FT-401-C: BUSINESS LEGISLATION

Section A

1. Define goods as per Sale of Goods Act, 1930. State the implied conditions in a Contract of Sale of
Goods.

Define goods as per Sale of Goods Act, 1930

The Indian Sale of Goods Act, 1930 is a mercantile law which came into existence on 1 July 1930,during the
British Raj, borrowing heavily from the United Kingdom's Sale of Goods Act 1893. It provides for the
setting up of contracts where the seller transfers or agrees to transfer the title (ownership) in the goods to the
buyer for consideration. It is applicable all over India. Under the act, goods sold from owner to buyer must
be sold for a certain price and at a given period of time. The act was amended on 23 September 1963, and
was renamed to the Sale of Goods Act, 1930. It is still in force in India, after being amended in 1963, and in
Bangladesh, as the Sale of Goods Act, 1930 (Bangladesh).

Sale of commodities constitutes one of the important types of contracts under the law in India. India is one of
the largest economies and also a great country where and thus has adequate checks and measures to ensure
the safety and prosperity of its business and commerce community. Here we shall explain The Sale of Goods
Act, 1930 which defines and states terms related to the sale of goods and exchange of commodities.

State the implied conditions in a Contract of Sale of Goods.

The contract of sale is often very linear in its clauses but a good contract is diverse in expression. The
Express Conditions and the Implied Conditions may help one to formulate a diverse and clear contract. Let
us learn more about this topic.

Implied Conditions

Conditions and Warranties may be either express or implied. The implied conditions and warranties are those
which are presumed by law to be present in the contract though they have not been put into it in expressed
words. Implied conditions are dealt with in Sections 14 to 17 of the Sale of Goods Act, 1930. Unless
otherwise agreed, the law incorporates into a contract of a sale of goods the following implied conditions:

• In every contract of sale, the first implied condition on the part of the seller is that:

• in case of a sale, he has a right to sell the goods, and in the case of an agreement to sell, he will have the right
to sell the goods at the time when the property is to pass. Buyer is entitled to reject the goods and to recover
the price if the title turns out to be defective. [Section 14(a)].

Let us try to understand this with the help of an example. Let us say that person A bought a tractor from
another person B. The person B had no title to the tractor. Person A then goes on to use the tractor for three
months. Three months later, the legal owner of the tractor spots it and demands it back from A. In this, the
law holds that A is bound within the law to hand over the tractor to the real owner of the tractor. A has the
right to sue B, for the recovery of the purchase price.

2. Define Negotiable Instrument as per the provisions of the Negotiable Instruments Act, 1881.
Discuss the provisions relating to negotiation and assignments.

Negotiable Instrument as per the provisions of the Negotiable Instruments Act, 1881.

A “negotiable instrument” means a promissory note, bill of exchange or cheque payable either to order or to
bearer. Explanation

(i).—A promissory note, bill of exchange or cheque is payable to order which is expressed to be so payable
or which is expressed to be payable to a particular person, and does not contain words prohibiting transfer or
indicating an intention that it shall not be transferable. Explanation

(ii).—A promissory note, bill of exchange or cheque is payable to bearer which is expressed to be so payable
or on which the only or last indorsement is an indorsement in blank. Explanation

(iii).—Where a promissory note, bill of exchange or cheque, either originally or by indorsement, is expressed
 to be payable to the order of a specified person, and not to him or his order, it is nevertheless payable to him
or his order at his option.] 2[(2) A negotiable instrument may be made payable to two or more payees jointly,
or it may be made payable in the alternative to one of two, or one or some of several payees.

Discuss the provisions relating to negotiation and assignments.

• The primary differences between negotiation and assignment presented in the points below:

• The transfer of the negotiable instrument, by a person to another to make that person the holder of it, is
known as negotiation. The transfer of rights, by a person to another, for the purpose of receiving the debt
payment, is known as assignment.

• When it comes to regulation of negotiable instrument, negotiation governs the Negotiable Instrument, 1881,
while the assignment is regulated by Transfer of Property Act, 1882.

• Negotiation can be effected by mere delivery in case of bearer instrument and, endorsement and delivery in
case of order instrument.

