Professional Documents
Culture Documents
Subject: Business Laws: Assignment A
Subject: Business Laws: Assignment A
Assignment A
Attempt any three:
Question1: The fundamental attribute of corporate personality is
that company is a legal entity distinct from the members. Elucidate
the statement. Also specify the important features of a company.
Answer: 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.
3. 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.
7. 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,
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
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 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.
(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.
Question4: What are the characteristics of negotiable instrument?
Discuss the privileges of holder in due course as per the provision of
the Negotiable Instrument Act.
Answer: A Negotiable instrument means a promissory note, bill of exchange
or cheque either to order or bearer." Justice K. C. Wills defines negotiable
instrument as "ONE THE PROPERTY IN WHICH IS ACQUIRED BY ANY ONE
WHO TAKES IT BONAFIED FOR VALUE, NOT WITHSTANDING ANY DEFECT OF
TITLE IN THE PERSON FROM WHOM HE TOOK IT". Transferability A Negotiable
instrument as a document of title to money is transferable either by the
application of the law or by the custom of the trade concerned. Special
feature of N.I The special feature of such an instrument is the privilege it
confers to the person who receives it bonafide and for value, to possess good
title thereto, even if the transferor has no title or had defective title to the
instrument.
Distinctive
features
of
Negotiable
Instruments
Easily
transferable from one person to another - Confers absolute and good title on
the transferee - The holder of a Negotiable Instrument (P.N./B.E./Cheque) is
called as the holder in due course and possesses the right to sue upon the
instrument in his own name. Types of Negotiable Instruments Negotiable
instruments by Statue are of three types, cheques, bills of exchange and
Promissory
In
MICR
(Magnetic
Ink
Character
Recognition)
cheques: First six number indicate the cheque number Next three numbers
indicate city code Next three numbers indicate Bank code Next three
numbers indicate Branch code
(5)
order or to bearer as per the provision of Section 13 of the Act. For example
if a cheque is drawn with the expression " Pay to Ram Lal" it indicates that it
can be paid to Ram Lal or any person as per his order. But if it is written pay
to 'Ram Lal' only it must be paid to Ram Lal only. A bill of exchange and
cheque are payable to bearer if it is expressed to be so payable or if the only
or the last endorsement is an endorsement in blank. (6) Payee must be a
certain person: The term 'person' includes besides individuals, bodies
corporate, local authorities, Co-operative Societies, etc. and it also includes
Registrar, Principal, director, Secretary, etc. of those institutions. Payee may
be more than one person (7)
on demand, though words to this effect are not mentioned therein. A bill may
A promissory
Stamping of
promissory notes and bill of exchange is necessary. The Indian Stamp Act
1899 requires that the promissory note and the bill of exchange except
cheques to be stamped. (11) Currency note: The currency note is a
promissory note payable to bearer on demand. Section 21 of RBI Act
prohibits creation of this type of promissory notes by others excepting the
Reserve Bank of India. Holder and holder in due-course A negotiable
instrument is transferable from person to person. The Negotiable Instrument
Act confers upon the person who acquires it bonafide and for value, the
RIGHT TO POSSESS good title to the instrument. such a person is called
HOLDER IN DUE COURSE. Each and every person in possession of a cheque
or bill cannot be its holder in due course and cannot claim statutory
protection available under the Act. In terms of Section 8, "The Holder of a
Promissory Note, Bill of Exchange or cheque means any person entitled in his
own name to the possession thereof and to receive and recover the amount
due thereon from the parties thereto." Two fold entitlements He must be
entitled to the possession of the instrument in his own name and under legal
title. Actual possession of the instrument is not essential; the holder must
have legal right to possess the instrument in his own name. He must have
lawfully derived the title as an endorsee or payee. He must be entitled to
receive or recover the amount from the parties concerned in his own name.
In case of order instruments, the name of the person must appear as its
endorse or payee. Bearer/Order instrument In case of a bearer instrument,
the bearer may claim the money without having his name mentioned on the
in due course has rights thereon of that of a holder in due course. (2) Every
prior party to negotiable instrument, i.e, maker or drawer, acceptor or
endorser is liable thereon to a holder in due course until the instrument is
duly satisfied. (Section 36). (3) If a negotiable instrument was originally
inchoate (i.e. incomplete) instrument and a subsequent transfer completed
the instrument for a sum greater than what was the intention of the maker,
the right of a holder in due course to recover the money of the instrument is
not affected at all. (4) Right in case of fictitious instrument is unaffected.
(5) Right in case the instrument was obtained by unlawful means or for
unlawful consideration is unaffected. (6) Estoppel against denying original
validity of the instrument. (7) Estoppel against denying capacity of payee to
endorsee. (8) Estoppel against denying signature or capacity of prior party.
Payment in due course Section 10 defines payment in due course as
Payment in due course means payment in accordance with the apparent
tenor of the instrument in good faith and without negligence to any person in
possession thereof under circumstances which do not afford a reasonable
ground for believing that he is not entitled to receive payment of amount
mentioned therein. The other important provisions relating to payment in
due course are the following. i. The payment should be made in accordance
with the apparent tenor of the instrument i.e. according to the true intentions
of the parties. ii. The payment should be made in good faith and without
negligence. iii. The payment should be made to the person in possession of
the instrument in circumstances, which do not arouse suspicion about his
title to possess the instrument and to receive payment thereof.
5.
(i)
Here
cases
involve
compensation
above
one
crore
are
months of filing it. If the complaint needs laboratory testing, the period is
extended to five months.
4. In Consumer Protection Act, clause VI defines the rights of the consumer
which have been already discussed in the previous chapter.
