Business Law Ten Year

Shiva DelhiUniversity Series
B.Com. H CBCS
BusinesS
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Pape BCHH 1.3 Semester

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Shiv Das& Sons

Educalional Publishers
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ONTENTS
Syllabus
Unit I: The Indian Contract Act, 1872
1. NATURE AND EsSENTIALs OF CONTRAC *
2. OFFER AND ACCTANCE

3. CaracITY ro CONTHAac **
4. FaEE CoNSENT 18
5. CoNSDERATON
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6. ExPRESSLY DscLARED Vo AcnEMENT
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7. CLASSIFRCATION OF CONTRACTS
8. QUASI CovTRACTS
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9. DisCHARCE OP CONTRACT
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10. ReMEDIS FOR BuEACH OF CONTRACT

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11. CONTRACT OF INDEMNITY ANID GUARANTEE

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12. BaLMENT
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13, ACENC
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1930
Unit II: The Sale of Goods Act,
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SALE OF GooDS
1. INTRODUCTHON TO CoNTRACT OF
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WARRANTIES
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2 CoNDITIONS AND
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3. TrANSPER OF PROPERTY
4. KEMEDES KOR BneACH OF CONTRACT OF SALE
2008
The Limited Liability Partnership Act,
3
Unit I
J14
Unit IV: The Information Technology Act, 2000
137
University Question Fapers
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Syllabus
B.Com. (Hons.) Semester-I
PAPER BCH 1.3: BUSINESS
Duration: 3 hours LAWNS
Marks: 100
Course Objective: To impart Credits: 6
relevant for conduct of general basic knowledge of the important
business business laws
along with relevant case laws. activities in physical and virtual spaces
Course Learning Outcomes. After
to: completing the course, the student shall
be able
CO1: understand basic aspects
of conducts for making the agreements,
and subsequently enter valid business contracts
CO2: be able to recognize propositions.
and differentiate the special
appropriate usage at varied business scenarios. contracts and identify their
COS: equip the students about the legitimate
rights and obligations under The Sale
of Goods Act.
CO4: enable with skills to initiate
entrepreneurial ventures as LLP.
CO5: understand the fundamentals of
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Internet based activities under The
Information TechnologY Act.
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COURSE CONTENTS
Unit I: The Indian Contract Act, 1872 so
Contract-meaning, characteristics and kinds, Essentials of valid contract
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Offer and acceptance, consideration, contractual capacity, free consent,
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legality of objects. Void agreements. Discharge of contract-modes of

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discharge including breach and its remedies

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Unit : Special Contracts

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Quasi-contracts, Contract of Indemnity and Guarantee, Contract of Bailment

and Pledge, Contract of Agency
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Unit II: The Sale of Goods Act, 1930

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Contract of sale, meaning 'and difference between sale and agreement to sell.
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Conditions and warranties. Transfer of ownership in goods including sale by

non-owners. Performance of contract of sale. Unpaid seller-meaning and
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rights of an unpaid seller against the goods.

Unit IV: The Limited Liability Partnership Act, 2008
Salient Features of LLP, Difference between LLP and Partnership, LLP and
Company LLP Agreement. Nature of LLP, Partners and Designated Partners,
Incorporation Document Incorporation by Registration, Registered office of
LLP and change therein, Change of name, Partners and their Relations. Extent
and limitation of liability of LLP and partners. Whistle blowing. Taxation of
LLP. Conversion into LLP. Winding up and dissolution of LLP.
Unit V: The Information Technology Act 2000
Definitions under the Act. Digital signature. Electronic governance.
Attribution, acknowledgment and dispatch of electronic records. Regulation
of certifying authorities. Digital signatures certificates. Duties of subscribers
under the Act. Penalties and adjudication. Offences as per the Act.
(io)

UNIT
The Indian Contr 'ct Act, 1872

1. NATURE AND ESSENTIALS OF cONTRACT
agreements are not contracts."
Q 1. "All contracts are agreements but all (1990, 2003)
Commment.
Act, contract has been
Aris. According to Section 2(h) of the Indian Contract
a contract 1s made up ot
aetined as "an agreement enforceable by law". Thus,
two elements:
- an agreement, and
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- the agreement is such as is enforceable at law.
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Contract = Agreement+ Enforceability.
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means only an
Therefore for a contract, there has to be an agreement for it
so of this is that all
agreement enforceable at law. The necessary implication
law are contracts.
contracts are agreements, but only agreements enforceable atagreements remain
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Agreement is the genus of which conträct is the species. Some

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contracts because they cannot be

only agreements and they do'not bëcome
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enforced at law.
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Such agreements are:

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relationship, or
Agreements not intended to create legal
of parties, or
-Agreements not made with the free consent
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- Agreements not made by

competent persons, or
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- Agreements not supported by

lawtul consideration, or
Agreements not made for a lawful object, or
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by law.
Agreements which have been declared void
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from the above that all agreements do not become contracts,

It is very clear an agreement.
though every contract is certainly business agreements, the presumption is that
the
Q.2. "In Commercial and (1988)
obligations." Comment.
parties intend to create legal to create legal relations: "An agreement ernforceable by
Ans. Agreement. Intention is given by Section 2(h) of the Contract Act. This
law is a contract." This dèfinition elements:
definition involves two distinct
agreement, and
- enforceable by law, i.e., obligation of the parties. come
first element, ie, 'agreement is a much wider term and does not law in
The Salmond, "the of
entirety within the compass of Mercantile Law. To quote
its
contracts is not the whole law of agreement nor it is the whole law of obligations. It
is
create legal obligations which spring from

corfined to those agreements which
agreements"
1

2 SHIVA DELHI UNIVERsiTY SERIESs
The above description makes it clear that the term agreement is a wider term.
Only those agreements, which are able to create legal relationship and which are
not of a social nature (offer and acceptance to go to a cinema, or to go toa
restaurant, or to go for a tour etc.) are called contracts.
The second element is enforceability by law which is covered by the term
obligation. To quote William Anson, the terin obligatian is a legal bond whereby
constraint is laid upon a person or group of persons to act or to forbear the doing of an act
on behalf of another person or group of persons.". It means that obligation arises only
from binding promises of certain specific acts or abstinences. This responsibility
of the parties is to continue till the promise is performed or it is disçharged in
some other way permissible under law. The above definition involves only two
elements. Though both these elements are very important ones, but these do not
give an idea of all the essentials of a valid contract.
Thus, in commercial and business agreements, the presumption always is that
the parties have intended to create legal relations. The real intention of the parties
is to be judged not by any objective test alone but by drawing inferences-which
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a reasonable person could draw from the conduct words of the parties. May be
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many times even in cases of purely domestic and social character, the intention of
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the parties is to create legal relations. For example, "A' living as a paying guest
with a family agreed with one of the members of the family to share the prize
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won of a newspaper quiz. The entry sent by 'A' won the prize. Held, now 'A' is
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bound to share the prize money as there wa an intention to create legal relations.
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Q.3. "The law of contract is not the whole law of obligations." Comment.
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(1991)
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Ans. "The law of contract is not the whole law of obligations".

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Salmond defined a contract as "an agreement creating and aefjning obligations

between the parties." A contract directly contemplates and creates an obligation,
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originate from
and that obligation is enforceable at law. 1hese obligations, which
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can arise otherwise

a contract, are studied by law of contracts, and obligations
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than from a contract, such as:

a hysband and a wife.
-obligations arising from status-as between
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- obligations arising from judgements of courts

wrongs, where a tort has been
obligations arising rom torts or ivil to reimburse the
committed against someone else, there is an obligation
loss caused to him. of law of contract, while
These obligations do not form the subject-matter by law of contract. Thus,
obligations, which are created by contract, are studied
law of obligations. Salmond, therefore has
Lawof contract is notlawtheofwhole
corntract is not the whole lw of agreements
nor is it the
rightlyobserved, "the
agreements which create obligations, and
whole law of obligations, it is the law of those
agreements."
thoseobligations, which have their source in agreements that are
Explain the doctrine of "Publíc Polícy". Discuss the
Q4.
contriry to Public Policy. opposed to Public Policy when it is harmful to
said to be
Ans. An agreement is
Public Policy is that principle of law which holds that
no
welfare.
thepublic
can lawfully do that, which has a mischievous tendency to
be injurious to
subject

1. NATURE AND ESSENTIALS OF CONTRACT
the interests of the public, or which is against the public good or public welfare.
Some of the agreements which are, or which have been held to be opposed to
Public Policy and are unlawful are as follows:
Agreements of trading with enemy. An agreement made with an alien
enemy in times of war is illegal on the ground of public policy. Contracts
which are entered into before the outbreak of war are either suspended
or dissolved. According to the intention of the parties these can or cannot
be carried out by postponing performance till the end of hostilities.
(i) Agreement to commit a crime. When the consideration in an agreement
is to commit a crime, the agreement is opposed to public policy.
Likewise, an agreement to indemnify a person against consequences of
his criminal act is opposed to public policy and hence unenforceable.
(i) Agreements in restraint of legal proceedings. They include:
- Agreements restricting enforcement of rights. An agreement which
rights
wholly or partially prohibits any party from enforcing his
under or in respect of any contract is void to that extent. which
Agreements curtailing period of limitation. Agreements
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limitation are
curtail the period of limitation prescribed by law of
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void because their object is to defeat the provisions of law.
(iv) Trafficking in public offices and titles. Agreements for the
so sale or
public
transfer of pubic offices and titles or for the procurement of a
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monetary
recognition like Padma Vibhushan or Param Veer Chakra for
as
an
consideration are unlawtul being opposed to public policy. Similarly,
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to act
agreement to pay money to a public servant to induce him
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policy.
corruptly or to retire are void on the ground of public
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If person
Agreements tending to create interest opposed to duty. a
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enters into an agreement whereby he is bound to do something

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agreement is
which is against his public or professional duty, the
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void on the ground of public policy.

absence of father,
Agreements in resraint of parental rights. In the
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the mother is legal guardian of her minor child. The right of

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Such an
guardianship cannot be bartered away by any agreement.
agreement shall be void on the ground ot public policy.
which unduly
Agreements restricing personal liberty. Agreements
as against
restrict the personal freedom of the parties are void being
public policy.
- Agreements in restraint of lrade. An agreement which
interferes
any lawful trade,
with the liberty of a person to engage himself inRestraint of Trade'.
profession or vocation is called an Agreement in
Such an agreement is void to that extent.
Agreement to defraud creditors or revenue
authorities. Such an
greement is not enforceable, being opposed to public policy.person,
a
Marriage brokerage agreements. An agreement by which
a monetary consideration, promises in return to procure the
for
marriage cf another is void, being opposed to public policy.

4
SHIVA DELUAI UNIVERsmY
SERIESs
Q.5. In social agreements,
to create legal obligations. the usual presumption is that the parties
intend
Ans. False. In social agreements,
parties do not or rather never rather the usual presumption
agreements are not conlracts. intend to create legal obligations. is that the
As per Section 2(b) of Hence, such
contract is defined as an the Indian Contract Act, a'
agreement enforceable at law.
comprises of two elements: () an Thus, a contract
agreement; and (i) the legal obligation.
In commercial and business
agreements, the law presumes that
entering into an agreement intend those the parties
agreements to have legal consequences.
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ACCEPTANCE
2. OFFER AND
Q.1. Distinguish between 'offer' and 'an
invitation to offer. (2001)
to have made an offer
Ans. "Offer and to an offer. A person said
'ivitation is
to do or to abstain from doino
or proposal, when he 'signifies to another his willingness
such act or abstinence.'
anything with a view to obtain his assent to
my house for R50,00,0002" X is
For example, if X says to Y "Will you purchase X will be fully
thus making an offer to Y. Thus, if X's offer is accepted by hen
Y
bound to the contract between X and Y.

an invitation to an offer.
However, an offer must always be distinguished trom
price lists, quotations or displays in show-cases etc. do not constitute offer in
he
themselves. These are rather only an invitation to offer. The prospective
buyer
only, by his act
cannot force the shopkeeper to sell the goods at those prices. He
Or prcking up an article for purchase, makes
an offer wnich the seller may or may
advertiser to
not accept. An invitation to offer aims at taking the customer to the
start negotiations whereas a general offer aims at leading the offeree
to the
pertormance of conditions specified in the otfer which would amount

acceptance of the offer.
is to a train of
Q. 2. "Acceptance is to àn offer what a lighted match
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(1996)
gunpowder" Comment
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acceptance of an offer may
Ans. According to Sir William Anson, the effect of
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be stated in the following words: so gun-powder. It produces
"Acceptance is to an offer what a lighted makch is to a train of
statement has compared two
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something which cannot beurécalled or urndone"This
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events for their similaritiés, the' èvents being:

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) the acceptance meëting än offer, and The consequence of fire meeting

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(i) fire meeting a train of gunpowder.

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consequence is
gunpowder is a continuous explosion till the end. This of acceptance
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irreversible and instantaneous. Similarly, the consequence

meeting an offer is emergeñnce of an agreement.
be
a valid acceptance.
Q. 3. Discuss the legal rules regarding
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Ans. Legal Rules regarding a vala acceptance

and unqualified. Section 7 of the Indian
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() Acceptance must be absolute order to comvert a proposal into a promise, the

Contract Act lays down:-"In
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acceptance must be absolute and unconditional."

the offer without
The offeree must accept unconditionally all the terms of
any change in any of them.
must in the mode prescribed or some usual ana
(1) Acceptance be made acceptance must be expresseu
reasonable mode. Section 7(2) states that "the
proposal prescribes the manner in which it is
in some usual manner, unless the
to be accepted. the proposal prescribes a manner in
which it is to be accepeu
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acceptance made in such a manner, the proposer may, within a
and the is not
him, insist that his
reasonable time after the acceptance is communicafed to
manner and not otherwise, bur y
proposal should be accepted in the prescribed
he fails to do so, he accepts the acceptance." 76,000 per
Example. P writes to R offering his house on rent to R for
month. He requires R to send his acceptance by post. R telephones o
5

SHIVA DELHI UNIVERSITY SERIES
accepting the offer. P may insist that the acceptance should be

post. In that case, the telephone conversation would not sent by
create the
contract.
(ii) Acceptance must be given within the time prescribed or a reasonable
time. To make it legally binding the acceptance should be given either
within the period prescribed, and if no period is specified, within a
reasonable period, what is reasonable is in each case dependent upon
circumstances.
Exampla. In Ramsgate Victoria Hotel Co. vs. Montefiore. M applied for
shares in a company in June but allotment of shares was made in
November. M refused to accept the shares. It was held that he could
refuse to take the shares because there was inordinate delay in
acceptance. Six months could not be considered a reasonable period in
any case.
(iv) Acceptance must be given before the offer lapses or is revoked.
Acceptance should be given before the offer lapses by the expiry of fixed
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or reasonable period or before it is revoked by the offerer.
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() An acceptance can never precede an offer. There can be no acceptance
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of an offer which is not communicated. In other words, acceptance can be
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given only for an offer which has been communicated.
Example. In Lalman Shukla vs. Gauri Dutt, Ghad sent his servant to
L
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find his missing child. After L had left, G announced a reward for anyone
as
of the
who found the lost child. L brought the boy without knowing
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reward and thus he was not entitled to the reward because he did not
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know about the offer.

known
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(vi) Acceptance must be communicated. Acceptance should be made

or
the offerer. Mee mental acceptance not evidenced by words
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conduct is not considered acceptance in the eyes of law.

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acceptor does
(vin) silence cannot be a mode of acceptance. Sometimes, the
silent. In such a
not convey his decision regarding the offer and/or keeps
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Similarly, the offerer

case, his silence does not amount to acceptance.
answer is received within a
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if
does not have the legal right to say that no
to have been accepted. He
certain time, the offer shall be deemed to which the offeree's
(offerer) cannot impose a condition according
acceptance.
silence will be regarded as equivalent to
Felthouse vs. Bindleyl
(viii) Acceptance may be expressed or
implied. An açceptance, which is
words, written or spoken, is called an expresšed
expressed by by conduct is called an
acceptance. Acceptance, which is expressed
implied acceptance. revoked?
(2002)
can an offer be
Q.4. How and on what grounds taking back (withdrawal) the offer already
Ans. Revocation of an offer means be (i) express, i.e., by words spoken or
may
made. The revocation of án offer of the offeror. If the otteror does
or ( tmplied from the conduct would
wien, inconsistent with the continuance of the offer, it
Something which is
amount to revocation of offer.

2. OFFER AND ACCEPTANCE
An offer may be revoked at any time before the

acceptance is complete for the offeror, but not afterwardscommunication of its
Contract Act 1872). According to Section 6, which deals (Section 5, Indian
with the revocation of
offer, an offer or proposal is revoked in the following ways:
1. Revocation by communication of notice. An offer may be
revoked by the
communication of notice of revocation by the offeror. It may be noted that an
offer can be revoked only before its acceptance is complete for an offeror. In other
words, an offeror can revoke his offer at any time before he becomes bound by it.
Thus, the communication of revocation of offer should reach the offeree before
the acceptance is communicated. A notice of revocation will take effect only
when it is brought to the knowledge of the offeree.
2. Kevocation by lapse of time. If a time is prescribed for acceptance, and if the
offer is not accepted within this period, the offer is revoked by the lapse of time.
Example. X offered on Thursday to sell wool to Y. Three-days' time was given
to Y for acceptance. Y accepted the offer on Monday, but by that time X had
already sold the wool after waiting for the allowed period of three days. It was
held that the offer had lapsed and X was not bound by the acceptance.
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Head vs. Diggon (1828) 2 M&RThe
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If no time is prescribed, the offer lapses by the expiry of a reasonable time.
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term 'reasonable time" will depend upon the facts and circumstances of each case.
so
Example. X applied for shares of a company in June. The allotment
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shares had
(acceptance) was made in November. It was held that the offer to takeotter,
and X
as
lapsed as the reasonable time had passed since the making of the
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was not bound to take the shares.

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Ex. Ch. 109]

[Ramsgate Victoria Hotel Co. vs. Montefiore (1866) LR & acceptance.
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a condition precedent to
3. Revocation by non-fulfilment of
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condition must be fulfilled before the

Sometimes, the offer requires that' some
offer lapses if it is accepted without
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acceptance of the offer. In such cases, the price

agrees to sell certain goods at a certain
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fulfilling the condition. A seller If the

condition that the buyer pays the price before a certain date.
subject to the
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date, the ofter stands revoked.

buyer fails to pay the price by that offeror. The death or insanity of the
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death or insanity of the

4. Revocation by to provided the otreree comes to know of the death
ofterer puts an end the ofter But if the offer is accepted in
before acceptance.
or insanity of the nfferor acceptance is valid.
J.uct of death or insanity ot the otteror, the by the
1gnorance ot the Sometimes a counter-otter is made as the
Revocation by counter-offer. to an end,
5. cases, the original offer automatically comes
offeree. In such of the original offer.
counter-offer amounts to rejection car for I,50,000. Instead of accepting
Y to sell his
Example. X made an offer to the car for 80,000. Hence Y's offer to buy for
the offer, Y made an offer to buyterminates the original offer made by X.
80,000 is a counter-offer which accepted according to the prescribed
or
Revocation of offer by not being acceptance is prescribed in the offer. n
6. mode, Sometimes, some manner of niot accepted
according to the
usual offer if it is
the offeror can revoke the that within a reasonable time, the offeror
such cases,manner.
prescribed It may be noted
offeree that the offer should be accepted in the
should give notice to the otherwise.
prescribed manner, and not

8 SHIVA DELHI UNIVERSITY SERIES
7. Sometimes, there is a change in law which

makes the offer illegal or
incapable of performance. In such cases also,
the offer comes to an end.
8. Sometimes, the offeree rejects the offer.
In such cases, the offer comes to
Q.5. How can an acceptance be revoked? Explain with the help anofend.
an
example.
Ans. Revocation of Acceptance. An acceptance may be revoked at any time
before the communication of the acceptance is conplete as against the acceptor
but not afterwards. (Section 5)
The Communication of an acceptance is complete:
As against the proposer. When it is put into a course of transmission to
him, so as to be out of the power of the acceptor.
As against the acceptor. When it comes to the knowledge of the
proposer.
The Communication of a revocation is complete:
As against the person who makes it, when it is put into course of
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transmission to the person to whom it is made, so as to be out of the
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power of the person who makes it.
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As against the person to whom it is made, when it comes to his
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knowledge.
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Example. A proposer sent a letter by post to sell his house to B. The letter
is posted on the 1° of the month. B accepts the proposal by a letter sent
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by post on the 4". The letter reaches A on the 6". A may revoke his offer
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any time before B posts. his letter of acceptance, i.e., by 4" but not
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afterwards. B may revoke his acceptance at any time before his letter of
acceptance reaches A, ie., by 6" but not afterwards.
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Q. 6. Performance of the terms and conditions of an offer amounts to

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acceptance.
Ans. True. Performance of the terms and conditions of an offer amounts to
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acceptance. Acceptance may not always be an external manifestation of words.

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may take place by conduct also. In case of general offers, acceptance would
normally take place by the perkormance of conditions stated in the offer. Section
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8 of Indian Contract Act, 1872 has recognized this mode of acceptance as follows:
"Performance of the conditions of proposal, or the acceptance of any
cornsideration for a reciprocal promise which may be offered with a proposal,
is
an acceptance of the proposal."
The case Brogden vs, Metropolitan Railway Co. also emphasized the validity
of acceptance by conduct and of the rule that mental acceptance is no acceptance.
Q.7."Specific offercan be accepted by any person from the general public."
Critically examine the statement.
Ans. Specific offer. A specific-offer is one which is made to an ascertained, i.e.,
definite person. It can be accepted only by the person to' whom it is made.
For example, A offers to buy certain goods from B at a certain price. This offer
is made to a definite person B. Therefore, if goods are supplied by P, it will not
give rise to a valid contract (Boulton vs. Jones). In other words, specific offcr
cannot be accepted only by any person from the general public. It can be
accepted only by that desinite person or that particular group of persons to
whom it has been made.

2. OFFER AND ACCEPTANCE 9
Q.8. State with reasons whether the following statements are true or false
(a) 'An invitation to offer is not an offer'. Explain.
(b) Communication of offer is complete when the letter of offer is posted.
(c) Mental acceptance is no acceptance in the eyes of law.
d) Acceptánce can be made even without knowledge of the offer.
(e) "Silence cannot be prescribed as a mode of acceptance."
Acceptance of a General Offer is notrequired to be communicated.
Ans: (a) True. 'An invitation to offer is' not an 'offer in the eyes of law and
does not become a promisé when accepted. In case of invitation to offer there is no
intention on the part of the person sending out the invitation to obtain the assent
of the other party to' such invitation. On the other hand, an 'offer' is a final
expression of willingness by the offeror to be bound by his promise, should the
other party choose to accept it. In case of an 'invitation to offer his aim is to
merely circulate information of his readiness to negotiate business with anybody
who on such information comes to him. When a person advertises that he has got
a stock of books to sell or a house to let out, there is no offer to be bound by any
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contract. In fact, such advertisements are'offer to receive offer and not an offer
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to sell in itself. Similarly, a shopkeeper's catalogue of price is not an offer. It is
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only an invitation to receive offers from his customers. Display of goods in a
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shop, with price tags attached, is not an offer even if there is self-service system
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in a shop. The buyer cannot compel the sellèr to' sell the goods at those prices.
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b) False. As per Section 4, of the Indian. Contract Act, "The communication of

it comes to the knoiwledge of the person to whom it is
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proposal is complete when

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made."Communication of offer is complete not merely when the letter of offer is

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just posted. An offer must be comnunicated to the person to whom it is made.

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This is true of specific as well as general offer. It means that an offer is complete
only when it is communicated to the offeree. Without being aware of the offer, a
be
person can not accept it. One leading case on this is

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"Lalman Shukla vs. Gauri Dutt" In this case a person L's nephew who lived
with him ran away from home. L sent his employee G in search of the boy. After
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the employee left, L announced a reward for any one who found the missing
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nephew. G found the boy and then also comes to know of the reward. HHe
demanded the reward from L. L refused to give it. G filed a case but lost on the
ground that there was no agreement Bbetween L and G. L's offer was never
communicated to G.
(c) True. Mental acceptance is no acceptance in the
eyes of law. One of the
rules of valid acceptance is that it must be communicated to the offeror.
communication may, however, be expressed or implied. The
A mere mental
acceptance is no acceptance. A mere mental acceptance
means that the offeree is
assenting to an offer in his mind only but it is not
communicated to the offeror.
The principal regarding acceptance is that
manifestation of acceptance. A mere there should be some external
mental determination to accept
acceptance is communicated, does not create Until the
any legal relations.
In words of J. Shah, "An agreement does not result from
the
intent to accept an ofjer, oreven a mental a mere state of mind,
contract. This external resolve to accept an offer
manifestation should be does not give rise toa
in the form of expressed
written or spoken or may be signed through words, eilher
conduct".

Example. A agreèd to supply coal to a railway company.

Agents of
met, anda draft agreement was drawn. Agreement was approved both parties
by A, and then
sent to the manager of the railway company for his acceptance. The
manager
approved the draft and put it in the drawer of his table, and the agreement
remained there without final approval being signified. In this case, no
valid
contract is concluded between the parties as acceptance was not communicated.
[Brogden vs. Metropolitan Railway
(d) False. There can be no acceptance without offer. In other words, there can
be no acceptance of an offter which is not communicated. Acceptance carnot
precede offer. For instance, no allotment of shares in a company can be made
nless the allottee has applied for them before hand. Similarly, performance of
conditions of an ofter in a general offer without the knowledge of the offer is no
acceptance. Acceptance can be given only for an offer which has been
communicated.
Thus, in Lalman Shukla vs. Gauri Dutt (1913) where the servant brought the
boy without knowing about the reward, it was held that the servant was not
entitled to reward because he did not know about the offer.
al
(e) True. "Silence cannot be prescribed as a mode of acceptance". Sometimes, the
ci
acceptor does not convey his decision to the offeror or/and keeps silent. In that
ffi
situation, his silence does not amount to acceptance. Moreover, the offeror does
so
not have the legal rights to say that if no answer is received within a certain time,
se
the offer shall be deemed to have been accepted. He (the offeror) cannot impose a
as
condition that offeree's silence will be considered as equivalent to acceptance.

[Felthouse vs. Bindley]
l
/c
Example. X offered his car to Y for 95,000, and wrote that if he did not hear
m
from him (Y) withina week, he would assume that he has accepted the offer. No
.co
reply was given by Y. In this case, no valid contract is concluded between X and
Y. Silence does not normally amount to acceptance. But the following exceptions
be
to the rule that, Silence does not imply acceptance, may be noted:
Tu
Where because of previous dealings, the offeree has given the offeror
reason to understand that his silence means that he has accepted the
ou
offer.
Y
- Where the offeror himself has dispensed with the communication,of the
acceptance.
Sometimes performance of all conditions of the offer without
communication of acceptance is considered stfficient acceptance of the
offer.
Where the offeree remains silent but takes the benefit of the offer, it vill
amount to acceptance.
For example, if X has subscribed to a magazine for one year and after one year
the magazine is continued to be supplied to him and he continues to accept it, it
is an acceptance of the offer made by the magazine company and X woild be
liable to pay for it.
True. This statement is true. A 'general offer is one which is made to the
world at large or public in general and may be accepted by any person who
fulfils the requisite conditions. Such offers may be accepted by performance of
the conditions by an individual person in order to give rise to a contractual

2. OFFER AND ACCEPTANCE
obligation to pay the reward. The leading case on 11
Carbolic Smoke Ball Co. In this case this subject is that of Carlill
the company issued an advertisement vs.
which it offered to pay $100 to any person in
who contracts influenza after
used their smoke balls according to printed having
directions. Mrs. Carlill, bought and
used the smoke balls according to the directions. She
got
the company for the promised reward. The company influenza and thus sued
was held liable.
PRACTICAL PROBLEMS
1. P was appointed as a Principal of a school. One of the members of the governing
body privately informed P that he had been appointed Principal.
But no official
communication was sent to P by the governing body. Later the governing body
did
not appoint P as the Principal. P filed a suit against the governing body ko claimm
damages. Advise him, giving full reasons as to whether he would succeed. (2000)
Hint No, P cannot succeed in this suit against the governing body. The
contract had not been completed yet. The communication of the governing
al
body's decision was not at all there, as a private communication by a
ci
ffi
member of even the governing body is not considered to be a
communication by the governing body. So, no contract had yet been
so
reached between P and the appointing authority i.e., the goverming body.
se
2. A offered to sell his estate to B for 1,000 lakhs. B ojered 7 950 lakhs which A
as
refused. After some lime B turole to A accepting the original offer of t 1,000 lakhs.
l
A having refused to sell the property, B sued for specific performance. Decide,
/c
giving reasons. (2002)

m
Hint: B will not succeed. Here B's offer terminates the original offer (A's
.co
offer). So if after rejection B again agrees to purchase it (estate of A) for

be
R1,000 lakhs, there is no contract unless A accepts B's offer because the
original offer lapsèd as soon as a counter offer (offer from B) was given.
Tu
3. A made an ofer to B for selling 50 ycles ? 1,000 per cycle and prescribes one
ou
month for acceptance. B fails to accept the offer within the stipulated tine. If B
gives his acceptance after one month, whether this acceptance is valid or not?
Y
Hint To be legally effective, an acceptance must be given within the

specified time limit, if any, and if no time is stipulated, the acceptance must
be given within a reasonable time because an offer cannot be kept open
indefinitely. Therefore, in the present case, acceptance given by B after one
month will not be effective. Hence, this acceptance is not valid.
a
4. P ofjered to sell a farm to Q for 1,00,000. But, Q made counter offer to buy it
jor 95,000. P refuses to sell it for 95,000. Subsequently, Q ofered to purchase
thejarm jor1,00,000. Is there any contract between P and Q? Explain.
Hint An offer lapses if it has been rejected by the offeree. The rejection
may be express, i.e., written, or oral, or implied. Implied rejection is one:
1. where either the offeree makes a counter offer; or
2. where the offeree gives a conditional acceptance.
In the present case, since Q rejected the original offer by making a counter
offer of I5,000, the original offer came to an end and no contract came into
existence.

3. CAPACITY TO CoNTRACT
Q.1. Discuss the validity of contracts by
minors. (1986, 1993, 2000, 2004)
Ans. According to Indian Majority Act, 1875, a
minor is a person who has not
completed 18 years of his age on the date of the contract.
But in the following two
cases the minority of a person would continue
up to the completion of 21 years of
age
where a guardian to the person or property of a minor
is appointed by
the court.
when the minor is under the guardianship of the
Court of Wards, ie.,
minor's property is looked after by the Court of Wards.
Validity of Contracts by MinorS:
1. Minor's contract is
absolutely void. In Mohori Bibi vs. Dharmodas Ghose
Privy Council held that a minor's contract is
void ab initio arid not merely
viodable. A minor's agreement being absolutely void, neither
the minor nor the
other party acquires any right or incurs any
liability under the agreement. so a
al
minor is neither liable to perform what he has promised to do
under an
ci
agreerment, nor is he liable to repay money that he has received
under it. The
ffi
reason underlying this rule is that a minor is incapable of making
a rational
judgement of the effects of a contract in his own interest, i.e., he is not
so
to have the experience of judging what is good or bad supposed
se
for him.
However, Section 68 of the Contract Act lays down
"Ifa person, incapable of
as
entering into a contract or anyone whom he is legally bound to support, is

supplied by
l
another person with necessaries suited to his condition in life, Hhe person,
/c
who- has
m
furnished such supplies, is entitled to be reinbursed from the property

person."
of such incapable
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2. Minor can be promisee. An agreement is void as against a minor but a

be
minor can derive bernefit undera contract. The privilege of minority is

available
Tu
to the minor only. Other person cannot avoid tlhe contract

because the promisee is
a minor.
ou
3. A minor's agreement cannot be ratified. Since

an agreement with a minor is
Y
void ab initio, ie., it does not exist in the eyes of law, it

cannot be ratified by a
minor after completing the age of majority.
4. A minor can always plead his infancy. So
even if a minor has induced the
other party by misrepresenting his age, he cannot be
tort i.e., common law for fraud. But sued either in contract or in
where a loan etc. is obtained by a minor by
fraudulent representation and is set aside, the court
may ask the minor to restore
the property purchased out of such money to the
other party. This may be
allowed by the court on equitable considerations.
5. Minor cannot be admitted
to a partnership but he can be admitted to the
benefits of the partnership with the consent
of other partners.
6. A minor cannot be adjudged
7. Minor's parents. Agreements
insolvent
made by a minor are not enforceable against
his parents, even though they are for
the necessaries suppied to the minor.
However, if the minor is acting as an agent for
would be bound by the obligations his/her parents, then the parents
agreed to by the minor.
12
3. CAPACITrY TO CONTRACT 13
The position of a minor as regards his agreements may be summed up as
follows:
( An agreement with or by a minor is void ab-initio.
Example. A minor executed a mortgage for 20,000 and received 78,000
from the mortgagee. Then.he sued for setting aside the mortgage. The
mortgagee claimed refund of 78,000 which he had paid. Held, an
agreement by the minor was void and the mortgagee could not recover
the amount of 78,000.
(Mohori Bibi vs. Dharamodas Ghose, (1903) 30 Cal. 539].
(i). An agreement with a minor cannot be ratified or approved by the minor
on attaining the age of majority.
ii) If a minor has received any benefit under a void agreement, he cannot be to
ašked to compensate or pay for it, as it would be an indirect method
enforce an otherwise void agreement.
to set up
iv) Estoppel does not apply to minors. A minor cannot be estopped falsely
minority even when he enters into a transaction by
misrepresenting his age.
agreements entered into by a
()There can be no specific performance of the
al
minor as they are void ab-initio.
ci
(vi) A minor is liable for "necessaries" supplied or
necessary services
ffi
rendered to him or anyone whomheis legaly bound to support.
so (Section 68)
Q.2. What do you unde urnderstand bycompetfence to contract'? Examine the
se
(1987, 1989, 2000)
position of contracts made.by minors*
as
for every valid

Ans. Competence to contract. "At least two parties are essential
l
of entering into
contract and each of these parties must have the legal capacity
/c
"Every person is
the contract. Section 11 of the Contract Act provides that
m
to the law to which he is

.co
competent to contract, wlto is of the age of majority, according

by any law to
subject, and who is of sound mind and is not disqualified from contracting
be
which he is subject". Thus, in law, following persons are not considered to be

Tu
competent to enter into a contract:

1. A minor,
ou
2. A person otherwise disqualified for entering into contract,

Y
3. A person of unsound mind.

1. Fosition of minors. See Q. 1, (above)..
2A person otherwise disqualified for entering into contract. Section 11 gives
another category of persons whò may not be competent to contract. These are the
persons who may be declared disqualified to contract by some law to which they
are subject to:
Convicts. A convict is a person under imprisonment by court on being
found guily under the Indian Penal Code (PC). Such a person does not
have certain civil rights.
(6) Foreign diplomats. An Indian
entering into a contract with foreign
diplomats will not be able to enforce it against them without the
permission of Govermment of India because of privileges extended to
them and their families under the Vienna Convention
Relations, 1961. on Diplomaic

14 SHIVA DEUI UNIVERSITY SERIES
(c) Alien enemy. An agreement made by an

Indian with an alien enemy
ithout Government's approval will not be enforceable
by both the ?
parties.
() Insolvent persons. An insolvent isaperson who has beer declared
a court of law because of his inability to meet his liabilities so by
his
existing assets. An insolvent'cannot make any contract which out of
will make
his property liable in some manner to the disadvantage
of the creditors.
3. Persons of unsound mind. ACcording to Section 12, "A person
is said to be of
sound mind for the purposes o making a contract if at the ime, when he makes it, he is
capable of understanding it and of Jorming a rational judgement as to its efect upon his
interest". Thus, idiots, lunatics and drunkards are regarded to be persons of
unsound mind.
Q.3. State with suitable examples thecircumstancesunder which a minor is
bound by his contracts for necessaries as per Indian Contract Act. Whether a
contract of personal service by a minoris valid? Explain.
Ans. Minor's Liability for contracts for necessaries of life; A minor or any
other person not competent to contract or any other persorn whois legaly bound
al
to support or look after the minor may enter into an agreement for the supply of
ci
necessaries of life for the minor or the person otherwise incompetent to contract.
ffi
In such a case the person who has provided such.necessaries of life is entitled to
so
get payment or be reimbursed. But such payment canbe recovered only and only
se
from the property of the minor orsuch incompetent person.
as
All such claims arise orily out of what are called "Quasi Contracts" and not out
l
of the minor's contract becäuseminor's contract or any contract with minor is just
/c
void ab-initio. A minor or for that matter any other person otherwise not
m
competent to contract is liable to make payment for the necessaries of life

.co
supplied to him or for him.

be
Necessaries would include items such as food, clothing, accommodation

Tu
expenses on education, professional training, sports, medical expenses and even

marriage expenses of any other deperndent of the minor. What other items are
ou
included or not included in "necessaries" of life actually depends on the socio

Y
Culhural status of the minor.

Q4. State the reasons whether the following statements are true orfalse
(a) A minor's estate is liable for necessaries supplied.
(6) A minor can be a payee of he cheque.
(c) A Lunatic can never enter into a contract.
() A minor can always plead minority.
e) Law does not debar a minor from becoming a promisee in a contrac
Ans. (a) A minor's estate is Hable for necessaries supplied. (Section 65). A
minor is liable to pay out of his property for 'necessaries' supplied to him or to
anyone whom he is legally bound to support. Such clains arise not out or
contracts but out of what are called 'quasi-contracts.
1s clear rom the above Section that if a person supplies necessarles to a
15
minor which he actually needs or to minor dependents, whom the minor to be
bound to support, the person who supplies such necessaries is entitled
pay
reimbursed from the property of such a minor. A minor is, therefore, liable to

3. CAPACITY TO CONTRACT
out of his property for necessaries supplied to 15
him, or his minor dependents
whom he is legally bound to support. However, the supplier
price and not the price agreed to by the minor. will get a reasonable
(b) TrueA minor can be a payee ot the
cheque.
negotiate or endorse the negotiable instruments. A minor is competent to draw,
It may however be noted
the minor will not incur any personal liability under such instruments. that
negotiable instruments executed in favour of the minor can be enforced But, the
(c) False 'Lunatic is a person whose mental power has been
by him.
damaged. Such a
person is sometimes sane and sometimes insane. He goes through intervals of
sanity and insanity. Such persons may enter into a contract when they are of
sqund state of mind. I5xcept for the agreements made during lucid intervals, all
agreements made by lunatics are void. But, agreements for necessities of life are
valid. The property of lunatic is liable for such
(a) True. An agreement made by a minor or with a minor is always void ab
initio, i.e., absolutely and is void from the very beginning, (Section 10). In the
famous case of "Mohori Bibi vs. Dharmodas Ghose a minor had executed a
mortgage of his property in favour of a money lender taking a loan ot 2u0uu
al
Out of this amount, K8,000 was actually handed over to the minor (5orrower)
ci
Later, the minor started a legal case asking cancellation of the mortgage. The
ffi
Money lender asked for the return of the money. However, the court decided in
favour af the minor saying the agreement.was absolutely void. The lender was
so
was not at all enforceable.
not entitled to return of money. The agreement
se
about
Aminor may plead minorityeven when he is guilty of misrepresentation
as
his age.
l
/c
contract means incapability t»

(e True. Incapacity ofsa mirnor to enter into a
m
which debars the minor from

bind himself by a contract. There is nothing
a payee or indorsee in a contract. Such
.co
becoming a promisee or a beneficiary or option of the other party.

contracts may be enforced at his option, but not at the a benefit.
be
incapable of accepting
The law does not regard him as
Tu
ou
PRACTICAL PROBLEMS proposal by

to sell his house to B. B accepts the
Y
by a letter sent by post

1. Aproposes legal position regarding revocation of offer and
State the
a letter sent by post. (1986)
acceptance by A and B respectively.
his offer or proposal to sell his house to B at any
revoke
.Hint Here, A may letter of acceptance but not afterwards. According
time before B posts his be revoked any time before its acceptance
is
to Section 5, "a proposal may afterwards". So revocation of an offer
Complete as against the proposer but
nót
and after communication of acceptance is
15 not possible after it is
accepted acceptance is posted.
proposer, i.e., when B's letter of
complete against the acceptance may be revoked at any time
5, "an
Similarly, according to Section acceptance is complete as against the
accepior bur
the
Dore the communication ofrevoke his acceptance at any time betoreWethe
ot afierwards". B may complete against B himself,
Le,
Communucation of B's acceptance is
A.
B's letter of acceptance is received by

16 SHIVA DELHI UNIVERSnY
SERIES
2. Anil agrees with Gopal to let oul
the house under construction
advance for the purpose. The house and obtains an
is, lhowever, requisitioned
therefore Anil is unable to by Government and
honour his promise. What
against Anil? Can Gopal recover are the rights of Gopal
damages for breach of contract?
Hint No, Gopal cannot recover damages for (1987)
claim refund of the advance made breach of contract but he can
the Government, therefore because by him. As the house is requisitioned
by
of "supervening impossibility"
the contract becomes void. The principle u/s 56
of restitution u/s 64 applies in case
of contracts subsequently
becoming void. The above case is covered
impossibility of performance which by the
arises subsequent to the formation of
the contract.
3. Ramesh, a minor, by misrepresenting
himself to be of 19 years, obtains a loan
710,000 from Suresh stating of
that theamount was badly needed by him to
complete his educalion. Surcsh,
without making any fiurther inquiry, lent
amount to Ramesh. Can Suresh recover the the
amount from Ramesh?
al
Hint: No, According to Section 11, a (1988)
minor is not capable of entering into a
ci
contract. A contract entered into with
or by a minor is absolutely void. In this
ffi
case, Ramesh (minor) can plead his minority.
He is not stopped to do so even when
so
he enters
misrepresenting his age. Suresh cannot recover into a transaction by falsely
se
4. A minor purchased on credit half dozen twoollen the amount from Ramesh.
as
a
merchant. Later on, he refused to make tlie payment.
suit-length pieces from a cloth
l
money from him? Give rensons. Can the supplier recover the
/c
(1993)
m
Hint: No, the supplier cannot recover the money

because the agreement by or with the from the minor. This is so
.co
minor is absolutely void. This

agreement is not even covered under the
supply of necessaries to the
be
minor.
5. What is the legal efject of a minor's
Tu
misrepresentation of his age while

into an agreement? entering
ou
Hint: If a 'minor makes a fraudulent a995)

agreements with him are void and he misrepresentation as to his age,.
Y
is not
minority in defence. The court may, however, stopped from pleading his
the money or benefit to the other require the minor to restore
party on the ground of equity.
minor is not allowed to cheat others. Thus, a
6. A executed a pronote in
favour of B while he was a minor.
renewed by A in favour of B when The pronote was
he attained the age of majority. B
against A on the basis the second brings a suit
of pronote. Will he succeed? Give
reasons.
Hint No, B will not succeed in recovering (2001)
attaining majority cannot money from A. A minor on
ratify an agreement entered
minor. Since the minor's agreement into while he was a
is void ab initio, it cannot
by any subsequent action. be validated
7. P, a minor, advanced certain
[Mohendra vs. Kalish ($927)555 Cal. 841]
sum of money to Q. Q executed
imnovable properly in favour a mortgage of this
the mortgage be enforced
of P, as a securiky of money advanced
by P in this cnse? Explain. to him. Can

3. CAPACITY TO CONTRACT 17
Hint: Yes, A minor can be a beneficiary or a promisee. In the eyes of the
law, a minor is nottreated as incapable of accepting benefits. In the case of
Raghavn Chariar vs. Srinivasa [(1916) 40 Mad 308], a mortgage was executed
in favour of a minor who had advanced the whole of the mortgage money.
The question arose whether the mortgage executed in favour of a minor
was enforceable by the minor or by other person on his behalf. The court
held that the transaction was enforceable by or on behalf of the minor.
Therefore, on the basis of the above mentioned decision, P can enforce the
mortgage in 'this case.
8. A, a minor borrowed a sum of 710,000 from B. After attaining majority he
to B.
borrowed another 20,000 from B and promised to repay both loans
Can the promise of A be enforced in the Court of Law? Explain with reasons.
Hint: Yes, the promise of A can be enforced in the court of law. Wherein
addition to the consideration already given during minority, a further
advance (K20,000) is made on a fresh consideration given after minoriy, a
promise to pay the whole of the amount becomes binding. There is no
al
question of ratification in such cases.
ci
Kundan Bibi vs. Sree Narayan (1906) Cal. w.N 135]
ffi
so
se
as
l
/c
m
.co
be
Tu
ou
Y

4. FREE CONSENT
Q.1. "A mere silence as to facts is not fraud." Comment.
(1987, 1989, 1999, 2000, 2004)
Ans. Section 17 of the Indian Contract Act, 1872 defines fraud as any act
committed by a party to a contract with an intent to deceive another
party thereto, or to
induce him to enter into the contract.
Fraud means and includes any of the following acts committed by a party to
a
contract or with his connivance, or bý his agents, with intent to deceive another
party or to induce him to enter into the contract:
the suggestion, of that which is not true, by one who does not believe it to
be true.
nthe active concealnent of fact by one having knowledge.
in) a promise made without any intention of performing it.
(io) any other act meant to deceive.
() any such act or ommission as the law specially declares to be fraudulent.
al
The general rule is that a person need not disclose to the other party the
ci
material facts which he knows but he must refrain from active mis-statements. This
ffi
means mere silence is not fraud. Explanation to Section 17 also lays down that mere
silence as to the facts likely to affect the willingness of a person to enter into a
so
contract is not fraud. There are however two exceptions to this rule
se
1. Where the circumstances of the case are suchthat, regard being had to
as
them, it is the duty of the person keeping silencé to speak.

l
Example. A sells byatiction to B, his daughter, who has just become a

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major, a horse which A knows' to be unsound. Here A's silence would

m
amount to fraud, Tegard being had to the relationship between the

.co
parties.
be
2. Where the silence is, in itself, equivalent to speech.

Example. B says to A, "If you do not deny it, I shall assume that the horse
Tu
is sound." A says nothing. Here A's silence is equivalent to speech.

ou
Q.2. Distinguish between 'fraud' and 'misrepresentation'. (1988, 1998)

Ans. Difference between fraud and misrepresentation:
Y
( In case of fraud, the party making a false or untrue representation with

the intention either to deceive or to induce the other party to enter into a
contract. Misrepresentation on the other hand, is innocent, ie, without
any intention to deceive or to gain an advantage.
(i) Both misrepresentation and fraud make a contract voidable at the option
of the party wronged. But in case of fraud, the party defrauded gets the
additional remedy of suing for damages caused by siuch fraud. In case of
misrepresentation, except in certain cases, 'the only remediès are
rescission and restitution.
(ti) In case of fraud, the defendant cannot take the plea that the plaintif had
the means of discovering the truth or could have done so with ordinary
diligence. In case of misrepresentation it would be a good defence.
Q.3. What is 'undue influence'? How does it differ from 'coercion'?
(1991, 1999)
18

4. FREE CONSENT
19
Ans. Undue influence. Undue influence is the improper
possessed over the mind of the contracting party. It creates use of anyor power
pressure over the other party. a mental moral
Section 16(1) of the Indian Contract Act, 1872
defines undue influence as "a contract is said to be
induced by undue influence where
the relations subsisting between lhe parties are sSuch that one
of the parties is in a position
to dominate the will of the other and uses
that position to obtain an unfair advantage over
the other."
From the definition, the essentials of undue influence become clear, that
the relations subsisting between the parties should be such that one of
them is in a position to dominate the will of the other.
-
the dominating party should have used his position to obtain an unfair
advantage over the other.
Cocrcion Section 15 of the indian Contract Act defines coercion as "the
committing or threatening to commit any act forbidden by the Indian Penal Code, or the
urlufjul detaining, orthreatening to detain any property, or causing any person to enter
into an agreement." The explanation to this Section says that it is immaterial
al
whether the Indian Penal Code is or is not in force at the place where the coercion
ci
is employed.
ffi
Distinction between Coercion and Undue influenceso
CoercioN ndue inflience
se
1. Consent is obtained by threat.of an Consenf is obtained by the domina-
as
offence. The person,.is;:forced to tingwill öf other. Consent is given in

l
give his consent. good belief, but under moral influence.

/c
Confidenceis reposed, but betrayed.

m
2. It is of violent character. It is subtle in character.

.co
3. It is mainly of physical character. It is of moral character.

be
4. If the contract caused,by coercion is Where the.contract caused by undue

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rescinded under Section 64, the| influence is rescinded, the affected

affected party has to restore back to party may be allowed by the court
ou
the pther party any benefits that it under Section 19A, to retain some öf
Y
may havereceived under it. benefits ofit as courtmay find itjust.

5. Coercion may be exercised against Person against whom undue
a person who does not become influence is exercised must become
party to the contract party to thecontract.
However, in both coercion and undue influence, freedom of will does not exist.
Both are equally ettective.
Q.4. What isundue influence? State three situations where the presumption
ot undue influence exists.
Ans. Undue influence. Undue influence is the improper use of any power
possessed over the mind of the contracting party. It creates a mental or moral
pressure over the other party. Section 16(1) of the Indian Contract Act, 1872
defines undue infauence as "a contract is said to be induced by undue inftuence where
the relations subsisting between the parties are such that one of the parties is in a position
to dominate the will of the other and uses that position to obtain an unfair advantage over
the other."

From the definition, the essenials of undue influence become clear, that
- the relations subsisting between the parties should be such that one of
them is in a position to dominate the will of the other.
- the dominating parly should have used his position to obtain an unfair
advantage over the other.
Presumption of undue inflnence. As per Section 16(2) of Indian Contract Act,
"A person is deemed to be in a position to dominate the will of another":
() where one party holds a real or apparent authority over the other;
() where one party stands in a fiduciary relationship to the other;
)where one party makes a corntract with another in a mental distress.
Undue influence is presumed to exist under the circumstances mentioned
above in sub-clauses («), (6) and («). In other words, for example, where the
relationship between the contracting parties is that of master and servant, father
and son, doctor and patient, solicitor and client, etc., or where one of the parties
al
to the contract is an old illiterate person, there is no need of proving the use of
ci
undue influence by the party whose conisent was so caused. Merely status'of
ffi
parties is enough to prove the existence of undue influence in these cases.
Presumption of undue influence is also there, in case of a contract by or with a
so
'Pardanashin woman.
se
Houeuer, o presumption of undue influence exists inder the following cases:
as
) Husband and wife (in case o pereons engaged

to marry, the
l
presumption of undue influerice will arise*

/c
)Mother and daughter s.

IIsimail Hafiz Boo (1906)]
m
(ii) Grandson and grändfather

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(io) Landlord and teriant

(o) Creditor and debtor
be
In these cases, undue influence shall have to be proved by the party alleging
Tu
that undue influence existed:

Q.5. "An attempt to deceive which does not deceive is no fraud." Comment.
ou
Ans. An attempt to deceive which does not deceive is no fraud. It is true to say
Y
that a deceit which does not deceive is no fraud because a mere attempt
to
deceive by one party is not treated as fraud unless the other party
is actually
deceived. In other words, the other party must have been
induced to enter into a
contract because of the representation made with an intention to
deceive. But if
such representation does not come to the notice of a party,
it cannot be said to
have misled that party. So there is no fraud.
Example. A while selling an unsound horse, put up
on the stable's door a
forged certificate from a veterinary surgeon that the
horse was sound. B, a
purchaser, did not notice the certificate and purchased
the hors. B cannot avoid
the contract on the ground of fraud. In this case B was
not in reàlity induced by
the forged certificate to purchase the horse as he had not seen
Thus, an attempt at deceit, which does not deceive, i.e., the certificate.
does not influence the
consent of the other party, is not fraud.
Q.6. "The law relating to mistake is a comedy of
errors." (1996)
Ans. Mistake. One of the essential elements of à valid
consent' of the parties to it. The parties are said to be contract is the 'free
having or providing a free

4. FREE CONSENT
21
consent to a contract when they agree upon the same
thing in the
the same time. This means the parties to the contract are 'ad idem'. same sense at
no consent or the consent is not free, then there cannot be When there is
valid contract.
According to Salomon it is described as error in consensus. a
One circumstance,
which interferes with 'consensus ad idem' is 'mistake'.
Mistake may be defined as an erroneous belief about something.
Mistake is
further divided into:
Mistake of law and mistake of fact. If it is mistake of law of one's own land
then-the rule is 'ignorance of law is no excuse' (Ignorantia juris non excusat). A
party cannot be allowed.to get any relief onthe ground that it has done or agreed
, to do something in ignorance of law. A mistake of law is, therefore, no excuse
and the contract cannot be avoided., However, if there is a mistake as to some
foreign law, then it is treated just like a mistake of facts. In such a case, therefore,
the contract can be avoided.
Further, the mistake bf fac can be either (i) bilateral or (i) just unilateral.
Bilateral mistake of fact occurs when both the parties to an agreement are
al
under mistake as to a matter of fact which is essential to the contract. If this
ci
happens then the contract is just void.
ffi
Therefore, the following two conditions are necessary for the "bilateral'
mistake;
so
must be mutual or bilateral.
se
- It must relate to a matter of façt which is essential to the agreement.
as
However, in case of a'ünilateral mistaké,only one of the parties is mistaken

l
/c
regarding the subject matter."Acording to Section 22, a contract is not voidable

m
merely because or on the ground that it was caused by one of the parties to it
.co
being under a mistake as to a matter of fact.

For example, H agreed to buy some rice from S, a sample of which was also
be
hown to H.H by mistake thought that the rice was old. But actually the rice was
Tu
new. Held, H could not avoid the contract.

However, there are or can be certain exceptions as well to this rule that a
ou
unilateral mistake is no ground for avoiding the contract.

Y
Q.7. A voidable contract is one which cannot be enforced in a court of law.

Ans. False. As per Section 2() of the Contract Act, "An agreement which is not
enforceable by law at thr option of one or more of the parties thereto,
but not at
the option of the other or others, is a voidable contract." Thus, a
voidable contract
one which is enforceable by law at the option of one
of the parties, i.e., the
party whose consent was obtained
by coercion, undue influence,
misrepresentation or fraud.
PRACTICAL PROBLEMS
1. A at pistol point asked B to
sell his car for 10,000
avoid the aontract? Give only. B sold his car. Can B
full reasons for youT answer. (1999)
Fint: Yes, B can avoid the contract as
his consent has been obtained
coercion. It is so because threat
to shoot, murder, intimidation, cause
y
rape, detamation etc.
Code.
are examples of acts all nur
forbidden by the Indiarn rea

22 SHIVA DELHI UNIVERSmY SERIES
2. X shows sample to Y describing it as 'Chinese silk' Y approves of the sample and

places an order for the supply of Chinese silk'. The goods delivered are according
to sample but it turns out that the sample, as well as bulk is Japanese silk. DiscusS
the rights of buyer Y against seller X.
Hint: In the given case, buyer Y has the right to retuse to accept the goods
delivered by seller X.
Reason. In a sale by sample as well as by description, the goods supplied
must correspond both with the sample as well as with the description.
Similarly, in Nichol vs. Godts [(1854) 158 E.R. 426] there was a sale of
"Foreign refined rape-oil having warranly only equal to sample". 1he oil
tendered was the same as the sample, but it was not "foreign refined rape-
oil" having a mixture of it and some other oil. It was held that the seller
was lfable, and the buyer could refuse to accept.
al
ci
ffi
so
se
las
/c
m
.co
be
Tu
ou
Y

5. CONsIDERATION
O.1. Whàt do you understand by the term 'consideration'?
Is consideration
necessary in all cases? (1990, 1992, 1993, 1996, 1997,
2001, 2003)
Ans. Consideration. The term 'consideration' is used in the sense
quo' (something in return). It implies the value received of 'quid pro
act or some kind of abstinence on his part for by the promisee for his
his promise to act or abstain from
doing an act. Thus, it is "the price for which the promise of the other is bought"
-Pollock.
Section 2(d) of the Indian Contract Act defines consideration as under, "When
at the desire of the promisor the promisee or any other person has done or abstained from
doing or does or abstains from doing, or promises to do or promises to abstain from doing
something, such an act or abstinence orpromise is caled a consideration for the promise."
On an analysis of the above definition, the following points emerge:
Consideration must always be at the desire of the promisor.
- It must come from promisee or any other person on his behalf.
- It may be past, present or future.
It may be an act or abstinence or promise.
al
It must be real and valuable in the eyes of law.
Consideration is one of the essentials of a valid contract. Section 10 of the
ci
Indian Contract Act, 1872 states that "all agreementsare contractsif they are made by
ffi
the free consent of parties, competent to contract, for a laröful consideration". In other
so
words, an agreement without considetation is:not a contract and, thus,
se
unenforceable at law. Section 25 of the:Indian Contract Act, also states the same
as
effect by providing that an agreement ithout consideration is void.

