Notes

Basic Indian Legal Structure & Understanding:
 Law is a set of rules a person is required to follow. Violation of law attracts sanction,
whether in form of financial penalty or imprisonment of both. Law without sanction
will be practically meaningless.
 There are broadly two types of legal systems across the world: Civil Law and
Common Law.
 Countries like France, Greece follows civil law whereas Common law system is more
widely followed across the globe. India follows common law system.
 Civil law is highly codified and rigid and there is no scope for judge made laws.
Common law is more progressive, previous judgment is binding for future matters
Some examples of judge made laws are environmental laws, prohibition of sexual
harassment at workplace etc.
 Indian law is predominantly derived out of British system. For some personal matters
in states like Goa, Pondicherry there is influence of Portugal and French legal system.
 Initially India followed jury system. In a jury system, the facts is determined by the
jury being selected from general public. Once the facts is decided by the Jury, the
Judge applies the law. Nanavati’s case (Rustom movie is based on Nanavati), exposed
the inherent weakness of jury system as jury being from general public gets swayed
by public opinion. Hence, jury system was abolished after Nanavati.
 In India there is no uniform civil code i.e for personal matters like marriage,
inheritance, divorce, personal laws of each religion is followed, whether codified or
customary. For eg: Hindus have Hindu Marriage Act, Muslims follows muslim laws
etc. Goa however is the only state with uniform civil code.
 In Goa, all matrimonial assets are divided 50/50 between husband and wife in case of
divorce, ante-nuptial agreements (post marriage agreements for distribution of assets
in case of divorce) are valid, children cannot be disinherited, no polygamy is allowed
for muslims, etc.
 The broad structure of Indian Judicial system is as under:
Supreme Court
High Courts
Appellate Bodies (if applicable)
Tribunals
District Courts
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Business Laws: Fore School of Management
 In addition to the above, the law allows arbitration in case of commercial matters.
Arbitrator is basically a person agreed between parties to determine the issues. An
arbitration is not bogged down by procedure or technicalities. It is more informal and
faster. The arbitrator passes and an award, which unless set aside or not challenged is
enforced as a decree/order passed by Courts.
 In India Constitution is supreme. Laws promulgated by legislature needs to conform

to Constitution. If the same is not in conformity, the same is declared ultra vires.
 Under the Constitution, there are 3 lists, Union list, State list and Concurrent List. For
matters under Union list, only the Central Government can legislate, for State list, the
State government. For concurrent list, both Centre and State can legislate, but where
there is a central law, it will override the state law.
 The Constitution is very progressive and allows amendment. Only certain key features
(basic structure) cannot be amended by the Parliament.
 Law are enacted by the legislature and in case of emergency, an Ordinance can be
promulgated, which needs to be ratified by the legislature within 6 months or else it
lapses.
 Constitution guarantees certain fundamental rights Fundamental rights to citizens and

persons (in certain cases).
 The Judge applies the law, interprets the same. For interpretation, the intent of the
legislature behind the enactment is applied. Hence, words in an enactment needs to be
carefully used. Even a punctuation is of relevance in certain cases.
 Hierarchy of laws:
Constitution is supreme (it is not a law, it is cornerstone against which the validity of
any law is decided. It is followed by law laid down by the legislature (Parliament or
assembly, as the case may be). Most laws provides for rule making powers by
executive. Such rules are subordinate to the main Act. At the last rung is the
agreement between the parties to determine issues vis-a-vis determination of rights
between parties.
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Contract Act:
 All Contracts are agreements but all agreements are not necessarily contracts.
 First and foremost, there has to be an intention to enter into a legal relationship.
Case Law: Balfour vs Balfour
• Mr. Balfour was based overseas. Mr. Balfour and his wife went to England for
a vacation, and his wife became ill and needed medical attention. Mr. Balfour
agreed that Mrs. Balfour was to remain behind in England and he would pay
her £30 a month until he returned from Sri Lanka. This understanding was
made while their relationship was fine; however the relationship later soured.
Mr. Balfour stopped paying money to Mrs Balfour as promised. She sued Mr.
Balfour for breach of contract.
• It was held by the Court that promises in spousal (or for that matter, family)
roles aren't legally binding. The reasoning was arrangements made between
husband and wife are not generally contracts as the parties do not intend to be
legally bound by the agreements.
 All agreements are contracts if they are made by the free consent of parties competent
to contract, for a lawful consideration and with a lawful object, and are not expressly
declared to be void. Contracts may be written or oral.
 There are certain ingredients of a valid and enforceable contract: There should be (a)
atleast 2 parties, (b) who should be competent to enter into the contract (for eg.
minors, people of unsound mind are not competent to enter into contract) (see Mohiri
Bibi Case below). There should be an offer and acceptance (whether actual or
implied, silence is not acceptance), (see Felthouse case below) (d) a valid
consideration (whether money or money’s worth), (e) an intention to create legal
relationship, (see Balfour case above) (f) the consent should be free (no coercion or
undue influence or fraud), (g) the object should be lawful, (h) the contract should not
be void, there should be certainly of performance and (i) where law requires, legal
formalities to be complied, the same should be done (eg. : registration laws for
sale/purchase of immovable property).
Case Law: Felthouse v Bindley
 The complainant, Paul Felthouse, had a conversation with his nephew, John
Felthouse, about buying his horse. After their discussion, the uncle replied by
letter stating that if he didn’t hear anymore from his nephew concerning the
horse, he would consider acceptance of the order done and he would own the
horse. His nephew did not reply to this letter and was busy at auctions. The
auctioneer, Mr Bindley, ran the auctions and the nephew advised him not to
sell the horse. However, by accident Mr. Bindley ended up selling the horse to
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someone else. Paul Felthouse sued Mr. Bindley on the ground that the horse
was already sold to him by his nephew as he did not respond to his letter and
hence, Mr. Bindley could not have sold it in the auction. The moot question
was whether silence (no reply to the letter) or a failure to reject the offer of
Paul felthouse by John Felthouse amounted to acceptance?
• It was held that there was no contract for the horse between the complainant,
Paul Felthouse and his nephew, John Felthouse. There had not been any
acceptance of the offer; silence did not amount to acceptance and an obligation
cannot be imposed by another. Any acceptance of an offer must be
communicated clearly.
Case Law: Mohiri Bibee v. Dharmodas Ghosh
• A moneylender advanced money/loan to a minor, fully knowing his

incompetency to contract, against mortgage of property belonging to the
minor. The minor brought an action against the money lender on the ground
that he was a minor when the mortgage was executed by him and, therefore,
mortgage was void and inoperative and the same should be cancelled. The
money lender, amongst other points, contended that, if mortgage is cancelled
as requested by the minor, the minor should be asked to repay the money
advanced to him.
• As per Sec. 11 of Contract Act, a Minor cannot enter into a valid contract. The
court held that agreements by minor are void ab initio (void from beginning).
Since minor was incompetent to make such mortgage, the mortgage cannot be
enforced. Further since the contract was void ab-initio, he cannot be forced to
give back the amount of money that was advanced to him.
[Notes: Contracts entered into by minors cannot be enforced against them, however
the minor can enforce a contract.]
 Contracts may be express or implied, oral or in writing and can classified under
various types: void, voidable, illegal.
a. Void Agreement: An agreement, which lacks legal enforceability is void

agreement. It is not prohibited under Indian Penal Code Parties to void agreement
are not liable for any penalty under law. Scope is wider as compared to illegal
agreements. Example: agreement in restraint of marriage, agreement in restraint of
trade, agreement in restraint of legal proceeding, etc.
b. Voidable Contracts: voidable contract, unlike a void contract, is a valid contract

which may be either affirmed or rejected at the option of one of the parties. At
most, one party to the contract is bound. The unbound party may repudiate (reject)
the contract, at which time the contract becomes void. Typical grounds for a
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contract being voidable include coercion, undue influence, misrepresentation or
fraud.
c. Illegal Agreements: An agreement whose creation is forbidden by the court of law

is an illegal agreement. An illegal agreement is unenforceable from the very
beginning. Parties to illegal agreement are penalized. Example: an agreement to
kill someone, etc.
 Additionally there may quasi contracts i.e. a transaction in which even though there is
no contract between the parties; an obligation created by law for the sake of justice so
as to ensure one party is not unjustly enriched. It’s not a contract, but instead is a
remedy that allows plaintiff to recover a benefit conferred on the defendant. The
characteristic feature of a quasi-contract is the absence of a contract or a mutual
consent between the parties. For eg: if an amazon agent wrongly delivers a good to a
person who has not ordered, his family takes the goods and uses the same, he is bound
to pay amazon even though he did not order the product.
 Offer and Acceptance is a key element to a contract.
 Offer: An offer is an expression of a person showing his willingness to another

person to do or not to do something, to obtain his consent on such expression.
The acceptance of the offer by such person may result in a valid contract. An
offer must be definite, certain and complete in all respects. It must be
communicated to the party to whom it is made. The offer is legally binding on
the parties. There are following types of offer:
a. General offer: The type of offer which is made to the public at large.
b. Specific offer: The type of offer made to a particular person.
c. Cross offer: When the parties to the contract accept each other’s offer
in ignorance of the original offer, it is known as the cross offer.
d. Counter offer: This is an another type of offer in which the offeree
does not accept the original offer, but after modifying the terms and
conditions accept it, it is termed as a counter offer.
e. Standing offer: An offer which is made to public as a whole as well as
it remains open for a specific period for acceptance it is known as
Standing offer
2. Example:
a. A tells to B,”I want to sell my motorcycle to you at Rs. 30,000, Will you
purchase it?”
b. X says to Y,”I want to purchase your car for Rs. 2,00,000, Will you sell it to
me?”
INVITATION TO OFFER :
 is an act before an offer, in which one person induces another person to make an
offer to him, it is known as invitation to offer. When appropriately responded by the
other party, an invitation to offer results in an offer. It is made to the general public
with intent to receive offers and negotiate the terms on which the contract is created.
 The invitation to offer is made to inform the public, the terms and conditions on
which a person is interested in entering into a contract with the other party. Although
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the former party is not an offeror as he is not making an offer instead, he is
stimulating people to offer him. Therefore, the acceptance does not amount to a
contract, but an offer. When the former party accepts, the offer made by the other
parties, it becomes a contract, which is binding on the parties.
 Example:
 Menu card of a restaurant showing the prices of food items.
 Railway timetable on which the train timings and fares are shown.
 Government Tender
 A Company invites application from public to subscribe for its shares.
 Recruitment advertisement inviting application.
A contract is discharged by (a) performance or (b) breach/anticipatory breach or (c)

