Professional Documents
Culture Documents
Business Law
Business Law
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COURSE DESIGN COMMITTEE
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Author: Dr. Manish Arora
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Copyright:
2021 Publisher
ISBN:
978-93-90457-95-3
Address:
4435/7, Ansari Road, Daryaganj, New Delhi–110002
Only for
NMIMS Global Access - School for Continuing Education School Address
V. L. Mehta Road, Vile Parle (W), Mumbai – 400 056, India.
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Laws Related to Enforcement and Redressal Mechanism
205
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in Business
c u rr i c u l u m
The Indian Contract Act, 1872: Agreements and Contracts, Classification of Contracts, When an
Agreement becomes a Contract: Essential Conditions, Offer/Proposal and Acceptance, Standard
Form of Contract/Boilerplate Contract/Adhesion Contract, Consideration and Privity of Contract,
Free Consent, Capacity to Contract, Void, Valid and Voidable Agreements, Quasi-Contracts,
Discharge of Contracts, Remedies for Breach of Contract, Contracts of Indemnity and Guarantee,
Contract of Bailment and Contract of Pledge, Contracts Dealing with Agency, Explaining
Agreements using a Template
Sale of Goods Act, 1930: Concept of Goods, Sale of Goods Act, 1930, Difference between the Contract
of Sale of Goods and the Contract for Work and Labour, Doctrine of Caveat Emptor and Exceptions,
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Performance of the Contract of Sale, Unpaid Seller, Hire Purchase and Hypothecation Agreements
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Laws Related to the Formation of Businesses: Unincorporated and Incorporated Forms of
Business, Sole Proprietorship—Meaning, Features, Advantages and Disadvantages, Limited
Liability Partnership (LLP) Act, 2008, Companies Act, 2013
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Laws that Commonly Affect Businesses: Negotiable Instruments Act, 1881, Types of Negotiable
Instruments, Recent Amendments in the Negotiable Instruments Act, 1881 and their Impact,
Payment and Settlement Systems Act, 2007 and its Features, Penalties and Punishment under
Negotiable Instruments Act, 1881 and Payment and Settlement Systems Act, 2007, Intellectual
Property Law, Prevention of Sexual Harassment, Impact of Sexual Harassment Cases on Indian
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Consumer Protection Act, 2019: Consumer Protection Act, 2019, Objective of the Act, Scope of
the Act, Important Provisions and Features of the Consumer Protection Act, 2019, Difference
between Consumer Protection Act, 1986 and Consumer Protection Act, 2019, Rights of a Consumer,
Consumer Protection Councils, Functions of Consumer Protection Councils, Central Consumer
Protection Council, State Consumer Protection Councils, District Consumer Protection Councils,
Consumer Disputes Redressal, Consumer Disputes Redressal Machinery, Procedure of Dispute
Resolution, Procedure for Filing a Complaint before the Consumer Protection Body, Nature and Scope
of Remedies, Appeals and Limitations, Comparison of Consumer Law in Other Countries
Right to Information Act, 2005: The Right to Information (RTI) Act, 2005, Public Authorities (Chapter
II of the Act), Procedure for Obtaining Information (Sections 6 and 7), Information Exempted from
Disclosure (Section 8), Information Commissions (ICs), Impact of the RTI Act, 2005
Competition Act, 2000: Competition—What and Why, Competition Act, 2002, Anti-competitive
Agreements, Competition Commission of India (CCI), Combination, Penalties Imposed Under the
Competition Act, 2002, Leading Cases under the Competition Law in India
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Employee related Laws: Factories Act, 1948, Objectives and Applicability, Key Provisions and Features
of the Law, Occupation of Occupier (Employer) and Responsibilities of Occupier, Industrial Disputes
Act, 1947, Minimum Wages Act, 1948, Employees Compensation Act, 1923, Employees Provident Fund
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and Miscellaneous Provisions Act, 1952, Calculation of Provident Fund and Apportionment of the Fund
against Various Schemes, Payment of Bonus Act, 1965, Payment of Gratuity Act, 1972, Maternity Benefit
Act, 1961, Code on Labour Laws
Environment related Laws: Laws Aimed at Protecting and Conserving the Environment, Environment
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Protection Act (EPA), 1986, National Green Tribunal (NGT) Act, 2010, Air (Prevention and Control
of Pollution) Act, 1981, Water (Prevention and Control of Pollution) Act, 1974, Hazardous and Other
Wastes (Management and Transboundary Movement) Rules, 2016, Wildlife Protection Act, 1972, Forest
Conservation Act, 1980, Public Liability Insurance Act, 1991, Biological Diversity Act, 2002
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Contents
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1.1 Introduction
1.2 Agreements and Contracts
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1.2.1 Contracts – Historical Perspective
1.2.2 Promise and Contract – Two Sides of the Same Coin
Self Assessment Questions
Activity
1.3 Classification of Contracts
1.3.1 According to Initiation
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Activity
1.4 When an Agreement becomes a Contract: Essential Conditions
Self Assessment Questions
Activity
1.5 Offer/Proposal and Acceptance
1.5.1 What Constitutes an Offer
1.5.2 Difference between Offer and Invitation to Offer
1.5.3 Acceptance
1.5.4 Communication of Offer and Acceptance
Self Assessment Questions
Activity
1.6 Standard Form of Contract/Boilerplate Contract/Adhesion Contract
Self Assessment Questions
Activity
1.7 Consideration and Privity of Contract
1.7.1 Essentials of a Valid Consideration
CONTENTS
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Self Assessment Questions
Activity
1.9 Capacity to Contract
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1.9.1 Disqualifications for Capacity to Contract – Minors, Persons of Unsound
Mind and Disqualified Persons
Self Assessment Questions
Activity
1.10 Void, Valid and Voidable Agreements
1.10.1 Void Agreements with Unlawful/Illegal Consideration or Object
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1.11 Quasi-Contracts
Self Assessment Questions
Activity
1.12 Discharge of Contracts
1.12.1 Discharge by Performance
1.12.2 Discharge by Mutual Agreement
1.12.3 Discharge by Impossibility of Performance (Force Majeure Clause)
1.12.4 Discharge by Lapse of Time
1.12.5 Discharge by Operation of Law
1.12.6 Discharge by Breach of Contract
1.12.7 Appropriation of Payments (Clayton’s Rule of Appropriation)
Self Assessment Questions
Activity
1.13 Remedies for Breach of Contract
1.13.1 Damages
1.13.2 Specific Performance
CONTENTS
1.13.3 Injunctions
Self Assessment Questions
Activity
1.14 Contracts of Indemnity and Guarantee
1.14.1 Contract of Indemnity and Contract of Guarantee – Meaning
and Examples
1.14.2 Rights of the Indemnified and Indemnifier
1.14.3 Commencement of Indemnifier’s Liability
1.14.4 Contract of Guarantee
1.14.5 Kinds of Guarantee
1.14.6 Rights and Liabilities of Surety
1.14.7 Discharge of Surety
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1.14.8 Difference between Contract of Indemnity and Contract of Guarantee
Self Assessment Questions
Activity
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1.15 Contract of Bailment and Contract of Pledge
1.15.1 Kinds of Bailment
1.15.2 Termination of Bailment
1.15.3 Duties and Rights of a Bailor
1.15.4 Duties and Rights of a Bailee
1.15.5 Bailee’s Lien
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Activity
1.16 Contracts Dealing with Agency
1.16.1 Meaning of Principal and Agent
1.16.2 Types of Agents
1.16.3 Authority of an Agent
1.16.4 Liability of Principal and Agent
1.16.5 Termination of Agency
Self Assessment Questions
Activity
1.17 Explaining Agreements using a Template
Self Assessment Questions
Activity
1.18 Summary
1.19 Descriptive Questions
1.20 Answers and Hints
1.21 Suggested Readings & References
Introductory Caselet
FORMATION OF CONTRACTS
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Bidders at any auction are entitled to make an offer but that offer
may or may not be accepted by the seller. In other words, auctions
are an invitation to offer. Therefore, it was held that no agreement
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was reached because the seller refused the offer made by Mr
Pushkar. The court held that no legally enforceable contract was
entered into because there was a lack of agreement. Mr Ayush
won the suit. Hence, an invitation to offer does not give rise to any
rights or obligations.
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Learning objectives
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>> Explain the concept of free consent and capacity to contract
>> Outline various disqualifications to contract including
minors, persons of unsound mind and disqualified persons
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>> Discuss the meaning of void, valid and voidable agreements
>> Explain quasi-contracts
>> Explain various modes of discharge of contracts
>> Describe various remedies for a breach of contract
>> Explain the contracts of indemnity and guarantee
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1.1 Introduction
The Contract Act, 1872 is the most important law that governs vari-
ous types of contracts to be applied for transactions affecting Indian
goods and properties. Section 2(h) of the Contract Act, 1872 defines a
contract as an agreement enforceable by law. An agreement cannot
become a contract unless it is enforceable by law. To be enforceable
by law, a contract must contain all the essential elements of a valid
contract.
In this chapter, you will study about the elements of agreements and
contracts under the Contract Act, 1872 at length.
Under Section 2(b) of the Indian Contract Act, 1872, when the person
NOTE to whom the proposal is made, signifies his assent thereto, the proposal
As per Section 7 of the Contract is said to be accepted. A proposal, when accepted, becomes a promise.
Act, 1872, in order to convert ‘Offer’ and ‘proposal’ can be used interchangeably; while the English
a proposal into a promise, the law uses the term ‘offer’ and in the Indian law, ‘proposal’ is used. Thus,
acceptance must:
(1) be absolute and unqualified
Agreement = Offer (Proposal) + Acceptance of Offer (Proposal) +
(2) be expressed in some usual
and reasonable manner
Consideration
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Example: A offers to buy a television for ` 5,000 from B and B accepts
this offer. In this case, the offer after acceptance becomes a promise and
this promise is called an agreement between A and B.
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Essential Elements of Agreement
the same subject matter and context which is called ‘making the
the contract.
agreement in the same sense’ or consensus-ad-idem.
5. There must be the intention to enter into a legal relationship.
Meaning of Contract
From the above definitions, it can be revealed that a contract has two
elements, namely:
1. Agreement
2. Enforceability
The law governing contracts in India is the Indian Contract Act, 1872
came into force on 1 September 1872. Since then, the Indian Contract
Act, 1872 has been amended from time to time by the Central Govern-
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ment and the state governments as per the state requirements.
The Contract Act, 1872 defines the meaning of contracts, their execu-
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tion and implementation in addition to describing the provisions for
the breach of contracts. The Contract Act, 1872 that we see today has
been developed into its current state by going through a lot of trans-
formation. The different phases through which the Contract Act, 1872
has passed to reach its current shape are explained as follows:
1. Early and medieval period (Vedic and medieval period and
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3. Early law of contract (England): There were two assumptions
given by common law courts (courts in England) in the medi-
eval times. The first assumption was that promises were gen-
erally enforceable and then exceptions could not be created for
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promises that were not desirable for being enforced. The second
assumption was that promises were generally unenforceable and
NOTE then exceptions were created for promises that were desirable to
A covenant is considered to be enforce. The courts in those times believed that a mere promise
an equivalent of the modern
day contract. Actions related to did not give rise to an action.
covenant majorly included the
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In the 15th and 16th centuries, common law courts were able
cases related to breaches of
agreements, such as building, to develop a general criterion for enforcing promises within a
sales, lease of land, etc. The framework. Two forms of action for enforcing (contractual)
cases were presented in royal rights, namely ‘debt’ and ‘covenant’ were developed.
courts and were related to the
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claims for the performance In the 16th century, the concept of ‘assumpsit’ was developed.
of the contract and claiming Assumpsit was an implied promise on which an action for the
damages. Actions related to debt
included claims for the prices
recovery of damages caused due to the breach of contract could
of goods sold and delivered. be taken. In the 17th and 18th centuries, concepts such as transfer-
Claims were made for monetary ability of contract rights were recognised. Also, some legislations
compensation for the benefit were passed that required some contracts to be in the written
received.
form.
4. English Law in India: In India, the formal contract law was
introduced with the rule of Englishmen. The English common
law and statute law came in India with the Chartered Courts of
the 18th century. Various Courts of Justice were established in the
presidency towns of Calcutta, Madras and Bombay.
The English law was applied across India, which led to various
inconveniences to the indigenous population of India including
Hindus and Mohammedans. To handle this situation, the law
gave powers to the Supreme Court located at Calcutta, Madras
and Bombay to determine the type, actions and suits related to
contractual nature in cases related to Hindus and Mohammed-
ans. For cases between Hindus, Hindu Law was applied and in
cases between Mohammedans, Mohammedan Law was applied.
In cases between Hindus and Mohammedans, the law of the
defendant was applied. These laws continued to be applicable
till the Contract Act, 1872 was enacted.
5. Enactment of Contract Act, 1872: In 1872, the Contract Act was
enacted. It became enforceable from 1 September 1872. It con-
tinues to exist till date with various amendments.
‘Promise’ and ‘contract’ are said to be the two sides of the same coin.
Section 2(e) of the Contract Act, 1872 states agreement as every prom-
ise or a set of promises that forms a consideration for each other. It
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means that the presence of a promise is quintessential for the forma-
tion of an agreement that, if legally enforceable, becomes a contract.
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self assessment Questions
tract.
a. Dependents
b. Minors
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Activity
Using the Internet, study the Contract Act, 1872 thoroughly and
analyse the rationale of the law.
1.3.1 According to Initiation
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due to the absence of the following essential elements of a valid
contract:
Lack of contractual capacity of any of the contracting parties in
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case of minority, unsoundness of mind or legal disqualification
Agreement formed without any consideration in terms of Sec-
tion 25
Unlawful consideration or unlawful object in terms of Sec-
tion 23
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Non-registration of an agreement under the Registration Act,
1908
Non-stamping or inadequate stamping of a document as per
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the requirements of the relevant Stamp Act, 1899
Contract not being in writing where contracts are required to
be compulsorily in writing
Contract not being duly notarised or attested
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+ Express acceptance
ten, such as a will, sale or purchase of property.
Implied contract = Implied offer
An Implied Contract is inferred from the (a) conduct of parties or + Implied acceptance
(b) circumstances of the case arisen during the formation of the
contract.
A Quasi-contract is one that is neither made expressly nor impliedly
by conduct. It arises due to the legal prescription designed to pre-
vent unjust enrichment at the expense of the other party, such as
restoring found goods to its owner by the finder thereof.
Example: A courier man delivers a birthday cake to a wrong
addressee X. Now, X is under an obligation either to pay for the cake
or return it to the courier man.
1.3.4 According to Performance
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(a) True (b) False
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Activity
1.4
Contract: Essential Conditions
An agreement that is enforced by the law is a contract. Section 10 of
the Contract Act, 1872 states that an agreement becomes a contract if
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it is made by the out of free consent of the parties who are competent to
contract in exchange for a lawful consideration and a lawful object and
are not expressly declared void.
Undue influence
Fraud
Misrepresentation
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and give something.
Example: A agrees to sell his car to B for ` 4 lakhs. In this case, ` 4
lakhs is the consideration for A and A’s promise to sell the car is the
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consideration for B.
Lawful object: An agreement is valid and becomes a contract if it
has a lawful object. Lawful object means that the object or the pur-
pose of entering into an agreement must not be fraudulent, illegal,
immoral or opposed to any public policy. It must also not cause
any injury or damage to any person or property of another. Agree-
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Activity
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1.5 Offer/Proposal and Acceptance
There must be a ‘lawful offer’ and ‘lawful acceptance’ for the forma-
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tion of a valid contract. If an individual expresses his willingness to
enter into a legally binding contract based on certain terms with some
other party, it constitutes an offer to contract or a proposal. The per-
son making the offer/proposal is called an offeror/promisor and the
one to which the offer/proposal is made is called an offeree/promisee.
Both the offer/proposal and acceptance must be made out of the free
will of the offeror and offeree who intends to enter into a legally bind-
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As per Section 2(a) of the Act, a person is said to make an offer when he
signifies to the other person his willingness to do or to abstain from doing
anything with a view to obtaining the assent of the other person.
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to whom it has been made.
Example: A offers a reward of ` 500 to anyone whosoever finds his
lost pet. This is a general offer. On the other hand, if A offers ` 500 to
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B to find his pet, it is a specific offer because only B can accept this
offer and no one else.
An offer may be expressed or implied.
An offer may be positive or negative. An offer to do something is
known as a positive offer. On the contrary, an offer not to do some-
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specific goods or services. On the contrary, when an offer is made to ? DID YOU KNOW
supply goods periodically and in accordance with the requirements Many a time, a standing offer is
of the offeree, it is called a standing offer or an open offer. also called a continuous offer.
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tract Act, 1872.
3. An offer is essential for An invitation to offer is not essential
forming a contract. for forming a contract. It becomes rel-
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evant only when it becomes an offer.
