sell the shares. 8. Diffused Ownership: Ownership of a company is in the hands
of a large number of people. In case of Private Ltd. Company, the upper limit is
up to 50. In case of a public Ltd. Company there is upper limit to the number of
members. Any individual is free to acquire the share of any company and

become to the owner to that extent only. As such ownership is spread among a
number of share holders. 9. Separation of ownership and management: Share
holders are the owners of the company. Companys share holders are widely
scattered. It is physically impossible for all of them to take patty in the
management of the company. Being a share holder of a company does not give
him the right to manage the affairs of a company. The management is vested
with the directors, who are the legal representatives of the shareholders. Thus
owners of the company have no direct control over the management of the
company. 10. Common Seal: A company being an artificial person cannot sign
documents for itself whereas a natural person can do. The law has provided for
the use of a common seal, with the name of the company engraved on it, as
substitute for its signature. The common seal of the company is approved in the
first Board Meeting held immediately after the incorporation. Common seal has
to be affixed on all important documents and contracts. Any document bearing
the common seal of the company duly signed by at least two directors will be
legally binding on the company. 11. Corporate Finance: A company generally
raises large amount of funds in form of issuing shares, debentures, bonds and
incurring loans and advances from financial institutions. The total share capital of
a company is divided into a number of shares which are held by individual
members and institutions. 12. Object clause of Business: A company can conduct
only such business as stated in its first Memorandum of Association. In order to
bring any charges in its activity, the object clause must be changed. 13.
Publication of Accounts: A joint stock company is required to file annual audited
statements with the Registrar of Companies at the end of each financial year.
The annual statements are available for inspection in the office of the Registrar.

4
A contract has been defined in Section 2(h) as an agreement enforceable by
law. To be enforceable by law, an agreement must possess the essential
elements of a valid contract as contained in Sections 10, 29 and 56. According to
Section 10, all agreements are contracts if they are made by the free consent of
the parties, competent to contract, for a lawful consideration, with a lawful
object, are not expressly declared by the Act to be void, and, where necessary,
satisfy the requirements of any law as to writing or attestation or registration. As
the details of these essentials form the subject-matter of our subsequent
chapters, we propose to discuss them in brief here. The essential elements of a
valid contract may be summed up as follows: 1. Offer and acceptance: There
must be a lawful offer and a lawful acceptance of the offer, thus resulting in an
agreement. The adjective lawful implies that the offer and acceptance must
satisfy the requirements of the Contract Act in relation thereto. 2. Intention to
create legal relations: There must be an intention among the parties that the
agreement should be attached by legal consequences and create legal
obligations. Agreements of a social or domestic nature do not contemplate legal
relations, and as such they do not give rise to a contract. 3. Lawful consideration:
The third essential element of a valid contract is the presence of consideration.
Consideration has been defined as the price paid by one party for the promise of
the other. An agreement is legally enforceable only when each of the parties to it
gives something and gets something. The consideration may be an act (doing
something) or forbearance (not doing something) or a promise to do or not to do
something. It may be past, present or future. But only those considerations are
valid which are lawful. 4. Capacity of parties: The parties to an agreement must
be competent to contract; otherwise it cannot be enforced by a court of law. In
order to be competent to contract the parties must be of the age of majority and
of sound mind and must not be disqualified from contracting by any law to which
they are subject (Sec. 11). 5. Free consent: Free consent of all the parties to an
agreement is another essential element of a valid contract. Consent means that
the parties must have agreed upon the same thing in the same sense (Sec. 13).
There is absence of free consent if the agreement is induced by (ii) coercion, (ii)
undue influence, (iii) fraud, (iv) misrepresentation, or (v) mistake (Sec. 14). If the
agreement is vitiated by any of the first four factors, the contract would be
voidable and cannot be enforced by the party guilty of coercion, undue influence
etc. 6. Lawful object: For the formation of a valid contract it is also necessary
that the parties to an agreement must agree for a lawful object. The object for
which the agreement has been entered into must not be fraudulent or illegal or
immoral or opposed to public policy or must not imply injury to the person or