impossibility of performance or (d) by a new agreement & novation or (e) by lapse of time or
(f) by operation of law
a) By Performance : When parties fulfil their obligations and promises under a
contract the contract is said to have been performed and discharged.
Performance should be complete and according to the real intentions of the
agreement. Offer of performance shall have the same effect as performance. A
party to a contract shall become free from all obligations if it had offered to
perform his part of the promise but it was not accepted by the other party.
b) By Breach : Breach means failure of a party to perform his or her obligation
under a contract Breach of contract may arise in two ways.
 Actual Breach : Actual breach means breach committed either; (i) at
the time when the performance of the contract is due; or (ii) during the
performance of the contract.
 Example: (i) agrees to supply to B on the 1st February, 1975,
1000 bags of sugar. On 1st February, 1975 he fails to supply.
This is actual breach of contract at the time when the
performance is due. The breach has been committed by A.
 Anticipatory Breach : Breach of a contract committed before the date
of performance of the contract is called anticipatory breach of contract.
(Sec. 39). The contract in this case is repudiated before the time fixed
for its performance arrives and is so discharged
 Example : A agrees to marry B. But before the date A marries
C. The contract has been repudiated by A by his conduct before
the due date of its performance.
 Anticipatory breach of contract does not give rise to a right of
action unless the promisee elects to treat it as equivalent to
actual breach.
c) By Impossibility of performance : Section 56 of the Indian Contract Act lays
down: “An agreement to do an impossible act is void ”. A contract to do an
act, which after the contract is made, becomes impossible, or by reason of
some event which the promisor could not prevent, becomes void when the act
becomes impossible or unlawful. This is called “Supervening Impossibility”,
i.e. impossibility arising subsequent to the formation of the contract.
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d) By New Agreement or Novation : Substitution of a new contract in place of
the old existing one, this is known as ‘Novation’. New contract may be either
between the same parties or between different parties
 Eg : A owes money to B under a contract. It is agreed between A, B
and C that B shall henceforth accept C as his debtor, instead of A. The
old debt of A to B is at an end and a new debt from C to B has been
contracted.
e) By lapse of time : Every contract must be performed either within the period
fixed or within a reasonable time of the contract. Lapse of time may discharge
the contract by barring the right to bring an action to enforce the contract
under the Limitation Act.
Remedies for breach of contract :

In the case of breach of contract on the part of one party, the aggrieved or injured party has
the following remedies available:-
1. Rescission of the contract -- means the setting aside of the contract. The aggrieved party
may be allowed by the court of treat the contract at an end and thereby, terminate all his
liabilities under the contract.
2. Damages -- mean monetary compensation payable by the defaulting party to the
aggrieved party in the event of the breach of a contract. The object of providing damages is to
put the aggrieved party in the same position, so far as money can do, in which he would have
been, had the contract been performed.
1. Types of damages :
i. Ordinary Damages : Damages which arise in the ordinary course of events
from the breach of contract. These damages constitute the direct loss suffered
by the aggrieved party.
ii. Special Damages : result from the breach of the contract under special
circumstances. They constitute the indirect loss suffered by the aggrieved
party on account of breach of the contract.
iii. Exemplary/Vindictive Damages : hey are quite heavy in amount and are
awarded only in two cases: Breach of contract to marry, or , dishonour of
customer’s cheque by the bank without proper reason.
iv. Nominal Damages : These damages are quite small in amount.
v. Liquidated and Unliquidated damages :
Liquidated damages Un-liquidated damages

 are a pre-agreed amount of money that is  are damages that are payable for a breach,
set out in advance in the contract, that the exact amount of which has not been
fixes the sum payable as damages if pre-agreed. The sum to be paid as
the contractor breaches the contract - compensation is said to be ‘at large’ and
typically by failing to complete is determined after the breach occurs by a
the construction works by the completion court
date set out in the contract.
 The advantage of unliquidated damages is
 One of the advantages of a liquidated
that it allows for recovery of losses which
damages is that there is no need to prove
may have been impossible to foresee or
the actual loss since the clause provides a
to estimate with any certainty before
pre-estimation of the damages to be paid.
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In addition to helping recover damages, the breach.
this helps to provide certainty to the
parties.
Mitigation of Damage
The principle of Mitigation of Damage can be traced from Halsbury's Laws of England which
runs thus –
 " Plaintiff's duty to mitigate loss. The plaintiff must take all reasonable steps to
mitigate the loss which he has sustained consequent upon the defendant's wrong, and,
if he fails to do so, he cannot claim damages for any such loss which he ought
reasonably to have avoided."
 'Standard of conduct required of the plaintiff: "The plaintiff is only required to act
reasonably, and whether he has done so is a question of fact in the circumstances of
each particular case, and not a question of law. He must act not only in his own
interests but also in the interests of the defendant and keep down the damages, so
far as it is reasonable and proper, by acting reasonably in the matter. In cases of
breach of contract the plaintiff is under no obligation to do anything other than in the
ordinary course of business, and where he has been placed in a position of
embarrassment the measures which he may be driven to adopt in order to extricate
himself ought not to be weighed in nice scales at the instance of the defendant whose
breach of contract has occasioned the difficulty. The plaintiff is under no obligation
to destroy his own property, or to injure himself or his commercial reputation, to
reduce the damages payable by the defendant. Furthermore, the plaintiff need not
take steps which would injure innocent persons."
 The general principles deducible from the above stated Principle are:
 As far as possible a party who has proved a breach of the contract, is to be placed,
as far as money can do it, in as good a situation as if the contract had been
performed.
 A statutory duty is cast on the plaintiff who has proved the breach of the contract
of taking all reasonable steps to mitigate the loss consequent on the breach of the
contract.
 If the plaintiff, who proves the breach of the contract but fails to prove that he
took all reasonable steps to mitigate the loss consequent to the breach of the
contract, he will be debarred from claiming damages to the extent he could have
mitigated the same by taking such steps.
 Case Laws
In M/s. Murlidhar Chiranjilal vs. M/s. Harishchandra Dwarkadas & Anr 7, the
Supreme Court examined the scope of Section 73 of the Indian Contract Act and
observed, "The two principles on which damages in such cases are calculated are
well settled. The first is that, as far as possible, he who has proved a breach of a
bargain to supply what he contracted to get is to be placed, as far as money can
do it, in as good a situation as if the contract had been performed; but this
principle is qualified by a second, which imposes on a plaintiff the duty of taking
all reasonable steps to mitigate the loss consequent on the breach and debars
him from claiming any part of the damage which is due to his neglect to take such
steps".
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Conclusion : Mitigation of damage doesn't give any right to the party in breach of contract,
but it is applied by Courts while awarding damages. Also, reasonable steps to mitigate the
loss should be taken by plaintiff otherwise he cannot claim the amount of loss which he could
mitigate.
Rules regarding determination of Damages (Sec. 73)

 Case Law : Hadley v. Baxendale
The claimant, Hadley, owned a mill featuring a broken crankshaft. The claimant
engaged Baxendale, the defendant, to transport the crankshaft to the location at which
it would be repaired and then subsequently transport it back. The defendant then
made an error causing the crankshaft to be returned to the claimant a week later than
agreed, during which time the claimant’s mill was out of operation. The claimant
contended that the defendant had displayed professional negligence and attempted to
claim for the loss of profit resultant from the unexpected week-long closure. The
defendant retorted that such an action was unreasonable as he had not known that the
delayed return of the crankshaft would necessitate the mill’s closure and thus that the
loss of profit failed to satisfy the test of remoteness
o Decision : A non-breaching party to a contract may recover damages
which are reasonably foreseeable to the parties at the time of contract
formation. The non-breaching party may also recover damages stemming
from special circumstances which were communicated to all known parties
at formation.
As Baxendale had not reasonably foreseen the consequences of delay and
Hadley had not informed him of them, he was not liable for the mill’s lost
profits
3. Quantum meruit -- mean “as much as merited” or “as much as earned”. It is principle
which provides for payment of compensation under certain circumstances, to a person who
has rendered goods or services to another person under a contract which could not or has not
been fully performed.
4. Specific Performance -- means the actual carrying out by the parties to contract, and in
proper cases the court will insist on the parties carrying out their agreement.
 Specific performance of agreement will not be granted in the following cases:- Where
the agreement has been made without consideration. ; or Where the court cannot
supervise the execution of the contract e.g. a building contract ; or Where the contract
is of a personal nature ; or Where one of the parties is a minor.
Case Law : DDA v. Kailash Nath & Associates
 On January, 1982 DDA was conducting public auction of commercial plots at
Delhi, in which Kailash Nath & Associates made the highest bid pertaining to Plot
in New Delhi in sum of `3.12 crores. Kailash Nath & Associates had to pay 25%
of the bid amount towards earnest money and therefore they had deposited 78
lakhs. Though Kailash Nath requested DDA to extend time to to deposit the
remaining 75% amount, request considered time extended. Again they requested
for further time extension, DDA again extended the time but didn’t apprise
Kailash Nath about time extension. In 1987 DDA apprise other bidders that the
land was Nazul Land so Central Govt. will take decision though Central Govt.
Informed DDA that land was not Nazul Land and DDA has authority to take
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decision. After this respondent got to know DDA was intending to cancel the bid,
due to which they filed a W.P which was dismissed by the H.C. After this DDA
cancelled their bid. Therefore Kaliash Nath filed a suit praying for a decree of
specific performance, contending that without notifying the extension of time
DDA cant forfeit the earnest money and cancel the bid.
 Held:- DDA could not without notifying a time for making payment cancel the
bid and forfeit the earnest money, which action has been held to be unreasonable.
The decision of the learned Single Judge concludes by decreeing the suit in sum of
`78 lakhs i.e. the earnest money paid by M/s.Kailash Nath & Associates to DDA
together with interest @ 9% p.a.
5. Injunction-- Where a contract is of a negative character, i.e., a party has promised not to
do come thing and he does it, and thereby commits a breach of the contract, the aggrieved
party may under certain circumstances, seek the protection of the court and obtain an
injunction forbidding the party from committing breach. An injunction is an order of the
court instructing a person to refrain from doing some act which has been the subject matter of
a contract, Courts, at their discretion, may grant a temporary or a perpetual injunction for an
indefinite period.
 For example: A agreed to sing at B’s theatre and to sing nowhere else for a certain
period. Afterwards A made a contract with E to sing at E’s theatre and refused to sing
at B’s theatre. The court refused to order specific performance as the contract was of a
personal nature but granted an injunction to restrain the breach of A’s promise not to
sing elsewhere.
Special Contracts
Types of Special Contracts :
 INDEMNITY : when one party promises to compensate the loss occurred to the other
party, due to the act of the promisor or any other party.
1. the party who gives indemnity or who promises to compensate for or to make
good the loss, is called Indemnifier and the party for whose protection or safety
the indemnity is given or the party whose loss is made good is called
‘Indemnified’ or ‘indemnity holder’.
2. Case Law : Gajanan Moreshwar v. Moreshwar Madan
i.
ii. Section 124 deals only with one particular kind of indemnity in which the
loss is caused by the conduct of the indemnifier himself or of other
person, but does not cover the cases outside this or cases when liability
arises because of something done by the indemnified at the request of the
indemnifier. S. 124 talks about subsequent conduct but here the liabilities
were past, i.e. prior to the date when the contract was actually entered into
force. Earlier to this contract, all the acts were done merely on request and
without any consideration and hence, were not binding. Therefore s.124 is
inapplicable here.
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 GUARANTEE : is when a person assures the other party that he/she will perform the
promise or fulfil the obligation of the third party, in case he/she default.
1. The person who gives the guarantee is called the ‘Surety’ or ‘guarantor’ & the
person in respect of whose default the guarantee is given is called the principal
debtor or he is the party on whose behalf. Guarantee is given and the person to
whom the guarantee is given is called the ‘Creditor’.
Contract of Indemnity Contract of Guarantee