4. When an offer is accept- When an individual or a group from
ed, it becomes an agree- the public accepts the invitation to
ment. offer, it becomes an offer.
5. The main objective of The main objective of making an invi-
making an offer is to en- tation to offer is to receive offers from
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1.5.3 Acceptance
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Ifthe offer contains any specific mode for acceptance of the offer,
the acceptance must be made in the prescribed mode only. If
acceptance is communicated using any other mode, the offeror
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may refuse to be bound by such acceptance. However, in cases
where the mode of acceptance is not prescribed, the acceptance
can be communicated in any reasonable mode which depends on
a particular case.
If the offer contains any specific timeline for acceptance of the
offer, the acceptance must be made within the prescribed timeline
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Example: Continuing the above example, assume that B posts his letter
of acceptance from Mumbai on 1st August, that reaches A in Delhi on 4th
August. The communication of acceptance is complete on 1st August as
against the offeror irrespective of whether or not the letter of acceptance
has reached the offeror. However, the communication of acceptance is
complete as against B on 4th August, enabling him to revoke his accep-
tance if he wishes to before 4th August.
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The communication of a revocation of an offer is complete as against
Section 5 of the Contract Act, the offeror when the message containing the details of revocation
1972 talks about the revocation
of proposals and acceptance.
is sent to the intended person and when the message sent is put in
course of transmission and is out of the power of the offeror to recall.
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Self Assessment Questions
Activity
need of goods or services). In such contracts, one party can exploit Study
the weakness of the other party by imposing terms and conditions Hint
that ensure no liability falls on the first party. In such contracts, the
Bargaining power refers to the
other party often falls prey to abuse and various instances have been ability of a firm’s customers
observed when the courts have come to the rescue of such parties, but to influence the prices of the
with difficulty. products and services it sells
and suppliers to set the prices
Customers in such contracts are not allowed to have the terms of the firm pays for materials and
services that it buys.
the contract customised or modified. They are given a standard pre-
printed document containing various terms and conditions which
they simply have to sign. Such contract documents are given on the
basis of ‘take it or leave it’. Such contracts usually contain unaccept- NOTE
able clauses that contain written express terms developed in advance.
Standard form of contracts are
The terms are fixed by conducting negotiations and brainstorming by non-negotiated contracts.
experts other than the contracting parties. Some of the important fea-
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tures of standard form contracts are as follows:
These contracts are made without any negotiation.
There is no pre-knowledge of full terms of contract for lack of
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access to the relevant document.
Due to an unequal bargaining position, there may arise an unfair
contract.
On signing of the contract, parties are bound by its terms.
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to accept the standard form contracts because the terms and condi-
tions are fixed by the party that is in the stronger position and enjoys
better bargaining power. The following are the examples of standard
form contracts:
Insurance policies: Insurance companies offer multiple types of
policies and each policy comes by a unique name and its own set of
standardised terms and conditions. The terms and conditions are
decided by the insurance company (insurer). In such contracts,
there is a high possibility of customers being exploited. Such con-
tracts usually contain unacceptable clauses.
Loans: Banks and other financial institutions offer various types
of loans. The terms and conditions of each type of loan are deter-
mined and fixed by the bank or the financial institution. The loan
terms remain unchanged for each person who is taking the loan.
Others: Parking tickets, theatre tickets, package receipts, debit
card purchase slips, bills of lading, sale contracts, etc., are also
standard form contracts.
Activity
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Consideration is one of the essential requisites of a valid contract. An
Know More agreement made without consideration is void. Consideration denotes
the price paid to purchase the promise of the other party. The term is
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According to Section 2(d),
consideration means the always used in the sense of ‘quid pro quo’, i.e., something in return.
following: In a contract, both the parties will get as well as give something to
When at the desire of the another, which is called consideration in legal sense. It may also con-
promisor, the promisee or sist of a ‘loss to one or benefit to another’ or benefit to both.
any other person has done or
abstained from doing or does or Privity of contract refers to a type of relationship between the parties
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abstains from doing or promises to a contract according to which the parties can sue each other. How-
to do or to abstain from doing ever, no third party can sue any of the parties to contract. Such third
something, then such an act of
abstinence or promise is called parties are also restrained from seeking enforcement of a contract. In
a consideration for the promise. simple words, contracts cannot confer rights nor can they impose any
obligations arising out of contracts on any party other than the parties
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to a contract.
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Written and registered promise by the debtor to pay a time-barred
debt [Section 25 (3)]
Completed gifts are binding, though there is no consideration
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(explanation to Section 25)
No consideration is required to create an agency (Section 185)
The rule of privity of contract does not apply in the following cases:
Beneficiary of a trust can claim benefits or rights conferred on him
in terms of the trust deed.
Beneficiary of a charge which has been created on specific immov-
able property for his benefit can file suit to enforce the charge.
When a contract is made under a family settlement or partition
of the joint property or any other family arrangement in order to
benefit a stranger.
In case contracts are made by the agent, the principal has the right
to enforce those contracts.
In case an acknowledgement of receipt of money has been made
on behalf of another (Estoppel), the rightful claim from the party
which had made the acknowledgement.
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a. Written and registered agreement made out of natural love
and affection between parties standing in near relation-
ship to one another
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b. Written and registered promise by the debtor to pay a
time-barred debt
c. Promise to compensate a person for services rendered vol-
untarily
d. Written and registered promise by the debtor to pay a stat-
ute-barred debt
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Activity
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Example: A wants to sell his car to B at a certain price, but does not
specify which car as A has numerous cars. On the other hand, B also
wants to purchase A’s car which A may not be intending to sell. In this
case, there is no consent as both the parties are not agreeing upon the
same thing in the same sense. Know More
Section 15 of the Contract
Free consent of contracting parties is essential for a valid contract.
Act, 1872 states coercion as
The consent of the parties is said to be free if it has not been caused by committing or threatening to
any of the vitiating factors which include coercion, undue influence, commit, any act forbidden by
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fraud, or misrepresentation or mistake. the Indian Penal Code (45 of
1860) or the unlawful detaining,
There is a minute difference between consent and free consent. The or threatening to detain, any
property, to the prejudice of
consent of an individual can be obtained by illegal means, such as use
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any person whatever, with the
of force or threat. However, free consent is the consent given by an intention of causing any person
individual without using any force or pressure. to enter into an agreement.
1.8.2 Coercion
threat by the latter that if B does not comply with his order, he would kill
his daughter, is a case of the use of coercion. Know More
Section 16 of the Contract Act,
1.8.3 Undue Influence 1872 states that a contract is
said to be induced by ‘undue
To put simply, a contract is said to be induced by undue influence influence’ where the relations
when a party is in a position to dominate the other party and uses its subsisting between the parties
are such that one of the parties
position to take an undue advantage over the other party. is in a position to dominate the
will of the other and uses that
Circumstances in which a party is considered to be in a dominant position to obtain an unfair
position are: advantage over the other.
A party holding real or apparent authority over the other party,
such as master and servant or principal and agent
When a party stands in a fiduciary position, such as a doctor and
patient or guru and disciple
When a party contracts with a person whose mental condition has
been temporarily or permanently debilitated because of old age,
prolonged sickness, or physical or mental distress
Study There is a presumption of law against the dominant party that he/she
Hint must have abused his/her dominant position in making the contract in
the aforementioned cases.
Section 17 of the Contract Act,
1872 states fraud as an act by Example: A poor Hindu widow agreed to pay the lender 100 percent
a party with an intention to
deceive the other party in any
rate of interest on the money which she had borrowed to establish her
of the following conditions: right to maintenance. It was held that the agreement has been induced by
yyFalse representation of undue influence as the lender has abused his dominant position.
facts done purposely or
recklessly
1.8.4 Fraud
yyConcealment of facts by
anyone who has knowledge
Fraud refers to an intentional misrepresentation of material existing
or belief of the facts
facts made by one person to another with knowledge of its falsity and
yyAny promise made without
an intention to perform it
for the purpose of inducing the other person to enter into a contract.
yyAny other act to deceive
CASE LAW
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yyAny act or omission which
the law has specifically Rajagopala Iyer vs. South India Rubber Works (1942), MLJ 228
declared as fraudulent
Facts: The prospectus of a company showed certain persons as its
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directors. The statement was true; however, before allotment, some
of the named directors retired. This fact was not communicated to
the applicants for shares. It was held to be a fraud consisting of con-
cealment; therefore, the applicants could seek refund of their money.
1.8.5 Misrepresentation
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1.8.6 Mistake
CASE LAW
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Galloway vs. Galloway (1914)
Facts: A man and a woman executed a separation deed believing
themselves to be lawfully married to each other. Later, it was dis-
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covered that they were under a bilateral mistake as to the legality
of their marriage as the marriage was not duly registered leading to
the annulment of the separation deed.
contract basis and the lease for a period of three years. Mr. Singh of any unilateral mistake. Unless
was the highest bidder but he mistook the bid to be for all the three the unilateral mistake is related
years of lease, whereas the bid price was on an annual basis. How- to a fundamental fact, the
ever, Mr. Singh could not get any relief from the court since it was a contract validity is not affected.
case of unilateral mistake.
Activity
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– Minors, Persons of Unsound Mind and
Disqualified Persons
NOTE
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The analysis of Section 11 reveals that the following persons are
As per the Indian Majority Act,
incompetent to contract:
1875, in computing the age of
any person, the day on which Minors (till they are being classified as minors under the law they
he was born is to be included
are subject)
as a whole day and he shall
be deemed to have attained Persons of unsound mind
majority at the beginning of the
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eighteenth anniversary of that Persons disqualified by law to which they are subject
day.
Let us study about the persons who are incompetent to contract:
Minors: According to the Indian Majority Act, 1875, a person below
the age of 18 years is considered as a minor. However, the age of
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sound mind, but on certain occasions, the person is of unsound
mind, then he cannot make the contract when he is of unsound
mind.
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Example: An individual is of unsound mind when he is under the
influence of liquor or heavy medication. Therefore, he can make a NOTE
contract only after the influence of liquor or medication has veered According to Section 12, a
off. Contracting during the unsoundness of the mind of a party makes person is said to be of sound
the contract void. mind if, at the time of making
the agreement, he or she is (a)
Persons disqualified from contracting: The following persons capable of understanding the
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have been declared incompetent from making a contract: terms and conditions of the
contract; and (b) capable of
Alien enemies: All the persons who are not Indian citizens are forming a rational judgement of
called aliens. The aliens may be enemies or friends depending the effect of the contract on his
upon their country’s relations with India. Citizens of a foreign interests.
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state whose country is at war with India or does not have diplo-
matic relations with India are called alien enemies.
Foreign sovereigns and ambassadors: These persons can en-
ter into contracts and enforce those contracts in courts, but
they cannot be sued in any court without the sanction of the
Central Government unless they choose to submit themselves
to the jurisdiction of the court. This immunity is enjoyed by
them under the International law.
Convicts undergoing imprisonment: A convict is one who is
found guilty by a court and is undergoing sentence of impris-
onment. During the period of his imprisonment, he is incompe-
tent to enter into contract. However, after the expiration of the
period of sentence or when the convict is on parole, he/she can
enter into a contract and may also sue on a contract.
Company under Companies Act, 2013 or statutory corporation
under the Special Act of Parliament (entering into contract out-
side its objects or purpose): A company/corporation is an artificial
person created by the law. The contractual capacity of a company
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a. Age b. Soundness of mind
c. Presence of all limbs d. Qualification as per law
18. A person cannot make a contract when he is not of a sound
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mind if he is generally of __________.
Activity
Research on the Internet and find out the essentials of a valid con-
tract under the Contract Act, 1872.
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Voidable agreement: According to Section 2(i) of the Contract Act,
1872, an agreement which is enforceable by law at the option of one
or more of the parties thereto, but not at the option of the other or
others, is a voidable contract.
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1.10.1 Void Agreements with Unlawful/Illegal
Consideration or Object
Defeating the provisions of any law like furnishing bail after taking
deposit from the defendant
Fraudulent
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types of agreements that have been expressly declared as void. These
are as follows:
Agreements in Restraint of Marriage (Section 26): Any agree-
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ment that is made in restraint of marriage of any individual or
forcing/inducing an individual to enter into marriage.
Agreements in Restraint of Trade (Section 27): As per Article
19 (1)(g), every person in India has a right to engage in any law-
ful trade, business, occupation, profession or employment of any
kind. However, there are certain exceptions to such agreements
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CASE LAW
Guthina vs. Lynn (1831)
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ment was held to be void for the want of certainty.
Wagering Agreements (Section 30): In general, a wager is ‘an
agreement by a party to pay money or money’s worth to another
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on the happening of some uncertain event in consideration of
other person’s promise to pay on the non-happening of the event’.
The Contract Act, 1872 does not define a wagering agreement, but
states that agreements by the way of wager are void.
The following are the essential ingredients of a wager:
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Activity
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To make efforts to trace the owner
To restore the goods to its original owner if the original owner
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is found
Money paid or goods delivered by mistake or under coercion
(Section 72): It is the legal liability of a person to return the goods
or refund (repay or return) the money that has been delivered to
him by mistake or under coercion.
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21. A contract results from the will of both the parties expressed
with a view to creating an obligation, whereas a _____________
is an obligation resembling to that created by a contract.
22. When a supplier supplies any necessaries to a person who is
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incapable of entering into a contract or to any incompetent
person who requires support, then such a person is entitled
to be reimbursed from the property of the incapable person.
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(a) True (b) False
Activity
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duties as per the contract.
Lockouts or strikes
However, there are certain other cases where the contract suffers from
supervening impossibility. Such contracts cannot be said to be dis-
charged and even with such impossibility parties are expected to per-
form the contract and avoidance of obligations would lead to breach of
contract. The rationale behind this is that the purpose of frustration is
to put an end to the contract. This doctrine is not to be lightly invoked.
Difficulty of performance: Difficulty of performance arises when
the performance of the contract becomes more difficult due to
increased expenses or decreased profits than what was estimated
at the time of the formation of contracts.
Commercial impossibility: It has become commercially non-prof-
itable or expected profits cannot be realised under the contract.
Impossibility due to default of a third party: If the contract could
not be discharged due to the default of a third party on whose
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promise the performance of contract was based, it cannot be con-
sidered as discharged.
Partial impossibility: A contract cannot be simply considered as
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discharged because of impossibility of one of the several objects
of a contract. Then the obligations that cannot be performed are
severed to the extent they can be severed from the contract and
the rest of the contract is expected to be performed.
ANTICIPATORY BREACH
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ACTUAL BREACH
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If any party to a contract refuses to perform or fails to perform his/
her obligations on the due date of performance or during the course
of performance, it is considered to be an actual breach of contract. A
contract can be breached by any of the parties to a contract.
Whenever one or more parties to a contract reach out to the legal sys-
tem and claims/claim that the contract has been breached, the courts
need to decide whether or not the case concerned is indeed a case of
breach of contract. Breach of contract means the failure to perform
the promise related to the entire contract or of some clauses of the
contract. To decide if a claim of breach is indeed true, the courts need
to answer certain questions as follows:
Did a contract exist in the first place? Is such a contract a valid
contract?
Did a valid contract exist? What were the duties of each party?
Was the contract modified at any point of time?
Did the breach take place as claimed?
What was the nature of breach – material breach or non-material
breach?
Does the defaulting party have any legal defence against the
enforcement of the contract?
What damages were caused by the breach?
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1.12.7 Appropriation of Payments (Clayton’s Rule
of Appropriation)
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Appropriation of a payment means the application of payment to some
debt. If the performance consists of payment of money and there are
several debts to be paid to a creditor in part payments, such payment
shall be appropriated as per Sections 59-61 of the Contract Act, 1872
as follows:
Application of payment where debt to be discharged is indicated
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24. In which of the following cases will the contract not be dis-
charged?
a. Declaration of war
b. Death
c. Difficulty of performance
d. Change of law
Activity
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1.13 Remedies for Breach of Contract
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Whenever there is a breach of contract, the aggrieved party is relieved
from performing his/her obligations under the contract and can pur-
sue any of the following courses of action or remedies:
Rescission of the contract
Suit for damages
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You have already studied that if one party refuses to perform his/her
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duties as per the contract, the other party can rescind the contract and
refuse to perform his/her obligations.
1.13.1 Damages
1.13.2 Specific Performance
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Where money is not an adequate remedy
Where there are no standards for ascertaining actual damage
fulfil his/her promise as per the terms of the contract. In other words,
the court may order the defaulting party to perform the contract. This
is called specific performance of a contract. It is regulated by the Spe-
cific Relief Act, 1963. Specific performance is ordered by a competent
court as per Section 10 of the Specific Relief Act (1963).