The
Exception to this rule 'An agreement without consideration is void'. by
l
/c
supported
following agreements are valid even though they are not
m
consideration:
.co
affection. An agreement without

1. Agreement on account of natural love and
account of natural love and
consideration is void. But agreement made on
be
conditions are fulfilled:

affection will be valid, if the following
Tu
- it should be in writing.
the law for the time-being in force for the
ou
- it should be registered under

registration of documents.
Y
parties who stand in near relation to each

it should be made between
other [Section 25 (1)]. services. An agreement made without
2. Promise to pay for voluntary a person
valid, if it is a promise to compensate, wholly or in part,
consideration is done
voluntarily done something for the promisor, or
who has already legally compellable to do [Section
25 (2
promisor was
something which the
Examples: B promises to give A
7 200. This is
gives it to him.
( A finds B's purse and
a valid contract pay A's expenses in doing so.
son. B promises to
(17) A supports B's infant
This is a valid contract.
This rule is applicable only:
voluntarily;
() if the Act was done
23

24 SHIVA DELAI UNIVERSITY
SERIS
(ii) for the promisor and
(iin) the promisor must agree
now to compensate the promisee.
3. Promise to pay time-barred debt.
A promise to pay a time-barred debt
also enforceable. Section 25(3) provides that: is
) where there is an agreement, made in writing and signed by the debtor
or by his agent,
(in) to pay wholly or
in part a time-barred debt, the agreement is valid and
binding even though there is no consideration. Thus, an oral promise to
pay a time-barred debt is unenforceable. Similarly, an acknowledgement
of a debt is not covered by this rule.
4. Contract of agency. No consideration is necessary to create
an agency
[Section 185].
5. Agreement in respect of gift. Also the rule, which
insists on the presence of
consideration for every ugreement, does not affect gifts. "Nothing shall affect the
Dalidity, as between tihe donor and donee, any gifts are actually made." (Explanation 1 .
al
of Section 25).
if
ci
Q.2. What are the legal rules of consideration?
ffi
Ans. Essentials of a valid consideration:so
1. Consideration must always move at the desire of the
promisor. The act of
se
forbearance of the promisee or any other person.must be done at the desire or
as
request of the promisor. Thus acts done or services rendered voluntarily or at the
desire of a third party, will not cönstitüte a valid consideration. The desire of the
l
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promisor may be expressed or impliedfrom the conduct of the parties.

m
2. It must move from the.promisee or any other person on

his behalf. So long
.co
as there is consideration for a promise, the contract remains valid and it,is
immaterial who has furnished it-the promisee himself or any other person for
be
him. Thus, in Chinnayya vs. Rammayya, A made over certain property to

her
Tu
daughter, under a deed of gift, with a direction that the daughter should pay
an
annuity to A's brother B as has been done by A. On the same day, the
ou
executed a writing in favour of A's brother B agreeing to pay daughter

the annuity. The
Y
daughter refused to fulfil her promise afterwards and A's brother B sued
her
under the agreement. Held, he was entitled to recover the amount of
annuity as.
the consideration for the promise is to be done after the promise is made.
3. Consideration may be past, present or
future. Where the promisor has
received consideration before the date of the promisc, it is
past consideration.
When the promisor receives consideration simultaneously with his
promise, the
consideration is present. Where the promisor has to receive consideration
in
future for his promise, it is future consideration.
4. Consideration may be an act or abstinence. Consideration
may be a
promise to do something or abstain from doing something. Consideration
may be
either positive or negative, i.e,, an act to do or not to do something. For example, a
debtor may agree to pay a sum to a creditor for not filing a suit against him for
recovery of loan.
5. Consideration need not be adequate. The
consideration need not be
adequate to the promise for the validity of agreement. The law only insists on the
presence of consideration and not on the adequacy of it. It leaves the people free
to make their own bargains. Thus, if A promises to sell a house worth 200,000

6.
cONSIDERATION 25
the price in itself
shall not rendarer the
inadequacy of
for 50,000 only, the
transaction void.
must be real and not
ilusory. It is,said to be unreal and
Consideration
6. impossible or
1S illusory when: consideration is legally or physically
() the act forming
uncertain or
tor (i) the consideration is present, but in fact is absent, a.g-, the act of a. persnn
(ii) when it seems to be same.
nd already. under a legal duty to perform the
who is
It is said to be unlawful if
to 7. Consideration must be lawful.
nt by law; or
( it is forbiddennature
(i) it is of such a that, if permitted, it would defeat the provisions of
any law; or
(ti) it is fraudulent; or
of iv) it involves or implies injury to a person or
property of another; or
he (v) it is immoral. [Section 23]
Q3. Insufficiency of consideration is immaterial but an agreement without
consideration is void." Elaborate this statement. (1994)
al
Ans. An agreement supported by inadequate consideration remains
ci
enforceable and what is an adequate consideration for one's promise is to be
ffi
decided by the party concerned. But, if an agreerment is not supported by
so
r consideration at all, i.e., one of tlhe parties to itis not getting anything in return of
se
e its promise, the agreement is void. Setion 25 of the Indian Contract Act points
out in this regard the: enforceabify of such an agreement by stating such
as
agreements to be void (except under special circumstances). For example, X

l
/c
promises, for no consideration, to give to Y R10,000. This is a void agreement for

m
want of consideration.
.co
The reason behind the rule is ethics. If a person promises to do or abstains from
doing something, he should be compensated for his act or abstinence failing
be
which he will not have an inducement to perform his part of

promise.
Tu
Therefore, inadequacy of consideration is immaterial but agreement

consideration is void.
an without
ou
Q.4. "Consideration need not be adequate

the eyes of law." Comnent. but it must have some value in
Y
Ans. Adequacy of consideration. (1988)

Consideration need not be adequate,
must have some value, however slight. but
prices. For example, where X It is up to the parties to fix their own
30,000, for K10,000 to Y, it becomesvoluntarily agreed to sell
his motor car worth
the consideration. a valid contract despite
the inadequacy or
Explanation 2 to Section
25 of the Contract
agreement to which Act also clearly provides that
the consent of the at
because the consideration promisor is freely given,
be faken into account is inadequate; is not void merey
by the court in
but the inadequacy consideration
consent of the of may
promisor was freely determining the question
avoid the contract given. whether
deciding the case, on the ground that his In the above example, if X wan. to
Q.5."A stranger will take into account consent was not free, the court, w** hile
to consideration the inadequacy of consideration.
Ans.Stranger to
consideration. can sue." Comment. (1990, 1994
Stranger to
consideration
(1990,
implies a promisee

26 SHIVA DELUAI UNIVERSITY SERIESs
who has not furnished any consideration from the promise made to him.
words, the consideration on behalf of promisee has been supplied by In other third
party. Consideration may move from promisee or any other a
Consideration from a third party is a valid consideration person.
under English Law,
however, consideration must move from the promisee only.
A gifted certain property to her sister with the condition that the daughter
should pay an annuity to A's sister B. However, the daughter failed to keep her
promise and the aunt (A's siste:) sued the daughter to claim the annuity. I was
held here that the words in Section 2(d)-"the promisee or any other person" indicate
that a stranger to consideration may maintain asuit. (Chinnayya vs. Rammayya)
It will be observed here that there was no contract between A's daughter and B,
but as a result of the agreement betweenA and her daughter, B was the
beneficiary and was entitled to the consideration, though he was a stranger to the
contract. Therefore, a stranger to a consideration may enforce a contract.
In India, a stranger to a consideration may enforce a contract but not a stranger
to a contract.
Q.6. "Consideration in some cases is a mere technicality, neither
al
reconcilable with the business expediency nor with the common sense."
ci
(1991)
ffi
Comment.
Ans. Consideration must be 'something of value. For the validity of a contract
so
what is more important is that there must be:söme.consideration. The law does
se
not require that consideration must, be adeguateInadequacy of consideration
as
will not rendèr the conträct void, TE A agreesito sell his scooter worth R25,000 for
73,000 only to B, it 1s a validconract even though the consideration is
l
/c
inadequate. However, it theconsideration is grossly or shockingly inadequate,

m
and if one of the parties to the contract alleges that his consent was obtained by
.co
fraud, coercion or undue influence, the court will treat inadequacy of

consideration as an evidence in support of such allegation and will declare the
be
contract void.
Tu
"An agreement, to which the consent of the promisor is freely given, is not void merely
because the consideration is inadequate; but the inadequacy of the consideration may be
ou
taken into account by the court in determining the question whether the consent of the
Y
promisor was freely given"- Explanation 2 to Section 25. Because of the'rule of

inadequacy of consideration being no bar to a valid contract, it has been said that,
"in many cases, the doctrine of consideration is a mere technicality irreconcilable either
with business expediency or common sense".
Q.7. "A stranger to the contract can not sue" Comment on the statement,
giving exceptions, if any.
Ans. A stranger to a contract can not sue, there being no privity ofcontract
Detween him and the contracting party (Privity of contract' means being party to
the contract). A contract can rot confer rights or impose obligation on any person
other than the parties to it. Privity of contract means that a contract is a private
relationship betwéen the parties who make it and no other person can acquire
rights or incur liabilities under it.
To the above Rule, however, there are following exceptions:
1. Beneficiaries under trust. In the case of trust, the beneficiary
may
enforce the contract.

5. CONSIDERATION
Erample. X has formed a trust with Y as the trustee 27

having an obligation
to hand over the income from trust property to Z. The
would be entitled to enforce the benefit against the trustee beneficiary Z
even if he is a
stranger to the contract.
Rana Uma Nath Baksh Singh vs. Jang Bahadur]
2. Marriage settlement, partition or other family arrangement. At
the time
of partition of property of a joint family, a male member may agree that a
certain portion of property shall be kept aside for the benefit of, say,
some elderly person or the education and marriage of a female chilá.
Such beneficiaries may not be the party to the arrangement, but they
have been held entitled to enforce the agreement for their benefit.
Sundararaja vs. Lakshmiammal
3. Acknowledgement or Estoppel. Sometimes, by the terms of a contract, a
party is required to make payment to a third party (eg, Chinnayya vs.
Rammayya), and they acknowledge it by conduct or otherwise to a third
party. Such a third party can sue the promisor although there is no
al
rivity of contract between the party and the third party.
ci
Example. When under an agreement between a tenant T and subtenant
ffi
Y, the latter was paying the rent directly to L the landlord, L was allowed
so
to recover the unpaid rent from Y, the subtenant
se
4. Agreement creating a charge.on immovable property. Where a person
forthe benefit for of a third party and
as
makes a promise tojan. inidividual

creates a chargeon certain immovble property this purpose, the
l
/c
contract.
third party can enitorcethe promise, though he is a stranger the
to
m
5. Covenants running with land. Where a person purchases land

with a
.co
under an
notice that the owner of the land is bound by certain duties
is also
earlier agreement of the owner with some authority, the purchaser
be
bound by this agreement

Tu
6. Assignment of rights. Where rights

of a person are assigned or
operation of law, the
ou
transferred to another person by him or under

his own name even without
assignee is entitled to enforce the right in
Y
being party to the contract. policy, or the official assignee of an

Example. ASsignee of an insurance
insolvent person. statements are true orfalse:
whether the following
Q8. State with reasons, promisee or any other person. (2004)
(a) Consideration may move from
cannot maintain a suit.
A stranger to consideration
of consideration will make an agreement void.
Inadequacy one of the essential elements of a valid contract. A
Ans. (a) Consideration is void. According to Section 2(d) of the Indian
promise without consideration is move from the promusee or
any otner
Consideration may
Contract Act, 1872, that Consideration may move nnt from the
person. In India, there is a possibility party to the contract. In England,
is not a
promisee but froma third person, who from the promisee and nobody ese
move
ne rule 1 that Consideration must [Chinnaya vs. Rammayya (1882) 4 Mad. 137

28 SHIVA DELHI UNEVERSmY SERIESs
A, by a deed of gift, gave certain property to her daughter B, with a direction

that she should pay her aunt C (A's sister) a certainsum of money annually. The
same dayB entered into an agreement with her aunt C to pay her the agreed
amount. Later on, B refused to pay the amount to C on the ground that no
consideration had moved from C to B. The Court held that, C was entitled to
claim the money as there was consideration which moved from A to her daughter
B.
(b) False. In India, it is not necessary that consideration must be supplied by the
promisee, it may be supplied by any other person including a stranger to the transaction
[Section 2(d) of the Indian Contract Act 1872].
In Chinnayya vs. Ramayya, A, by a deed of gift, transferred certain property to
her daughter, with a direction that the daughter would pay annually to A's sister.
On the same day, the daughter executed an agreement in favour of her aunt to
give effect to the terms of the gift deed. But later on she refused to fulfil her
promise saying that no consideration had moved from her aunt (A's sister). The
court, however, held that the words 'the promisee or any other person' in Section
al
2(a) clearly show that the consideration need not necessarily move from the
ci
promisee, it may move from any other person. Hence A's sister was erntitled to
ffi
maintain the suit. As per lawinIndia, a stranger to consideration can maintain a"
so
suit.
se
(c) False.
Consideration is something in retürn. This something in return need
as
not, necessarily be equal in valuewith something given. The consideration need

l
be adequate to the promise -for, the validity of an agreement. The law insists
/c
on the presence of consideration andnot on the adequacy. It leaves the people

m
free to make their own* bargains. Inadequate consideration does not render a
.co
contract void. However, the inadequacy of the consideration can be considered in

be
order to know whether the consent of the promisor was free or not.
Tu
PRACTICAL PROBLEMS
ou
1. A gifed the whole of his property to his daughter on the condition that
she should
Y
pay K1,000 p.m. to her uncle yather's brother). On the same

day the daughter
entered into an agreement with her uncle to pay ?1,000 p.m.
Later she refused to
pay on the ground that she did not receive any consideration
from her uncle.
Advise her.
(1992)
Hint Facts in this problem are similar to those
decided in the famous case
of "Chinnayya vs Rammayya (1882)" wherein
the court had held that
consideration indirectly moved from A's brother to A's daughter. He was,
therefore, entitled to maintain the suit. It is a case of
consideration. Consideration need not necessarily move constructive
from the promisee.
2. Ram owed R5,000 to Mohan. The debt was barred Limitationt
by Act. Ram signed
awritten promise to pay ? 2,000 to Mohan on account of this ime-barred deb
Can Mohan claim 2,000 from Ram?
Explain (2004)
Hint: The facts of the above case are based on Section 25(3) of the Indian
Contract Act, 1872.
The general rule, as laid down in Section 25, is that an agreement
made
without consideration is void. However, there are three exceptions to the

5. CONSIDERATION
29
general rule. In such cases, the agreements are contracts even though made
without consideration.
According to Section 25(3), a promise by a debtor to pay a time-barTed
debt is enforceable provided it is
made in writing, and
signed by the debtor or his agent.
ln the present case, although the debt of Ram was time-barred, but Ram
signed a written promise to pay 72,000 out of the debt of 75,000. Mohan can
claim 2,000 from Ram, as this promise to pay does not require a tresh
consideration.
3. A agrees in consideration of 1,00,000 fron B to kill C. B borrows this amount
from D who knowingly lends money to B. Can.D recover this amount from B?
Discuss.
Hint: No, In the present case, since the agreement, between A and B is of
al
unlawfhul nature, the same is illegal and the agreement between B and D is
ci
collateral to an illegal agreement. As such the loan transaction is illegal and
ffi
void and D cannot recover the money from B. However, the position
so
would have changed if D was not aware of the purpose of loan. In that case
the loan transaction would not be collateral to the illegal agreement and
se
would be a valid contract and the money would be recoverable.
as
.
l
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good
m
.co
be
Tu
ou
Y

6. EXPRESSLY DECLARED VoID AGREEMENT
o. "An agreement in restraint of trade is void." Examine this
1.
statement
mentioning exceptions, if any. (1989, 1991, 1995)
Ans. Agrecment n
restraint oj trade Freedom of trade is a fundamental right
protected by the Constitution of India. Also by Section 27 of the Contract Act
Every agreement, by wlhict anyone is restrained from exercising a lawful profession,
trade or business of any kind, is to that extent void. Public policy also
reguires that every
man shall be at liberty to work jor himseij und shall not be at liberty to deprive himself
of
it by any contract that he enters into. According to Lord McMillan in Vancouver
Malt & Sake Brewing Co. Ltd. vs. Vancouver Breweries Ltd, "Every man should
have unfettered liberty to exercise his powers and capacities for his owh comn:anity's
benefit."
Thus, every man has a lawful right to carry any lawful profession or trade to
earn his living. An agreement, which restricts his this right, is void. But this rule
has certain exceptions.
Exceptions:
al
1. Sale of goodwill. One, who sells goodwill of a business, may agree with the
ci
buyer to refrain from carrying on a similar bušiness within the specified local
ffi
limits provided such imits appear reasonable to the court.
2. Partnership Act. There are four provisions in the Partnership Act which
so
validate agreements in restraint of trade
se
According to Section 11(2), an agreement among the partners that
as
anyone of them shall not cary on any business other than of the firm
l
/c
until he is a partner, shall not be void as being restraint of trade.

m
(i) As per Section 54, partners may enter into an agreement ampngst
.co
themselves in anticipation of the dissolution of the firm to the effect that

no one of them, on ceasing to be a partner will carry on any business
be
similar to that of the firm within a specified time limit and local area.
Tu
(ii) According to Section 55(3), any partner may upon the sale of goodwillof
a firm make an agreement with the buyer that such partner will not carry
ou
any business similar to that of the firm within a specified period and
Y
local limits.
(iv) As per Section 36(2), an outgoing partner may agree with his other
partners not to carry on a business similar to that of the firm within
specified period and local limits.
3 rade combinations. Any rade combination máde by some tradèrs to
regulate their business activities shall be valid even if it puts some testrictions on
their business freedom.
4 Sole dealing agreements.are These agreements involve terms to lîmit the
dealings with a single firm only 'valid because such agreements are a common
commercial practice that is carried on by business people to promote tne erad
.Kestraints upon employees. The agreement between an employe a
employee does contain certain rstrictive terms. Such restrictions on employees
could be valid and binding. For example, a
promise by an employee that ne w
not take a part-time job, is valid and binding till employee is working witt
particular employer.
30

6. EXPRESssLY DECLARED VOID AGREEMENT
31
O.2.What are the essentials of a wagering agreement? Discuss the effect of
wagering agreements. (2002)
. Ans. Wagering Agrement [Section 30-Indian Contract Act]. Section 30
declares the wagering agreenment voicd. But the term "wagering agreements' has
not been explained in the Act. Sir Wiliam Anson has defined wager as "a
promise to give money or money's wvorth upon the determination or ascertainment of a
uncertain event." A comprehensive definition was provided by Hawkins, J in the
famous case, Carlill vS. Carbolic Smoke Ball Co. The agreement there was found
not to be a wager. The detinition assembles the essentials of wagering agreements
which are as follows:
Essentials of Wagering Agreements:
( The agreement must be dependent upon an uncertain event. The
performance of the agreement must depend upon the happening or non-
happening of an uncertain event, for example, A wager may be made on
the possible winner of the Cricket World Cup Final which is yet to take
place.
(ii) Mutual chances of gain or loss. The second essential feature of a
al
or lose upon
wagering agreement is that each party should stand to win
ci
the determination of the even.
ffi
in) Neither party to have any control over the event. Neither of the parties
so
should have control over the happenings of the event. If either of the
se
parties has the event in his hands, it, is not a wager.
as
Dayabhai vs. Lakshmichand]

(ivJ No other interest in the event. Neither party should have any other
l
/c
of
interest in the event except winning or losing, for example, contracts
In
m
subject
insurance, the policy-holder has personal interest in the safety of
.co
matter.
be
or money's worth at the happening

() The promise must be to pay nioney agreement of sale of
or non-happening of the uncertain event, even an
Tu
such intentions.
goods may realy be a wagering agreement it it retlectsvs. Mahadeodas]
ou
[Gherulal
undei Indian Contract
Y
Q.3. Explain the agreements expressly declared void

Act, 1872.
under Indian Contract Act, 1872. The
Ans. Agreements expressly declared void
Indian Contract Act to be void
following agreements have been declared by
because of their very nature
26].
Agreement in restraint of marriage [Section
[Section 27].
(i) Agreement in restraint of trade proceedings [Section 28).
(n) Agreement in restraint of legal [Section 29].
iv) Agreement whose meaning is uncertain30].
way of wager [Section
Agreement by impossible event [Section 36].
(D1) Agreement contingent on an
(vin) Agreement to do an impossible act
[Section 561
agreements listed above are not unlawful agreements,
It is to be noted that the only weakness is that law has chosen to
as they are not forbidden by law. Their
of their nature. On the other hana, e
eny entorceability to them because

32 SHIVA DELAI UNIVERSITY SERIES
agreements listed under Section 23 are such, that law

does not want people to
make tlhem because they violate law or hurt society in one
1. Agreement in restraint of marriage. An
way or the other.
agreenent which deprives a person
of treedom relating to marriage would be a void agreement.
Every agreentent in restrnint of tfae marringe of any person,
other than a minor, is void;
[Section 26].
Restraint means a restriction. Section 26 has provided for an exception
with
regard to minors. Restrictions may be imposed upon minors' freedom to marry.
But, on attaining majority age, these restrictions will not be binding.
2. Agreement in restraint of trade. See Q. 1, Page 30.
3. Agreement in restraint of Jegal proceedings. Section 28
provides that every
agreement
-by which any party thereto is restrictecd absolutely from enforcing
rights under or in respect of any contract, by the usual legal proceedings
his
in the ordinary tribunals, or which limits the time within which he may
thus enforce his rights; or
al
which extinguishes the right of any party thereto, or discharges any partyy
ci
thereto from any liability, under or in respect of any contract on the
ffi
expiry of a specifiecd period so as to restrict any party from enforcing his
rigkts, is void to that extent. so
However, an agreemnent to refer disputes to arbitratiön is valid.
se
4. Agreement whose meaning is 'uncertain.
[Section 29]. Agreements, the
as
meaning of which is not certain; or capable öf being made certain, are void.
l
Example. X agrees to sell 100 tons öf oil to Y. From the agreement,

/c
it is very
uncertain as to what kind of oil was intended. Therefore, the agreement
m
for uncertainty. However, if the circumstances enable the is void

.co
court
meaning out of the word 'oil', then, the agreement shall be enforced. to' derive
So, if X is a
dealer of only coconut oil, then, that would become the
be
and the agreement shall become valid.

meaning of the word 'oil
Tu
An agreement to make a contract in future is void.

ou
This-is because the agreement is uncertain. The reason

is that it is not certain
whether the parties will be able to agree or not in
Y
future and what will be the

terms of that contract.
5. Agreement by way of wager. See Q. 2,
Page 31.
6. Agreement contingent on an
impossible event. Contingent contracts are
valid contracts which are dependent on a collateral
event. If the event happens,
then the contract is performed otherwise it becomes
void.
If the event, on which an agreement has been
made contingent, is
event, then the agreement would be void ab initio. For example, an impossible
to join Y on a tour if Z, who is in X has promised
London, returns to India within six hours. The
event is impossible. So, the agreement is void.
7. Agreement to do an impossible
act. Section 56 has stated very clearly
"An ngreement lo do an act impossible in itself is void." that
Example. A agrees with Y to díscover treasure by magic. Theagreement is void.
Q.4. Collateral transaction to an illegal agreement
Ans. 1iegal Agreements. The term "illegal agreement
do not become void.
may be defined as the

6. EXPRESSLY DECLARED void AGREEMENT 33
agreement. which is expressly or impliedly forbidden by law, for example, by
Indian Penal Code or by some other special legislatiorn etc. Thus, an agreement to
commit a murder or to publish a libel (a defamatory statement 15, an lega
Eenernt. Moreover, the agreements which are immoral or opposed to public
policy, are also illegal.
. ne iuegal agreements are void and not confer any rights and obligations on
agreements are not entorceable in
parties concerned. As a result of this, such
a court of law.
Collateral transaction to an illegal agreement do not become void. A
collateral transaction is .one which is incidental or subsidiary to the main
ransaction, e.g, the loan taken for the purpose of carrying an illegal business
sinch as smuggling. The collateral transaction, to an illegal agreement, also
a court of law. It
become ilegal. And thus, it is void and cannot be enforced in
may be noted that even if the collateral transaction is lawtul in itself, it will be
treated as illegal and void.
Example 1. X and Y entered into a partnership agreement for the purpose of
al
arrying on smuggling business. They borrowed money from Z, a money-lender,
ci
for their business. In this case, the main transaction, i.e, the partnership for
ffi
smuggling business is illegal. And thus, the loan taken for the same is also illegal
so
and void. Z cannot get back his money.
Example 2.X, the father of the minor girl, borowed some money from Y for the
se
purpose of the marriage of his minor girl. It was held that Y was not entitled to
as
recover the money, the mariage: of the minor being illegal under the Child
l
/c
Marriage Restraint Act LC.Shrinivas vs. R.K. Mohan Raoj

m
Q5. What are contingent contracts? Distinguish between a Wagering

.co
Agreement and Contingent Contract.

Ans. Cottingent contracts. A contingent contract is defined u/s 31 of the
be
Indian Contract Act, as a contract,to do or not to do something, if some event,

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collateral to such contracts, does or does not happen.

ou
Example. X contract to pay Y 71,00,000 if Y's house is burnt.

This is a
Y
contingent contract.
Thus, in a contingent contract, the promise is conditional
and not absolute. A
promise is said to be absolute or unconditional when the
promisor binds himself
to performance in any event, a promise is conditional
when performance is due
only on the happening ot some uncertain event
collateral to such contract, which
does or does not happen.
The word "collateral" suggests something
that stands side by side with the
main contract, springing out of it.
Wagering agreement Section 30
declares the wagering agreement
term wagering agreements has not void. But the
been explained in the Act. Sir William
Anson has detined wager as promise
detèrmination or ascertainment a to give money or money's worth
of an uncertain upon tme
was provided by Hawkins, J in the famous event." A comprehensive definition
case, Carlill vs.
Co. The agreement ere was
Difference between VWagering tound not to be a wager. Carbolic Smoke Ball
a agreement and
A Wagering agreement is absolutely
valid contract.
Contingent contract:
void but a continoent
nnmo
34
(i) In a wager the parties are not interested in the occunrence of the event
except for the winning or losing the net amount, but in a contingent
contract the parties have real interest in the occurrence or non-occurrence
of the event, for example, insurable interest in the property insured.
(ii) In a wagering agreement, the uncertain event is the sole determining
factor of the agreement whereas in a contingent conttact the uncertain
future event is merely collateral.
Q.6. State with reasons, whether the tollowing statements the true or false
(a) A voidable contract may remain valid.
(b) A void contract is one which is void ab-initio.
A unilateral mistake cannot become a ground to avoid the contract.
Can a unilateral mistake as to fact make a contract void? Explain.
() Lotteries authorized by government are not wagering agreements.
Ans. (a) True. We know that free consent' is an essential element of a valid
contract. If the consent of a party is not free then such party (i.e, whose consent is
obtained by force), may avoid the contract (i.e, may put an end to the contract).
al
Such a contract is voidable at the option of the party whose consent is not free.
ci
Section 2( of the Indian Contract Act, defines the term 'voidable contract' as
ffi
follows:
so
"An agreement whtich is enforceable by law at the option
at or öf one or more parties thereon,
but not option of the other others, is a voidablë contract."
se
In the words of Anson, "A voidable contact is a contract with a flaw of which one of
as
the parties may, if he pleases, take adoanfae. Such a party has a right either to repudiate
l
/c
or to elect to carry out the contrnct inspite of the defect, the other party having no option
m
in the matter". Thus, aivoidable contract remains valid and binding until
.co
repudiated by the party having the right to do so.

(6) False. According to Section 2(E) of the Indian Contract Act, 1872, a contract
be
becomes void only when it ceases to be enforceable by law. A contract, when

Tu
originally entered into, may be vlid and binding on the parties, For example, a
contract to import goods from a foreign country. It may subsequently become
ou
void when a war breaks out between the importing country and the exporting
Y
country. It is illogical to talk of a void contract originally entered into, because

such a contract is no contract at al. Such contracts are void agreements and not
void contracts.
(c) True As per Section 22 of the Indian Contract Act, unilateral mistake
a is
not allowed as a defence in avoiding a contract unless the mistake is brouglht
about by the other party's fraud or misrepresentation. The term 'unilateral mistake'
may be defined as a mistake in which only one of the parties to an agreement is
conused about the facts which are essential to the agreement. When in a contract
only one of the parties is mistaken regarding the subject-matter
or understanding the terms or the legal effect
or in expressing
of the agreement, the mistake is
said to be a unilateral mistake.
According to Section 22, a corntract is not voidable merely
one of the parties to it being because it was caused by
under a mistake as to a matter of fact.
ne analysis of this Section shows that, a unilaterat mistake does not affect the
validity of the agreement. However, this
rule is subject to the following exceptions

6. EXPRESSLY DECLARED VOID AGREEMENT
n Mistake as to identiky of the person contracted 35
to enter into a contract with B with. Where A internds
but by mistake enters into a
C believing him to B, the conlract contract with
is void on the ground of
() Mistake about the nature of the contract. mistake.
In Foster vs. Mackinnon,
old illiterate man was made to sign a bill of exchange, an
by means of a false
representation that it was a guarantee. Held, the contract
(d)False. A wager is a bet; a contract by which two parties or morewas voiá.
agree that
a certain sum of money, or other thing, be paid or delivered to one
of them, on
the happening or not happening of an uncertain event.
The essemtials of a wagering agreement may thus be summarised as follows:
mutual chances of gain and loss;
two parties;
uncertain event;
no interest other than stake;
neither party to have control over the event.
Section 30 of the Indian Contract Act lays down that agreements by way of
al
wager are void; and no suit shall be brought of recovering anything alleged to be
ci
won on any wager, or entrusted to any person to abide the result of any game or
ffi
other uncertain event on which any wager is made.
Lottery. A lottery is a game of chance. Hence, the lottery buiness is a wagering
so
transaction. Such a transaction is not only void but also illegal as per Section
se
294-A of the Indian Penal Code. Therefore, if a lottery is authorized by the
as
Government, the only effectof siuchpermission is that the persons conducting the
l
lottery (i.e., the persons running the lottery and the buyer of lottery ticket) will
/c
not be guilty of a criminaloffence, but the lottery remains a wagering agreement.

m
[Sir Dorabji Jamselji Tata vs. Edward F. Lance And Others, (1918) ILR 42 Bom 676)].
.co
be
PRACTICAL PROBLEM
Tu
the contract. But

1. X agrees to sell his Maruti Zen to Y tw0 months after the date of
the
after 25 days of the contract, X sells the car to Z. Thereupon, sues for
Y X
ou
contract by
breach of contract. X contends that he could still perform the
Y
repurchasing the car from Z. Will X succeed? Give full reasons for your
answer.
(2001)
agreement to enter into
Hint: No, X will not succeed in this case because an is not
an agreement in future is void. A void agreement is one which legal
rise to any
enforceable by law. Such an agreement does not give
an agreement is
consequences and is void ab initio. In the eyes of law such void if it does
An agreement is
no agreement at all from its very inception.
the conditions of enforceability laid down in Section 10.
not fulfil all
O000

7. CLASSIFICATION OF CONTRACTS
Q.1. Distinguish bebween void and illegal agreements. (1987)
Ans. Void agreement. An agreement not enforceable by law is said to be void
Section 2B). It doesnot create any legal rights between the parties, such an
agreement is void ab initio, i.e, from the very beginning. for example, an
agreement made with a minor is void ab initio because a minor is not capable of
entering into a valid contract.
Illegal agreements. The term 'illegal agreements' and not 'illegal contracts' should
be used in this context. The term "illegal agreement' is much wider than the term
void agreement'. Actually "all llegal agreements are void but all void agreements aTe
not illegal". For example, an agreement of wagering nature or an agreement with a
minor is void but not illegal. Further, illegal agreements are not only void but
these attract penalty also. Moreover, agreements collateral to void agreements
are valid but agreements collateral to illegal agreements are all void.
Q.2 "All illegal Agreements are void, but all void Agreements are not
al
ci
illegal."
Ans. Trnre. Void Agreement. According to Section 2(g) of the Indian Contract
ffi
Act, "An agreement not enforceable by law is said to be void." Such an agreement is
so
without any legal effect ab initio (from the very beginning). Under the law, an
se
greement with, say, a minor is void. Similarly, an agreement of restraint of trade
as
or marriage shall be void ab initio.

l
Ilegal Agreement. The term illegal agreement may be defined as the

/c
agreement which is expressly or impliedly forbidden by law eg, by Indian Penal

m
Code, or by some other special legislation. Thus, an agreement to

commit a
.co
murder, or to publish a libel (a defamatory statement) is an illegal agreement.

Moreover, the agreements, which are immoral or against the public
be
also illegal policy, are

Tu
Illegal agreements are void and do not confer any rights

and obligations on the
parties concerned. As a result of this, they are not enforceable
ou
It is clear from the above explanation that both illegal in a court of law.
Y
agreements have no legal effect. But the illegal agreements and void
than void agreements as they are also actually agreements have wider impact
forbidden by law. Whereas, the
void agreements may or may not be
forbidden by law. For instance,
agreement with a minor is only
void but not illegal. On the other an
agreement to kill somebody being illegal hand,
is not only void but also punishable. an
thus concluded that: "All lllegal Agreements are It is
vod, but all votd Agreemenls are
ilegal." not
36

8. QUASI CONTRACTS
Q1. Explain the concept of quasi contracts as provided under the Indian
Contract Act, 1872. (1996, 1998, 2001)
Or
"A quasi contract is not a contract at all. It is obligation which the law
ates." Explain the statement. Explain the statement as recognised under
Indian Cantract Act.
Or
"Quasi contracts are based on the maxim "Nemo debet locupletari ex aliena
Jactura" (one cannot be enriched at the cost of others)". Explain the same with
suitable examples.
Ans. Quasi contract. Generally a contract is an agreement enforceable by law.
So for a contract there has to be an agreement. An agreement needs an offer and
its acceptance by thè other party i.e, the offeree. But it happens many times that
there are obligations resembling to those created by a valid contract though there
has never been any offer or its acceptance by the other party, or there has been no
al
ement between those parties either expressed or implied. Such obligations
ci
are created or imposed by law on the parties and are known as "Quasi
ffi
Contracts". (or "Constructive Contracts" under the English Act).
so
These obligations generally arise out of the duty a person owes to the other. A
se
quasi contract arises out of or is based on the doctrine of "Unjust ernrichment
which means that a person is not allowed to enrich or benefit himself at the
as
expense or cost of the other So duy and not a promise or agreement (offer and
l
/c
acceptance) is the basisof suchquási contracts. As such, a case for damages for
m
breach of contract can be fifedeven in case of quasi contracts in the same way as
.co
in the case of normal contracts.

Under the Contract'Act, such quasi contractual obligations arise in following
be
cases:
Tu
() Supply of necessaries to än incompetent person. As per Section 68 of

Contract Act, if a person, incapable of entering into a contract, or anyone
ou
whom he is legally bound to support is supplied by another person

Y
necessaries suited to his condition in life, the person,

with
who has furnished
such supplies, is entitled to be reimbursed from the
incapable person. property of such
(i) Payment by an interested person. As per Section 69,
interested in payment of money, a person, who is
which another is bound by law to pay
and who therefore pays it, is entitled to
For example, A has to pay
be reimbursed by the other.
some axes to the Government
property. B is A's tenant. If Government in respect of his
will also come to an end. So seizes A's property, B's tenancy
to protect his tenancy, B
taxes. B can recover
the paid amount from A. makes payment of
(ii) Performance of non-gratuitous [Section 69)
lawfully does anything Act. As per Section 70, where a persOn
not intending to do so for another person, or delivers anything to
benefit thereot, the lattergratuitously, and such other person enjoysnin
is bound to make tne
compensation to the
former u
37

38 SHIVA DELHI UNIVERSITY
SERIES
respect of, or to restore, the thing so
done or delivered. For example,
fire breaks out in A's factory, the fire If a
extinguishes the fire. A is not bound to brigade reaches on the spot and
pay to
of firemen was not done with the intention the fireman because the act
(ib) Becoming finder of lost goods.
to be paid.
As per Section 71 of Indían Contract
a person who finds goods belonging to another, and Act,
takes themn into his
custody, is subject to the same responsibilities as bailee.
a
() Payment of money by mistake. As per Section 72 of Indian
Act, a person to whom money has been paid, br anything
Contract
delivered, by
mistake cr under coercion, must repay or return it. For example,
D and E
jointly owe 3,000 to C. D pays the total amount to C. E, unware
of this,
also makes payment of 3000 to C. Thus C gets money from E also
by
mistake. He is bound to return the extra 3,000.
Q. 2. "Quasi conbracts are not conracts in he real sense of the term".
Comment.
Ans. True. Quasi contracts are not contracts in the real sense of the term. We
al
know thata contract can be enforced only when it'has the essential elements ofa
valid conbract namely, offer and acceptance, free consent, lawful object and
ci
consideration, and capacity of the parties to contract. However, in certain
ffi
situations, the legal rights and obligations can be enforced in the court of law
so
even in the absence of essential. The law as:well as justice, requires that such
legal rights and obligations mustbe ernforcedeven if no real contract exists.
se
For example, a person;
in whose house certan goods were left by some other
as
person by mistake, is bound to return them to the owner. Such kind of

l
contractual relations are known às 'quasi contracts'.

/c
According to Dr. Jenks, "Quasi contract is a situation in which law imposes on one
m
person, on ground of natural justice, an obligation similar to that which arises from a
.co
true contract, although no contract, express or implied, has in fact, been entered into by
them".
be
Tu
ou
Y

9. DISCHARGE OF CONTRACT
o.1. What are the requisites of a valid 'tender of performance
Ans. Tender of performance. Under the law of
contracts, the performance
each party of its obligations is the one way of discharging the contract by
the contract to an end. In this regard, Section 37 of the or bringing
Contract Act says "the
parties to a contract must either perform or ofjer to perform their respective promises".
every promisor under the contract has either to perform or offer to perform So
what
he has promised to the promisee. Such offer to perform is called 'tender of
performance'. The promisee has now to accept this performance or tender to
performance. If the promisee does not accept the tender, then tke promisor is
relieved of his obligatiorns and is not liable for non-performance. Not only this, if
this is done, the promisor is not deprived of his rights under the contract.
Therefore, in other words, tender of performance is regarded as equal to
performance itself.
Essentials of a valid tender. Every tender must fulfil the following conditions:
() It must be unconditional.
al
(i) It must be made at a proper time and place.
ci
(ii) It must be for the whole quantity.
ffi
(i) It must be under such circumstances that the promisee gets a reasonable
so
opporturity of ascertaining that the promisor (tenderer) is able and
willing then and there to do the whole of what he is bound to do.
se
have a
() If the tender relates to delivery of goods, the promisee must
as
reasonable opportunithj.of seeing that the thing offered, is the thing which
l
/c
the promisor is bournd by his pomise to deliver.

m
joint promisees has

(o) In case of a joint. promisee, an offer to one of several
of them. It is a valid tender.
.co
the same legal consequences as an offer to all

persòn, which may mean the
(pi) The tender must be made to a proper
be
would be invalid.
promisee or his agent. Tender to any other person in the contract. For
Tu
obligation as contained
(vii) It must be for the entire quantity or pay only a part of
example, offering to deliver only a part of
ou
amount would be an invalid tender. money, the debtor is required to

Y
(ix) Where a tender involves

payment of
in legal tender money.
tender an exact amount of money as a rule, not an excuse for non-
performance is,
Q.2 "Impossibility of Discuss. (2002)
performance of a contract" excuse for non-
performance is, as a rule, not an
Ans. "Inpossibility of Impossibility of perkormance is an excuse where a
performance.of a contract" impossibility. A contract is discharged
by
supervening
contract is discharged by following cases:
supervening impossibility in the When there is a contract in respect to a
matter.
1. Destruction of subject destroyed without the fault of the parties,
later
particular subject matter which is
discharged. days,
the contract is said to be which was let for a series of concerts on certain
music hall, The contract was held to be
Exanple A of the first concert. which the
was burmt down before the date this case as follows, "In contracts in
observed in
void. Blackburn, J.
39

40 SHIVA DELAI UNIVERSITY SERIES
performance depends on the continued existence ofa given person or a thing, a conditior
S implied that the impossibility of performance arising from the perishing of the person or
thing slhall excuse the performance." [Taylor vs. Caldwell]
2. Non-existence of a state of things necessary for performance. When a
contract is entered into on the basis of the continued existence of a certain state of
things, the contract is said to be discharged if the state of things changes or ceases
to exist.
Examples:
( and Y contract to marry each other. Before the time fixed for the
narriage, X goes mad. The contract becomes void.
(i) H hired a flat from K for June 26 and 27, 1905 for witnessing a coronatiom
procession, to the knowledge of K, of King Edward VIL The contract
contained no reference to the coronation procession which was cancelled
owing to the ilness of the King. Held H was excused from paying the rent
al
kor the flat on the ground that existence of the procession was the basis óf
ci
the contract and its cancellation discharged the contract. [Krell vs. Henryl
a
ffi
3. Death or personal incapacity. Where the personal qualification of party is
the basis of the contract, the contract is discharged by death or physical
so
disablement of that party.
se
Example. Xcontracts to act at a theatre for six months in consideration of a sum
as
paid in advance by Y. On several occasions, X is too ill to act. The contract on

l
those occasions becomes void.

/c
Q. 3. What is meant by 'Supervening immpossibility'? Does this excuse the

m
promisor from performing the contrâct in all cases?

.co
(1997)
Ans. Supervening impossibility as an excuse for non-performance.
of the Contract Act no doubt lays down that a contract becomes
Section 56
be
void and
inoperative, if some event subsequently happens rendering its
Tu
impossible or unlawful. However, to render the performance

contract as void, such subsequent
ou
event must be such that it strikes at the very root of the agreement
such as entirely beyond what was actually contemplated by and should be
Y
they made the contract, for example, parties making a contract

the parties when
of them then becoming of unsound mind or a of marriage but one
famous singer making a contract
sing but then becoming too ill to sing and so on. to
But mere impossibility or commercial hardship does
non-performance. To render the contract as not excuse the party for
void, the performance
practically impossible and not merely commercially must be
Therefore, the follouwing are a few cases
dificult or expensive.
impossibility:
of contracts related to supervening.
() The plaintiffs had agreed to buy rom
manufactured by specified mills and to be detendants "dhotis" to be
same are received from the mills. Later,
delivered as and when
the mills failed to the
and deliver the dhotis. It was held, manufacture
the contract was not
availability of dhotis was not impossible void as
but
difficult or costly. The defendants were liable. only had been rendered
(i) Parties agree' to buy and sell grain. Later,
the Government
private trade in grain. Now the contract is void. bans all

OF CONTRACT 41
9. DISCHARGE
only places certain restrictions on sale an
But if the Government
is only difficult or commercially costlier
storage, then the performance
and not impossible. contract by mutual agreement.
Explain the discharge of
Q.4. means of an agreement, thus, it may also be
Ans. A contract is created by between the same parties. Sections 62 and 63
discharged by another agreèment tollowing methods of discharging a
subject and provide for the
deal with this
contract by mutual agreement. a new contract is substituted for an
(i) Novation. Novation occurs when
same parties or between different
existing contract, either between the
parties, the conideration
mutually being the discharge of the old
contract. When the parties to a contract
agree tor novation, the original
contract is discharged and need not be
performed. However, new
contract must be a valid contract.
of the material terms of the
(i) Alteration. It means changé in one or more
contract. f a material alteration in a written contract is done by mutual
al
conserit, the original contract is discharged by alteration
and the new
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contract in its altered form takes its place. The material
alteration made
ffi
consent of the other, will
in a written contract by one party, without the
.
make the whole contract void and, no person can maintain an
so action
se
upon it.
before the date of
(i) Rescission. A contract may be: dischàrged, the
as
performance by agreemernt between theparties to effect, that it shall

l
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no longer bind them. Siuch an agreement amounts to "rescission" or

m
cancellation of the.contract, the consideration for mutual promises being

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the abandonment by the respective parties of their right under the

contract An agreement of rescission releases the parties from their
be
obligatiorns arising out of the contract.

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(iv) Remission. It may be defined as, "the acceptance of a lesser sum than what
was contracted for or a lesser fulfillment of the promise made." Section 63
ou
deals with remission of performance and lays down that a proisee may
Y
remit or give up wholly or in part, the performance of the promise made

to him, and a promise to do so is binding even though there is no
consideration for it.
() Waiver. It means the deliberate abandonment or giving up of a right
which a party is entitled to under a contract, whereupon the other party
to the contract is released from his obligation.
Q.5. Novation and Alteration as modes of discharge of a contract.
Ans. Novation. In novation there may be change in the terms of the contract or
in the parties to the contract. However; in alternation there is change only in ne
terms of the contract and not in the parties to the contract,
In novaion there is a substitution of an existing contract
with a new one. But in
alternation there is no such substitution but only
conditions of the original contract. a change in some termis a
Alteration. Alteration of a contract may toke
place when one or nore ot the
terms of the contract is/are altered by
mutual consent of the parties to tne

contract. Alteration discharges the original contract and creates a

new contract.
However, parties to the new contract must not change.
Q.6. State with reasons, whether the following statements aretrue or false:
(a) A contract cannot be discharged on account of strikes, lock-outs
and civil
disorders.
(b) Supervening impossibility does not include the difficulty
of per
formance.
Ans. (4) True. Events such as strikes, lock-outs and civil disorders do noi
a
discharge contract unless the parties have specifically agreed in this rega
the time of formation of the contract. Ordinarily, when a person undertakes to do
something he must do it unless its performance becomes absolutely impossible
due to:
- destruction of subject-matter of contract;
non-existence or non-occurence of a particular state of things;
death or incapacity for personal service;
- change of law or stepping in of a person with statutory authoriy;
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(b) True As per Section 56 of the Contract Act, "He that agrees to do an act must
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do it or pay damages for not doing it." Unless the performance becomes absolutely
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impossible, a person is bound to perform any obligation what he has undertaker
and cannot claim to be excused by the; mere fact that performance has
.
so
subsequently become unexpectedly burdensomeymoré difficult or expensive.
se
Increased or unexpected difficulty. and'expénsé do,not äs a rule, excuse a person
as
from perforrmance.
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10. REMMEDIES FOR BREACH OF CoNTRACT
O.1. Discuss the remedies available to an aggrieved party on the breach

contract. of a
(1994)
Ans. Remedies on breach of a contract. An agreement giving rise to an
obligation is called a contract and an obligation
more persons. Therefore, parties to a contract creates a legal tie between two or
'are generally expected to perform
their respective promises. However, if any of the parties breaks the contract by
refusing to perform his obligation, then it is called Breach of contract.
In case of breach of contract, the a8grieved party has one or more of the
following remedies:
1. Rescision of contract. Upon a breach of contract by one party, the other can
sue in a court to get the contract rescinded. If so, the other party is freed or
absolved from all his obligations under the contract. However, the court may
grant rescision or refuse to grant it. But when a party gets such a rescision, he is
liable, to restore any benefits he has received under the contract. Similarly, if the
party getting rescision has suffered any loss because of non-fulfillment of the
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promise by the other party, then such party has got a right for compensation for
ci
any damages suffered by him.
ffi
2. Suit for damages. Damages mean monetary compensation payable by the
defaulting party to the injured partyin the event of breach of contract. The object
so
of awarding damages is not to punish the guilty but fo compensate the injured
se
party. The object of awarding damages. is to put the aggrieved party in the same
as
financial position in which he would have been, had there been perfornance and
l
not breach. Amount of damages is to be' assessed by the court keeping in view the
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provisions of Sections 73 and:74 of the Indian Contract Act,

1872.
m
of damages is
Section 73 dealing with the principles regarding the measure that when a
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based on the decision given in Hadley vs Baxendale. It provides

a breach is entitled to
be
contract has been broken, the party, who suffers by such

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receive
course of things from
uch damages which naturally arose in the usual
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such breach;
when they made the contract, to
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such damages which the parties know,

be likely to result from the breach;
compensation is not to be given for any remote and indirect loss or
- such
breach.
damage sustained by reason ot the goods is equal to the difference
damages in contract for sale of
Theamount of market price on the date of breach. It is the duty of
between contract price and
party to take the necessary steps to minimise the losses.
the aggrieved are not an
specific performance. In some cases, where damages
3. Suit for filed by
actual damages cannot be measured, on a petition
adequate remedy or party who has broken the
contract
party, the court may direct the
the aggrieved
to actually perform his promise.
performance i the following cases:
court may grant specific compensation in money tor
he 9when the act agreed to be done is such that
relief;
its non-performance is not an adequate
43

44 SHIVA DELUI UNIVERSITY
SERIES
(i) When it is probable that compensation in
money cannot be got ror
non-perfornmance of the act agreed to be
done;
"
(11) When there exists no standard
for ascertaining the actual darnage causea
by the non-performance of the act agreed to be done.
4. Suit upon quantun mcruit, The
term quantum meruit iterally means a
much as is earned" "according to the quantity of work done" When a person
or
has hegun the work and before he could complete it, if the other party terminates
the contract or does something which makes it impossible for the other party
complete the contract, he can claim for the work already done under the contract
t
A claim on quantum meruit shall arise only when the contract is divisible.
tor injunction. An injunction may be defined as an order of the court
restraining a person from doing a particular act. In case where the contract is
about to be broken by a party, the aggrieved party may obtain irom cour
injunction order, restraining him from doing something which he promised
to do.
not
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Q.2. Explain ordinary damages, special damages, exemplary damages
and
ci
quantum meruit. (1986, 1994, 1995):
Ans. Ordinary or general damages. When a contract 986,
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so has been broken, the
injured party can recover from the guilty party ordinary damages. Ordinary
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damages are damages which fairly and reasonably be considered as arising;
naturally and directly in the usual course of things from the breach of contract,
as
itself. Damages, that are the direct or the proximate cornséquences

l
of the breach of
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contract, can be described as: ordinary damáges. The amount

of damages is
m
measured by the difference between the contract price and the market
price on the
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date of breach.
Exanple H's mill was stopped by a breakage of the crankshaft. He delivered
be
the shaft to B, a common carrier, to take it to a manufacturer to

copy it and make
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a new one. The carrier was just asked to carry the

broken shaft and was not
informed that delay would cause loss of profits to H. B
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delivered the shaft

beyond a reasonable time. With the result, the mill remained
idle for a longer
Y
period. H claimed loss of profits for the delayed period. Held, B

loss of profits, as it was not a direct consequence of
was not liable for
the breach. [Hadley vs.
Baxendale].
Special damages. Special damages are those
resulting from a breách of
contract under some special circumstances and the
existence of special
circumstances must be known to the party who has
Knowledge of special circumstances must be on the broken the contract.
date of the contract.
subsequent knowledge of special circumstances will not
liability. create any special1
Example. X delivers some goods to a carrmer tor
taking
where an exhibition is going to be held. X informs Y them to Mumbai
circumstances and directs Y to deliver the goods before a about the special1
certain day. Because of
some delay the goods could not be delivered on that day
delivered after the exhihition was over. Here X can claim but were actuallv
special
Exemplary or vindictive damages. They are awarded with adamages from Y.
the guilty or to set an example for others.
view to punish

BNEACH OF cONTRACT 45
10. nEMEDIES FOR
Vindictive damages art awarded for:
- a breach'of promise to marry, and
by the banker.
-wrongful dishonour of a cheque as he has earned'. Suing on
Quantum meruit. Quantum meruit means "as much
as is done. The injured party can
quantum mieruit is suing for the value of so much
done a part of what he was
sue for quantum meruit, i.e., if the injured party has operates as discharge and if
bound to do under the contract, and if the breach
can be estimated in money value, the injured
what the injured party has done, for the breach of contract or for quantum meruit,
party can sue either for damages
1.e, for the value of so much as he has already done.
A claim on quantun meruit shall arise only when the
contract is divisible.
Example. X places an order with Y for the supply of 50 chairs to be delivered in
instalments. Y delivers 15 chairs when X informs him that he does not require
any chairs. In this case X's repudiation discharges Y from the obligation to
supply the remaining chairs. Y can sue X for the breach of contract or for the
al
value of 15 chairs already supplied. The latter will be called suit for quantum
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meruit.
Q.3. Explain the position ofthe aggrieved party in case of an anticipatory
so
breach of contract (1988)
se
Ans. Anticipatory breach of contract. Anticipatorý breach of contract occurs,
as
when a party repudiates it before the time fixed for performance has arrived or
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when a party by his own.act disäbles himself from performing the contract.
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Examples:
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() X contracts to marrý Y. Before the agreed date of marriage he marries Z.

(i) X contracts to supply Y with certain articles on August 1. On July 25, he
be
informs that he will not be able to supply the goods.

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Position of the aggrieved party. When a party to a contract refuses to perform

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his part of the contract before the actual time arrives, the promisee may either
Y
rescind the contract and treat the contract as at an end, and at once sue for
damages, or (i) he may elect not to rescind but to treat the contract operative and
wait for the time of performance and then hold the other party liable for the
consequences of non-perfornance. But in this case,
the party, who has
repudiated, may still perform if he can.
Q.4. State with reasons, whether the following statements are true or false:
(a) Exemplary damages are available only
in case of breach of promise to
marry.
(6) The object of damages, in case of
breach of contract is to punish the
person, who fails to perform his obligation.
(c)Special damages can be claimed as a right by
the aggrieved party.
Ans. (a) False. Exemplary damages are available
1. In case of breach of promise to
under two circumstances:
marry, and
2. Where a banker refuses to
honour the cheque
funds with him which belong to the customer. inspite of having enough

ERSITY SERIES
In case of breach of contract to marry damages.will include
compensation for
the loss to the feelings and reputation of the aggrieved party.
In case of wrongul dishonour by a banker of his customer's cheques,
the
amount of damages may be quite heavy depending upon the loss of
credit and
reputation suffered on that account.
(6) False. As per Section (73) of the Indian Contract Act,
damages are a
monetary compensation allowed to the injured party by the Court for the loss or?
injury sutered by him by the breach ot a contract. The object of awarding?
damages for the breach of a contract is to put the injured party in the same
position, so far as money can do it, as if he had not been injured.
() False. Unlike ordinary damages, special damages cannot be claimed a
matter of right. These can be claimed only if the special circumstances which
would result in a special loss in case of breach of contract are brought to the
notice of the other party beforehand. They can be claimed only with a previous
notice.
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PRACTICAL PROBLEMS
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1. A told a motor car denlerQ that he wanted a comfortable cr suitable fortouring
..
so
purposes. The dealer recommended him a car which was being sold under the trade
name
se
'ONIDA'. The car wasfound unsuitablé. Discyss the rights of A. (1986)
as
Hint: Here, A can claim damages because condition of fitness had been
l
broken even though the sale was under a trade mark or patented item. 'A'
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m
had well made it known to the seller "2 that he required the car for a
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particular purpose and he had relied on the seller's skill and judgement.
2. Anil was due to perform a contract on February 20, bu on February 16,
be
repudiated his obligathon. On February 23, the contract became illegal through
a
Tu
change in the law. Varun, the other party to the contract, filed a suit for breach of
ou
contract on February 25. Decide the case with reasons. (1989)

Y
Hint As Anil has repudiated his obligation to perform before the time of
performance i.c., February 20, there is "anticipatory breach' of contract by
Anil's owm renunciation. However, in such a case the other party'(Varun)
has got two options:
One to kreat the contract as discharged and immediately take legal action
for breach of contract i.e., file a suit for damages, specific performance etc.
In such a case the other party is also absolved from performance
Second not to treat the contract as discharged or repudiated.. In such
a case
contract is existing and later if some supervening impossibility (às in his;
Ccase through change in law) happens, then promisor is allowed
to fake its
rlaa
advantage. So, Varun in this case loses his right to sue for damages.
Varun Filed the suit before February 23, he could have claimied damages.
with 10 0
.A, a stnger agrees to sing at Y's theatre for one tomonth atand agrees
Stng at any other theatre. After a week X agrees sing Z's theatre for a higer
Sum of money. What remedy is available to Y against X?