It refers to a Contract by which one It refers to a Contract to perform the promise or
party promises to save the other discharge the liability of a third person in case of his
from loss caused by conduct of the default.
promisor or another person.
In contract of indemnity, the In contract of guarantee, the primary liability is of
liability of the promisor is primary. principal debtor and the liability of surety is secondary.
Contract between the indemnifier Contract between surety and principal debtor is
and the indemnity holder is express implied and between creditor and principal debtor is
and specific. express.
In contract of indemnity there are In contract of guarantee there are three parties i.e.--
two parties-- indemnifier and the creditor, the principal debtor and surety.
indemnity holder.
In Contract of indemnity there is In contract of guarantee there are three agreements i.e.
only one agreement i.e. the agreement between the creditor and principal debtor,
agreement between indemnifier the creditor and surety and surety and principal debtor.
and indemnity holder.
Contract of indemnity protects the Contract of guarantee is for the surety of the creditor.
promise from loss.
In Contract if indemnity, the In contract of guarantee, the surety does not require
promisor cannot file the suit any relinquishment for filing of suit. The surety gets
against third person until and the right to file suit against the principal debtor as and
unless the promisee relinquishes when the surety pays the debt.
his right in favour of the promisor.
 BAILMENT : Sec. 148 defines Bailment as” the delivery 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 delivering them”.
1. The person delivering the goods is called the ‘bailor’ and the person the person to
whom they are delivered is called the ‘bailee’.
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 Agreement -- There must be an agreement between the bailor and the bailee. This
agreement may be either express or implied. However, a bailment may be implied by
law also. For example, bailment between a finder of goods and owner of goods.
 Delivery of Goods -- There must be delivery of goods. It means that the possession of
goods must be transferred. In this this connection,
 Purpose-- The delivery of goods must be for some intended purpose. For example,
wrong delivery of goods to Jaipur Golden Roadways instead of Patel Roadways, does
not create any bailment.
 Return of specific Goods -- The goods which form the subject matter of a bailment
must be returned to the bailor or otherwise disposed off according to the directions of
the bailor, after the accomplishment of purpose or after the expiry of period of the
bailment.
Kinds/types of Bailment
 On the basis of reward :

o Gratuitous Bailment--It is a contract of bailment where no consideration
passes between the bailor and the bailee.
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o Non-gratuitous Bailment -- It is a contract of bailment where some
consideration passes between the bailor and the bailee.
 On the basis of benefit :
o Bailment for the exclusive benefit of the bailor -- It is a contract of bailment
which is executed only for the benefit of the bailor and the bailee does not
derive any benefit from it.
o Bailment for the exclusive benefit of the bailee -- It is a contract of bailment
which is executed only for the benefit of the bailee and the bailor does not
derive any benefit from it.
o Bailment for the mutual benefit -- It is a contract of bailment which is
executed for the mutual benefit of bailor and bailee.
4) PLEDGE : As per Sec 172, the bailment of goods as security for payment of a debt or
performance of a premise is called pledge (or pawn).
 Pledger -- The person who delivers the goods as security for payment of a debt
or performance of promise.
 Pledgee -- The person to whom the goods are delivered as security for
payment of a debt or performance of promise
 Duties of Pledgee :
o Duty to take reasonable care of the goods pledged
o Duty not to make unauthorized use of goods
o Duty not to mix pawnor’s goods with his own goods
o Duty to return goods
o Duty to return accretion to the goods
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Sale of Goods Act
Originally, the transactions related to sale and purchase of goods was regulated by Chapter
VII (Sections 76 to 123) of Indian Contract Act, 1872 – which was broadly based on English
common law. A need was felt to overhaul the law due to rapid growth of mercantile
transactions and various progressive English judgments being passed to meet the needs of the
community. Thus, the provisions of Chapter VII were repealed, suitably amended keeping in
mind the English Sales of Goods, 1893 and recent judicial decisions of the time. A separate
act, the Sale of Goods Act came into force on 1st July 1930.
Section 4 of the Sales of Goods Act, 1930 : defines a sale of goods as a “contract of sale
whereby the seller transfers or agrees to transfer the property in goods to the buyer for price”.
The term ‘contract of sale’ includes both a sale and an agreement to sell.
 A contract of sale is made by an offer to buy or sell goods for a price and the
acceptance of such offer by the other party. The contract may be oral or in writing. A
contract of sale may be absolute or conditional.
 Essentials of contract of Sale :

o 2 parties
 ‘Buyer’ means a person who buys or agrees to buy goods
 ‘Seller’ means a person who sells or agrees to sell goods
o Subject matter to be goods
 ‘Goods’ means every kind of movable property other than
actionable claims and money includes stock and shares,
growing crops, grass and things attached to or forming part of
the land which are agreed to be severed before sale or under
the contract of sale[Section 2(7)]
o Transfer of property of goods
 Property means the general property in goods, and not merely
a special property [Section 2(11)].General property in goods
means ownership of the goods. Special property in goods
means possession of goods.
o Consideration is price
 Price here means the money consideration for a sale of goods
[Section 2(10)].When the consideration is only goods, it
amounts to a ‘barter’ and not sale. When there is no
consideration, it amounts to gift and not sale.
o Essential elements of contract
 In addition to the aforesaid specific essential elements, all the
essential elements of a valid contract as specified under
Section 10 of Indian Contract Act,1872 must also be present
since a contract of sale is a special type of a contract.
Page 15 of 44
[ Note : some essential differences ]
Sale & Agreement to Sell :

Basis of Distinction Sale Agreement to Sell
Contract It is an executed contract. It is an executory contract.

Transfer of property The property in the goods sold passes to The property passes when it
the buyer at the time of contract. It passes becomes sale on the expiry of
immediately. prescribed time or the fulfilment
of certain conditions. It takes
place at a future time or subject to
fulfilment of conditions.
Conveyance of It creates a right in rem – a right to enjoy It creates a right in personam –
property the goods against the whole world right against the seller.
including the seller.
Transfer of risk The transfer of risk takes place There is no transfer of risk of loss
immediately. It is related to ownership of goods as ownership is not
and when ownership is transferred, the transferred. The loss will be borne
risk also passes to the person. If there is by the seller even though the
loss of goods, it will fall on the buyer goods are in possession of the
even though the goods maybe in the buyer.
possession of the seller.
Right of seller in Since the property has passed to the The seller can only sue for
case of breach buyer, the seller can sue the buyer for damages, unless the price was
price of the goods. payable at a particular date.
Right of buyer in He can sue the seller for damages. He can He can sue the seller for damages
case of breach also sue the third party who bought those only.
goods for the goods.
Insolvency of seller He can claim the goods from the Official He cannot claim the goods but
in possession of assignee or Receiver. only a rateable dividend for the
goods money paid.
Insolvency of buyer The seller has to deliver the goods to the The seller can refuse to deliver the
before paying the Official assignee except where he has a goods to the Official Assignee or
price lien over the property. Receiver.
Hire Purchase Agreements

A Hire purchase agreement is an agreement for hire of goods where the person who hires the
goods has an option to purchase the goods at the end. The possession of the goods is
delivered to such a hirer and he has to pay via instalments. The property in the goods passes
to the hirer on the payment of the last instalments. The Hire purchase agreements are treated
as bailment and the parties have the same rights as a bailor and bailee. The hirer has a right to
terminate the agreement at any time before the property passes.
 Test whether an agreement is sale or hire purchase
Page 16 of 44
o Case Law : Lee vs. Butler [1893] – If a person taking the goods has no option
to terminate the agreement, is a contract of sale irrespective of where the price
is paid in instalments.
Basis Sale Hire Purchase Agreement

Meaning Under the contract of sale, if It is an agreement under
the property in the goods is which the owner delivers his
immediately transferred from goods on hire basis to a
the seller to the buyer, person called 'hirer’, for his
contract is called Sale. use. The hirer has an option
to purchase the goods by
paying the agreed amount in
specified instalments.
Mode of Creation May be made either orally or It must be in writing.
in writing
Transfer of Ownership Transferred from the seller to Transferred from the seller to
the buyer as soon as the hirer only when all the
contract is made. instalments are paid as
agreed.
Passing of risk Risk passes to the buyer (as Risk is with the seller as he
he becomes the owner) still remains the owner.
Termination of the contract Buyer cannot terminate the Hirer can discharge the
contract and refuse to pay the contract at any time and he is
price of goods. not required to pay further.
Position of buyer He becomes the owner and Hirer does not become the
gets all rights of an owner. owner and his position is that
of bailee only. He becomes
owner only when all the
instalments are paid.
Default The seller can sue for the Seller can take re-possession
price , in case of default by of goods as he is the real
the buyer. owner.
Governing Act Sales of Goods Act,1930 Hire Purchase Act,1972
Passing/Transfer of Property
 Passing of property-- implies transfer of ownership and not the physical possession of
goods. For example, where a principal sends goods to his agent, he merely transfers
the physical possession and not the ownership of goods. Here, the principal is the
owner of the goods but is not having possession of goods and the agent is having
possession of goods but us not the owner.
 Significance of Transfer of Property --The time of transfer of ownership of goods
decides various rights and liabilities of the seller and the buyer. Thus, it becomes very
important to know the exact time of transfer of ownership of goods from seller to
buyer to answer the following questions:
Page 17 of 44
o Who shall bear the risk?  It is the owner who has to bear the risk and not
the person who merely has the possession.
o Who can take action against third party?  It is the owner who can take
action and not the person who merely has the possession.
o Whether a seller can sue for price?  The seller can sue for the price only if
the ownership of goods has been transferred to the buyer.
o In case of insolvency of a buyer whether the official receiver or assignee can
take the possession of goods from seller? The Official Receiver or
Assignee can take the possession of of goods from seller only if the ownership
of goods has been transferred to the buyer.
o In case of insolvency of a seller whether the official receiver or assignee can
take the possession of goods from buyer ? The official receiver or assignee
can take the possession of goods from buyer only if the ownership of goods
has not been transferred to the buyer.
Concept of ‘Caveat Emptor’: [ Sec. 16 of Sale of Goods Act, 1930 ]