Specific Relief (Amendment) Act 2018 has been effective since 1 Octo-
ber, 2018 which has inter-alia amended provisions of the Specific
Relief Act, 1963 more specifically provided in Sections 10 and 14 of
the Specific Relief Act, 1963. The amendments were initiated with an
aim of realigning the provisions to foster ease of doing business in
Engagement of Experts
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In Section 14A of the Specific Relief Act, 1963, the court may engage
experts for their opinion on any subject matter, within the purview
of the Specific Relief Act, 1963, in order to get assistance on any spe-
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cific issues involved in the cases for contractual disputes. A suit may
require more experts to accumulate or provide evidence or include
the production of documents on the issue that shall be based upon
the relevant information and part of a record. Therefore, according to
Section 14A, the court has the power to engage experts in a suit.
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Substituted Performance
Section 20 of the Specific Relief Act, 1963 has been changed under the
Specific Relief (Amendment) Act, 2018 to substitute the performance
of a contract. As per the new provisions, the aggrieved party has a
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choice to get the contract performed by the third party at the same
cost as the party that has not performed or breached the contract.
The condition is that the victimised party needs to give in writing, a
notice to the breaching party of not less than 30 days, to perform the
contract. So, the breaching party needs to perform the contract signed
within the specified time frame mentioned in the notice; otherwise,
the aggrieved party can get the same contract performed by a third
party or his own agency, and the costs and expenses incurred from
performing the contract shall be borne by the breaching party.
As per Section 14 of the Specific Relief Act, 1963, the following con-
tracts now cannot be specifically enforced:
(a) where a party to the contract has obtained substituted perfor-
mance of the contract as per Section 20 of the Act;
(b) a contract the performance of which involves the performance of
a continuous duty that the court cannot supervise;
1.13.3 Injunctions
At times, a party may not perform the contract, which has been prom-
ised, causing the breach of contract. In such a case, a competent court
may issue an order to prohibit the party from either performing the
act or preventing him from doing any act that leads to the loss of the
aggrieved party. Such orders of the court are called injunctions. More
specifically, an injunction can be defined as a mode of securing the
specific performance of the negative terms of the contract. In other
words, injunction is a court order requiring a party in, to refrain from
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doing something which may lead to a breach. Injunction may be a
temporary injunction or a perpetual injunction [Section 36 of Specific
Relief Act (1963)]. While the scope of temporary injunction is tempo-
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rary, i.e., till the disposal of the suit; permanent injunction gives a per-
manent relief.
Activity
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lakhs. X has indemnified Y under a contract for any claims of ownership
of software from any third party. Now Z, who claims to be the real owner
of software, has filed a case against Y. Z has claimed software infringe-
ment and sought ` 1 crore against damages. Z has obtained an order from
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the court. Now Y can claim damages from X as X has indemnified Y.
RIGHTS OF INDEMNIFIED
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as indemnity holder.
Right to recover costs: Right to recover all the legal costs that are
payable to the third party.
Right to recover sums paid under settlement or compromise:
Right to recover all sums paid or payable under the terms of any
compromise or settlement of any suit.
Right to sue for specific performance: The indemnified has the
right to sue the indemnifier for specific performance if he has
incurred absolute liability and the contract covers such liability.
RIGHTS OF INDEMNIFIER
The Contract Act, 1872 does not mention the rights of the indemni-
fier expressly. In Maharana Shri Jasvaisingji Fatesingji v. Secretary of
State for India 14 BOM 299, it was decided that the rights of the indem-
nifier are similar to the rights of a surety mentioned under Section 141
of the Act. As per Section 141, the indemnifier becomes entitled to
the benefit of all securities that the creditor has against the principal
debtor whether he was aware of them or not. Where a person agrees to
An indemnified cannot hold the indemnifier liable till the time such
indemnified has suffered an actual loss. In relation to the contracts of
indemnity, it is relevant to determine when an indemnifier becomes
liable to pay. In other words, it must be determined when an indemni-
fied becomes entitled to recover his indemnity.
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According to Section 126 of the Contract Act, 1872, a contract of guar-
antee is a contract to perform the promise or discharge the liability of a
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third person in case of his default. In a contract of guarantee, there are
three persons involved. The person who gives the guarantee is called
surety. The person for whom the guarantee is given is called the prin-
cipal debtor. Lastly, the person to whom the guarantee is given called
the creditor.
and pays for them. Y also buys some items but did not have the money
to pay to the shopkeeper. The shopkeeper, Z, tells Y that he can give him
the goods on credit provided X provides a guarantee for payment that
in case Y fails to pay Z, then X will have to pay Z. Y and X agrees to the
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1.14.5 Kinds of Guarantee
Under a contract of guarantee, the surety enjoys all the rights that
are usually available to any party under a usual contract. Apart from
these, there are certain specific rights that are enjoyed by the surety
under a contract of guarantee, which are as follows:
Rights against principal debtor: The following are the rights of
surety against principal debtor:
Right of indemnity: The surety has the right to recover any
amount from the principal debtor that he has legitimately paid
to the creditor towards the debt under the contract of guaran-
tee.
Right of subrogation: After the surety has paid the liability
of the principal debtor towards the creditor, the surety gains
the rights of the creditor and assumes the same rights that the
creditor had against the principal debtor.
Rights against creditor: In the case of fidelity guarantee (guar-
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antee on behalf of employee), the surety can direct the creditor
to dismiss the employee whose honesty he has guaranteed, in the
event of proved dishonesty of the employee. The creditor’s failure
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to do so will exonerate the surety from his liability. The following
are the rights of surety against principal creditor:
Right to securities: The surety has the right to receive the
securities of the principal debtor that he may have deposited
with the creditor at the time of making the contract of guaran-
tee. Upon the payment of debt, the creditor shall provide the
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than their share of ` 1,000, they can claim contribution from oth-
ers in excess of ` 1,000.
Effect of releasing a surety: The release of one surety of
co-sureties by the creditor does not discharge other sureties,
nor is the surety, so discharged, released from his obligation
vis-a-vis other co-sureties.
You studied about the rights of surety. However, there are liabilities
of the surety and co-sureties as well. The nature and extent of the
liability of a surety depends on whether there is a single surety or two
or more co-sureties. According to the Contract Act, 1872, the liability
of a surety is co-extensive with the liability of the principal debtor
except in case the contract provides for the contrary. As a general rule,
co-sureties are jointly and severally liable for the debt. It means that
all sureties have to contribute equally for the repayment of debt.
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1.14.7 Discharge of Surety
Notice by Surety
Novation
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Loss of Security
Guarantee Obtained by
Misrepresentation
Failure of Co-surety to
Join Surety
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parties and the consideration for contract is the mutual discharge
of old contract.
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Contract of Indemnity Contract of Guarantee
There are two parties, namely There are three parties, namely surety,
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indemnifier and indemnified. creditor and principal debtor.
Liability is solely of the in- Liability of the principal debtor is primary,
demnifier. but surety becomes liable in the case of
default by the principal debtor.
There is only one contract There are two contracts, one between the
between indemnifier and principal debtor and creditor and the oth-
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Activity
Find some real life examples where contracts of guarantee and con-
tracts of indemnity are applied.
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creates a relationship of bailment between A and B. Other examples
include safe deposit of goods except where keys are retained by the
depositor, lending of books by library, delivery of goods to carrier, dry
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cleaner, garage, keeping of goods in a warehouse or deposit of luggage in
the cloakroom.
1.15.1 Kinds of Bailment
Example: Arun gives his novel to Bala for reading and says that Bala
can return the novel after reading. It is a case of gratuitous bailment.
Example: Arun gives his novel to Bala for reading and says that Bala
can return the novel after reading if he pays Arun ` 15. It is a case of
non-gratuitous bailment.
On the basis of the benefit accruing to the parties, the contract of bail-
ment is classified into the following categories:
Bailment for exclusive benefit of the bailor: In such a bailment,
the bailment is executed solely for the benefit of bailor and the
bailee derives no benefit.
Example: Arun gives his novel to Bala for safe-keeping because his
house is being renovated.
Bailment for the exclusive benefit of the bailee: In such a bail-
ment, the bailment is executed solely for the benefit of bailee and
the bailor derives no benefit.
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Example: Arun has five cows and gives one cow to his poor friend
Bala so that he may sell its milk to manage his household for one year.
Bailment for mutual benefit of both the bailee and the bailor: In
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such bailment, the bailment is executed for the mutual benefit of
both the bailor and the bailee.
Example: Arun gives a gold bar to Bala, who is a jeweller, to make
a ring from it and Bala charges money for the services undertaken
by him.
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Duty to claim back the goods: After the expiration of the term of
bailment or after the fulfilment of the promise under the contract,
the bailor must take back the goods.
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The rights of a bailor are as follows:
Right to enforce a bailee’s performance/duties: A bailor has the
right to sue the bailee for enforcing his liabilities and duties.
Right to claim damages: The bailor has the right to claim dam-
ages in case the goods bailed by him are damaged or lost due to the
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Right to demand return of goods: When the bailor bails the goods
for some consideration, the bailor has a right to demand their
return, when he wants, whether or not the specific time has been
elapsed or the specific purpose has been met or not.
Not to mix the bailed goods with other goods: It is the duty of
the bailee not to mix the bailed goods with any other goods held
by him. There can be three cases when the bailee mixes the goods
which are:
1. When the goods are mixed with the approval of the bailor, the
bailor and the bailee have an equal proportion of interest in the
mixed goods.
2. When the goods are mixed without the approval of the bailor
and the goods can be separated, the bailee has to bear the costs
related to division, separation and damages.
3. When goods are mixed without the approval of the bailor and
the goods cannot be separated, the bailee has to bear the costs
of loss to the bailor.
Duty to return the goods to the bailor in time: It is the duty of the
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bailee to return the goods to the bailor after the expiry of the time
of contract or when the purpose of bailment has been achieved.
Duty to return accretion to the goods: The bailee must return the
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goods to the bailor along with any profit or increments.
There are two types of lien, namely particular lien and general lien,
which are explained as follows:
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Particular Lien: According to Section 170 of the Contract Act,
1872, a bailee’s particular lien is defined as where the bailee has, in
accordance with the purpose of the bailment, rendered any service
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involving the exercise of labour or skill in respect of the goods bailed,
he has, in the absence of a contract to the contrary, a right to retain
such goods until he receives due remuneration for the services he has
rendered in respect of them.
It means that a bailee may retain the goods only in case he has
not received his legal and rightful remuneration for the services
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provided by him.
General Lien: According to Section 171 of the Contract Act, 1872,
general lien is a lien that bankers, factors, wharfingers, attorneys of
a High Court and policy brokers may, in the absence of a contract to
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Example: A borrows ` 1,000 from his bank XYZ without any security.
After three months, A again borrows ` 1,000 from XYZ, but this time he
keeps a security of some gold ornaments. Now, if A has returned the sec-
ond loan of ` 1,000, then XYZ can retain the gold ornaments till A pays
off the rest amount of loan.
1.15.7 Pledge
Section 172 of the Contract Act, 1872 describes three terms, namely
pledge, pawnor and pawnee.
When goods are bailed as a security for the payment of a debt or for the
performance of a promise, it is called pledge. The bailor here becomes
the pawnor/pledger, whereas the bailee becomes the pawnee/pledgee.
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In both bailment and pledge, only movable goods are delivered. The
bailment and pledge contracts are both created by mutual agreement
between the parties. In the case of bailment, the bailee may use goods
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as per the terms of contract, whereas the pawnee cannot use the goods
pledged.
In the case of pledge, the pawnee has a right to sell the goods pledged
if the pawnor defaults on debt repayment after giving a due notice to
him. On the contrary, in case of default by the bailor, the bailee can
only retain and have lien on the goods or sue the bailor.
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A pledgee must return goods after the pledger has fulfilled his
promise or has paid his debt.
A pledgee must not mix the pledged goods with any other goods.
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A pledgee must not engage in any activity that is inconsistent with
the terms of contract.
A pledgee must return any profits or gains accrued by pledged
goods.
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1.16.1 MEANING OF PRINCIPAL AND AGENT
by an agent.
such an act is done or whom the agent represents is called the ‘princi-
pal’. According to Section 183 of the Act, any person competent to con-
tract can appoint an agent. The agreement signed between the prin-
cipal and its agent is known as the contract of agency. Under Section
184, even a minor can be appointed as an agent. However, a minor will
not be responsible to his principal or to third parties.
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his own name.
Broker: It refers to an agent who has to create a contractual
relationship between two parties. He has the power to negotiate
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on behalf of the principal. He does not possess the ownership of
goods. He negotiates and establishes a contract between the prin-
cipal and the third party.
Auctioneer: It refers to an agent who acts as a seller in an auction
for the principal. He gets rewarded in the form of commission on
the sale. He is entrusted with the good’s possession for sale at a
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public auction.
Commission agent: It refers to an agent who is appointed to make
a purchase (buy/sell goods) for his principal. It is a general term
that can also be used for a broker or a factor.
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1.16.3 AUTHORITY OF AN AGENT
The Law of Agency states that an agent is not personally liable except
in a few conditions which are stated as: ‘In the absence of any contract
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to that effect, an agent cannot personally enforce contracts entered into
by him on behalf of his principal, nor is he personally bound by them’.
However, there are certain circumstances that make the agent person-
ally liable. Figure 1.2 shows the circumstances under which an agent
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is personally liable:
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or incurred obligations to third persons on behalf of his principal,
the agent is personally bound by such acts or obligations, if he has by
his words or conduct induced such third persons to believe that such
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acts and obligations were within the scope of the agent’s authority.”
In case of custom or usage of trade: In such cases, if there is
absence of contract, the agent is held personally liable for the con-
tract.
On dissolution On principal
On destruction of
of company becoming an
the subject matter
alien enemy
Both the agent and the principal can terminate the agency by the fol-
lowing ways:
By mutual agreement: An agency between the principal and his
agent can be terminated by mutual agreement in the similar way
an agency is formulated.
By revocation of an authority by the principal: An agency gets ter-
minated if the principal revokes the authority of his agent. The prin-
cipal has the right to revoke the authority of its agent at any time.
By renunciation of agency by the agent: An agency is terminated
when an agent himself renounces the business’s agency.
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the other cases where the termination of agency is done are as follows:
On completion of agency business
On death or insanity of the principal or agent, but acts done prior
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thereto, shall remain valid
On expiry of time if agency has been created for a fixed period of
time
On destruction of subject matter of agency
On dissolution of the company
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Activity
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This Agreement made at ................. on this .................. of ................... 2000, between ABC Ltd., a company
incorporated under the Companies Act, 1956 and having its registered office at .................... hereinafter
called “the company” (which expression shall, unless it be repugnant to the context or meaning Two Parties
thereof be deemed to mean and include its successors and assigns) of the ONE PART and M/s. XYZ
a partnership firm registered under the Partnership Act, 1932 and having its place of business at
.................. hereinafter called “the underwriters”, (which expression shall unless it be repugnant to the
context or meaning thereof, be deemed to mean and include every partner for the time being of the
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said firm, the survivor or survivors or the legal representatives, executors or administrators of the last
partner) of the Other Part.
Whereas the company proposes to issue ............... equity shares of to Rs ..................... each and offer the
same for public subscription at Rs ....................... per share in accordance with the terms of the draft
Proposal to
make an offer and
prospectus, a copy of which is annexed hereto, or with such modifications therein as may be mutually
acceptance
agreed upon between the company and the underwriters.
Whereas the underwriters have agreed to underwrite the subscription of the said shares on the terms
and conditions hereinafter appearing.
Now it is hereby Agreed between The Parties as Follows:
Legal
1. The company shall issue ...................... equity shares of Rs ............. each for public subscription relationship
in terms of the draft prospectus, a copy of which is annexed hereto or with such modification
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therein, as may be mutually agreed upon between the parties, on or before the ................... day of
…………. 2000, or such later date as shall be mutually agreed upon by the parties hereto not after
the .......... day of ....................... 2000.
2. The underwriters shall on or before the closing of the subscription list apply for the ....................
shares or cause the same to be applied for by the responsible persons, who shall pay on Consensus
application, the application moneys payable on the shares applied for by them respectively and
ad idem
who shall not withdraw their applications before notification of allotment of shares to them.
3. If on the closing of the list under the said prospectus the said ...................... shares shall be allotted
on the applications received from the public, the responsibility of the underwriters will cease
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and no allotment is to be made to the underwriters under this agreement, but if the said ............
shares shall not be allotted to the public, but any smaller number of such shares is so allotted,
the underwriters undertake to stand for the difference between the said .......................... shares Recitals: Recitals introduce
and the number of the shares allotted to the public and company may allot to the underwriters the parties and the
all the shares which shall not have been applied for by such members of the public or such transaction to be entered
responsible persons as aforesaid and the underwriters shall accept the shares so allotted and between them.
pay all application and allotment money in respect of those shares in accordance with the said
prospectus.