10. REMEDIES FOR BREACH OF CONTRACT
47
Hint Yes, the facts of the given problem are similar to
those of Lumley
Wagner in which the court ordered X not to sing at Us.
any other place during
the period of contract. In the given problem, Y may file a
suit for injunction
(i.e., an order of the court resraining a person from
doing something which
he promised not to do) againstX. X could be restrained by injunction
from
doing so. Such an order ot injunction becomes a remedy for the aggrieved
party when the court orders the guilty party X to refrain from doing
precisely that which is causirng the breach of contract.
The injunction is a mode of securing the performarnce of the negative terms
in the contract.
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so
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11. CONTRACT F INDEMINITY ANMD GUARANTEE
Q. 1. Distinguish between a contract of guarantee and a conract o
indemnity. What are the rights of a surety against the principal debtor?
(1986, 1988, 1994, 2001)
Ans. Contract of guarantee. Section 126 of the Contract Act defines a conra
of guarantee as "A contract to perform the promise, or dischurge the liability ofa third
person in case of his default." The person, who gives the guarantee, is called the
'surety, the person from whom the guarantee is given, is called principal
debtor, and the person to whom the guarantee is given, is called 'creditor. A
guarantee may be either oral or written. Usually contracts of guarantee are
entered into in connection with transactions of lending or borrowing of money.
Example, Y is in need of R10,000. Upon guarantee by Z, Y has got the amount"
from X. Here, X, Y and Z are creditor, principal debtor and surety respectively.
Contract of Indemnity. The Indian Contract Act [Section 124] defines a
contract of indemnity as "a contract by which one party promises to save the other
al
from loss caused to him by the conduct of the promisor himself, or by the conduct of any
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ofher person. The person, who promises or undertakes to indemnify or make
ffi
8o0d the loss, is called îndemnifier and the promisee or whose loss is made good is
so
called the indemnified.
se
Exanple. A sells and delivers the goods to B on the condition that C gives
as
assurance for B's payment, which will be made after a month. In this case C is
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idemnifier and A is indemnified.

m
Distinction between a contract of guarantee and a contract of indemnity:

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() Number of parties. In a contract of indemnity there are two parties i.e.,

the indemnifier and the indemnified, while in a contract of guarantee
be
there are three parties, i.e., the creditor, the principal debtor and the
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surety.
(i) Purpose. A contract of indemnity is for the reimbursement of lpss, while
ou
a contract of guarantee is to provide necessary security to the"

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creditor
against his advances. The surety gives guarantee on the request of the
principal debtor but the indemnifier need not necessarily act
on the
request of the principal debtor.
(i) Number of contracts. In a contract of indemnity there is only one
contract beween the indemnifier and the indemnified. On the
other
hand, in a contract of guarantee there are three contracts-first between
the creditor and the principal debtor, secorid between the creditor and the
surely and the third between the surety and the principal debtor.
(iv) Nature of líability. In a contract ot indemnity,
iability of an indemnifier
s primary and imdependent whle in the case ot guarantee, the liability
of surety is collateral or secondary as the primary liability rests
with the
principal debtor.
() Rights of parties. An indemnifier cannot sue a third party for loss in his
own name becàuse there is no privity of contract. He can do so only if
48

INDEMNITY AND
GUARANTEE 49
11. CONTRACT OF
on discharging the
favour; while a surety
there is an assignment in his can take action against the principal
debt due by the principal debtor,
debtor for his own recovery. in most cases the
Occurrence of liability. In a contract of indemnity,
)
indemnifier arises only on the happening of a contingency
liability of the
there is an existing legal debt or duty,
whereas in a contract of guarantee
guaranteed by the surety.
the performance of which is The surety enjoys the following
against the principal debtor.
Surety's rights
two rights against the principal debtor:
subrogation [Section 140]. In case the principal debtor commits
() Right of
upon to pay or perform, he surety
the default and the surety is called all the rights which
stands just in the shoes of the creditor and is to get
the creditor had got, against the debtor. The
surety may therefore, claim
the securities, if any, held by the creditor and sue the
principal debtor, or
may claim dividend in solvency of the debtor.
In a contract of guarantee, there
(i) right to get indemnified [Section 145].
al
is always an implied promise made by the principal
debtor to fully
ci
all1
indemnify the surety. So the surety can recover from principal debtor
the sums, which he had paid rightfully to the ffi creditor.
so
(1990, 1993)
se
Q2. When is a sureby discharged?
of
Ans. Discharge of a. surety. The liability of a surety under a contract
as
guarantee comes tó an end under any. one of the following circumstances:

l
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() By notice of revocation [Section 130]. A continuing guarantee can be

m
revoked at any time by the surety by giving notice to the creditor. Such
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revocation is valid.
be
(i) By death of surety [Section 131]. The death of surety operates, in the
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absence of any contract to the contrary, as a revocation of a continuing

guarantee, so far as regards future transactions.
ou
(in By variance in terms of contract [Section 133]. If some variation is made

Y
in the terms of the contract between the principal debtor and the creditor
without the surety's consent, the surety is discharged from his obligation
to transaction subsequent to the variance.
(io) By release or discharge of principal debtor [Section 134]. The surety is
discharged by any contract between the creditor and the principal
debtor, by which the principal debtor is released, or by any act or
omission of the creditor, the legal consequences of which is the discharge
of the principal debtor.
() By compounding with, "or giving time to, or agreeing not LO sue
principal debtor [Section 135]. Where the creditor, without the consent
of the surety makes an arrangement (contract)
with the principal debtor
for compOsiion, or promises to give him time or not to sue him,
surety will be discharged.The surety shall
not, however, be dischargea
() he assents to such contract, (in) the contract to
give time to tne

50 SHIVA DEUH UNIVERSITY SERIES
principal debtor is made by the creditor with a

third person, and not
with the principal debtor.
(vi) By creditor's 'act 'or omission impairing
surety's eventual remedy
Section 139J. If the creditor does any act, which is inconsistent with the
right of the surety, or omits to do any act which his duty to the
surety
requires him to do and the eventual remedy of surety against
the
principal debtor is thereby impåired, the surely is discharged.
(oi) Loss of security [Section 141). If the creditor loses, or, without the
consent of the surety, parts with any security given to him, at the time of
the contract of guarantee, the surety is discharged from liability to the
extent of the value of security.
(iin) Guarantee obtained by misrepresentation or concealment. Where a
guarantee is obtained by misrepresentation or concealment by the
creditor concerning a material part of the transaction, the surety is
discharged.
al
Q.3. Describe the rights of a surety against various parties.. (1993, 2002)
ci
Ans. Surety's rights. A surety is vested with a lawful authority either against
ffi
the creditor or against the principal debtor or against co-surety only when he
so
discharges his nbligation of the principal debtor towards the creditor, and unless
se
that happens, he enjoys no rightagainst anyone Thus his authority arises only
as
when he has performedwhatihe was bound'to perform under the contract of

l
guarantee. He is, then,authorised tothe subrogation of all the rights that the
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creditor had against the debtor, to the right of indemnification by the debtor, to
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the benefit of other sureties with the creditor and of sharing of burden by other
be
co-sureties.
Surety's rights against the principal debtor
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() Right of subrogation [Section 1401. In case the principal debtor commits

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the default and the surety is called upon to pay or perform, the surety
Y
stands just in the shoes of the creditor and is to get all the rights which
the creditor had got, againsi the debtor. The surety may therefore claim
the securities, if any, held by the creditor and sue the principal debtor, or
may claim dividend in solvency of the debtor.
(i) Right to get indemnifièd [Section 145]. In a contract of guarantee, there
is always an implied promise made by the principal debtor to fully
indemnity the surety. So the surety can recover from principal debtoral
the sums, which he had paid rightfully to the creditor.
Surety's rights against the creditors:
aght to securities [Section 141]. A surety is entitled to the benefit or
every security which the creditor has against the principal debtor at the
time when the contract of suretyship is entered into, whether the sure
Knows of the existence of such surety or not, and if the creditor loses, or,
without the consent of the surety, parts with such security, the surey
Cnarged to the extent of the value of the security. The right exists

11. CONTRACT
OF INDEMNITY AND
GUARANTEE
irrespective of the fact
whether the surety 51
security or not. knows of the existence
The surey is entitled to the bernefit of such
of the securities
debt in full. A part payment
of the debt does not only after paying the
securities. give him the benefit
2. Right to claim of set-off. [Goverdhandas of
vs. Bank of Bengall.
The surety
which the principal debtor might is also entitled to any claim of set-off
possess against the
of the same transaction. creditor in respect
Surety's right against co-sureties.
When a debt is guaranteed
more sureties, they are known as co-sureties. by two or
contribute towards the payment of Co-sureties are liable to
the debt guaranteed as per
agreement. If they do not have the
agreement as to tlheir liability for
guarantee and if one of them is compelled to
pay the entire debt, he has a
right of contribution from the other co-sureties.
The rules regarding contribution by co-sureties are laid
down in Sections 146
and 147, which are
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Where there are sureties for the same debtfor similar amount [Section
ci
146], the co-sureties are liable to contribute equally and are
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entitled to
share the benefit of securities also equally. The principal is applied
so
irrespective of the fact that the co-sureties are jointly liable or jointly and
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severaly liable, under the. contract of guarantee and also whether they
as
know that there are co-sureties.

l
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(i) Where there are sretiesfor the same debtbutfor different suns [Section
m
1471, the rule is that "subject to the limit fixed by his guarantee, each
.co
surety is to contribute equally".

Example. A, B and C are three sureties for a debt. A undertakes to be liable up
be
to R200, B up to R400 and C up to <600. If the default is of R600, each surety will
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only {200. B
contribute equally i.e, 200. If default is of R900. will contribute B
A
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C will contribute equally ile, <350 each. If default is of R1200, A, and C will
and
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contribute in the ratio of 2:4:6 ie., T200, T400 and K600 respectively.
Q.4. 'Surety' is a favoured debtor.' Discuss.
a 'Favoured Debtor. Surety is liable
Ans. Surety has always beern considered
does not pay, i.e., his liability is of secondary nature,
only when principal debtor
that of the principal debtor. Surety is considered with
the primary liabilitý being following
general and at law. This fact is supported by the
favour both in guarantee.
provisions contained in law of indemnity and
unpaid balance.
) Surety is liable only for the no case be more than of the principal
surety can in
(7) The liability of a restricted by a special term to that effect.
debtor. It may, however, be that the creditor may
bring
fruitless litigation
(ii) Surety is not liable for the creditor has given a sufficient
against the principal debtor unless
notice to this effect to the surety.

52 SHIVA DELHI UNIVERSsITY SERIESs
)ne surety is liable under the guarantee only if

is valid. If the contract of
the contract of guaranee
guarantee is invalid then surety will not be
Itable, i.e., he will be discharged
from his labilities.
() Surety is not bound by admissions
and acknowledgemients made by tne
principal debtor before the credtitor
nor is he liable for judgement
obtained against the principal debtor.
Q.5. "The liability of surety is co-extensive
with that of the principal debtor.
Comment. (1987, 1989, 1992, 1995, 1996, 1998,. 1999)
Ans. Surety's liability. It is Section 128 of our Contract
Act which deal with
the nature of the liability of the surety.
According to this Section, "the liability of
the surety is just co-extensive with that
of the principal debtor, unless it is otherwise
provided by the contract." This means that the
surety is liable for what the principal
debtor is liable. So in the absence of a contract to the contrary,
the creditor can
even recover the amount of the loan from the
surety without taking steps for its
recovery against the principal debtor. But the
liability of a surety 1s only
al
contingent in the sense that he is liable only on the default of
ci
the principal debtor.
This means as soon as the time for payment comes
ffi
and principal debtor is.unable
to pay, the surety becomes liable to pay, since so the surety is liable only for the
guaranteed debt. If the sum or part of
thesüm has been paid by the principal
se
debtor, the surety cannot be held, liable
for more than the amount unpaid.
as
Moreover, the surety will not be liable

for the cost of fruitless action against the
l
debtor. The liability of surety is

'.
/c
co-exténsive with that of the principal debtor.

is neither more nor less:lhe liability of a surety It
m
can be made less by a special

contract but his liability cannot be made greater tharn
.co
In the eyes of law, surety and the debtor are that of the principal debtor.
not one and the same person. Thus,
be
unless there is a special agreement to that

effect, the surety will not be liable
Tu
any judgement obtained against the principal for

debtor or any admissions made
the principal debtor. A creditor also cannot call by
ou
amount under the contract of guarantee upon the surety to pay the.
Y
unless, of course, the creditor

performed his part of the contract. It is has
for this reason that surety is
favoured debtor'. In the words of Lord Selborne, known as
unjustly an object of some favour both law "a surety is undoubtedly
at and at equity." and not
Q.6. "Between co-sureties there is equity
of burden and benefit."
Comment.
Ans. Liability of co-sureties. In a contract (1988)
performance is guaranteed by two or of guarantee, if a debt or
more sureties, they are called
one of the co-sureties makes the payment co-sureties. If
to the creditor in case of
principal debtor, then he has certainly default of the
a right to claim corntribution
co-surety or the co-sureties as the case from the other
may be. In the case of
principal debtor, the co-sureties are default of the
always liable to contribute
extent of the default irrespective equally to the
of the fact whether their liability
several, and whether their liability
is under the same or ditferent
is joint o
whether or without knowledge of each contracts and
other's being co-surety.

INDEMNITY AND GUARANTEE 53
11. CONTACT OF
co-sureties have agreed to guarnntee ditferent sums, they
So even where the by each
equally ubject to the maximum amount guaranteed
have to contribute of contribution arises only where co
a
one separately. As between them the right pay. Similariy, if a co-surety gets a
is liable to
Surety has paid more than he co-sureties have a right to share in
creditor then also the other
security from the
the proceeds of such security. is said.that between co-sureties there is always
So it is exactly in this sense, it
equality of burden and benefit both.
can it be revoked?" Comment.
Q.7. "What is continuing guarantee? How (1987)
Continuing guarantee. According to Section 129, "a guarantee, which

Ans.
contiinuing guarantee". In other words, a
extends to a series of transactions, is called a
guarantee relating to a series of transactions to be
performed by the principal
debtor is a continuing guarantee.
Examples
al
A guarantees to B, a tea dealer, to the amount
of R1,000 for any tea he
ci
B supplies C with tea worth
may from time to time supply to C.
ffi
R500.
1,000 and C pays B for it. Afterwards B supplies C with tea worth
so
But C fails to pay now. Here the guarantee given by A was
continuing
se
guarantee, and he is accordingly liable to B tor500.
as
of B's
(i) A, in consideration that B.will employ C in collecting the rents
l
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zamindari, promisesB to be rèsponisible to the amount of T5,000, for the

m
debt collection and payment by C of those rents. This is continuing

a
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guarantee.
Revocation of continuing guarantee
be
By notice of the suretysection 130 provides that continuing guarantee

Tu
may be revoked at any time by the surety, as to fuure transactions, by

ou
notice to the creditor. In such a case the surety continues to be liable for
Y
such transactions that have already taken place.

(i) By death of the surety. According to Section 131, in the absence f a
contract to the contrary, the death of the surety operates as a revocation
of a continuins uarantee so far as regards future ransactions. Here also
the termination becomes effective only for the future transactions.
in) By other modes. A continuing guarantee is also revoked under the
circumstances under which surety's liability is discharged, i.e.
-by variance in the terms of contract,
-by release or discharge of principal debtor,
by arrangement with the principal debtor,
- by, creditor's act or omission
impairing surety's eventual remedy and
-by loss ot security.
Q8. State with reasons whether the following statements
are true or false:
(a) "The surety is a favourd debtor."
Comment. (1996, 1997)
(6) "A continuous guarantee
can never be revoked". Comment.

54 SiiVA DEUl UNIVERSITY SERIES
Ans. (a) True. The surety is, a favoured debtor. A

surety is the person who
takes upon himself the responsibility of doing, on the default
of principal debtor,
what the principal debtor was bound to do towards the creditor.
It means, the
moment the principal debtor defaults, the surety is liable
to perform principal
debtor's part of promise-in a sense, he is bound to do, the
same as the principal
debtor was bound to do. In other words, we can say that primary liability
will
always be of principal debtor. The liability of surety is secondary. He is touched
only at the detault by the principal debtor. He is thus a favoured debtor.
Moreover, in case he has by special agreement limited his liability only to a
certain amount, he is a favoured debtor for his liability shall be limited to the
guaranteed amount or the liability of the principal debtor, whichever is less.
) False. A continuing guarantee may be revoked in any of the folowing ways:
() By notice of rcvocation by the Surety [Section 130]. A surety may
revoke the continuing guarantee at any time, by giving a notice of
revocation to the creditor. It may, however, be noted that a continuing
al
guarantee can be revoked in respect of future transactions only.
ci
(i) By the death of the Surety [Section 131). A continuing guarantee is
ffi
revoked on the death of the surety. However, the death of the surety
so
revokes the continuing guarantee: only if there is no contract to the
se
contrary. Guarantee is automatically revoked oñ suretys death and no
as
notice of death.is reqüired to bé given to the creditor. In this case also, the
l
revocation is effectivesforfuture transactions only. Also the surely's legal

/c
heir remains liable.for the transactions already entered into before the
m
death of the surety.

.co
O000
be
Tu
ou
Y

12. BAILMENT
O.1: What do you understand by Bailment? Explain the duties of a bailee
Ans. Bailment [Section 148]-A "bailment' is 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 off according to the
direction of the person delivering them.
The person delivering the gooda is called the "bailor. The person to whom
goods are delivered is called the 'bailee'.
Duties ofa bailee
1. To take care of the goods. In all cases of bailment the bailee is bound to take
as much care of the goods bailed to him as a man of ordinary prudence would,
under similar circumstances, take of his own goods [Section 151].
2. Not to make unauthorised use of goods. Bailee should not make use of the
goods outside the conditions of bailment. If he does so then he is liable to make
compensation to the bailor for any damages to the goods even if he is not guilty
of negligence or even if the damageown is just accidental.
to
3. Not mix the goods with his goods. However, if the bailed goods get
al
mixed, then:
ci
F the bailee, with the consent of bailor, mixes the goods of the bailor with
his own goods, then both the bailor and the bailee shall have an interest
ffi
in the mixture in proportion to their respective shares
so
(i) If the bailee without the consent of bailor, mixes the goods with his own
se
8pods, and the goods can be separated then he has to bear the expenses
as
of separation and any damage to the goods bailed arising from such
l
mixture.
/c
goods with his a

in) If the bailee, without the consent of bailor, mixes the bailee is responsible
m
goods and the goods cannot be separated, then the

.co
goods.
for compensation to the bailor for the loss of the keep the goods only on
bailee is to hold or
4. Not to set up an adverse title. The
be
the title of the bailor or set up

behalf of and for the bailor. He should not deny
Tu
any adverse title to them. If during the course of bailment,

5. To give back any accretion to the goods.
ou
bailed (For example, a calf to a cow)

any increase of profit accrues to the goods
Y
increase also to the bailor, together

then the bailee has to restore such profit or bailed is over.
with the goods themsel when the purpose for which these were
B to be taken care of in his
Example. A leaves a plant in a flower-pot with the
A must return the plant as well as
absence. A Aower grows on the plant.
flower.
Bailment.
Q.2. Discuss the essential features of 148 of the Contract Act, "A Bailment
Section
Ans. Fegtures of Bailment. As per person to another kor some purpose,
upon a
is the delivery of goods by one be
the purpose is accomplished,
contract that they (the goods) shall, when person
to the directions of the
returned or otherwise disposed off according
delivering them"
Essential features of bailnent: to another person.
a delivery of movable goods by one person
It is
55

56 SHIVA DELUN UNIVERSTY SERIES
() The goods are delivered for some purpose.

ne goods are delivered subject to the condition that wheq the purposes
accomplished, the goods are to be returned in specie or disposed oft
according to the direction of the bailor, either in their original forrn or in
an altered original form.
Q.3. Kinds of Bailment
Ans. inds ofBailment. Bailment may be classified from the point of view of
1. Benefit; 2. Reward to the parties.
1. From Bernefit point of vierw:
Bailment for the exelusive benefit of the bailor, for example, Bailor
Icaves goods in the safe custody of the bailee without any compensation
to be paid.
Bailment forthe exclusive benefit of the bailee, for example, a loan of;
5ome article. TF:s, where A borrows B's pen to use it in the examination
hall, the bailment is for the sole benefit of A, the bailee.
Bailment for the mutual benefit of the bailor and the bailee. wherein
e bailor receives the benefit of service and the bailee benefits by the
al
receipt of the agreed charges, c.g, Contracts for repair, hire etc.
ci
2 Kinds from "reward' point of view:
ffi
Gratuitous bailment. Wherein neither the bailor nor the bailee is
so
entitled to get any remuneration, eg., loàn of a book to a friend etc.
se
Non-gratuitons bailment. It is also called "bailinent for reward'. In this,
as
either the bailor or the bailee is entitled to get remuneration, eg., motorT
l
car let out for hire.

/c
Q. 4. State the rights of the bailor.

m
(2002)
Ans. Rights of the bailor. Foilowing are the rights of a bailor in a contract
.co
of
bailment
) Right to claim damages. By implication of Section 151 of the
be
Contract Act, it is an inherent (1Le, natural and permanent)

Indian
Tu
right of the
bailor to claim damages for any loss that might have been
caused to the
ou
goods bailed, due to the negligence of the bailee.

(i) Right to terminate the conract. Bailor has the right to
Y
bailment and claim damages if any, if the bailee does not terminate the
act inconsistent
with the conditions of the bailment. [Section 153]
(ii) Right to claim compensation. The bailor
has a right to claim
compensation from the bailee in the following cases: (i) if any damage
done to the goods, because of its unauthorised use by the is
bailee, or (i) if
some losses or expenses are incurred with regard to the
because of unauthorised mixing of the goods of goods bailed,
bailor with his (bailee's)
own goods. Sections 154, 156, && 157 of the Indian
(iv) Right to demand rekurn of goods any timne Contract Act]
in case of gratuitous
bailment. The bailor can dernand back the goods bailed gratuitously
any time. [Section 159] at
() Bailor entitled to any increase or profit accrued from
the
Section 163 of the contract lays down that in the absence ofgoods bailed.
to the contrary, the bailor is entitled to any increase or any contract
profit which mav
have accrued to the bailee from the goods bailed.

12. BAILMENT 57
Example. X hands over his car to Y for safe

custody tor a week. Y uses it
X IS entitied to the profit of
as a taxi and earns 5,000 from such services.
75,000.
the bailee are rights of the bailor
(i) Enforcement of rights. The duties oftheir enforcement.
the bailor can sue the bailee for
and
Q. 5. Distinguish betiween bailment and pledge.
(1990, 1998)
bailment as, "the
Ans. Bailment. Section 148 of the Indian Contract Act defines
upon a contract
delivery of goods by one person to another for some purpose,
be retumed or otherwise
that the goods shall, when the purpose is accomplished,
disposed off according. to the directions of the person delivering them. The
person, delivering the goods, is called the 'bailor. The person, to whom these ar
delivered, is called the "bailee."
Pledge. A pledge or a pawn is contract whereby an article is deposited with a
lender or promisee as security for the payment of a loan or performance of a
promise. The bailor or depositor is called a pledger or patoner and the balee or
al
depositee is called pledgee or pawmee.
ci
Distinction between bailment and pledge
ffi
(9 Bailmernt is a wider term and includes a large variety of transactions, but
pledge is a specific category of bailment.
so
(i) A pledge is distinguished from other. types of bailménts by the nature of
se
the lien possessed by the pledgee. Thepledge lien gives the pledgee the
as
right to sell the goods in the évent of non-payment of the debt or non-
l
/c
pertormance ot the obligation secyréd.

m
(Tn) Coods are pledged to ensure repayment of a debt or for performance of a

.co
promise. But goods may be bailed for any purpose.

(iv) Goods are pledged as a security but these are bailed for
be
carrying out a
Specific purpose or for a particular period of time.
Tu
() The purpose of bailment may be to enable the bailee to make use of

ou
bailed goods. Such a personal use of goods is denied to a pledgee.

Both bailment and pledge can be effected only of moveable
Y
property and in
both there is only ransfer of possession and not that of
ownership.
Q.6. Explain what relief is available to the bailor in
case of bailor's goods
being mixed with that of the bailee. (1986)
Ans. Bailors rights his goods are mixed uith
if those the bailee:
) Section 155. If the bailee, with the consent of the of
of the bailor with his own goods, bailor, mixes the goodsS
the bailor can claim proportionate
in mixed goods. share
(i) Section 156. When the inter-mixture
is made without the consent of
bailor and the goodš so mixed the
of furniture, the parties are separable or divisible, such as articles
remain the owners of their
so each party can claim respective shares, and
any damage as a result
proportionate share; but the cost of separation, or
(ii) Section 157. If the of mixture, shall be borne by the bailee.
bailee without the
goods of the bailor consent of the bailor iuxes
with his own goods, the
separated or divided, and the goods cannot be
bailee for the loss the bailor is entitled
of the goods. to be compensated by u
58 SHIVA DEUH UNIVERSITY SERIES
Riglht of Lien arises:

- by statute
- by conract, or
- by general course of dealings between the parties in, a particular trade.
Q.7. Discuss the position of a finder of lost goods and rights of the finder «
lost goods.
Ans. Position of a finder of lost goods. Sometimes, a person finds certain
goods, belonging to some other person. In such cases, the goods do not become
the property of the finder. The law imposes certain obligations on the finder of
the goods. It becomes his duty to keep the goods with care and take proper action
to trace the true owner and return the goods to him. As per Section 71 of Indian
Contract Act, "A person twho finds goodsbelonging to amother, and takes them into his
custody, is subject to the same responsibility as a baile." "Thus the act puts the
responsibility on the finder of the goods as is the responsibility of a bailee
He also gets certain rights in respect of so found goods when the true owner
al
cannot be found, he can sell the goods which are of perishable nature.
ci
of
Rights the finder of lost goods:
ffi
Kight of lien. In respect of the expense incurredi.e.,onathe found
so goods, the
finder of the lost goods has got a right of lien, right to retain those
expenses.
se
goods against the owner until he is paid his
(i) Right to sue for reward. If the owner has offered any reward for the
as
return of the goods, then the finder has also got a right to sue him for the
l
/c
same.
m
(iin Right of sale. Under the following conditions, the finder of the lost goods
.co
can even sell themn

- if the owner cannot be found with reasonable diligence, or
be
-if the owner is found and, he refuses to pay the reasonable charges to
Tu
the finder, or
ou
- if the goods are of perishable nature.

The finder can sell the goods under the following circumstances:
Y
- where the articles are in danger of perishing.

where the owner cannot, with reasonable diligence, be found put.
where the owner refuses to pay lawful charges to the finder.
where the lawful charges of the finder in respect of goods found amount
to 2/3 of the value of goods.
The true owner is entitled to get the balance of sale proceeds, if there is surplus
after meeting the lawful charges.
No one except the real owner can claim possession of goods from a fînder. If
anybody deprives him of the possession of the goods, he can file a suit for
damages for trespass.
in iolins US. Fowler, A picked up a diamond ring from the floor of B's shop
and handed it over to him. Inspite of efforts the true owner could not be found.
After sometime A tendered to B the lawful charges for finding the true owner
and asked him to return the diamond ring to him. B refused to do so. Helad A
could recover it from B as he had the right to retain it against the whole Word
except the true owner.

12. BAILMENT
PRACTICAL PROBLEMS 58
1. A lady went to a jeweller, Jalsei representinghersel to be the uwife of a particular
zanindar. She took a ring on the pretext
of getting the approval of her
She pledged the ring with someone else. Can the jeweller husband.
recover the ring from
pawnee? Elaborate your answer zwith the relevant the
provisions decided case
and
(1991) law.
Hint: Facts in this problem are similar to those in the case of

Lake vs.
Simmons (1927). There was no valid contract between the jeweller
and the
lady. The pawnee did not get good title and therefore must return the ring
to the jeweller. Though the lady had got the physical possession of the ring,
there was no mental assent as the jeweller had intended to deal not with
her but quite a different person ie, wife of a particular zamindar which she
was not. Hence, there was a mistake [Section 20] as to the person
contracted with.
2. State with reasons whether the following statement is correct or incorrect. (2002)
"A bailee has a general lien on the goods bailed."
al
Hint: Incorrect. Lien is the right of a person to retain the possession of any
ci
property of some other person, until the charges due to the person in
ffi
possession are paid. so
There are two kinds of lien:
se
1. Particular lien and 2. General lien:
Particular lien. A particular lienis one which is available only against the
as
property in respect of whch some skill and labour is used. Generally, the
l
/c
bailee is entitled to thislien önly. He has a right to retain only those goods
m
in respect of whichf hë has exercised some labour or skill, and his charges
.co
of
are due for the same. Thus, if the bailee uses his labour or skill in respect
for the
the goods bailed, he can retain such goods until his remuneration
be
170)
service is paid. [Indian Contract Act, Section
Tu
Y to be cut and polished.

Example. X delivered a rough diamond to
case, Y is entitled to
Accordingly, Y cut and polished the diamond. In this
ou
he has rendered.
retain the diamond till he is paid for the servicesB pledged the jewellery with
Y
Return basis.
3. Jewellery yas sent by A to B on Sale or
the parties.
C. Discuss the rights and liabilities of to recover the price of the Jewellery
Hint: In the given case, A has the right
Jewellery from C. B is bound to pay the
from B but has no right to claim the rights of a
to A and enjoy the rights of a pledger. C has all the
price or return' basis, the property in the
pledgee. Where goods are sent on 'sale transaction.
passes to the buyer when he does an act adopting the
g0ods amounting to an aaoption or
is an act
Pledging of goods by the buyer transaction, B becomes the owner of
ransacion. On adoption of the to Cis valid and,right of parties are
pledge
Jewellery and consequently, B's receive price of the Jewelery
trom
entitled to
determined accordingly. A is liable to pay the price of jewelery to
a
against C. B is
B but has no right according to his agteement
to redeem the pledge Attenboroughj
andhas the right [Kirkham vs.
all the rights of a pledgee.

13. AGENCY
Q. 1. When can an agent be made personally liable in respect of contracs
entered into by him on behalf of the principal? (1986, 1987, 1992, 1996, 1998)
Ans. Personal liability of agent. According
to Section 230, "In the absence
any contract to that efect, an agent cannot personally enforce contracts erntereu
77 on oehalf of his principal nor is he personally liable." Therefore, on
nto
conrad
entered into by the agent, it is only the principal who can enforce and can be
liable. However, Section 230, itself has provided that an agent may be personaly
held
liable under certain circumstances.
olowing are the circumstances tvhen an agent may be personally liable
third parties: to
When an agent agrees to that effect.
(i) When the contract expressly so provides.
n) When an agent acts for a foreign principal.
he agent acts for an undisclosed principal.
When
al
When an agent acts for a principal whocannot be sued.
ci
an agent acts for a principal who is not in existence.
When
ffi
(vii) When the authority of the agent is coupled with interest.
so
(Dn) When an agent is liable tor breach of a warranty.
the trade customs or usages make the agent personally liable.
se
hen
() When an agent exceeds his authorities.
as
When an agent signs documents inhis own náme.

l
/c
xin) When an agent receives money by fraud ör mistake.

m
Q.2. Write a note on 'agency býiratification'.

.co
(1989, 1990, 1992, 1995, 1997, 2000, 2001)

Ans. Agency by ratification. Ratification means the subsequent adoption and
be
acceptance of an act originally done without instructions or authority.

Tu
Example. X buys ten quintals of wheat on behalf of Y. Y did not appoint X as

his agent and did not instruct him to buy wheat for him. Y may, upon hearing of
ou
the transaction, accept it. It he does so, the act is ratified and X becomes his agent
Y
with retrospective effect.

Effects of ratification. Section 196 deals with the effect
of ratification. It
provides that "where acts are done by one person on belhalf of another, but
knowledge or authority, he may elect to ratify or disown such acts.
without his;
Ifhe ratifies them, the
same effects will follow as if they (the acts) had been performed by
his authority."
Ratification tantamoints to prior authority. In simple words,
it means that
ratification relates back to the time when the act was done
by the agent. The
agency comes into existence not from the time when the act of
the agent was
ratified but it comes from the time when the agent acted
on behalf of the
principal.
Conditions. To be valid, a ratification must fulfil the following
conditions:
() The agent must expressly contract as agent. A man cannot
enter into a
ract in.his own name and later shitt it orn to a third party.
(i) The principal must be in existence at the time of the contract.
(in) The principal must be competent to contract
60

13. AGENCY 61
(iv) Only lawful acts can be ratified.

(o) The principal must at the tine of
ratification have full knowledge of all
material facts.
contract. There cannot be partial
(o) Ratification must be of the whole
[Section 199]
raitication and partial rejection.
be made within a reasonable time.
On Katiication must not injure a third person.
(on) Ratlication must
(ix) Ratification must be communicated.
Ratification can be of the acts which the principal had the power to do.
Q.3. Describe the various modes by which the authoriky of an agent inay be
terminated. (1994)
Ans. Termination of agent's authority. Termination of agency means
terminatiqn of an agent's authority. Sections 201 to 210 of the Indian Contract
Act deal with the termination of agency. Section 201 describes the different
modes of termination of agency. This Section, however, is not comprehensive and
al
does not discuss. all the modes by which the agency gets terminated. Various
ci
modes desCribed under Section 201 and other modes can be classified under two
ffi
heads: so
1. By act of the parties, and 2. By operation of law.
se
1. By act of the parties: .
crea
as
Agreement. As an agency can. be,created by a contract between parties

l
[Section 182] so it can also be. terminated.by an agreement between the

/c
same.
m
i) Revocation by theprincipal. Itis Section 203 of the Contract Act which

.co
provides that 'pfincipal' to the agency can revoke the

authority of the
be
agent at any time before the agent has exercised his

authority, unless the
agency is 'irrevocable. This revocation can be
Tu
either expressed or
implied.
ou
However, in case of a continuous agency, the principal

can only revoke it
Y
for the future and that too only after

giving reasonable noice to the
agent. Similar is the case where agency is
for a fixed period of time where
also the revocation should not be without
tin) Renunciation by agent. sufficient cause.
An agency may also be terminated
expressed renuniation by the
agent. But again a reasonable by
needed, otherwise the principal notice is
2. By operation of law. is entitled to damages.
An agency automatically
following cases: gets terminated in the
) Completion of business
automatically comes to of agency. Whereupon
an the agency
(i) Expiry of time. if agency end.
end at the expiry of is fora fixed term or period,
the fixed period of time. then it comes to an
(in) Death of the
principal or agent.
of either party to An agency comes to
the contract of agency. an end on the death
(v) Either party to
the contract of agency
results in termination
of agency. becoming of unsound
() Either party to the contract mind alSO
of agency being adindrnd
ne
62 SHIVA NELHI UNIVERsITY SERIES
(vDestruction of the subject matter of agency. For example, if an

agent was
appointed to sell a house and the house is destroyed by fire, the agency
stands terminated.
vi) Any other factor rendering the contract of agency itself illegal or void.
Q. When can an agency be not revoked? (1990)
Ans. Irevocable agency. An agency is irrevocable in the following cases:
() Where the agency is coupled with interest [Section 202]. Where the
agent has himself an interest in the subject matter of agency, the agency
is said to be coupled with interest. Such an agency is created with the
object or protecting or securing any interest ot the agent. so where a
creditor is employed for valuable consideration as an agent to colject
moneys from third parties and pay himself the debt due to the principal
debtor, the principal thereby confers an interest on. the agent and
authority cannot be revoked unilaterally during the subsistence of the
interest in the absence of an expressed contract to the contrary. Even the
death or insanity of the principal does not terminate the authority in this
al
case. Je
agency becomes
ci
(i) Where an agent has incurred personal liability, the
ffi
irrevocable, for the principal cannot be permitted to withdraw, leaving
the agent exposed to risk or liability he has incurred.
so
() When the authority has been partly exercisedby the agent, it becomes
se
irrevocable in particulár with regard to:obligatións which arise rom acts
as
already done [Section 204]

l
Q.5. Who is a sub-agent? Whien cárt an agent appoint a sub-aent.

/c
(1999, 2001)
m
Ans. Sub-agent. A sub-agent is a person employed by, and acting under the
.co
control of the original agent. So an agent appointed or employed by an agent is

be
called a sub-agent. Such a sub-agent acts under the control of the original or main
Tu
agent. The relationship between a sub-agent and an agent is fully that of the:
agent and principal. Hence, the original agent acts as a principal for the sub-
ou
or
agent. If such a sub-agent is properly appointed, then even the principal is
Y
remains liable to third parties for the acts of not only the agent but of the sub
agent as well. But the sub-agent is or remains liable for his acts only to the agent
and not to the principal. In case the sub-agent is appointed improperly, then the?
following legal points are important:
- The principal is not represented by sub-agent.
The agent alone is responsible for the acts of the sub-agent.
-The sub-agent is not responsible to the principal.
A sub-agent's appointment is deemed to be proper in the following càses:
-where the principal has impliedly or by his conduct, allowed such
appointment or delegation of authority by the agent.
where, because of ordinary custom of trade such appointment is allowed.
where such appointment is necessary because of the very nature of
agency.
where some unforeseen emergencies arise which make such appointment
necessary.

13. AGENCY
63
According to Section 190 of the Contract Act, an agent carnot lawfully
another person to perform acts which he has expressly or impliedly undertaken
emplov
to perform personally, unless by ordinary custom of trade a sub-agent
may, or,
from the nature, or agency a sub-agent must be emplóyed.
Appoinment of a sub-agent (ection 19u). An agent may appoint a sub-agent
in the following circumstances:
where expressly permitted by the principal.
where the ordinary custom of the trade permits delegation.
where the nature of agency is such that it cannot be accomplished
without the appointment of a sub-agent.
-where the nature ot the job assigned to the agent is purely clerical and
does not involve the exercise of discretion.
-in an unforeseen emergency.
Q.6. State with reasons whether the following statements are True or False:
(a) "A delegatee cannot further delegate." Comment (1997, 2003)
(6) Sub-agent and substituted agent are interchangeable terms. Comment.
Or, Distinguish between Sub agent and Substituted agent.
al
Ans. () True. A delegatee cannot further delegate. When a person employs or
ci
appoints another person to do any act for himself or to represent him, is dealing
ffi
with some third person, it is called a 'Contraçt of Agency. The person, who is so
so
epresented, 1s called the principal" and the person so employed or appointed,
se
is called the "agent" or the delegatee. An agent cannot lawtuly empoy or
as
appoint another person:.to: do the acts which he himself has expressly or

l
impliedly undertaken to do persönally until and unless either the ordinary

/c
customs of the trade or thie contract of agency itself permit. So ordinarily an agent
m
cannot delegate his duties to another. This is based on the maxim "Delegatus non
.co
potest delegare". Therefore, an agent can appoint or employ another further person
be
the following
called a sub-agent) to act or perform on his own behalf in only
Tu
cases or circumstances:
of sub-
when the prevailing customs of tracde permit such appointment
ou
agent; or
appointment of such sub-
Y
when the nature of agency itselt requires the

agent; or
- when the principal himself agrees to such
appointment.
even the principal becomes
When the sub-agent is so properly appointed,
sub-agent is not responsible
responsible for the acts of such a sub-agent. But the own acts as
acts to the principal. The agent remains responsible for his
tor his
as those of the sub-agent to the principal. However, where an agent, without
well a sub-agent, then
a person to act or perform as
authority to do so, has appointed appointed and the
sub-agent so appointed or employed is càlled improperly
the agent remains responsible tor the
acts
1s not responsible for his acts. An
Prinapal as to the third parties.
or the sub-agent both to the principal as well agents are not interchangeable
terms.
(6) False. Sub-agent and substituted Act, Wien
in Section 191 of the Indian Contract
ne tem sub-agent
reads as under:
is defined
under the control of, the
Sub-agent is a person employed by and acting
A
original agent in the business of the agency."

64 SHIVA DELHI UNIVERSsITY SERIESs
hus, sub-agent is a person appointed by the original agent. The relationship

between the original agent and the sub-agent is that of principal and agent
en 194
SuDsntuted agent is defined in Section 194 of the Indian Contract A
which reads as under:
where an agent, holding an express or implied authority to name another person to agt
Jor tne principal im the business of ngency, has named another person accordingly, suck
persori is not n sub-agent, but an agent of the principal for such part of the business o
the agency as is entrusted to him"
Thus, a substituted agent is the agernt appointed by the original agent to act
the principal. He is appointed to carry on the business of agency on behalf,of the
tor
principal. He acts under the direct control of the principal and not under the
ornginal agent. it may be noted that the original agent must have the authority t
appoint such agent.
Distinction between sub-agent and substituted agent
al
S-agernt Substititëdngent
ci
1. He is appointed by the agent and 1. He is also appointed by the agent
ffi
aiso works under his control, ie., he works under the control of the
so
a sub-agent is the agent of the principal, i.e, the substituted agent
se
original agent. is the agent of the principal.
as
2. He is responsible to the original

2. He is responsible to the principal
l
agent alone, and not to the

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alone and not to the original agent

principal except for fraud or
m
wilful wrong.
.co
3. The original agent is responsible 3. The original agent is not responsible

be
to the principal for the acts of the to the principal for the acts of the
Tu
sub-agent substituted agent if he has taker

reasonabie care in appointing him.
ou
4. There is no direct contract4. There is a

direct contract between
Y
between a sub-agent and the substituted agent and the

principal, hence both cannot sue principal, hence"both can sue eacha
each other except in case of fraud other.
or wilful wrong.
PRACTICAL PROBLEMS
1. A instructed B, a mechanic, to buy a ship
for him. B employed a ship-surveyorof
good repute to choose a slhip for A. The surveyor made
the choice negligently and
the ship turned out to be unseaworthy
and is lost. Who is liable for the loss?
full reasons for your answer. Give
Hint: Here the appointment of the ship-surveyor (of (1999)
proper appointment of a sub-agent, othewise B good repute) is the
himself was nót competent
enough to make a good choice. So the surveyor himself
is liable to A, the
principal. The agent does not remain directiy iable for any
has come to A. such loss which

AGENCY 65
13.
with B on behalf of a company yet to be formed. The
2. A entered into a contract contract. Subsequently, the company went
company on being forned rntificd the (2000, 2003)
Wll B succeed
Into-liquidation. Can B sue the company? company.
A 1s personally liable on
Hint No, B cannot succeed against the liable on a
contract. The promoter or promoters remain personally
the incorporation of a company or made on
behalf of
contract made before the
yet existence. Such a contract is only deemed to have
a company not in
made personally by the promoters. This was so held in the case of
been
"Kelner vs. Baxter (866) a contract. Basically
Even the rule of ratification does not apply to such
ratification only applies if an agent enters into a
contract for a principal
who is in existence and is competent to
contract at the time the contract is
made or is entered into.
So, if a contract is made (as in this case) on belhalf of or for
a company to be
case), the contract is
tormed (known to both the parties, ie, A and in this
B
al
only deemed to be made personally by the promoter(s), 1e, A. Mere
ci
adoption or ratification of the contract by the company after its coming into
ffi
existence does not at all create a contract between the company and the
so
other party 'B'.
se
3. Ashish consigns to Bashish i00 radio sets for sale and authorises him to deduct
as
5,000 out of the proceds which Bashish had sent aS adoance to Ashish. Ashish
l
wishes to revoke Bashish's authority. Can he do so? Give reasons. (2002)

/c
m
Hint: No, (Agency coupled with tnterest) An agency 15 Sala to De coupea

with interest whenitis created for the purpose of securing some benefit for
.co
the agent over and above his remuneration. In this case Ashish gives an
be
authority to Bashish to sell 100 radio sets of his and to deduct 5,000 out of
Tu
the proceeds which he (Bashish had sent as advance. Ashish cannot

revoke his authority nor can it be terminated by his insanity or death.
ou
4. Ram delivered a car to Shyam, it mercantile agent, for sale directing

him not to sell
Y
it below 7 40,000. Shyam sold the car to Suresh for 7 30,000. Can
Ram recover the
car from Suresh? Explain with reasons.
Hint: No, Ram cannot recover the car from Suresh. (2003)
words or conduct induced a belief in the f a prinçipal by his
third party that the act of the
agent was within the scope of his
acts. The liability of the principal authority, the principal is bound by such
is based on estoppel.
However, when a person'
contracting with the agent
constructive notice of any restriction has actual or
is bound by the restriction. on the agen's ostensible authority, he
O000
**

UNIT
The Sale of Goods Act, 1930
1. IUTRODUCTION TO CONTRACT OF SALE OF GOODS

Q.1. Define the kerm '"Goods' and Price' under the Sale of Goods Act.
Ans. Goods. The subject matter of the contract of sale must be 'goods. Section
2(7) of the Sale of Goods Act defines goods as "every kind of moveable property other
than actionable claims money, and includes stock and shares, growing crops, grass and.
things attached to or forming part of land which are agreed to be severed before såle or
under the contract of sale ".
al
Thus goods include:
ci
() Every kind of moveable property and includes stock and shares, growing
ffi
crops and grass.
(i) Things attached to land can be the subject matter of sale (eg, growing
so
gnss, trees etc:) provided they are agreed to be separated from land
se
under the contract of sale.
as
1n) Money and actionable claims are not to be treated as goods. Money,
l
/c
being the legal tender itself, cannot be a subject matter of a contract of

m
sale. However, foreign currency or coins, which no more is the legal

.co
tender, is included in 'goods. "Actionable Claims' in simple words are

the claims which rest on the readiness of courts to recognise them as
be
enforceable under an action by a party «,g., a book debt or bill of

Tu
exchange. The actionable clairms are transferable under other laws, such
ou
as the Transfer of Property Act or Negotiable Instrunent Act.

Price. The money consideration for a sale of goods is known as price [Section
Y
2(10)1. Price is an essential element in every contract of sale of goods, that is, no
validsale çan take place without a price. The price should be paid or promised to
be paid in legal tender money. Unless otherwise agreed, it may be paid in the
form of a cheque, hundi, bank deposit etc. For, it is not the mode of payment ofa,
price but the agreement to pay a price in money that is the requisite to constitute
a valid contract of sale.
Q. 2. How is the price tixed in a contract of sale? If price is not decided
beween the parties, what price the buyer has to pay
Ans. As per Section 2(10) of the Sale of Goods Act, 1930, the money
consideration for a sale of goods is known as 'price. As per Section 9, the price
may be fixed by one or the other of the following modes:
1. It may be expressly fixed by the contract itself.
2. It may be fixed in accordance with an agreed manner provided by the
contract.
68

1. INTRODUCTION TO cONTRAGT OF SALE Or Goods
87
3. It may be determined by the course of dealings between the parties.
4. If the price is not capable of being determiried in accordance with any of
the above modes, the buyer is bound to pay the seller a 'reasonable
price'.Ordinarily the market price of the goods prevailing on the date of
supply is taken as reasonable price.
Q.3. Define a contract of sale of goods. Distinguish between a 'contract of
sale' and an 'agreement to sell.' (1989, 1996, 2000)
Ans. Section 4(1) of the Indian Sale of Goods Act, 1930 defines the contract of
sale of goods as, "A contract of sale of goods is a conlract whereby the seller transfers or
agrees to transfer the property in goods to the buyer for a price."
The term 'contract of sal of goods' is a generic term and it includes:
() sale and (i) an agreement to sell.
Sale. Where under a contract of sale, he property (orwnership) in the goods is
transferred from seller to the buyer, it is called a sale. Thus, in a sale, the ownership
passes immediately to the buyer. Payment of price is imnaterial for the transfer
of property in goods.
Agreement to sell. Where under a contract of sale, the transfer of property in
al
goods is to take place at a future date or subject to the fulfillment of certain
ci
conditions, it is termed as an agreement tosel.
ffi
Difference between 'Contract of Sale' and 'Agreement to Sell"
so
Contractog Sale Agrecinient to Sell::
se
1. Sale is 'executed contract. **,*1. An agreement to sell is an
as
executory contract.
l
/c
2. In a sale' since the property has 2. In an 'agreemernt to sell', the seller

m
passed to the buyer, the seller can lhas the right only to sue for
.co
sue the buyer for the price of the damages for non-performance of
the contract.
be
goods.
3. Sale creates a jus-in-rem', i.e, a 3. An agreunment to sell creates a 'jus-
Tu
right on. the goods against the in-personam', i.e., a pursonal right
ou
whole world. only against the person kor any-

default in fulfilling his part of the
Y
agreement.
goods, in sale, the 4.
4. In case of loss to
The loss in tlus case shall be borne
loss will be borne by the buyer by the seller, even though the
even it the possession of goods is goods are in the possession of the
with the seller. buyer.
seller
In an agreement to sell, the
5. Insolvency of buyer. In a sale, the|5. may refuse to deliver the goods
seller must deliver the goods to
official assignee or receiver and| unless paid for.
claim rateable dividend for the|
price of the goods.
6. Insolvency of seller. In a sale, the 6. n an agreement to sell, the buyer
amount he has
buyer is entitled to receive the has to prove the
and he can only
paid to the sellerdividend.
goods from the official assignee or| He
ceceiver. claim a rateable

68 SHIVA DELII UNIVENSITY SERIES
cannot compel the receiver

to sel
and deliver the goods.
Q.4. Distinguish between 'Specific' and Unascertained goods.
Ans. Difference between Specific and Unascertained goods
SpecificGoods Urastertdincdgoad
a
Goods identified and agreed upon (0 The goods which are not separatey
at the time of the making of the idenified or ascertained at the time
are
contract of sale are called 'specific ,of making of the contract
goods' known as 'unascertained goods.
n) For example, where P agrees to sell (i) For example, if P agrees to sell toTVs
to Q a particular Tv bearing a one TV out of the lot of 50
distinctive number, there is lying in his godown, it is a sale of
contract of sale of specific goods.. unascertained goods because it is
not known which TV is to be
delivered.
al
Q.5. Appropriation is a right primarily of the buyer and for his benefi
(1998)
ci
Comment.
ffi
Ans. 'Appropriation' is a right primarily of the buyer and for his benefit?,
Section 18 of the Sale of Goods Act provides that "ohiere there is a contract of sale of
so
4Tascertained goods, no property in the goods is tränsferred-to the buyer until and unless
se
the goods are ascertained" For thisthe goods have to be unconditionaly;
as
appropriated to the contract either by the seller with the assent of the buyer or by;
l
the buyer with the assent'of the seller.

/c
As such the 'ascertainmént of the goods is the first condition and then their
m
'appropriation' is the second condition for passing of the property to the buyer.
.co
The main distinction between 'ascertainment' and appropriation' is that

ascertainment can be unilateral act but appropriation must have assent of the
be
buyer.
Tu
As such, property in goods does not pass till appropriation. The act of
appropriation usually is done by the seller: However, appropriation without
ou
buyer's assent is just ineffective. This is why it is said that 'appropriation' is

Y
primarily a right of the buyer and for his benefi.