The doctrine of Caveat Emptor is an integral part of the Sale of Goods Act. It translates to “let
the buyer beware”. This means it lays the responsibility of their choice on the buyer themselves.
It is specifically defined in Section 16 of the act “there is no implied warranty or condition as to
the quality or the fitness for any particular purpose of goods supplied under such a contract of
sale”
 A seller makes his goods available in the open market. The buyer previews all his
options and then accordingly makes his choice. Now let’s assume that the product turns
out to be defective or of inferior quality. This doctrine says that the seller will not be
responsible for this. The buyer himself is responsible for the choice he made.
 So the doctrine attempts to make the buyer more conscious of his choices. It is the duty
of the buyer to check the quality and the usefulness of the product he is purchasing. If
the product turns out to be defective or does not live up to its potential the seller will not
be responsible for this.
 Example. A bought a horse from B. A wanted to enter the horse in a race. Turns out the
horse was not capable of running a race on account of being lame. But A did not inform
B of his intentions. So B will not be responsible for the defects of the horse. The
Doctrine of Caveat Emptor will apply.
However, the buyer can shift the responsibility to the seller if the three following conditions are
fulfilled.
1. if the buyer shares with the seller his purpose for the purchase
2. the buyer relies on the knowledge and/or technical expertise of the seller
3. and the seller sells such goods
EXCEPTIONS (to Doctrine of Caveat Emptor):

The doctrine of caveat emptor has certain specific exceptions. Let us take a brief look at these
exceptions.
1. Fitness of Product for the Buyer’s Purpose
o When the buyer informs the seller of his purpose of buying the goods, it is implied
that he is relying on the seller’s judgment. It is the duty of the seller then to ensure
the goods match their desired usage.
Page 18 of 44
o Say for example A goes to B to buy a bicycle. He informs B he wants to use the
cycle for mountain trekking. If B sells him an ordinary bicycle that is incapable of
fulfilling A’s purpose the seller will be responsible. Another example is the case
study of Priest v. Last.
2. Goods Purchased under Brand Name

o When the buyer buys a product under a trade name or a branded product the seller
cannot be held responsible for the usefulness or quality of the product. So there is no
implied condition that the goods will be fit for the purpose the buyer intended.
3. Goods sold by Description
o When the buyer buys the goods based only on the description there will be an
exception. If the goods do not match the description then in such a case the seller
will be responsible for the goods.
4. Goods of Merchantable Quality
o The section 16 (2) deals with the exception of merchantable quality. The sections
state that the seller who is selling goods by description has a duty of providing goods
of merchantable quality, i.e. capable of passing the market standards.
o So if the goods are not of marketable quality then the buyer will not be the one who
is responsible. It will be the seller’s responsibility. However if the buyer has had
reasonable chance to examine the product, then this exception will not apply.
5. Sale by Sample
o If the buyer buys his goods after examining a sample then the rule of Doctrine of
Caveat Emptor will not apply. If the rest of the goods do not resemble the sample,
the buyer cannot be held responsible. In this case, the seller will be the one
responsible. For example, A places an order for 50 toy cars with B. He checks one
sample where the car is red. The rest of the cars turn out orange. Here the doctrine
will not apply and B will be responsible.
6. Sale by Description and Sample
o If the sale is done via sample as well as a description of the product, the buyer will
not be responsible if the goods do not resemble the sample and/or the description.
Then the responsibility will fall squarely on the seller.
7. Usage of Trade
o There is an implied condition or warranty about the quality or the fitness of
goods/products. But if a seller deviated from this then the rules of caveat emptor
cease to apply. For example, A bought goods from B in an auction of the contents of
a ship. But B did not inform A the contents were sea damaged, and so the rules of the
doctrine will not apply here.
8. Fraud or Misrepresentation by the Seller
o This is another important exception. If the seller obtains the consent of the buyer by
fraud then caveat emptor will not apply. Also if the seller conceals any material
defects of the goods which are later discovered on closer examination then again the
buyer will not be responsible. In both cases, the seller will be the guilty party.
Page 19 of 44
Introduction to Company Law
Company -- is registered association which is an artificial legal person, having an

independent legal, entity with a perpetual succession, a common seal for its signatures, a
common capital comprised of transferable shares and carrying limited liability. Section 3(1)
(i) of the Companies Act, 1956 defines a company as “a company formed and registered
under this Act or an existing company”.
Characteristics of Company:
Incorporated A company is created when it is registered under the Companies Act.

Association It comes into being from the date mentioned in the certificate of
incorporation.
For forming a public company at least seven persons and for a
private company at least two persons are persons are required. These
persons will subscribe their names to the Memorandum of
Association(MoA) and also comply with other legal requirements of
the Act in respect of registration to form and incorporate a company,
with or without limited liability
Artificial Legal A company is an artificial person. Negatively speaking, it is not a
Person natural person. It exists in the eyes of the law and cannot act on its
own. It has to act through a board of directors elected by
shareholders.
But for many purposes, a company is a legal person like a natural
person. It has the right to acquire and dispose of the property, to
enter into contract with third parties in its own name, and can sue
and be sued in its own name.
Separate Legal Entity A company has a legal distinct entity and is independent of its
members. The creditors of the company can recover their money
only from the company and the property of the company. They
cannot sue individual members. Similarly, the company is not in any
way liable for the individual debts of its members
The principal of separate of legal entity was explained and

emphasized in the famous case of Salomon v Salomon & Co. Ltd.
Case Law : Salomon v. Salomon & Co.
Facts :
 Salomon transferred his business of boot making, initially run as
a sole proprietorship, to a company (Salomon Ltd.), incorporated
with members comprising of himself and his family. The price
for such transfer was paid to Salomon by way of shares, and
debentures having a floating charge (security against debt) on the
assets of the company.
 Later, when the company's business failed and it went into
liquidation, Salomon's right of recovery (secured through
floating charge) against the debentures stood aprior to the claims
of unsecured creditors, who would, thus, have recovered nothing
Page 20 of 44
from the liquidation proceeds.
 To avoid such alleged unjust exclusion, the liquidator, on behalf
of the unsecured creditors, alleged that the company was sham,
was essentially an agent of Salomon, and therefore, Salomon
being the principal, was personally liable for its debt. In other
words, the liquidator sought to overlook the separate personality
of Salomon Ltd., distinct from its member Salomon, so as to
make Salomon personally liable for the company's debt as if he
continued to conduct the business as a sole trader.
Decision :
 Company is an independent and legal personality distinct from
the individuals who are its members, it has since been held that
the corporate veil may be lifted, the corporate personality may be
ignored and the individual members recognized for who they are
in certain exceptional circumstances.
 Generally, and broadly speaking the corporate veil may be lifted
where the statute itself contemplates lifting the veil or fraud, or
improper conduct is intended to be prevented.
Perpetual Existence A company is a stable form of business organization. Its life does not
depend upon the death, insolvency or retirement of any or all
shareholder (s) or director (s). Law creates it and law alone can
dissolve it. Members may come and go but the company can go on
for ever.
Common Seal Company being an artificial person has no body similar to natural
person and as such it cannot sign documents for itself. It acts through
natural person who are called its directors. But having a legal
personality, it can be bound by only those documents which bear its
signature.
Separate Property As a company is a legal person distinct from its members, it is
capable of owning, enjoying and disposing of property in its own
name. . The company is the real person in which all its property is
vested and by which it is controlled, managed and disposed of.
Case Law : Bacha F. Guzdar vs. The Commissioner of Income-Tax,
Bombay (1955)
Facts :
 The plaintiff (Mrs Guzdar) received certain amounts as dividend
in respect of shares held by her in a tea company. Under the
Indian Income-tax Act, agricultural income is exempted from
payment of income-tax. As income of a tea company is partly
agricultural, only 40 % of the company’s income is treated as
income from manufacture and sale, and therefore, liable to tax.
 The plaintiff claimed that the dividend income in her hands
should be treated as agricultural income up to 60 % , as in the
case tea company, on the ground that dividends received by
shareholders represented the income of the company.
Held:
Page 21 of 44
 Though the income in the hands of the company was partly
agricultural, yet the same income when received by Mrs. Guzdar
as dividend could not be regarded as agricultural income .
 It can be referred from Mrs. Guzdar’s case that a shareholder of a
company is not a part-owner or co-owner of the company or its
property. He is only given certain rights by law, for example, to
attend and vote at the meetings of the shareholders, to receive
dividend.
 Thus the property of the company belongs to the company and
not to its shareholders.
Limited Liability A company may be company limited by shares or a company limited
by guarantee. In company limited by shares, the liability of members
is limited to the unpaid value of the shares.
For example, if the face value of a share in a company is Rs. 10 and
a member has already paid Rs. 7 per share, he can be called upon to
pay not more than Rs. 3 per share during the lifetime of the
company. In a company limited by guarantee the liability of
members is limited to such amount as the member may undertake to
contribute to the assets of the company in the event of its being
wound up.
Types of Company :
 On the basis of Control

1. Holding Company : A company is known as the holding company of another
company if it has control over the other company, in the following ways :
i. by holding more than fifty per cent of the normal value of issued equity
capital of the company; or
ii. by holding more than fifty per cent of its voting rights; or
iii. by securing to itself the right to appoint, the majority of the directors of the
other company , directly or indirectly
2. Subsidiary Company : A company is known as a subsidiary of another company
when its control is exercised by the latter (called holding company)
 On the basis of number of members :

1. Public Company
2. Private Company
BASIS PUBLIC COMPANY PRIVATE COMPANY

Meaning A public company is a company which is A private company is a
owned and traded publicly and is listed on company which is owned and
a recognised stock exchange. traded privately.
Minimum members 7 2
Maximum Unlimited 200
members
Page 22 of 44
Minimum 3 2
Directors
Suffix Limited Private Limited
Start of business After receiving certificate of incorporation After receiving certificate of
and certificate of commencement of incorporation.
business.
Statutory Meeting Compulsory Optional
Issue of prospectus Obligatory Not required
/ Statement in lieu
of prospectus
Public Allowed Not allowed
subscription
Quorum at AGM 5 members must present in person. 2 members must present in
person.
Transfer of shares Free Restricted
Company is an artificial person created by following a legal procedure. Before a company is

formed, a lot of preliminary work is to be performed. The lengthy process of formation of a
company can be divided into four distinct stages :
(I) Promotion  the process of organizing and planning the finances of a
business enterprise under the corporate form
(II) Incorporation or Registration  It is the registration that brings a company
into existence. A company is legally constituted on being duly registered under
the Act and after the issue of Certificate of Incorporation by the Registrar of
Companies.
(III) Capital subscription;  private company can start business immediately after the
grant of certificate of incorporation but public limited company has to further go
through ‘capital subscription stage’ and ‘commencement of business stage’. In the
capital subscription stage, the company makes necessary arrangements for raising
the capital of the company. With a view to ensure protection on investors,
Securities and Exchange Board of India (SEBI) has issued ‘guidelines for the
disclosure and investor protection’. The company making a public issue of share
capital must comply with these guidelines before making a public offer for sale of
shares and debentures.
(IV) Commencement of business  The certificate to commence business granted by
the Registrar is a conclusive evidence of the fact that the company has complied
with all legal formalities and it is legally entitled to commence business
2 important documents required while incorporation are :

Memorandum Of Association (MoA) Article of Association (AoA)
The preparation of Memorandum of Articles of Association are the rules,
Association is the first step in the formation regulations and bye-laws for governing the
of a company. It is the main document of the internal affairs of the company. They may be
company which defines its objects and lays described as the internal regulation of the
down the fundamental conditions upon which company governing its management and
Page 23 of 44
alone the company is allowed to be formed. embodying the powers of the directors and
It is the charter of the company. It governs officers of the company as well as the powers
the relationship of the company with the of the shareholders. They lay down the mode
outside world and defines the scope of its and the manner in which the business of the
activities. Its purpose is to enable company is to be conducted
shareholders, creditors and those who deal
with the company to know what exactly is its
permitted range of activities.
Doctrine of Constructive Notice & Doctrine of Indoor Management :