4. The underwriters irrevocably authorise the company to apply for the said ............... shares or any The Object of the Parties to
part thereof in the name and on behalf of the underwriters in accordance with the terms of the enter into a contract
said prospectus and authorise the directors of the company to allot the said ..................... shares
of the company or part thereof to the underwriters and in the event of the company making an
application for such shares in the names of the underwriters, the underwriters shall hold the Consideration
company harmless and indemnified in respect of such application.
5. The company shall pay to the underwriters in cash a commission of .............................. per cent on
the nominal value of the shares within ............. days from the allotment of the said ...................... Timely Performance
shares. But should any allotment of the shares be made to the underwriters in accordance with of the obligations. If
the terms of this agreement, the commission shall not be payable until the underwriters pay the obligations are not
the application and allotment moneys payable in respect of all the shares so allotted to the performed as per the
timelines in the contract.
underwriters.
If not then the Agreement
6. It is hereby agreed that time is the essence of this agreement. shall be breached
7. This agreement shall be executed in duplicate. The original shall be retained by the company
and the duplicate by the underwriters.
In Witness Whereof the parties have signed these presents and a duplicate hereof the day and year
Execution of the
first hereinabove written. Agreement is important for
Signed and delivered by A 8 Ltd., the within named a contract to be concluded
company by its Managing Director Shri ..................
Signed and delivered by M/s. XYZ the within named under writers by their partners
WITNESSES;
1.
Witness
2.
Source: https://www.advocatekhoj.com/library/agreements/companylaw/22.php
Date of the
Place of Agreement
Agreement
AGREEMENT FOR LICENSE BETWEEN TRADEMARK OWNER AND A MANUFACTURER Title of Agreement
AGREEMENT is made this _____________day of ________ between __________M/s ______________, a Company registered
under the Companies Act,____, and having its registered office at ___________ hereinafter referred to as ‘the Licensor’ of
the One Part and Mr. ._________________carrying on business of ________________ Hereinafter referred has ‘the Licensee’ Parties have to be
of the Other Part identified
WHEREAS Recitals of
1. The Licensor is the proprietor of a trade mark more particularly described in the schedule hereunder written and Agreement
which is duly registered under the Trade and Merchandise Marks Act 1958.
2. The Licensor is manufacturing and selling the goods viz ____________________ under the said trade mark.
3. The Licensee who is running a small scale industry has requested the Licensor to grant him a license to manufacture
the said goods with the trade mark embossed or printed thereon as is being done by the Licensor and which the
Licensor has agreed to do on the following terms and conditions agreed to between the parties hereto.
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3. The goods so manufactured with the said trade mark applied to them will be supplied and delivered by the Licensee to
the Licensor at the latter s business premises at _______ at his own costs of transport.
4. The price of the said goods so supplied will be paid by the Licensor against delivery after deducting there from the
royalty payable by the Licensee to the Licensor as hereinafter provided.
5. The Licensor shall have the right to reject any goods supplied if they are not as per specifications or quality which are
made known to the Licensee and in the event of such rejection the Licensee shall take back the rejected goods from
the Licensor’s premises at his own costs and until such removal they will be at the risk of the Licensee. The Licensor
agrees that during the subsistence of this agreement, the Licensor will not get the said goods manufactured from
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anybody else.
6. The ownership of the said trademark will always remain with the Licensor and the Licensee will not pass off the said
goods as if he is the owner of the said trademark. Ownership of
7. The Licensee will be at liberty to put a label or advertise that the said goods are manufactured by him but it will also Property
be mentioned that the trade mark belongs to the Licensor and that the goods are manufactured for the benefit of the
Licensor.
8. In consideration of the Licensor allowing the Licensee to manufacture the said goods with the said trade mark the
Licensee agrees to pay to the Licensor by way of royalty a sum equal to ______________per cent of the price of the goods
at which they will be sold to the Licensor by the Licensee as aforesaid. Consideration
9. The Licensee shall keep an account of the goods manufactured and sold to the Licensor and the price received by him
and royalty paid in respect thereof and such account shall be open to inspection by the Licensor from time to time
as may be required by the Licensor. The Licensor will also have the right to enter upon the premises of the Licensee
where the goods are manufactured and to take inspection of the goods manufactured.
10. This agreement will remain in force for a period of ______ years from the date hereof and on the expiration of the said Duration
period or earlier termination thereof as herein provided, the Licensee shall stop manufacturing the said goods under
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the said trade mark and all the goods till then manufactured and lying undelivered to the Licensor will be delivered to
the Licensor in terms of this agreement as aforesaid.
11. If the Licensee commits breach of any term of this agreement, the Licensor will be entitled to terminate this agreement
by fifteen days prior notice in writing to the Licensee and on the expiration of the notice period, this agreement shall
stand terminated unless in the mean while the breach complained of is remedied to the satisfaction of the Licensor. Termination
12. The Licensee may get himself registered as a registered user under the provisions of the Trade & Merchandise Marks
Act 1958 subject to the terms of this agreement.
13. If the Registrar of Trade Marks while registering the Licensee as a registered user puts any condition which is not Negative
acceptable to the Licensor, the Licensee will withdraw the application for registration or the Licensor will have the Covenants-
option to terminate this agreement. Covenants that
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14. If any person is found by the Licensee to infringe the said trade mark either by passing off or otherwise, the Licensee restrict parties
will bring that fact to the notice of the Licensor to enable him to take necessary legal action against such person and
from affecting or
in that event the Licensee will give all cooperation to the Licensor in prosecuting such action and all the costs thereof
will be borne and paid by the parties hereto in equal shares.
causing losses
15. If the Licensee himself infringes the said trade mark by passing off or otherwise, then notwithstanding anything
provided in clause 16 hereof it will be open to the Licensor to take legal action against him and in such case the Dispute
Licensee will not be entitled to challenge the ownership of the Licensor in respect of the said trade mark. Resolution and
16. In the event of any dispute arising out of this agreement, the same will be referred to arbitration of a common Jurisdiction are
Arbitrator if agreed upon or in the absence of such agreement, to two Arbitrators one to be appointed by each party the clauses which
hereto and the Arbitration will be governed by the Arbitration Act for the time being in force.
govern the law
IN WITNESS WHEREOF the parties have put their respective hands the day and year first hereinabove written. and court which
will apply in case
THE SCHEDULE ABOVE REFERRED TO of disputes
Signed and delivered for and on behalf of
Execution of
Within named Licensor ____________Company
the Agreement
By its Managing Director is important for
In the presence of _____________ a contract to
be concluded-
Signed and delivered by the Consensus-ad-
Within named Licensee Mr.______________ idem
In the presence of ____________
Witness
Source: https://lawrato.com/legal-documents/trademark-copyright-ipr-legal-forms/agreement-of-license-between-trade-
mark-owner-and-a-manufacturer-35
Activity
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1.18 Summary
A contract is a legally binding agreement made between two or
more persons by which rights are acquired by one or more acts
or forbearances (abstaining from doing something) on the part of
others.
An ‘agreement’ means a promise or a set of promises that forms a
consideration for each other. In other words, an agreement is an
exchange of promises between two or more parties.
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Contracts are mainly categorised based on their initiation, forma-
tion, enforceability and performance.
An agreement that is not enforceable by law is said to be a void
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agreement.
A voidable contract arises if the consent of either of the parties has
been obtained by coercion, undue influence, fraud, misrepresen-
tation or mistake of the contract.
An offer is said to have been accepted when the person to whom
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ticular trade.
Pledge is the bailment of goods as security for the payment of a
debt or performance of a promise. The person who delivers goods
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as security is called the pledger or pawner and the person to whom
the goods are delivered is called the pledgee or pawnee.
Contracts are extremely important for the success of any business.
key words
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other law
General lien: The right to retain goods not only for demands
arising out of the goods retained, but for other unpaid debts
account in the favour of such debtor
Illegal agreements: Agreements that are forbidden by the law
Particular lien: The right to retain particular goods in respect
of which the claim/debt is due
Unlawful agreements: Agreements that have unlawful object
or unlawful consideration are void
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14. Describe the difference between contracts of indemnity and
guarantee.
15. Explain the contract of bailment and contract of pledge.
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1.20 Answers and Hints
4. True
When an Agreement becomes a 5. b. voidable
Contract: Essential Conditions
6. Consideration
Offer/Proposal and Acceptance 7. offeree/promisee
8. False
9. True
10. course of transmission
Standard Form of Contract/ 11. standard form contracts
Boilerplate Contract/ Adhesion
Contract
12. True
Consideration and Privity of 13. Privity of contract
Contract
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22. True
Discharge of Contracts 23. Actual
24. c. Difficulty of performance
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Remedies for Breach of Con- 25. Ordinary damages, special
tract damages, exemplary damag-
es and nominal damages
26. True
Contracts of Indemnity and 27. Insurance
Guarantee
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28. True
Contract of Bailment and Con- 29. bailment
tract of Pledge
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30. Lien
Contracts dealing with Agency 31. agent
32. False
Explaining Agreements using a 33. consensus-ad-idem
Template
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even exclude the liability of one party. Refer to Section 1.6 Stan-
dard Form of Contract/Boilerplate Contract/Adhesion Con-
tract
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7. Privity of contract refers to a type of relationship between the
parties to a contract according to which the parties can sue each
other. Refer to Section 1.7 Consideration and Privity of Con-
tract
8. Consent is said to be free when it is not caused by coercion,
undue influence, fraud, misrepresentation or mistake. Refer to
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Suggested Readings
Chandiramani, N. (1997). The law of contract. Mumbai: Saptarang
Publ.
Tulsian, P. (2019). Business Law (3rd ed.). New Delhi: McGraw Hill
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Education (India) Private Limited.
Sheth, T. (2017). Business Law (3rd ed.). Pearson Education.
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E-REFERENCES
(2020). Retrieved 18 September 2020, from https://cablogindia.
com/the-indian-contract-act-1872-notes/
Laws, B., Law, C., & guarantee, I. (2020). Indemnity and Guaran-
tee. Retrieved 31 March 2020, from https://www.lawctopus.com/
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academike/indemnity-and-guarantee/
History of the Indian Contract Act 1872. (2020). Retrieved 31
March 2020, from https://www.lawteacher.net/free-law-essays/con-
tract-law/history-of-the-indian-contract-act-1872-contract-law-es-
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say.php
Contents
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2.1 Introduction
2.2 Concept of Goods
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Self Assessment Questions
Activity
2.3 Sale of Goods Act, 1930
2.3.1 Sale and Agreement to Sell
2.3.2 Difference between the Contract of Sale of Goods and the Contract
for Work and Labour
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Introductory Caselet
‘A’ goes to a chemist’s shop to buy a hot water bottle. The chemist
Case Objective shows him a bottle and says that the bottle will not stand boiling
This caselet discusses the water, but is fit to store hot water. On this representation by the
repercussions of the breach chemist, ‘A’ buys the bottle. After a few days, while ‘A’ was using
of contract of sale. the bottle, it burst and caused injuries to ‘A’.
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was an implied condition by ‘A’ that the bottle must be capable of
storing hot water and the same has been breached by the seller.
The seller is liable to pay damages to ‘A’ for the breach of this con-
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dition.
*Source: Priest v. Last (1903) 2 KB 148.
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Learning objectives
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>> Outline the meaning of the doctrine of Caveat Emptor and
the exceptions
>> Describe how a contract of sale is performed
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>> Discuss the meaning, rights and responsibilities of an unpaid
seller
>> Explain the meaning of hire purchase and hypothecation
agreements
2.1 Introduction
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In the previous chapter, you studied about the Contract Act, 1872. The Quick Revision
chapter discussed the agreements, contracts, types of contracts and
various related provisions.
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Till now, you have studied about the contracts in general. However,
the contracts for sale of goods are governed by the Sale of Goods Act,
1930. Before 1930, the law relating to sale of goods was contained in the
Indian Contract Act, 1872. In the year 1930, the Sale of Goods Act was
enacted which came into force from 1st July 1930. This chapter starts
with an explanation of the meaning of goods and its types, namely the
existing goods, future goods and contingent goods.
Agreements for sale and agreement to sell are quite different. Simi-
larly, contracts for sale of goods and contract for work and labour are
different. In case of any contract, there are certain stipulations that
are divided into conditions and warranties. Condition is a stipulation
that is an essential part of a contract, whereas warranty is a stipula-
tion that is only collateral to a contract.
The contracts for sale are guided by the doctrine of Caveat Emptor
which means that examining the goods before buying is the primary
responsibility of the buyer. There are certain exceptions to this rule.
A seller who has not received the full amount of price is known as an
unpaid seller and he has certain rights and duties. There are certain
agreements, such as hire purchase agreement and the hypothecation
agreement where the buyer takes the possession of the assets first and
then makes payments in certain periodic amounts. In this chapter, you
will study about Sale of Goods Act, 1930 at length.
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According to Section 2(7) of
the Sale of Goods Act, 1930,
made or grown.
a good means every kind of
movable property other than As per the definition of goods given in Section 2(7) of the Sale of Goods
Act, 1930, ‘goods’ include and excludes certain items. The items that
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actionable claims and money;
and includes stock and shares, are included under the definition of goods are as follows:
growing crops, grass, and things
attached to or forming part of All types of movable property, such as computer, jewellery, vehicles,
the land which are agreed to be etc.
severed before sale or under the
contract of sale. Stocks and shares
Growing crops
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The goods that are excluded under the definition of goods are as fol-
lows:
Actionable claims such as book debts
Money which is a legal tender
Existing Goods
Future Goods
Contingent Goods
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the seller depending upon some contingency, i.e., the happening
or non-happening of an event.
Example: Nisha, a seller, agrees to sell some cosmetics to Madhu. If
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those specific goods arrive by a particular date by a particular ship,
such goods are called contingent goods.
a. Stocks b. Money
c. Growing crops d. Moveable property
2. __________ are the goods that are owned and possessed by a Know More
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seller at the time of making the contract of sale. Section 5 of the Sale of Goods
Act, 1930 explains how the
3. Contingent goods depend upon the happening or non-hap-
contract of sale is made:
pening of an event. (a) True (b) False (1) A contract of sale is made
by an offer to buy or sell
goods for a price and the
Activity acceptance of such offer.
The contract may provide for
Find out a few examples of contingent goods. the immediate delivery of the
goods or immediate payment
of the price or both, or for the
delivery or payment by instal-
2.3 Sale of Goods Act, 1930 ments, or that the delivery
or payment or both shall be
The Sale of Goods Act, 1930 is the governing law for the contracts postponed.
of sale of goods. A contract of sale of goods is a contract according (2) Subject to the provisions of
to which a seller transfers or agrees to transfer certain good(s) to a any law for the time being
buyer for a given sum of money known as the price of the good. The in force, a contract of sale
contract of sale is a common term and is used to refer to the following may be made in writing or by
two things: word of mouth, or partly in
writing and partly by word of
Sale mouth or may be implied from
the conduct of the parties.
An agreement to sell
There are differences between sale (agreement for sale) and agree-
ment to sell. These differences are discussed in the upcoming section.
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mediately. buyer immediately but at a
future date.
3. It is an executed contract. It is an executory contract.
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4. It is absolute in nature. It is a conditional agreement.
5. The consequences of subsequent The consequences of subse-
loss or damage have to be borne quent loss or damage have to
by the buyer. be borne by the seller.
6. An unpaid seller has a right to An unpaid seller has a right to
sue for the price. sue for damages.
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7. The seller has a right to sue the The seller has a right to sue the
buyer for the breach of a contract. buyer only for damages.
8. The seller cannot resale the The seller can resell the goods.
goods.
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9. If after the sale, the goods are ly- If the goods are in the posses-
ing in the possession of the seller sion of the buyer and the loss
and the goods are destroyed, the occurs due to any damage, the
loss is the responsibility of the loss is the responsibility of the
buyer. seller.
10. Example: Anjali buys 10 kg of Example: Anjali agrees to sell
wheat from Shyam by paying a 10 kg of wheat to Shyam if she
price of ` 1,000. gets the stock of the same for a
price of ` 1,000.
Examples:
1. If A is a sand artist and enters into a contract with B to perform a
sand art for creating awareness regarding air pollution, then this
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contract is basically a contract where the skill of the artist is of
essence.
2. If X enters into an agreement with Y, who is a graffiti artist to paint
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the walls of her backyard and provides all the required paints,
brushes, etc., it is a contract for work and labour.
If both the material and services are provided by one party, it may be a
‘sale’, though theoretically called ‘contract for work and labour’. Know More
According to Section 12(1) of
the Sale of Goods Act, 1930, a
2.3.3 Conditions and Warranties
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CASE LAW
Baldry vs. Marshall (1925)
The Court observed that the suitability of the car for touring purpose
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was a condition because it was so important that the non-fulfilment
defeated the very purpose of purchasing the car. It was held that A
was entitled to return the car and get back the price paid.
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What is a Warranty?
NOTE According to Section 12(3) of the Sales of Goods Act, 1930, a warranty
Both conditions and warranties is a stipulation collateral to the main purpose of the contract the breach
are stipulations and there is of which gives rise to a claim for damages, but not to a right to reject the
no fixed and certain rule to goods and treat the contract as repudiated.