• In the case of bearer instrument, the negotiation is done by mere delivery of the instrument, but in the case of
bearer instrument, endorsement and delivery of the instrument must be effected. Conversely, the assignment
is effected by written agreement to be signed by the transferor, both in the case of order and bearer
instrument.

• In negotiation, the consideration is presumed, whereas, in the case of assignment, the consideration is
proved.

3. What are the various provisions under the Companies Act, 2013, pertaining to the lifting of
the Corporate Veil ? Explain.

The Companies Act, 2013 provides for the following provisions enabling courts to lift the corporate veil.

Often, courts lift the corporate veil to fix liability and punish the members or the directors of the company.
Section 7(7) of the Act provides one such provision. Where the incorporation of a company is effectuated by
way of furnishing false information, the court may fix liability and for this purpose, the veil may be lifted.

Section 251(1) also is a penal provision. The Act asks for the submission of an application for the removal of
name of the company from the registrar of the companies. Any who make fraudulent application is fixed
with liability under thus section.

Section 34 and 35 of the act also enable the courts to lift the veil of incorporation to fix liability. When
prospectus includes misrepresentations, the court may impose compensatory liability upon the one who
misrepresented.

The Companies Act provides that in cases of issue of shares to public, in the event of the company not
receiving the minimum subscription in 30 days of issuance of prospectus, the company is bound to return the
application money. Section 39 imposes penalty on failure to do this within 15 days’ time period.

There might be instances where the investigators or the concerned authority or the government may have to
look into the affairs of a company for the purpose of evaluating whether it is a sham and the realities under
its corporate veil. Section 216 is the enabling provision to carry out this purpose. For manifesting the same,
the courts may pierce the veil and the same is protected. Section 219 of the Act also does the same function.

The chances of members resorting to fraudulent conduct is high particularly during the course of winding up
of a company. This is condemned under Section 339. To evaluate the prospects of the same, the veil may be
lifted.

Section 464 of the Act imposes penal liability on the members and directors of the company when the
requirements of incorporation are not complied with. Incorporation brings with it added privileges and
therefore the law imposes preconditions on its enjoyments in the form of statutory compliances, the non-
observance of which may attract liability. Thus the factum of manifestation of the same may be investigated
into and for this purpose, the veil may be lifted.

Besides Companies Act, 2013, certain provisions of Income-Tax Act and Foreign Exchange Regulation Act,
 1973 also enables the lifting of corporate veil.

4. State briefly mutual rights and liabilities of partners in a Partnership Firm.

Section 4 of Indian Partnership Act, 1932 defines Partnership as, “Partnership is the relation between persons
who have agreed to share the profits of a business carried on by all or any of them acting for all”.

The rights, duties and liabilities of partners make the mutual relationship between the partners more clear.
Partners can themselves determined their rights by contract, but the partnership act confers certain rights
upon the partners. The rights and liabilities of partners can be illustrated as:-

Rights of Partners

• Right of Access To Books: Every partner has a right to have access to and to inspect and copy the books of
firm.

• Right to Share the Profits: Every partner has a right to share the profits equally, unless otherwise agreed
upon, and bear the losses as well.

• Right to Receive Interest on Capital: If the partnership deed so decides that a partner is entitled to receive
interest on capital at a fixed or certain rate, he has a right to receive it but, only out of profits.

• Right to Apply to the Property of the Firm for Business of the Firm: Subject to contract between the partners,
every partner has a right to apply and use the property of the firm exclusively for business of the firm.

Liabilities of Partners

• Joint & Several: Every partner is liable jointly and severally for all the acts of the firm done while he was a
partner. The liability of a partner is always unlimited.

• Liability for Losses causes by HIM: Every partner shall be liable to make good any loss caused to the firm
by his fraud or willful neglect in the conduct of business. No partner can in any way exempt himself from
such loss.

• Liability for Secret Profits: A partner is liable to account for and pay to the firm any private profits earned
from the business of the firm or property or goodwill of the firm.

• Liability for Profits from Competing Business: If a partner carries on any business of the same nature and
competing with that of the firm, he would be liable to account for and pay to the firm all profits made by him
in that business.