On registration the memorandum and articles of association become public documents. These
documents are available for public inspection either in the office of the company or in the
office of the Registrar of Companies on payment of one rupee for each inspection and can be
copied (Sec. 610).
Doctrine of Constructive Notice : Every person who deals with the company, whether
shareholder or an outsider is presumed to have read the memorandum and articles of
association of the company and is deemed to know the contents of these document.
Therefore, the knowledge of these documents and their contents is known as the constructive
notice of memorandum and articles of association
Case Law : Royal British Bank v. Turquand

The doctrine of indoor management emerges from this case. Unlike the Doctrine of
constructive notice, the doctrine of Indoor Management protects the outsiders against the
company.
 An outsider dealing with the company is not expected that he will know every detail
of what is happening in the company. Neither companies internal affairs are of public
matter and aren’t open for all people unlike Article of Association and memorandum
of association.
 Thus it can be said that the Doctrine of indoor management is the opposite of the
doctrine of constructive notice.
Facts :
 Mr Turquand was the official manager (liquidator) of the insolvent Cameron's
Coalbrook Steam, Coal and Swansea and Loughor Railway Company. It was
incorporated under the Joint Stock Companies Act 1844. The company had given a
bond for £2,000 to the Royal British Bank, which secured the company's drawings on
its current account.
 The bond was under the company's seal, signed by two directors and the secretary.
When the company was sued, it alleged that under its registered deed of settlement
(the articles of association), directors only had power to borrow up to an amount
authorised by a company resolution.
 A resolution had been passed but not specifying how much the directors could
borrow.
The company claimed that  there was no resolution passed authorising the issue of the bond
and therefore the Company was not liable.
Page 24 of 44
Held :
 The company was entitled to sue on the bond. As the requirement for the resolution
was a matter of internal regulation for the Company and the bank could not know
whether such resolution had in fact been passed, it was entitled to presume that the
resolution had indeed been passed. (Doctrine of indoor management)
o If an officer of the co. has exceeded his authority given to him by AOA ; or
there has been non-compliance with internal procedure  then the outsider
may presume that the internal procedure has been complied with.
Annual General Meeting (AGM)

 Annual General Meeting (AGM) is a meeting conducted by every Private Limited
Company or Limited Company that provides an opportunity to the shareholders to
meet every year and discuss matters relating to the Company. The AGM ensures the
interest of the shareholders are protected. In this article, we look at the procedure for
conducting an AGM and recording the same.
 Purpose : Annual General Meeting is a statutory requirement for Private Limited
Company and Limited Company in India. Every Company whether, public or private,
limited by shares or guarantee, with or without share capital or unlimited company is
required to hold an AGM every year. Annual General Meeting is an annual meeting
conducted by the shareholders and Directors of the Company.
 The first annual general meeting of the company must be held within 18 months from
the date of incorporation of Company. Even a Company that has no activity is
required to conduct a annual general meeting.
Extraordinary general meeting (EGM)

All general meetings of a company in India except the statutory meeting and the annual
general meetings are called an extraordinary general meeting. There is a gap of around a year
or 18 months between two annual general meetings. Therefore, if an important business
arises in between two annual general meetings that require shareholders approval, then an
extraordinary general meeting can be called.
Director of the Company :

Company acts through the Board of Directors. The Board is the ultimate executive authority
in all affairs of the company. The Companies Act provides three categories of persons who
can manage the affairs of the company—Directors, Managing Director and Manager.
The Board of Directors is a committee consisting of several elected representatives known as
directors. A director has no power except on matters which are specifically delegated to him.
Page 25 of 44
The powers conferred on the directors are to be exercised by them collectively at board
meetings. Functions of the Board comprise both statutory functions and executive functions.
Disqualifications:
I. Persons of unsound mind,
II. Un-discharged insolvents,
III. Persons convicted and imprisoned for at least 6 months during the preceding five
years,
IV. Defaulters of all money on shares
V. Fraudulent declared by the court and
VI. Persons holding more than 20 directorships of public companies.
Duties :
 Director to act in accordance with AOA.
 A director of a company shall act in good faith in order to promote the objects of the
company for the benefit of its members as a whole, and in the best interests of the
company, its employees, the shareholders, the community and for the protection of
environment.
 A director of a company shall exercise his duties with due and reasonable care, skill and
diligence and shall exercise independent judgment.
 A director of a company shall not involve in a situation in which he may have a direct or
indirect interest that conflicts, or possibly may conflict, with the interest of the company.
 A director of a company shall not achieve or attempt to achieve any undue gain or
advantage either to himself or to his relatives, partners, or associates
 A director of a company shall not assign his office and any assignment so made shall be
void.
LEGAL POSITION OF DIRECTOR
Directors as Agents : A Directors as officers Director as trustees:
company as an artificial Director treated as Director is treated as
person, acts through directors officers of an company. trustees of the company,
who are elected representatives They are liable to certain money and property: and of
of the shareholders and who penalties if the provisions the powers entrusted to and
execute decision making for of the companies act are vested in them only as
the benefit of shareholders not strictly complied with. trustee.
Rights of the director can be categorized into individual rights and collective rights.
 Individual rights are such as
o right to inspect books of accounts {Section 209(4)},
o Right to receive notices of board meetings (Section 285),
o right to participate in proceedings and cast vote in favour or against
resolutions(Section 300),
o right to receive circular resolutions proposed to be passed.(Section 289),
o right to inspect minutes of board meetings.
 Collective rights are as follows:- ·

o Right to refuse to transfer shares According to Section 111 of the Act,
directors of private companies and deemed public companies are entitled to
Page 26 of 44
refuse registration of transfer of shares to a person whom they do not approve.
·
o Right to elect a Chairman Regulation 76(1) of Table-A provides that the
directors are entitled to elect a chairman for the board meetings. ·
o Right to appoint a Managing director The Board has the right to appoint the
managing director/ manager (as defined in the Act) of the company. ·
o Right to recommend dividend  The Board is entitled to decide whether
dividend is to be paid or not. Shareholders cannot compel the directors to pay
dividend. However they can reduce the rate of recommended dividend.
Payment of dividend is the prerogative of the board
Powers of Director :
1. Powers which can be exercised only at Board meeting by means of passing of
resolutions(Section 292) ·
i. power to make calls on shareholders in respect of money unpaid on their
shares
ii. power to issue debentures ·
iii. power to borrow moneys otherwise than on debentures ·
iv. power to invest the funds of the company ·
v. Power to make loans
2. Powers which can be exercised either at Board meeting or by passing a
resolution by circulation as per provisions of u/s 289. ·
i. Power to appoint the first Auditor of the company within 30 days from
the date of incorporation of the company (Section 224(6)]. ·
ii. Power to fill up casual vacancy in the office of an Auditor if such vacancy
is not caused by resignation [Section 224(6)]. ·
iii. Power to appoint Additional Directors if the Articles permit [Section 260].
Page 27 of 44
NEGOTIABLE INSTRUMENTS ACT
Not been defined in the N.I. Act. In short, negotiable instruments means ‘’a document
transferable by delivery. ‘’
According to Section 13 (a) of the Act, “Negotiable instrument means a promissory note, bill
of exchange or cheque payable either to order or to bearer, whether the word “order” or “
bearer” appear on the instrument or not.”
Only the above instruments are governed by NI Act.
Other NI like railway receipt, hundis etc. are governed by local usages, unless specifically
opted to be governed by the Act
Essential features :
 In writing Transferability
 Independent title of transferee : transferee need not give any notice of transfer of NI
 Certainty : certain and precise in language
 Right to sue: transferee can sue in his own name in case of dishonour, without giving
notice of transfer to the original debtor about the fact that he has become the owner.
 Presumptions
o It is presumed that every N.I. was made/drawn/accepted/tranferred for
consideration .
o Every N.I. bearing a date was made/drawn on such date
o That every bill of exchange was accepted within reasonable time.
o Every transfer of N.I. was made before maturity
o Duly stamped
o That the holder has taken the N.I. in good faith.
KINDS OF NEGOTIABLE INSTRUMENTS :

1. Promissory Note
2. Bill of Exchange
3. Cheque
Promissory Note (Sec.4) ’’it is an instrument in writing (not being a bank note or
currency note) containing an unconditional undertaking signed by the maker, to pay a
certain sum of money only to, or to the order of, a certain person, or to a bearer of the
instrument. ‘’  i.e. it is a promise in writing by a specified person to pay certain sum of
money to a specified person or to his order.
 In writing and signed by maker
 Undertaking/Promise to pay
 Promise to pay must be unconditional (certainty)
 Certain sum of money
 Certainty of parties (payee and maker)
 Other than a Bank note or Currency note
 Payable to Bearer or order
Bill of Exchange (Sec. 5) instrument in writing containing an unconditional order signed

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by the maker, 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. i.e. here one person makes an
order to another person to pay a certain sum of money to someone. It must be unconditional .
 Must be in writing
 Must contain an order to pay
 Unconditional order
 It must be signed by the drawer
 The drawee and payee must be certain
 The instrument must contain an order to pay money and money only and the sum
payable must be certain.
Maturity of B.O.E. may be : 1) on demand ; 2) on a specified date ; 3) After a specified

period
Classification of Bills  Bills can be classified as:

(1) Inland and foreign bills :
 A bill is, named as an inland bill if:
o it is drawn in India on a person residing in India, whether payable in or outside
India, or
o it is drawn in India on a person residing outside India but payable in India.
 A bill which is not an inland bill is a foreign bill.
o A bill drawn outside India and made payable in India.
o A bill drawn outside India on any person residing outside India
o A bill drawn in India on a person residing outside India and made payable
outside India.
o A bill drawn outside India on a person residing in India.
o A bill drawn outside India and made payable outside India.
(2) Time and Demand Bill :

 Time bill: A bill payable after a fixed time is termed as a time bill.
 Demand bill: A bill payable at sight or on demand is termed as a
demand bill
(3) Trade and accommodation bills.