property of another (Sec. 23). If the object is unlawful for one or the other of the
reasons mentioned above the agreement is void. Thus, when a landlord
knowingly lets a house to a prostitute to carry on prostitution, he cannot recover
the rent through a court of law. 7. Writing and registration: According to the
Indian Contract Act, a contract may be oral or in writing. But in certain special
cases it lays down that the agreement, to be valid, must be in writing or/and
registered. For example, it requires that an agreement to pay a time barred debt
must be in writing and an agreement to make a gift for natural love and affection
must be in writing and registered (Sec. 25). Similarly, certain other Acts also
require writing or and registration to make the agreement enforceable by law
which must be observed. Thus, (i) an arbitration agreement must be in writing as
per the Arbitration and Conciliation Act, 1996; (ii) an agreement for a sale of
immovable property must be in writing and registered under the Transfer of
Property Act, 1882 before they can be legally enforced. 8. Certainty: Section 29
of the Contract Act provides that Agreements, the meaning of which is not
certain or capable of being made certain, are void. In order to give rise to a
valid contract the terms of the agreement must not be vague or uncertain. It
must be possible to ascertain the meaning of the agreement, for otherwise, it
cannot be enforced. 9. Possibility of performance: Yet another essential feature of
a valid contract is that it must be capable of performance. Section 56 lays down
that An agreement to do an act impossible in itself is void. If the act is
impossible in itself, physically or legally, the agreement cannot be enforced at
law. 10. Not expressly declared void: The agreement must not have been
expressly declared to be void under the Act. Sections 24-30 specify certain types
of agreements which have been expressly declared to be void.

6
Different modes of crossing of a cheque ---------------------------------------------------Crossing are of the following types: (1) General crossing; (2) Special crossing; (3)
However, there is yet another type of crossing which is recognized by usage and
custom, called restrictive crossing: (4) Not negotiable crossing. 1. General
Crossing: In a general crossing, simply two parallel transverse lines, with or
without the words 'not negotiable' in between, may be drawn. Such a cheque is
crossed generally. The effect of general crossing is that the payment of the
cheque will not be made at the counter, it can be collected only through a
banker. 2. Special Crossing: In a special crossing, the name of a banker with or
without the words 'not negotiable' is written on the cheque. Such a cheque is
crossed specially to that banker. It should be noted that two transverse parallel
lines are necessary for a general crossing, whereas for a special crossing, no
such lines are necessary. The effect to special crossing is that the paying banker
will be the amount of the cheque only through the bank named in the cheque. 3.
Restrictive crossing: Besides the two statutory types of crossing discussed above,
there is one more type of crossing namely, restrictive crossing. This type of
crossing has been recognised by usage and custom of the trade. In a restrictive
crossing the words 'Account Payee' or Account Payee Only' are added to the
general or special crossing. The effect of restrictive crossing is that the payment
of the cheque will be made by the bank to the collecting banker only for the
account payee named. If the collecting banker collects the amount for any other
person, he will be liable for wrongful conversion of funds. It should be noted that
the duty of the paying banker is only to ensure that the payment is made
through the named bank, if there is any. He is not liable, in case the collecting
banker collects the cheque for any other person than the account payee. In that
case collecting banker will be liable to the true owner. 4. Not negotiable Crossing
(Sec. 130): A person taking is cheque crossed generally or specially, bearing in
either case the words 'not negotiable' shall not be able to give a better title to
the holder than that of the transferor. The effect of a not negotiable crossing is
that the cheque can be transferred but the transferee will not acquire a better

title to the cheque. Thus a cheque is deprived of its essential feature of

negotiability. The objects of "not negotiable" crossing is to protect the drawer
against loss or theft in the course of transit. Example: A cheque was drawn in
favour of a firm B & Co. The cheque was crossed 'not negotiable'; one of the
partners, A in fraud of his Co-partner B, endorsed the cheque to P who encashed
it. Held that B, who under the terms of the partnership agreement was entitled to
the cheque could recover the amount from P as A could not transfer better title
than he himself had [Fisher v. Roberst] Who may cross a cheque? As a rule, it is
the drawer who can cross a cheque. However, Sec. 125 provides that even a
holder can cross the cheque. It further provides that a banker can cross the
cheque specially for collecting to another banker as his agent for collection.
Section 138 in The Negotiable Instruments Act, 1881
---------------------------------------------------------------- 138. Dishonour of cheque for
insufficiency, etc., of funds in the account. Where any cheque drawn by a person
on an account maintained by him with a banker for payment of any amount of
money to anotherperson from out of that account for the discharge, in whole or
in part, of any debt or other liability, is returned by the bank unpaid. either
because of the amount of money standing to the credit of that account is
insufficient to honour the cheque or that it exceeds the amount arranged to be
paid from that account by an agreement made with that bank, such person shall
be deemed to have committed an offence and shall, without prejudice. to any
other provision of this Act, be punished with imprisonment for a term which may
extend to one year, or with fine which may extend to twice the amount of the
cheque, or with both: Provided that nothing contained in this section shall apply
unless- (a) the cheque has been, presented to the bank within a period of six
months from the date on which it is drawn or within the period of its validity,
whichever is earlier; (b) the payee or the holder in due course. of the cheque as
the case may be, makes a demand for the payment of the said amount of money
by giving a notice, in writing, to the drawer of the cheque, within fifteen days of
the receipt of information by him from the bank regarding the return of the
cheque as unpaid; and (c) the drawer of such cheque fails to make the payment
of the said amount of money to the payee or, as the case may be, to the holder
in due course of the cheque, within fifteen days of the receipt of the said notice.
Explanation.- For the purposes of this section," debt or other liability" means a
legally enforceable debt or other liability.