Q.6. Define the term "Delivery of Goods". State the different modes of
effective delivery ot goods
Ans. Delivery means voluntary transfer of possession of goods from one
person to another. Delivery of goods sold may be made by doing anything which
the parties agree shall be treated as delivery or which has the effect of puting the
goods in the possession of the buyer or his agent. (Section 33, Sale of Goods Act
1930) Delivery of goods may be actual, symbolic or constructive.
1. Actual Delivery. Where the goods are handed over by the seller.to the
buver
or his duly authorised agent, the delivery 1s said to be actual: Delivery of goods
may also be made by doing anything which has the ffect of putting the goods in
the possession of the buyer.
2. Symbolie Delivery. Where the goods are bulky and incapable of
delivery, e.g, haystack in a meadow, the delivery may be symbolic. Handing actual

OF SALE OF Goons 89
INTRODUCTION TO cONTRACT
1.
buyer is symbolic delivery of the goods to thhe
over the key of a warehouse to thedelivery, even though there is no change in the
buyer and is as effective as actual
physical position of the goods. attormment. where a third person who
3. Constructive delivery or delivery by
of the seller at the ime of the sale acknowledges to
possession of the goods it is said to be a delivery by
istheinbuyer that he holds the goods on his behali,
following cases:
:
constructive delivery. This may happen in the
attornment or
possession of the goods agrees to hold them on behalf
-where the seller in
of the buyer. agrees to the
buyer is in possession of the goods and the seller
where the
buyer holding the goods as owner.
of the goods acknowledges to the
- where a third person in possession
s
buyer that he holds them on the buyer benalr.
What is Auction Sale? Explain the rules regarding Auction Sale.
Q.7. the' auctioneer invites bids from
Ans. Auction Sale. In an auction sale,
bidder. The auctioneer
prospective buyers and the sale is made to the highest
al
himself or his agent. An advance notice of auction is
ci
could be the seller
about the time and
advertised by the auctioneer to invite buyers informing them
ffi
to public to make
place of the auction. An invitation to auction is an invitation
so
offers. It is not an offer to sell.
se
Rules regarding Auction Sales. The legal Rules
regarding Auction Sale are
as
contained in various provisions of.Section' 64 ofthe Sále of Goods Act.

l
/c
These are given below::

9 Where goods area,sèparateputup for sale in lots, each lot is prima facie deemedt
m
contráct of sale [Section 64(1)].

.co
be the subject of
completion by the
(i) A sale is complete when the auctioneer announces its
be
one,
fall of the hammer or in any other custom/manner, eg. by shouting
two, three; or by shouting going, going, gone etc. [Section 64(2)].
Tu
(i.e.,
(ii) Before the completion of the sale, the bidder has the right to retract
ou
withdraw) his bid [Section 64(2)J. This is based on the principle that a bid
Y
of the
is an offer, and it can be revoked before it is accepted by the fall
hammer.
p) A right to bid may be reserved expressly by or on behalf of the seller and,
where such right is expressly so reserved, the seller or anyone person
his behalf may bid at the auction. [Section 64(3)].
(o) The seller or any one person on his behalf may bid at the auction if the
sale is notified to be subject to such a right of the seller. If the seller has
not reserved his right to bid at the auction, he can not bid at the auction.
Moreover, then he can not appoint any person to bid on his behalf. If he
does so, the buyer may reat the sale as raudulent |Section b49)
(vi) If a seller makes use of pretended bidding to raise the price, the sale is
voidable at the option of the buyer [Section 64(6)].
Q.8. State with reason whether the following statement is True or False.
(a) "Old coins may be treated as goods".
()"Parties to a contract of sale can get the price of goods fixed by third
parties". (2002)

70 SHIVA DELHI
UNIVERSTY SERIES
(a) True. This statement is true.
1930, "goods means every kind
As per Section 2(7) of the
of movable property other than Sale of Goods Act,
money, and includes stock
and shares, growing crops, grass-and actiondble claims and
forming part of the land which are agreed things attached to or CO
to be severed before sale or
of sale." Money is not regarded as goods because under the contract
through which goods can be bought. Old it is the medium of exchange
and rare coins, however, may be treated c
as goods and sold as such.
(6) True The contract of sale itself may
provide for some manner
price is to be fixed. In such cases the price may be fixed in a mannerin which the
provided in
the contract. Thus the contract may provide that the buyer would pay the market
price or that it would be fixed by a third person appointed by the consent of the
parties. But where () the price is agreed to be whatever sum the seller be offered
by any third party or (ii) where the price is left to be fixed only by one of the
contracting parties, the agreement would be uncertain as to price and hence void.
PRACTICAL PROBLEMS
al
ci
1. Goods are delivered by A lo B on 'sale or return' basis. They are further delivered
ffi
by B to C and then by C to D on similar terms. The goods are stolen while in he
Custody ofD. Who is to bear the loss of goods and why?
so (1989)
Hint According to Section 24, if the goodsarë dlivered to the buyer 'on
se
approval or 'on sale or return, or.on:other similar basis, then also it
as
constitutes to an agreementto.sell because the seller has agreed to transfer

the property to the buyer Inisuch a case, the property passes to the buyer.
l
/c
As betweenA and B and B' and Cthere is a complete sale. Between Cand D
m
the property in the goods has passed from C to D. So C can recover the loss
.co
from D. C is bound to pay the price.to B and B is bound to pay the price to
be
A. [Section 24]
The
2. A horse was delivered to B on the condition of sale or rehurn within 8 days.
Tu
horse died uitlhin 8 days. Wlho shall bear the loss of the horse? Give full reasons.
ou
(2000)
Hint: The facts in this case are similar to those which were decided he
in
Y
loss
case of Elphick vs. Baxter (1880). It was held in this case that the
yet been
would fall on the seller as the property in the goods had not
transferred from the seller to the buyer since the sale was on sale or return
fallen
basis. Had the sale not been on this basis, then the loss would have
on the buyer.
be covered under the contract of
3. Will an exchange of cow with a horse and 500
sale of goods? the
Hin Yes, An exchange of cow with a horse end R500 be covered under
contract of sale of goods.
money consideration called
The consideration for a contract of sale must be
for other goods, the transaction
the "price. If goods are sold or exchanged
IS barter, governed by the Transtr of
Property Act and not a sale ot good
sold partly for goods and
under Sale of Goods Act, 1932. But if goods are [Aldridge vs. Johnson
sale.
partly for money, the contract is one of

2. CONDITIONS AND WARRANTIES
o. 1. Distinguish between condition and warranty.
conditions and warranties in a contract of sale of goods. Discuss the implied
(1995, 1998, 1999)
Ans. A contract contains some stipulations or terms.
Some stipulations may be
essential to the contract while some may be
contract. A stipulation essential to the contract is collateral or incidental to the
called a 'condition'. That which
is collateral or incidental to the contract is called a
"warranty.
Section 12 of the Sale of Goods Act defines 'condition'
and 'warranty' as
following
Condition. A condition is a stipulation essential to the main purpose of the
contract, the breach of which gives rise to a right to treat the contract
as
repudiated. [Section 12(2)]
Warranty. A warranty is a stipulation collateral to the main purpose of the
contract, the breach of which gives rise to a clain for damages
but not to a right
to reject the goods and treat the contract as repudiated. {Section 12(3)1
al
Whethera stipulation in a contract of sale is a condition or warranty depends
ci
in each case on the construction of the contract. A stipulation may be a condition
ffi
though called a warranty in the contract.
so
Distinction between Condition and Warranty
se
Conditior Waraity
as
() It is essential to the main purpose () It is only collateral or subsidiary to

l
of the contract. the main purpose of the contract.

/c
m
(i) Its breach gives the aggrieved |(i) Its breach gives the aggrieved party
party a right to terminate the a right to claim damages only.
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contract and also claim damages.

be
(ii) Breach of condition may be (in)Breach of warranty cannot be

Tu
treated as a breach of warranty. treated as a breach of condition.

ou
Remedies available to the bujer:

Y
Incase of breach of condition:

- repudiate the contract and reject the goods altogether, and
claim damages for breach of contract or just treat the breach of condition
as a breach ot warranty.
In case of brench of warranty, claim damages only.
Conditions and warranties in a contract of Sale of Goods. Conditions and
warranties in a contract of sale of goods may be either expressed or implied.
Expressed conditions and warranties are those which are expressly provided in a
conract of sale, whereas implied conditions and warranties are those which the
law implies in a contract.
Implied conditions. In a contract of sale, if the circumstances of the contract do
not show a different intention or the parties do not provide contrary to them, the
following are treated as implied conditions:
1. Condition as to title. In a contract of sale of goods, it is always an
implied condiion that the seller has a right to sell the goods in the case ot
71
72 SHIVA DELHI UNIVENsITY SERIESs
sale, and in the case of an agreement to sell, he will have such right when
the property in goods is to pass to the buyer in future. [Section 14
2 Condition as to description. In the case of
the sale by description, the
8o0ds should correspond with the description given. The goods must be
saleable in the market by that description. [Section 151.
3. Condition as to quality or fitness of goods for a particular purpose In
goods shall be reasonably fit for the required purpose, provided;
makes known to the seller the particular purpose for
the buyer goous
which the are required,
-
the buyer relies on the seller's skill or judgement, and
the goods are dealt in by the sller, whether he is the manufacturer
or not. [Section 16]
However, in certain cases the purpose, or which the goods are required, can be
known from the acts or the conduct of the parties as well or even from the nature
al
of the articles being purchased. So the goods must be fit for the purpose for
ci
which dhey are meant ie., a hot water bottle should be fit for the purpose of
ffi
retaining hot boiling water in it. [Section 16]
4. Condition as to merchantability. If the goods are bought or
so sold by
description and the seller is one who deals in goods of that description,
se
then there is another implied condition also and that is, that the goods
as
are of merchantable quality. This means that the goods should be

l
reasonably saleable. Thus, to be merchantable a watch should be able to

/c
keep time, a pen should be able to.write, a radio-set should be able to

m
play and so on. [Section 16]

.co
5. Condition as to wholesomeness. Where there is a contract

of sale of the
eatables or provisions, there is an implied condition of
be
their being
wholesome also in addition to that of their merchantability.
Thus, where
Tu
a person bought one cake containing stone in it and he

got one of his
teeth broken, it was held that he could recover damages from
ou
6. Sale by sample. Where there is a contract of sale the seller.

of goods by sample,
Y
there is an implied condition to this effect also that:

the goods shall correspond to it,
the buyer shall have reasonable opportunity for
comparing the bulk
of the goods with the sample, and
the gouds should be free from any defect
unmerchantable. But the defects should that makes therm
be
discovered on reasonable examination of the such as cannot be
7. Sale by sample as well as sample. [Section 171
description. Where there is a sale
as well as description both, then there is this by sample
implied condition also that
the goods supplied, shall correspond with both. [Section 15]
Implied warranties:
( Quiet possession. According to this, the buyer has
quiet possession of the goods after their purchase,
got a right to enjoy
entitled to recover damages from the seller. otherwise he will be
( Freedom from encunbrances. Goods should not
be subject to any prior
charge or mortgage in favour of some third party.

2. cONDITIONS AND
WARRANTIES 73
disclose the dangerous naure of goods. When the goodor
(ii) Waranty to or require a particular care in using
sold are of a dangerous nature then it
goods and the buyer is ignorant about such risk,
handling the warn the buyer about the
becomes the duty of the seller that he should then the seller shall be liable
danger. If the seller fails to warm the buyer,
for damages to the buyer.
as "warranty'7 Comment. (1989, 1996)
Q.2 When can 'condition' be treated
Section 13 of the Sale of Goods Act
Ans. Condition to be treated as Warranty. a
lays down the following two conditions when
condition becomes a warranty
any condition to
() Waiver by buyer. Where a contract of sale(a) subyect to condition,
is
be fulfilled by the seller, the buyer may waive the or (b)
elect to treat the breach of the condition as a breach of warranty. The
, buyer has the option to accept the goods and claim damages from the
seller. If he once decides to waive the condition, he cannot afterwards
insist on its fulfillment. Section13(1
al
() Acceptance of goods by buyer. Where a contract of sale is not severable,
i.e, it is indivisble and the buyer has accepted the goods or part thereof,
ci
ffi
the breach of any condition is to be treated as a breach of a warranty.
Section 13(2)] so
Example. Certain goods were promised to be delivered on June 1, time
se
being made the essence of the contract. The goods were delivered on
as
Jne 2. The buyer accepts the goods.

l
Q.3. Whatis a"Sale by.sámple'? Explain the implied conditions inherentin

/c
a sale by sample.
m
(1991)
Ans. Sale by sample (Fhe sälé of Goods Act, 1930:Section 17). The sale is by
.co
sample where there is a term in the contract expressed or implied to that effect. It
be
implies that the buyer has been shown a sample before the delivery of the goods.
It will be a sale by sample only when he seller has agred or guaranteed to
Tu
SuPply the goods according to tHe sample shown.

ou
There are three implied conditions laid down by Sections 17(1) and 17(2) when
the goods are supplied according to the sample:
Y
-that the bulk.shall correspond with the sample in quality,

- that the buyer shal have reasonable
opportunity of comparing the bulk
with the sample and
that the goods shall be free
from any defect, rendering them
unmerchantable, which would
xamination of the sample. This not be apparent on reasonable
condition is applicable only
to defects which could not be
discovered by an ordinary
with regara
the goods. Therefore, if the defects examination or
by an ordinary inspection are such which could be discovered
inspecting them, later and the buyer acepts the goods after
The defects in goods may
on he cannot avoid
be of two types i.e.,
the contract.
discovered by ordinary () latent, which could not
inspection and (ii)
ordinary inspection. patent, which can be discovered De
by
Example. A retailer of toys purchesed
finding no defect in some toys after inspecting
it. But one of the a toy a
toys, when purchased
by a customer o

74
SIVA DELuN UNIVERSITYSERIES
retailer, exploded
in the hands of his child. The
retailer violated implied court held that the goods to
was expected to apply condition about latent defect, as the buyer (the sold
only reasonable and not complete retailer)
os. Perry) examination. (Godley
Q4. Distinguish between Sale by sample and Sale
Ans. In a contract of sale of by description. (2004)
goods, conditions and warranties
or implied. Expressed conditions may be expressed
are those which are agreed upon between
parties at the time of the contract the
Implied conditions are those which and are expresqly provided in the contract
the law incorporates into the contract. Sale o
goods by sample and sale of goods
by description are implied conditions.
Distinction between Sale by Sample
and Sale by Description
Basis Sale by Desc
Sale by Sample
1. Nature It is a sale by description, |It is a sale
by sample, when
when the buyer buys the the buyer first examines
al
a:
goods on the basis of small sample of the goods.
ci
description of the goods |Section 17(1), Sale of Goods
ffi
whether he has seen the Act.
so
goods or not. (Section 15,
se
Effect of
Sale of Goods Act)
ei
as
2. The goods shall corres. *
condition pond tothe description

The goods should
l
Correspond to the sample.

/c
3. Nature of It an
is absölute condition It is not an absolute
m
condition and cannöt be waived by condition. The buyer should

.co
any exemption clause. have reasonable oportunity

be
to examine the goods. The:

seller is liable for latent
Tu
defects in.the goods.

ou
4. Example An anfique dealer was A retailer of toys purchased?

shownan item described by some toys after inspecting a
Y
seller as belonging to 17th toy and finding no defect in

century and he purchiased the toys. But, one of the toys
it. Later, he found that it |when purchased by
belonged to 18th century. He custoimer of the retailer
was allowed to reject the |exploded in the hands of his.
goods on the ground of child. The court held that
isolation of condition as to goods sold to retailer
sale by description'. | violated implied condition
(Nicholson and Venn vs. |about latent defect, as buyer
Smith Marriott) was expected to apply only
reasonable and not complete
examination. (Godley vs
|Perry)
under
Q. 5. Explain the rule of 'Caveat cmptor. Discuss the circumstances (2003)
which it is not applicable.

2. CONDITIONS AND WARRANTIES
75
Or, "In a contract of sale of goods the buyer has always to bear
the risk".
Comment.
Or, "The seller of goods is not bound to disclose defects
in the goods that he
intends to sell". Comment.
Ans.Caveat enptor. 'Caveat emptor means "let the buyer betware'. The doctrine of
eat emplor means that in every contract of sale of goods, buyer stands
arned that it is his responsibility to identily the goods and find faults
in them
and determine which faults,would be acceptable to him or otherwise. Except in
the case of 'fraud' the seller will not be liable to the buyer for any defect in the
80ods. It is his duty to select and finalise the goods that he requires. It is not the
duty of seller to take initiative to disclose defects in his goods or make inquiries
about what the buyer's needs are.
Example A sold certain pigs to B by auction. The pigs were sold "with all faults
and errors of description" (i.e., no warranty was given by the seller in respect
any fauit or error ot description). B paid the price of the pigs. The pigs were ill,of
al
and al, except one, died of typhoid fever. They also affected some of buyer's own
ci
pigs. It was held that there was no implied condition or warranty
ffi
that the pigs
were of good health. Thus, B could not recover damages from A in this case.
so It
was the buyer's duby to see whether the pigs were healthy or not.
se
[Ward vs. Hobbs]
as
In Jones vs. Padgett, cloth was purchased: for making

uniforns but the seller
l
was not aware of this purppse. Theicloth was.found unfit

/c
for making uniforms

although it was fit for otherusuakpurposes:Seller was not held liable as the
m
rule
of caveat emptor was applied
.co
The rule of caveat emptor

probably originated at a time when goods were mostly
sold in 'market over, ie., 'open marek.
be
Exceptions to the doctrine of caveat emptor. With the passage of time the
Tu
rule
of 'let the buyer beware' was considered o be too harsh. Hence, certain exceptions
to
ou
this rule were recognised by the law.

The buyer therefore had every opportunity to satisky himself as to
Y
the quality
of the goods of their fitness for a particular purpose and at common law it was
presumed that where the buyer could examine the goods even though
he did not,
he.relied upon his skill and judgement.
The Sale of Goods Act states, "Subject to the provisions of this Act
law for the time being in force there is no implied warranty or condition and of any other
or fitness for any particular purpose of goods supplied under a contract as to the qualily
of sale..".
ISection 16]
Thus, it is clear that buyer has to be very careful
while purchasing the goods.
hese exceptions are:
1. Implied conditions as to quality or fitness. Section 16(1)
(a) where the buyer, expressly or by implication, provides that:
makes known to the seller
the particular purpose for which the goods are
required.
6) The buyer relies on the skill and judgement of the
(c)The goods are of description which is in the course seller.
supply, there is an implied condition of seller's business to
that the
buyer's specific purpose. And in such cases, goods shall be fit for the
does not apply. the doctrine of caveat emptor

76
SHIVA DELH UNIVERSImY
SERIES
2. Conditions as to merchantability. The word 'merchantable
things. First, it means
that if the meas
capadie of passing in the market goods are purchased for resale, they mus
sold. Second, it means under the name or description by
that if the goods are purchased which tney
reasonably fit for the purpose for self use, they must
for which they are generally
Sometimes, the goods are used.
sold by description. In such cases,
condition that the goods shall of there is an
be merchantable quality. Thus, case implied
description the seller is bound in otsale
to deliver the goods of merchantable
The second exception to the
doctrine of caveat cmptor is provided
quality.
16(2). for in Section
3. Condition as to
wholesomeness. This condition is applicable
foodstuffs and other goods in caseo
meant forhuman consumption. In
another implied condition that the such cases there
al
a matter of fact, the goods shall be fit for human consumption.
As
ci
goods shall not be merchantable if they are
consumption. not fit for human
ffi
Example. A purchased some milk so
from B, a milk dealer. The milk containec
SOme yphoid germs. After
consuming the milk, A's wife got infection
se
It was held that A was entitled and
to recover damages from the didk
as
case, the milk was not wholesome milk dealer. In thiu

as it was not pure and
fit for human
l
consumption.
/c
4. Condition implied by custom

m
implied condition as to qualiy.of

of frade Section 16(3) provides
fitriess för a prtictilar,purpose may be annexed that
.co
usage of trade." This is so because

the patties enter into an agreementby the
reference to those knowrni usages. A custom with
be
may provide that a'

will amount to unfitness, and the buyer can particular defee
Tu
reject the goods. But the

must not be unreasonable and also not be inconsistent customs
with the expressed terms
ou
of the contract.
5. Misrepresentation or fraud by
seller. The doctrine of 'caveat emptor
Y
apply in those cases where the seller has

made misrepresentation
does not
committed a fraud on the buyer, and
the buyer has purchased o to
the goods relyini
on such misrepresentation or fraud. Then
if the buyer suffers
some darnages, the seller shall be held responsible any loss due to
Q6. "In an agreement to sell ownership passes for the same.
the formnation of the conract". Comment to the buyer immediatelvon
with reason whether
statement is true or false. the given
Ans. False. In 'an agreement to sell" there no
is transfer of property
The conveyance of property(ownership)
to the buyer at the time of the contract.
later so that the seller continues to be the owner takes place
becomes a sale either by the expiry ot until the agreement to
certain sell
condition. Thus, where X agrees a to buy 100 time or the fulfillment of son
vet'to be weighed, the transacion is an kgs of wheat from Y
wheat i
22 of the Sale of Goods Act, in agreement to sell becaue asand per
such a case the property does Section
till the goods are weighed and the not pass to the
buyer has
transaction becomes a sale and ownership passes tobeen informed thereof. Thes
buve
the buyer after
weighed and the buyer has notice thereof. the wheat is

WARRANTIES 77
cONDITIONS AND
2.
PRACTICAL PROBLEMS Dehradun Basmati" as per. ihe
described as
kg of rice
1 A agreed to sell to B 20 ríce supplied was in acordance-with lhe sample but
samplé shown. Although the Sela'. The buyer refuses to make payment. What
'Punjab
the sample itself wns of (1991)
available to the seller?
Temedies are description. In such a case
by sample as well as by
Hint Here was a sale supplied or delivered must correspond with the
the bulk of the goods sample in such a case serves as
samplesas well as with the description. The
of the quality of the goods to be delivered. There is, thus,
a mere expression
by sample as well as description" and
breach of an implied condition of "Sale
contract.
the buyer has got right to set aside the
2 A agreed lo sell B come oil described
as Joreign refined rape seed ol' warranted
witii the sample was
only equal to sample. The oil supplied though orresponded entitled?(1997)
adulterated with hemp oil. The buyer, B rejected the same. Is he so
It so because
HinE Yes, B (buyer) can rightfully reject the oil supplied. is
the rule is that where goods have been sold by description as well as by
al
sample, then the goods supplied must correspond to both. In, this case,
ci
ffi
goods, of course correspond to the sample but they do not match the
description "foreign refirned rape sed oil." so
3. B purchaset some glue. The glue was stored in sbarrels. Every facility was given to
se
the buyer to examine the glue. However,the purchaser did not get the barrels
as
opened to ezamine them, He having looked the barrels from outside, purchased the
l
on
/c
glue. B wants to aooid fie coritract the ground of breach of implied condition.
m
Adrise gioing full (1999)

.co
Hint The facts given in this problem are those of the case of Thornett vs.
Beers, an old case. It was held in this case that there was no breach
of any
be
implied condition as to the merchantability and, therefore, B

was not
Tu
entitled to avoid the contract.and also not entitled to any

seller. The condition as to the merchantability relief against the
ou
is implied only where the.

sale is by description. There the goods supplied
have to match or
Y
cOTrespond with the description. This

condition applies only when the
following conditions are satisfied:
- Seller should be
a dealer in the goods
of the description.
-Buyer must not have got an opportunity
there must be some latent defect of examining the goods oT
seen on even reasónable in the goods which could not be
examination of the goods.
In the present case, these conditions
4. M agreed to supply to N a certain are not satisfied.
timberactualy supplied quantity of timber
of half-inch thickness. The
inch. The Himber was vared "in hickness from one-third inch to
merchantable five-eightn
it oas ordered, N rejected and commercially
the fit for the purpose for whin
Hint Yes, N can reject the timber. Js this action justified? (2001)
descriptio ánd as per goods. In the given case,
Section 15 of the'Sale the sale is a "Sale
uch a case must correspond
otherwise the buyer, to description.
of Goods Act, the goods ino
well as damages, ie, 'N may return In case they
it any. and claim the returnought to De
of price a
78 SHIVA DELUHI UNIVERSITY SERIES
5. A agreed to purchase 200 tonnes of wheat from B out of a larger

sent his men with sacks and 150 tonncs of wheat were put into stock. A
the
Then there was a sudden fire and the entire stock was gutted. Whosacks.. will pass
bear the loss and why?
the
Hint A is not liable to bear the loss of 150 tonnes of wheat At the time of A
making contract for sále of goods, the goods in the given case were the
unascertained às the same were not identlfied. To be identified
ascertained the goods had to be appropriated and that too unconditionally
and pos
be 1
by the seller or the buyer with the consent of the other. 'Appropriation' is the
an act which makes the goods identified. Therefore, B would be liable to I
bear the loss. go
6. X agrees to sell his new LCD TV to Y for 25,000 payable partly in cashi
of T15,000 and partly in exchange of old TV set. Is it a valid contract
Sale of Goods? Give reason.
of
Hint: Yes, It is a valid contract of sale of goods. The consideration for the
contract of sale, called price, must be money. When goods are exchanged
al
for goods, it is not sale but barter. There is, however, nothing to prevent the
consideration from being partly in moneyand partly in goods.
ci
[Sheldon vs. Cox, (1824) 3 B&C 420]
ffi
so
OO00,
se
as
:
l
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m
.co
be
CO
Tu
ou
Y

3. TRANSFER OF PROPERTY
0.1.Why is it important to know the exact time when the property in goods
Dasses from a seller to the buyer? Explain with examples the rules regarding
the transfer of ownership of goods from seller to the buyer. (1987, 1994, 1997)
Ans. The object of the contract of sale is to transfer the ownership (property) of
the goods to the buyer. Transfer of property is different from the transfer of
possession of goods. Goods may still belong to seller though the possession may
be with the buyer. The seller may still hold the goods, though buyer has become
the owner
Importance. It is important to know the point of time when the property in the
goods passes to the buyer because of the following reasons:
() Risk prima facie passes with the ownership. If the goods are damaged
or destroyed, after the contract of sale is made, the loss would fall on the
owner, if there is nothing in the contract to the contrary.
party, onlyy
() Suit against third party. If the goods are damaged by third
a
the owner of the goods can sue the third party.

(ii) Suit for price. Seller can sue the buyer for price when property in the
al
goods has been transterred to the buyer.
ci
) Insolvency of seller or buyer. In case of insolvency of a person, all the
ffi
property of insolvent comes in the possession of the official receiver. If
so
seller or buyer becomes insolvent, it is essential to decide whether he is
se
owner of particular goods'or not.
as
Rules regarding the fransfer orUnership of goods: Rules for this purpose are
of
l
divided into two heads

/c
of property in specific or ascertained goods.

m
4(B) Transter
Transfer of property in unascertained goods.
.co
(A) Transter of property in specific or ascertained goods. Where there is a

be
contract for the sale of specific or ascertained goods, the property in them is
transferred to the buyer at such time as the parties to the contract intend it to be
Tu
transferred. For the purpose of ascertaining the intention of the parties regard
ou
shall be had to the terms of the contract, the conduct of the parties and the
Y
circumstances of the case [Section 19(1)(2)]. Thus, in the case of specific goods,
the transfer of property takes place when the parties intend to pass itUnless a
different intention appears, the rule of ascertaining the intention of the parties as
to the ime at which the property in the goods is to pass to the buyer,
follows: [Section 19(3)
When goods are in a deliverable state, the contract of saleis considered to
1.
be an unconditional one. The property in the goods pases from theseler to lhe buyer
immediately at the completion of the contract. It is immaterial whether the price has
peen paid or the goods have been delivered, or one of these, or both are to be
done at some future date. [Section 20]
The goods are said to be in a deliverable state whenthey are in such a state that
he buyèr would under the contract be bound to take delivery of them.
Section 231
79

80 SHIVA DELHI UNIVENSITY SERIES
Example. A buys a bicycle for

1,400 on a month's credit and asksS
shopkeeper to send it to his house. The shopkeeper agrees to do so. The
immediately becomes the property A. bicycl
of
hen goods are to be put into a deliverable state, the contract of sale is
conditional one. The seller has to do something
to the goods for the purpoxe O
making them into a deliverable state. Therefore, the property is to pass o1ly tvne
hat something has been done by the seller and the notice has been given by him to the
buyer. [Section 21]
When seller has to do something to fix its price, the property is to pass only
when something is done and price is fixed. If suppose
the seller is to weigh, measur
test or do some such other act, then the property in goods will pass only
such thing has been done by the seller and the notice to this effect has been 'wher
given
by him to the buyer. ISection 22
Example. A stock of bark was sold at an agreed price per ton. The bark was
De sola weighed by the agents of the seller as also of the
to
buyer for ascertainmen
af price. A part of the bark was weighed and carried away by the buyer's agent
al
and servant, but the remaining was swept away by the flood. Held, the loss
o
ci
the remainder should be borne
ffi
theseller, since the property in remainder
not passed because the required weighing had
was not done.
so
[Zaguny vs. Furnell (1809), 2 canp 240]
se
4. When goods are sent on approval or on sale
or refurn basis. When goods
as
are sent on approval or on sale or return basis, thie property passes to the
buyer
when he signifies his, approval or acceptance to the seller or does any
l
-
/c
other act adopting:the tiánsacttön.

m
if he does not signify his' approval or acceptance to the seller but retains
.co
the goods without giving notice of rejection, then if a time has been
for the return of the goods, on the expiry of such time, and if no timefixed
be
has
been fixed, on the expiry of a reasonable time. [Section 24]
Tu
Exanple. A delivered a horse to B on the terms of 'Sale or return,

days'. The horse died on the third day without any fault of B. Held, within 8
ou
A was to beat
the loss as the horse was still his property when it perished.-[Elphick vs. Barnes
Y
(B) Transfer of property in unascertained

goods. If the goods' are
unascertained, the ownership shall pass to the buyer:
when the goods are unconditionally appropriated to the contract,
when the appropriation may be made by the buyer with
assent or by the seller with the buyer's assent.
the seller's:
Q.2. Either, discuss briefly he cases in which a seller can give
to the goods than he himself has.
a better itle
(1988, 1997, 1993, 2002, 2004)3
Or, "No seller of goods can give the buyer of goods a
better
goods than what he himself possesses." Examine this statement title to those.
SC
whether there are any exceptions to his rule. and mention Su

(1988, 1993, 2002) ac
Ans. The principle embodied in the Latin maxim "Nemo dat
means "no person can give that which quod non habet"
he has not, In other words, means
only the owner of the goods can sell them. This means the title it that pc
i.e., the buyer of the goods, cannot be better than that of of the tranisferee se
the trnsferor, ie.. the
Seller. This protects the true owner. A
thiet, who has stolen some th
goods,
cannot su
sal

3. TRANSFER OF PROPERTY 81
sell them to make the buyer an owner of the goods. Simularly, a finder of lost
he is entitled to sell them) as
goods cannot sell them as his own goods (although case he would be selling them as the
finder undèr some circumstances, ín which
agent of the owner. Section 27 embodies this principle, "Subject to the provisions of
where goods are sold by a person who is
the Act and of any other law at the time in force, with the consent
not the orwner thereof and who does not sell them under the authority or
no better litieto the goodsthanthe seller had
of the owmerr the buyer acquires
to protect the interest of the innocent buyer, series ot exceptions to the
a
But
genera rule have been provided.
Exceptions to the general rule
1. Sale under implied authority of owner orortitle by estoppel (Section 27,
part 3), where the owner by his conduct, act omission leads the buyer to
believe that
- the seller has authority to sell, and
seller induces the buyer to buy the goods, he shall be estopped fromn
thedenying the fact of want of authority of the seller. The buyer in such a
al
case shall get a better title than that of the seller.
ci
2. Sale by mercantile agent (Provision to Section 27). A mercantile agent is a
ffi
person who has authority to sell or buy goods, or raise money on th security of
goods for another person. The buyer of goods from a mercantile agent, who has
so
no authority from the principal to sell, gets:a yalid titleif
se
- the purchase is froma iercantile agenti,
as
the agent has possession of goods or documents of title to goods with the
l
/c
consent of the owrier

m
the agent sells the.goods in the ordinary course of business.

.co
the buyer acts in good fith and has no notice of the fact that the agent has
be
no authority to sell.
3. Sale by one of several joint qywners (Section 28). A buyer in good faith of
Tu
goods from one of the several joint owners, who is in possession of the goods,
ou
will get a good title to the goods.

4. Sale by person in possession of goods under a voidable contract
Y
(Section 29). When the seller of goods has obtained their possession under à
voidable contract (consent obtained by fraud, coercion etc.) but the contract has
not been rescinded at the time of sale, the buyer acquires a good title to the
goods. The buyer in such a case must be acting in good faith and has no
the sellers defect of title. notice of
5. Sale by seller in possession after sale (Section
30(1)). Where a seller, having
sold goods, continues to have possession of the
subsequent purchaser, the subsequent goods and sells them to a
acting in good faith and has no knowledge purchaser gets a good title, provided he is
6. Sale by buyer in possession
of the previous sale.
possession ot goods atter sale after sale (Section 30(2)). Where a
with the consent of the seller,
buyer gets
sells it to a subsequent purchaser,
though the original seller the subsequent purchaser getsand subsequentiy
some a good titlé even
subsequent purchaser must be a has lien or other right on the goods.
sale.
bornafide purchaser n
with no notice of the previous
7 Sale by an unpaid seller [Section
54(3)1. Where
an unpaid seller has
82 SHIVA DELHI
UNIVERSITY
exercised his right SERIES
of lien by stoppage
buyer acquires a good title in transit
as against the original and he resells the goods,
has not been given to the original
buyei.
buyer even if notice resale
of
the
8. Exceptions in other
acts:
(a) Sale by a finder
of lost goods under certain
Indian Contract Act, 1872) circumstances (Section
169,
(b) Sale by a
pawnee/pledgee,under certain
Indian Contract Act, 1872) circumstances (Section 176,
) Sale by Official Receiver or Assignee
or Liquidator of Companies.
Q.3. State with reasons, whether
the following statements are True or
(a) In the sale of goods, transfer ralse
of property is not the same thing as-
transfer of possession. the
(6) "Custody or control of goods implies
'Property in Goods." Comment.
Ans. (a) True. In the sale of goods, transfer of property is
as the transfer of possession. The term 'property in the goods' the
not same thing
may be defined as
al
the legal ownership of the goods. On passing of the property to the buyer,
he
comes the owner of the goods and acquires all tHe rights held by the seller be
ci
in re--
ffi
spect of the goods sold.
"Transfer of propery means the transfer of ownership of the goods. It is difer-
so
ent from Transfer of possession' which implies the:custody or physical control
se
over the goods. A person may have possešsion of the goods,but he may not have
as
ownership eg, an agent, a servànt or abailee may have the possession of the
l
goods. But he is not the owner,because the ownership of the goods lies with the
/c
m
principal, master or bailor. On the other hand, a person may be the owner of the
goods, but he may not have the possession of the goods. Thus, the transfer of3
.co
possession is merely the delivery of the goods and not the transfer of ownership.
be
It is to be noted that the ownership of the goods may pass with or without the ;
Tu
transfer of possession.
Thebasicobjective of a contract of sale is to transfer the ownership of the goods
ou
from a seller to the buyer.

of goods" merely means possession of goods,
Y
)Custody or Control means,

whereas 'property in goods' the ownership of goods. Transfer of property
in goods from the seller to the buyer is the main object of a contract. e.g, A is the
owner of. a car. His brother B possesses the car and drives it. C, a friend of B
wants the car on hire for 3,000 per month for six months. B does not have the
right to give A's car on hire. Since he is not the owner of the car, he merely has
custody or control of goods.
rules for
However, the provisions of Sale of Goods Act, 1930 determine the
ascertaining when the property in goods passes to thhe buyer.
contract for the sale of
() Goods must be ascertained. Where there is a
transferredeto the buyer
unascertainel goods, no property in goods is
unless and until the goods are ascertained.
contract for the sale of specific
) lntention of the parties. Where there is a
to the buyer at the
or unascertained goods, the property in them passes
For the purpose of ascertaining
ime when the parties intend it to pass. shall be had to the terms of the
the intention of the parties, regard circumstances of the case.
contract, the conduct of the parties and the

3. TRANSFER OF PROPERTY
PRACTICAL PROBLEMS 83
1. A purchases a television
from B, on B's plea that though it is old,
excellent condition. A finds it is in an
later on that the television does not work at all.
reject the set and recover Can he
his money?
Hint Yes, According to Section (1987)
15 of the Sale of Goods Act, where
a contract of sale of there is
goods by description, then there is an implied
Condition that the goods shall correspond
that the buyer must get the'goods' as with the description. This means
were described at the time of making
the contract. In this case, B had described
the T.V. to be in an
condition whereas later on it did not work at all. So, A can reject excellent
and the TV set
recover his money.
2.A agreed to purchase 100 bales of cotton from B from his large stock
men to take delivery of he goods. They could pack and sent h
only 70 bales. Then there u
accidcntal fire and the entire stock was destroyed including the 70 bales that were
packed. Who will bear the loss and to what extent? Explain.
al
(1994)
Hint ln his case A will have to bear the loss to the extent of 70 bales
ci
that
were packed by his men. It is so because so far as these 70 bales are
ffi
Concermed, B (seller) had to do nothing else as these had beern put in a
so
deliverable state. However, as far as the other 30, bales are concerned, the
se
liability for loss is that of B (seller). because,the property in them still
as
remained with B, the seller as they wereyet to be put in a deliverable state.

l
These were yet to be packed.

/c
3. A ágrees to purchase bales of.cottorn from Bat Chennai. The goods are sent by rail,
m
delivery to be given against jayment by A through bank. A pays the amount and
.co
obtains a delivery order:But the goods had been destroyed by fire before he pays the
be
amount. Has the property in goods passed to A? Give reasons. (2002)

Tu
Hint No, A will not bear the loss as property in goods has not passed to A.
The delivery was agreed to be given against payment by A through bank
ou
and goods had been destroyed by fire before A had paid the amount.
Y
Therefore, the title of goods did not pass to A and he shall not bear any
loss. Bwill have to bear the loss as goods were not delivered at the time of
fire. Also the payment was not made by A till that time.
4. B buys furniture and makes ful payment. He promises to take delivery offurniture
in the next week lo tuhich the seler agred. Next day, the shopkeeper sold that
furniture to C on Cash basis. Examine C's title to the furniture. (2004)
Hint: The givenfacts of the problem fall under Section 30(1). ie, sale by
seller in possession after sale.
Section 30() of the Sale of Goods Act, 1930 provides that where the seller
of the goods continues to have possession of the goods or documents of
title to the goods, and ne sells them to a subsequent purchaser,!
Subsequent purchaser gets a good title provided he acts in good faith and has
no notice of the previous sale.
In the present case B has bought furniture but the possession of the
furniture is still with the shopkeeper. C is the subsequent purchaser who is
not aware of the previous sale to B. C gets a valid title.

4. REMEDIES FOR BREACH OF CONTRACT OF SALE
.1. Who is an unpaid seller and what are his rights against the goods
2001)
(1986, 1990, 1992, 1993, 1997, 1998,
an
Ans. An unpaid seller. Section 45 of the Sale of Goods Act has defined
unpaid seller. According to this Section, a seller is deemed to be an unpaid seler
when:
1. The whole of the price has not been paid or tendered to him; or
2. A bill of exchange or other negotiable instrument has been receivea as
conditional payment and the condiion on which it has been received has not
been fulfilled by any reason, say, dishonour of the instrument or
otherws
xple, t goods worth
any of the following cases:
1,000 are sold, the seller is deemed to be unpaid inder
- If the whole of R1,000 is not paid on the due date.
payment is made by a negotiable instrument and the instrument is
dishonoured.
al
The seller includes a person who is in the
position of the seller, as, for instanCe
ci
an agent of the seller to whom the Bill of Lading
has been indorsed or a consignor
ffi
or agent who has himself paid, or is directly responsible
for the price.
Rights of an unpaid seller against the goods: so
1. Where property in the
se
goods has passed to the buyer, the unpaid seller has
the following rights:
as
-
Right to retain (lien) the goods for the price,when
he is in possession of
l
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the goods.
.
m
-
Right of stopping thegöods in transit in case
of insolvency of the buyer.
Right of resale of goods
.co
2. Where the property in the goods

seller has, in addition to other remedies,has
not passed to the buyer, the
be
a right of withholding delivery unpaid

and coextensive with his right of lien and stoppage similar to
Tu
(a) Right of lien [Section 471. An in transit.

unpaid seller
of then, is entitled to retain the possession until of goods, who is in possession
ou
in the following cases:

payment or tender of the
price,
Y
where the goods have been sold without any

where the goods have been sold on credit, stipulaion as to credit
but the terms of credit havve
expired, or
- where the buyer becomes insolvent.
The lien is linked with possession. Even if he
has transferred the
title to goods but retained possession, he documents of
can exercise lien. Similarly,
issued delivery order but possession is not lost, can
The right of lien exists only for the price of the
he exercise lien. if he has
goods.
Right of lien in case of part delivery [Sections 46(1)(a)
|Section 451. Where an & 47(1)].
made part delivery of goods, he may exercise his unpaid seller has
unless such part delivery has right of lien on remainder.
been made under such the
agreement to waive the lien. circumstances as
to show an
Termination of lien [Section 49]. In the following
seller loses his right of lien: circumstances,
an unpaid
84

CONTRACT OF SALE 85
4. REMEDIES FOR BREACH OF
purpose of
delivers the goods toa carrier or other bailec for the
- when he reserving the right of disposal of the
transmission to the buyer without
goods; or obtains possession of the goods; or
- when the buyer or his agent lawuly of lien.
the seller expressly or impliedly waives his right
when stoppage goods in transit [Sections 50-52)
() Right of of stoppage of [Section 50]? The unpaid
When right in transit can be exercised
can the right of stoppagè of goods in transit only when (a) the
seller exercise and (c) the
becomes insolvent, (6) the properhy has passed to the buyer
buyer
goods are in the course of transit. in,transit can be
[Section 51l]. Since the right of stoppage
Dyration of transit duration of ransit is of great
exercised only during transit, the question of from the time when they
Importançe. Goods are deemed to be in course of transit of transmission to the
are delivered to' a carrier or other bailee for the purpose
respect takes delivery of them from
buyer, until the buyer or his agent in that
bailee.
such carrier or other
al
When does the transit end?
ci
or transit is at
) Once the goods reach the hands of the buyer his agent, the
ffi
an end.
() Also, if the buyer or his agent obtains delivery.of the goods before they
so
reach their destination.
se
(ii) The transit will end if after the arival of the goods at the appointed
as
destination, the cartier or other bailee äcknowledges to the buyer or his

l
agent that he holds the.goods on his behalf. It is immaterial that a further

/c
destination for the goods may have been indicated by the buyer.
m
(iD) Where the carrier or other bailee wrongfully refuses to deliver the goods
.co
to the buyer or his agent in that respect, the transit is deemed to be at the
be
end.
Tu
() f the goods are rejected»by the buyer and the carrier or other bailee
continues in possession of them, the transit is not deemed to be at an end,
ou
even if, the seller has refused to receive them back.

Y
(v) When part delivery of the goods has been made to the buyer with an
intention of delivering the whole of the goods, transit will be at end for
theremafnder of the goods also which are yet in the course of transit.
How is Right of stoPpage-in-transit affected [Section 52, The stoppage
transit can be exercised either by taking actual possession of the goods or by
in
giving notice of this claim to the carrier or to the other bailee in whose possession
the goods are. The notice may be given to the principal or his agent. The carrier,
after receiving the notice, shall not deliver goods to the buyer.
ight ofresale jsection 54). An unpaid seller has the right to sell the goods
in his possession, the property in whom has been transferred to
following circumstances: the buyer in the
where the goods ar of a perishable nature,
yneresucha rngnt is expressly or
should make a default, or reserved in the contráct in case the buyer
-where the seller has given notice to the buyer of
and the buyer does not pay his intention to rese
or tender the price within aa reasonable time

86 SIVA DELHI UNIVERSITY SERIES
If there is any profit on resale, the seller is

not bound to give it to the buyer but
if there is any loss on resale, the seller can recover
it from the buyer.
If the unpaid seller sells the goods without Section 54{2)]
notice to the buyer, he cannof
recover damages for the breach and he has also to hand over any
profit made on
resale to the buyer.
Where the unpaid seller expressly reserves the right of resale, in case of
buyer's default, no notice of sale is necessary, but the contract is automatically
the
rescinded when the seller resells the goods. He does not resell as an unpaid
seller, but as an original owner of the goods. [Section 54(4)]
Rights against buyer
0) Suit for the price [Section 551. When the property in the goods passes
to
the buyer, he has to pay the price. If he does not pay as per the contract
the seller may sue him for the price.
(i) Suit for damages for non-acceptance [Section 56]. "Where the buye
Wrongfully neglects or refuses to pay for the goods, the seller may sue
al
him for damages. for non-acceptaice" Damages are assessed in
ci
accordance with the principles laid down in Sections 73 and 74 of the
ffi
Indian Contract Act. so
can
(ii) Suit for special damages and interest [Section 61]. The seller sue the
se
buyer for special damages and also forlóss which the parties knew when
as
they made the contract to be likely to result.from the breach of it.

l
In all the above cases of resale, the second buyer will always get a good itte
/c
whether the notice of rësale was.given or not.

m
Q.2. 'Right of stoppage of goods in transit is an extension of unpaid sellers

.co
right of lien.' Comment.

be
Ans. Right of stoppage of goods in transit. The right of stoppage of goods in

transit means the right of stopping further transit of goods while they are witha
Tu
carrier for the purpose of transmission to a buyer, resuming possession of them

ou
and retaining possession until payment or tender of the price. Thus, in a sense
this right is an extension of the right of lien because it entitles the seller to retain
Y
possession even when the seller has parted with the possession of the gcods
Q.3. Compare the right of lien and stoppage in transit in case of an unpaid
seller. (1990)
Ans. Both the rights of lien and stoppage in transit enable the unpaid seller
keep his possession over the goods till the price is not paid by the buyer BuE
there are some differences between the two rights of the unpaid seller as given
below:
() Right of lien can be exercised by the seller if the buyer does not pay
though he is able to pay. The right of stoppage in transit can be exercised
by the seller only when the buyer becomes insolvent
(i) The seller can exercise the right of lien when he has actual or construcive
possession of the goods. The right of stoPpage in transit begins where the
right of lien ends, i.e., where the seller has parted with the possessiono
the goods, he can exercise the right of stopping them in transit.
is gone, but
(in) When possession is surrendered by the aller, his lien

4. REMEDIES FOR BREACH OF cONTRACT oF SALE
87
right to stop comniencus and remains as long as the
goods are in transit
and before they pass into the possession of the buyer.
(iv) Right of lHen is to relain possession. Right of stoppage
in transit is to
regain possession. The right of stoppage in transit Is, in fact, an extension
of the right of lien.
Q. 4. Discuss three remedies available to a buyer against the seller
for a
Breach of a contract of sale. (2001)
Ans. In a contract of sale of goods, the seller is under an obligation to deliver
the exact quantity of goods agreed for on the stipulated date and at the stipulated
place. In case there is' a breach of contract by the seller, the buyer has the
ollowing rights:
Suit for damages. Section 57 provides that where the seller wrongfully
neglects or refuses to deliver the goods to the buyer, the buyer may sue
the seller for damages for non-delivery. The amount of damages shall be
calculatecd with reference to the rules given in Section 73 of the Indian
Contract Act.
(i) Suit for specific performance. Section 58 provides that where the
al
contract is for the sale of specific or ascertained goods and the seller
ci
refuses to deliver them, the court may order the seller to deliver the
ffi
goods in accordance with the terms of the contract. The court shall pass
an order for specific performance in such cases where damages would
so
not be an adequate remedy.
se
(ii) Suit for damages for breach of warranty. Section 59 provides that
as
where a warranty is broken by the seller or where the buyer is compelled

l
/c
to treat a breach of condition, as a breach of warranty, the buyer may

m
set up the breach of warranty in diminution (reduction) or extinction

.co
of the price or
Sue the seller for damages for breach of warranty.
be
Q5. What are the rules as to delivery of goods by instalments under sale of
Tu
Coods Act? (2002)

Ans. Delivery of goods by instalments. As a matter of fact, the delivery of
ou
Boods by instalments is not considered as a good delivery, and the buyer is not
Y
Dound to accept the goods delivered to him in instalments, unless otherwise

ugreed. [Section 38(1) The Indian Sale of Goods Act, 1930]
Example. X bought 100 tons of coal from Y to be delivered in March. But Y
delivered 50 tons of coal in March and agreed to deliver the remaining 50 tons in
April. In this case, as the contract did not provide for delivery by instalments, X
not bound to accept the coal delivered to him.
However, the parties may agree that the goods shall be delivered and accepted
instalments. Thus, the delivery of goods by instalments may be made and
demanded only if the contract of sale providles for the same. The contract to make
delivery by instalments may be expressed or implied. If the seller starts
delivering the goods in instalments and the buyer accepts the same without any
jection, then he should accept the remaining instalments also as he has
npliedly consented to delivery by instalments.
ample. A contracted to sell 200 tons of coal to B. A shipped only 152 tons,

88 SHIVA DELu UNIVERSITY SERIES
and normed B about the same. But there was no reply from B. It was held that
the buyer (5) merely consented to delivery of coal by instalments.
[Richardson vs. Dunn (1841)]
Sometimes, there may be a contract where goods sold are to be delívered na
separate instalnents, each of which is to be separately paid for. There will
breach of such contract under the following two cases: be Se
-IF the seller makes no delivery or makes defective delivery, in respect o

one or more instalments; or
If the buyer neglects or refuses to take delivery or pay for one or more
instalments.
In each of the above cases of breach, it will depend
on the terms of the contrata
and the circumstances of each individual case, whether
the breach of contract is
repudiation of the whole contract, or it is a severable (separable) breach
giving
a
rise to a claim or compensation but not to a right to treat
the whole contract as
al
repudiated. [Section 38(2)]
ci
Generally, failure to deliver or pay for one instalment, does not amount
to
ffi
repudiation or breach of the whole contract. But where the breach is
so
lead to a reasonable inference that similar breach will be such as
committed with
to
reference to the subsequent instalments also, the other party is entitled to treaf
se
the whole contract as repudiated.
as
Example A sold 1,500 tons of meat and

bon meal ofa specified quality to B, to
l
/c
be shipped 125 tons monthly in equal: weekly instalments. After about half the
m
meat was delivered and paid for, B discoverèd that it was not of the contract
.co
quality and couid have been-rejected, and he refused to take further deliveries.
Held, B was entitled to do so, as he was not bound to take the risk of
upon him for further deliveries of goods which did not confirm to having put
be
the contract.
Tu
[Robert A. Munro & Co. vs. Meyer

Q6. Explain the effect of sub-sale or pledge by the buyer on
the rights of an
ou
unpaid seller.
Ans. Effects of sub-sale on unpaid seller's rights. (2003)
Y
Sometimes, the seller.

unpaid and the buyer further sells the goods to some other person. is
case,
unpaid seller's right of lien or stoppage in transit is not affected In this
by such a sale.
And the unpaid seller can exercise these rights irrespective of any
further. sale by
the buyer. In other words, the unpaid seller' s right of líen or stoppage
not affected by any sale or other disposition of the goods which the in transit is
buyer may
have made, unless the seller has asserted thereto. Section 53().
However, he can exercise these rights only if the legal requirements
exercising the right of l en and stoppage in transit are fulfilled.
for
However, in the following circumstances, the unpaid seller's rights
goods are defeated by further sale or pledge of the goods by the buyer: against the Co
1. When the buyer has made the ransaction with the
assent of
Seller's assent may be taken before or after the transaction. the seller. bu
2. When the buyer has made the transaction of sale or pledge
tra
etc. with a
third party on the basis of the document of title, such as a Bill
of Lading. Se
or a Railway Receipt etc. issud or lawfully transferred by the
seller to
the buyer, and the third party takes the document in good faith
and for sel

CONTRACT OF SALE
BREACH OF 89
REMEDIES FOR
A. effective against the seller's
The transaction shall become
consideraion.
rights over the goods. the buyer pledges the documents of title alons
sometimes
It is to be noted that to secure some loan. n such cases, the unpaid sello
securities amount of loan first from othe.
with some other pledgee to recover the
has the right to ask the
in the hands of the pledgee. f the full amount.of
securities of the buyer which aresuch other securities, the pledgee can retain the
the loan is not recovered from
recovery of the belance amount of loan.
documents as security for the Distinguisl between particular lien and general
Q.7. Define the term lien. (1987, 2004)
lien. possession of goods until some debt or
claim
Ans. "Lien" means rightto retain
is settled. Right of lien arisesby contract, or
- by statute, or
the parties in a particular trade.
by general course of dealings between
2. General lien
Liens are of two kinds: 1. Particular lien and
1. Particular lien is one which is available to the bailee
ony against those
al
the exercise of
goods in respèct of which he has rendered any service involving
ci
Jabour or skill. In other words, the bailee has a right to retain the particular goods
ffi
untl all claims in respect of those goods are såtisfied.
2. General lien means the right to retain all the.goods of the other party until
so
all the claims of the holder are satisfied. This is a tght to retain the property of
se
another for a general balance of account.
as
Difference bëtweenParticular lien and General Iien

l
/c
Bas General ien

m
Difieren
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1. Nature It can be exercised only over| It can be execrcised to retain

those'goods in respect of any property belonging to
be
which skill and labour have the other party in respect of

Tu
been used by the bailee any payment lawfully due.

ou
2. Remune It is available in respect of It can be exercised for any

ration remuneration due for work sum due on a general
Y
done on a particular thing. balance of accounts.

3. Person to'
exercise
It can be exercised by all the | It can be exercised only by
bailees.
bankers, factors, whar-
ngers, attorneys of High
Court and policy brokers.
Q.8. "The right to stoppage in transit is
Comment with reason whether an extension of the right of Lie.
Ans. True. "The right to the given statement is True or False:
stoppage in transit is
but it arises only on the insolvency an extension of the right ot Lien
transit. of the buyer and when the goods are
A lien is [Section 46(1)(a)]
à right to retain possession
Section 46(1) (a)]. of goods until payment of the
price
When right of stoppage
seller can exercise in transit can be
the right of stoppage exercised [Section 501? The
of goods in transit only when unpai (4) the
wi

90 SIiVA DELHI UNIVERSrTY
SERIES
buyer becomes insolvent, (6), the property
goods are in the course of tranalt. has passed to the buyer
and (¢) the
Duration of transit [Section 51]. Since
exercised only during translt, the the right of stoppage
in tranait be?
question of duration of transit is ofcangreat
importance. Gouds are deemed lo be in course
are delivered to a carrier or other bailee of translt from the time when
for the purpose of transmission tothey
buyer, until the buyer or his agent in that respect
takes delivery of them from
the
such carrier or other bailee.
PRACTICAL PROBLEMS
1. The right of stoppage in transit is an exlension of the unpaid seller's
right of lient.
Hint: Right of stoppage of goods in transit. The right of stoppage means
the right to stop further transit of the goods, to resume possession
thereo
and to refain thesame till the price is paid. Thus, in a sense, this iight isar
extension of the right of lHen because it.entitles the seller to regain
al
possession even when the seller has parted with the possession of the
ci
goods. Right of lien can only be applied.if the buyer has become insolvent
ffi
2. A sells goods to B. B pays to A through a cheque. Before B could obtain the
delivery of goods, his cheque was dishonoured by the bank. A, therefore, refuses
so fo
deliver the goods until paid. Is A's action justified? (1988)
se
Hint: Yes, According to Section 45,A, in this çase is an unpaid seller as th
as
cheque given by Bis dishonoured. In this case, property in the goods has
l
already passed to the buyer. But as delivery of the goods has not been
/c
given, A can retain possessjon of the goods exercising his right of lien
m
under Section 47.

'
**
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3. Certain goods were sold by sample by A to B, toho in turn sold them by sample o
be
C. The goods were not according to the sample. Therefore, Crejected thr goods aid
(1990)
Tu
gave notice to B. B sued A. Advise B.

Hint: Here B can repudiate the contract, refuse the goods and if he has
ou
already paid for them, he can even recover the price. This is so because the
goods delivered were not according to the sample. So, there is a breach.o
Y
an implied condition as to 'sale by sample, It is presumed that he has no

same
been provided any oPportunity to inspect the goods and compare the
with the sample.
4. A askeda car dealer to suggest him a suitable car for touring purposes.
The deale
suggested him to buy "Buggati car. Acordingly, A purchased the car but foundlit
back the price?
unsuitable for touring purposes. Can A return the car and get
informed the seller o
Hint: Yes, A can maintain his suit as he had already
he purpose tor which he was buying the
car and the car was not fit for thas
emptor."
purpose. This is based on the exception to the Riule of caveat any
5. Gautam delivers sonme jewellery to Priya on APproval wthout specijing withoú
non-acceptance. Priya keeps the jewellery with her
or its return in case of a burglary takes placéi
signifying her approval or refusal. After one month
Gautam sue Priya for the priceo
Priya's house and the jcwellery is stolen. Can (2003)
jewellery? Give reasons.