 Trade bill: A bill drawn and accepted for a genuine trade transaction is termed as a
“trade bill”.
 Accommodation bill: A bill drawn and accepted not for a genuine trade transaction but
only to provide financial help to some party is termed as an “accommodation bill.
Cheque (Sec. 6 ) a cheque is a bill of exchange drawn on a specified banker and is payable
on demand only.
Essential features :
 All essentials of Bill of Exchange
 Drawn on a specified banker
 Payable on demand
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 No stamp
 No acceptance
Parties in cheque :
 Drawer – who draws a cheque upon a specified banker
 Drawee – upon whom the cheque is drawn . Drawee is a bank . (It is the party to
whom the drawer gives order to pay the amount to the person named on the cheque or
his order to the bearer)
 Payee – party who presents the cheque for payment. He is the person who receives
money from the bank.
Crossing of Cheque : (Sec 123-131A)

 General : Where a cheque bears across its face two parallel transverse lines on top left
hand corner, either with or without the words “and Co” and with or without the words
“not negotiable” or both.
o [Not Negotiable : person taking shall not have and shall not be capable of
giving a better title to the cheque than the person from whom he took it had]
 Special : Where a cheque bears across its face
an addition of the name of a banker
 Restrictive: Where a cheque bears across its face an addition of the words “account
payee” or “account payee only”
o In this case, bank is under an obligation to credit to the account of the payee
only.
Statutory Protection to the Paying Bankers :

 Sec. 128 : When the banker on whom a crossed cheque is drawn has paid the same in
due course (in good faith + in accordance with the apparent tenor of the instrument +
without negligence) ; drawer and banker entitled to the same rights & position, as if
the cheque has been paid to the true owner.
 Section 129: When crossed cheque paid out of due course, bank liable to the true
owner for any loss he may sustain owing to the cheque having been so paid.
Statutory Protection to Collecting Bankers :

 Section 131: When a banker has in good faith & without negligence received payment
for a customer of a cheque crossed generally or specially to himself, shall not incur
any liability to the true owner by reason only of having received the payment in case
the title to the cheque proves defective.
Distinction:
Basis Bill of Exchange Promissory Note
Number of Parties 3 parties : drawer, drawee, 2 parties –maker(debtor) and
and payee . payee (creditor)
Promise/Order and There is an order of making There is promise to make
Acceptance the payment. payment
Payable to self/bearer Drawer may order the Can’t be made payable to the
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payment to be made to maker himself
himself also.
Conditionality Unconditional, but under Sec. unconditional
86, the acceptor may accept
BOE conditionally.
Liability In BOE which has been Liability of maker is primary
accepted, the liability of and absolute.
acceptor is primary, whereas
liability of drawer arises if
acceptor dishonour the BOE.
Thus liability of drawer is
secondary and conditional.
DISHONOUR OF A NEGOTIABLE INSTRUMENT

When a negotiable instrument is dishonoured, the holder must give a notice of dishonour to
all the previous parties in order to make them liable. A negotiable instrument can be
dishonoured either by non-acceptance or by non-payment. A cheque and a promissory note
can only be dishonoured by non-payment but a bill of exchange can be dishonoured either by
non-acceptance or by non-payment
 Dishonour by Non-Acceptance (Sec. 91)
 Dishonour by Non-Payment (Sec. 92)
Duties of the holder upon dishonour :

 Notice of dishonour
 Noting and Protesting
 Suit for money
DISHONOUR of Cheques
 Due to insufficiency of funds ; it should be for the discharge of any liability/due.
 Chapter XVII (Section 138-142) deals with Penalties in case of Dishonour of certain
cheque
 Cheque dishonoured due to amount standing to the credit being insufficient OR exceeding
the overdraft limit agreed for that account
Legal Remedies Available :

o To file a civil suit
o To file a complaint under Section 138 of N.I. Act,1881.
o To file a complaint under Section 420 of IPC (cheating).
Note  In case a person has filed suits for recovery, he is not precluded from filing a
complaint under section 138 of the Negotiable Instruments Act and section 420 of the Indian
Penal Code. Both remedies may be simultaneously possible. A civil suit cannot debars the
criminal prosecution.
Section 138 (N.I. Act) :

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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 another person 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 two years, 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 thirty 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.
 Objective : to increase the acceptability of cheques – by making the drawer liable

for penalties in case of cheque dishonour.
 Civil + Criminal Liability is imposed by this section.
 Safeguards for drawer: this section also includes safeguards where dishonour
takes place without dishonest intentions of the drawer.
 Penalty : Imprisonment of upto 1 year ; Fine upto twice the amount of cheque; or
both.
 Exceptions : dishonour of a cheque given as gift, donation, discharge of moral
obligation. (Eg; Dishonour of cheque given on birthday due to insufficiency of
funds will not attract Sec.138)
PROCEDURE :
(Note : in order to attract cheque bounce case section 138 of the Act, following conditions
are to be fulfilled:- 1). Drawer should have drawn the cheque from his/her active account as
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maintained by him/her ; 2).Cheque bounce due to insufficient funds in drawer account ; and
3).The issuance of that cheque is towards clearance of debt or any legal liability.)
1. Written Notice to Drawer : Demand for payment made by giving a notice in writing to
drawer within 30 days of receipt of information about dishonour
2. After expiry of 15 days : Drawer fails to pay within 15 days of receipt of notice , then
he is punishable under Sec 138 of NI Act.
 Payee can make the complaint made within 1 month of the cause of action arising
 Tried by a Metropolitan Magistrate(MM) or Judicial Magistrate of first class
(disposed expeditiously and if possible within 6 months)
 Offence by company: all persons in charge of and responsible for the conduct of
business of company + the company
3. Complaint Procedure : The complaint has to be accompanied with an Affidavit by the
Payee or the complainant. The submitted documents and complaint will be examined
by the concerned MM in order to confirm the commission of offence. Once
commission is made confirmed, then summons will be issued for the hearing at the
Summary Trial.
4. Hearing Procedure : On the date of hearing, if the drawer or the accused appears, the
MM shall ask him/her to provide as well as submit a bail bond to make certain that
he/she appears during trials. Further, he/she has to take notice under section 251 of
Criminal Procedure Code and accordingly, submit his/her defense plea.
5. Punishment/Penalty : defaulter can be punished with monetary penalty which may
be twice the amount of the cheque or imprisonment for a term which may be
extended to two years; or both.
Section 139 :
139. Presumption in favour of holder: It shall be presumed, unless the contrary is proved,
that the holder of a cheque received the cheque of the nature referred to in section 138 for
the discharge, in whole or in part, of any debt or other liability.
 When a cheque is dishonoured, it shall be presumed that the holder had received the
cheque in discharge of any debt or other liability. However, the drawer may rebut the
presumption by proving the contrary.
o Burder of Proof : is on the ‘accused’ that the dishonoured cheque was not
received by the complainant towards discharge of any liability.
o Within 15 daysof the receipt of information from the bank about dishonour of
cheque , the payee/holder in due course, should make a written demand(via
notice) on the drawer for payment of the amount of money represented by the
cheque, and the drawer must not fail to make payment within 15 days of
receipt of the demand.
2002 Amendment to the Act
 Early disposal of cases
 Enhancing punishments for offenders
 Introducing the electronic image of truncated cheque and a cheque in electronic form
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NOTE : CONCEPTS related to N.I.
1. Holder (Section 8): Any person -- entitled in his own name --to the possession
thereof and to receive/recover amount due thereon. When the note, bill or cheque is
lost or destroyed, holder is the person so entitled at the time of loss or destruction.
2. Holder in due course (Section 9): Any person --who for consideration --became
possessor/payee/endorsee of a NI --before the amount mentioned in it became payable
-without having sufficient cause to believe that any defect existed in the title of the
person from whom he derived title. [for consideration + before maturity + in good
faith]
3. Payment in due course (Section 10):
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 the amount therein mentioned.
4. Maturity (Section 22):
date on which payment falls due --relevant only for time instruments --at maturity on
the third day after the day on which it is expressed to be payable (days of grace)
.In case of public holiday, falls due on preceding business day.
5. Notice of dishonour (Section 91-98):
can be by non-acceptance (including qualified) OR non-payment --holder must give
notice of such fact to all parties whom he seeks to make liable --can be given in oral
or writing (including post) --within reasonable time. Party (other than the party
primarily liable) to whom notice not given is discharged from liability. No notice
necessary in some circumstances like dispensed with, cannot be found etc.
6. Noting (Section 99):
When PN or BOE dishonoured by non-acceptance or non-payment --holder may
cause such dishonour to be noted--by Notary Public--upon the instrument or upon a
paper attached thereto--within reasonable time after dishonour --must contain date of
dishonour, reasons if any assigned for dishonour and noting charges.
7. Protest (Section 100-102):
When PN or BOE dishonoured by non-acceptance or non-payment --holder may
within reasonable time--cause such dishonour to be noted and certified --by Notary
Public. Such certificate is called a PROTEST.
8. Protest for better security: When the acceptor of BoE has become insolvent or his
credit publicly impeached, holder may cause Notary Public to demand better security
and if refused, cause such facts to be noted and certified.
Protest must contain the details of instrument, name of parties, place and time of
dishonour, statement by Notary Public of refusal to pay/accept/security etc. -- If law
requires protest, notice of protest must be given instead of notice of dishonour, before
the Courts.
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CONSUMER PROTECTION ACT, 1986 (New Act enacted CP Act 2019, soon to be
enforced)
Till 1985, the consumer, specifically in India, was neglected. Traders dominated the market
in every aspect of business causing concern to the consumers. In spite of various provisions
providing protection to the consumer and providing for stringent action against adulterated
and sub-standard articles in the different enactments like Code of Civil Procedure, 1908, the
Indian Contact Act, 1872, the Sale of Goods Act, 1930, the Indian Penal Code, 1860, the
Standards of Weights and Measures Act, 1976 and the Motor Vehicle Act, 1988, very little
could be achieved in the field of Consumer Protection. Though the Monopolies and
Restrictive Trade Practices Act, 1969 and the Prevention of Food Adulteration Act, 1954
have provided relief to the consumers yet it became necessary to protect the consumers from
the exploration and to save them from adulterated and sub-standard goods and services and to
sageguard the interests of the consumers. In order to provide for better protection of the
interests of the consumer the Consumer Protection Bill was introduced in the Parliament.
An important landmark in consumer protection endeavours in India is the Consumer
Protection Act, 1986, which provides for a system for the protection of consumer rights and
the redressal of consumer disputes.
This Act extends to the whole of India except the State of Jammu and Kashmir, and save as
otherwise expressly provides by the Central Government by notification, it applies to all
goods and services.
The objective of the Act is to provide for the better protection of the interests of consumers
and for that purpose to make provision for the establishment of consumer councils and
authorities for the settlement of consumer disputes and for matters connected therewith.
Objects of the Act
1. Promoting and protecting the rights of consumers.
2. Providing for the establishment of consumer councils and other authorities.
3. Providing speedy and simple redressal machinery at district, state and central levels
for settling consumer disputes and matters connected therewith.
Salient Features of the Act

1. The Act applies to all goods and services unless specifically exempted by the Central
Government.
2. It covers all the sectors whether private, public or cooperative.
3. The Act envisages the establishment of the Consumer Protection Councils at the
central and state levels, whose main objects will be to promote and protect the rights
of the consumers.
4. The Consumer Protection Act extends to whole of India except the State of Jammu
and Kashmir and applies to all the goods and services unless otherwise notified by the
Central Government.
5. The provisions of this act are in addition to and not in derogation of the provisions of
any other law for the time being in force.
6. The provisions of the Act are compensatory in nature.
Definitions
Consumer : According to Sec. 2(1)(d) : Consumer means any person, who :