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Types of Conditions
Condition as to Condition as to
Fitness or Quality Merchantability
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Figure 2.2: Implied Conditions in a Contract
being a stolen one. Held, Ram can recover the full price from Suresh
since he has committed a breach of the condition of title.
Condition in a sale by description: In a contract for the sale of
goods by description, there is an implied condition that the goods
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Example: In E&S Ruben Ltd. vs. Fair Bros. (1949), some rubber rolls
were sold corresponding to the specific length and width. However,
the actually supplied rolls did not match the sample, giving a right to
the buyer to repudiate the contract.
Condition as to fitness or quality: Under a contract of sale, there is
no implied condition as to the quality or fitness of goods supplied.
In fact, in most agreements, this assurance or condition of fitness
or quality is specifically disclaimed by the seller. This is expressed
by the principle of Caveat Emptor (i.e., let the buyer beware).
However, the buyer has the right to satisfy himself/herself about
the quality of goods. In the following cases, an implied condition is
deemed to exist on part of the seller that the goods supplied shall
be reasonably fit for the purpose for which the buyer wants them:
The buyer discloses the purpose for which the goods are need-
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ed except where the purpose is self-evident from the nature of
goods;
NOTE The buyer relies on the seller’s skill or judgement;
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The principle of Caveat Emptor
is contained in Section 16 of the The business of the seller must be to sell goods of that kind.
Sale of Goods Act, 1930.
Example: A customer purchased a packet of milk from H’s dairy.
However, the milk was infected with typhoid bacteria, resulting in
the customer’s wife falling ill on consumption of milk. He will be
liable to pay damages as it is a case of breach of condition of fitness.
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Types of Warranty
Exhibit
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to the title. If the buyer’s quiet possession is disturbed due to a
defective title, the buyer can claim damages from the seller.
Example: Anita purchases a laptop from Sarita and had spent
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some money on its repair. However, the laptop sold by Sarita was
a stolen one. Therefore, in this case, Anita can file a suit for claim
against Sarita for the recovery of damages, including the cost of
repair.
Warranty as to freedom from encumbrances: As per this
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implied warranty, the goods that are sold must be free from any
charge of a third party. In other words, the goods must be free
from any encumbrance in favour of any third person.
Example: Mitali borrows ` 3, 00,000 from Rahul and hypothecates
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her car with Rahul as security. After a month, Mitali sells the car
to Jagdish who buys the car in good faith. In this case, Jagdish can
claim damages from Mitali because his possession is disturbed by
Rahul having a charge. However, if the buyer is aware of such a
charge or encumbrance, this warranty shall not hold.
Warranty of disclosing the dangerous nature of goods to the
ignorant buyer: As per this implied warranty, the seller has the
duty to disclose the dangerous nature or dangers associated
with the use of the goods that he is selling. In such a case, the
buyer can claim compensation for damages.
Example: Ashok purchases a strong chemical disinfectant from
Zoya. Zoya knows that the packaging of the product is defective
and must be handled with care, else it may prove to be dangerous.
However, Zoya does not disclose this to Ashok who opens the
packet and the disinfectant rushes out suddenly causing a severe
damage to his eyes. In this case, Zoya is liable to pay for damages
caused to Ashok.
When a buyer would not have purchased the goods in the absence
of a stipulation, it is called a condition. However, if a buyer would
still have purchased the goods in the absence of the stipulation, it is
called a warranty. When the stipulations are only designed to provide
an assurance with respect to quality and suitability of the goods, it is
called a warranty.
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The difference between the two stipulations (condition and warranty)
can be judged from the fact whether the breach of the stipulation
would make the rights of the aggrieved party nugatory or not. If it
does, the stipulation is a condition. If the stipulation is only auxiliary,
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it is a warranty.
Section 13(1) states that where a contract of sale is subject to any con-
dition to be fulfilled by the seller, the buyer may waive the condition or
elect to treat the breach of the condition as a breach of warranty and not
as a ground for treating the contract as repudiated.
This means that the buyer may voluntarily waive off the condition.
Here, the buyer’s waiving off of the condition and treating the breach
of condition as a breach of warranty is completely voluntary and it
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depends upon the will of the buyer.
When a buyer finds out that the seller has committed a breach of con-
dition, the buyer has the right to repudiate the contract. However, if
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the buyer does not repudiate the contract, it is assumed that he has
waived off the condition. And after a condition has been voluntarily
waived off by the buyer, he cannot ask the seller to fulfil it.
kg. Here, if Hemant does not repudiate the contract and considers vol-
untarily waiving off the condition, he can claim a compensation of ` 40/
kg from Lipikant.
Section 13(2) states that where a contract of sale is not severable and the
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buyer has accepted the goods or part thereof, the breach of any condition
to be fulfilled by the seller can only be treated as a breach of warranty
and not as a ground for rejecting the goods and treating the contract as
repudiated, unless there is a term of the contract, express or implied, to
that effect.
This means that when a buyer has accepted goods and comes to know
about the breach of condition later, he cannot reject the goods, but can
claim for damages. There can be certain cases where the buyer has
accepted a part of the entire consignment and the contract is indivis-
ible. In this case, the buyer has to accept the entire consignment but
has the right to claim damages. For example upon the purchase of a
television, the buyer finds that the remote of the TV is defective and in
that case the buyer cannot repudiate the contract but claim damages
as both are not severable.
In case of a divisible contract, the buyer has to retain goods that have
been accepted and claim damages for the part of goods received. How-
ever, for the remaining unaccepted part of the goods, the buyer can
repudiate the contract.
Section 13(2) states that nothing in this Section shall affect the case of
any condition or warranty, fulfilment of which is excused by law by rea-
son of impossibility or otherwise.
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2.3.4 Title (Ownership)
In simple words, ‘title’ means ‘ownership’. A person that holds the title
to the goods is the owner of the goods. The title or ownership of goods
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can be proved by using documents.
Know More A document of title is a document showing that the person named
According to Section 2(4) of in the document or the person holding the document is the owner of
the Sale of Goods Act, 1930, the goods. This document of title can be transferred to any other per-
‘document of title to goods’
son after that such person becomes entitled to receive goods either by
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the buyer because the risk involving the property depends on the
time of transfer. In a sale of goods contract, following have to be
determined:
Exact point in time when the property in goods is transferred from
the buyer to the seller
Point of time when the risk is transferred from the seller to the
buyer
Point of time when ownership and possession are passed on from
the seller to the buyer
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2. Transfer of possession of goods contract of sale of goods. The
legal rights and duties of the
3. Transfer of title buyer and the seller are decided
by the ownership of goods.
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As a general rule, the property in goods is transferred to the buyer at
the time as the parties intend it to be transferred. It means that the
general rule of transfer of ownership depends on the intention of the
parties to a contract.
The time for the transfer of ownership from the seller to the buyer can
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For deciding the time of passing of property in goods from the seller
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to the buyer, goods are divided into three types, namely specific or
ascertained goods, generic or unascertained goods and goods sent on
approval. Let us now discuss the three cases as follows:
1. Specific/Ascertained goods: For specific goods, there can be
three cases, which are as follows:
a. Where there is an unconditional contract for the sale of spe-
cific goods in a deliverable condition, the ownership passes at
the time when the contract is made.
b. Where there is a contract for the sale of specific goods not in
a deliverable condition, the ownership passes when the goods
are made into a deliverable state and the buyer has informa-
tion regarding it.
c. Where there is a contract for the sale of specific goods in a de-
liverable state, but the seller has to weigh or measure goods
to ascertain the price, the ownership passes when the seller
has ascertained the price and the buyer has information re-
garding the same.
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a. When the buyer signifies his approval or acceptance (express
or implied), the ownership passes after the buyer’s approval
or acceptance is communicated to the seller.
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b. When the buyer adopts a transaction by doing some act that
shows the acceptance of the goods, such as pledging of goods,
then ownership passes after the act of adoption is done.
c. When the buyer fails to return the goods and some time has
been fixed for return of goods, ownership passes on the expi-
ry of fixed time.
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d. When the buyer fails to return the goods and no time has been
fixed for return of goods, ownership passes on the expiry of a
reasonable time.
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Apart from these, in case of standing trees, the ownership passes when
the trees are felled and ascertained.
The title is usually transferred by the owner himself. The general rule
to be followed is “nemo dat quod non-habet” that means that no one
can give a better title than himself. In any case, if a person purchases
and acquires the possession of a stolen good, then he must return that
to the actual owner. In case a seller sells the goods when he does not
have a title, the buyer acquires no title in the goods.
Example: Sita selects 10 kg rice, pays for the same and let the rice remain
in the shop with an arrangement of picking it up later. Meanwhile, there
is a flood and the rice gets destroyed. Sita will be liable to bear the loss.
The term ‘Caveat Emptor’ means ‘let the buyer beware’. It is a funda-
mental principle followed in contracts of sale of goods. It means that
it is the responsibility of the buyer to check the suitability and defects
in a good, he is purchasing. Stated another way, it is not the duty of
the seller to point out any defect. The buyer must make use of his
skill and judgement while making the purchase. In this regard,
Section 16 of the states that there is no implied warranty or condition
for the quality of the goods or for the fitness, as to the purpose of the
buyer under the contract of sale.
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purchases the good on the basis of the representation, the doctrine
of Caveat Emptor does not hold and such a contract is voidable at
the will of the buyer.
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If a seller conceals any defect in the goods he is selling, in such a way
that such defects do not reveal upon reasonable examination or if
the seller engages in false representation and the buyer purchases
the goods based on such false representation and enters into a
contract of sale, then such a contract becomes voidable. Then the
buyer has the right to terminate the contract and claim damages.
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When the buyer has apprised the seller of his requirement and
depends on the skill and judgement of the seller, the doctrine of
Caveat Emptor does not hold.
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Delivery means the voluntary transfer of goods from the seller to the
buyer. The seller must be willing to give the possession of the goods to
the buyer for a price and the buyer must be willing to accept and pay
the price.
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the buyer.
When a third party holds the goods for the seller and agrees
and acknowledges to hold them for the buyer.
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The second part of the performance of contract is a buyer’s acceptance
of goods. When the buyer gives his assent, the goods are accepted.
But, before a buyer gives his assent, he can follow the steps mentioned
below:
1. Examine the products upon delivery. It means that on receiving
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the delivery of the goods, the buyer has the right to examine the
goods to confirm whether or not they conform to the order and
are in a good condition.
2. A buyer is deemed to have accepted goods in the following cases:
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He informs the seller that he has received goods and they are
appropriate.
He does an act to the goods which is inconsistent with the
rights of the seller, such as resale or pledge of the goods re-
ceived by him.
He retains the goods after the expiry of reasonable time with-
out informing the seller.
2.3.7 Unpaid Seller
An unpaid seller refers to a seller who has not received the full price
for the goods sold by him.
The term ‘unpaid seller’ has been defined in Section 45 of the Sale of
Goods Act, 1930 as follows:
(1) The seller of goods is deemed to be an ‘unpaid seller’ within the
meaning of this Act—
(a) When the whole of the price has not been paid or tendered.
(b) When a bill of exchange or other negotiable instrument has been
received as conditional payment and the condition on which it
was received has not been fulfilled by reason of the dishonour
of the instrument or otherwise.
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tiable instrument has been received as a conditional payment, but is
dishonoured.
The conditions that must be satisfied for an unpaid seller are as fol-
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lows:
Goods are sold by the seller, but the price is due.
Full price is not received.
Ifthe price is not paid immediately, a negotiable instrument, such
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If Sameeksha sold a T-shirt for ` 1,500 to Aditya, but Aditya paid the
whole amount through a cheque that was dishonoured, then Sameeksha
is an unpaid seller.
If Sameeksha sold a T-shirt for ` 1,500 to Aditya, but allows a time of one
month to make the payment, but does not receive the payment after one
month, then Sameeksha is an unpaid seller.
There are certain cases where the seller cannot be called an unpaid
seller, which are as follows:
Ifthe payment has been received in full, but some other expenses
have not been paid, the seller will not be called an unpaid seller.
Ifthe seller has sold the products on credit, the seller cannot be
called an unpaid seller till the expiry of the credit period.
Ifa buyer has paid the full price of goods, but the seller refuses to
accept the payment, he cannot be called an unpaid seller.
Lien
Where the Property
in Goods has Passed
to the Buyer but not Stoppage in Transit
the possession of
Goods
Rights of an Unpaid Seller Against Goods Resale
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Against the Buyer Suit for Damages
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Suit for Interest
99 Right of lien: Right to lien means that the seller can retain
the possession of the goods until he receives the full price
of the goods. The right to lien can be exercised under the
following three circumstances:
zz When the goods have been sold without any stipulation
as to credit.
zz When the goods were sold on credit, but the credit
period has expired.
NOTE zz When the buyer becomes insolvent.
Lien is of two types- namely
particular lien and general lien. According to Section 47(2), the seller may exercise his right
Particular lien is exercisable of lien even if he possesses goods as an agent or a bailee for
only against goods for which the buyer.
payment is outstanding. General
lien can be exercised for all After a lien has been exercised, it is relevant to determine
previous outstanding amounts. when a lien will be terminated. A lien is terminated when
the seller loses possession of goods. This happens when de-
livery of goods is made by the seller to the carrier or when
the buyer lawfully obtains the possession from the seller
by paying the due amount. A lien may also be terminated
when the seller voluntarily waives off the lien.
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over from the seller to the middlemen till the time the buy-
er receives the goods. If the buyer refuses to take delivery,
the transit continues.
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The transit of goods is terminated in the following cases:
zz Delivery of goods at the intended destination of the
buyer
zz Interception by the buyer
zz Acknowledgement by the carrier to the buyer that he
holds goods on his behalf
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delivery
Suit for interest: A seller may recover such interest from the
buyer if there is an agreement between the seller and the buy-
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er which specifically states about the interest that would be
charged on the price of the goods after the payment becomes
due. However, if there is no specific agreement regarding the
interest payment, the seller may charge interest after notifying
the buyer of the interest that has become due.
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with the vendor. The payment may be made in instalments and the
ownership will be transferred in favour of the buyer only on the com-
pletion of payment of all agreed number of instalments. However, the
buyer can use assets. The main features of a hire purchase agreement
are as follows:
There are two parties, namely the hirer and the hiree (the vendor
or the owner).
Thehirer is the person who makes use of the assets while making
payment of the asset on an instalment basis.
In a hire purchase transaction, there is no transfer of ownership
till the whole amount or until the payment of final instalment.
The transaction is a bailment coupled with the hirer’s option to
purchase by paying all the agreed number of instalments.
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A hire purchase agreement includes two elements, namely an
element of bailment and an element of sale.
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There is no obligation on part of the buyer to purchase the asset.
Options are available with him to either buy or decline the hire
purchase agreement.
The main differences between a hire purchase agreement and sale are
as follows:
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Saleis governed by the Sale of Goods Act, 1930, while the hire
purchase agreement is merely a combination of bailment and sale.
In the case of sale, the ownership is transferred immediately upon
payment while in the case of the hire purchase agreement; only
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the possession with the right to use the asset is given to the hirer.
Payment for a sale may be in cash, credit or instalment, while, in
a hire purchase agreement, the payment is made in instalments.
On the failure of the buyer to make payment, the seller cannot take
back assets but sue the buyer for the unpaid portion of the price.
However, in a hire purchase agreement, the owner can take back
the asset on default by the hirer to pay even a single instalment.
Sale involves price, whereas hire purchase includes some amount
of interest in the total amount of payment.
The buyer, in the case of sale, has the right of resale and the
subsequent buyer shall get a good title. In the hire purchase,
the hirer has no right to sell the asset without the completion of
payment.
Hypothecation Agreement
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1. In a hire purchase transaction, Hypothecation transaction
the possession of the assets is involves the transfer of posses-
transferred to the hirer, but the sion along with the transfer of
ownership remains with the documents of the ownership to
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hiree. the seller.
2. There are two parties, namely There are three parties in hy-
the hirer and the hiree. pothecation namely the seller,
the financier and the borrower.
3. In a hire purchase agreement, Hypothecation includes an
there are two elements, namely element of pledge.
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tion?
a. A type of stipulation
b. Essential for the very purpose of the contract
c. Aggrieved party can terminate the contract
d. Collateral to the main purpose of the contract
5. Contract of sale is a common term and involves sale and agree-
ment to sell. (a) True (b) False
6. Rule as to no liability of seller for the quality or fitness of goods
supplied is usually expressed by the principle of __________.
7. Which of the following rights is available exclusively in case
the property in goods has not passed to the buyer?
a. Right of resale
b. Right of stoppage in transit
c. Right to withhold delivery
d. Right of lien
Activity
Study any case law related to the suit for interest filed by an unpaid
seller. Prepare a synopsis for the case law.