4. REMEDIES FOR BREACH OF CONTRACT
OF SALE
91
Hin: Yes, Gautam can' sue Priya for the price
delivery of goods on approval, or on sale or of jewellery. In case
of
terms, rules contained in Section 24 of Sale return basis or other similar
of Goods Act, 1930 apply.
provides that in such cases the property in goods It
1. When he signifies his approval or acceptance passes to the buyer:
to the seller or does any
other act, adopting the transaction, for example, sells
or pledges the
goods to a third party.
2. If he does not signify his approval or acceptance
to the seller but
retains the goods without giving notice of rejection. If a time has
been fixed for the return of the goods, on the expiration of such time
and, if no time has been fixed on the expiration of a reasonulste time.
A sale on approval is one in which the buyer may return the goods within
a reasonable time if the goods do not serve his purpose. In such cases the
ownership is transferred to the buyer either:
) when he accepts the goods or
(i) when he does any act adopting the transaction or
al
(in on the failure to returnthe goods on the expiry of fixed or reasonable
ci
time
ffi
Thus, in the given problem, Priya is deemed to have accepted the goods.
Priya's
The ownership thus vests in Priya. Since burglary takes place in
so (risk
house and the jewellery is stolen, loss shall fall.on Priya-the owner
se
is agreed to).
being associated with the ownership unless otherwise
as
chemist. The bottle burst when the boiling

6. X, purchased a hot wiater bottle from a
the rights of X against the
l
water was poured into it, inid.injiurèd his wife. What are
/c
m
chemist?
the injury. Section 161) of the Sale of
Hint X can claim damages for
.co
ordinarily, there is no implied condition that

Goods Act, 1930 provides that purpose of the buyer. But in certain
the goods shall be fit for the particular
be
the goods which will be fit

circumstances, the seller is required to supplytells his purpose to the seller
Tu
e.g., where the buyer

for the buyer's purpose seller's skill and judgement. In the
ou
goods relying upon the

and buys the not fit kor use as a hot water bottle, and
the
the bottle was
Y
given problem, In this case, the buyer's

purpose was
is liable for damages.
seller (chemist) bottle. Similar decision was given
under similar
clear from the nature of the
(1903).
circumstances in Priest vs. Last wheat was contained in 2 parcels and S was
sample. The
7.L sold to S wheat by ofcomparing the bulk of only one parcel with the sample. S
breach of
given the opportunity the goods. Can he be held liable for
refuses to accept the
delivery of
this case
contract?
liable for breach of contract. Facts in Sale of
held
Hint: No, S cannot becase of Lorymer Us. Smith. Section 17 of the
are from the kamous in a contract ot sale of goods by
somple
that
Goods Act, 1930 provides
condition: sample in
there is an implied correspond with the
the goods shall
() that the bulk of
quality,

92 ,SIHIVA DELHI UNIVERSMy sERIES
i) that the buyer shall have reasonable opportunity of cornparingh

goods with the sample, and
in) that the goods shall be free from any defect, rendering then
unmerchantable, which would not be apparent on reasonabe
examination of the sample: In this case, S was given opportunity o
comparing only one parel of wheat with the sample and hot the
other.
This amounted to breach of an implied condition. A breach of condition
entitles the buyer to reject the goods and treat the contract as repudiatex
Hence, S is entitled to refuse to accept the delivery of goods.
O000
al
ci
ffi
so
se
las
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m
.co
be
Tu
ou
Y

UNIT
IIl
The Limited Liability
Partnership Act, 2008
Q.1. Explain the meaning and salient features of LLPs.
as "Limited Liability
Ans. Meaning. Section 20)(n) of the LLP Act defines LLP
Partnership means a partnership formed and registered under this Act."
The above definition does.not explain the substance of what constitutes a LLP.
In the light of the nature of LLP, a comprehensive definition of a LLP giving its
al
main essentials may be given as follows:
ci
"A LLP is a body corporate, which is an artificial person, having a separate legal entity,
ffi
with a perpetual succession, a common seal and carrying limited liability."
It is created by an agteement between any two o inore persons associated for
so
carrying on some lawful business with ayiew to.earn profits. This agreement
se
between the persons (called partners) has tobe written or in writing and also
as
registered. This agreemeñt alsodetermines the mutual rights and obligations of

l
/c
the partners and their rights and düties in relation to the LLP.
m
Features of LLP:
.co
( Body Corporate. A body corporate' is generally considered a legal entity

separate from its constituents and having perpetual existence and a
be
common seal with capacity to hold property, sue and be sued, and its
a
Tu
wn name. Thus, 'Company formed and registered under the

Companies Act, 2013 is à body corporate. A LLP is a body corporate
ou
under the LLP Act, 2008.

Y
(i) Separate legal entity. A L.LP, being a separate legal entity is liable to
the full extent of its assets. However, the liability of its partners is
limited to the extent of their agreed contribuion in the L.LP. No partner
would be liable on account of the independent or unauthorised actss of
other partners or misconduct. Creditors of the L.LP. are creditors of the
L.L.P. alone and they cannot directly proceed
against the partners
personally.
(ii) Perpeual Succession. A LLP like an incorporated company is a
stable
form of an organiation. Its life does
not depend upon the death,
insolvency or retirement of any or
all the partners. Partners may come
and-go but the LLP can go on
for ever.
p) Limited Liability. A LLP being
extent of lts assets. However, a
separate legal'entity, is liable to the full
the liability of its partriers is limited to
extent of their agreed the
contribution in the LLP. No.partner would
be liabie
93

SERIES
on account of the independent or
unauthorised acts of othèr
their misconduct. If the partners or any partners or
one or more of them are
have acted with an intention to defraud, creditors found to
be unlimited. then. their liability shall
(v) Designated members. A LLP should
have at least
also have at least two individuals as designated two partners and shall
partners.
two, one (at least) should be resident in India. Designated Out of these
members have
particular responsibilities and functions within
the LLP which closely
reflect those duties that would normally be carried out
by a director
secretary of a company. If the number of designated members falls below
two then every member of the LLP is automatically deemed to
designated member.
(U1 Accounting and filing requirements. Every LLP shall be under
obligation to maintain annual accounts reflecting a fair view of its state of
affairs. Annual return, annual accounts, notification of changes in
membership, registered office address have to be submitted or iledwitn
al
the Registrar's office every year. The açcounts of LLPs shall also be
audited. The Central Government has power to investigate the affairs of
ci
LLP, if required, by appointing a competent inspector for this purpose
ffi
(on Conversion and applicability. Along withxisting partnership firms,j
so
private or.public limited companies are also allowed to be converted into
se
LLPs in accordance with the provišions of the LLP Act and rules made
as
there under. The Çentral Governmenthas made rules for carrying out the;
provisions of the:LLP. Act The Indian Partnership Act, 1932 shall not
l
/c
apply to LLPs.
m
Limited Liability
Q.2. Explain the objects and purposes of establishing
.co
Partnerships (LLPs) in India.

be
liberalization (post 1991), our

Ans. During the last decade, especially after the
ot our economy, the role
Tu
economy has grown very fast. During this development

played by our entrepreneurs and our technicalCorporates and professional manpower is
ou
have become Multi-

being recognised internationally. Many Indian
feeling the ned to work out some
Y
Corporations (MNCs). India has been

National
of which we could make even faster or
more
vehicle through or with the help
effective use of our economic resources.
was felt to have a new form of corporate entity which could provide an
A need
to traditional partnership on the one hand and companies on the
alternative the
govemment introduced the LLP Biu, 2006. After due
other. With this in mind, the new LL Bill, 2008 which
and long deliberations, this bill
was later replaced bya
Houses of Parliament. It received Presidential assent
was passed by both the 2008.
then 2009. thus lbecame part of the Statute Book as LLP Act,
on 7th January, It torm
this Act is an alternative Corporate Business
LLP allowed under partners and also
he limited liability tor its
which combines the benefits
benefit
of
of
the
flexibiliy of organising their business a
as
auows or gives the
mutual agreement as used to be in traditiona
partnership based on their partmership in the same way as was partners
defined
partnerships. It is thus basically a
only difference is that the liability of the
under the Partnership Act. The

THE IMITED LIABILITY PARTNERSHIP
ACT, 2008
95
in a LLP is limited. LLP is also regarded as a body corporate and
is a legal entity
separate from its partners.
o. 3. Write a short note on Limited Liability Partnership
Agreement (LLP
Agreement).
Ans. LLP Agreement (Section 23). The LLP Agreement is a very important
document for a LLP, as it determines the mutual rights and duties of the partners
and their rights and duties in relation to the LLP. The LLP Agreement is required
to be filed with the Registrar.
It has been provided under Section 23-Save as otherwise provided by this
Act, the mutual rights and duties of a Limited Liability Partnership and its
partners, shall be governed by the Límited Liability Partnership Agreement
between the partners, ur between the Limited Liability Partnership and its
partners.
LLP agreement should be filed with the Registrar of companies within 30 days
of its incorporation. A person becomes a partner by virtue of the LLP agreement.
This mearns that the LLP agreement is a must and it serves as the basic document
and to a certain extent, takes the place of Memorandum of Association and
Articles of Association applicable in case of a company registered under the
al
Companies Act, 2013. Any change in the LLP agreement is also required to be
ci
notified to the Registrar of Companies. The importance of the said document lies
ffi
in the fact that it is a public document and it. is operi to public inspection being on
so
the records of the Registrar.
se
t is not mandatory by law to enter into a' formal LLP agreement, but it should
as
be done as it avoids unnecessary. disputes in future. Where no LLP Agreement

l
of LLP or the agreement is silent on

/c
has been executed between the partners LLP Act, 2008 shall
certain issues, the provisions of the First Schedule to the
m
.co
aPply. under LLP Act, 2008?

4. How can an LLP be incorporated and registered
be
Act, 2008? Enumerate the various

Or, How is an LLP formed under the LLP
documents to be filed with the Registrar in this connection.
Tu
"Limited liability partnership

Ans. As per Section 2(1)(n) of the LLP Act,
ou
Thus, LLP is formed

means a parnership tormed and registered under this Act."
Y
2008.
after registration under the LLP Act, the person desirous of forming the LLP
Before a LLP can be incorporated,
from the Registrar of
should find out the availability of the proposed nameLLP the last words of
as
Companies. The proposed name should have acronym
of the Central Government,
ts name. It must nót be undesirable in the opinion corporate
it should not resemble any other partnership firm or LLP or body
and
or a registered trademark or a trademark the application of which
is pending.
incorporation of LLP For an LLP
The LLP Act, 2008 has detailed provisions for
to be incorporated:
(W Two or more persons associated for
carrying on a lawful business witha
incorporation document.
view to profit shall subscribe their names to an
filed in such a manner and with
i) The incorporation document shall be
Such tees, as nay be prescribed by the
Registrar of the State in which the
registered office of the LLP is to be situated; and

96 SHIVA DELHI UNIVERsITY 8ERIESS
(ii) There shall be filed along with the incorporation document a statement
in the prescribed form, made by cither an advocate, or a comparty Fu
secretary or a chartered accountant or a cost accountant, who is engaged wil
in the formation of lhe LLP and by anyone who subscribed his nameto
the incorporation document, that all the requirerments of this Act and the
rules made thereunder have been complied with in respect of
incorporation and matters precedent and incidental thereto. wi
The incoporation document shall: pa
be in a form as may be prescribed;
state the name of the LLP;
state the proposed business of the LLP;
state the address of the registered office of the LLP; Re
state the name and address of each of the persons who are to be partners
of the LLP on incorporation; d
- state the names and addresses of the persons who are to be designated
al
partners of the LLP on incorporation;
ci
contain such other information concerning the proposed LLP as may be
ffi
prescribed.
Registration of LLP under LLP Act, 2008. LLPs shall be registered with
so th
Registrar of Companies (ROC) (appointed under the Companies Act 1956) afte
se
following the provisions specified in the LPAct Every LLP shall have a
as
registered office. An Incorporation Document subscribed by at Jeast two partners

l
shall have to be filed with the Registrar insá prescribed form. Contents of LLP
/c
Agreement, as may be presribed shall also be required to be filed with the

m
Registrar online.
.co
ROC will scrutinize whether the 'incorporation document' and other papers
presented to him satisfythe requirements of the Act and if they are in order, he
be
will register the LLP within 14 days from the date of presentation. On registration
Tu
the ROC shall issue a Certificate of Incorporation' signed by him under official
seal. The Certificate is the LLPs birth certificate. The Registrar shall enter the
ou
a
LLP's narne in the 'Register of LLPs' and shall assign LLP Identification
Y
Number (LLPIN) to the LLP.

Q.5. Explain the effect of incorporation or registration of LLP.
Ans. On obtaining the 'Certificate of Incorporation' the LLP becomes a body.
corporate, having separate legal entity and perpetual succession. From the date
of registration/incorporation given in the certificate, the LLP shall,be capable
forth-with of exercising the following powers:
(9 Suing and being sued:
(i) Acquiring, owning, holding and developing or disposing of property; PY
(i Having a common seal, if it decides to have one: and
(tu) Doing and suffering such other acts and things as bodies corporate may
lawfully do and suffer.
Q.6. Every partner of an LLP is an agent of the LLP only and not of other
partners.
Ans. There is no mutual agency in case of LLP. No partner would be liable on
account of the independent or unauthorized acts of other partner or partners.

LIABLTY PARTNERSHIP ACT, 2008
THE LIMITED
97
da
by a partner while dealing
by or for anything done
Further, LLP is not bound
with a person if no authority to act for the LLP; and.
partnerhas knows that he has no uthority.
the
(b) the person, with
whom the partner
are
deals,
in course ot the business of LLP.are
the partners its
But, as far as the act of líable in the same way as
authority, the LLP remains or is
with
partners. incorporation of LLP cannot be disputed
Q.7.iThe validity ofa certificate of statement.
whatsoever. Critically examine the
on any ground
12(4) of the LLP Act, 2008, a Certificate of Incorporation/
Ans. As per Section evidence of the tact
issued in respect of any LLP shall be conclusive
Registration name speciiea in the incorporation
that the LLP is duly registered by the is 1Ssued, nothing is to be
locument. Once the Certificate of incorporation
proceedings. Even though the
inquired into as to the regularity of the prior or their signatures
signatories to the "Tncorporation Document be all intants
come out to be forged. Once the Certificate of Incorporation is issued, the
al
Registrar has no powers to revoke or cancel it. The logic of this provision is that
ci
ffi
once the LLP is held out to the world as LLP ready to contract engagements, then
would be móst disastrous if, here after, any person was allowed to show that it
it
so
was not properly registered.
se
However, if a LLP having illegal objects has been registered, the illegal objects
as
do not become legal by the issue of the Certiicate:The Certificate would be all
l
/c
the same conclusive and thie remedy, in'suchia case would be to wind up the LLP.
m
Q.8. Explain the pröcedure forichange of registered office of LLP from one
.co
state to another.
Ans. Change of registered office from one state to another. The LLP may
be
change its registered office from one place to another. The following procedures
Tu
(as.laid down in Rule 17 of the LLP Rules, 2009) are to be followed for effecting
the change:
ou
() The procedure laid down in the LLP Agreement should be followed.

Y
Where the LLP Agreement does not provide for

such procedure, consent
of all partners shall be required. However, in case
of change of registered
office from one state to another state,
cornsent of secured creditors shal
also be required.
(i) In case of change of registered office
from one state to another state, tne
LLPshall publísh a Public Notice, at
Notice of change in Form least 21 days before filing any
15 with the Registrar
published in English in a daily newspape
and a local language
in) In case of change in place
within the state from of registered office from
the jurisdiction of one place to anotner
of another Registrar one Registrar to the on
the Notice in Form or from one state to another state, the LLP jurisa1
sna file
from where the 15 annexed
LLP proposes to LLP Rules, 2009with the Regis trar
thereof for the to shift its registered copy
registered officeinformation to the Registrar othce an
(io) Notice is proposed under whose jurisdiction the
of change to
of place of be
shifted.
registered
gistered otfice shall be!filed with the
office snau

98 SHIVA DELHI
UNIVERSITY
Registrar in Form 15 sERIE
requirements along within 30 days of complying
effect only after suchwith the requisite filing with the
filing. fee. The changeprocedural
() Form 15 shall be shall take
signed by a designated
Company Secretary
or Chartered Accountant partrner and certified by
Q.9: Explain the rules regarding in practice.
Ans. As per Section 17 of change of name of LLP.
the LLP Act, 2008 if
otherwise, L.L.P's name is through inadvertenceor
wrongly registered by
the Central Government is identical a name which in the opinion
with the of
body corporate or is undesirable, name of another existing LLP or ?
the Central Government may
change the name and the LLP must direct such LLP to3
months from the date of direction. comply with, the said direction within 3;
The LLP may change its name voluntarily
by filing with the Registrar a notice 3
of such change in such form as may
be prescribed (Section 19)3
Q.10. What is the liability of a partner upon
of members in a
reduction of minimum number
LLP?
Ans. The Act provides for the minimum of two
partners for carrying on a LLP
If at any time the number of pårtners of a limited liability
al
partnership reduced
below two and the LLP carries on business for more than six monthsis
ci
while
number is so reduced, the person, who is the only partner of the LLP during the
ffi
time that it so carries on business after thiose simonths and has the knowledge
so the
of the fact that he is carrying on busiriess alone, shall bë liable personally for
the
se
obligations of the LLP inicurred during thatperiod.
as
Q. 11. Distinguish between LP

and Traditional Partnership.
l
Ans. Distinction bétweenLLP and Traditional Partnership

/c
5
m
raditionatRaTberslip
gov
.co
1. Regulation Act A LLP is regulated by The| Partnership firm is

LLP ACt, 2008. erned by The Indian Part
be
nership Act, 1932.

Tu
2. Separate Legal| LLP is a separate legal A Partnership firm is not

district from ' the severàl
ou
Entity entity and therefore, can be

sued or it can sue others persons who compose it.
Y
without involving the part

ners.
3. Liability Liability of partners is lim- Liability of partners is un
ited upto their capital con- imited.
tribution however, in case
of fraud-acts by partner (s).|
they are personally liable.
Partnership does not have
4. Perpetual A LLP has perpetual succ-
perpetual succession i.e
existence ession i.e., retirement or a
a partner would° Retirement or Death of
death of Partner would dissolve the
not dissolve the LLP.
partnershup.

THE LIMITED LJABILUTY PARTNERSHIP
ACT, 2008
5. Formationy | It is formed by an incor-
Creation poration document called| It can be formed either
orally or by a deed
LLP agreement,
thus, agreement whether of
regis-
gving it legality. tered or not.
6. Property of the In LLP, property of LLP In Partnership, property of
firm belongs to LLP only, not to| partnership is the
property
the individuals comprising of the individuals compris
t. ing it.
7. Number of No limit has been mentioned Maximum 10 for banking
Partners in this regard. business and 20 for other
business.
8. Registration
It is compulsory to register| It is not compulsory to reg-
itself under LLP Act, 2008. ister itself under Partner-
ship Act, 1932.
al
9. Conversion It can not be converted into Partmership firm can be
converted into a LLP.
ci
partnership firm.
ffi
Q. 12. Distinguish between LLP and Limited Liability Company.
Ans. Distinction between LLP and LLC so
Basis ofDerene nitenLiability inited Liability
se
Compant
as
LLPs.aregoverned. and Limited Liability Company

Regulation Act
l
1.
by "The Com-
/c
regulated uinder "The LLP| is regulated 2013".

m
Act 2008 panies Act,

Public: Max.-No limit
.co
2. Number of No maximum limit.

Min.-7 (Seven)
be
members Private: Max.-200

Tu
Min.-2 (0o)
manage- In case of company, the
ou
In case of LLP,
3. Management right to control and man-
ment rests with those part- age the business is vested
Y
by
ners who are authorized in the Board of Directors
the LLP agreement.
elected by the sharehold-
ers.
Memorandum of Associa-
Partnership deed is the Asso-
4. Incorporation incorporation docu- tion and Articles of
documents main ciation are the main incor
ment. poration documents.
Change of registered office
registered office
Change in regi-|Change of from one state to another
5, another|
from one state to some state is allowed with lot of
stered office
state is allowed with formalities.
formalties. Maintanance of Accounts
be
Accounts are required to audit are compulsory.
6. Maintanance of ex and
Accounts &« audited if the turnover

100 SHIVA DELHI UNIVERSsITY
SERIESs
Audit ceeds T40 lakhs or contribu-
tion exceeds R25 Iakhs.
7. Liability of Liability of partners is
Partners Limited to Liability of members is lim
capital ited to capital of
contribution in all cases the com
except 'deliberate fraud'. pany.
13.
into LLP.
State the procedure and effects of conversion
from partnership firm
.A partnership firm is allowed to convert itself
into a LLP
of the Second Schedule annexed to /s
accordance with the provisions 55 and in
conversion of the firm is effected LLP Act.
One has to take the following
by registration with the Registrar of CompaniesThe
steps to get the firn converted into a LLP
To decide about the designated partners.
1o obtain Designated Partner Identification Number (DPIN).
(1n) To obtain the
digital signature of the designated partners as
al
applications and documents are to be filed all the
ci
i) To ascertain from the Registrar electronically:
ffi
of Companies whether the name of
LLP into which the firm is
to be converted is.available or not.
so the
() 1o get the "LLP agreement
and incorporation document drafted
se
printed. and
as
An application has to.be:madë "oriline

Companies of the State n Form No. 17 to the Registrar of
l
in which the registéred office of the proposed LLP is to

/c
be situated. The applicationis

(a) A statement by all of tó
be accompanied by the following documents:
m
its partners in the prescribed form

.co
name and registration number of the firm and containing the :

the partnership firmn. the date of registration of
be
(6) Incorporation document.

Tu
(c) Staterment made by either

an advocate, or a company secretary
or a
ou
Chartered Accountant or Cost Accountant,

a who is engaged in the
formation of LLP, that all the requirements of this
Y
() Statement of Assets and Liabilities of the firm Act are complied with.
duly certified as true and
correct by the Chartered Accountant in practice.
e) List of all the creditors along with their consent to
) The cearance, approval or permission from the the conversion.
authority if needed. concened body/
(g) Other attachments like details of Income Tax
Returns filed, particulars of
penal proceedings etc.
Along with the above documents necessary filing fees and
registration fees at
the prescribed rates are also to be paid.
Registration of Conversion.On receiving
scrutinizes the documents and if he is satisfiedthe
documents, the Registrar
with the particulars and other
information, he will register the documents and issue a 'Certificate
Registration'. of
Efect of Conversion (Section 58). The Registrar, on being satisied that
a firm,
Pvt. Company or an unlisted public company, as the case may be, has complied

PARTNERSHIP ACT, 2008 101
UMITED LIABILITY
THE
the case may be, shal
IInd, Ird or TVth schedule as
with the provisions of theof this Act and the rules made thereunder, register
subject to the provisions schedule and issue a Certificate of registration
documents submitted under such determine stating that LLP is, on and from tho
form as the Registrar may
such
in specified in the Certificate, registered under the Act. company into LLP
date provisions for conversion of a private a
Q.14. State the under the Companies Act, 2013
ia
company, incorporated
Ans, A private Section 56
convert itself into a Limited Liability Partnership under
allowed to to LLP Act.
accordance with the provisions of the Ihird >chedule annexed
and in company may aPPy to the Registrar of
Eligibility for conversion, A private a Lumitea Liability Partnership
Companies (ROC) for converting itself into
provided:
is no security interest in its assets subsisting or in force at the time
There
of application; and
converts comprise of all the
The Partners of he LLP to which it
al
shareholders of the private company and no one else.
ci
The conversion of the private company is effected
by registration with the
ffi
18 to
Registrar of Companies. An application is to be made online in Form No.
so
the Registrar of Companies of the State, in which the registered otfice
of the
the
proposed LLP is to be situated, after the conversion of private company to
se
as
LLP.
The application is to be accompanied by the following documents:
l
/c
A statement by all of its shareholders in the prescribed form containing

m
the date, name and registration number of the company.

.co
Incorporation Doçüment.
Statement by either an advocate, or a Company Secretary or a Chartered
be
Accountant or a Cost Accountant, who is engaged in the formation of the

Tu
LLP, that all the requirenents of this Act and the rules made thereunder
have been complied with, in respect of incorporation and matters
ou
precedent and incidental there to. [Section 11]

Y
Statement of Assets and Liabilities of the private company duly certified

as true and correct by the auditor of the company. The statement should
made up to a date not preceding 30 days from the date of application.
List of all the Creditors along with their consent to the conversion.
The clearance, a proval or permission fron the concerned authorty,
needed.
Other attachments like details of Income Tax Returns filed etc.
Along with the above documents, necessary filing fees and registration fees at
the prescribed rates are also to be paid.
egistration of Conversion. On receiving the documents, the Registrar
SCrutinizes them, and if he is satisfied with the particulars or other informations
furnished there in, he will register the LLP. On registration he will issue a
Certificate of Registration' in Form No. 19 annexed to LLP Rules, 2009 stating
the date of Registration of the LLP pursuant to
Section 58(1) of the LLP ACt.
Effects of Registration [Section 58]. The effects
of registraion o
or
and from the date of registration as ation
mentioned in the Certificate of Registrat
are
102 SHIVA DEUI UNIVERSmY
SERIES
(n A Limited Liability P'artnership
specified in the Certificate comes into existence
of Registration. by the name
() All tangible property as
company, all assets, well asintangible property
vested in the private 3
interests, rights, privileges, iabilities,
relating to the private company obligations
private company stand and the whole of the undertaking
transferred to of the ?
further assurance, act or deed; and; and shall vest in the LLP without
(ii) The private company is deemed
to be dissolved and
deemed to be removed from its name is also
the Registrar of Companies
the Registrar of Companies. maintained by
o. 15. "An LLP is a definite improvement over the
partnership in the matter
of promoting entrepreneurship." Discuss.
Ans. LLP is a new form of business entity that enables professional
expertise
and entrepreneurial initiative to combine, organize and operate
in an innovative
and efticient manner. The concept of LLP was initiated as an alternative to the
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traditional partnership firm', where partners are exposed to unlimited personal
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liability and 'incorporated company' on the othef, which is burdened with statute
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based governance structure.
so
This form of business organisation permits individual partnersto be insulated
from joint liability of any partners business decisions. The LLP enters into a
se
contract in its name and the liability of its partners is limited to their agreed
as
contribution in the LLP. An LLP is thus a hybrid entity between a company and
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.
a partnership firm. incorporatesall the ilexibility available under the
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Partnership Act and all the beneficial aspects of the Companies Act.
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Thus LLP is a definite improvement over the partnership in the matter of

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promoting entrepreneurship.
Q.16. Explain the concept of "Pesignated Partners" and also their liabilities
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under the LLP Act.

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Ans. Designated Partners. Every LLP is required to have at least two

Designated Partners who should be individuals and at least any one of them has
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to be a "resident of India".
means a person who has stayed
ror this purpose, the term "resident of India"during the immediately preceding
in India for a period of not less than 182 days
one year. are body corporates or in
Further, in case of a LLP in which all the partners
corporates, then at least
one or more partners are individuals and body nomnees
cn LLP or
wo individuals who are partners of such a However, an individual shall no
of such body
corporates shall act as the Designated Partners. has given his/her prio
LLP unless he or she
Decome a Designated Partner in a such form
such to the LLP. This consent has to be in
aPprovai or consent to act as
the rules.
and manner as may be prescribed in the particulars of every such individyuar
Registrar
has to file with the Partner, Further, eve
LLP
Stsgiven his/her consent to act as
obtain
the
a
Designated
Designated Partner Identificargo
Designated Partner has to
Government.
vnber (DPIN) from the Central
THE LIMITED LIABILY
PaRTNERSHIP ACT,
2008
Liabilities of the Designated Partners: 103
() He/She is responsible for
doing
required to be done by the LLP. all acts, matters and things as are
(i) He/She shall remain liable to all
the penalties imposed orn the LLP
any contravention of the legal provisions. for
Any partner may become a Designated
LLP agreement. Similarly, a partner Partner by and in accordance with the
may also cease
accordance with the LLP agreement. Further, to be a Designated Partner in
a LLP may appoint a new
Designated Partner within 30 days of a vacancy
arising for any reason
whatsoever e.g., resignation, death or otherwise becoming incapable
contracting. of
But till a new Designated Partner is so appointed or at any other time if
there is
only one Designated Partner, then each of the partners shall be deemed to be a
Designated Partne.
Q.17. "The responsibility for carrying out the legal obligations as laid down
by the LLP Act shall be solely of the designated partners. Discuss.
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Ans. As Per Section 8 of the LLP Act, unless expressly provided otherwise in
this Act, designated partner shall be:
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(responsible for the doing of all the acts, matters and things as are
required to be done by the LLP in respect of compliance of the provisions
so
of this Act, including filing of any.dcument, return, statement, report
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and the ike pursuant to. the. provisions of this Act and as may be
as
specified in the:LLP.agreement; and

l
(b) liable to all pernälties imposed ön the LLP for any contravention of these
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provisions.
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Q. 18. Discuss the procedure of appointment of designated partner.

Ans. The procedure of appointment of a designated partner:
be
An individual shall notconsent become a designated partner in any LLP unless

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he has given his prior to act as such to the LLP in such form and
manner as may be prescribed.
ou
(i) Every LLP shall file with the registrar the particulars of every individual
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who has given his consent to act as designated partner in such form and
marner as may be prescribed within 30 days of his appointment.
(iii) An individual eligible to be a designated partner shall satisfy such
conditions and r. juirements as may be prescribed.
(iv) Every designated partner of LLP shall obtain a Designated Partner
the
ldentiication Number (DPIN) from the Central Government andapply
provisions of Sections 266A to 266G of the Companies Act shall
for the said purpose. (LLP)? What
Q. 19. Who can be a partner in a Limited Liability Partnership
LLP? How can a person
are the disqualifications for becoming a partner in a
sbecome a partner of a LLP? Discuss?
Ans. Who can be a partuer in a LLP?
a partner in a LLP.
As per Section 5 any individual or body corporate may be
AS perSection 29J(d) "body corporate
means a company formed and
a LLP registered
incorporated under the Companies Act, 2013 and includes

under LLP Act, 2008 or a LLP incorporated outside India or a compa

incorporated outside India.
Thus the following can be partners in a LLP:
Any Individual;
(ii)
Any Indian Company;
(ii) Any Other LLP;
(iv) A Foreign LLP; and
(v) A Foreign Company.
Disqualifications of becominga partner (Section 5) in LLP.
An individual shall not be capable of becoming a partner or a
has been found to be of unsound mind by a Court;
b *
he
he is an undischarged insolvent.
he has applied to be adjudged insolvent.
How can a person become partner of a LLP?
Lne persons, who subscribed their names to the 'Incorporation Documen' at
ne me ot incorporation of LLP, shall be partners of LLP. Subsequent to
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ncorporation new partners can be admitted in the LLP as per the conditions and
ffi
rcquirements of LLP Agreement. (Section 22)
Q.20. Explain the nature, extent and limitation of the liability of LLP and its
so
partners.
se
Ans. When a LLP is incorporated, the persörns,, who have subscribed their
as
names to the incorporation documentbecome'its partiërs. After this, any

other
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person may become a pärtner of thë LLP again by and in accordance with
the
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LLP agreement. Therefore. the mutual' rights arnd duties of the LLP
and its
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partners are governed by, the LLP Agreement entered into between the partners or
between the LLP and its partners.
be
This LLP Agreement, and also ar.y changes made in it from time to
time, has to
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be filed with the Registrar in the form and manner prescribed.

It has to be
accompanied by the requisite fees as well.
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First Schedule. In the absnce of any such agreement or

provision in the
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agreement as to any speciied matter, these mufual rights

determined by the provisions relating to that/ those matter/matters and duties are
out in the First Schedule. which are set
Nature of Liability. For the purpose of the business of the LLP, every
the agent of the LLP only. So every partner is not the agent of partner is
a LLP is not bound by or ior any thing done by a partner
other partners. So
while dealing with a
person if
the partner has no authoriy to » t for the LLP; and
the person, with whom the partner deals, knows that he has
But as far as acts of the partners are in the course of the business no authority.
are with its authority, the LLP remains or is liable in the same of the LLP Or
partners. In any case, the liabilities of the LLP have to
way as its partner /
be met only out
properiy of the LLP itselt. Generally, a partner is not personally of the
indirectly for the acts as far as these are in course of the business liable directlvoor
with its authority. So a partner shall of the II P are
notbe personaly liable for the wrongful act
or omission of any other partner of the LLP.

UABILITY PARTNERSHIP
ACT, 2008 105
THE LIMITED
Unlimited Liability in case of

fraud:
be unlimited if an act or acts is/
Liability of the LLP and its partners shall
()
carried out by the LLP or any of its partners with intent to defraud
are
creditors or any other person.
In case any such act is carried
out by a partner, the LLP is liable to the
exception to this is when the LLP is able
same extent as the partner. Only
was without the knowledge or
to establish that such act of a partner
authority of the LLP.
or designated partner or its
(i) Where the LLP or any of its partners way or manner,
employees conduct the affairs of the LLP in a fraudulent
or employee
then the LLP or any such partner or designated partner its suffered
can be held liable to pay compensation to any
person who has
This will be in
any loss or damage by reason of such act or conduct.
addition to any criminal proceedings which may arise under any law for
the time being in force.
(i) The LLP, its partner/partners, designated partner/partners
or its
employee shall also be punishable with even' imprisonment for a term
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This
upto two years along with fine which shall not be less then 50,000.
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figure may even extend upto Five lakh.
Q. 21. How can a partner cease to be a partner.of LLP?
ffi
so
Ans. A person may cease to be a partnerof aLLPin either of the following wo
se
ways:
as
() in accordance with an agreement with the other partners; or

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respec
() in the absence oEagteement with the other partmers in this
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giving a noticeofnot Tess than 30 days to the other partners of his

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intention to resign as partner [Section 24(1)].

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A person may also cease involuntarily to be a partner of a LLP:

be
) on his death or dissolution of the LLP; or

(i) if he is declared to be of ynsound mind by a court; or
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(i) if he has applied to be adjudged insolvent; or

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(iv) if he is declared an insolvent [Section 24(2)].

Q.22. State the liability of the LLP for the wrongful act of partner
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Ans. Where, by the wrongful act or omission of a partner acting in the ordinary
course of business of an LLP, or with its authority, loss or injury is caused to any
third party or any penalty is incurred, the LLP is liable therefore to the same
extent as the artner. The wrongful act may be tort, or negligence. As per Section
27(4) of the LLP Act, 2008, the liabilities of the LLP shall be met out of the
property of LLP.
However, the LLP is not bound by an act of a partner in dealing with a person,
iF the partner has no authority to act
for the LLP and the person knows that he
s no authority or does not believe that he is a partner of the LLP.
Q23. Explain the provisions of the LLP Act, 2008 regarding winding up and
dissolution of the LLP.
Ans. The wínding up of a LLP may be either voluntary or by the Tribunal
(Compulsory). A LLP so wound up in either situation or case stands dissoIved
As a LLP comes into existence by a written agreement between the partners or

106 SHIVA DELHI
UNIVERSITY
SERIES
the LLP TP so it can as well be dissolved
or wound
between all its partners. This is called voluntary up through an agreement
Winding up by Tribunal. Compulsory winding up.
winding up of a LLP canbe
the Tribunal in the following cases: ordered by
- LLP itselt decides
that it wound up by
Number of partners of the LLP remains the Tribunal.
than six months. reduced below two for more
- LLP is unable to pay its
debts, and therefore its Creditors
up by the Tribunal. seek winding
- LLP has done some act/acts
which
national interest or which are against is/are found to be against the
the interests of the sovereignty and
integrity of our country or against the
security of our country or against
public order.
- LLP has defaulted in filing with
the Registrar the Statement of Account
and Solvency or the Annual Returns for any five consecutive
financia
years.
al
Tribunal is of the opinion that it is jut and equitable for a LLP to be
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wound up.
ffi
Besides these circumstances LLP's name can be ordered to be removed from
the Register. This may be done by the Registrarin case the LLP is found to be not
so
carrying on any business or operation
se
(a) for a period of two or more years andthe Registrar has reasons to believe
as
that the name ofth LLP be removed from the Register.

l
(b) for a period of örne year ormorë the LLP is not carrying on any business
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or operations and an application in a prescribed form is made to the:

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Registrar with the consent of all the partners asking or seking that the
name of the LLP be removed from the Register.
be
However, in either case, the Registrar has to send a notice to the LLP and al
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the namë
the partners. In this notice he has to make clear his intention to remove
send their
of the LLP from the Register. The LLP and its partmers have to or can
ou
Tepresentaions along with copies of the relevant documents,

if any, within a
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period of one month from the date of notice.

case of above where an
But no such notice by the Registrar is needed in
to. the Registrar with the consent of al
Ppncation in the prescribed form is madename from the Register.
the partners of the LLP for removing its
of timne given in this notice (in case notice is given) the
5 Oniycan atter the expiry Registérn
orders to remove the name of the LLP from the
Kegistrar pass his Official Gazette. After this,
to be published in the
uch orders, if passed are also However, these provisions do not apply or aftect
L Shall stand dissolved.
a LLP whose name has been struck on
wind up
e power of the Tribunal to to the
removed from the Register.
provisions of the LLP Act, 2008 relaing
Q24. Discuss in brief the
voluntary winding up of a LLP.of LLP When a limited liability partnership is
ountary winding up of LLP interference by the the court, it is cae
court, 15 ca
any
up by the partners without 484, a LLP may be wound up voluntarily 1
a Ttary winding As per
up. Section

THE LIMITED LIABILITY PARTNERSHIP
ACT, 2008
107
the LLP passes a resolution to wind up the LLP with the approval of at least
4th of the total number of its partners. 3/
Statutory Reguirements for voluntary winding up:
) Declaration of solvency. It has to be made by a majority of
the
designated partners or all of them if there are only two designated
partners, and duly verified by an affidavit. They have to declare that the
LLP has no debts or that it will be able to pay its debts in full within a
specified period not exceeding from the commencement of winding up.
i) Meeting of creditors. All the creditors must be given a copy of
Declaration of Solvency', an estimated amount of claims due to each of
the creditors and an offer for creditors to accept such claims. If 2/3ra (in
value) of the creditors give their consent that the LLP be wound up
up
voluntarily by the partners, the LLP shall proceed to be wound
voluntarily.
passing the resolution for
(i) Appointment of Liquidator. Within 30 days ofpassed by a majorily vote,
voluntary winding up, through a resolution panel maintairned by the
the
LLP shall appoint a "LLP Liquidator" from
al
Central Government. to pending
ci
to submit information to the Registrar with regard
iv) Duty LLP is not concluded within one
year
ffi
liquidation if winding up of the
after its commencement.
so
dissolution. when. the affairs of the LLP are
se
() Final meeting and.up the CLP liquidator will call the final meeting of
completely wouind winding
as
purposeofláying the detailed account of the

the partners the for thereof. Within two weeks after
l
any explanation
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up before it and giving liquidator

the Court
shall send to the Registrar and Court is
m
LLP
the meeting, the winding up accounts and explanation. If the
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a copy of financial pass order for dissolution of the LLP.

LLP.
satisfied, it may an
duties of auditors of
be
the powers and LLP Act, 2008, every

Q. 25. Discuss briefly of auditors of LLP According to
Tu
to
Ans. Powers and
duties tolowing two criteria is required
partnership which ulfis the
ou
liability
limitedaccounts audited.
get its Turnover exceeds {40 lacs in any financial year.
Y
lacs in any financial year.

() contribution exceeds 25 Accountant in practice can
be
(ii) Whose Chartered
provides that only a the audit of an
LLP.
The law auditor for
conducting
not mention anything
as an rules, 2008 do
appointed Act, 2008 and the LLP
However, the LLP responsibilities of the auditors.
the duties and Auditor's principal duties are:
specifically about Act, 2013, an
According to Companies Audit Report. accounts.
to provide an proper books of
Duty report failureto maintain
Duty to to report indictable
offences.
Duty exercise protessional integrity.
Duly to hurnish evidence of qualifications. and
Duty to the books, accounts
to
Rights of Auditoacçess at all reasonable time from the company's officers
() Right
of*
company. They can require
vouchers of the

108 SHIVA DELUI UNIVENsITY SERIESs
and employees such information and explanation that are necessary

the performance of their duties.
) Auditors are entitled to attend any general meeting of the company
to receive the same notices and communications relating to meetings3
the member.
in) Auditors have the right to receive remuneration for their services.
Q. 26. Whether audit of all LLP's
would be mandatory
Ans. The accounts of every LLP shall be audited in accordance with Rule
LLP Rules, 2009. Such rules, inter-alia, 240
provide that any LLP, whose turnover
does not exceed, in any financial year, 740
lakh, or whose contribution does not
exceed R25 lakh, is not required to get
its accounts audited. However,
partners of such limited liability partnership decide to get the accounts ofit tne
such
LLP audited, the accounts shall be
audited only in accordance with such rule.
Q. 27. Whether every LLP would be required
to maintain and file accounts
Ans. A LLP shall be under obligation
to maintain annual accounts reflecting
al
true and fair view of its state of affairs. A Statement of
Account and Solvency in
ci
prescribed form shall be filed by every LLP with the Registrar every year.
ffi
This annual statement is one of the most
important disclosures made by a LLP
annually which is open for public inspection. so
The Act does not expressly mention as to.what.particular
a
se
LLP must maintain. But the LLP Rules prövide
books of account,
that every LLP must keep prope
as
books of account which are sufficient

toshw. änd explain the financial
l
transactions kept in a manner whichidisclose

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thie financial position of the LLP as

on that date with reasonable accuracy."
m
Q.28. Whether any Aninual Return would be required to

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Ans. Every LLP would be required to file annual return in Form

be filed by a LLP?
11 with ROC
be
within 60 days of closing of financial year. The annual return will

public inspection on payment of prescrilbed fees to the Registrar. be available for
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Form and contents of the return: Briefly stated, it

contains informations
ou
regarding the following:

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the name and address of registered office of the LLP.

the main business activities of the LLP;
the summary of partners and designated partners
including DPIN of
designated partners;
number of individuals as partners and number of bodies corporate as
partners;
obligation of each partner to contribute and the contribution
particulars of the penalties imposed, if any, on received:
the LLP or designated
partner or parhiers other than designated partners.
particulars ofconpounding of offences.
Q. 29. What is the ax reatment being provided for LLPs?
Ans. Since the taxation related matters in india are provided
the taxation of LLPs has not been under Tax Laws
provided the LLP Act, 2008. The
in
2009 has made provisions in this regard, pursuant to which Finance Bin
the taxation schemne
of LLPs has been proposed to be introduced in the Income Tax Act, The
Bill, 2009 has proposed the following regarding taxation of LLPs: in

LIABILITY PARTNERSHIP
ACT, 2008 109
THE LUMITED
on the lines similar to general

partnerships under
() LLPs to be taxed
i.e., taxation in the hands of the entity and
Indian Partnership Act, 1932, partners. A LLP and a general
exemption from tax in the hands of its same tax.treatment by the Act.
partnership firm are being accorded theIncome-tax Act, 1961 like:
(ii) Consequent changes to be made in
the
word 'partner to include within its meaning a partner of a LLP,
the within its máning a LLP,
the word 'firm' to includeinclude withih its meaning a LLP.
the word 'partnership' to
Income-tax Return of a LLP. If due
(in) The designated partner shall sign the
to any unavoidable reason such designatedpartner is not able to sign the
shall
Return or where there is no designaed partner as such, any partner
sign the Return.
be joíntly and severally
(i) In case of liquidation of a LLP, every partner willnon-recovery
liable for payment of tax unless he proves that cannot be
attributed to any gross neglect, misfeasance or breach of duty on his part.
() As a LLP and a general partnership are being treated as equivalenis
al
except for recovery purposes) for tax purposes, the conversion from'a
ci
general partnership firm to a LLP will have no tax implications if thee
ffi
rights and obligations of the partners remain the same after conversion
so
and if there is no transfer of any asset or liability after conversion.
se
(o) If there is a violation of these conditions the provisions of Section 45 of
as
Income-tax Act shal.apply

(in These amendments are proposed to be made effective from April 1st,
l
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2010 ie, Assessmentear 2010-11.

m
:Q.30. Explain the duties ofaliquidator under LLP Act, 2008?

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Ans. The duties of a liquidator under LLP Act (Rule 11), 2008 are as follows:
The LLP liquidator shall perform such functions and discharge such
be
duties as determined from time to time by the LLP or he creditors, as the

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case may be.

(t) The LLP liquidator shall settle the list of creditors or partners, which
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shall be prima facie evidence of the liability of the persons named therein
Y
tobe partners...
(iin The LLP liquidator shall obtain approval of partners
or creditors of LLP,
as the case may be, for any purpose he may consider necessary.
(iv) The LLP liquidator shall maintain regular
and proper books of accounts
in form and manner prescribed in part V and the partners
and creditors
and any officer authorized by the central government may
books of accounts. inspect such
()The LLP liquidator shall pay the debts of the LLP and shall
rights of the partners. adjust the
(Di) The LLP
liquidator shall observe due care
of his daties. and diligence in the discharge
Q.31. What is.meant by
Statement
Ans. As per LLP Act, 2008, every of Account and Solvency in an L.L.P?
ACcOunt ana solvency LLP is required to prepare
a Statement
Companies. This annualeach year and to file the same with the
statement is to be Regisrar o
prepared within a period of 30 aays

UELIII UNIV
UNIVERSITY
SERIES
from the end of 6 months fromntthe end of
applicable filing fee. each financial
nancial yyear
ap along with
The annual statement ot account and solvency the
escribed
formatprescribediin Form no. 8, The statement has to be submitted
has been divided in the
() Statement of olvency. It consists of into two parts:
declaration by the an affirmation
designated
oto the affairs of the LLP partners that they have madeand full
sincere
enquiry
and have formed
solvency. an opinion about its
(h Statement of Account.
It consists of two statements
Assets and Liabilities, (2) Statement (1) Statement
of Income and Expenditure. of
These two sub-statements have to report the
igures of two financial years,
current financial year and immediately preceding financial
year.
ie,
The Statement of Account and Solvency shall be signed on behalf
of the LLP by
its designated partners. This statement shall be filed by the LLP with
Registrar and it shall be open tor public inspection at the office of the Registrar
the
and shall be available for obtaining a certified copy thereof on payment ofat
al
nominal fee (Section 36).
ci
Penalty for non compliance. Any LLP which fails to prepare and file th
ffi
Annual Statement of Account and Solvency on or before the due date shall be
so
punishable with fine which shall not be less than 25,000 and it may extend to
5,00,000. In addition to LLP, the Act has also prövided that every designated
se
partner of such LLP shall be punishable with fine which shall not be less thán
as
10,000 but which may extend to 71,00,000. (Section 345)

l
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Q.32. Who may file petition for winding up an LLP? Discuss powers of cóúrt
m
on hearing such petition.

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Dissolution) Rules
Ans. According to Rule 26 of the LLP (Winding up and
for winding up ofa
be
2010, the following persons can make a petition to the court

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LLP:
its designated partners when ithas
() Petition by the LLP may be made by
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effect.
passed a special resolution to this
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n) Petition by any pariner(s).

(in) Creditors' petition.
iu) Registrar's petition. State Government
the instance.of Central Government or a
at LEh
Fetiion
eanng ofPetition. After receiving
up of the
the petition for winding upon hearingal
hearing of petition. On the specified date,
ixes a date for the date
rt court may within 90 days trom
partners, the folowing ways:
ected
PEsentation of the petition, act in any of the
the petition, with or without cosS.
Dismiss interim order that it thinks it, or the LLP in accordang
u Make any rehabilitation of
action for revival or of LLP Act, 2008; or
the
Direct procedure laid down in Section 60 toliquidator of the LLP til ti
62
with as provisional
"Liquidator"
APpoint a a winding up order; or with or without cosis.
naking of winding up of the LLP
Ke an order for the

THE LIMITED LIABILTy
PARTNERSHIP ACT,
Q.33. Explain the following terms: 2008
111
(a) Incorporation
of
(b) Registered office LLP/ncorporation Document
() Name of the LLP of LLP
()Partnierby Holding out
(e) Whistle Blower
Contribution of capital
g) Whistle Blowing
Ans. (a) Jncorporation of a LLP/Incorporation
be incorporáted, the requirements Document. For getting a LLPt
are:
Two or more persons, being associated for carrying on a lawful business
with a view to earn profits, have to subscribe their names
to an
incorporation document.
) This incorporation document has to be filed with the
Registrar of the
State in which the registered office of the LLP is to be situated. It has to
ile the document in the prescribed manner along with the requisite fee.
in) Along with this document, a statement has also to be filed in the
al
prescribed form. This státement has to be made by either an Advocate or
ci
a Company Secretary or a Chartered Accountant or a Cost Accountant
ffi
who has been engaged in the formation ofthetLP. This statement is also
so
to be signed by any one who subscribiedehis, name to the document. This
se
statemernt must stat that.all the teguirements of the Act and also the
as
Rules made thereirider havebeen complied with. It should be noted that

the Incorporation Dácimentis a public document and it is open to
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public inspection in the Office of Registrar on payment of a prescribed

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fee.
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(io) This incorporation document must state:

the name of the LLP.
be
the proposed business to be carried on by the LLP.

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the address of the registered office of the LLP.

the name and address of each of the persons who are to be the
ou
partners of the LLP.

Y
the name and address of the persons who are to be the designated
partners of the LLP and
certain other needed information regarding the LLP.
Penalty. Section 11(3) lays down the punishment for a person making
the
statement about compliance of the LLP Act referred to above either knowing it to
a fine of not less than tl0,000 but
be false or not believing in its being true with
hich may extend to 5 lakh and also for imprisonment for a term which may
extend to two years.
6) Registered Office of LLP. Provisions regarding this are as under:
be stated in its
Every LLP must have a registered office which must
Incofporation Document.
and notices are to
It is this registered office to which all communications
be addressed. office. It has to file the
A LLP may change the place of its registered
notice of such change with the Registrar.

112 SHIVA DELuI UNIVENSITY SENIES
has to be in the prescribed form.

-ItKegistrar can prescribe or impose conditions subject to which
this change
in the registered office is accepted.
(c) Name of the LLP.
-No LLP can be registered by a name which in the opínion
of tne
Government is
either undesirable; or or
identical or resembles too nearly to that of another LLP
partnership firm or a body corporate or some registered trade mark
Bvery LLP shall have either the words "Limited Liability Partnershp
or just its acronym "LLp" as the last words of its name.
-When applying for registration as LLP, the person applying may ask for
even reservation of a name set out in its application as
the proposed name of a LLP; or
the name to which an cxisting.LLP proposes to change its namne.
al
-Where an application for change in the name of a LLP is so made and the
ci
Registrar (or Govermment) is satisfied that the change is to be granted
ffi
then the LLP has to comply with the directions of the Government in this
so
regard within 3 months after the date of the direction or -within such
se
extended period as the Governmentmaý, allöw
a
as
() Partner by holding out.-Sometimes, person not actually a partner

represents himself or knowingly allows himgelf tö'be represented as a partner
l
in
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a LLP. He may do so either bywords spoken or written or by his conduct. Such a

m
person is held liable (as a partner by holding out) to any person who has given
.co
credit to the LLP on the faith of such representation.. In such a situation it is

immaterial whether the person representing himself or so represented to be.
be
partner knows or does not know that such representation has reached the person
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who has extended credit to the LLP.

However, in case, any credit is reçeived by the LLP as a result of any such
ou
representation, then the LLP has to be held liable also to the extent of such credit
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received by it or any monetary benefit received by it.

But such a rule of partner by holding out does not apply to the legal heirs oi
representatives of a partner who has died. This is so even if after the partners
death the busiriess of the LLP is continued in the same name of the LLP or iti
continued using the name of the deceased partner.
() Whiste Blower (Section 31). Whistle blower means a person who inform3
pepple in authority or the public that the firm or company is doing something
wrong or illegal. In case of a LLP, it means that partners or employees of the
a right to report to the management about actual or suspected dishonesty LL
have
fraud or unethical practice. LLP Act provides adequate protection to the
whie
the court may reduce or wai
blower. Section 31 of LLP Act provides that
penalty leviable against any pariner
or employee of a LLP if such partmer
employee provides useful information during investigation of such LIP
finding out the offence. Such partner/ employee shall not be discharged

THE UIMITD LIABILITY
PARTNERSHIP ACT, 2008 113
discriminated against the
demoted, suspended, threatened or in any other way
helps in the conviction of
terms and conditions of the LLP. A whistle, blower who
the guilty will thus be protected.
Contribution of Capital. The contribution of a partner towards the capital
or intangible property
of a LLP may consist of tangible, moveable or immoveable
or other benefit to the LLP including money, promissory notes, other agreements
or to be
to contribute cash or property and contracts for services performed
performed as enumerated in Section 32 of the Act. While this imparts great deal
of flexibility in the matter of capital contribution, there is need to evaluate non-
cash contribution to the capital of LLP. The Rules in this regard prescribe
valuation of non-cash contribution to LLP by a Chartered Accountant.or Cost
Accountant or by a panel of Valuers maintained by the Central Government.
(gWhistle blowing. The term whistleblowing can be defined as raising a
concern about a wrong doing within an organisation. The concem must be a
al
genuine concern about a crime, criminal offenc, miscarriage of justice, dangers
ci
to health and safety and of the environment. It is the disclosure by a person
ffi
(known as whistle blower), usually an employee in a governmnent agency or
private enterprise, to the public or to those in authorily, of mismanagement,
so
corruption, illegality, or some other wrongdoing.
se
Complaints from service users, relativesor epresentatives would not be
as
classed as whistleblowing. These would eed tobe raised using the service's
l
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complainits procedure.
m
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be
Tu
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Y

UNIT cor
IV arn
The Information
Technology Act, 2000
Q1. Explain the terms

() Affixing digital signature
(6) Computer network
(c) Computer system
(d) Asymmetric crypto system
al
(e) Data
ci
Key pair
ffi
g) Private key so
() Public key
se
().Hash function
) Compyter virus
as
Ans. (a) Affiring digitihstg re wihhodology

itgrammatical variation and cognate
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expressions means adopfo or procedure by a person for

the purpose of authenticating an electronic record by means of a digital signaure
m
(b) Computer Network ISection 201 6)1 Computer network means the inter
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connection of one or more computers through

be
terminals or a complex consisting of two or more interconnected

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computers whether or not the interconnection is 'continuously

maintained; and
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the use of microwave, terrestrial line, satellite or other communicátion

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media.
(c) Computer system [Section 2(1)(0]. The Computer system means a device or
collection of devices, including input and output support devices and excluding
calculators which are not programmable and capable of being used
conjunction with external files, which contain computer programmes, electronie
instructions, input data and output data, that performs logic, arithmetic data
storage and retrieval communication control and other functions.
(a)Asymmetric Crypto System [Section 2(1)()). The Asymmetric erypto system
means a system of a secure key pair consisting of a private key for creating
digital signature and a publickey to verify the digital signature.
(e) Data [Section 2(1)o)]1. The Data means a presentation of facts, concep
instructions and information which are being prepared or have been prepared
in a formalised manner and is intended to be.processed, or being processer
in a computer system or computer network and may be in any form (inclu
114

THE INFORMATION TECHNOLOSY ACT, 2000
115
computer prinous, mgne cr optical storage meäa. punched ars. pacbei
tapes) or stored intenaly in the menory af the conpute.
n Key Pair [Section 2(iM)-Information Tecinology Act, 20001 Kay Pair s
ai asyrumetric cypto syste, nezning a private key and is matteraiely
related pubic key, which are so related that the publi key an vary a dig
signature created by the Private Key. A Private Key means the key of a Key Pair
used to create a digital signature, and a "Pubic Key' neans te key of a Key Pair
used to verify a digital signature as listed in the Digital Signature Cerisate
gPrioate Key [Section 29(zc) of IT A 20001. It mears the key c a key par
used to ceate a digital signature.
(k) Public key [Section 2(9(za) ofIT Act, 2000J. It means the key of a key pair
in the digitai signaure certincate
used to veriy a digital signalure and listedforanula
(9 Hask FunctioT. It is a mathematical or algorithn in the form of a
computer software on the message to encrypt it using addrassee' s putlic kzy,
Tnis "hash
which gives out a "hash resul ie, a unique mathematical vaiua
result is also called the message digest.
al
information, data ar
) Computer vinus. It means and computer instruction,
ci
program that destroys, damages and degrades or adversely affecis the
ffi
pertormance ot a computer resource or attaches itself to another comput
resource and operates when a program, data or instiaction is executed or same
so
resource
other event takes place in that computers
se
Act 2000.
2 $tate the objectives oF InformationTechnology
as
Tecknology Act (UT Act), 2000. Ine osjectives

l
Ans. Objectives of nformation

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of the Act as reflected in the preamble to the Act are

m
(0 to provide legal recognition for ransactions

carried out by means of
.co
to as electroric
electroniC communication, commonly referred
commerce", which involves the use of alternative to paper-based
be
methods of communication and storage of information;

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government agences;
) to facilitate electronic filing of documnenis with the methods a
ou
(tin) to facilitate electTonic storage of data in place of paper-based

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storage of data;
(iD) to amend the Indian Penal Code, the Indian Evidence Act,
1872 and the
Reserve Bank of Indía Act, 1954; and
therewith or incidental thereto.
()to provide for matters connecteda view of giving boost to e-commerce,
Thus, the Act- has been enacted with comnerce and rade and also
transactions and similar activitis associated with
of reliable electronic records.
to facilitate e-governance by means e-governance."
Q. 3. "One of the main objects of IT Act is to facilitate
Discuss. e-governance ie, to
True. One of the main objects of IT Act is to facilitate
Ans.
tacilitate e-iling of documents with the government
departments and e
payments. In order to achieve this objective Sections 4 and 5 of Chapter l of the
digital signatures.
records and
Act provide for the legal recognition ofat electronic if they are
par with electronic records
Paper based documents are treated
usable for subsequent
made available in electronic form and are accessible and
reference. The Act also provides for the filing of any form or application,
116 SImVA DEuN UNIVERsITY SENIEs
creation,
retention of records, issue of licence, receipt and payment
government deparlments in electronic form.
Q.4. Distinguish between Digital signature and Electronicsignatue
Ans. Difference between Digital Sigmature and Electronic Signatte
DIgitalsiguntir EEOSguAE
1. A digital signature is a type
electronic signature that offersof Electronic signatures are popular
because they are easy to use
more security than a traditional|
Customers can sign documents
electronic signature. online with a click of the mouse o
Dy using their fingers to trace
handwritten signature onto
document
2. The digital signature links a 2. The downfall of electronic
"fingerprint" of the document to| signature is that they arent
al
the identity of the person. regulated like digital signature
ci
are.
ffi
3. "Digital signatures offer tamper| 3. Electronic
signature don't have thez
so
evidence, independent verification secure coding that digital
se
and a strict adherence to standards. signatures have.
as
4. The digital sigrnatures are 4Electonicsignatures may vary;

l
accepted because they comply with

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international standards
and aenof that popular.
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to
security.
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Q.5. What are the funictions performed by public and private keys?
be
Ans. Digital Signatures are created and verified by means of a technique calle
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Cryptography. Digital Signatures involve two different keys, one for

Digital Signature or transferring data into seemíngly unintelligible
creating a
ou
another key for verikying the Digital Signatures or returning the form and
message to its
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original form. Two keys used in Digital signatures are

() Private Key. It s known oniy to the user and iS used for the creation
Digital Signatures. The digital signarures are of
created by computinga
code derived rom the signedmessage and the given private key.
(i) Public Key. It is used to verify the Digital Signatures. It is essential
the recipient to have corresponding public key, in order to verify for
that a?
digital signature is that of the real signer. Verification Digital?
Signatures involves checking the digital signatures of
by reference tothe
original message and a public key and thereby determining
whether the
digital signature was Createa rorne same message, using the
that corresponds to the referenced public key. private key
o. 6. What are digital signatures? Explain the methods of affixing
verification of digital signature. and
Ans. "Digital signature" means authentication of any electtonic retord b
subscriber by means of an electronic method or procedure in accordance
provisions of Section 3 of Information Technology Act, 2000. Section 3
that:
n
states

TIE INFORMATION TECHNOLOGY ACT, 2000 117
(a) Subject to the provisions of this Section any subscriber may authenticate
an electronic record by affixing his digital signature.
(6) The authentication ot the electronic record shall be ettected by the use of
asymmetric crypto system and hash function which envelop and
transform the-initial electronic record into another electronic record.
Methods of affixing and verification of the digital signature. The affixing and
verification procedures shall be adopted by the sender and addressee in the
manner agreed between them. The actual procedure adopted will depend upon
the.method of digital signature adopted by the sender. The encryption of a
document is possible through either the symmetrical crypto method using a
single private key known to both the parties or an asymmetrical crypto method
using a pair of keys, a public key and a private key. If the parties are using the
asymmetrical crypto method, the sender may send to the addressee either the
original message and the digital signature or coded message and digital signature.
Rule 3. A Digital signature shall:
- be created and verified by cryptography that concerns itself with
al
transforining electronic record into seemingless unintelligible forms and
ci
back again.
ffi
- use what is known as "Public Key Cryptography" which employs an
so
algorithm using two different but mathematical related "keys, one for
se
creating a Digital Signature or ransforming data into a seemingly
as
'unintelligible form,and another keyfor verifying a Digital Signature.