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i. Buys any goods for a consideration :
 Which has been paid or promised or partly paid promised, or
 Under any system of deferred payment.
‘Consumer’ also includes any user of such goods other than the buyer himself.
The use of such goods must be with approval of the buyer for consideration
paid or promised or partly paid or partly promised, or under any system of
deferred payment. But consumer does not include a person a person who
obtains goods for resale or for any commercial purpose.
Commercial purpose does not include use by a consumer of goods bought and
used by him exclusively for the purpose of earning his livelihood, by means of
self-employment.
ii. Hires or avails of any services for a consideration which has been paid or
promised or partly paid and partly promised, or under any system of deferred
payment. Consumer also includes any beneficiary of such services other than the
person who hires or avails of such services. The beneficiary must acquire the use
of such services with the approval of the hirer for consideration paid or promised,
or partly paid and partly promised, or under any system of deferred payment. A
patient hiring services of doctor for consideration has been held to be consumer.
Consumer Disputes : According to Section 2(1) (e ) Consumer Dispute means a dispute

where the person against whom a complaint has been made, denies or disputes the allegations
contained in the compliant.
Defect ; According to Section 2(1) (f)

A defect mean any fault, imperfection, or shortcoming in the quality, quantity, potency,
purity or standard which is required to be maintained by or under any law for the time being
in force, or under any contract, express or implied, or as is claimed by the trader in any
manner whatsoever, in relation to any goods.
Deficiency : According to Section 2 (1) (g)

Deficiency means any fault, imperfection or shortcoming or inadequacy in the quality, nature
and manner of performance which is required to be maintained by or under any law for the
time being in force or has been undertaken to be performed by a person in pursuance of a
contract or otherwise in relation to any service.
Deficiency” in Service :
Section 2(1)(g) of the Act provides that, “ deficiency ” means any fault, imperfection,
shortcoming or inadequacy in the quality, nature and manner of performance which is
required to be maintained by or under any law for the time being in force or has been under-
taken to be performed by a person in pursuance of a contract or otherwise in relation to any
service.
Reading the above definition by breaking it into elements, we get—

(a) “deficiency” means any fault, imperfection, shortcoming or inadequacy in the quality,
nature and manner of performance

Examples :
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1. A boarded a train. The compartment in which he and his wife travelled was in
a bad shape-fans not working, shutters of windows were not working, rexin of
the upper berth was badly torn and there were rusty nails which caused some
injuries to the wife of A. A made a complaint against the railway department.
It was held that the complaint constituted ‘deficiency in service’ and the
compensation of Rs. 1500 was awarded to A - General Manager, South
Eastern Railway v. Anand Prasad Sinha I [1991] CPJ 10 (12) NC.
2. Dr. A treated P under Allopathic system, though he himself was a

Homoeopathic practitioner. Later on P allegated A for wrong treatment. The
Commission held it as deficiency in service - Poonam Verma v. Ashwin
Patel [1996] II CPJ 1 SC.
3. A booked a car for B and promised to deliver it within one month of booking.
The car was not delivered even after four months. Here A could be held liable
for deficiency in service.
One interesting aspect is that deficiency in service should occur during the happening
of performance. Thus it is crucial to determine when the performance of a service
commenced.
Example : A contracted with B to supply, erect and commission cold rolling mill. A
supplied the mill, but failed to erect and commission the mill. B filed a suit alleging
deficiency of service on A’s failure to elect and commission the mill. The National
Commission observed that the deficiency must pertain to performance of service. Since
A never started erecting and commissioning the mill, the question of performance did
not arise. Thus the case is not that of deficiency of service - Jaipur Metals & Electricals
Ltd. v. Laxmi Inds. [1991] II CPJ 602 (NC).
(b) Such quality and manner of performance of service should have been required to be
maintained by or under any law for the time being in force or undertaken to be
performed by a person in pursuance of a contract or otherwise.
Example : A, the builder, promised under written agreement to provide a flat to B.
Subsequently he expressed his inability to give possession of the flat and entered into a
fresh agreement to pay Rs. 9,51,000 to B in place of flat. A didn’t even pay this money.
B sued A. The Commission held that since A had not even paid the money as per
subsequent contract, the rights of earlier contract can be involved by B. And that there
was a deficiency of service on the part of builders - Lata Construction v. Dr.
Rameshchandra Ramniklal Shah AIR 2000 SC 380 (384).
(c) The deficiency must be in relation to a service - The words ‘....in relation to any
service’ in the definition signifies that the deficiency is always in terms of service. Thus
if the grievance pertains to a matter which does not fall in the definition of service, the
concept of deficiency would not apply.
Example : A deposited Rs. 100 with B as application fee and executed bond for the
purpose of drilling tubewell. B did not drill the tubewell because it was not feasible. A
alleged deficiency in service. It was held that depositing Rs. 100 as application fee and
executing a bond does not amount to hiring of services, thus the deficiency of service
cannot be complained of in the matter - Mangilal v. Chairman District Rural
Development Agency [1991] 1 CPJ 474 (Raj.).
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Deficiency in service due to circumstances beyond control
In normal course, if the service is found deficient as per the above criteria, it is held deficient
and the compensation is awarded. However there may be abnormal circumstances beyond the
control of the person performing service. If such circumstances prevent a person from
rendering service of the desired quality, nature and the manner, such person should not be
penalised for the same.
Example : A undertook to supply water to B for irrigation of crops. Due to power grid failure
of the State, A could not get sufficient power to perform the service. Here A cannot be held
liable for deficiency in service.
However, negligence on the part of performer may not be excused under the cover of
circumstances beyond control.
Example : A agreed to supply water to B for irrigation of crops. He failed to do so because of
a power breakdown due to burning of transformer. As a result crops damaged. B sued A for
providing deficient service. The National Commission held that it was duty of A to get the
transformer repaired immediately. Since he was negligent in doing so, he is liable for the
deficiency in service - Orissa Lift Irrigation Corpn. Ltd. v. Birakishore Raut [1991] 2 CPJ
213 (NC)
Redressal Machinery Under the Act :
To provide simple, speedy and inexpensive redressal of consumer grievances, the Act
envisages three tier quasijudicial machinery at the National, State and District levels.
1. District Forum
 It consists of a president and two members. The president has to be qualified to be a
district judge, while the others are eminent persons from various fields.Under
Consumer Protection Act, the State Government has to set up a District forum in each
district of the state. The district forum has the power to take up cases where the value
of the goods and services and the compensation demanded are upto Rs. 20 Lakh.
 The complaint shall be instituted in the District Forum within the local limits of :
o The opposite party or the defendant actually and voluntarily resides or carries
on the business or has a branch office or personally works for gain at the time
of institution of the complaint; or
o Any one of the opposite parties (where there are more than one )actually and
voluntarily resides or carries on business or has a branch office or personally
works for gain at the time of institution of the complaint provided that the
other opposite party/parties acquiescence in such institution or the permission
of the Forum is obtained in respect of such opposite parties; or
o The cause of action arises wholly or in part.
2. State Commission
 The state commission, like the district forum has a qualified legal person as the
president and two eminent members one of whom shall be a women. Judge of the
high court shall be appointed as its president. A person can go to the state level body
in appeal from the district forum. Also, if the value of the goods, services and
damages is between Rs 20 lakh and Rs. 1 crore, the consumer can go directly to the
forum. Any aggrieved party who is dissatisfied with the decision of the state
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commission may appeal against such order to the national commission within a period
of 30 days from the date of the order.
3).National Commission
 Supreme Court judge can be appointed by the Central Government as its president. At
least 4 members shall be appointed, and one of whom shall be a women. Every
member of the National Commission shall hold office for a term of five years upto 70
years of age whichever is earlier and shall not be eligible for reappointment. A
consumer can go to the national forum in appeal from the state commission, or if the
value of the goods, services and damages is more than Rs. One crore.
Powers of the Dispute Redressal Agencies :

The District Forum, the State Commission and the National Commission are vested with the
powers of a civil court under the Code of Civil Procedure while trying a suit in respect of the
following matters :
1. The summoning and enforcing attendance of any defendant or witness, examining the
witness on oath.
2. The discovery and production of any document or other material producible as
evidence.
3. The reception of evidence on affidavits.
4. The requisitioning of the report of the concerned analysis or test from the appropriate
laboratory or from any other relevant source.
5. Issuing of any commission for the examination of any witness.
6. Any other matter which may be prescribed.
7. To issue remedial orders against the opposite party.
8. To dismiss frivolous and vexations complaints and to order the complainant to make
payment of cost, not exceeding Rs. 10,000 to the opposite party.
Case Law : Lucknow Development Authority v/s M.K Gupta

 Question of law:- Whether Statutory Land Development authorities come under the
ambit of Consumer Protection Act 1986. Whether housing activity came within the
purview of services defined in the act prior to its amendment in 1993.
 Issues:-
o The rights and powers of the National Commission to hold statutory
authorities accountable for omissions and award exemplary damages
o Compensation for loss or injury even in cases resulting out of actions
authorised by law and carried out without any negligence.
o Compensation not only in terms of value of goods and services but also
damages for injustice.
o For acts done in bad faith, absolute liability is on the part of employee.
 Held:- Finally the court ruled that the Commission had all the rights under the Act to
award compensation not only for deficient services but also for harassment and agony
caused to a consumer. Citing various case laws it was held that the State is liable to
compensate for loss or injury suffered by a citizen due to arbitrary actions of its
functionaries. It is now accepted law that even for bona fide action the State is liable
to compensate if that action causes loss or injury to a person. Now there is no
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distinction between sovereign and non sovereign functions in determining the liability
of the State because under our constitution sovereignty vests in the people. No
functionary of the State can claim immunity except to the extent provided in the
statute itself. Thus, the supreme court was of the opinion that all public authorities are
accountable for their actions
Case Law : Indian Medical Association v/s V.P Shantha

Judgment:-
 Medical Services are treated as in ambit of “services” under Section 2(1) (o) of the Act.
o It is not contract of personal service as there is absence of master servant
relationship.
o Contract of service in Section 2(1) (o) cannot be confined to contracts for
employment of domestic servants only. The services rendered to employer are not
covered under the Act.
 Medical Services rendered by hospital/nursing home free of charge are not in the purview
of Section 2(1) (o) of the Act.
 Medical Services rendered by independent Doctor free of charge are under Section 2(1)
(o) of the jurisdiction of the Act.
 Medical Services rendered against payment of consideration are in the scope of the Act.
 A medical service where payment of consideration is paid by third party is treated as in
the ambit of the Act.
 Hospital in which some person are charged and some are exempted from charging
because of their inability of affording such services will be treated as consumer under of
Section 2(1) (d) of the Act.
Critical Analysis:-
 This case gave effect to consumers who were suffering from medical negligence and
including medical services in the ambit of Consumer Protection Act, 1986 enabled
consumer to get more speedy and cheap justice. As this is the main aim of the Act.
 This case also differentiated contract for service and contract of service, in respect of
medical practice and profession.
 System of liability which it established is not appropriate in case where patients are not
treated as consumer even in government hospital availing services free of charge. It is
question of common conscience and equity as person who are availing services in
government hospital are not economically sound that is why they are availing services in
government hospital. It is point of reconsideration.
 Hospital rendering services free of charge are outside the purview of the Consumer
Protection Act, 1986. As some charitable trust do not have profit motive they can be sued
in either civil case but not in Consumer court.
Page 40 of 44
COMPETITION ACT, 2002
INTRODUCTION
 Dates back to ancient India ; Cartelisation finds mention in ‘Arthshastra’ by Kautilya.
 Monpolies and Restrictive Trade Practice(MRTP) Act,1969
o Prevents concentration of economic power
o Control of monopolies
o Prohibits monopolistic and restrictive trade practice act
 Economic Reforms of 1991 – Narisma Rao govt introducted LPG reforms :
o MRTP Act was inadequate to meet challenges of LPG reforms
o GoI appointed high level committee (Raghavan Committee) to form a
Competition policy.
o Competition Act,2002  later amended in 2007 also.
o Competition Commission of India (CCI) was constituted in 2009  chairperson +
6 members
MRTP Act,1969 Competition Act,2002