2.4 Summary S
Goods in general refer to merchandise or possessions or articles
that can be bought and sold.
Goods are of three types, namely existing goods, future goods and
contingent goods.
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The Sale of Goods Act, 1930 is the governing law for the contracts
of sale of goods.
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Sale is when the goods are immediately transferred from the seller
to the buyer, whereas agreement to sell is when the seller is to
transfer the goods to the buyer at a future date.
A condition is a stipulation which is essential for the very purpose
of the contract and it gives the aggrieved party an option to
terminate the contract.
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Conditions as to title
Condition in a sale by description
Condition in a sale by sample
Condition as to fitness or quality
Condition as to merchantability
Types of implied warranties include:
Warranty of quiet possession
Warranty as to no encumbrances
Warranty of disclosing the dangerous nature of goods to the
ignorant buyer
Title means ownership. A person who holds the title to the goods
is the owner of the goods.
The transfer of ownership in goods means passing of property in
goods from one person to another.
The time for the transfer of ownership from the seller to the buyer
can be decided by the parties freely.
For deciding the time of passing of property in goods from the
seller to the buyer, the goods are divided into three types, namely
specific or ascertained goods, generic or unascertained goods and
goods sent on approval.
It is not the duty of the seller to point out any defect. The buyer must
make use of his skill and judgement while making the purchase.
The first part of the performance of a contract is delivery.
The second part of the performance of a contract is the buyer’s
acceptance of goods.
The third and last part of performance of contract relates to making
the payment for goods received.
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An unpaid seller refers to a seller who has not received the full
price for the goods sold by him.
Various rights of an unpaid seller include:
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Right of lien
Right of stoppage in transit
Right of resale
Right to withhold goods
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key words
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2.6 Answers and Hints
essential for the very purpose of the contract and it gives the
aggrieved party an option to terminate the contract. Refer to
Section 2.3 Sale of Goods Act, 1930
4. Section 13 of the Sale of Goods Act, 1930 states that a condition
is to be treated as a warranty under three cases as mentioned in
Sections 13(1), 13(2) and 13(3). Refer to Section 2.3 Sale of Goods
Act, 1930
5. The doctrine of Caveat Emptor is a fundamental principle which
means that it is the responsibility of the buyer to check the suit-
ability and defects in a good he is purchasing. Refer to Section
2.3 Sale of Goods Act, 1930
6. An unpaid seller refers to a seller who has not received the full
price for the goods sold by him. The term ‘unpaid seller’ has been
defined in Section 45 of the Sale of Goods Act, 1930. An unpaid
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seller has rights against the goods as well as against the buyer.
Refer to Section 2.3 Sale of Goods Act, 1930
7. Hire purchase is an agreement in which the possession of an
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asset is transferred from one person to another person, but the
ownership remains with the vendor. The payment may be made
in instalments. Refer to Section 2.3 Sale of Goods Act, 1930
Suggested Readings
Kumar, A. (2001). Mercantile Law. Atlantic Publishers & Dist.
Pillai,
R. Legal Aspect of Business (Mercantile Law). New Delhi: S.
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Chand.
e-References
Implied Conditions in the Sale of Goods. (2020). Retrieved 7 April
2020, from https://www.lawyersclubindia.com/articles/IMPLIED-
CONDITIONS-IN-THE-SALE-OF-GOODS–379.asp
Duties of an Unpaid Seller under Sale of Goods Act - iPleaders.
(2020). Retrieved 7 April 2020, from https://blog.ipleaders.in/duties-
of-an-unpaid-seller/
Contents
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3.1 Introduction
3.2 Unincorporated and Incorporated Forms of Business
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3.2.1 Sole Proprietorship—Meaning, Features, Advantages, and Disadvantages
3.2.2 Partnership and the Partnership Act, 1932
3.2.3 Limited Liability Partnership (LLP) Act, 2008
3.2.4 Distinction between Partnership Firm Incorporated under the Partner-
ship Act and Partnership Firm Incorporated under the LLP Act
3.2.5 Hindu Undivided Family (HUF) and its Characteristics
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CONTENTS
3.3.15
Corporate Governance and Corporate Social Responsibility (CSR)
Self Assessment Questions
Activity
3.4 Summary
3.5 Descriptive Questions
3.6 Answers and Hints
3.7 Suggested Readings and References
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Introductory Caselet
Formation of Partnership
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Learning objectives
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>> Explain the changes in a firm, such as retirement, expulsion,
insolvency, and death of a partner
>> Explain the Limited Liability Partnership (LLP) Act, 2008
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>> Discuss Hindu Undivided Family (HUF) and its
characteristics
>> Explain the roles and responsibilities of Karta
>> Explain the concept of a company and its legal characteristics
>> Describe the legal provisions regarding the formation and
incorporation of a company
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3.1 Introduction
Quick Revision
In the previous chapter, you had studied about the Sale of Goods Act,
1930 which is one of the most important laws of contract for conduct-
ing business in India. This chapter discusses the principal forms of
business organisations. The oldest of these forms is the sole propri-
etorship. Most small shops in villages, towns, and cities selling all
kinds of daily-use items are of this kind. In comparison, if two or more
persons decide to set up a business for sharing the profits earned, it
is called a partnership. A partnership between persons can be estab-
lished through an agreement, which can be either written or oral. An
oral agreement is, however, not recognised under the statutory laws
governing partnerships in India. Further, oral agreements may lead
to ambiguity and disputes in future. Hence, it is better to have a writ-
ten agreement between partners. Rights and duties created under the
Partnership Act, 1932, however, can be enforced in a court of law only
if the partnership is registered and a written partnership agreement
is filed with the Registrar. That said, an unregistered partnership firm
can be sued by a third party. The law relating to partnerships in India
is governed by the Partnership Act, 1932 and the Limited Liability
Partnership (LLP) Act, 2008.
In this chapter, we will study the various forms of partnership and the
types of partners. The relationship between partners and their rights
and duties are also discussed. The chapter also discusses different
Acts for various other forms of business establishments such as Hindu
Undivided Family (HUF) and joint stock companies.
Unincorporated and
3.2
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Incorporated Forms of Business
A business can be established in the form of sole proprietorship, HUF,
partnership, or a joint stock company. It depends upon the choice of
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owners to decide the structure of their business. They can choose
either an unincorporated or an incorporated form of business. Incor-
poration of business is a process of creating a separate legal entity for
a business as per the statutory laws. It can reduce the magnitude of
risk and provide tax benefits and legal protection as well. In an unin-
corporated form of business, the owner is responsible for all the liabil-
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Sole proprietorship
Partnership firm (unlimited or limited liability)
HUF
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various tasks.
Liability of the proprietor is unlimited, thereby exposing his/her
personal financial fortunes to great uncertainty.
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Sole proprietorship is the best option for a business in which the
investment and associated risks are few; the nature of business and
decision-making is simple; and customers are in direct contact with
the business. Retail shops, eateries, and businesses based on personal
skills such as beauty salons, consultancy and advisory business, travel
services, transportation, etc., are feasible to be carried out under sole
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beyond which it becomes difficult for the owner to expand. The
growth becomes stagnant as it continues to remain with the sole
owner.
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3.2.2 Partnership and the Partnership Act, 1932
Features of A Partnership
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by a widow of a deceased partner.
The business must be carried on by all or any one of them acting
for all: A partnership is based upon the idea of mutual agency.
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Every partner of a firm has a dual role—the one of a principal and
the other of an agent. In other words, the law of partnership is
an extension of the law of agency. Thus, a partner can bind other
partners by his/her acts done in the ordinary course of business like
an agent. Similarly, he/she is bound by the acts of other partners as
he/she is in the position of a principal herein.
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liability of the partners is joint so that all of them are jointly liable
to pay the debts of the firm.
No separate legal entity: The partnership firm is merely an
‘association of individuals’, where the firm name is only a collective
name of those individuals; the firm does not have the status of legal
entity. Consequently, a firm has no independent legal existence of
its own apart from the persons who constitute it.
Utmost good faith: A partnership agreement is based on mutual
confidence and trust between partners. The partners must,
therefore, be just and honest towards other partners. They must
disclose all the facts and render true accounts relating to the
business of the firm and not make any secret profits. The failure to
observe good faith may lead to the dissolution of partnership.
Restriction on a partner’s transfer of interest to outsider(s)
without the consent of other partners: No partner can transfer
his/her share to an outsider without the consent of all the other
partners.
Unanimity of consent: No change can be made in the nature
of the business without the unanimous consent of all the partners.
Types of PartnershipS
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Partnership for fixed term: It is a form of business partner-
ship that is established for a fixed period of time say 2 years,
5 years, or more years. At the expiry of that period, the partner-
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ship comes to an end automatically.
Flexible partnership: It is a form of business partnership that
is formed not for a particular venture or period.
According to nature of liability: On the basis of nature of liability,
the types of partnerships are as follows:
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partnership. In this case, the partnership gets dissolved on the
completion of the purpose.
There are certain changes that may occur in the constitution of the
firm due to the following events:
Retirement of a partner: Every partner of the firm has the full
right to retire at any time during the course of the partnership.
However, in the case of a partnership at will, a prior notice has to
be given to all the remaining partners, of such retirement.
Expulsion of a partner: In case any partner is found guilty of any
misconduct, the other partners may, by mutual consent, expel the
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guilty partner from the partnership. The most common reason of
the expulsion of a partner is his/her involvement in unlawful acts
against the firm or the partners.
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Insolvency of a partner: When a partner is unable to pay off his/her
liabilities, he/she is said to be insolvent. Upon insolvency, he/she
ceases to be a partner from the date of his/her being adjudicated
as an insolvent.
Death of a partner: If one of the two partners dies, then the
partnership is said to be dissolved. However, if there are more than
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two partners, the death of one of them will not lead to dissolution
of the firm, but will lead to re-constitution of the partnership firm.
Types of PartnerS
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working of the business.
Outgoing partner: A partner who leaves the partnership firm
because of retirement, expulsion, insolvency, or death is known as
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an outgoing partner.
Limited partner: A partner with no personal liability attached
to the business beyond his/her original investment is a limited
partner. The limited partner gets protected from third-party
creditors because of their limited share in the partnership.
Sub-partner: A partner may assign or associate someone for his/
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the sub-partner.
As per the Partnership Act, 1932, there are certain rules that need to
be followed by all the partners. These rules are as follows:
1. Every partner has a right to take part in the conduct of the busi-
ness.
2. Every partner is bound to attend diligently to his/her duties in
the conduct of the business.
3. Any difference arising as to ordinary matters connected with the
business may be decided by a majority of partners, and every
partner shall have the right to express his/her opinion, before the
matter is decided, but no change may be made in the nature of
the business without the consent of all the partners.
4. Every partner has a right to have access to and to inspect and
copy any of the books of the firm.
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tecting the firm from loss, as would be done by a person of or-
dinary prudence, in his/her own case, under similar circum-
stances
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The following are some individual rights of partners:
Right to take part in the conduct of the business [Section 12(a)]:
Every partner has a right to enter into the firm to inspect and see
the day-to-day functioning of the firm in the ordinary course of the
business. He/she can take part in the administration of the firm
and also in the decision-making of the firm.
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by the acts of partners which are done in the ordinary course of busi-
ness. The authority and responsibility of a partner can be classified as
follows:
Express authority: Express authority of a partner is defined in
the partnership deed itself. Every partner’s liabilities and rights,
which are expressed, are mentioned in the partnership deed. The
firm is bound by all acts of a partner done within the scope of his/
her express authority.
Implied authority: This authority allows a partner to perform the
necessary or reasonable duties on behalf of another partner or the
partnership firm entity even though the same may not be expressly
mentioned in the partnership deed; such implied authority can be
inferred from the circumstances of the case.
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The implied authority of the partners in a partnership firm may
include within its scope:
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Making sale and purchase of moveable assets on behalf of the firm
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made by them.
An LLP must have at least two designated partners, out of which
one must be a resident of India.
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An LLP is required to maintain the annual accounts reflecting NOTE
the true and fair position of the statements of accounts, and to LLP is a good hybrid of
file annual statement of solvency of the LLP with the Registrar. partnership and company which
Its annual accounts must be annually audited and filed with the enables professional expertise
and entrepreneurial initiative to
Registrar. operate in a flexible and efficient
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LLP Agreement
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An LLP agreement states the ratio of capital invested by all the part-
ners and their respective profit-sharing ratios. All the provisions
related to capital contribution, such as maintenance of books of
accounts or admission of a new partner into the LLP, are defined in
the LLP agreement.
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(LLP)
Partnership is governed under the Part- LLP is governed under the
nership Act, 1932. LLP Act, 2008.
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The liability of partners is unlimited. The liability of partners is
Therefore, each partner is personally limited.
liable.
A partnership firm has no individual LLP is a legal entity separate
existence apart from its members. from its partners.
The registration of a partnership firm is The registration of an LLP firm
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Characteristics of an HUF
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is unlimited.
Control: The entire business of an HUF is controlled by the Karta
and he/she is the sole person to take all its decisions. He/she may
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choose to consult with coparceners, but he/she can also take
decisions independently.
Joint Hindu Family (JHF) is a concept under the Hindu law where
husband and wife form a JHF. They are further joined by their prog-
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Minor as a Karta
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specific decisions. With the recent amendment of including female as
Karta, scenarios of minors being Karta would not arise.
being hampered, then the Karta can be sued in the court of law.
Accounts: A Karta should maintain the accounts and file tax
returns at the end of every financial year. If the Karta disobeys the
rules of maintaining the accounts, then he/she can be sued in the
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court of law.
Representative: A Karta represents the HUF on all social, legal,
religious, and revenue-associated litigations and situations that
involve HUF’s immovable property.
Suit: Any suit against a Karta also binds all the members of the
HUF.
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Coparceners
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A coparcener is defined as a person who acquires the rights in the
HUF by birth. The coparcener has the right to enforce partition.
According to the Hindu Succession Act, 1956, every male member
born in a family is treated as a coparcener. A coparcener has a legal
right in the ancestral property as a successor. A coparcener has the
right to demand partition in the HUF. Thereafter, as per the Hindu
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When a Karta dies leaving behind his/her property and wealth, the
next senior member of the family has the right to become the Karta
? DID YOU KNOW
of the HUF. As per Section 6 of the Hindu Succession Act, 1955, Kar- When the Karta of an HUF
ta’s death does not result in partition. A coparcener has the right to enters into a partnership with
become the Karta of the HUF. Now, even daughters can become the a stranger, the members of the
Karta of the family. Since daughters have an interest in the copar- family do not ipso facto become
partners in that firm and they
cenary property similar to that of sons, they can also continue their have no right to take part in its
father’s HUF. But a wife does not have the right to become the Karta. management or to sue for its
Hence, the oldest member of the family becomes the Karta after the dissolution.
death of the Karta.
Before 2005, only male members of an HUF used to become the Karta
and the females were not given equal status in the HUF. After 2005,
through an amendment to the Hindu Succession Act, 1956, even
females are entitled to be Karta by virtue of they having share in the
property. Earlier, only male members could be Karta, but now female
members can also act as Karta and can demand HUF partition.
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The death of a partner may lead to The death of any member does not
the dissolution of the partnership lead to the dissolution of the HUF.
deed. But the death of all the members
may lead to the dissolution.
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All the partners equally participate The Kartas take charge and control
in the functioning of the partner- of the HUF.
ship firm.
In the case of a partnership firm, In the case of an HUF, the Karta can
every partner can act on his/her act for the other members of the
own in the firm but will have to family.
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5. A minor has the right to take his/her share of profit from the
business as agreed upon in the __________.
6. A partnership arises from an agreement, whether implied or
expressed.
a. True b. False
7. Limited Liability Partnerships (LLPs) are governed by
the __________.
8. LLPs will have at least two designated partners, out of which
one should be a resident in India.
a. True b. False
9. Who is the head of the family?
a. Karta b. Coparcener
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c. Adult d. None of these
10. What is the minimum number of people required to start an
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HUF?
a. One b. Two
c. Three d. Seven
Activity
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Using the Internet, identify the legal journey that led to the amend-
ment of Hindu Succession Act, 1956 that led to allowing women a
share in the HUF property.
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object of the Companies Act, 2013 is to build a smooth and easy cor-
porate environment marked by simplification and ease of doing busi-
ness, which is critical for India to become more competitive.
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1956, the Act was fully revised and re-enacted as Companies Act, 1956
with several major amendments based on changing business require-
ments, and was recently replaced with the new Companies Act, 2013
which received the President’s assent on 29th August, 2013 and a few
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provisions of the Act were brought into force on 12th September, 2013;
thereafter, from time to time, provisions of the law were brought into
force, and became applicable from the financial year 2014-15. The
Companies Act, 2013 has several major changes including higher
power for shareholders, provisions for corporate social responsibil-
ity and the establishment of National Company Law Tribunal among
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others.