Rule 4. Creation ofDigital Structire. Thersigner shall first apPply the hash
l
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function in the Signers soEtware the hásh function shall compute a hash result of
m
standard lerigth which isinique to the electronic record; the Signer's software
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transforming the hash result into a Digital Signature using Signer's private key,
the resulting Digital Signature should be unique to both private key and
be
electronic record used to create it, and the Digital Signature shall be attached to
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its electronic record and stored or transmitted.

ou
Rule 5. Verification of Digital Signature. The verification of a Digital

Signature shall be accomplished by compiting a new hash result of originai
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electronic record by means of hash function to create Digital Signahure, the

verifier should check:
(a) If the Digital Signature was created usîng the corresponding private key:
and
() If the newly computed hash result matches the original result which was
changed into Digital Signature during the process of signing.
Q.7.What are Digital Signature Certificates? State the provisions regarding
Digital Signature Certificates in Information Technology Act, 2000?
Ans. A Digital Signature Certificate is an instrument of trust. I: defines the
subscriber over the network. This identification is critical for a 'relying party, as
it relles on the accesing of said certificate. A Digital Signature Certificate also
confirms the subscriber's public key and the bonafides of the issue of certificate.
Thus a Digital signature Certificate establishes binding linkages berween
subscriber, the issuer 'and the relying party. Sections 35-39 of the Information te
Technology Act, 2000 are about the life cycle of Digital Signature Certificates.

SHIVA DELH UNIVERSITY SERIES
118
Section 35 of I.T. Act, 2000 deals with Certifying Authority to issue Digital
Sianature Certificate. Any person may make an application to the Certifying
Authority for the issue of a Digital Signature Certificate in such form as may be
prescribed by the Central Goveriment. On receipt of an application, the
Certifying Authority may, after consideration of the certification practice
statement or the other statement and after making such enquiries as it may deem
it, grant the Digital Signature Certificate or for reasons to be recorded in writing,
reject the application.
As per Section 36, "A Certifying Authority while issuing a Digital Signature
Certificate shall certify that
- it has complied with provisions of the Act.
- it has published the Digital Signature Certificate.
- the subscriber holds the private key corresponding to the public key.
- thé subscriber's public key and private key cbrnstitute a functioning key
pair.
- the information contained in Digital Signature Certificate is accurate."
Section 37 says that the certikying authority, which has issued a Digital
al
Signature Certificate may suspend such Digital Signature Certificate
ci
(a) on the receipt of a request to that effect from
ffi
the subscriber listed in the DigitalSignature Certificate.
- any person duly authorised to act on behalf of that subscriber.
so
(6) if it is of opinion that the pigital Signatüré Certificate should be
se
suspended in püblicinterest
as
Section 38 gives thatA:certifying authority may revoke a Digital Signature

l
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Certificate issued by it
m
where the subscriber or any other person authorised by him makes a

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request to that effect or

upon the death of the subscriber; or
be
upon the dissolution of the firm or winding up of the company where the
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subscriber is a firm or a company."

an
ou
A Digital Signature cannot be revoked unless the subscriber has been given
opportunity of being heárd in the matter.
Y
Section 39 gives that where a Digital Signature Certificate is suspended or

revoked under Section 37 or 38, the Certifying Authority shall publish a notice of
such suspension or revocation as the case may be, in the repository specified in
the Digital Signature Certificate for publication of such notice. Where one
more repositors are specified, the Certifying Authority shall publish notices
or
of
such suspension or revocation, as the case may be, in all such repositories.
Q.8. What are the provisions regarding the issue and revocation of a Digitál
Signature Certificate?
Ans. 'Electronic signature certificate' is a certificate issued in accordance with
the provisions of Section 35 and includes 'Digital Signature Certificate.
As per Section 35 of the IT Act, 2000 any person may make an àpplication to
Ne certilying authority for the issue of an electronic signature certificate in suc
as may be prescribed by the Central Government. The application shal
On
accompanied by: be

THE INFORMATION TECHNOLOGY ACT,
200o
119
( Such fee, not exceeding *25,000 as may be prescribed
by the Central
Government.
(i A 'certification practice statement or where there is no
such statement, a
statement containing such particulars as may be specified by regulations.
On receipt of an application for the issue of Electronic signature certificate,
the
certifying authority may after consideration of the case, grant the digital
signature certificate or for reasons to be Tecorded in writing reject the
application.
Revocation of Digital Signature Certificate (Section 38). Å certifying authority
may revoke a Digital Signature iseued by it
where the subscriber or any other person authorised by him makes a
request to that effect; or
upon the death of the subscriber; or
upon the dissolution of the firm or winding up of the company where th
subscriber is a firm or a company.
The certifying authority may also revoke a Digital Signature Certificate which
al
has been issued by it at any time,if it is ofthe opinion that:
ci
) a material fact represented in the Digital Signature Certificate is false or
ffi
has been concealed;
(t) a requirement for issuance of the Digital Sigñature Certificate has not
so
been satisfied;
se
s
ti) The certifying authoriy private kéy or" securing system was
as
'compromised ina manner materiálly affecting the Digital Signature

l
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Certificate's reliäbility
m
a subscriber
iv) The subscriber hasbeeri declared insolvent or dead or where or otherwise
.co
1S a firm or a company which has been dissolved, wound-up

be
ceased to exist. unless the

However, a Digital Signature Certificate shall not be ievoked
Tu
that matter.
subscriber has been given an opporturity of being heard in
ou
E-Governance? Elaborate.
Q9. What do you understand bycommunication has made it necessary for the
Y
Ans. The emergence of electronic of

framework to expand to grant legal validity to electronic mode
legal possible E-Governance. E
communication. The legal framework has made
through procedures involving
.Governance is the gove ance by the Government Technology Act has the following
electronic communicaion. The Information
provisions for E-Governance [Section 4. Where any law provides
1. Legal recognition of electronic records
or any other matter shall be in writing or in the typewritten or
that information such requirement shall be deemed to have been satistied t
printed torm, then
Such intormation or matter 1s
available in 'electronic form, and
rendered orsomade as to be usable for a subsequent
reterence.
- accessible
of electronic form as under:
Section 2(1)t) of I.T. Act defines the meaning sent, received or stored in media,
Electronic form means any information generated, computer generated micro JIene or
gne opica, miCTo film, computer memory,
similar device.

120 SHIVA DELi UNIVENSITY SERIES
2. Legal recognition
of Digital Slgnature [Section
that information or 5]. Where ony law provide
any other matter shall be authenticated
Signature or any document by aifixing
then such requirement shall shall be signed or bear the signature of any perso
or matter is authenticated be deemed to have been satisfied, if such informauo
by means of Digital Signature affixed
as may be prescribed
by the Central Government. in such manner
.Use of electronic records and Digifal Sigmatures in Government and
agencics [Section 6]. This provision fácilitates the submission of various
documents before the Goverrnment, typeo
issue of any license etc. by the Governmen
or payment of money made
to anyone in electronic form. It states as follows;:
() Where any law provides for
the tiling of any form, application or any other document with any
office, authority, body or agency
owned or controlled by appropriate
Governnunt in a particular manner.
-
the issue or grant of any license, permit, sanction or
aPproval by
whatever name called in particular manner.
al
the receipt or payment of money
in a particular manner; then, sucy
ci
requirement shall be deemed to have been satisfied if such
fling
ffi
1ssue, grant, receipt or payment, as the case may be,
is effected by
means of such electronic form as-may be
so prescribed by the
appropriate Government. :"
se
() The apPpropriate Government may
prescibeas the manner or method
ot
as
payment of any:fee or charges:for filing, creation or issue.

-the manner öir fotmat in which such electronic records shall be filed
l
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created or issued of any electronic record as stated above.

m
4. Retention of Electronic Records [Section 71. Where any

law
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documents, records or information shall be retained for any specificprovides that

period, then
that requirement shall be deemed to have been satisfied if such
be
records or information are retained in electronic form if

documents
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the information contained therein remains accessible so as to þe

for a subsequent reference. usable
ou
-
the electronic record is retained in the format in which it was
originally
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generated, sent or received or in a tormat which can be demonstrated

represent accurately the information originally generated, to
sent' or
received.
the details which will facilitate the identification of the origin,
destination, data and time of despatch or receipt of such electronic
are available in the electronic mode.
record
5. Publication of Rüles, Regulations etc. in Electronic Gazette [Section
Where any law provides that any rule, Tegulaion, order, bye-law, notification 81
any other matter shall be published in the Official. Gazette,_ then, such of
requirement shall be deemed to have been saisied if such rule, regulation, order,
bye-law, notification or any other matter is published in the official Gazette or
Flectronic Gazette. Provided that where any rule, regulation,
order, bye-law,
notfication or any other matter is published in Official Gazette or Electronic
Gazette, the date of publication shall be deemed to be the date of Gazette which
was first published in any form.

THE INFOMATION TECHNOLOGY ACT, 2000 121
Q.10. Explain: the Electronic records are as authentic as the hard copies.
Ans. Electronic records are as authentic as the hard copies. Paper-based
mes-
sages are prepared under the hand-written signature of the sender which pro-
vides authenticity to the document and confirms his identity as well. Such a sig-
nature is not possible on the electronic messages. In the absence of such an au
thentication, electronic records, i.e., digital records cannot be relied upon as these
could be easily tampered with. As a result of this difficulty, some methods have
been devised to sign electronic messages electronically so that the authenticity of
the document and the identity of the sender could be established. One such
method is the concept of digital signatures.
Q.11. Explain the terms:
(a) Attribution of electronic records
(b) Acknowledgment of receipt
(c) Despatch of electronic records.
Ans. (a) Attribution of electronic records. Section 11.of I.T. Act, 2000 lays
down conditions when an eectronic record shall be attributed to the originator.
al
The Section gives that "An electronic record shall be attributed to the originator if
ci
it was sent
ffi
by the originator itself; or so
by a person who had the authority to act.or" behalf of the originator in
respect of that electronic record; or
se
by an information system programmed byor on behalf of the originator
as
to operate automatically
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(6) Acknowledgmenf of receipt Section 12 of I.T. Act, 2000 deals with the
m
issues arising from the uiše of acknowledgment of receipt.

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) No agreement. Section 12(1) deals with the situation where the

originator has not agreed with the addressee that the acknowledgment of
be
receipt of electronic record be given in a particular form by a particular

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method. An acknowledgment may be given by:

any communication by the addressee, automated or otherwise; or
ou
-
any conduct of addressee, sufficient to indicate to the originator that
Y
the electronic record has been received.

(i) Stipulation by the originator. Section 12(2) lays down the situation
where the originator häs stipulated to the addressee that the electronic
record shall be binding only on the receipt of an acknowledgment of such
electronic record by hím. In such a situation unless acknowledgment has
been so received, the electronic record shall be deemed to have never
been sent by the originator.
(AR) No
stipulation by the origînator. Section 12(3) of I.T. Act, 2000 deals
with the situation' where the originator has not stipulated to the
addressee that the electronic record shall be binding only on receipt of an
acknowledgment. In such a situation, if acknowledgment
has not been
received by the originator within the tine specified or agreed
time has been specified or agreed to within a reasonable T if no
time, then the
Onginator may gve notice to the addressee stating that no
acknowledgment has-been received by him
time by which the acknowledgment
and specifying a reasonable
must be received by him.

122
) Despatch of electronie records. Section 131) of 1.T. Act, 2000 says, "Same
as otherwise agreed between the originator and the addressee, the despatch of an
electronic record occurs when it enters a computer resource outside the control of
originator". The purpose of sending the electronic record .is that it should reach
the addressee.
Section 13(2) provides as "Same as otherwise agreed between the originator and the
addresse, the time of receipt of an electronic record shall be determined as follows:
(a) If the addressee has designed a compuer resource for the purpose of
receiving electronic records:
() receipt occurs at the time when the electronic record enters the
designated computer resource; or
() if the electronic record is sent to a computer resource of the
addressee that is not the designated computer resource, receipt
occurs at the time when the electronic record is retrieved by the
addressee.
(b) If the addressee has not designated a computer resource along with
specified timing, if any, receipt occurs when the electronic record
enters
al
the computer resource of the addressee.
ci
electronic
Section 13(2) (a) lays down conditions for the time of receipt of an computer
ffi
resource and.for:a non-designated
record for a designated computer so
resource. neither
Section 13(2)(b) deals with a, sitiíation where thë addressee has
se
records.
designated a resource nor any iming for recelving the electronic
as
of receipt of an
Section 13(3) states the:place. of despatch and the place
l
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electronic record.
resource is irrelevant.
m
Section 13(4) provides that the location of computer

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Section 13(5) says: business, the

(a) If the originator or the addressee has more than one place of
be
principal place of business shall be the place.of business.

(b) If the originator or the addressee does not have a place of
business, his
Tu
business.
usual place of residence shall be deemed to be the place of
ou
(c) "Usual place of residence" in relation to a body corporate means the

Y
place where it is registered.

Q. 12. What are the various regulations of certifying authorities in
Information Technology Act, 2000?
provisions for
Ans. The Information Technology Act, 2000 provides detailed
certifying authorities
the Controller of Certifying Authorities to regulate
Controller of Certifying Authority is to act primarily as an administrative
authority rather tharn as a quasi judicial body.
Appointment and qualifications of controller and other officers. Section 17
of L.T. Act deals with-appointment and qualifications of
Controller and other
officers.
Appointment. The Central Government by notification in the Official Gazette
Act.
appoint a controller of Certifying Authorities for the purpose of this
Qualification, experience and terms and conditions of service. The
qualifications, experience and terms and conditions of Controller,
Deputy

THE INFORMATION TECHNOLOGY
ACT, 2000
Controllers and Assistant Controllers 123
shall be such as may
Central Government. be prescribed by
Functions of Controller [Section 18]. The
Controller may perform all
the following functions namely: or any of
exercising supervision over the activities of
Certifying Authorities.
- certifying public keys of Certifying Authorities.
- laying down the standards to be maintained by Certifying Authorities;
specifying the qualifications and experience which
employees of
Certifying Authority possess.
specifying the condition subject to which Certifying Authority shall
conduct their business.
- specifying the contents of written, printed or visual materials and
advertisements that may be distributed.
- specifying the form and content of a Digital Signature Certificate and the
key.
specifying the form and manner in which accounts shall be maintained
by Certifying Authorities.
al
- speciying the terms and conditions subject to which auditors may be
ci
appointed and remuneration to be paid to them.
ffi
Certikying
facilitates the establishment of any, electronic system by a
so Certifying Authorities and
Authoriy either solely or jointly with other
regulation of such system.
se
Authorities shall conduct their
specifying the mannier in which Certifying
as
dealings with subscribers.

l
Authorities and
interests between the Certifying
/c
-resolving any contlict of

m
subscribers. may,
Authority [Section 19). The controller
.co
kecognition of Foreign Certifying notification in Official

previous appròval of Central Government and by
be
with the certilying Authority as a Certifying Authority for

Gazette, recognise any Foreign 19(4). The Digital signature Certificate issued by
Tu
Section
the purpose of this Act, shall be valid for the purpose of this Act
[Section
ou
such Certifying Authority revocation of recognition. 20(1) says that "The

19(2)). Section 19(3) deals with
Y
Repository [Section 20]. Section

Controller to act as Signature Certijicates issued under this
repository of all Digital
Controller shall be the
Act.
20(2) gives that the controller shall procedures that are secure from
Section hardware, software and
- make use of
Central
intrusion and misuse standards as may be prescribed by
such other of digital signatures are
observe
Government to ensure
secrecy and security
data-base
assured. shall maintain a computerised are
20(3) says that the Controller data-base and the puhc keys
Section such
public keys in such a manner that Signature
of all member of public. [Section 21]. Digital
available to any Signature Certificates licence granted under
Digital A
Licence to issue prescribed by Central Government.
Certificates may be
this Section shall:

124 SlVA DELIN UNIVERSITY BERIES
be valid for such period as may be prescrlbed by the Cen
Government.
-
not be transferrable or inheritable.
be subject to such terms and conditions as may be specifled by
Regulations [Section 20(3)] the
Application for licence [Sectlon 22]. Every applícation for isaue of licence
be in such a form as may be prescribed ohnll
by Central Government. Every;
application for issue of licence shall be accompanied
by:
certificate practice statement.
-a statement including the procedure
with respect to identification of
applicant.
payment of such fees, not exceeding twenty flve
be prescribed by Central Government. thousand rupees as may
such other documents as may be prescribed
According to Rule 10 of L.T. by Central Government.
Act 2000, every application for a licenced
al
certifying authority shall be made
to the controller:
ci
-
in the form given at Schedule I; and
ffi
-
in such manner as controller may,
frorn time to time, determine;
supported by such documents and information,
so
require. as the Çontroller may;
se
Renewal of Licence [Section 23].
An applicátiontfo Tenewal of licence
as
accompanied by such fees,nof exceeding shall be

prescribed by the Central Governmentand fiye thousand rupees; as may be
l
/c
days before the date of expiryof period shall be made not less than forty ive:
Procedure for grant or'rejection of of validity of the licence.
m
licence [Section 24]: The

.co
on receipt of an application may,

u/s 21(1), after considering Controller
accompanying the application and the
such other factors, as he deems documents
be
licence or reject the application. However, fit, grant the

no application shall be
Tu
this Section when applicant has rejected under

presenting his case. The Controller been given a reasonable opportunity of
ou
should act fairly, impartially

Section 25(1) gives power to the Controller and reasonably.
to revoke the licence
Y
Authority in certain cases.

.
of a Certifying:
Section 26 deals with
notice of suspension or revocation
of revocation of licence should of licence. The notice
be
available through a website, which published. The data-base should be
Section 27 deals with power shall be accessible round the clock. made
of
authorise the Deputy Controller, delegates. The Controller mnay, in
exercise any of the powers of Assistant Controller or writing,
Controller under Sections any other officer to
Section 28 deals with power to 17 to 34.
take up for investigation any investigate contraventions,
contravention of the provisions The Controller
and Regulations made there-under. shall
of this Act, Rules
Section 29 gives
the Controller or any other
sweeping powers to access any person authorised a
other material connected with computer system, any apparatus, by 'him,
such system if he has
that any contravention of the provisions data
reasonable cause suspect or any d
of this Act, rules-regulations to
under has been committed.
made there-
in

nHE INFORMATION
TECHNOLOGY ACT, 2000 125
follow certain procedures, The
Section 30 deals with Certifying Authorlty to
basic purpose of Section 30 fs that the Certifying Authoriky should
not only have
a secure system but also adopt and implement security procedures.
Section 31 deals with certifying authority to ensure compliance of the Act, etc.
According to Section 32, every Certifying Authority shall display its licence at
a conspicuous place of the premises in which it carries on its business.
.According to Section 33, every Certifying Authority, whose licence is
suspended or revoked, shall immediately after such suspension or revocation,
surrender the licence to the Controller.
Segtion 34 deals with disclosures. Every Certifying Authority shall disclose in
the manner specified by Regulations:
-the Digital. signature Certificate which contains the public key
corresponding to the.,priyate key used by that Certifying Authority to
digitally sign another Digital Signature Certificate.
- any certification practice statement relevant thereto.
notice of revocation of its Certifying Authority Certificate.
al
any other fact adversely affecting the reliability of Digital Signaure.
ci
The above disclosure shall be made available to the controller through filing up
ffi
of online forms on the website of the Controller on the date and time the
information is made public. so
Q.13. Explain the powers of controler ofcertifyingauthority under L.T. Act.
se
Ans. Powers of Controler of Certifying Authority under L.T. Act. The
as
controller isentrusted.withthefollowings powers to implement the Act

l
1. Power to delegate The Gonttoller may in writing authorise the Deputy

/c
Controllcr, Assistant Confroller ór any officer to exercise any of the powers of the
m
Controller.
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2 Power to investigate contraventions. The Controller or any officer

be
authorised by him on his behalf shall take up for investigation if any

contravention of the provisions of this Act, rules or regulations has been made
Tu
there under. He shall also exércise the like powers which are conferred on
ou
Inicome Tax authorities and shall exercise such powers, subject to such limitations
laid down under that Act.
Y
3. Access to computers and data. The Controller or any

other person
authorised by him shall, if he has reasonable cause to suspect
that any
contravention of the provision of this Act, rules or regulations made there
has been committed, have access to any computer system, any under
any other material connected with such system for
apparatus, data or
the purpose of searching or
obtaining any information or data contained in
system. or available to such computer
4. Procedure for grant or rejection
of licence. The Controller may, on receiptof
an applicaion under Sub-Section
(1)
documents accompanying the applicationof
Section 21, after consideringtne
grant the licence or rejéct the application. and such other factors, as he deems t
5. Suspension' of licence.
If the Controller is satisfied
inquiry, as he may think after making such
fit; that a Certifying Authority
a statement in, or in relation has:
maderenewal of the licence, which to the application for the issue or
is incorrect or false in material particulars.

SHIVA DEUHI UNIVERSTY SERIES
126
thhfailed to comply with the terms and conditions subject to which the
licence was granted.
(c) failed to maintain the procedure and standards specified in Section 30,
() contravened any provisions of the Act, rules, regulations or orders made,
he may revoke the licence.
No certifying authority whose licence has been suspended
shall issue any
Digital Signature Cerhicate during such suspension.
6. Power of Controller to give directions. The Controller may, by order direct
or
a certilying Authority or any enmployee such Authority
to take such measures
or cease carrying on such activities as
specified in the order if those are necessary
to ensure compliance with the provisions of this Act, rules
or regulations made
there under.
to decrypt
7. Direction of Controller to a Subscriber to extend facilities
information: If Controller is satisfied that it is necessary in the interest of the
relations with
sovereignity or integrity of India, the security of the State, friendly
to intercept any
foreign states by order direct any agency of the Government
al
information transmitted through any computer resource.
ci
authorily
Q.14. Define Certifying Authority. Explain the duties of certifying
ffi
under IT. Ar!.
Ans. A Certfying Authority means a person who has been
so granted a license to
24. The.
issue a Digital Signature Certificate as per the provisions of Section
se
follows:"
duties of the Certifying Authority have beèn discussed ünder I.T. Act as
as
(Section 30 to Section 34)

l
1. Certifying Authority to follow certain procedures (Section 30).

Every
/c
m
Certifying Authority shall

make use of hardware, software and procedures that are secure from-
.co
intrusion and misuse.

be
provide a reasonable level of reliability in its services,. which are

reasonably suited to the performance of intended functions.
Tu
adhere to security procedures to ensure that the secrecy and privacy of

ou
the digital signatures are assumed.

Y
observe such other standards as may be specified by regulations.

(Section 30)
2. Certifying Authority to Ensure Compliance (Section 31) of the Act. Every
certifying authority shall ensure that every person employed or otherwise
engaged by it complies with the provisions of this Act, rules, regulations ors
orders made there under. (Section 31)
3. Display of Licence. Every certifying authority shall display its licence at a
conspicuous place of the premises in which it carries on its business. (Section 32)
4. Surrender of Licence. Every certifying authority whose licence is suspended
or revoked shall immediately, after such suspension or revocation surrender the,
lirence to the controller. (5ection 33)
5. Disclosures. Every certifying authority shall disclose in the manner specified
by regulations,
() Its digital signature certificate which contains the public ke
corresponding to the private key ušed by that certifying authority to
digitally sign another digital signature certificate.

THE INFORMATION TECHNOLOGY
ACT, 2000
127
(6) Any certification practice statement
(c) Notice of the revocation or
relevant therèto.
suspension of its certikying authority
certificate, any.
if
(Any other fact that materially and adversely affects either the reliability
of a Digital Signature Certificate, which that authority has issued,
or the
s
authority ability to perform its services.
Q. 15. Explain the Role of certikying authorities.
Ans. A Certifying Authority means a person who has been granted a licence to
issue a Digital Signaure Certificate as per the provisions of Section 24.
Role of Certifying Authority. A Certifying Authority is a body entrusted to
issue, revoke, renew and provide directories of Digital Certificates. According to
the IT Act, 2000, Certiying Authorities have the sole respornsibility of integtity,
confidentiality and protection of information and information assets employed in
access
its operation, considering classification, declassification, labelling, storage,
sensitivity and
and destruction of information assets according to their value,
importance of operation.
issuance of
Certikying Authorities are further responsible for registration and
al
and also provide support
the Digital Certificates, their revocation, maintenance
ci
Certificate Revocation lists as
to the issuers. They are also required to provide
ffi
Certifying. Authorities.
and when required by the Controller of so
Apellate Tribunal'? Explain its working
Q. 16. What is 'Cyber (Regulations)
se
*
2000.
as per Information Technology Act, Cyber
Act, 2000 has established the
as
Information Technology
Ans. The (CAT) chain. It has appellate jurisdiction both on
l
Tribunal
/c
(Regulations) Apellate
or order passed by the Controller of
m
as of law over a decision

fact as well point a "one member body.
or the Adjudicating Oificer. CAT is
.co
Certikying Authorities
It is a one member tribunal.
be
48]. The Central Government by notification,

Establishment of CAT [Section
Tu
more appellate tribunals to be known as CAT.

shall establish one or Presiding Officer [Section 50]. A 'CATT
ou
Composition and Qualification of appointed by notification by

Central
to be
Y
person only
shall consist of one.
shall not be
Governnent. Presiding Officer of CAT. A person
Qualifications for appointing
unless he
qualiied for appointmentis qualified to be, a Judge of High Court; or
is or has been or member of Indian Legal Service and is holding or has
- is, or has been, a tor at least3 years.
of that service for
held a post in Grade 1
Presiding Officer of CAT shall hold office
51]. The until he
Terms of Office [Section date on which he enters upon his office or
from the
a term of five years whichever is earlier.
the age of 65 years Officer [Section 52]. The salary
attains service of Presiding
Salary and other terms of
conditions of employment of Presiding
well as terms and neitner tne
and allowances as prescribed by Central Government. However, disadvantage after
Orticer shall be as varied to his
and allowances nor other terms shall be
salary
appointment.
128 SHiVA DELIi UNIVERSIY SERIES
The Presiding Officer of CAT may, by notice

in writing under his nana
addressed to Central Government resign his office. [Section
The Central Government shall provide
54
the CAT with such officers and
employees as the Government may think fit. [Section 56]
Appeal to CAT [Section 57]. Any person aggrieved by an order made
Controller or an adjudicating officer under the I.T. Act, 2000 may prerer
by
appeal to CAT having jurisdiction in the matter. No appeal shall lie to the CA
from an order made by an adjudicating officer with the consent of parties.
appeal shall be fixed within a period of 45 days from the date on which a copy or
Every
order made by Controller or Adjudicating Officer is received by the person
aggrieved.
Proçedure and Powers of CAT (Section 58]. The CRAT shall have power
Tegulate its own procedure including the place at which it shall to
have its sitting
Rule 13 of CAT Rules, 2000 provides that
tribual shall ordinarily hold itssitting
at New Delhi. However, with circumstances and satisfaction of Presiding
al
the sitting can be held at any other place.
Oficer
ci
Powers of CAT. Powers of CAT are vested in Civil Court
ffi
under CPC, 1908
while trying suit, in respect of following matters, namely:
so
summoning and enforcing the attendance of any person;
se
-
requiring the discovery and production-of docüments and
reords;
as
receiving evidence or affidavits;

l
/c
.issuing commissions for examinatiórn of witnesses;

m
dismissing an application fördefault

.co
reviewing its decision

any other matter which may be prescribed.
be
In addition to the above, CAT has following additional powers:

Tu
- setting aside any order of dismissal of any application for defaults

order passed by it, ex-parte; or aný
ou
requisitioning of any public record, documnt from any

court or office
Y
The appellant may appear in person or authorise a legal

practitioner to presenit?
his case before CAT. [Section 89]
Any person aggrieved by any decision or order of CAT may file
High Court within six days from the date oE communication an appealto
or order by CAT to
him. [Section 62]
Penalty [Section 64]. A penalty imposed under
this Act,
recovered as an arrear of land revenue and licence if not paid, shall be
of Digital Sinature:
Certificate, as the case may be suspended till the penalty is paid.
o. 17. (a) What is cyber contravention? How is it different
offences? from uba.
(b) "Hacking is cognizable and non-bailable offence".
c) Comment
"Confiscation" as per Information Technology Act.
A
Explain 2000.
(al A contravention is a violation of law or
procedure, that does
nriminal prosecution. However, it may result in civil not result
Dunishable with a liability to pay compensation or penalty. prosecution. It mav
an act forbidden by law and is punishable Whereas an offence be
by fine and/or imprisonment nce ie is

THE INFORMATION
Cyber Offences
Distinction between Cyber Contraventions and
contraieiions Cyber ofences
Basis Jhe
DUSEreAKEN
Cyber contraventions deal Cyber offences deal with
1. Nature serious offences related to
primarily with unauthori-|
sed access to computer, computer, computer system
computer system or com-| and computer network.
puter network. [Sections 65-74]
[Sections 5|
2. ProceedingsCyber contraventions are Cyber offences are subject
subject to civil prosecution to criminal proceedings and
or proceedings. prosecution.
3: Investigation Controller or any other of-Police officer not below the
ficer authorised by him has| level of Deputy Superin-
the power to nvestigatetendent of Police has power
al
any cyber contravention. to investigate any cyber
ci
offence.
ffi
4. Penalty The ofender is liable to pay The offender is liable to
so
damages by way of.com-punishment with imprison-
se
pensation not exceeding 1ment upto a certain period,
crore. to the person so, af- or with a fine upto a certain
as
fected
: imit or both.
l
/c
)As per Section 66()ofITAct; whoever with the internt to cause or knowing that
m
he is likely to cause wTongfülloss or damage to the public or any person destroys or

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deletes or alters arny information residing in a computer resource or diminishes its

be
value or utility or affects it injuriously by any means or commits hacking.

The ottence of hacking may becommitted in respect of both tangible assets and
Tu
a
intangible assets. Hacking is premeditated, well-planned activity to
ou
wrongful loss or damage to public or any person.

Y
Whoever commits hacking, shall be punished with imprisonment upto 3 years

orwith fine which may exceed upto 2 lacs or both. [Section 66(2)]
For a cyber crime to fall under offence, there must be criminal intent to cause
wrongful loss or damage to the public or any person. But if there is no such
Criminal intent, that should amount to contravention only, punishable
under
Section 43 of I.T. Act, 2000, if it satisfies the requirements of that Section.
Hence,
hacking with intention leads to loss to any person or public
is cognizable and
non-bailable offence, falling under Section66 of L.T.
Act, 2000.
)Confiscation means seizing or grabbing property with authority.
According to Section 76 of IL.T. Act, 2000,
compact discs and tape drives or "Any computer, system, floppies,
any other accessories related thereto respect
of which any provision of this in
Act,
has been or is being contravened, rules, orders or regulations made there-under
it is established to the satisfaction shall be liable to confiscation. However where
person in whose possession, of court adjudicating the confiscation
power or control of any that tne
floppies, CDs, tape drives or such computer, system,
any other accessories
relating thereto is found, is nor

130 SHIVA DELun UNIVERSITY
SERIES
responsible for contravention of
the provisions of this Act, rules,
regulations made there-under; the order or
court may, instead of making an order
system, floppies, CDs, tape drivesfor
confiscation of such computer, computer
any other accessories related thereto, make or
such other authorised by this Act
against the person contravening the provisions of
this Act, rules, orders or
regulations made there-under as. it may think fit.
Q.18. The Cyber Appellate Tribunal has the same powers
as a civil couit
but an aggrieved party may appeal to the High Court.
Ans. Powers of the Cyber Appellate Tribunal l|Section 582)
of lnforimation
Technology Act, 2000]. The Cyber Appellate Tribunal shall have, for the purposes)
of discharging their functions under this Act, the same powers as åre vested in a
civil court under the Code of Civil Procedure, 1908, while trying a suit, in respect
of the following matters, namely:
summoning and enforcing the attendance of any person and examining
him on oath;
requiring the discovery and production of documents or other electronic
al
records;
ci
receiving evidence on affidavits;
ffi
-
issuing commissions for the examination of witnesses or documents;

so
-
reviewing its decisions;
se
disnissing an application for default.or deciding it ex parte;
.
as
any other matter which may, be prèscribed

Appeal to High Court [Section 62. Any person aggrieved by any decision or
l
/c
order of the Cyber Appellate. Tribunal may file an appeal to the High Court
m
within sixty days from the date of communication of the decision or order of the
.co
Cyber Appellate Tribunal to him on any question of fact or law arising out of
such order. However, the High Court may, if it is satisfied that the appellant was
be
prevented by sufficient cause from filing the appeal with the said period, allowit
Tu
to be filed within a further period not exceedin8 Sixty days.

ou
Q.19. Describe "Subscriber in Information Technology Act, 2000. Explain

the duties of Subscribers in the-Act.
Y
Or, Describe the term "Subscriber". Explain the duties of a subscriber under
LT. Act as. amended in 2008.
Ans. Subscriber. According to Section 2(1) (zg) of IT Act, 2000, 'Subscriber
means a person in whose name the Digital Signature Certificate is issued. In;a
public key infrastructure, a subscriber is the customer who pays to become öne af
the members of a Digital Signature Certificate Club.
A person has to take the following steps to becone a Subscriber
Step 1. Approach the Certifying Authority with the request to issuea
Digital Signature Certificate, fill the application form and submit
necessary documents.
Agreement.
Step 2. Enter into a Certifying Authority-Subscriber
(un) Step 3. Applicant to generate confidentially signing key pair by aPPiyiDE
the security procedure.
Authority generates
D)Step 4. After verifying the credentials the Certifying
the Digital Signature Certificates for the public key.
Certificate fróom
)Step 5. Subscribers to download the Digital Signature

THE INFORMATION TECIHNOLOGY ACT, 2000 131
the website of the Certifying Authority and verify its contents before
accepting it.
(w Step 6. pon acceptance of Digital Signature Certificate, the Certifying
Authority publishes the Digital Signature Certificate in its repository.
Duties of a Subscriber. Provisions of Sections 40 to 42, prescribe the duties of
a subscriber of the digital signature certificate, discussed as follows:
1. Generating key pair. According to Section 40 of the IT Act, 2000, where any
Digital Signature Certificate, the public key of which corresponds to the private
key of that subscriber which is to be listed in the Digital Signature Certificate has
been accepted by a subscriber, the subscriber shall generate that key pair by
applying the security procedure.
2. Acceptance of Digital Signature Certificate. A subscriber shall
be deemed
to have accepted a Digital Signature Certificate if he publishes or
authorizes the
publication of a Digital Signature Certificate:
()to one or more persons;
() in a respositoryi Certificate in any
al
(c) demonstrates his approval of the Digital Signature
ci
manner.
ffi
Certificate the
3. Certificate to other parties. By accepting a Digital Signature
soinformation contained in, the
Subscriber certifies to all who reasonably rely on the
se
Digital Signature Certificate that:
corresponding to the public key
() The subscriber holds the private key
as
entitled to hold the same.

listed in the Digital Signature Certificate and is
l
the Certifying Authority

/c
(6) All representations made by the subscriber to

m
that all material facts relevant to the

information contained in the Digital
.co
Signature Certificate are true.

Signature Certificate that is within
)All information given in the Digital
be
the knowledge of the subscriber is true.

Tu
and (2) of Section 42,

4. Control of private key. As per Clause ()
reasonable care to retain control of the
ou
(a) Every subscriber shall exercise

listed in his Digital Signature
private key corresponding to the public key
Y
Ceitificate and take all steps to prevent its disclosure

(6) If the private key corresponding to the
public key listed in the Digital
then the subscriber shall
Signature Certificate has been compromised,
Certifying Authority in
communicate the same without any delay to the
such manner as may be specified by the regulation.
as under the IT Act, 2000?
Q. 20. What do you mean by "Cyber terrorism"
disruptite activities, or the threat
Ans. "Cyber terrorism is the premeditated use of
social, ideological, religious, political
thereof, in Cyber space, with the intention to further
any person in furtherance of such objectives.
Or Similar objectives, or to intinidate to unleash their terrorism sucn
yber terrorists use various tools and methods
Crimes; Denial of Ser-
as-Hacking Virus/Trojan/Worm altacks; E-mail Related
vice Attacks; Use of Cryptography and Steganography.
Information Technology Act, 2000
Lega provisions. Amendments under the as under
have detined the term "Cyber terrorism" under section 66F. t reads

SERIES
Punishment for Cyber terrorism. Whoever,
unity, integrity, security or sovereignty (A) with intent to threaten the
of India or to strike terror in the
any section of the people
by- people or.
() denying or cause the denial of access
to any person authorized to access
computer resource; or
) attempting to penetrate
or access
authorisation or exceeding authorised a computer resource without
(i) introducing or causing to introduce access; or
means of such conduct causes ary computer contaminant; and by
or is likely to cause death or injuries
persons or damage to or to,
iestruction
that it is likely to cause damage or of property or disrupts or knowing
sential to the life of the communitydisruption of supplies or services e
or adversely affect the critical infor-
mation infrastructure specified
(B) Knowingly under Section 70, or
or intentionally accesses a
computer resource without
al
authorisation or exceeding authorised
access, and by means of such conduct
ci
tains access to information, data ob-
or computer database that is restricted rea-
ffi
sons for the security of the State for
or foreign relations, or any restricted
tion, data or computer database, so informa-
with reasons to believe that such information,
data or computer database so obtained
se
injury to the interests of the sovereignty may be used to cause or likely to cause
and integrity:ofIndia, the security of the
as
State, friendly relations with foreign States,

in relation to contempt of court, defamätion public order; decency or morality, or
l
/c
or inicitementto an offernce,
advantage of any foreign natioti, group of individuals or to the.
m
offence of cyber terrorism. or otherwise, commits the

.co
Punishment. Whoever commits or conspires to commit

cyber terrorism shall be
be
punishable with imprisonment which may to

extend imprisonment for life. i.e,
Imprisonment not exceeding fourteen years (Section 55,
Tu
IPC).
Q. 21. "Cyber Terrorism has been regarded
as a cyber crime under IT
ou
(Amendment) Act, 2008." Discuss.

Ans. True. Cyber terrorism has been regarded as cyber crime
Y
of IT (Amendment) Act, 2008. under Section 66F

This section provides that a person commits cyber terrorism if
space with intent to threaten the unity, integrity, security he uses cyber
or sovereignty of India
or to strike terror in the people or any section of the people.
The Act has also prescribed punishment for cyber crime as
imprisonment
which may extend to life imprisonment.
Q. 22. How Information Technology Act, 2000 deals with unauthorisedd
access to computer, computer system and computer network. What
are its
provisions regarding 'Cyber Contraventions'7
Ans. Sections 43 to 47 of I.T. Act, 2000 denl with unauthorised access
to
computer, computer system and computer network.
Section 43 of the Act identifies eight different cases causing damages to
computers. Accordingly, if any person, without the permission uf owner or any
other person, who is incharge of a computer, docs any,of the following acts, he
shall be liable to pay damages by way of compensation not exceeding one crore
rupees to the person so affected.

THE INFORMATION sue
access to such
computer, computer system or
Accessing or securing
(a)
computer network. data-base.
copies or extracts any data, computercomputer in
downloads, computer system or
() If he computer, etwor
formation from such storeci in any removable stors
torage
information or data held or
including
medium. contaminarn
introduces or causes to be introduced any computer or
(c) If he
computer, computer system or computer network
computer virus into any any computer, computer system
damages or causes to be damaged prooran
.()If he data, computer data-base or any other
or comptter network
systern or network.
residing in such computer, computer
(e) If he disrupts or causes disruption to
any computer, computer system or
computer network.
(If he denies or causes the denial of access to any personmeans. to access any
computer, computer system or computer network by any
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g) If he provides assistance to any person to facilitate access to a computer,
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computer. system or network in contravention of provisions of the Act,
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rules, regulations made there-under.
(h) If he charges the services availed of by a person to the account of another
so
person by tampering with or manipulating any computer, computer
se
system or computer network.
as
Section 44 states that if any person, who is required under this Act or any rules
or regulations, made there-ghder to
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-file any rehirn órfurinish any information, he shall be liable to penalty

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not exceeding 5,000 every day during which the failure continues;
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furnish any document to the Controller fails to furnish the same, he shall
be liable to a penalty not exceeding {1,50,000 for each failure;
be
maintain books of account, fails to maintain the same, he shall be liable to

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penalty not exceeding 20,.000 for every day during which

continues.
the failure
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Section 45 says whoever contravenes

Act, for contraventiorn of which no
any rule or regulation made under this
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penalty has been separately provided, shall be

liable to pay a compensation not
exceeding 25,000 to the person affected by Sucn
contravention or penalty not exceeding
R25,000.
Section 46 contains the power
committed a contravention of to adjudicate; whether any person nas
any
provisions of Sub-section (3), of the provisions of this Act, shall subject to
Director to Central Governmentappoint any officer not below
te
prescribed by Central of India for holding an inquiry thetherank
manu
Govermment in
n Sates that while adjudging
adjudicating officer
shall have the regard the quantum of compensano the
-the amount to the following
a result of of gain of unfair advantage,whereverfactors nameiy
the default; quantifiable, ma
-the amount of
- the repeitive loss caused to any
person
Thus it is essentialnature of default [Section as a result ot the aea alt;
penalty under three for the adjudicating 47].
pecuniaryjurisdictiondifferent officer
heads. However, too calculate the amount or
ofany adjudicating it is clear from Secaons13-45 that

officer is not to exceed

134 SHIVA DELHI
UNIVERSITY
SERIES
0. 23. Define the term Hacking.
Ans. Hacking. Information
he internet to cause or rechnology Act 2000
damage to the knowing [Section 66].
public or any personthat he is likely to cause Whoeverwith
rosiding in a computer destroys or deletes wrongful loss or
iniuriously by any means,
resource or diminishes its or alter any information
commits value or utility affectsit
shall be punished hacking. Further, or
withimprisonment upto 3 years whoever commits hacking
to 2 lakh, or with both. or with fine which
may extend
O. 24. Explain: Tampering with
the Computer Source
Ans. Tampering with the Computer Documents.
offence takes place when a person Source Docunents
tampers with the valuable [Section 65]. This
of another person. This provision states computer programs
he knowingly that "a person shall be guilty of ofence
or intentionally conceals, destroys an if
causes anothcr to conceal, destroy
or alters or intentionally knowinghy
or alter any computer source code used or
(or compuler program, or computer system or for a computer
computer netvork), when the computer
source code is required to be kept or maintained
by law for the time being in force."
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Penalty. Such a person shall be punishable with imprisonment
upto 3 years, or
ci
with a ftine which may extend upto k2 lakh, or with
both.
means the listing of .
ffi
Explanation. The expression "Computer Source Code"
programs, computer commands, design and layoutso
computer resource in any form.
and program analysis of
se
Q. 25. What do mean by Publishing obscene information?
as
Ans. Publishing obscene information [Section 67, The IT Act, 2000]. Any
l
person who publishes or transmits or causes to be published in the electronic

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form, any material which is lascivious or appeals to the prurient interest or if its
m
effect is such as to tend to deprave and corrupt persons who are-likely to read,
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see or hear the matter contained or embodied in it, shall be punished as under:
) On first conviction with imprisonment for a term which may extend to
be
five years and with fine which may extend to Rone lakh, and
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m) In the event of a second or subsequent conviction with imprisonment for

ou
a term which may extend to ten years and also with fine which may.
extend to 2 lakh.
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26. What are the areas involving paper based documents in which IT Act
does not apply?
OThe IT Act is not applicable to some specific documents". Comment.
2000 shall not;
Ans. As per Section 1(4) of the IT Act, 2000 the provisions of IT Act,
Pply to documents specified in the First Schedule of the Act which are as follows:
Execution of a Negotiable Instrument (other than a cheque) under th
Negotiable Instruments Act, 1881.
of Attorney Act, 1882
Execution of a Power of Attorney under the Powers
Creation of a Trust under Indian Trusts Act, 1882. anys
under the Indian Succession Act, 1925 including
Bxecution of a "Will
called.
other testamentary disposition by whalever name conveyance of immovable;
into a contract for the sale or
ntering property.
property or any interest in such amend
Government, by notification in the Official Gazette,
h entral may
deletion of entries there tron
aDove list of documents by way of addition or

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so
UNIVERSITY QUESTION PAPERS
se
as
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2010 2010 2
Business Laws
Name of the Paper. :
B.Com. (Elons.)
Name of the Course: Maximum marks: 75
Time: 3 hours questions carry equal marks.
Attempt All questions. All
the folowing statements are true or
Q1. (a) State, with reasons, whether
false:
offer.
( An invitation to offer is not an a suit.
ii) A stranger to consideration cannot maintain
Allcontracts are agreements but all agreements are not.comtrcts. 9
ii)
(6) What is undue influence? State three siluations where the presumption of
undue intluence exists. 6
Ans. (a) () See Q. 8(@), Unit I, 2. Offer and Acceptance. Page 9
(it) See Q.7, Unit I, 5. Consideration Page 26
(i See Q. Unit I, 1. Nature and Essentials of
1, Contract. [Page 1
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(6) Undue Influence. See Q4, Unit I, 4. Free Consent. [Page 19
ci
Or
ffi
(a) Comment on the following statements: so
) Mental acceptance is no acceptance in the eyes of law.
se
(i) All void agreements are not illegal but all illegal agreements are void.
as
(ii) Consideration must be somethingof value butneed not be adequate.

6) P, a minor borrowed 50,000 trom amoney-lender, by misrepresenting
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his age to.be above 18yearson discovering the truth Q waited for P to
m
become a major and gota promissory note signed from P for <60,000.
Is P
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liable to pay?
Ans. (a) () See Q. 8(¢), Unit I, 2. Offer and Acceptance.
be
[Page 9
(i) See Q. 2, Unit I, 7. Classification of Contracts.
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.(ii) See Q. 4, Unit I, 5. Consideration. Page 36

(b) No, P is not liable to pay Page 25
ou
on the new promissory note executed by him,

after attaining majority. As per Section 11
of the Indian Contract Act, 1872, a
Y
minor is incompetent to contract, thus an

agreement with a minor is void ab initio,
there is no possibility of its ratification
by the minor after attaining majority. A
agreement does not exist at all
Therefore P is not liable and as such is incapable of being renewea.
topay Q on the promissory note.
22 ( What do you understand by supervening
excuse the promisor from impossibility? Does it
performing the contract in
impossibility? E>xplain? 'case of commercial
() Discuss the position of a finder of lost goods.
Ans. (a) Supervening Impossibility. 6
See Q. 3, Unit I, 9. Discharge
of Contract.
(b) See Q.7, Unit [Page 40
I, 12. Bailment.
[Page 58
() Diséuss the rights Or
(b) "A delegatee of a surety against various parties.
to this general rule,cannot further delegate." Comment.
Discuss the exceptio
ions
6
137

138 SHIVA DELHI
UNIVERS
SERIES
Ans. (a) Rights of a surety against
11. Contract of Indemnity and Guarantee
(b)See Q. 6(«), Unitl, 13. Agency.
Q.3. (a) Distinguish between:
.
various parties..
parties, See
See Q. 3,
Unit 1,
Page 50
('Sale and 'agreement to sell'; Page 63
(in Wagering agreement
and contingent contract;
(iin) Fraud and misrepresentation. and
(b)"A seller cannot ranster to
the buyer
himself has." Comnent, giving exceptions of goods a title better than what he
to the rule.
Ans. (a) () 'Sale ana AgTeenent to sell'. See
Q. 3, Unit II, 1. Introduction
Contract of Sale of Goods. to
(i) Wagering agreement and contingent contract. See Q5, [Page 67
Unit
1,
6. Expressly Declared Void Agreement.
Page 33
(i) Fraud and misrepresentation. See Q. 2, Unit 1, 4. Free Consent. [Page 18
(6) See Q. 2, Unit I, 3. Transfer
of Property. .
Page 80
Or
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(a) Comment on the following:
ci
) In the sale of goods, transfer of propfty is not the same thing as the
ffi
transfer of possession. so
i) Doctrine of Caveat emptor does not apply inall contracts for the sale of?
se
g0ods. .*
as
(it "A sells goods to B. B.maks payientthroúgh a cheque. While A's

delivery van is on way toideliver the goods at B's premises,A finds
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that the cheque has been dishönoured. What action can 'A' take under
m
the Sale of Goods Act? 3x3-9

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(6) Distinguish between a condition and a warranty. When can a breach of
,
be
condition be treated as a breach of warranty?

3. Transfer of Property.
, Page 82
Tu
Ans. (a) () See Q. 3(a), Unit

5, Unit 2. Conditions and
() Doctrine of Caveat emptor. See Q. Page 74
ou
Warranties.
Sale of Goods Act, a seller is deemed to
Y
uin) According to Section 45 of the

be an unpaid seller where he sold
the goods against a negotiable instru
(A), under
dishonoured. An unpaid seller
ment and the instrument, is kor
right of lien (i.e., to retain the goods) until paid
Section 47 has a
warranty. See Q. 1, Unit Page
0 Distinction between condition and a
a 71
2. Conditions and Warranties.
waranty? See Q2, Unit u,
to be treated as a breach of Page 73
io
4. (a) Comment on the following:

is vO1d. an
agreement in restraint of trade same powers as a civil court,but
An Appellate Tribunal has court." Explain.
Der
neved party may appeal to the high
computer source documents. right
(iin Tampering with exercising the right of lien and
it
b)
(6) e a note on
Explain the necess for
Ssary conditions under Sale of Goods Act [Page 30
of stoppage in transit by unpaid seller Declared Void Agreement.
Ans. (a) See Q. 1, Unit1, 6. Expressly
Ans.