Case

Question1:
Elaborately state the important legal issue/s covered under this case. Answer:
The point in this case is whether the petitioner has withdrawn the tender before
it was opened in accordance with the conditions of the tender notice. According
to the tender notice, the tenders were to be opened at 3 pm by opening the
tender box. But mere opening of the box was not sufficient. The tender forms
were to be scrutinized as to whether they were valid tenders and successful
bidder was to be found out. That process admittedly, was not gone through and
even according to the respondent the sealed covers were not opened on the
given date and were kept back in the box. The opening of the tenders by
removing the salts was postponed because of the interim order of this court.
Before the actual process starts, the petitioner had asked for the return of
earnest money. Hence, it is not possible to accede to the contention of the
learned counsel for the respondent. Though the request of the petitioner did not
specifically refer to withdrawal of the tender, still no one would ask for return of
the earnest money unless there is an intention not to participate in the tender.
The respondent had also understood this because of the later reply where the
respondent had clearly stated that the petitioner should participate in the
opening of the tenders on the date to which it was postponed and expressed the

inability to return the earnest money. But that clause comes into operation after
the tenders are opened and the highest bidder is declared and such a declaration
can come only after scrutinizing the tenders. In the present case, that did not
take place and the petitioner had asked for return of earnest money stating that
he had no interest in participating in the opening of the tenders.

Ques 2:
What are the essential features of a tender? Ans.
As tender would amount to complete performance, if the offer were carried out,
the requisites of a valid tender are indicated by the requisites of valid
performance. There must be an un-conditional offer to perform, coupled with a
manifested ability to carry out the offer, and a production of the subject-matter
of the tender;66 the amount tendered must not be less than what is due; and if
greater, there must be no demand for a return of the excess.68 The medium of
payment must be that which the contract specifies or in the absence of
contractual definition that which the law has made legal tender;69 the time must
be that fixed by the contract or by law;70 it must not be before maturity; and the
hour of the day must be reasonable. But at the present time in case of a
liquidated debt a valid tender may be made subsequent to the day of maturity
by adding legal interest to the amount of the debt.

Question 3:
Give your reasons in support of your decision for the issue discussed in this
case. Ans
According to the tender notice, the tenders were to be opened at 3 pm by
opening the tender box. But mere opening of the box was not sufficient. The
tender forms were to be scrutinized as to whether they were valid tenders and
successful bidder was to be found out. That process admittedly, was not gone
through and even according to the respondent the sealed covers were not
opened on the given date and were kept back in the box. The opening of the
tenders by removing the salts was postponed because of the interim order of this
court. Before the actual process starts, the petitioner had asked for the return of
earnest money. Hence, it is not possible to accede to the contention of the
learned counsel for the respondent. Though the request of the petitioner did not
specifically refer to withdrawal of the tender, still no one would ask for return of
the earnest money unless there is an intention not to participate in the tender.

Question No. 2 Annual general Meeting is required to be held--21. Options By a private company only By a public company only By a company
limited by guarantee only By all kinds of companies Ans. By all kinds of
companies Question No. 3 An acceptance is complete and effective only when it
has been--- Options Communicated to the offerer Merely mentally accepted
Externally manifested Kept in the drawer Ans. Communicated to the offerer
Question No. 4 Name of a company can be changed by passing a special
resolution and with the approval of-- Options