5. There is no fee for lodging a complaint. Even poor people can get justice.
6. The clause II of this Act has defined some terms used by Consumer
Protection Act like:
I. Defect-it is any fault or shortcoming in quality, quantity, purity, potency, or
standard fixed by the government.
II. Deficiency-it is any fault, shortcoming or imperfection in quality or
performance.
III. Unfair Trade Practice-it is unfair and deceptive procedure used to promote
sale or supply of goods and services like lottery, chit fund, conducting
competitions, etc.
IV. Restricted trade practices.
(ii)
Unfair Trade Practice and Restrictive Trade Practice
According to the provisions of the Consumer Protection Act, 1986 unfair
trade practice means a trade practice which, for the purpose of promoting
the sale, use or supply of any goods or for the provision of any service,
adopts any unfair method or unfair or deceptive practice including the
Assignment B
Read the case study given below and answer the questions given at
the end
Case Study
tender, another person approached the High Court and got an order
restraining the Transport Corporation from proceeding further with
the tender. Following the order, the A.P. State Road Transport
Corporation opened the tender box at 3 p.m. and found six sealed
covers. In view of the directions of the High Court, the covers were
again placed back in the tender box without opening the seals. The
signature of the tenderers and their agents was taken to this
effect .The tenders were not opened to find out the highest bidder.
Aditya Mass Communication Private Limited wrote a letter on
November 11, 1996 stating that no reasons were given to him for
non-opening of the tenders and that he could not keep the huge
amount of Rs 20 lakhs locked in with all the uncertainty associated
with the tender. It, thus, requested for return of the Earnest Money
Deposit. A.P. State Road Transport Corporation replied on November
14, 1996 that the Aditya Mass communication had signed on the
note recording the proceedings of opening the tender box and
putting back sealed covers. Thus, it could not put up the argument
that no reasons for non-opening of the tender was given on it. The
letter notified that the tenders would be opened on November 16,
1996 at 11:30 hrs. Aditya Mass Communication once again wrote a
letter on November 15, 1996 that the question of their participation
in the opening of tenders did not arise as they asked for the return
of E.M.D. The A.P. State Road Transport Corporation went ahead
with the opening of the tender, found Aditya Mass Communication
to be the highest bidder and awarded the tender to it. Aditya Mass
Communication was informed of this but it demanded refund of
Earnest Money Deposit. The A.P. State Road Transport Corporation
following the terms of tender forfeited the earnest money deposit of
Aditya Mass Communication.
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---
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
If the goods have perished, the contract of sale of such specific goods, will beco
Options
voidable
void
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
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
When, before the contract becomes due for performance, the promisor declar
performing his promise, it is called--Options
Remission
Waiver
Alteration
Anticipatory breach
Ans. Remission
Question No. 11
A bailment cannot be made about--Options
Car
Furniture
Money
Television
Ans. Money
Question No. 12
The damages which arise in the usual course of things happening from the b
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,
Options
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
Raw Materials
Movable goods
Ownership
Immovable property
Ans. Immovable property
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--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
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 value
amount of cash worth Rs. 5,000 to Ganesh. 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
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
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
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
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 director must vacate his office if he fails to obtain qualification shares withinOptions
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
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
Question No. 38
When a cheque bears across its face an addition of the words & between t
lines, it is called--Options
Special crossing
Restrictive crossing
General crossing
Double 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
4.
2. Title
The transferee of a negotiable instrument is known as holder in due course. A bon
is not affected by any defect of title on the part of the transferor or of any of the p
instrument. This is the main distinction between a negotiable instrument and othe
transfer. The general rule of nemo dat quod non habet does not apply to negotiabl
3. Rights
The transferee of the negotiable instrument can sue in his own name, in case of di
A negotiable instrument can be transferred any number of times till it is at maturit
instrument need not give notice of transfer to the party liable on the instrument to
4. Presumptions
Certain presumptions apply to all negotiable instruments e.g. a presumption that c
paid under it.
5. Prompt Payment
A negotiable instrument enables the holder to expect prompt payment because a
of the credit of all persons who are parties to the instrument.
2. He must have become a holder (passessor) before the date of maturity of the ne
Therefore, a person who takes a bill or promissory note on the day on which it bec
claim rights of a holder in due course because he takes it after it becomes payable
be discharged at any time on that day.
3. He must have become holder of the negotiable instrument in good faith. Good f
should not have accepted the negotiable instrument after knowing about any defe
instrument. But, notice of defect in the title received subsequent to the acquisition
the rights of a holder in due course. Besides good faith, the Indian Law also require
part of the holder before he acquires title of the negotiable instrument. He should
without any negligence on his part.
Reasonable care and due caution will be the proper test of his bona fides. It will no
the holder acquired the instrument honestly, if in fact, he was negligent or careles
sufficient indications showing the existence of a defect in the title of the transferor
become a holder in due course even though he might have taken the instrument w
knowledge.
Example:
(i) A bill made out by pasting together pieces of a tom bill taken without enquiry w
holder in due . It was sufficient to show the intention to cancel the bill. A bill should
enquiry if suspicion has been aroused.
(ii) A post-dated cheque is not irregular. It will not preclude a bonafide purchase in
the rights of a holder in due course. It is to be noted that it is the notice of the defe
immediate transferor which deprives a person from claiming the right of a holder i
defect in the title of any prior party does not affect the title of the holder.
4.A holder in due course must take the negotiable instrument complete and regula
Purpose of Amendment
o These provisions were incorporated with a view to encourage the culture of use
enhancing the credibility of the instrument.
o The larger objective is to protect the interest of honest people dealing in chequ
o DRAWER BEWARE, Because, by the said amendment the DISHONOURED CHEQU
CRIMINAL OFFENCE.