BUSINESS LAWS-2010
() See Q. 18, Unit IV, The 139
(ii) See Q. 24, Unit IV, Information Technology Act,
(6) See Q. 1, Unit The Information Technology
Act,
2000.age
2000.
[Page 130
I, 4. Remedies for Brcach Page 134
Q.5. (a) Briefly discuss of Contract of Sale. [Page 84
the following:
() Digital Signature Certificate
(i) Private key and Public
(ii) Duties of a Subscriber. key
(6) What is meant by
B-governance' with reference to IT Act, 2000?
Ans. (a) () Digital Signature Certificate. 6
See Q.7, Unit IV, The Information
Technology Act, 2000.
() Private key and Public key: See [Page 117
.
Q. 5, Unit IV, The Information
(in) Duties of a Subscriber. See Q. Page 116
19, Unit IV, The Information Technology
Act, 2000.
(b) E-governance. See Q.
Page 130
9Unit V, The Information Technology Act, 2000.
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Page 119
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Or
(a) Comment on the following statements:
ffi
9
( Hacking is an offence punishable under IT Act, 2000.
so
Electronic records are as authentic as thehard copies.
se
(iti) The Cyber Appellate Tribunal has the same powers as a civil court but
as
an aggrieved party may appeal to the High Court.

l
( How is the Controller of Certifying Authorities appointed? What are his

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functions? 6
m
Ans. (o) () See Q 17(), Unit IV, The Information Technology Act, 2000.
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[Page 128
(i) See Q. 10, Unit IV, The Information Technology Act, 2000. [Page 121
be
(in See Q. 18, Unit IV, The Information Technology Act, 2000. Page 130
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(6) Controller of Certifying Authorities: See Q. 12, Unit IV, The Informat
[Page 122
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OO00

1 2011
Name of the Paper : Business Laws
Name of the Course: B.Com. (Hons.)
Time: 3 hours Maximum marks: 75
Attempt All questions. All questions carry equal marks.
Q. 1. (a) State with reasons, whether the following statements are true
False: o
0In social agreements, the usual presumption is that the partles intend
to create legal obligations.
ii) Communication of offer is com lete when the letter of offer is posted.
(ii) A minor can always plead minority.
OA ailor ordinarily residing in Agra, wanted to move to Delhi during
mariage season, so as to earn substantial income. He delivered to the Railway the
company for ransnission a package containing his sewing machine
and other
anciilary tailoring materials. But there was inordinate delay in transmission
and the package arrived in Delhi too late for him to take advantage of
al
the
ci
marriage season. What damages can the tailor recover from the. Railway
Company and why
ffi
Ans. (a) () See Q. 5, Unit I, 1. Nature and essential of Contract.
so Page 4
(ii) See Q. 8(6), Unit I, 2. Offer
and Acceptance.. Page 9
se
in) See Q. 4(0), Unit I, 3. Capacity ko Contract. Page 14
as
(6) The tailor is entitled to recover from

the railway company only ordinary.
l
damages for the loss as naturally. arose due.tó breach of contract

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special damages. Section.73.of the Indian Contract Act, which

and not any
m
is based on the
leading case of Hadley vs. Baxéndale provides, "When a contract has
.co
the party who suffers from breach is entitled to receive, from the
been broken,
party who has5
be
broken the contract, compensation for any loss or damage caused to

which naturally ardse in the usual course of things from breach
him, thereby,:
Tu
or which the
parties knew, when they made the contract to be likely to result
from the breach?
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of it." However, special damages to cover arn exceptional loss

might
both parties knew of it. In the given case, as the tailor has not informed be claimed if
Y
Railway
that he is moving to Delhi to take acdvantage of marriage season and
incur special loss, if his goods did not reach by a particular time. He is
that he would
to ordinary damages, i.e., the ordinary loss due to delay and is only entitleda
not entitled to anv
special damages to cover up the loss of excess profits which
due to marriage season. Thus, communication of the special he could have earned
circumstances is a pre
requisite o the claim for special damages.
Or
(a)() Collateral transactions to an illegal agreement do not become
(in) Acceptance can be made even
without knowledge of the void.
(i#) Old coins may be treated as goods. offer,
(b) State with suitable examples 9
the cireumstances
bound by his contracts for necessaries as per Indian under which a minor is
Contract Act.whether a
contract of personal service by a minor is valid? Explain.
Ans. (a) (i) See Q. 4, Unit I, 6. EXpressly Declared Void Agreement. 5
[Page3
140

BUSINESS LAWS-2011 141
and Aceptance. [Page9

Unit I, 2 Offer Goods.[Page 69
(i) See Q. 8(), to Contract of Sale of
ii) See Q. 8(0), Unit I, 1. Introduction [Page 14
Unit 1, 3. Capacity to Contract. general
(b) See Q. 3,
term Lien. Differentiate between particular and
Q.2. (a) Define the
lien. 5
(b) 'Surety' is a favoured
debtor' Discuss. pledged
to B on Sale or Retun basis. B the
(c) Jewellery was sent by A liabilities of the parties.
C. Discuss the rights and
jewellery with Contract of Sale. [Page 89
4. Remedies for Breach of
Ans. (a)
Surety
See Q. 7,
Liability.
Unit 1,
See Q. 8(@), Unit
, 11. Contract of Indemnity andd
o) Page 53
Guarantee.
In the given case, A has the right to recover the price of the Jewellery from
() C. B 1s bound to pay the price to
B but has no right to claim the Jewellery. rom
rights of a pledger. C has al the rights of a pledgee. Where goods
A and enjoy the in the goods passes to the buyer
are sent' on 'sale or return' basis, the property
Pledging ot goods by the buyer is
when he does an act adopting the transaction.
transaction. On adoption of the transaction,
al
an act amounting to an adoption of to Cis valid, and
ci
Bbecomes the owner of Jewellery and consequently, B's pledge
receive price of the
ffi
rights of parties are determined accordingly. A is entitled to
Jewellery from B but has no right against C. B is liable to
so pay the price of
to his agreement.
Jewellery to A and has the right to redeem the pledge according
se
C has all the rights of a pledgee. Kirkham vs. Attenborough
as
Or
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are interchangeable terms. Comment. 5

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(a) Sub-agent and substituted agent

m
5
(6) Consideration need not be adequate. Discuss.
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() L 6old to S wheat by sample. The wheat was contained in 2 parcels and

S was given the opportunity of comparing the bulk of only one parcel with the
be
sample. S refuses to accept the delívery of the goods. Can he be held liable for
Tu
breach of contract? 5
Ans. (a) See Q. 6(b), Unit 1, 13. Agency. [Page 63
ou
(b) See Q.4, Unit 1, 5. Consideration. Page 25

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(c) No, S cannot be held liable for breach of contract. Facts in this case are
similar to the famous case of Lorymer vs. Smith. Section 17 of the Sale of Goods
Act, 1930 provides that in a contract of sale of goods by sample, there is an
implied condition: () that the bulk of the goods shall correspond with the Sample
ingualiy, ( that thebuyershall have reasonable opportunity of comparing the
80ds with the sample, and (in) that the goods shall be free from any defect,
rendering them unmerchantable, which would not be appárent on reasonable
examination of the sample. In this case, S was given oPportunity comparmg
of
only one parcel of wheat with the sample and not
the other.
This amounted to breach of an implied condition.
breach of condition entitius
ne buyer-to reject the goods and treat the contractA as repudiated. Hence,
entitled to refuse to accept
the delivery of goods.
Q.3. (a) Define the tern "Goods'
under the Sale of Goods Act.
who.1s an unpaid seller? When can
he resell the goods?.
CThere is no implied condition
Critically examine this as to fitness or quality of the goods sold?
statément. 5

SHIVA DELI UNIVERSmY SERIES
142
Ans. (a) See Q. 1, Unit ,1. ntroduction to Contract of Sale of Goods.
(h) LInpaid Seller. See Q1, Unit II, 4. Remedies [Page 66
for Breach of Contract of Sale.
(c) See Q. 1, Unit I1, 2.
Conditions and Warranties. Page 84
[Page 71
Or
(a) When can breach of condition be treated as breach
of warranty? 5
(b)Explain the term Contract of Sale of Goods. Will an exchange of cow
with
a horse and 7500 be covered under the contract of sale of goods? 5
(c) Right of stoppage of goods in transit is an extension
of unpaid seller's
right of lien.' Comment. 5
Ams. (a) Sen 0.2, Unit 11, 2. Conditions and Warranties. Page 73
(b) Sectiom 4() of the Indian Sale, of Goods Act, 1930 defines the contract of
sale of good as,"A contract of sale of goods is a contract whereby the seller transfers
or agrees to transfer the property in goods to the buiyer Jora price. term contrae
of sale of goods' is a generic term and it includes (i)
he
sale and (i) an agreemnt
to sell.
al
Sale. "Where under a contract of sale, the property (ownership) in the goods is
ci
transferred from seller to the buyer, it is called a sale". Thus, in a sale the ownership
ffi
passes immediately to the buyer. Paymentof price is immaterial for the transfer
of property in goods.
so
Agreement to sell. Where under a contract of sale, thë transfer of property in
se
goods is to take place at:afuture date or subject to the fulfilment of certain.

as
conditions, it is termed as;anagreement to sell.

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Yes. An exchange of cowvith'a horse and 500 be covered under the contract
m
of Sale of Goods.
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The consideration for a contract of sale must be money consideration called the
price'. If goods are sold or exchanged for other goods, the transaction is barter,
be
governed by the Transfer of Property Act and not a sale of goods under Sale of
Tu
Goods Act, 1932. But if goods are sold partly for goods and partiy for money, the
conlract is one of sale. [Aldridge vs. Johnson]
ou
89
() See Q. 8, Unit 1, 4. Remedies for Breach of Contract of Sale. Page
Y
Q4. (a) Distinguish between:

) Coercion and undue influence
(i Cyber contraventions and cyber offences 9
(i) Public key and Private Key provisions of
(b) "E-governance is SMART governance." Discuss the
e-governance. 6
Information Technology Act, 2000 to facilitate and strengthen I, Free Consent.
Ans. (a) () Coercion and undue influence. See Q.3, Unit 4.
Page 18
Q. 17(@), Unit IV, The
() Cyber contraventions and Cybr offences. See [Page 128
Information Technology Act, 2000. Information
(in) Public key and Private key. See Q. 5, Unit IV, The
Page 116
) E-govermance. See Q9, Unit Iv, The Information
[Page 119

BUSINESS LAWS-2011
Q.5. (a) State the objectives of Information 143
(b) Define the following Technology Act 2000.
term6 5
() Hacking
(t) Digital signature
(ii) Key pair.
()A person knowingly or intentionally 5
conceals, destroys or alters any
computer source, computer program, computer
act an offence?, If so, what is the punishment? system or network. Is such an
5
Ans. (a) See Q. 2, Unit IV, The Information Technology
Act, 2000.[Page 115
(6) Hacking. See Q. 23, Unit Iv, The Information Technology Act, 2000.
[Page 134
).Digital Signature. See Q. 6, Unit IV, The Information Technology Act,
2000. [Page 116
(ii) Key pair. See Q. 1(). Unit IV, The Information Technology Act, 2000.
[Page 114
Tampering with computer source records or documents. See Q. 24, Unit IV,
The Information Technology Act, 2000. [Page 134
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Or
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(a) Write a note on Digital Signature Certificate. 5
ffi
(6) Explain the term 'subscriber and his duties. 5
(c)
Define Certifying Authority and state his duties. so 5
Ans. () Digital Signature Certificate. See Q. 7, Unit V, The Information
se
Technology Act, 2000. Page 117
(b) Subscriber. See Q 19, Unit IV, The Information Technology Act, 2000.
as
[Page 130
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(c) See Q. 14, Unit IV, The Information Technology Act, 2000. [Page 126
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2011
Name
2011 (NOVEMBER
of the
Paper: Business Laws
Time: 3 hours
Maxium marks:3
Attempt All questions. All questions carry equal marks.
Q.1. (a) State with reasons, whether the following statements are
False Irue.o
() A void contract is one which is void ab-initio.
(ti) The object of damages, in case of
breach of contract is to punish.the
person, who fails to perform his obligation.
ii) A unilateral mistake cannot become a ground to avoid the conlract.
(6) Explain in details the
position of a minor in contract.
Ans. () ) See Q. 6{b), Unit 1, 6. Expressly Declared Void
Agreement.
Page 34
(ii) See Q. 4(6), Unit 1, 10. Remedies for breach
of Contract. [Page 4
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(i) See Q. 6(¢), Unit 1, 6. Expressly Declared Void Agreement. [Page 34
ci
(6) Position of a-minor in contract. See
Q.1, Unit I, 3. Capacity to Contrct.
ffi
so Page 13
Or
(a)) Consideration must have the value equiyalent to the value of the
se
promise made.
as
(i#) Law does not debar a

minor from becominga promisee in a contract
l
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tii) A contract cannot. be discharged on acount of strikes, lock-outs

and
m
civil disorders. 9
(b) Eplain the doctrine ofPublic Policy". Discuss
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the agreements contrary

of Public Policy.
be
Ans. (a) () False. Consideration means "Sometling.in return". This "Something

Tu
in return need not necessarily be equal in value of "Something

given".
So long as consideration exists, the Court is not concerned
as to
ou
adequacy, provided it is of some value. The exception to Section its

25
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provides that inadequacy of consideration does not render contract

a
void.
(i) See Q. 4(e), Unit 1, 3. Capacity to Contract. Page 14
() See Q. 6a), Unit I, 9. Discharge of Contract.
(6) See Q. 4, Unit 1, 1. Nature and Essentials of Contract. Page 42
Q 2. (a) (i) Explain the Doctrine or aveat Page 2
Emptor 1s there any exception
to it?
(in Define the term "Delivery of Goods". State the different modes of
effective delivery of goods.
(1) How does tlhe sale differ from an agreement-to-sel1?
(b) X delivered his old laptop to Y, for
sale, he also instructed Y
below 10,000. However, Y sold the laptop to z not to sell
for 8,000 and Y misappropri-
ated the sale amount. When X comes fo know about the deal, X decided
cancel the deal and demanded his laptop back from Z. Discuss t
the legal po-
sition of all the parties.
144

BUSINESS LAWS-2011.(NOVEMBEn) 145
Ans. (a) () Caveat Emptor. See Q. 5, Unit

IL, 2. Conditions and Warranties.
(Page 74
[Page 68
(i) See Q. 6, Unit II, 1. Introduction to Contract of Sale of Goods.
(1n) Difference befween sale and agreement-to-sell. See Q. 3, Unit
II,
1: Introduction to' Contract of Sale of Goods. Page 66
(b) X cannot demand his laptop back from Z, because Z has bought it from Y
in good faith and for lawful consideration. However, X can claim the decided
amount, ie, 710,000 from Y, because he has delivered it for sale not below
R10,000.
Here Y is acting as án agent of X. But Y has not honoured his instructions, so
Y should reimburse X.
Z is a third party, unaware of th deal between X and Y. Moreover, he has
obtained the laptop in good faith from Y after making due payment. Thus, he
cannot be asked to return the laptop.
Or
al
() "The right to stoppage in tranit is an extension of the right of Lien"
ci
Comment
ffi
( "Custody or control of goods implies "Property in Goods'." Comment.
so 9
se
(6) X, a lady,handed over her old jewellery to Y, a goldsmith, for purpose of
remaking after melting it. Every evening as soon as Y's work for the day is
as
over, the lady used to take the semifinished jewellery and put it in a box and
l
/c
keep the box in the goldsmith's shop, but carry the key of he box with her.
m
One night the jewellery was lost from the box. Explain the liability of the
.co
goldsmith in this regard. 6

. Ans. () 0) See Q. 8, Unit L, 4. Remedies for Breach.of Contract of Sale.
be
Page 89
Tu
(i) See Q. 3(6), Unit I, 3. Transfer of Property. Page 82

(b) The goldsmith is not liable for theloss of jewellery, because the lady X has
ou
not bailed the jewellery to' the goldsmith Y. Every evening the lady used to take
Y
it back and keep it in the box, but carry the keys of the box with
her. Thus, she
herself retains the ownership, Now, as the jewellery is lost, she should
bear the
loss and not the goldsmith.
Q3. (a) (i) Define and explain the essential features
of a Limited Liability
Partnership (LL.P.).
(i) Who can be appointed as designated partner in
an LLP.? Also discuss,
the procedure of his appoíntment.
(tin) Discuss briefly the powers
(6) Explain the procedure
and duties of auditors of an LL.P.
and effects of conversion of a partnership into
LLP.
Ans. (a) () Essential features of
a Limited Liability Partnership (LLP,).
See Q. 1, Unit Il, The
() Desigmated partner in Limited Liability Partnership Act, 2008.[Page 95
Unit , an L.LP.? See Q. 16,
The Limited Liability Partnership
LHe procedure Act, 2008. Page 102
of appointment of a designated partner.
The Limited Liability See Q, 18, Unt
Partnership Act, 2008. Page 103

SHIVA DELHI UNIVERSTY SERIES
146
(in) See Q. 25, Unit II1, The Limited Liability Partnership Act, 20o8.
[Page 107
(b) See Q. 13, Unit IL, The Limited Liability Partnership Act, 2008:[Page 100
Or
(a)How can an LL.P. be incorporated and registered under L.L.P. Act,
2008?
How can a person become a partner of an L.L.P.? What are the
(11)
disqualifications for becoming a partner in an L.LP.?
(iti) Explain the duties of a liquidator under LL.P. Act, 20087
b). Explain the winding up of an L.LP. Discuss the various grounds under
which an LLP, can be wound up by the Court. 6
Ans. (a) (i) See Q. 4, Unit II, The Limited Liability Partnership Act, 2008.
Page 95
(i) Qualifications and disqualifications for becoming a partner in an LLP.
Act, 2008.
See Q. 19, Unit 1, The Limited Liability Partnership 103
Page
al
Act, 2008.
(ii) See Q. 30, Unit II, The Limited Liability Partnership
ci
Page 109
ffi
Liability
(b) Winding up of an LLP. See Q. 23, Unit II, The Limited
so Page 105
Partnership Act, 2008.
se
Q.4. Do any Five of a subscriber
( Describe the term"Subscriber", Expläin thie duties
.
as
under LT. Actas amended in 2008**

l
/c
authority under ET. Act

(i) Explain the powers of controller of certifying
m
as under LT. Act?

(iin What do you mear by "Cyber Terrorism"
.co
LT. Act.
(iv) Explain the duties of certifying authority under
L.T. Act
) Explain "Digital signature under
be
15
(vi) Role of certifying authorities.
Tu
Information Technology Act, 2000

Ans. () Subscriber. See Q. 19, Unit IV, The [Page 130
ou
Authority under LT. Act. See Q. 13,

(i) Powers of Controller of Certifying
Y
Page 125
Unit Iv, The Information Technology Act, 2000. Technology Act,
(iin CyberTerrorism. See Q. 20, Unit IV, The Information
Page 131
2000.
Q. 14, Unit V, The
(iv) The duties of the certifying authority. See Page 126
Information Technology Act, 2000. Information Technology Act;
(o) Digital Signature. See Q. 6, Unit IV, The iPage 116
2000.
(ui) See Q. 15, Unit IV, The Information
Technology Act, 2000. [Page 127
Or
Do any five Certificate".
() Comment on "Digital Sigmature Governance".
(ii) Write a short note on "Electronic
of elecronic records.
(if) Explain-The legal recogniion
(fv) Discuss the objects of I.T. Act.

BUSINESS LAWS-2011 (NOVEMBER)
147
(o) Explain the meaning and punishment for publishing or transmitting
bscene material in electronic form.
(vi) Computer networkk, Computer Resource. 15
Ans. () Digital Signature Certificate. See Q. 7, Unit IV, The Information
(ii) Electronic Govemance. See Q.9, Unit IV, The nformation Technology
Act, 2000. [Page 119
(i) The legal recognition of electronic records. See Q.9(Point Unit IV, The
1),
Information Technology Act, 2000. Page 119
(io) Objects of 1.T. Act See Q. 2, Unit IV, The Information Technology Act,
2000. Page 115
() Obscene material in electronic form. See Q. 25, Unit IV, The Information
(vi) Computer network. See Q. 1(b), Unit IV, The Information Technology
Act, 2000. Page 114
"Computer resources" means computer, computer system, computer
network, data, computer database or software. Every device connected to
al
a computer system is a resource. Every internal system component is a
ci
ffi
resource.
Q5. (a) () Discuss the provision of filing feturn of an LL.P.
so
(ii) Discuss the extent of liability of an L.L.P.
se
(6)() Distinguish between contract of indemnity and contract of guarantee.
as
7
) Distinguish between Fraud and Misrepresentation.
l
28, Unit l11, The

(a) () Provision of filing return of an L.LP. See Q.
/c
Ans.
Limited Liability Parnership Act, 2008. Page 108
m
Exctent of liability of an L.L.P. See Q. 20, Unit III, The Limited Liability
.co
(i)
Page 104
Partnership Act, 2008,
be
guarantee.
(6)() .Diference between contract of indemnity and contract of
Tu
[Page 48
See Q. 1, Unit I, 11. Contract of Indemnity and Guarantee.
See Q. 2, Unit I, 4. Free
(1) Diference between Fraud and Misreprescntation.
ou
[Page 18
Consent.
Y
Or
(a)(i) Discuss the contents of incorporation documents of an
LL.P.
an L.L.P. 7
(i) Explain the legal effect of incorporation of"Nemo
(bH) Quasi Contracts are based on the maxim debet locupletari ex
Explain
aliena Justura" (one cannot be enriched at the cost of others).
the same with suitable examples.
(ii) How can the offer and acceptance be revoked? Explain
with the help
of an example.
Ans. (a) () Contents of incorporation documents of an
LL.P. See Q. 33(a),
Unit I1, The Limited Liability Partnership Act, 2008. II1,
Page 111
See Q. 5, Unit The Limited
) Legal effect of incorporation of an L.LP.
Liability Parmership Act, 2008. Page o
[Page 37
(b)() See Q.1, Unit 1, 8. Quasi Contracts.
and Acceptance.
() Revocation of offer. See Q. 4 and Q. 5, Unit 2. Offer
1,
P'ages 7-8

2012 (NOVEMBER)
Name of the Paper: Busincss Laws
Name of the Course: B.Com. (flons.)
Time: 3 hours
Mazimum marks: 75
All questions of each Section (A, B and C) should be atternpted together.
Al questions are compulsory. All questions carry equal marks.
SECTION-A
Q. 1. (a) State with reasons, whether the following statements are 7rue or
False:
( Acceptance of a General Ofer is not required to be communicated.
(i) The Minor's Liability for necessaries supplied to him can be enforced
only against Minor's Property.
(ii) Supervening impossibility does not include the difficulty of
performance. 9
al
) Distinguish between coercion and undue influence
ci
Ans. (a) () True. This statement is true. A 'general offer is oné which is made
ffi
to the world at large or public in general and may be accepted by anyy
so
person who fulfils the requisite conditions. Such offers may be accepted
se
by performance of the conditions by an individual person in order to
as
give rise to a contractual obligation to pay the reward. The leading case
l
on this subject is that of Carlill vs. Carbolic Smoke Ball Co. In this «
/c
the company issued an advertisement in which it offered to pay $100 to

m
any person who contracts influenza after having used their smoke balls
.co
according to printed directions. Mrs. Carlill, bought and used the smoke
balls according to the directions. She got influenza and thus sued the
be
company for the promised reward. The company was held liable.
Tu
(i) True. This statement is true. As per Section 68 of Contract Act, "if a
ou
person, incapable of entering into a contract, or any one whom he is

legally bound to support, is supplied by another person with necessaries
Y
suited to his condition in ife, the person who has furnished such
supplies entitled to be reimbursed from the property of such incapable
is
person. Thus, minor is not personaly liable for
à necessaries supplied to.
him. If a minor owns no property, the supplier will lose the price of
necessaries. Even where a minor owns property, the supplier will get a
reasonable price and not the price agreed to by the minor.
(iin) True. The given statement is true. As per Section 56 of the Contract
Act
"He that agrees to do an act must do it or pay damages for not doing it." UnlesS
the performance becomes absolutely impossible, a person is bound to
perform any obligation what he has undertaken and cannot claim to be
excused by the mere fact that pertormance has subsequently becom
unexpectedly burdensome, more difficult or expensive: lhcreased or
11nexpected difficulty and expense do not, as a rule, excuse å
person from
performance.
(6) Coercion and Undue Influence See Q. 3, Unit I, 4. Free Consent. [Page 1s
Or
148
BUSINESS LAWS-2012 (NOVEMBE) 149
(a) State with reasona whether the following statements are true or false:
a
A voidable contract is one which cannot be enforced in court of law.
6n Collateral transactions to an illegal agreement do not become void.
(tt) Old coîns may be treated as goods. 9
(b) "A quasi-contract is not a contract at all. It is obligation which the law
creates." Explain the statement as recognized under Indian Contract Act. 6
Ans. (a) ( See Q. 7, Unit1, 4. Free Consent Page 21
See Q. 4, Unit 6. Expressly Declared Void Agreement.
L, [Page 32
i(ii) See Q. 8(a), Unit I, 1. Introduction to Contract of Sale of. Goods.
Pages 69-70
(6)Quasi Contract. See Q. 1, Unit L-8. Quasi Contract. (Page 37
Q2. (@) () How is the price fixed in a contract of sale? If price is not decided
between the parties, what price the buyer has to pay?
) When can bréach of condition be treated as breach of warranty? 9
() Ashok sold wheat to Babu by showing a sample, the wheat was con
tained in wo parcels. Babu was given opportunity to inspect the bulk of one
al
parcel only withthe sample, Babu refused to accept the delivery of the goods.
ci
Can Babu be held liable for breach of contract? Explain. 6
ffi
Ans.(@) (9 See Q. 2, Unit I1, 1. Introduetion to Contract of Sale of Goods.
so Page 66
(i) Breach of condition can be treated as breach of warranty.
se
See Q. 2, Unit I1, 2. Conditions and Warranties.
as
(6) No, Babu cannot be held liable for breach of contract.

Page 73
The given case is
l
/c
similar to the famous case. of Lorymer vs. Smith. As per Section 17 of the Sale
m
of Goods Act, when under a corntract of sale, goods are to be supplied

according
.co
to a sample agreed upon, the implied conditions are:

that the bulk shall correspond with the sample in quality.
be
that the buyer shal haye a reasonable opportunity of comparing the

bulk
Tu
with the sample.

that the goods shall be free from any defect,
ou
unmerchantable which would not rendering them

be apparent
Y
examination of the sample. on reasonable

In the given case, Babu was given the
parcel only, so he can refuse to accept opportunity to inspect the bulk of one
he should not be he.d liable for breachthe goods and rescind the contract. Thus,
of contract.
(a) Amrit hires a van from Or
Bhim and agrees to pay 72,000
van was unsafe, though Bhim as hire charges. The
elaims compensation
was unaware of it. Amrit was injured and he
pay. Discuss the for injuries suffered by him, from Bhim. Bhim refuses
liability of Bhim in to
6)0 Comparethe right of this regard. 6
(ti) Discuss the lien and stoppage in
transit
rules relating to
Ans. (4) in the given case delivery of goods.
Bhim is liable to
of an unpaid see 9
by him. As per Section reimburse Amirit
to ciaim damages 150 of the Indian for injuries surrer
forloss arising from Contract Act, 1930,
Since there was a the the bailee nas
undisclosed
must compensatefault in the van and Amrit faults in the goods Dailed.
him. gotinjured due to it,
Bhmu e bailor

.SHIVA DELHI UNIVERSITY SERIES
150
Section 150 also states that the bailor is responsible for all defects in the goods
bailed whether he is aware ot the defects or not. gnorance of the defects
defence for him. Thus, Bhim, the bailor is liable for all the resulting damages. is no
(b) () Right of lien & stoppage tn transit of an unpaid seller: See Q.3, Unit
I,
4. Remedies for Breach of Contract of Sale.
Page 86
() Rules relating to delivery of goods. See Q.6, Unit I;1. Intrpduction to
Contract of Sale of Goods. Page 68
SECTION-B
Q.3. (a) (i) How is an LLP. formed underthe LLP Act,2008? Enumerate
the.various documents to be filed with the Registrar in this
connection.
(4) What is meant by Statement of Account and Solvency in an LLP? *9
(b)State the procedure of conversion from partnership firm into LLP. 6
Ans. (a) () See Q. 4, Unit Il, The Limited Liability Partnership Act, 2008.
[Page 95
al
(i) See Q. 31, Unit I11, The Limited Liability,Partnership Act, 2008.
ci
[Page 109
ffi
(b) See Q. 13, Unit I1, The Limited Liability Partnership Act, 2008.[Page 100
Or so
(a) () Discuss the features of separate legal entity andperpetual existence in
se
relation to an L.LP.
as
(i) State the liability. of the LLP,for the wrongful act of partner. 9
l
(6) Discuss in brief the provisions-of the LL.P. Act, 2008 relating to the
/c
voluntary winding up of an LE.P:* 6

m
Ans. (a) () See Q. 1, Uhif m, The Limited Liability Partnership Act 200893
.co
Page
See Q. 22, Unit II, The Limited Liability Partnership Act, 2008.
(in)
be
[Page 105
Tu
(b) Voluntary winding up of L.L.P. See Q. 24, Unit I11, The Limited Liability
[Page 106
ou

SECTION-C
Y
Q.4. (a) What are the areas involving paper based documents in which
LT. Act does not apply?
(b) What are the functions performed by public and private keys? 5
are the provisions regarding the issue and revocation of a Digital.
(What
Signature Certificate?
Ans. (a) See Q. 26, Unit IV, The Information Technology Act, 2000.[Page 134
(b) See Q. 5, Unit IV, The Information Technology Act, 2000. Page 116
(c) 'Electronic signature certificate'. See Q. 8, Unit IV, The Information
Or
(a) What is meant by E-Governance with reference to I.T. Act? 5
(6) The Cyber' Appellate Tribunal has the same powers as a Civil Court but
an aggrieved party may appeal to the High Court, Explain. 5
How is a Controler of Certying Authorily.appointed? What are his
functions under Information Technology Act, 2008? 5

BUSINESS AWS-2012 (NOVEMBER)
151
Ans.
2000.
(a) E-Govermance. See Q. 9, Unit IV,
The information Technology Act,
() See Q.18, Unit IV, The information Technology Act, 2000. Page 119
[Page 130
e) Controller of Certifying Authoritíes: See Q. 12, Unit IV, The Information
Technolo8y Act, 2000.
[Page 122
Q.5. (a) () "An L.L.P. is a definite improvement
over the partnership in the
matter of promoting entrepreneurship." Discuss.
(i) Explain the rules regarding change of name
of L.L.P. 8
(0) (9 Explain the essential elements of undue infltuence.
6 Explain the extent and nature of surely's liberty.
Ans. (a) (i) See Q. 15, Unit I, The Limited Liability Partnership Act, 2008.
7
(Page 102
i) Rules regarding change of name of L.LP. See Q.9, Uniy I1, The Limited
Liability Partnership Act, 2008. Page 98
) Undue Influence. See Q. 4, Unit I, 4. Free Consent. Page 19
(i) Surety's liability. See Q. 5, Unit I, 11. Contract of Indemnity and
al
Guarantee [Page 52
ci
Or
ffi
(a)) Discuss the provisions regarding appointment and eligibility
so
condition for a Designated Partner under the L.L.P. Act, 2008.
Who nmay file petition for winding up an L.LP.? Discuss powers of
se
(i)
court on hearing such petition. 8
as
(b)() Discuss the essential features of Bailment.

l
/c
(i) Write a note on 'Agency by ratification.

m
Ans. (a) () See Q. 18&Q 19, Unit II, The Limited Liability PartnershipAct,
.co
2008. Page 103

Sce Q. 32, Unit II, The Limited Liability Partnership Act, 2008.
be
(i)
Page 110
Tu
Q. 2, Unit 1, 12. Bailment. Page 55

(b)() Features of bailment, See
ou
See Q 2, Unit 1, 13. Agency. [Page 60

() Agency by ratification.
Y

2013 (NOVEMBER)
Name of the Paper: Business Laws
Time: 3 hours Maximum marks: 75
Attempt All questions.
All questioni carry equal marks.
Q.1. (a) Explain the discharge of contract by 7
mutual agreement
()) X, a Hindu husband executed a registered document in favour of Y,
wite, whereby he promised to,.pay her t10,000 per month. Later, X did
his
not pay. Can Y recover from X (a) if this promise was made without
any disagreement and quarrels between them? (b) if this promise was
made after disagreement and quarrels between
() M lends a type-writer to N, a minor, for lypirng them
Discus5,
practice for a period of
wo months. Jt was agreed thatN would pay monthly hire charges or
R500. At the end of two months, N refuses to
pay the hire charges. Can
al
M recover hire charges from N (A) if the typewriter was lent
for
ci
necessaries? (B) if the typewriter was not lent for necessaries?
DiScuss.
ffi
so (4+4)
Ans. (a) See Q. 4, Unit I, 9. Discharge of Contract.
6) ) (A) If the promise to pay to Y T10,000
[Page
se
was made without any
disagreement and quarrels betweenthe Hindu husband (X) and wife
as
(Y, Y cannot recover it. Since agreements between husband and

l
/c
wife lack intention tocreate legal.relationship, and thus not reult

in contractIF there is absence of intention to do
m
create legal
.co
relationship even if other requisites ot a valid contract are present,

the agreement does not amount to a contract. Similar decision
be
given in Balfour t3. Balfour 1919 under similar circumstances.

'was
Tu
(B) Yes, Y can recover R10,000 per month from X, if

he had agreed too
ou
pay the same after disagreement and quarrels between

Because in this case there is an intention between them.
both of them that
Y
the agreement should be attached by legal consequences

legal obligations and thus, the wife can recover the
and create
amount from her
husband.
(i) (A) Yes, M can recover hire charges ot the typewriter from the
of N, if it was lent for necessaries. N, the minor however, property
is not
personally liable. IF N does not own a property, then M
will lose the
price of necessaries.
(B) No, M cannot recover any charges irom N, if the ISection 68]
typewriter was not
lent for necessaries, because an agreement by a minor is
void and inoperative against him. Law acts as the absolutely
guardian of
minors and protects their rights, because their mental faculties
not mature-they do not possess the capacity to judge what are
and what is bad for them. Aceorangy wnere a minor is is good
with obligations and the other contracting party seeks to chargedenforce
those obligations against minor, the agreement is deemed as
void ab
152

**
(NOVEMBER) 153
BUSINESS LAWS-2013
initio. Mohori Bibi vs.

Dharmo Das Ghosh (1903), A similar
case.
decision was.given in this
Or
aDiscuss the
(6)() A p0sts an
impact
offer
of
to
mistake
B on July,
on the validity of the contract.
2013, B posts his acceptance on July 5,
7
letter of revocation of offer to B on

2013. In the meantime, A posts his
B on July 6, 2013. Is there an
July 4, 2013 which is received by reasons.
enforceable contract in this case? Explain with
khe would pay R1,00,000 to anyone
(ti) X advertises in a newspaper that
who traces his missing son. Y traced that boy
and claimed the amount
the amount of reward
of reward. State whether Y is entitled to receive
(b) if he knew about the
if (a) he did not know about the reward, (4+4)
reward. Defend your choice with reasons.
See Q. 6, Unit I,
Ans. (a) Impact of mistake on the validity of a contract.
Page 20
4. Free Consent.
(6) (9 Yes, there is an enforceable contract between A and B, as A has put his
acceptance into transmission on July 5,2013 and revocation of offeris
al
communicated to him on July 6, 2013. The acceptance of B is thus valid
ci
ffi
and there sháll be a binding contract. A, cannot revoke his offer after July
5, when the communication of acceptance is complete against him.
so
) (A) Y is not entitled to receive the amount of reward if he did not know
se
about the reward. An offteris effective only when it is communicated
as
to the offeree. Doing anything in ignorance of the offer can neverbe

l
treated as its acceptance, for there was never a consensus of wills.

/c
m
Lalman Shukla vs. Gauri Daft, (1923), A similar decision was given
.co
in this case.
(B) 1fY knew about the reward. Y is entitled to receive the amount of
be
reward, i.e., *1,00,000 if he knew about the reward. Y will be

Tu
considered to haye accepted the general offer made by X. Since Y

has traced the boy, X must give him the amount of reward.
ou
Q 2. (a) Who is an unpaid seller? Discuss briefly his rights against the
Y
g0ods. 7
(b)() Define the term 'Goods' and 'Price' under the Sale of Goods Act.
(i) X purchased a hot water boftle from a chemist. The bottle burst, when
the hot water was poured into it and injured his wife. What are the
rights of X against the chemist? Explain briefly. (4+4)
Ans. (a) Unpaid Seller. See Q. 1, Unit II, 4. Remedies for Breach
Sale. of Contract of
[Page 84
(6)) See Q 1, Unit I, Introduction to Contract of Sale of Goods. [Page 66
1.
)X can claim damages for the injury. Section 16(1)
Act, 1930 provides that ordinarily of the Sale of Goods
there is no implied condition that tne
g0ods shall be fit for the particular
circumstances, the seller is purpose of the buyer. But, in certain
required to supply the goods which
for the buyer's purpose e.g., :A be fit
where the buyer tèlls his purpose to the
seler and buys the goods 'relying upon
n tne given problem, the seller's skill and judgement
the bottle was not fit for use
as a hot water botte

SHIVA DELHI UNIVERsITY SERIESs
154
and the seller is liable for damages. In this case,
the buyer's purpose was
clear from the nature of the bottle and
x. Similar decision was given under hu the chemist must reimbure
similar circumstances in Priest
Last (1903). vs.
Or
(a) Discuss the rules as to passing of property in case
of specific goods.
(6)() Distinguish between"Sale and "Agreement to sell."
(i) B, a lady, purchased from A, a second-hand typewriter, used it for
some time and also spent some money on its repairs. Subsequently,
she discovered it to be stolen and had to return it to the true owner
She sued the sellers. WhetherB would be entitled to the refund an
compensation for the cóst of the overhaul? Explain. (4+4)
Ans. (a) Passing of property in case of specific goods. See Q 1, Unit L
3. Transfer of Property. Page 79
(b)() Sale and Agreement to selL See Q. 3, Unit I, 1. Introduction to Contract
of Sale of Goods. Page 67
() B would be entitled to the refund and compensation for the cost of the
overhaul. (Mason vs. Burningham). Aš per Section 14(b), in every
al
ci
contract of sale, there is an implied warranty on the part of the seller, that
ffi
the buyer shall have and enjoy quiet possession of the goods. IF the quiet
possession of the buyer is in anyway disturbed by a person having a
so
superior right than that of the seller, the buyer can claim dámages from
se
the seller.
as
Q. 3. (a) Explain, the procedure for change of registered office of LLP from
l
/c
one state to another. 7

(b)() "The validity of a certificate of incorporation of LLP cannot be
m
disputed on any ground whatsoever". Critically examine the

.co
statement.
be
(ii) Briefly state the procedure for conversion of a partnership firm i

Tu
LLP. (4+4)
IIL,
Ans. (a) Change of registered office from one state to another. See Q.8, Unit
ou
The Limited Liability Partnership Act, 2008. Page 97

Y
(b)() See Q.7, Unit IL, The Limited Liability Partnership Act 2008. [Page 97
(7) Procedure for coversion of a Partnership firm into a LLP. See Q. 13,
Unit II1, The Limited Liability Partnership Act, 2008. Page 100
Or
() Discuss the various grounds under which a LLP can be wound up by the
court. 7
6) State the provisions relating to whistle blowing in case of a LLP.
(1) State the provisíons for conversion of a private company into a LLP.
Ans. (a). Winding up of LLP. See Q. 23, Unit

,
The Limited Liablity
Page 105
(4+4)
0 Whistle blowing and LLP. See Q. 33(g), Unit II, The Limited Liabilily
Partnership Act, 2008. Pages 112-113
Comversion of a private company into a LLP, See Q. 14, [Page
Limited Liability Partnership Act, 2008.
Unit
101 e

BUSINESS
LAWS-2013
(NOVEMBER)
Q. 4. (a) Explain
the terms: Electronic 155
under the IT Act, 2000. Governance and
(b) Explain the Cyber terrorism
duties
(i What are the areas of Certifying Authority
involving paper under IT Act, 2000.
does not apply? based documents in
which IT Act
Ans. (a) Electronic Govenance. (4+4)
Act, 2000. See Q. 9, Unit IV,
The Information Technoloy
Cyber terrorism. See Q. 20,
Unit IV, The Information Technoloy [Page 119
Act, 2000.
(b)() Duties of Certifying Authority. See [Page 131
Technoloy Act, 2000. Q. 14, Unit IV, The Information
(i) See Q. 26, Unit IV, The Information Technoloy [Page 126
Act, 2000. Page 134
Or
(a) What is meant by Digital Signature
Certificate as under the IT Act, 20007
Discuss the legal framework of issuing the digital signature certificate. 7
(6)() Discuss the functions of Controller appointed under the IT Act, 2000.
al
(i#) Discuss the objects of IT Act, 2000.
ci
(4+4)
Ans. (a) Digital Signature Certificate. See Q. 7, Unit IV, The Information
ffi
Technology Act, 2000. so [Page 117
(6)6) Controller of Certifying Authorities. See Q. 12, Unit IV, The Informatio
se
rechnology Act, 2000. Page 123
as
i) Objects of IT Act, 2000:

l
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to provide legal recognition for transactions carried out by means of

m
electronic data interchange and other means of electronic

.co
communication, commonly referred to as "electronic commerce

which involves the use of alternatives to paper based methods of
be
communication and storage of information.

Tu
Governnient
to facilitate electronic filing of documents with the
ou
agencies.
of paper-based methods
to facilitate electronic storage of data in place
Y
of storage of data.
amend the Indian Penal Code, the Indian Evidence Act, 1872, the
to 1891, and the Reserve Bank of India Act,
Banker's Book Evidence Act.
1934.
provide for matters connected therewith or incidental thereto.
to (any wo)
Q5. Write notes on the following:
(a) Quasi Contracts
(b) Kinds oF Bailment 7h*2)
Wagering agreements L, 8. Quasi Contracts.
Page 37
See Q.1, Unit Page 56
Ans. (a) Quasi Contracts. 12. Bailment.
See Q. 3, Unit I,
b) Kinds of Bailment. Expressly Declared Void
agreements. See Q. 2, Unit I, 6. Page 31
(Wagering
Agreement or

158 SHIVA DELH UNIVERSITY SERIES
Distinguish between the following: (any two)

(a) Contracts of Indemnity and Contracts of Guarantee
(b) Sub-agent and Substituted agent
(c) Fraud and Misrepresentation (Th*2)
Ans.a) Contracts of Indemnity and Contracts of Guarantoc. See Q. 1, Unit
11. Contracts of Indemnity and Guarantee. Page 48
I
(b) Sub-agent and Substituted agent. See Q. 6(b), Unit 1, 13. Agency.
Page 63
(e) Frand and Misrepresentation, See Q. 2, Unit I, 4. Free Consent. [Page 13
O000
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so
.
se
**.
as
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2014 NOVEMBER)
Laws
Name of the Paper : Business
(Hons.)
Name of the Course:' B.Com. Maximum marks: 75
Time: 3 hours
Attempt Al quesions.
All questions cany cqual marks.
Q. 1. (a) "Insufficiency of consideration
is immaterial, but an agreement
7
without consideration ls void." Comment. C. B borrows this
(b)) A agrees in consideration of R1,00,000 from to kill
B to
ount from Dwho knowingly lends money B. Can D recover this

amount frum B? Discuss.
(1) A made an offer to B for selling 50 cycles I,000 per cycle and
prescribes one month for acceptance. B fails to accept the offer within
the stipulated time. f B gives his acceptance after one month, whether
this acceptance is valid or not? 4
Ans. (a) See Q. 3, UnitL, 5. Consideration. Page 25
(b)() In the present case, since the agreement between A and.B is of unlawful
al
nature, the same is illegal and the agreement between B and D is
ci
collateral to an illegal agreement. As such the loan transaction is illegal
ffi
and void and D cannot recover the money from B. However, the position
so
would have changed if D was not aware of the purpose of loan. In that
se
case the loan transaction.would not be collateral to the illegal agreement
as
and would be a valid.comtractand the'money would be recoverable.

l
(7) To be legaly etfective, an acceptance must be given within the specified

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time limit, if any. and if no time is tipulated, the acceptance must be

m
given within a réásonable time because an offer cannot be kept open

.co
indefinitely. Therefore, in the present case, acceptance given by B after

be
one month will not be effective.

Or
Tu
(a) State the rules goveriing the assessment of damages for breach of
ou
contract 7
)) P offered to sella farm to Q for T1,00,000. But, Q made a counter offer
Y
to buy it for 795,000. P refuses to sell it for 795,000. Subsequently, Q2

offered to purchase the farm for R1,00,000. Is there aniy contract
between P and Q? Explain. 4
(i) P, a minor, advanced certain sum of money to Q. Q executed
mortgage of this immováble property in favour of P, a
as a security of
money advanced to him. Can the mortgage be
case? Explain.
enforced by P in this
Ans. (a) See Q. 1, Unit I, 10. Remedies
for breach of contract. [Page 43
(6)) An offer lapses if it has been rejected by
xpress, i.e, written, or the offeree. The rejection may be
oral, or implied. Implied rejection
where either the offeree makes is one: ().
a counter offer; or (2). where
gives a conditional acceptance. the offeree
In the present case, since
Q rejected the original offer
by making a
157

SHIVA DELHI UNIVERSTY SERIES
158
counter offer of 795,000, the original offer came to an end
and no contract
came into existence.
(in Problem. See (Practical Problem 7). Unit I, 3. Capacity to
Contract.
Page 16
O.2. (a) Define the term Goods' underthe 'Sale of Goods Act' Distinguish
between 'Specific and "Unascertained goods'. 7
(b) Aperson bougnt miuk trom a dairy owner. The milk was contaminated
with germs of typhoid fever. The buyer's wife took the milk and
got
infection of typhoid and died of it. Can the buyer claim damages from
the dairy owner? Discuss. 4
() There was a sale of a jeep for k10.000 out of which R2,000 was paid by
the buyer immediately, and the balance T8,000 was to be paid at the
time of registration of the vehicle. It was also agreed that the property
in the vehicle would pass to the buyer after payment of the entire
amount. Before the payment of the balance price, there was an
accident. Who will bear the loss? Explain with reasons. 4
al
Ans. (a) Goods, See Q. 1, Unit 1, 1. Introduetion to Contract of Sale of Goods.
ci
Page 66
ffi
Difference between "Specific and Unascertained goods, See Q. 4 Unit IL
1. Introduction to Contract of Sale of Goods.
so .[Page 68
(6)() In the case of Frost vs. Aylesburij Dairy.Co. Ltd. (1905), 1 K.B. 608], F
se
bought milk from A, a dairy 'owrier. The milk was contaminated with
as
germs of typhoid fever. F's wife, oni taking the milk, became infected and
l
died of it and A was held-liable for damages. Similarly, the buyer can
/c
claim damages from the dairy owner in the present case.

m
(i) In the present case, the seller will be liable for the loss, because it is an
.co
agreement to sell, and in an agreement to sell, the seller is the owner, and
the owner is responsible for the damages.As per the provisionš of the
be
Sale of Goods Act, 1930, where the transfer of the property in the goods
Tu
is to take place at a future time or subject to some condition thereafter to

ou
be fulfilled, the contract is called an agreement to sell. As per Section 8 of

the Sale of Goods Act, 1930, where there is an' agreement to sell some
Y
specific goods, and subsequently the goods without any, fault on the part
of the seller or buyer perish or become so damaged as no longer answer
to their description in the agreement before the risk passes to the buyer,
the agreement is thereby avoided.
Or
(a) Explain the necessary conditions for exercising the right of lien and right
ofstoppage in transit by unpaid
to
seller under Sale of Goods Act.
(b)t A delivered a car B, a mercantile agent to sell it for a price above
T60,000. B sold it to C for 50,000. Can A take back the car from C who
has no knowledge of the transaction by A. Explain with reasons. 4
(i) A purchased a ring from B by fraud. Before rescinding the contract by
B, A sells the ring to C, who buys in good faith and without the notice
of A's defect of title. Will C get a good title? Explain with reasons. 4
Ans. (e) See Q 1, Unit I, 4. Remedies for Breach of Contract of Sale.[Page 84

BUSINESS LAWS-2014
(NoVEMRER
(b)() See (Practical Problem 4), Unit 1, 13. 159
(i) As per Section 27 of the Sale of GoodsAgency. s
a person who is not the owner Act, 1930, where goods Page
sold by
thereof ae
the authority or with the consent of and who does not sell them under
better title to the goods than the seller the owner, the buyer acquires no
had,
unless the owner of the goods
is by his conduct precluded trom
denying
However, where a mercantile agent is, with the seller s authority to sel
the consent of tdhe owner, in
possession of the goods or of a document of title to
the
made by him, when acting in the ordinary course ofgoods, any sale
busines of a
mercantile agent, will be as valid as if he was expressly authorized
by the
owner of the goods to make the sáme. Further the buyer acts in good
faith and has not at the time of the contract of sale notice that the seller
has no authority to sell. Therefore, in thhe present case, C will get good
title of the goods.
Q3. (a) Who can be appointed as designated partner in a LLP? Aiso briefly
discuss the procedure of his appointment. 7
(6)"A LLPis a legal person distinct from its members taken individually ar
al
collectively." Comment.
ci
Ans. (a) Designed parbrers in a LLP. See Q. 16, Unit I1, The Limited Liability
ffi
Partnership Act, 2008. so Page 102
Procedure of his appointment of designed partner. See Q. 18, Unit1, The
se
Limited Liability Partnership Act, 2008. Page 103
as
(6) See Q. 1, Unit IIl, The Limited Liability Partnership Act, 2008. Page 3
l
/c
Or
7
m
(a) Write a note on Annual Return of LLP.

(6The Tribunal can wind up the LLP on just and equitable grounds."
.co
Explain.88
be
Ans. (a) ee Q. 28, Unit I, The Limited Liability Partnership Act, 2008.
Tu
Page 108
23, Unit II, The Limited Liability Partnership Act, 2008. [Page 105
ou
(6) See Q.
(a) Explain the meaning and creation of digital signature. Enumerate
4
Y
certificate may be revoked.

the circumstances in which a digital signature
(6) Describe the term, 'Subscriber. Explain the duties
of a subscriber under
(44)
the IT Act, 2000. IV, The Information Technology
Ans. (a) Digital Signatures, See Q. 6, Unit Page 116
Act, 2000. Act, 2000. Page 118
Also, See Q8, Unit IV, The Information Technology
See Q. 19, Unit IV, The Information
(6) Subscriber and duties of a subscriber.
Page 130
Or 7
"Cyber terrorism" as under the IT Act, 2000?
(4) What do you mean by
Appellate Tribunal? Explain its working as per IT Act,
(6) What is 'Cyber
2000. [Page 131
20, Unit IV, The Information Technology Act, 2000.
Ans. (a) See Q. 2000. Page 127
Information Technology Act,
(b) See Q. 16, Unit IV, The

160 SuIVA DELn UNIVERSITY SERIES
Q.5. Write short notes on any tuwo of the following: (7h2)

(a) Wagering agreements
(6) Quasi conlracts
() Irrevocable agency
Ans. () Wagering agreements. See Q. 2, Unit I, 6. Expressly Declared Void
Agreement. [Page 31
Quasi contracts. See Q1, Unit I, 8. Quasi Contracts.
(6) Page 37
Irrevocable agency. When the authority given to an agent cannot be
(c)
revoked, it is said to be an irrevocable agency.
Also: See Q. 4, Unit I, 13. Agency. [Page 62
Or
Distinguish between the following: (any two)
(a) Coercion and undue influence
(b) Indemnity and guarantee
(c) Void agreement and illegal agreement. 2x7% =155
al
Ans.(a) Coercion and undue tnfîuence. See Q. 3, Unit 1, 4. Free Consent.
ci
'Page 18
ffi
b) Indemnity and guarantee. See Q. 1, Unit I, 11. Contract of Indemnity and
Guarantee.
so [Page 48
(c)Void agreement and illegal agreement. Se Q. 1, Unit 1, 7. Classification
se
of Contracts.
. Page 36
las
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(NOVEMBER)
2015
2015 Paper :
Business Laws
Name of the Course: B.Com. (Hons.) Maximumn marks:
Name of the questions
75
Time: 3 hours Attempt All
carry equal marks.
All guestions stater
brick, whether the following are
with reasons in
Q1. (a) Sate, agreements, th
true or false: business the presumnpti is that the
commercial and obligation.
() In intend to create legal
parties when the letter of offer isis posted.
na
Communication of offer is complete agreemenbe
(i authorized by government are not wagcring 9
(H1) Lotteries contract.
of a minor in a Essentials Contract.
6
(b) Discuss the position of
2, Unit L 1. Nature and Fage1
Ans. (a) () See Q. , Offer and Acceptance. Page 9
(i) See Q. 86), Unit L, 26. Expressly Declared Void Agreement.. [Page 34
(it) See Q. 6(d), Unit
1, Unit 1, 3. Capacity to Contract,
(6) Position ofa minor in a contract. See Q.
al
Page 13
ci
Or
ffi
(a) State, with reasons in brief, whether the following statements are true or
so
false:
account of strikes, lock-outs and
se
( A contract cannot be discharged on
as
civil disorders
.
(i) The object of damages, in case of breach of contract is to punish the

l
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person who fails to perform his obligation.

m
Inadequacy of consideration will make an agreement void.

in
.co
(6) Define undue influence. How does it

difer from coercion?
Ans. (a) () See Q. 6(4), Unit 1,9. Discharge of Contracts. Page 42
be
(i) See Q.4(6), Unit l, 10. Remedies for breach of Contracts. [Page 45
,
Tu
(ii) See Q. 8(), Unit I, 5Consideration. Page 27

(b) Undue influence. See Q.3, Unit 4. Free Consent. Page 18
ou
Q.2 () ) Distinguish between 'Sale' and 'Agreement to sell'

Y
th X shows sample to Y describing it as 'Chinese silk' Y approves of the

sample and places an order for the supply of 'Chinese silk. The goods
delivered are according to sample but it turns out that the sample, a
well as bulk is Japanese silk. Discuss
sellerX.
the rights of buyer Y against
(ff) A finds a costly ring and after
making reasonable effort to discov the
seus it to B who
buys without knowledge that A was mer
Finder of the ring. Can the
owner recover the ring from B: >i
reasons,
(5) Explain the
rights
Ans. ()) Contract of an unpaid seller against the goo
1, Introduction of Sale and Agreement to Sell. See Q. 3, Unit
) In the given cas to Contract
ract of Sale
Page
Page 67
67
of Goods.
8n by seller
delivered case, iuyer Y
X.
has the right to refuse to accept b
181

162 SHIVA DELHI
UNIVERSITY
SERIES
Reaso. In a sale by sample as
iust correspond both with well as by description,
Similarly, the sample as well the goods
in Nichol vs. Godts as supplied
with the description
foreign refined rape-oil (1854) 158 E.R.
426] there
tendered was the having warranty was sale of
same as the sample, only equal to sample".a
rape-oil" having a but it was not "foreign The oil
mixture of it and some refined
seller was liable, and other oil. It was
the buyer could refuse held that the
iin Legal maxim "nemo da quod non to accept.
habet" (i.c., no
than the owner himseli) lays the one can
general rule which is pass better title
hand. This general rule has been relevant for case in
Goods Act, 1930 which provides incorporated in Section 27
as:"Subject to the provisions of the Sale of
of any other law for the time being in force, of this Act and
where goods are sold by a
who is not owner thereof and who does person
not sell the goods under the authority
with the consent of owner, the buyer acquires or
no better title to goods than the
seller had... Meaning thereby a sale
"
of goods by a person who is not the

lawful owner or who has no authority or lawful ownership of goods
will
not be able to transfer better title of goods to the buyer.
al
In view of law discussed above, the true owner of the ring (in the given case) is
ci
entitled to recover his ring from B. Plea of B that he had purchased the ring for
ffi
valuable consideration, bona fide in good faith and:without notice of any such
so
defect in tile or authority of A is no defence against theclaim ot the true own
se
Also, See Q. 2, Unit IL, 3.Transkerof Property. Page 80
(6) Rights of an Unpaïd,selleragainst thegoöds. See Q.1, Unit I, 4. Remedies
as
.*
for Breach cf Contract of:Salé. Page 84
l
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Or
m
(a)(i) When can a breach of condition be treated as a breach of warranty?

.co
(i) A agreed to purhase 200 tonnes of wheat from B out of a larger stock.
A sent his men with sacks and 150 tonnes of wheat were put into the
be
sacks. Then there was a sudden fire and the entire stock was gutted.
Tu
Who will bear the loss and why?

payable partly in
(i) X agrees to sell his new LCD TV to forof 25,000
Y
ou
old TV set. Is it a valid

cash of 15,000 and partly in exchange
Y
contract of Sale of Goods? Give reason.