22. The company law tribunal The Central Government The Registrar of
Companies none of the above Ans. The Central Government Question No. 5 A
contract becomes voidable if it has been caused by--- Options Coercion Fraud
Undue Influence All of them Ans. All of Them Question No. 6 If the goods have
perished, the contract of sale of such specific goods, will become--- Options
voidable void
23. illegal None of these Ans. voidable Question No. 7 Articles can be altered
by--- Options Ordinary resolution Special Resolution Resolution requiring special
notice Unanimous resolution Ans. Resolution requiring special notice Question
No. 8 A contract entered into between the parties by words is called--- Options
An express contract An implied contract A quasi Contract An excited contract
Ans. Implied Contract
24. Question No. 9 A prospectus is issued--- Options By a Private LImited
Company By a Public Limited Company By a Company limited by Guarantee
None of these Ans. By a Private LImited Company Question No. 10 When, before
the contract becomes due for performance, the promisor declares his intention of
not perfor Options Remission Waiver Alteration Anticipatory breach Ans.
Remission Question No. 11 A bailment cannot be made about--25. Options Car Furniture Money Television Ans. Money Question No. 12 The
damages which arise in the usual course of things happening from the breach of
contract, are called Options Remote Damages Ordinary damages Special
damages Nominal Damages Ans. Ordinary damages Question No. 13 When a
person is employed to represent another in dealings with third person, it is a
contract of--- Options
26. Bailment Guarantee Agency Pledge Ans. Agency Question No. 14 Which of
the following is not an essential element of a contract of sale--- Options Goods as
subject matter Transfer of property in goods Price Railway receipts Ans. Railway
receipts Question No. 15 Which of the following does not relate to termination of
agency by operation of law--- Options Death of principal Insolvency of principal
27. Destruction of subject-matter Revocation of authority by the principal Ans.
Destruction of subject-matter Question No. 16 Limited liability means liability of
its--- Options Debtors is limited Creditors is limited Members is limited Debenture
holders is limited Ans. Debtors is limited Question No. 17 In a contract of sale,
property means--- Options Raw Materials Movable goods Ownership Immovable
property Ans. Immovable property
28. Question No. 18 The goods which are yet to be acquired by the seller, are
called--- Options Existing Goods Contingent Goods Unascertained goods Future
goods Ans. Future Goods Question No. 19 Acceptance of an offer is complete as
against the offeror as soon as--- Options The offerer knows about it The letter of
acceptance is posted The letter f acceptance is signed by offeree The letter is
handed over to a delivery person Ans. The letter of acceptance is posted
Question No. 20 If a company fails to pay its debts suit can be filed against the--29. Options Directors Members Officers Company Ans. Directors Question No. 21
A contract with a minor is--- Options Illegal Valid Void Voidable Ans. Void Question
No. 22 Who is liable for the supply of necessaries to a minor--- Options

30. His guardian His Manager His property He himself Ans. His guardian Question
No. 23 In return for a new television, Raju agrees to give his old television valued
at Rs. 3,000 and an amount of c This is a--- Options Barter Exchange Contract of
sale of goods Sale of approval Ans. Contract of sale of goods Question No. 24
Which of the following rights is held by an unpaid seller--- Options Right of lien
31. Right of stoppage in transit Right of resale All of these Ans. All of these
Question No. 25 Which of the following is not a remedy for breach of contract--Options Rescission of the contract Restitution of benefit Suit for damages
Alteration of the contract Ans. Suit for damages Question No. 26 A contract by
which one party promises to save the other from loss is called--- Options
Contract of guarantee Contract of indemnity Quasi contract
32. None of these Ans. Contract of guarantee Question No. 27 Suretys liability
is--- Options Primary Secondary Absolute None of these Ans. Primary Question
No. 28 Crossed cheques payable to bearer are negotiated by--- Options
Endorsement & delivery Delivery Assignment None of these Ans. Delivery
33. Question No. 29 In a contract of sale, which of the following is treated as
implied condition--- Options That the seller has title to goods That goods are
similar to description That goods are according to sample shown All of these Ans.
That the seller has title to goods Question No. 30 Consideration must move at
the desire of--- Options The Promisor The promisee A third party None of them
Ans. The Promisor Question No. 31
34. Which of the following sentence is a valid promissory note--- Options I
promise to pay Mohan or order Rs. 1,000. I promise to pay Hari Rs. 2,000 worth
of shares.. I promise to pay Naraynan in East India Bonds I promise to pay
Rakesh Rs. 5,000 and to deliver 50 kg of sugar. Ans. I promise to pay Mohan or
order Rs. 1,000. Question No. 32 A stipulation collateral to the main purpose of
the contract, is called a--- Options Condition Warranty Guarantee None of these
Ans. Warranty Question No. 33 A person who receives a negotiable instrument
for consideration, before maturity, and in good faith, is c Options
35. Holder for value Holder Holder in due course None of these Ans. Holder in
due course Question No. 34 A director must vacate his office if he fails to obtain
qualification shares within--- Options 1 week two weeks One month two months
Ans. Two months Question No. 35 A private company has at least--- Options 7
members 3 members
36. 3 directors 2 Members Ans. 2 Members Question No. 36 A cheque payable to
order may be negotiated--- Options by delivery By endorsement By endorsement
& delivery None of these Ans. By endorsement & delivery Question No. 37 Which
of the following endorsements is invalid--- Options Restrictive endorsement
Conditional endorsement Special endorsement Partial endorsement Ans.
Restrictive endorsement
37. Question No. 38 When a cheque bears across its face an addition of the
words & between two parallel transverse lines, Options Special crossing
Restrictive crossing General crossing Double crossing Ans. Special Crossing
Question No. 39 Which of the following is a mode of discharge of contract--Options By impossibility of performance By lapsse of time By breach of contract
All of the above Ans. By Breach of Contract Question No. 40

38. Which of the following rights are available to a finder of goods--- Options
Right of lien Right to file a suit for reward Right of sale of goods All of these Ans.
Right of Lien