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are considered as movable properties which can be transferred
without the permission of the company, but in a manner provided
in the Articles of Association. The right to transfer shares is a
statutory right and cannot be taken away by making any provision
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to the contrary in the Articles of Association. However, a private
company imposes restrictions on transfer as per Section 2(68).
Separate property: All the property of the company vests
exclusively in itself. The company can control, manage, and hold
the same in its own name. The members neither have ownership
rights in the company’s property (either individually or collectively)
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enforce its rights by filing cases in its own name and without the
requirement of any shareholder joining hands with it. It can also
sue any other company in court against the breach of contract.
Similarly, outside parties can sue the company in its own name for
breach of contractual or statutory duties.
3.3.3 Kinds of Companies
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COMPANIES WITH UNLIMITED LIABILITY
Under Section 29(2) of the Companies Act, 2013 talks about compa-
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nies with unlimited liability in which the company does not have any
limit on the liability of its members; every member is liable for the
debts of the company to an unlimited extent.
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subscribe to its securities. to subscribe to its
share capital.
3. Transferability The right to transfer Its shares are freely
of shares shares by the members is transferable.
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restricted by the Articles.
4. Privileges As there is no involvement All the relevant
of public funds, private provisions of the
companies are exempted Companies Act need
from several provisions to be complied for
of the Companies Act and a greater level of
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Since a company is a legal entity separate from the persons owning its
share capital or running its management, a veil is said to be created
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expression ‘piercing the corporate veil’ is applied to a range of situa-
tions in which the law attributes the acts or property of a corporation
to those who control it.
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The corporate veil can be lifted:
1. By means of judicial interpretation
2. Under statutory provisions
Table 3.4 lists the conditions under which a corporate veil can be lifted:
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Courts can lift the corporate veil Statutory provisions of the Com-
under the following instances: panies Act, 2013 pertaining to the
1. When the character of the com- following instances allow lifting of
pany is to be investigated the corporate veil and investigating
the persons behind the company:
2. When the company acts as an
agent of shareholders 1. When wind-up proceedings
throw up fraudulent activities
3. When the company is formed:
2. When there is a misrepresenta-
zz To evade taxes or against rev- tion in the prospectus
enue interests of the govern-
ment 3. Ultra vires act (beyond one’s
legal power or authority)
zz To evade personal and statuto-
ry obligations 4. A holding company is required to
disclose the accounts of subsidi-
zz To avoid welfare legislation
ary to its members. This amounts
zz To divert business opportunity to lifting of the corporate veil as
to another company holding and subsidiary compa-
4. When the company is used as a nies are separate legal entities.
facade to cover fraudulent and
illegal activities
Promotion
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It is the stage prior to the incorporation and commencement of the
business by a company. Before setting up a company, an individual
called ‘promoter’ has to conceive the idea of the business and work on
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its implementation. The promoter may also take the help from exter-
nal entities such as functional experts in the field, managerial experts,
legal experts, technical experts, etc., towards starting the business.
The relationship between the promoter and the company is a fiduciary
relationship from the day on which he/she starts floating the company
and it continues till he/she hands over the same to the directors.
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Who is a ‘Promoter’?
tion of the company with the intention of starting the business based
on his/her idea is termed as the ‘Promoter’. A promoter is a person
who forms a company and takes all the essential steps for the registra-
tion of the company.
According to Section 2(69) of the Companies Act, 2013, the term ‘Pro-
moter’ can be defined as the following:
A person who has been named as such in a prospectus or is
identified by the company in the annual return in Section 92; or
A person who has control over the affairs of the company, directly
or indirectly whether as a shareholder, director or otherwise; or
A person who is in agreement with whose advice, directions, or
instructions the Board of Directors of the company is accustomed
to act.
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To disclose material facts regarding the property which he/she
wants to sell to the company
Not to make unfair use of his/her position and to avoid doing
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anything which has the appearance of fraud or undue influence
To give the benefit of negotiations to the company
Incorporation
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S
A declaration by members subscribing to the MoA and AoA and
first directors named in the Articles that they are not convicted
in any offense or any fraud or any breach of duty under the Act
and that all the information given in the documents is true to their
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knowledge.
Address for correspondence till registered office is established.
Particulars of personal details of subscribing members who have
signed the MoA and AoA and the personal details and interests of
first directors named in the Articles.
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Certificate of Incorporation
Commencement of Business
Floating/Raising of Capital
Newly formed companies raise capital from the capital brought by the
promoters and their friends and families, the venture capital firms,
private equity funds, and other such special avenues available for
entrepreneurs.
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A private limited company can raise equity capital through rights
issue or private placement.
A public offer may be an IPO made when the company raises capital
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for the first time from the capital markets or by offering the general
public to subscribe to the shares of the company in the primary mar-
ket through the issue of a ‘Prospectus’.
Companies that have already raised equity capital from the public
before and intend to raise further equity capital with Follow on Pub-
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Clauses of MoA
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lows:
Name Clause: The name of a public company registered with the
ROC should mandatorily end with the term ‘Limited’, and that of a
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private company must end with ‘Private Limited’.
Domicile Clause: This clause states the location of the registered
office of the company. It specifies the union territory or state of the
registered office. It is the second clause of the MoA.
Object Clause: The Object clause states the objects of the company
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Alteration of MoA
ument are strictly regulated by the provisions of the Act. Though any
of the clauses of the memorandum can be altered, several restrictions
have been put in place. Some of the alterations require a general res-
olution (more than 50% majority); some alterations require a special
resolution (more than 75% majority); and others require Central Gov-
ernment approval in addition to a resolution.
AoA specifies the rules, regulations, and bye-laws for the internal
administration and management of the company. It governs the rela-
tionship between the company and its constituent members by pre-
scribing their rights and obligations. An act of a company in contra-
vention with the AoA is not null and void. It is merely irregular and
can be ratified by means of a special resolution.
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Contents of the AoA pertain to the following subject matters:
Share capital and rights attached to different classes
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Procedures regarding making calls and forfeiture of shares
Appointment of managerial personnel, their power, rotation,
duties, etc.
Rules regarding matters such as transfer of shares, issuing of shares,
general meetings, common seal, dividends and reserves, accounts
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Importance of AoA
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MoA and AoA, once registered, binds the company and its members to
its clauses and puts them under observation. The AoA helps in over-
coming the day-to-day problems and issues in the functioning of the
company. Simply put, Articles are the rules, regulations, and bye-laws
for the internal management of the affairs of the company. AoA estab-
lishes a formal and ethical relationship between a company and its
shareholders in order to bind the members to the company and the
company to its members. It constitutes a contract between a company
and its members in respect of rights and liabilities as members. Arti-
cles usually contain provisions relating to share capital and variation
of rights, transfer of shares alteration of capital, general meetings, vot-
ing rights, proceedings of the Board, dividends and reserves, winding
up, and the like.
As per the Companies Act, 2013, a company can alter its Articles even
with a retrospective effect. AoA can be changed by passing a special
resolution. The following are the provisions with regard to the alter-
ation of Articles:
AoA can be altered only through a special resolution.
AoA cannot go beyond any provisions of the MoA or of the
Companies Act, 2013.
AoA cannot be illegal, contrary to any statute or public policy.
Alteration in the AoA must be done in good faith and for the benefit
of the company as a whole.
Alteration cannot increase the liability of the existing members to
contribute to the share capital, nor can the board of directors expel
a member by altering the Articles.
A listed company can alter its AoA only with the approval of
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concerned stock exchange.
Alteration of AoA with the effect of converting a public company
into a private company can happen only after an approval from the
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central government.
According to Section 10 of the Act, the MoA and AoA shall, when regis-
tered, bind the company and the members thereof to the same extent
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S
It is a public document that invites the general public for subscription
of the share capital in a public company. The prospectus is a disclo-
sure document inviting public to subscribe for the securities of the
company to enable the investors to take rational investment decisions,
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and to protect their rights by giving various material facts and pros-
pects about the company.
Contents of A Prospectus
Authority for the issue and the details of the resolution passed
Capital structure of the company
Main objects of the public offer
Terms of the present issue and such other particulars
Main objects and present business of the company
Schedule of the implementation of the project
Particulars relating to the management’s perception of risk factors
specific to the project
Gestation period of the project
Extent of progress made in the project
Deadlines for the completion of the project and any litigation or
legal action pending
Disclosures about the source of a promoter’s contribution
Reports by the auditor of the company with respect to its profits
and losses, assets and liabilities, etc.
Private Placement
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A company making private placement shall issue private placement
offer and application in the form and manner prescribed to identified
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persons, a select group of people only. The offer or invitation to sub-
scribe shall be made through private placement offer-cum-application
that satisfies all the conditions of Section 42 of the Companies Act,
2013. A company issuing securities under this section shall not release
any public advertisements or use media.
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and equity are the two ways through which a company can fund its
operation. The mix of debt and equity is a cost-effective way of cor-
porate financing. Shares are used to raise the capital that is owned
by the company’s shareholders. On the other hand, debentures as a
debt instrument are a secured way of raising capital with a fixed rate
of interest.
Types of Shares
There are two major types of shares: equity shares and preference
shares. The description of these types is as follows:
1. Equity shares (or ordinary shares), apart from the rights men-
tioned above, give its owner the right to vote during resolutions
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passed in company’s general meetings, thereby giving him/her
the right to participate in the decision-making of the manage-
ment. Other characteristics of ordinary equity shares are as fol-
lows:
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Owners of equity shares are entitled to dividends out of prof-
its as declared in an annual general meeting.
For the purposes of dividend and repayment of capital, they
rank after preference shares. Dividends can be declared only
after dividends are paid for preference shareholders.
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Exhibit
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company cannot issue any irredeemable preference shares.
Debentures
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Debentures are the instruments of a company evidencing a debt,
whether constituting a charge on the assets of the company or not.
‘Debenture includes debenture stock, bond, or any other instrument
of a company evidencing a debt, whether constituting a charge on
the assets of the company or not. Debentures can be secured or unse-
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Features of Debentures
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before the maturity date at a certain price. The call price is usually
more than the issue price.
Control: Debenture-holders are considered as company’s creditors.
They do not have any control over the managerial operations and
voting rights. At the time of liquidation, the company has prior
claims over shareholders.
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owners of the company. as the creditors of the company.
Dividend is paid only if the com- It is mandatory to pay interest to
pany earns sufficient profit. debenture-holders irrespective of
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profit or loss.
Shareholders bear high risk as Debenture-holders bear less risk as
shares are unsecured in nature. debentures are secured in nature.
They have voting rights and attend They do not have voting rights and
the general meetings of the compa- are not authorised to attend the
nies. general meetings of the companies.
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Any interest that has to be paid to Interest has been paid first and
the shareholders will be paid only foremost to debenture-holders.
after all the other claims have been
settled.
Shareholders can convert their Debenture-holders can never con-
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owned by shareholders, they are not involved in the management
of its business. Shareholders, as principals, set the objectives
and goals for the company through their agents in terms of their
representatives. The representatives are the directors of the
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company who, in turn, appoint managers to run the company.
In every company, there is the separation of ownership and
management. The management of the company is handled by
the board of directors, whereas ownership lies in the hands of
shareholders. The shareholders do not have the right to take
part in the management activities as the decisions related to the
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the provisions of the Act in this regard, which they can delegate
to other managerial personnel. In accordance with this power,
the company can make an arrangement with bankers to borrow
money by way of overdraft, cash credit, and other types of loans.
The Companies Act, 2013 attempts to codify the duties of directors,
including (but not limited to) the following: They are required to
(a) act in good faith and in the best interest of the company, (b) not
to have direct or indirect conflict with the interests of the company,
and (c) exercise duties with diligence and reasonable care. The
Companies Act, 2013 declares that it would be a punishable offence
to commit a breach of those duties. The liability of the director in
default for contravention shall not be less than ` 1,00,000, which
may extend to ` 5,00,000.
Key managerial persons: Key managerial personnel, in relation to
a company, means:
the Chief Executive Officer (CEO) or the managing director or
the manager
the company secretary
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the relations and the respective rights and responsibilities of the board
of directors, managers, and shareholders. This structure further aids
in formulating the rules and procedures to make decisions on cor-
porate affairs as it offers the structure through which the company
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objectives are set, as well as the means of attaining and monitoring the
performance of those objectives. The fundamental concern of corpo-
rate governance is to ensure the conditions whereby an organisation’s
directors and managers act in the larger interests of the organisation
and its shareholders in particular and stakeholders in general, and to
ensure the means by which managers are held accountable to capital
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upon which corporate governance is built. It provides the rules for the
boards of directors and their shareholders, the meaning of account-
ability for the exercise of corporate economic power, and the remedies
and punishments for negligent, irresponsible, and fraudulent abuses
of that power.
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in general meetings;
Disclosure and transparency-related issues, if any;
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Any other matter, as the Committee deems fit, pertaining to
corporate governance in India.
wise, were to come into force with effect from April 1, 2019. Some of
the amendments were as follows:
Role and composition of the board of directors: There has to be
a proper representation of the board by appointing six directors
and maximum number of directorships an individual can take is
reduced to seven.
Compulsory woman director: In order to ensure gender diversity,
one woman director needs to be present as director. In April,
2019, this amendment was applicable on top 500 listed companies.
From April, 2020 onwards, it became applicable on top 1000 listed
companies.
Disclosure and transparency: The information related to the
holder of depository receipts, institutional/investors meet, all
credit ratings obtained by the entity, key changes in financial
parameters, long-term and medium-term strategies, utilisation of
proceeds Private Investment or Qualified Institutional Placement
(QIP) and disqualification of directors need to be disclosed.
One of the scams that strengthened the need for corporate governance
is listed as follows:
UCO Bank Security Scam carried out by Harshad Mehta in the
(Year 1992)
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tematic fraud committed by Harshad Mehta in the Indian stock mar-
ket. The entire security system of the Indian stock market collapsed
as a result of a fraud of over ` 1000 crore from the banking system of
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India to buy stocks on the Bombay Stock Exchange. The officials of
UCO Bank in this case illegally borrowed ` 40 crore in money market
and placed the funds in the hands of late Mr. Mehta for his own use.
All the public servants accused were asked to pay a fine of ` 1 lakh
each. They were convicted of offences under 120-B IPC (conspiracy),
409 IPC (criminal breach of trust), and Section 13(2) read with Section
13(1) (D) of PCA. CBI registered the case in June 1992 against the
accused.
The Ministry of Corporate Affairs has notified Section 135 and Sched-
ule VII of the Companies Act as well as the provisions of the Compa-
nies (Corporate Social Responsibility Policy) Rules, 2014 (CRS Rules)
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which has come into effect from 1st April, 2014.
Section 135 of the Companies Act provides the threshold limit for
applicability of the CSR to a Company, i.e.,
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(a) net worth of the company to be ` 500 crore or more
(b) turnover of the company to be ` 1000 crore or more
(c) net profit of the company to be ` 5 crore or more
Further, as per the CSR Rules, the provisions of CSR are not only
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and positions its exports in global markets, also motivating the firms
to perform CSR. There is a significant opportunity for the public sec-
tor to harness business enthusiasm for CSR to help achieve its goal of
reducing poverty.
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was unearthed much later. Customers suffered huge personal
losses and damages due to faulty products produced by the
company. Customers sued the company for getting compen-
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sation for damages suffered. In this case,
a. the shareholders who were instrumental in setting up the
company were also liable to pay for damages, if any, award-
ed by courts
b. promoter shareholders are liable to compensate monetari-
ly the affected consumers
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d. All of these
12. The term ‘corporate veil’ means
a. separation of the company as a separate legal entity from
that of persons behind it
b. the protection offered to consumers dealing with the com-
pany
c. perpetual existence of the company
d. None of these
13. The partnership form of business can lead to unlimited liabil-
ity for partners.
a. True b. False
14. The legal provisions regarding private limited companies are
less strict than public limited companies. Choose the best rea-
son from the given choices:
a. Private limited companies have a limited number of share-
holders.
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and can probe into the persons behind the company only
in case of fraudulent or illegal activities, and misdeeds.
d. Both b. and c.
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16. Choose the wrong statement with regard to the term ‘pro-
moter’ of a company.
a. A promoter is a person who is identified so in the prospec-
tus.
b. A promoter is a person who has a control over the affairs of
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the company.
c. A promoter is a person who instructs and advises the
Board of Directors.
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S
a. To define the scope of business activities of the company
b. To define the organisational structure of the company
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c. To stipulate the rules, regulations, and bye-laws regarding
internal management
d. None of these
21. It is more difficult to alter the clauses of the Articles of
association than the clauses of the Memorandum of Associa-
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tion.
a. True b. False
22. The Memorandum of Association and Articles of Association
bind a company and its members as if the company and the
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members.
b. Those who are listed as members in the memorandum can
only be termed as its members and not all shareholders.
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c. Those who are registered as members (or beneficial own-
ers in depositories) with the registrar of companies are its
members.
d. Both a. and c.