(6) Discuss the rules as to passing of
property in case of specific goods. 6
See Q. 2,
(a)(i) Breach of condition to be treated as breach of warranty.
Ans. Page 73
Unit 1, 2. Conditions and Warranties. time of
to bear the loss of 150 tonnes of wheat. At the
(it) A is not liable were
for sale of goods, the goods in the given case
making contract not identified. To be
identified and
the same were
unascertained as
had to be appropriated and that too
ascertained the goods buyer with the consent of the other.
seller or the
unconditionally by the the goods identified. Therefore, B
makes
Appropriation' is an act which
loss. contract of
would be liable to bear the goods. The consideration for the
(71) It is a valid contract of
sale of
goods are exchanged for goods,
be money. When
sale, called price, must however, nothing to prevent the
barter. There is,
It is not sale. but

BUSINESS LAWS-2015
(NOVEMBER)
consideration from being partly 183
vs. Cox, (1824) 3 B&C 420] in money and partly in goods.
[Sheldon
(6)Passing of property in case of specific goods. See Q. 1(Point
3. Transfer of Property. A), Unit I,
Q.3. (a) () State the contents of Incorporation
Document
Page79
(i) "An LLP is a definite improvement of an LLP.
over the partnership firm in the
matter of promoting entrepreneurship." Discuss.
(ii Write a note on Whistle Blowing.
9
o) State provision regarding taxation of LLP. 6
Ans. (a) () Incorporation Docunment of an LLP. See Q.4, Unit II, The Limited
Liability Partnership Act, 2008. [Page 95
ii) An LLP is a definite inmprovement over the partnership firm in the matter
of promoting entrepreneurship. See Q. 15, Unit IL, The Limited Liability
Partnership Act, 2008. Page 102
in) Whistle blowing See Q. 33(g), Unit IL, The Limited Liability
[Page 111
al
Partnership'Act, 2008.
6) Taxation of LLP. See Q. 29, Unit II, The Limited Liability Partnership Act,
ci
2008 [Page 108
ffi
Or so
(a) () "A partner shall never be liable to an unlimited extent for the debts of
se
the LLP" Critically examine the statement.
as
(i) "The court can wind up an LLP on just and equitable grounds.
l
Comment.
/c
(#) Explain the rules regarding change of name of an LLP.

m
(6) Discuss the provisions regarding appointment and eligibility conditions

.co
2008. 6
for a Designated Partner under Limited Liability Partnership Act,
Limited
Ans. (a) ) Liability of LLP and its Partners. See Q. 20, Unit II, The
be
Liability Partnership Act, 2008.

. Page 104
Tu
23, Unit 1, The Limited Liability

() Winding. up of LLP. See 105[Page
ou

9, Unit I11, The Limited Liability
(ii) Change of namne of LLP. See Q.
Y
[Page 98
See Q. 16, Unit

,
(b) Elgibility conditions for a designated partner
in an LL.P.
The Limited Liability Partnership Act,
2008. [Page 102
partner. See Q. 18, Unit 11, The
The procedure of appointient ofa desiguated (Page 103
Limited
Q.4. (a) Distinguish between:
() Digital signature and Electronic signature
(ii) Cyber contraventions and cyber offences 9
Public key and Private Key
(ii) governance." Discuss the provisions of6
"E-governance is SMART
(6) strengthen e-governance.
Information Technology Act, 2000 to facilitate and Electronic
Ans. (a) (0 Diference between Digital
signature and sigare...
Page 116
Information Technology Act, 2000.
See Q 4, Unit IV, The

SHIVA DELAI UNIVERSITY SERIESs
164
(i) Cyber contraventions and' Cyber offences.. See Q. 17(@), Unit IV, The
Information Technology Act, 2000. [Page 128
,
(in) Ptublic key and Private key. See Q. 5, Unit IV, The Information
Technolo8y Act, 2000. [Page 116
() E-govenance. See Q. 9, Unit IV, The Information Technology Act, 2000.
Page 119
Or
(a) The IT Act is not applicable to some specified documents."
Comment.
(i) The Cyber Appellate Tribunal has same powers as a civil court, but an
aggrieved party may appeal to the high court." Explain.
(ii) Write a note on Tampering with computer source documents.
()What is meant by digital signature? State the procedure of creation a
verification of digital signature. 6
al
Ans. (a)) See Q. 26, Unit IV, The Information Technology Act, 2000.
ci
Page 134
ffi
(i) Cyber Appellate Tribunal and Cioil Court. See Q. 18, Unit IV, The
Information Technology Act, 2000. so [Page 130
(iti) Tampering
with computer source documents. SeeQ. 24, Unit V, The
se
Information Technology Act, 2000. [Page 134
as
Digital Signatures. See Q. 6, Unit V, Thé Infórination Technology Act,

l
2000. Page
/c
116
Q.5. (a) Distinguish betwëen:
m
() Sub-agent and Súbstituted agent

.co
(i) Indemnity and Guarantee

be
(ii) Novation and Alteration as modes of discharge of a contract.

(b) Explain Declaration' of solvency under voluntary winding up. Is it
Tu
necessary to obtain the approval of creditors in voluntary winding up of an

ou
LLP? 6
Ans. () () Sub-agent and Substituted agent. See Q. 6(6), Unit I, 13. Agency.
Y
Pages 63-64
(i) Indemnity and Guarantee. See Q. 1, Unit I, 11. Contract of Indemnity
and Guarantee. [Page48
(i) Novation and Alteration. See Q. 5, Unit L, 9. Discharge of Contract:
[Page 41
(b) Declaration of solvency under voluntary winding up of LLP. See Q. 24,
Unit II1, The Limited Liability Partnership Ae, 2008. Page 106
Or
(a) "An agreement in restraint of trade is void", Examine the statement
giving exceeptions. If any. 9
(6) Describe the procedure of conversion of a partnership, firm into LLP. 6
Ans. (a) Agreement in restraint of trade. See Q. 1, Unit L, 6. Expressly Declared
Void Agreement. [Page 30
(b) Conversion of a partnership firm into LLP. See Q. 13, Unit II, The Limitéd
Liability Partnership Act, 2008. Page 100

(NOVEMBER)
2016 *.
2016
Nameof the Paper
: Business Laws
B.Com. (Hons.)
Time: 3 hours Attempt All questions.
equal marks.
All questions carry
brief, whether the following statements are
reasons in
Q.1. (a) state, with
true or false:
trànsactions to an illegal agreement are valid.
() Collateral is not fraud.
(i) Mere silence as to facts contracts in the real sense of the term. 9
(i#) Quasi contracts are not
the whole law of agreements, nor is it
the
(b) The law of contracts is not 6
whole law of obligations." Explain. Agreement.
I. 6, Expressly Declared Void
Ans. (a) (9 False. See Q4, Unit Page 32
(in True. See Q. 1, Unit I, 4. Free Consent.
Page 18
Page 38
al
(ii) True. See Q. 2, Unit I. 8. Quasi Contracts. Page 2
(b) See Q. 3, Unit I, 1. Nature and Essentials of
Contract.
ci
ffi
Or
(a) State, with reasons in brief, whether the following
statements are true or
so
false:
se
) A voidable contract may remain valid.
as
() Insurance is an example of wagering agreement.

l
(i#i) Special damages.can be claimed as a right by the aggrieved party.

9
/c
(6) A, a minor, borrowed some money from B and executed a promissory

m
note in favour of B. The Promissory note was renewed by A when he attained

.co
majority. B brings a suit against A on the basis of the second promissory note.
be
Will he succeed in recovering money from A? Give reasons.

() Ram's son abscondedfrom home. He sent his manager in search of the
Tu
boy. Afte the manager had left, he announced a reward of Ti0,000 for anybody
ou
giving information about his son. The manager came to know of this offer only
when he had already traced the missing boy. Explain his rights giving reasons.
Y
Ans. () () True. See Q. 6( ), Unit I. 6. Expressly Declared Void Agreement.

[Page 34
(i) False. Insurance contracts are valid çontracts even though they provide
for payment of money by the insurer on the
happening of a speciic
future uncertain event. The purpose of insurance contract is not to make
profit but to-safeguard the loss which may
happen urure.
in) False See Q. 4(0), Unit L. 10. Remedies for Breach ofinContracts.Page
(b) No, B will not succeed
in
promissory note was void for being recovering money from A since the n
executed in favour of a minor, and it canno
enewed. 1hus, the second promissory
consideration. B will note
not succeed in recovering is also invalid or void for wa
of
(The manager cannot claim the money from A.
reward i.e, the offer made reward as he did 'not have the knowledgedge of
by Ram. An offer becomes effective
only wtien it is
165

166 SIVA DELHI UNIVERSITY
SERIES
nicated to the eree who
in turn
an offer in a general offer without the accepts it. Performancc
a manager had knowledge of of
already traced the the offer is noconditions of
3Td of 710,000. Theretore, he missing boy
cannot claim the before he knew abo
acceptance.
(The particulars of the case are similar amount of reward.
to the leading
Gauri Dutt). case of Lalman
Shukla vs.
o.2. (a) (i) "Custody ot goods 1mplies property
ti X agreed to sell to Y the entire quantity in goods." Comment.
godown. The oil was to be of oil lying in a
to be delivered to Y. filled into drums and then tanker inwere X's
Some drums were filled the drums
before the remåining drums could in the presence of Y; but
entire quantity of oil was desroyed. be filled, a fire broke out and
Who will bear the loss? Discuss, the
(ii) A delivers some jewellery to B on sale or returm
jewellery with C. A sues B for recovery basis. B pledges the
of price. Will he succeed?9
(b)"The Doctrine of Caveat Emptor does not apply contracts of sale of
goods." Explain the Doctrine and give the situations in all
al
where this Doctrine is not
applicable.
ci
6
Ans. (a)) See Q. 3(6), Unit I1, 3. Transfer of property.
ffi
Page 82
(i) Though the particulars given in the case are to some extent similar to the
so
case of Rugg vs. Minett, the only difference in the given problem is that
se
the drums were to be delivered by X, whereas ini case of Rugg vs. Minett,
as
the buyer was supposed to take the. drums away. So even if the drums
l
were filled in ¥s' presènce, these were not deliverèd and hence ill
/c
bear the loss.

m
(i) Yes, A will succeed in recovering the price from B. As per Section 24 of
.co
Sale of Goods Act, when goods are delivered to the buyer on approval or
be
sale or return basis, the property therein passes to the buyer, when he
signifies his approval or acceptance to the seller or does any other act
Tu
adopting the transaction, such as use the goods, pledges the goods or
ou
resells them.
his
In the given case, B has pledged the jewellery to C, so he has signified
Y
() See. Q. 5, Unit ,
acceptance of goods. Thus, he must pay the seller the price of
Or
jewellery.
[Page 74
buyer has not paid

()) "A seller becomes an unpaid seller only when the
the price." Comment. abnormally sensitive, bought a
knew that her skin was
( A lady, who trouble by using it. she did not disclose to the
COar and developed skin
sensitive. Can the selfer be held
er
liable?
that her skin was abnormally
and right of stoppage of goods in
lien
T Distinguish between right of
9
ransit. to the buyer than what he himself

(6)
Seller cannot convejy a better itle any.
statement, giving exceptions to this rule, if
nas."
Explain
An
See
the statement, gv
Explain the
Q. 1, Unít II, 4.
es
Remedies for
for Breach of Contracr o Sale.
Contract of
Page 84

BUSINESS LAWS-2016 (NOVEMBER)
167
(i) No, the seller cannot be held liable, since the lady
did not disclose to the
seller that her skin was abnorinally sensitive. The seller
liable for the breach' of conditlon as to fitness or could
not be held
quality (Griffiths vs.
Peter Conway Ltd.).
(ii) See Q.3, Unit II, 4. Remedies for Breach of Contract of Sale. [Page 86
(6) See Q. 2, Unit II, 3. Transfer of property.
Page 80
Q.3. (a) State the process of formation of LLP.
oState the circumstances under which a Limited Liability Partnership
(LLP) can be wound up by the court.
Ans. (a) See Q. 4, Unit II, The Limited Liability Partnership Act, 2008.
[Page 95
(b) See Q. 23, Unit II, The Limited Liability Partnership Act, 2008. [Page 105
Or
() Explain the following statements
() A LLP has a legal entity separate from its partners.
() The responsibility for carrying out the legal obligations as laid dowm
by the LLP Act shall be solely of the designated partners.
al
(t1) Every partner of an LLP is an agent of the LLP only and not of other
ci
9
partners.
ffi
(6) Stae the provisions of LLP Act, 2008 relating to change in registered
so 6
office of a LLP.
2008.
se
Ans. (4)) See Q. 1(i), Urit I1, The Limited Liability Partnership Act,
[Page
93
as
(i See Q. 17, Unit IL, The Limited Liability Partnership Act, 2008.
l
/c
Page 103
m
Partnership Act, 2008. [Page 96

(ii) See Q 6, Unit I, The Limited Liability registered office.
.co
(6) Provisions of LLP Act, 2008 relating to change in

Cee Q. 8, Unit 1, The Limited Liability Partnership
Act, 2008. Page 97
be
statements:
Q.4. (a) Comment on the following as hard copies.
Tu
authentic
() Electronic records are not as as a cyber crime under IT
(i) Cyber Terrorism has been regarded
ou
(Amendment) Act, 2008.

e-governance. 9
Y
(iii) One of the main objects of IT Act is to facilitate

are the duties 'of certifying
(6) Define Certifying Authority. What 6
authorities?
IV, The Information Technology Act, 2000.
Ans. (a) (i) See Q. 10, Unit [Page 121
(i) True. See Q. 21, Unit IV, The Information Technology Act, 2000.
[Page 132
Information Technology Act, 2000.
(iin True. See Q.3, Unit IV, The [Page 115
Act, 2000. [Page 126
IV, The Information Technology
(b) See Q. 14, Unit
Or
(a) Define the following terms:
() Hash function
Key Pair
(i7)

(ii) Computer network and Computer,virus.

(b) "Any person may make an application to a certifying authority for issue
of Digital Signature Certificate." Explain the provisions of IT Act for grant and
revocation of Digital Signature Certificate.
Ans. (a)0) See Q. 10), Unit IV, The Information Technology Act, 2000.
[Page 114
(i) See Q. 1(, Unit IV, The Information Technology Act, 2000. [Page 114
(i) See Q. 1(6) and (j), Unit IV, The Information Technology Act, 2000.
[Page 114
(b) Digital Signature Certificate. See
Q. 7, The Information Technology Act,
2000.
Q.5. (a) Write short notes on the following:
Page 117
() Agency by ratification
(i) Surety as a favoured debtor
(ii) Doctrine of supervening impossibility. 9
al
(6) Who can become a partner in an LLP7 What are the
disqualifications for
ci
becoming a partner? How can a person become a partner of an LLP? 6
ffi
Ans. (a) (i) See Q. 2, Unit 1, 13. Agency.
so Page 60
(7) Surety as a favoured debtor. See Q. 4, Unit I, 11. Contract
of Indemnity
se
and Guarantee. Page 57
as
(n) Doctrine of supervening impossibility. See Q. 3, Unit I, 9. Discharge

of
l
Conttact.
/c
Page 40
(b) See Q. 19, Unit 11, The Limited Liability Partnership Act, 2008.
m
Page 105
.co
Or
(a) "A stranger to consideration can sue, but a stranger to contract
carnot
be
sue." Explain the statement, giving exceptions, if any.

Tu
) Describe theprocedure of conversion of a pivate company into LLP

Ans. (a) See Q.7, Unit 1, 5. Consideration. Page
ou
(6) See Q. 14, Unit II, The Limited Liability Partnership Act, 2008.[Page 10
Y

(OV-DEC)
2017
Business Laws
Name of the Paper
B.Com. (Hons.)
Duration: 3 hours should be attempted together.
All the parts of a
question
statements are
reasons in brief whether the following
Q.1. (a) State with 9
True or False: agreements are not
All illegal agreements are void but all void
(
necessarily illegal. excusable.
(i).Mistake as to law of the land is notmode of acceptance.
prescrlbed as a
(#i) Silence can not be consideration is void. Comment. 6
(6) An agreement without [Page 36
Classification of Contracts.
Ans. (a) () True. See Q.2, own land/country is no excuse and it
True. Mistake as to law of one's
i does not give right to the parties to avoid the contract. Everyone is
is an excuse,
supposed to know the law of his country. Ignorance of fact
but ignorance of law is no excuse. So, if there is
mistake of law of the
al
country, the contract is binding.
ci
[Page 10
(i) True. See Q. 8(e), Offer and Acceptance.
ffi
Page 23
(0) See Q. 1, Consideration. so
Or
(a) State with reasons in brief whether the following stätements are True or False
se
Fraud is wilful misrepresentation offacts..
as
(i) A voidable contract can be enforcecby à stranger.

l
9
(ii) Quasi contractsare based.on the principle of unjust enrichment.
/c
(6) "Agreements in restraint of trade are void". Critically examine the

m
statement giving suitabl examples. 6

.co
Ans. (a) () True. Fraud is wilful misrepresentation or active concealment of a

materiai fact for any other act fitted to deceive. According to Section 17 of the
be
Indian Contract Act, 1872, 4Fraud means and includes any of the following acts
Tu
committed by a party to a contract or with his connivance, or by his agents, with intent
ou
to deceive another party thereto his agent, or to induce him to enter into the contract":
1. the suggestion, as a fact, of that which is not true by one who does not
Y
believe it to be true;
ctive concealment of a fact by one having knowledge or belief of the fact;
3. a promise made without any intention of performing
it;
4. any other act fitted to decelve;
5. any such act or commission as the law specially declares to be fraudulent.
i) False. A voidable contractcannot be enforced by a stranger. According to
Section 2(1), 'A voidable contract is oñe
which
one ot the paries, í.e, the aggrieved partyis enforceable by law at the opuo
whose consent is obtainea oy
coercion, under influence, misrepresentation
party entited to do so by exercisiñg or fraud. Until it is rescinded by tne
Further, Section 2(4), A stranger his option in that behalf, it isa valid contract.
enforced/sued only by a person to a contract cannot sue.
who is a party to the contract. A contract can
contract also cannot
be sued Thus, a voidae
(ti) True. See Q. 1, Quasiby a stranger.
(6) SeeQ.1, Expressly Contracts.
[Page
DeclaredVoid Agreeme
Page 3
3
168

SERIES
Q.2 (a) () Explain three essentials of
contract of bailment.
(i) "Ratification has a retrospective aeffect".
(ii) S, a minor fraudulently represented to LComment.
obtained a loan of Ri50,000, Subsequently, that he was of full age and
he refused to pay it. Is L
entitled to take any action against S for the money
his rights. lent. Advise L as to
(6) Discuss in brief the various 9
types of remedies available to an aggrieved
party in case of breach of a contract.
Ans. (a) (0) Essentials of a contract of bailment.See Q. 2, Bailment. 6
(i) "Ratification has a retrospective effect"', See Q. 2, Agency. Page 55
(ii) No, L is not entitled to take any action against S for money Page 60
lent.
According to Section 11, a minor is not capable oft entering into a contract. A
contract entered into, with or by a minor is absolutely void. In this case, S (minor)
can plead his minority. The given case is similar to the fainous case of Leslie v.
Sheill.
he rule of estoppel does not apply in case of a minor. That means, even if the
minor has, by misrepresenting his age, induced th other party to contract with
al
him, he can still plead minority and cannot be sued for fraud.
ci
(b) See Q.1, Remedies for Breach of Contract. [Page 43
ffi
Or so
(a)Distinguish between Wagering Agreementaid 'Contingent Contract.
se
)X advertised that an auction of "ElecfronieGoods" would take place at
a specified time and place Ytravelled to the auction place and came to
as
know that auction had been withdrawn. He files a suit against X for
l
/c
recovery of compensaion for his loss of time and expenses. Will he

m
succeed? 9
.co
() Discuss the rights of surety against principal debtor, creditor and co-
Sureties.
be
Ans. (a) () See Q. 5, Expressly Declared Void Agreement. Page 33

Tu
) No,Ywill not succeed in recovering compensation for his loss of time

ánd expenses. X has only made an.invitation to offer. The objective is merely to
ou
circulate information. Such invitations or offers are not offers in the eyes of the
Y
law. Invitation to offer is only an inducement or attraction to the other party to

make an offer against such attraction and inducement. The facts of the given case
are similar to thè famous case of Harris vs. Nickerson. Thus, Mr. Y cannot file a
suit against the auctioneer for his loss of time and expenses.
(b) See Q. 3, Contract of Indemhity and Guarantee. Page 50
a
Q.3. (a) Explain the various implied conditions in Contract Sale. of 9
()() Distinguish beween Specific and Unascertained goods.
(in A delivered a horse to B on "Sale or reburn basis'. The agreenment pro
vided that B should try the horse for 8 days and then return, if he did
not like the horse, On the third day the horse did without the faut of
B. A files a suit against B for the recovery of price? Can he recover6
[Page 71
Ans. (a) See Q. 1, Conditions and Warranties.
to Contract of Sale of Goods. Page 68
()) See Q.4, Introduction case
The facts in this case are similar to those which were decided in the
( that the loss would fall on
of Elphick vs. Baxter (1880). It was held in this case
transferred from the seller
tne seller as the property in the goods had not yet been

DUSINESS LAWS-2017
(NOV-DEC)
to the buyer since the sale was on sale 171
or return basis. Had the sale
this basis, then the loss would have fallen not been on
on the buyer. So, in the above
cannot recover the price trom B. case A
(a) 'Nemo dat Quod non habet (No

Or
one can give what he does not possess).
Explain this maxim and state the exceptions to it).
(b)() "The right of stoppage of goods in transit 9
is an extention of right of
lien." Comment.
(ii) The buyer took delivery of 10 computers from
the seller without
examining them. Subsequently, he sold 5 computers to his customer.
The customer lodged a complaint of some defects in the computers.
The buyer sought to relurn computers to the seller. Was he entitled to
return the computers to the seller? 6
Ans. (a) See Q. 2, Transfer of Propert [Page 80
(6) () See Q. 2, Remedies for Breach of Contract of Sale.
Page 86
tit) No, the buyer is not entitled to return the computers to the seller.
According to the Doctrine of Caveat emptor, it is the duty of the buyer
al
to be careful while purchasing the goods. 'The buyer must examine the
ci
goods thoroughly and must see that the goods he buys are suitable for
ffi
the purpose for which he wants them. In the given case buyer took
.delivery of 10 computers from the seller without examining them, thus,
so
he must blame himself and bear the cost of his inattention and careless
se
decision. The facts of the given case are similar to the leading case Ward
as
DS. Hobbs. Hence, Çaveat emptor being the rule, the buyer could not
l
damages fror the seller:"

claim dam1ages
to
/c
(a) ) What are the ilsilHty

24. Designated partners? eligibility conditions for the appontment
appointment
m
.co
(#) Explain the rules regarding change of name of LLP.

(ii) State the contents of Incorporation Document of LLP.
be
9
(b) State provisions regarding taxation of LLP.
Tu
Ans. (a) () See Q. 16, The Limited Liability Partnership Act, 2008. Page 102
ou
(i) See Q9, The Limited Liability Partnership Act, 2008. Page 98
(ii) See Q. 33(a), The Limited Liability Partnership Act, 2008. Page 111
Y
(6) See Q. 29, The Limited Liability Partnership Act, 2008. Page 108
Or
(a) Who may file a petition for winding up? Discuss the grounds under
which an LLP can be wound up by the court. 9
(b)() How can an existing partner cease to be a partner of LLP? What are the
consequences of cessation?.
(#i) A parner shall never be liable to an unlimited extent for the debts of
the LLP. Critically examine the statement.
Ans. () See Q. 32, The Limited Liability Partnership Act, 2008. Page 110
These are the following grounds under which an LLP can be wound up by the
court
1. If the LLP decides that the LLP be wound up by the tribunal.
2. If number of partners of LLP renmain reduced below two for more than 6
months.
3. If LLP is unable to pay its debts and therefore its creditors seek winding
up by the Tribunal.

172 SHIVA DELuI UNIVENSITY SERIES
4. If LLP has done some act/acts which is/are found to be against the national
interest or which are against the interests of the sovereignty and integrity of
our country or against the security of our country or against public order.
5. If LLP has defaulted in filing with the Registrar the Statement of Account
and Solvency or the Annual Return for any five consecutive financial years.
6. If Tribunal is of the opinion that it is just and equitable for a LLP to be
wound up.
)0 See Q.21, The Limited Liability Partnership Act, 2008. Page 105
Also read, The cessation of a partner from the limited liability partnership does
not by itself discharge the partner from any obligation to tke limited liability
partnership or to the other partners or to any other persón which he incurred
while being a partrer.
Where a partner of a limited liability partnership ceases to be a partner, unless
otherwise provided in the limited liability partnership agreement, the former partner
or a person entitled to his share in consequence of the death or insolvency of the
former partner, shall be entitled to receive from the limited liability partnership
al
(a) an amount equal to the capital contribytion of the former partner actually
ci
made to the limited liability partnership; and
ffi
0) his right to share in the accumulated profits of the limited liability
partnership, after the deduction of accumulated losses of the limited
so
liability partnership, determined as at the date the former partner ceased
se
to be a partner.
as
A former partner or a person entitled to his share in' onsequence of the death
l
insolvency ot theformer partner"shall nothave any ight to interfere in the

/c
management of the limited liability partnership.

m
(in) See Q. 20, The Limited Liability Partnership Act, 2008

Page 104
.co
a
Q.5. (a) () What are the duties of subscriber under IT Act? 9
be
() Distinguish between public key and private key.

(in What do you mean by Cyber Terrorism?
Tu
) State the procedure of creation and verification of digital signature.

ou
Ans.(a) ( See Q. 19, The Information Technology Act, 2000. Page 130
(i) See Q. 5, The Information Technology Act, 2000. Page 116
Y
(it) See 20, The Information Technology Act, 2000.

Q
Page 131
(6) See Q. 6, The Information Technology Act, 2000. Page 116
Or
Explain legal recognition of electronic records and elecronic signature
() Explain the meaning and punishment for "Tampering with computer
source document.
iin Define "Asymmetric Crypto System'.
(6) Write short notes on (any one):
) Role of Certifying Authorities
(i) Appellate Tribunal
Ans. (a) ) See Q.9, The Information Technology Act, 20QO. [Page 119
See Q. 24, The Information Technology Act, 2000. Page 134
(iin) See Q. 1(d), The Information Technology Act, 2000. Page 114
(b)(i) See Q. 15, The Information Technology Act, 2000. Page 127
(i) See Q. 16, The Information Technology Act, 2000. Page 127

(NOV-DEC)
:
2018
Business Laws
Name of the Paper: B.Com. (Hons.)
Duration: 3 hours question should be atemtpted together.
All the parts ofa
reasons in brief whether the following statements are
Q. 1. (a) State with 9
True or False
transactions to an ilegal agreement do not become void.
Collateral proceedings is valid.
(Gi) Agreement in restraint of legal
void.
tii) Contingent contracts are Mistake of Fact and Mistake of Law?
(6) What is the difference between 5
Give examples.
I, 6. Expressly declared void agreement.
Ans. (a) () False. See Q. 4, Unit Page 33
(i) False. Section 28 provides that every agreement
enforcing his
by which any party thereto is restricted absolutely from
al
legal
rights under or in respect of any contract, by the usual
ci
proceedings in the ordinary tibunals, or which limits the time within
which he may thus enforce his rights; or
ffi
so
which extinguishes the right of any party thereto, or discharçes any
se
party thereto from any liability, under or.in respect of any contract
..
as
on the expiry of a specified period so. as to restrict any party from

l
enforcing his rights,is vöid to that éxtent. However, an agreement to

/c
refer disputës to arbitrátión is valid,

m
(it) False. Contingent contracts are contracts that are dependent on the
.co
happening of a future uncertain event (Section 32). Contingent contract'isa

be
contract to do or not to do something if an uncertain future event happens

Tu
cannot be enforced unless and until that event has happened. If the event has
becomes impossible, such contacts become void.
ou
(6) Difference between Mistake of law and mistake of fact. See Q. 6, Unit L 4.
Y
Free Consent. [Page 21

Or
(a) State with reasons in brief whether the following statements are True or False:
( Quasi contracts are illegal contracts.
(i) Wagering agreements are void ab initio.
(it) Consent is free when it is not caused by coercion or
only.
undue influence
(b) Explain in detail the position
of minor in contract.
Ans. (a) () False. Generally, Quasi contract is
So for a contract there has to be an
an agreement enforceable by law
agreement. An agreement needs an offer ana
acceptance by the other party
i.e., the offeree. But hapPpens
there are obligaions resembling to it many times tna
those
has never been any offer or its acceptance created by a valid contract thougn
agreement between those by the other party, or there has
been no
are created or imposed parties either expressed or implied. Such obligano
Contracts". (or "Constructiveby law on the
parties and are known as "Qu*
Contracts" under
the English Act).
173

174 IVADELHI UNIVERSIT
SERIES
() True Section 30 of Indian contract Act,
agreement as void id. A wagering agreement 1930 declares
is void the wagering
for
filea
l any recovery of the amount won
but not illegal. No suit
t
agreement collateral to the wagering agreement on any wager. However,
is valid. However, an
agreement is illegal n tne stare the
Cin True. A free consent is ot Maharashtra and Gujarat. wagering
defined by Section 14 of
Qrds:"Consent is said to be free whern the Contract Act
in these
it is not caused by (A)
Undue infiuence, () Fraua, (D) Misrepresentation, (E) Coercion, (B)
Mistake."
Consent is said to be so caused when it would not have
been given
existence of such coercion, under influence, fraud misrepresentation but for the
So, where consent ot any party 1s obtained by any or mistake"
of the above elements, it is
not free. When an agreement 1s caused by coercion,
misrepresentation or fraud the contract is voidable undue . influence,
at the option of the party
whose consent was not free.
(6) See Q. 1, Unit I, 3. Capacity to Contracts.
[Page 12
Q.2. (a) () Differentiate between fraud and misrepresentation.
al
(ii) P'applied for the post of Principal in a school He was selected by the
ci
managing committee but no formal communication was sent to him.
ffi
After some time committee met and cancelled the appointment of P as
so
the Principal. He came to know. through someone. He filed a suit
se
against the managing commitee. Was he entitled to file a suit against
as
the managing committee?

(tin At the risk of his life A saved B from a serious car accidént. B
l
/c
promises to pay K10,000 to C (Son of A). B does not pay. Can Crecover
m
10,000 from B? 9
.co
(b) Differentiate between contract of indemnity and contract of guarantee. 6

Page 18
be
Ans. (a) (i) See Q. 2, Unit I, 4. Free Consent.

Communication is necessary to put forth the offer and acceptance. An
Tu
( to be a valid contract. However,

ofer and acceptance must be communicalea jor it
ou
communication has
Sometimes acceptances need not be communicated if the
Y
been waived.
v. Lee [(1877) A.C. 666],
One of the leading case on this point is of Powell
where Powell applied for the post of a
headmaster and his application was
formal appointment, one of the Board
accepted by the School Board. Before the informally informed Powell of
members (not the authorised representative) had Sehool for
decision which was later rescinded by the Board. Powell sued the
the the absence of an authorised
Dreach of contract. The court held that 'in contract and
Committee there was no valid or binding
Communicatior from the Based on the judgment in
Pouwell
was not maintainable.
herefore Powell's claim to file asuit aganst the managing
P not entitled
the present case also, is to P.
of his selection was madepromuse to
in
committee as no authorised
communication
authorised comu consideration t itit is a
a' promise
nittee agreement made without oraion is valid, if
already voluntarily done
An
pensate, wholly or in part, a person
something
who has
which the promisor
was legally
ing for the promisor, or done
compellable to do [Section 25 (2)).

BUSINESS LAWS-2018 (NOV-DEC)
In the present case A saved B's life and B 175
A). Had the promise been made to pay promised to pay 10,000 to C
to A, it would have made a valid (son of
Since C is not a party to the contract, he cannot contract.
(b) See Q.1, Unit 1, 11. Contract of sue or recover 10,000 from B.
Indemnity and Guarantee. Page 48
Or
(a) (9 "Ratification tantampunts to prior authority."
Comment.
(i) C agrèed to let out his musical hall to T for a series of
concerts. The
hall was accidently burnt before the date of the first concert. T sued C
for damages for breach of contract. Can T recover damages for breach
of contract?
iii) X hires a car from Y and agrees to pay hire charges of T1,000. The
brakes of the car are defective but Yis not aware of it. X uses the car
and gets injured in an accident due to faulty brakes of the car. X claims
compensation for Ehe injuries suffered by him. Will he succeed?
(6) Differentiate between actual breach and anticipatory breach.
Ans. (a) () "Ratification tantamounts to prior authority." See Q.2, Unit I, 13.
al
Agency. [Page 60
ci
(i) Section 73 of the Indian Contract Act, 1872 provides that "when a
ffi
contract has been broken, the party who suffers by such breach is entitled to recenve, from
the party who has broken the contract, compensation for. any loss or damage caused to
so
him thereby, which naturally arose in ihe usual course of things from such breach, or
se
which the parties knew, when they madé the contract, to be likely to result from the
as
breach of it. Such conpensation is not to be given for any remote and indirect loss of
l
damage sustained by reason of the breach".

/c
Consequential damage or loss usually refers to pecuniary loss consequent on

m
physical damage, such as loss of profit sustained due to fire in factory. It arises
a
.co
due to the existence of certain special circumstances.

be
by
The general principle with respect to claiming the consequential damages
non-defaulting party is that the non-detaulting party is only entitled to recover/
Tu
the
claim such part of the damages or losses resulting from the breach by
ou
defaulting party, as was at the time of execution of the contract reasonably

loss
Y
foreseeable as liable to result from the breach. Further, the damage or

possessed/
"reasonably foreseeable" would inter-alia depend on the knowledge
of a reasonable person to
shared between the partie. It is expected out suffered by the non
understand and foresee the damage which may be defaulting party in the
defaulting party and resulting from the breach by the
of "special circumstances",
"ordinary course". However, in case of existence course" what is of utnost
which are outside the purview of the "ordinary consequential damages, is that the
importance, so as to be able to claim the "special circumstances" which
defaulting party should be aware of the said
non-defaulting party, at the time
would result into consequential losses for the
of executing the contract. the
of the leading cases on this point is Taylor v. Caldwell, where
One in' which, defendant agreed
to let
plaintiff and defendant entered into a contract, of the
plaintiff use the, music hall for four concerts. After the signing The
the by fire.
contract, but before the first concert, the hall was destroyed

SHIVA DELHI UNIVERsITY SERIEs
176
destruction was without fault of either party and was so extensive that
the
concerts could not happen. The plaintiff wished to seek action for breach of
contract but was unable to as the contract was discharged by frustration. The
ire made the contract impossible to perforim.
In the above mentioned case, the court also observed that when the contract is
absolute, the contractor must perform it or pay damages for non-performance
However, this principle is applicable only where the contract is absolute. Where
the contract is subject to an implied condition that the parties shall be excused if
performance becomes impossible from the perishing of the thing without the
fault of the contractor.
In the present case also, Since the doctrine of impossibility through destruction
of the subject matter was established, excuses both the parties, T from taking the
hall and paying the money and C from performing his promise to let out the hall
or paying any damages.
al
(ii) Section 148 of the Indian Contract Act, 1872 defines the term bailment
ci
as the delivery of goods by one person to another for some purpose, upon a
ffi
contract that they shall, when the purpose is accomplished be returned or
otherwise disposed-off according to the directions of the person delivering
so
them.
se
The person delivering the goods is called 'bailor' and the person to whom the
as
goods are delivered is called 'bailee'.

l
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According to Section 150 of the said Act, bailor are of two kind:
m
) Gratuitous Bailor, i.e, a person, who lends his articles or goods without
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any charge.
(6) Bailor for reward, ie, a person, who lends his articles or goods with
be
charge.
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In case of a bailment, irrespective of gratuitous or for reward, it is the first and

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foremost duty of the bailor to disclose the known faults about the goods bailed to
the bailee. If he does not make $uch disclosure, he is responsible for any damage
Y
caused to the bailee directly from such faults.

However, in case of bailment for reward, the duty of a bailor for consideration
is much greater. He is making a profit, therefore, it is his duty to see that the
goods he delivers are reasonably safe for the purpose of the bailment. It is no
deence for him to say that he was not aware of the defect. Section 150 of the Act
clearly says that "if the goods are bailed for hire, the bailor is responsible for
such damage, whether he was or was not aware of such faults in the goods
bailed". A bailor for reward has to examine the goods and remove such defects
as reasonable examination would have disclosed.
In a similar case of Reed v. Dean [(1949) 1 KB 188], the plaintiff hired a motor
launch from the defendant for a holiday on the river Thames. The launch caught
fire, and the plaintifks were unable to extinguish it, the fire-fighting equipment
being out of order. They were injured and suffered loss. The Court held that
there was an implied undertaking that the launch was as fit for the purpose for
which it was hired as reasonable care and skill could make it. The defencdant
was accordingly held liable.

BUSINESS LAWS-2018 (NOV-DEC) 177
for reward, i w
the present case Y was bailor
a
Basis on the above, Since in is reasonably safe for the
purposee
that the car he dellvered
his duty to ensure say that he was not aware of the dcfect
driving. It is no defence for him to ror njuries suffered byX
Therefore, Y would be liable to pay compenisaion
Hence X would succeed.
() Breact of contract
may be of two kinds:
before the contract becomes due for
() Anticipatory Breach. When not to perform the
performance, one of the parties to it shows his intention
contract. It is an announcement by
contract, this is called anticipatory breach of
to fulfAll the contract. It may
one of the contracting parties of his intention not
take place by two ways:
By express repudiation. Under this, one party to the contract
communicates to the other party, betore the pertormance is due, his
intention not to perform it.
By creating some impossibility. A promisor may, before the time of
pertormance arriyes, by doing some act, make the pertormance of his
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promise impossible.
ci
(i) Actual Breach. When at the time of performance of contract one of the
ffi
the contract fails, neglects or refuses to pertoxm or does not pertorm his
so
obligations, such breach is said to be actugkbreachRoFcogtract. Achual breach can
se
be of the following types:
.On the due date ofperformance. Actiualbreach occurs when at the time
as
of performance of conitrac, one prty fails or refuses to perform his

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obligation. In süd case the other party is discharged from

his
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obligation and cán hold the defaulter party líable for damages for breach.
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During the performance of the contract. This occurs when during

the
performance of the contract, one party refuses or fails to perform his
be
obligations under the contract. This breach can be by express

words (or
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act) or implied. In such cases the other party is discharged

from further
performance of the contract.
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Q.3. (a) () When can a breach of condition be treated as

breach of warranty?
Y
(#) "Risk prima facie passes with property."

(ifn) R bought a second
Comment.
hand motor car from D and used it four
was discovered that D had no title to months. It
one. On being compelled to return the car since it was the stolen
to recover the car to the true owner, R sued D
the purchase price. Was R entitled to
(b) Distinguish between do so?
'Sale' and 'An agreement to sell'.
Ans. (a) () A buyer can treat
the breach of condition as breach
This option has been given to a of warranty.
him, under Section 13(1)
thesection, a breach of condition of the Act. According to
following circumstances: would be treated as a breach
ofwarranty in E
1. Waiver by buyer.
Where
be fuliled by the seller, a contract of sale is subject to any condition to
elect to treat the breach the buyer may () waive the condition, or
buyer has the option of the condition as
to accept the a breach of warranty. The
goods and claim damages rom
u

seller. If he once decides to waive the condition, he cannot

afterwards
insist on its fulfillment. [Section 13(1)]
2. Acceptance of goods by buyer. Where a contract of sale is
not severable,
i.e., it is indivisible and the buyer has accepted the goods or
part thereof,
the breach of any condition is to be treated as a breach of a warranty.
Section 13/(2)]
Example. Certain goods were promised to be delivered on June 1, time
eing made the essence of the contract. The goods were delivered on
June 2. The buyer accepts the goods.
(i) Risk prima facie passes with property.
1. Unless otherwise agreed, the goods remain at the seller's risk until the
property in them is transferred to the buyer, but whern the property in
them is transferred to the buyer the goods are at the buyer's risk whether
delivery has been made or not.
2. But where delivery has been delayed through the fault of either buyer or
seller the goods are at the risk of the party at fault as regards any loss
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which might not have occurred but for such fault.
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3. Nothing in this section affects the duties or liabilities of either seller or
ffi
buyer as a bailee or a custodian of the goods of the other party.
(in) Section 27 of the Sale of Goods Act1930 states that when any goods are
so
sold by a person who is not the real owner of the goods and sells them without
se
proper authority and consert frotm the reakowner, the buyer acquires no better
as
title to the goods than the'seller had

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a
Section 27 can be considered as general rule which protects the interèst of
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the real owner. If there is any defect in the title of the seller, the buyer will also
m
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inherit the same defect from the seller. The basic principle of this rule is that the
buyer cannot acquire a better title than the seller. For intance, ifa thief sells off
be
the stolen goods, the buyer will have the same title as the thief who sold him the
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goods.
The above law is expressed in the Latin maxim "Nemo dat quod non haber"
ou
which means that no one can give what he has not got.
In the case of Greenwood v. Bennett [(1973) 1 QB 195], Bennett was the real
Y
owner of a Jaguar car. Bennett gave his car to a man named Searle for repairing
work. Searle used the car for his personal use purpose. While he was using the
car, it met with an accident. Searle then sold the car to a garage owner nagmed
Harper for 75£. Harper did not have the knowledge that Searle was not the real
owner of the car and spent 226£ to earry out repair works. He then further sold
tne car to a finance company. The Court held that since Searle wasn't the real
owner, he could not bransfer the right to Harper, who in turn could not pass the
rights to the finance company. Bernett was entitled to recover the car.
who has
The exception to the above mentioned rule applies only to the buyer
having knowledge about the
acquired the goods in good faith and without
rights of the true owner.
R would be entitled to recover
On basis of the above, it can be said that Yes,
E purchase price from D as he bought
the car from D in good faith and without
that D had.
aVing knowledge about the defective title

BUSINESS LAWS-2018
(NOV-DEC)
(b) Difference between "Sale' 179
and 'An agreement to sell'. See
1. Introduction to Contract of Q. 3, Unit II,
Sale of Goods.
(Page 67
(a) Explain the rights of an Or
unpaid seller against the goods.
(6)) Define the term "Delivery of Goods".
State the different modes of
effective delivery of goods.
(i) X,
the owner of a car, hands over the car to Y,
a mercantile agent and
gives him instructions to sell the car subject to a reserve
Y sclls the car to 2 for 75 lac price of 76 lac.
and misappropriates the money. Z buys
the car in good faith. Will Z get good title to the car?
Ans. () See Q. 1, Unit L, 4. Remedies for Breach of Contract of Sale.
[Page 84
(b(i) Delivery of Goods. Delivery means "voluntary transfer of possession
Erom one person to another". Section 33 provides that, "delivery of goods sold
may be made by doing anything which the parties agree shall be treated as
delivery or which has the effect of putting the goods in the possession of the
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buyer or of any person authorized to hold them on his behalf" For delivery,
ci
pysical possession is not important. The buyer should be placed in a position so
ffi
that he can exercise his rights over the goods. Delivery of goods may be-
so
1. Actual delivery. In case of actual delivery, the goods are physically
se
handed over by the seller.or his agent to the buýers.
as
2. Symbolic delivery:It occirs by doing sömé act which has the effect of
l
putting the goods'ini:the possession of the buyer. Where the goods are
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bulky, such method of elivery may be adopted. Delivery of the key to a

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godown or warehouse is symbolic delivery of the goods therein.

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3. Constructive delivery. There may be change in the possession of the

goods which may have the effect of delivery, without any change in their
be
actual and visible custody. There is said to be constructive delivery in

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such cases. Firstly, the seller's possession of goods may change as he may
no longer hold goods as owner after sale but as a bailee. Secondly, the
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handing over the delivery order by the seller to buyer and the assent of
Y
seller's bailee (warehouseman) constitutes a constructive delivery. Lastly,

constructive delivery also takes place where a buyer, before sale, is in the
possession of goods of the seller as a bailee, and after the sale holds the
goods as owner. In all the three cases, there is constructive delivery
which is effected without any change in the actual possession of the
goods.
is the absolute
(i) In general the seller sells only such goods of which he the owner,
owner. But sometimes a person may sell goods af which he not
is
buyer who has bought
then the question arises as to what is the position the the transfer of title is
of
regarding
the goods by paying a price. The general rule a better title than he himself
that the seller cannot transfer to the buyer of goods
buyer also will not become
has. If the seller is not the owner of goods, then the
same as that of the seller. This
the owner i.e., the title of the buyer shall be the non habet" which means that
"Nemo dat quod
rule is expressed in the Latin maxim
no one can give what he has not got.

180 SHIVA DELHI UNIVERSTY SERIES
If this rule is enforced rigidly then the innocent buyers may be put to loss in
many cases. Therefore, to protect the interests of innocent buyers, a number of
exceptions have been provided to this rule.
One of the exceptions to this rule, where a non-owner can convey better title to
the bona fide purchaser of goods for value is when the sale is made by
a
mercantile agent.
A sale made by a mercantile agent of the goods for document
of title to goods
would pass a good title to the buyer in the following circumstances;
(a) If he was in possession of the namely;
goods or documents with the conscnt of
the owner;
(6) If the sale was made
by him when acting in the ordinary course of
business as a mercantile agent; and
(c) If the buyer had acted
in good faith and has at the time of the contract of
sale, no notice of the fact that the seller had
no authority to sellI
al
(provision to Section 27 of the Sale of Goods Act, 1930).
ci
In this case, Z gets a good title of the car. Although Y
sold the car at a price
ffi
below the authorized price fixed by X and misappropriated
being the innocent purchaser would obtain a good title on the proceeds, Z
so
exception of sale by a mercantile agent to Section 27. the basis of the
se
Q.4. (a) Explain the provisions relating to:volutntary,
winding up of LLP. 9
as
(6) () "A Limited Liability

Partnership is a legal entity distinct from its
l
members taken individuälly or collectively:" Comment.

/c
(ii) What protection provided by LLP

is
m
Act to partners and employees

regarding whistleblowing?
.co
6
Ans. (a) Voluntary winding up of LLP. See Q. 24, Unit
lI, The Limited
be

[Page 106
()9 Limited Liability Partnership (LLP) governed by the LLP
Tu
is
LLP is viewed as an alternative corporate business Act, 2008.
vehicle that provides the
ou
benefits of limited liability but allows its members the flexibility

of organizing
their internal structure as a parmership based on a mutually
Y
arrived agreement.
LLP is a legal entity distinct from its members as:
The LLP can continue its existence irrespective of changes partners.
It is capable of entering into contracts and holding property in
in its own
name.
LLPs can own assets and incur liabilities in its own name.
The LLP is a separate legal entity, where the liability of the partners is
imited to their agreed contribution in the LLP..
No partner is liable on account of the independent or unauthorised
actions of other partners.
Personal assets of the partners are not exposed to risk except in case of
fraud.
(i) See Q. 33(), Unit 11, The Limited Liability Partnership Act, 2008.
[Page 112
Or
(Explain the procedure and effects of conversion of a partnership into LLP
as per LLP Act, 2008.

BUSINESS LAWS-2018 (NOV-DEC) 181
(b)() Explain the extent of

liability of LLP.
(4) What are the eligibility
conditions tor a designated partner under the
LLP Act?
13, Unit I1, The Limited
Ans. (a) See Q. Page 100
See Q. 20, Unit I, The Limited Liability
()() [Page 104
2008.
(i) See Q. 19, Unit 1, The Limited Liability Partnership Act,
(Page 103
What is E-Governance? How does Ir Act, 2000 facilitate e
5. (
governance?
(b) Discuss the objects of IT Act, 2000.
Ans. (a) The emergence of electronic communication has made it necessary for
the legal framework to expand to grant legal validity to electronic mode of
communication. The legal framework has made possible '"E-Govermance'. E-
al
Governance is the governance by the Goverrunent through procedures involving
ci
electronic communication. The Information Technology Act has the following
ffi
provisions for E-Governance: so
1. Legal recognition of electronic records [Section Where any law provides
se
that information or any other matter shal beinwriting,or in the typewritten or
printed form, then such requirement shallbe deemed to have been satisfied if
as
such information or matteris

l
/c
- electronic form', and

rèndered or madeavailable inelectrönic
m
- accessible so as tobeiusable for a subsequent reference.

.co
Section 2(1)(«) of I.T. Acfdefines the meaning of electronic form as under:

"Electronic form means any information generated, sent, received or stored in media,
be
magnetic, optical, micro' film, computer memory, computer

generated -microfiche or
Tu
similar device.
2. Legal recognition of Digital Signalure [Section 5].
Where any law provides
ou
that information or any other matter shall be authenticated

signature or any document shall be signed or should
by affixing the
Y
person, then such requirement shall be deemed bear the signature of any
information or matter is authenticated to have been satisfied, if such
by means of Digital Signature affixed in
such manner as may be prescribed by
the Central Government.
3. Use of electronic records
and Digital Signatures in
agencies [Section 6J. This provision Government and its
facilitates the submission
documents before the Government, of various types of
issue of any license etc. by
or payment ot money made anyone
to the Government
in electronic form. It states as follows:
() Where anylaw provides for
the filing of any form,
application or any
office, authority, body other document with any
Government in a or agency owned or
particular manner. controlled by appropriate
- the issue
or grant of any license,
whatever name called permit, sanction or aPproval oy
- the receipt or paymentin particular manner.
requirement shall of money in a
be deemed to haveparticular manner; then,suct
been satisfied if such filhng

SERIES
issue, grant, receipt or payment, as the case
means of such electronic may be, is effected by
form as may be prescribed by
appropriate Government the
(i) The appropriate Government may prescribe as the manner
or method of
payment of any fee or charges for filing, creation or issue.
the manner or format in which such electronic records shall
be filed,
created or issued of any electronic record as stated above.
4. Retention of Electronic Records [Section 7]. Where
any law provides that
documents, records or information shall be retained for any specific period, then
that requirement shall be deemed to have been satisfied if such documents,
records or information are retained in electronic form if
- the information contained therein remains accessible so as to be usable
for a subsequent reference.
the electronic record is retained in the format in which it was originally
generated, sent or received or in a format which can be demonstrated to
represent accurately the information originally generated, sent or
al
received.
ci
the details which will facilitate the identification of the origin,
ffi
destination, data and time of despatch or receipt of such electronic record
are available in the electronic
so
5. Publication of Rules, Regulations mode
se
ekc.in Eléctronic Gazette [Section 8].
Where any law provides thatany rüle regülation order, bye-law, notification or
as
any other matter shâll-be published in the Official Gazette, then, such
l
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requirement shall be deemedtohavebeen satisfied if such rule, regulation, order,

bye-law, notification or any other matter is published in the official Gazette or
m
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Electronic Gazette. Provided that where any rule, regulation, order, bye-law,
notification or any other matter is published in Official Gazette or Electronic
be
Gazette, the date of publication shall be deemed to be the date of Gazette which
Tu
was first published in any form.

One of the main objects of IT Act is to facilitate e-governance ie., to facilitate e-
ou
filing of documents with the government departments and e-payments. In order

Y
to achieve this objective Sections 4 and 5 of Chapter II of the Act provide for the
legal recognition of electronic records and digital signatures. Paper based
documents are treated at par with electronic records if they are made available in
electronic form and are accessible and usable for subsequent reference. The Act
also provides for the filing of any form or application, creation, retention of
records, issue of licence, receipt and payment in government departments in
electronic form.
) Objectives of IT Act. See Q. 2, Onit IV, The Information Technology Act,
Page 115
2000.
Or
(a)(i) The Appellate Tribunal has the same powers as a Civil Court but an
aggrieved party may appeal to the High Court.
publishing or transmitting
(i) Explain the meaning and punishment for
obscene material in electronic form. Intermediary.
tii) Define the term: Computer Resource and

BUSINESS LAWS-2018 (NOV-DEC)
183
(b) What are the functions of Controller of Certisying
Authority?
Ans. (a) () Powers of the Cyber Appellate Tribunal
Information Technology Act, 2000]. The Cyber Appellate Tribunal [Section 58(2) of
shall have, for
the purposes of discharging their functions under this Act, the
same powers as
are vested in a civil court under the Code of Civil Procedure, 1908, while
suit, in respect of the following matters, namely: trying a
summoning and enforcing the attendance of any person and examining
him on oathy
requiring the discovery and production of documents of other electronic
records;
receiving evidence on affidavits;
issuing commissions for the examination of witnesses or documents;
reviewing its decisions;
dismissing an application for default or deciding it ex parte
any other matter which may be prescribed.
Appeal to High Court [Section 62]. Any person aggrieved by any decision or
order of the Cyber Appellate Tribunal may file an appeal to the High Court
al
within sixty days from the date of communication of the decision or order of the
ci
Cyber Appellate Tribunál to him on any question of fact or law arising out of
ffi
such order. However, the High Court may, ifit is satisfied that the appellant was
so
prevented by sufficient cause from filing the appealwithi the said period, allow it
se
to be filed within a further period not exceeding sixty days.
(it) See Q 25, Unit; The Inforimation Technology Act, 2000. Page 134
as
(ii) Computer Resources As per Section 2(1)(k) of the IT Act, the term
l
/c
"computer resource" means a computer, computer system, computer network,

m
data, computer database or software.

respect to any
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Intermediary. IT Act defines the term "intermediary" with

on behalf of another
particular electronic message, to mean any person who
be
any service with

person receives, stores or transmits that message or provides
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respect to that message.

Controller may perform all or any
(6) Functions of Controller [Section 18]. The
ou
of the following functions namely: of Certifying Authorities.

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exercising supervision over the activities

Authorities.
ertilying public keys of Certifying
maintained by Certifying Authorities;
- laying down the standards to be which employees of
specifying the qualifications and experience
Certifying Authority possess. Certilying Authority shall
- specifying the condition subject to which
conduct their business. or visual materials and
- specifying the contents of written, printed
advertisements that may be distributed.
Signature Certificate and the
specifying the form and content of a Digital
key. maintained
the form and manner in which accounts shall be
specifying
by Certifying Authorities.

184 SHIVA DELHI UNIVERSTY SERIES
specifying the terms and conditions subject to which auditors may be

appointed and remuneration to be paid to them.
facilitate the establishment of any electronic system by a Certifying
Authority either solely or jointly with other Certifying Authorities and
regulation of such system.
specilying the manner in which Certifying Authorities shall conduct their
dealings with the subscribers.
- resolving any contllct of interests betweern the Certilying Authorities and
the subscribers.
OOO0
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Business Law Ten Year

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Business Law Ten Year

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Shiva DelhiUniversity Series

Pape BCHH 1.3 Semester

Shiv Das& Sons

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2. OFFER AND ACCTANCE

10. ReMEDIS FOR BuEACH OF CONTRACT

11. CONTRACT OF INDEMNITY ANID GUARANTEE

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legality of objects. Void agreements. Discharge of contract-modes of

discharge including breach and its remedies

Unit : Special Contracts

Quasi-contracts, Contract of Indemnity and Guarantee, Contract of Bailment

Unit II: The Sale of Goods Act, 1930

Conditions and warranties. Transfer of ownership in goods including sale by

rights of an unpaid seller against the goods.

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The Indian Contr 'ct Act, 1872

Agreement is the genus of which conträct is the species. Some

contracts because they cannot be

Such agreements are:

- Agreements not made by

- Agreements not supported by

from the above that all agreements do not become contracts,

create legal obligations which spring from

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Ans. "The law of contract is not the whole law of obligations".

Salmond defined a contract as "an agreement creating and aefjning obligations

can arise otherwise

than from a contract, such as:

- obligations arising from judgements of courts

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enters into an agreement whereby he is bound to do something

void on the ground of public policy.

the mother is legal guardian of her minor child. The right of

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bound to the contract between X and Y.

pertormance of conditions specified in the otfer which would amount

events for their similaritiés, the' èvents being:

) the acceptance meëting än offer, and The consequence of fire meeting

(i) fire meeting a train of gunpowder.

irreversible and instantaneous. Similarly, the consequence

Ans. Legal Rules regarding a vala acceptance

() Acceptance must be absolute order to comvert a proposal into a promise, the

acceptance must be absolute and unconditional."

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accepting the offer. P may insist that the acceptance should be

know about the offer.

(vi) Acceptance must be communicated. Acceptance should be made

conduct is not considered acceptance in the eyes of law.

Similarly, the offerer

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An offer may be revoked at any time before the

was not bound to take the shares.

Ex. Ch. 109]

condition must be fulfilled before the

acceptance of the offer. In such cases, the price

fulfilling the condition. A seller If the

date, the ofter stands revoked.

death or insanity of the

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7. Sometimes, there is a change in law which

Q. 6. Performance of the terms and conditions of an offer amounts to