Based on pre-1991 reforms Based on post-1991-reforms
Offences related to competition were implicit …explicit and defined expressly.
and were not defined expressly.
Frowns upon dominance Frowns upon ‘abuse’ of dominance
No regulations related to Regulations are there now for combinations
Combinations(M&A) beyond a certain threshold.
No penalties for offences (reformist approach) Penalties for offences (punitive approach)
Unfair trade practices are covered. Unfair trade practices are omitted – they
have now been dealt under Consumer
Protection Act,1986.
OBJECTIVES of Competition Act

1. To prevent practices having adverse effect on competition
2. To promote and sustain competition in market
3. To protect interest of consumers
4. To ensure freedom of trade carries on by other players in the market .
LEGAL FRAMEWORK
1. ANTI COMPETITIVE AGREEMENTS
2. ABUSE OF DOMINANT POSITION
3. COMBINATIONS
Anti  Sec 3 : Prohibition of Anti-Competitive Agreements
Competitive  2 types – Horizontal Agreements (entered btw parties engaged in similar or
Agreements identical trade of goods or provision of services Eg agreement between a
manufacturer and another manufacturer) ;
( Section 3)  Vertical Agreements (parties operating at different stages of production of
goods or in different markets. Eg  agreement between an manufacturer and
distributor)
Page 41 of 44
 HORIZONTAL AGREEMENTS : such agreements are
PRESUMED to cause/likely to cause an appreciable adverse effect
on competition and are VOID ab initio .
o Determine purchase or sale price
o Limit or control production, supply, markets etc
o Market sharing (based on geographical allocation, type of goods/services
or customers)
o Bid Rigging or Collusive Bidding ; Cartels
 VERTICAL AGREEMENTS : such agreements shall be void ONLY IF they

cause or likely to cause an appreciable adverse effect on competition.
o Tie-in arrangement  when seller asks buyer to buy coffee mug along
with coffee .
o Exclusive Supply Agreement  agreement where wholesaler askes the
retailer to sell items supplied by him only, not of his competitors.
o Resale Price Mechanism  where the seller sells goods to a buyer with a
condition that such a buyer, if he wishes to sell the goods further, will not
sell it below the stipulated price.
Abuse of Section 4
Dominant  Sec 4(1) : no enterprise shall abuse its dominant position.
position  Sec 4(2) : there shall be abuse of dominant position u/s 4(1) if the enterprise :
o Directly or indirectly – imposed UNFAIR or DISCRIMINATORY
(Section 4)  Condition in purchase/sale of goods or services
 Purchase or Sale Price ( Eg : Predatory Pricing – where a seller
sells goods below the margin to beat the competitor)
o Limit/Restrict
 Production of goods/provision of service/market
 Technical or scientific development relating to goods&services
o Denial of market access
o Use of its dominant position in one relevant market to enter into
other relevant market]
 ‘’Dominant Position’’ – means position of strength – enjoyed by an enterprise—

in a relevant market in India – which enables it to :
o Operate independently of the market forces
o Affect its competitors or consumers or market in its favour.
 Sec 19(4) provides factors to be considered by the Competition Commission to
determine dominant position :
o Market share of enterprise
o Size and resources of enterprise
o Size and resources of competitors
o Dependency of consumers on the enterprise
o Market structure and size of market etc.
NOTE  Dominance per se is not bad; it is the abuse of dominant position

which is prohibited under Competition Act,2002. (Law cannot control the
Page 42 of 44
enterprise from acquiring the dominant position by legitimate means, however, its
abuse can surely be prohibited.
Case Law :
Google Ad Space Case (Matrimony.com v. Google ; Consumer Unity& Trust
Society v. Google)
CCI vide order dated 08.02.2018 has imposed a penalty of INR 135.86 Crores
(approx. USD 21 million) for abusing its dominant position in the market for "online
general web search and web search advertising services " in India. (While the
European Union's anti-trust regulator, the European Commission (EC) fined the
online search giant $2.7 billion for a similar infraction.)
CCI found Google to have abused its dominant position only on the following
grounds :
 search bias
 search manipulation
 denial of access to competing search engines
 refusal to license to competing search engines
 entry barriers
1) Universal Results - Unfairly ranking the universal results in a pre-determined
manner rather than by relevance
o Google’s own sites would appear prominently on the search results
page irrespective of whether they are the most popular or relevant
sites to the search
o violation of Section 4(2)(a)(i) of the Act.
2) Commercial flights Unit -Unfair display and placement of commercial flight
unit with link to Google's specialized search options/ services so as to deprive
the user of the search with additional choices
o It has been averred that in order to promote Google’s own vertical
search sites, Google started mixing many of its vertical results into its
organic search results (Eg: Youtube, Google News, Maps). Therefore,
when a user searches, for example, the name of a song on Google,
he receives links to videos of that song from Google Video or
YouTube, both of which are properties owned by Google.
o violation of Section 4(2)(a)(i) of the Act.
3) Negotiated Search Intermediate Agreements - Imposing prohibitions upon
publishers under the negotiated search intermediation agreements which
restrict their choice and prevent them from using the search services provided
by competing search engines
o violation of Section 4(2)(a)(i) ,4(2)(c) and 4(2)(e) of the Act.
 It was further averred that Google , because of its market share, size,
resources, reputation etc. ,is widely recognized as enjoying a dominant
position in the market for online search and online search advertising
world - wide including in India.
 As such, Google enjoys a position of strength in the relevant market which
enables it to operate independently of competitive forces and to affect its
competitors, consumers and the market in its favour.
Page 43 of 44
Held : abuse of its dominant position in the market for online search through
practices leading to search bias, search manipulation, denial of access to competing
search engines, refusal to license content to competing search engines and
creation of entry barriers
etc. Allegations were also made about the abusive conduct
of Google in the market for online search advertising through
imposition of unfair and discriminatory conditions on its customers
etc.
ENFORCEMENT MECHANISM
Competition  Quasi judicial body
Commission of  Has inquisitorial, investigative, regulatory, adjudicatory and a limited
India (CCI) advisiory jurisdiction.
 CCI can inquire – on its own motion, on a reference made by the
Union/State govt or on a complaint received.
 Has power of a Civil Court (in matter of exercise of granting interim
relief by the way on injunction)
Composition 1 Chairperson
2-6 members
 appointed by the Central Govt for a term of 5 yrs)
 also eligible for re-appointemnt
 have been/qualified to be HC Judges
 have special knowledge and professional experience of not less
than 15yrs – in commerce, accountancy, mgt, industry, public
affairs etc.
Jurisdiction  Original Jurisdiction – for any issue pertaining to competition law

(Unlike in USA, where Civil Courts can also hear such cases)
 CCI can be approached by anyone, including individuals, associations,
enterprises and govt at all levels.
 4 modes to invoke jurisdiction of CCI :
o Filing information
o Complaint procedure
o By reference
o Suo motu
Page 44 of 44

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Basic Indian Legal Structure & Understanding:

 The broad structure of Indian Judicial system is as under:

 In India Constitution is supreme. Laws promulgated by legislature needs to conform

 Constitution guarantees certain fundamental rights Fundamental rights to citizens and

Case Law: Balfour vs Balfour

Case Law: Felthouse v Bindley

Case Law: Mohiri Bibee v. Dharmodas Ghosh

• A moneylender advanced money/loan to a minor, fully knowing his

a. Void Agreement: An agreement, which lacks legal enforceability is void

b. Voidable Contracts: voidable contract, unlike a void contract, is a valid contract

c. Illegal Agreements: An agreement whose creation is forbidden by the court of law

 Offer and Acceptance is a key element to a contract.

 Offer: An offer is an expression of a person showing his willingness to another

A contract is discharged by (a) performance or (b) breach/anticipatory breach or (c)

Remedies for breach of contract :

Liquidated damages Un-liquidated damages

Rules regarding determination of Damages (Sec. 73)

Types of Special Contracts :

Contract of Indemnity Contract of Guarantee

 On the basis of reward :

 Essentials of contract of Sale :

Sale & Agreement to Sell :

Contract It is an executed contract. It is an executory contract.

Hire Purchase Agreements

Basis Sale Hire Purchase Agreement

Concept of ‘Caveat Emptor’: [ Sec. 16 of Sale of Goods Act, 1930 ]

EXCEPTIONS (to Doctrine of Caveat Emptor):

2. Goods Purchased under Brand Name

Company -- is registered association which is an artificial legal person, having an

Incorporated A company is created when it is registered under the Companies Act.

The principal of separate of legal entity was explained and

 On the basis of Control

 On the basis of number of members :

BASIS PUBLIC COMPANY PRIVATE COMPANY

Company is an artificial person created by following a legal procedure. Before a company is

2 important documents required while incorporation are :

Doctrine of Constructive Notice & Doctrine of Indoor Management :

Case Law : Royal British Bank v. Turquand

Annual General Meeting (AGM)

Extraordinary general meeting (EGM)

Director of the Company :

 Collective rights are as follows:- ·

KINDS OF NEGOTIABLE INSTRUMENTS :

Bill of Exchange (Sec. 5) instrument in writing containing an unconditional order signed

Maturity of B.O.E. may be : 1) on demand ; 2) on a specified date ; 3) After a specified

Classification of Bills  Bills can be classified as:

(2) Time and Demand Bill :

(3) Trade and accommodation bills.

Crossing of Cheque : (Sec 123-131A)

Statutory Protection to the Paying Bankers :

Statutory Protection to Collecting Bankers :

DISHONOUR OF A NEGOTIABLE INSTRUMENT

Duties of the holder upon dishonour :

Legal Remedies Available :

Section 138 (N.I. Act) :

 Objective : to increase the acceptability of cheques – by making the drawer liable

Salient Features of the Act

Consumer : According to Sec. 2(1)(d) : Consumer means any person, who :

Consumer Disputes : According to Section 2(1) (e ) Consumer Dispute means a dispute

Defect ; According to Section 2(1) (f)

Deficiency : According to Section 2 (1) (g)

Reading the above definition by breaking it into elements, we get—

2. Dr. A treated P under Allopathic system, though he himself was a