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Activity
3.4 Summary S
Sole proprietorship refers to the type of business that is operated
by a single person, though he/she may take the help of his/her
family members for the purpose of running it.
A sole proprietorship is the best option for a business in which
investment and risks associated with it are few, the nature of
business is simple, decision-making is simple, and customers are
in direct contact with the business. Partnership is ‘the relationship
between persons who have agreed to share the profits of a business
carried on by all or any one of them acting for all’.
A partnership is based upon the idea of mutual agency. Every
partner of a firm has a dual role—the one of a principal and the
other of an agent. In other words, the law of partnership is an
extension of the law of agency.
A partnership deed is a written agreement made between the
partners, which delineates the rights and duties of the partners,
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company are seven and two, respectively.
A company is artificial in nature as it is invisible, intangible,
immortal, and exists only in the contemplation of law. Due to its
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artificial nature, it needs to be operated by the Board of Directors
consisting of individuals.
The two major kinds of companies are statutory companies and
registered companies.
Before setting up a company, an individual called ‘promoter’ has to
conceive the idea of the business and work on its implementation.
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S
tainable development agenda, and society at large.
key words
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Board of Directors (BOD): A collective body of directors of a
company
Insolvent: A person who is unable to pay off the liabilities due
on him
Joint stock company: A separate legal entity in which a member
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S
Topic Q. No. Answer
Unincorporated 1. Sole proprietorship
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and Incorporated
Forms of Business
2. legal relation
3. a. True
4. d. Partnership between minors
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5. partnership deed
6. a. True
7. Limited Liability Partnership Act, 2008
N
8. a. True
9. a. Karta
10. b. Two
Companies Act, 11. c. Compensation cannot go beyond the
2013 proceeds of the sale of assets of the
company after paying creditors and
shareholders are not liable in any way.
12. a. Separation of the company as a sepa-
rate legal entity from that of persons
behind it
13. a. True
14. b. Private limited companies cannot
raise capital from the general public.
15. d. Both b and c
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22. a. True
23. b. False
24. d. All of these
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25. c. It should make statements with scru-
pulous accuracy and avoid statements
which are not strictly correct and,
thereby, reflect the true nature of the
company’s venture.
26. d. Both a and c
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S
3.7 Suggested Readings & References
Suggested Readings
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Pathak, A. (2021). Legal Aspects of Business. Tata McGraw-Hill.
Ramaiya (Revised by Arvind P Datar, Balasubramanian S). (2014).
A Ramaiya Guide to the Companies Act, 18th Edition. Lexis Nexis.
E-References
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Contents
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4.1 Introduction
4.2 Negotiable Instruments Act, 1881
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4.2.1 Scope, Features and Importance of Negotiable Instruments Act, 1881
4.2.2 Types of Negotiable Instruments
4.2.3 Recent Amendments in the Negotiable Instruments Act, 1881 and their
Impact
4.2.4 Payment and Settlement Systems Act, 2007 and its Features
4.2.5 Penalties and Punishment under Negotiable Instruments Act, 1881 and
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CONTENTS
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4.7 Descriptive Questions
4.8 Answers and Hints
4.9 Suggested Readings & References
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N
Introductory Caselet
Toyota launched the world’s first commercial hybrid car called Case Objective
‘Prius’ in Japan in 1997, which was subsequently introduced in
This caselet discusses
other countries like UK, USA, Australia, etc., in 2001. The trade whether Toyota has a valid
name ‘Prius’ was initially registered in Japan in 1990 followed claim on its registered trade
by registration in 28 other countries. The car was, however, not name?
introduced in India till 2009. Considering the trade name to have
become well established, it thought itself as the natural owner of
the trade name all across the globe. To its dismay, the company
discovered that the same trade name has been registered in 2001
in India by a small auto-parts manufacturer. The auto-supplier
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was making supplies to several major automobile manufacturers,
like Hyundai, GM and even Toyota. The Indian company claimed
to have got the Latin word ‘Prius’ from English Dictionary as a
substitute for the Sanskrit phrase ‘pehla prayas’ meaning ‘to
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come first’. It further claimed its intention to use this trade name
for their new product ‘Add-On Chrome-Plated Accessories’ and
that it has nothing to do with Toyota’s Prius.
PASSING-OFF
Introductory Caselet
reputation, and popularity in the market where the suit for pass-
ing off is brought. However, the passing-off action will fail if such
proof does not relate to the relevant jurisdiction in which it has
been filed.
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protection afforded to unregistered trademarks is also available
for foreign trademarks which have built a reputation in a particu-
lar country through extensive advertisements and publicity. The
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trans-border reputation can enable a global manufacturer to seek
injunction in the courts of the country in which he is not trading.
THE VERDICT
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Based on the logic of territorial rights, the Delhi High Court issued
an injunction order against the Indian auto spare parts maker
(defendant) using the registered trademarks of Toyota. Toyota (the
Plaintiff) filed an appeal before the Division Bench of the High
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All this upheld the Delhi High Court order and granted the rights
for the usage of the trademark ‘Prius’ to the defendant as there
were not sufficient enough proofs of reputation of ‘Prius’ in the
Indian market.
Learning objectives
4.1 INTRODUCTION
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In the previous chapter, you studied the incorporated and unincorpo- Quick Revision
rated forms of business and the Companies Act, 2013. In this chapter,
you will study various laws that commonly affect businesses.
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A negotiable instrument is essentially a document that promises a
sum of payment to a specific person or the bearer of the instrument
at a specified date. The Negotiable Instruments Act, 1881 is the gov-
erning act for negotiable instruments which include cheques, bills of
exchange and promissory notes.
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S
NEGOTIABLE INSTRUMENTS ACT, 1881
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Right to file a suit: In case the instrument is dishonoured, the
transferee or the payee has the right to file a legal suit.
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Presumptions: There are certain presumptions that apply to
a negotiable instrument like (i) the instrument was for a valid
consideration; (ii) every transfer of the instrument is presumed to
have been made before it attained maturity; (iii) every holder of
instrument is a holder in due course; (iv) in a suit for the dishonour
of instrument, it is presumed that it was dishonoured till such time
that the other party can prove it was not
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With respect to promissory notes, there are two parties, namely the
maker/payer/drawer and the drawee/payee. Maker is the one who
makes the promissory note and payee is the one to whom the promis-
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MARK IT! only to a certain person or to the bearer. In a bill of exchange, there
are three parties, namely drawer, drawee and payee. The drawer is
Section 5 of the Act defines the person who draws the bill of exchange. The third party to whom
the bill of exchange as an
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instrument, in writing, containing
the order to pay money is given is called the drawee and the person to
an unconditional order, signed whom the payment is to be made is called the payee.
by the maker, directing a certain
person to pay a certain sum of Some important elements of a bill of exchange is as follows:
money only to, or to the order of,
Written form
a certain person or to the bearer
of the instrument. Express order to make payment
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Names of parties
NOTE Signed by the drawer
Section 6, Explanation I, Clause Amount of money must be fixed
(a) as amended by Act 26 of
2015 defines `a cheque in Stamping of bill is essential under the provisions of the Indian
electronic form’ as a cheque Stamp Act, 1899.
drawn in electronic form by using
any computer resource and signed
in a secured system with a digital CHEQUE – TYPES AND LEGAL VALIDITY
signature (with or without biometric
signature) and asymmetric crypto A cheque is a special kind of bill of exchange that is drawn on a spec-
system or with an electronic ified banker and is payable only on demand. A cheque also includes
signature, as the case may be. the electronic image of a truncated cheque and a cheque in the elec-
tronic form.
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Types of Cheques
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June 2020 is a post-dated cheque and will be valid for three months
from the date mentioned on the cheque.
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There are certain types of cheques that are mentioned in the Negotia-
ble Instruments Act, 1881 as follows:
Cheques crossed generally: Section 123 of the Negotiable
Instruments Act, 1881 states that when a cheque bears two
parallel transverse lines or some words or company name or any
abbreviation with or without the words ‘not negotiable’ between
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S
is found guilty by the trial court, that person has a right to file
an appeal in the Appellate Court. However, such an appeal can
only be submitted in the appellate court if the petitioner/appellant
deposits a minimum of 20% of the fine/compensation awarded as
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interim compensation paid under Section 143A. If the appellant
is acquitted of the charges, the amount is refunded back along
with applicable interest to him. Such amount has to be paid within
60 days from the date of order.
ITS FEATURES
It is a known fact that all countries need money for carrying out their
economic activities, such as trade and commerce, which is essential
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for taking care of the demand and supply of goods and services. Trade
and commerce transactions require payments of money and settle-
ment of dues. The efficiency of an economy depends on the reliability
of the payment and settlement system of the country.
There are two regulations that have been made by the RBI in the PSS
Act, 2007. The first regulation is related to the Board for Regulation
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Documentation
4.2.5 P
ENALTIES AND PUNISHMENT UNDER NEGOTIABLE
INSTRUMENTS ACT, 1881 AND PAYMENT AND
SETTLEMENT SYSTEMS ACT, 2007
Section 138 of the Negotiable Instruments Act, 1881 deals with penal-
ties that can be imposed if a cheque is dishonoured due to insufficient
funds. According to this Section, if a cheque is drawn by a person on
an account that is operated under his name with a particular banker
for the payment of a sum of money to another person for the discharge
of any debt or liability, and it is returned by the bank due to insuffi-
cient funds, the bank will not release the required sum of money and
such a cheque will be dishonoured. If a cheque issued by a drawer is
dishonoured, the drawer is said to have committed an offence. If this
offence is proved, the drawer may be punished with imprisonment for
a term that may extend up to 2 years or a fine twice the amount of the
cheque.
In Dayawati vs. Yogesh Kumar Gosain case, the Court held that it is
legal to refer a criminal compoundable case as one under Section 138
of the Negotiable Instruments Act, 1888 to mediation. In this case, the
fundamental issue is related to the settlement of disputes in criminal
law through alternative dispute mechanisms. The Court, in order to
S
arrive at its decision, studied the distinction between different kinds
of criminal offences, i.e., compoundable and non-compoundable
offences. The Court stated that there is no express statutory provision
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in the legislation that enables the criminal courts to refer the com-
plainant and accused persons to Alternate Dispute Redressal (ADR)
mechanism; but the Code of Criminal Procedure does permit and
recognise settlement without stipulating or restricting the process by
which it may be reached. There is, thus, no bar in utilising the alter-
nate dispute mechanism including arbitration, mediation, conciliation
(recognised under Section 89 of Code of Civil Procedure) to settle dis-
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putes that are the subject matter of offences covered under Section
320 of the Code of Criminal Procedure.
Activity
Now, organisations are going global and are selling their goods and
services in various countries across the globe. It must be remembered
that Intellectual Property Rights (IPRs) are country-specific. There-
fore, specific IPRs and laws of the country where an organisation
wants to do business must be ascertained.
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In India, there is a well-established, statutory, administrative and judi-
cial framework for safeguarding IPRs. India is a member of the WTO
and is a signatory to the TRIPS agreement. The TRIPS agreement
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is an international and legal agreement signed between all member
countries of the WTO. It means that India complies with the obliga-
tions under the TRIPS agreement by introducing and amending dif-
ferent laws relating to IPRs.
In India, trade secrets and know-how are not protected under any
particular IPR law. However, these are protected by the common law
of India. Trade secrets are protected using the law for breach of con-
fidentiality.
IPRs are similar to any other rights that enable their creators or own-
ers to benefit from their own work or investments. These recognition
of a persons right to ownership and protection of IPRs are mentioned
in Article 27 of the Universal Declaration of Human Rights. There
were two major treaties, namely Paris Convention for the Protection
of Industrial Property (1883) for Patents and the Berne Convention
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standing are divided into two categories as shown in Figure 4.1:
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Copyrights (Literary Patents (Inventions)
and Artistic Works)
Geographic
Intellectual Industrial Property Indications
Property
Property (Trade
Secrets, Know how
and Confidentiality) Designs
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Trademarks
Copyrights
Designs
Biodiversity-Geographical Indications
Registration of designs of Semiconductors and Integrated Circuits
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Trade Secrets
India has implemented its obligations and made laws relating to IPRs
as per the TRIPS Agreement. A few of the major legislations com-
ing out of TRIPS are: the Patents Act, 1970, amended by the Patents
(Amendment) Acts of 1999, 2002 and 2005. Rules implemented under
the Patents Act are: the Patents Rules, 2003; the Patents (Amendment)
Rules, 2005; and the Patents (Amendment) Rules, 2006. In India trade-
marks are regulated under the Trade Marks Act, 1999 and copyrights
are registered and regulated under the Copyrights Act, 1957. Similarly,
we have the Geographical Indications of Goods (Registration and Pro-
tection) Act, 1999 that defines and prescribes rules for geographical
indications in India.
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There are three main features of the TRIPS agreement which are:
1. Standards: These are the minimum standards of protection that
must be provided by each member country in respect of each
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type of IPR.
2. Enforcement: The TRIPS agreement contains provisions that
describe the domestic procedures and remedies for enforcing
IPRs.
3. Dispute prevention and settlement: Disputes among the mem-
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In India, patents are regulated by the Patents Act, 1970 whose major
provisions came into force on 20th April, 1972. This Act was amended
from time to time and was given the name the Patents (Amendment)
Acts of 1999, 2002 and 2005 along with Patents Rules. The Patents
Rules were last amended in 2017. Patents now extend to all fields of
technology, such as food, drugs, chemicals and microorganisms.
A patent is a document that represents certain rights that give the cre-
ator or developer the sole right over their creations. Patents are issued
by an issuing authority of a country after receiving the application by
the owner of an invention. The rights given by patents ensure that the
patent holder has the rights to make, use, manufacture and market
the invention if the invention satisfies certain stipulated conditions.
motivates them to undertake more and more innovations that help the
society.
A patent gives an inventor the right to own, use or sell the invention,
method or process for a specified period. Patented products help in
increasing the level of industrial innovations which leads to the growth
of the nation.
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A patented article includes an article made by a patented process.
The person to whom the patent is granted and whose name is
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entered in the Register of Patents is called a patentee.
Patenting is mandatory for recognition and protection.
Patenting helps in preventing its breach, warding off pre-emptive
patenting and successful prosecution of infringers.
There are 3 criteria for fulfilling a patent: (i) Novelty, (ii) Non-
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NATURE OF PROTECTION
Under the Patents Act, 1970, the country gives a patent-holder (or pat-
entee/inventor/signee) the exclusive rights for a fixed period of time
(period of protection) for his/her invention.
PERIOD OF PROTECTION
AUTHORITY
The offices and authorities that regulate the patent, trademarks and
geographical indications in India are shown in Figure 4.2:
Organisation chart
Ministry of Commerce & Industry
Geographical Indications
The Patent Office Trade Marks Patent
Registry The Graphical
The Patents Act, Registry The Designs Information
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Indication of Goods
1970 (Amended in Trade Mark Act, 2000 System and
(Registration & Protection
1999, 2002 & 2005) Act, 1999 NIIPM (IPTI)
Act, 1999)
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Mumbai Head Registry Chennai Kolkata Nagpur
Kolkata Head Office Br. Registry at
New Delhi Branch Office New Delhi
Chennai Branch Office Kokata
Mumbai Branch Office Chennai
Ahmedabad
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From Figure 4.2, it is clear that there are four patent offices located
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at Kolkata, New Delhi, Chennai and Mumbai. The application for the
patents can be filed in any of these patent offices.
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Indian works are also secured in foreign countries because India
is a member of international conventions on copyrights and
neighbouring rights, such as the Berne Convention of 1866 and the
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Universal Copyright Convention, 1971. India is also a signatory to
the WIPO Copyright Treaty, 1986 and the WIPO Performance and
Phonogram Treaty (WPPT), 1996.
Period of Protection
for lifetime of the author and 60 years from the year following the
death of the author. In the case of original literary, dramatic, musical
and artistic works, the period of copyright protection lasts 60 years
from the year following the death of an author. If there is more than
one author, the copyright protection lasts for 60 years following the
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Authority
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A mark capable of being represented graphically and which is
capable of distinguishing the goods or services of one person from
those of others and may include shape of goods, their packaging and
combination of colours.
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A registered trade mark or a mark used in relation to any goods in
the course of trade which shows that the user of the mark has the
right as proprietor to use the mark.
A mark used or proposed to be used in relation to goods or services for
the purpose of indicating or so to indicate a connection in the course
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of trade between the goods or services as the case may be, and some
person having the right, either as proprietor or by way of permitted
user, to use the mark whether with or without any indication of the
identity of that person, and includes a certification trade mark or
collective mark.
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R C P
TM SM
Know More
Trademarks can be divided into
Figure 4.3: Trade Marks, Service Marks and Registered Marks
the following categories:
Source: https://www.dreamstime.com/registered-trademark-copyright-patent-service-mark- yyWord mark (word or letters,
icon-set-image146450985 slogans or taglines)
yyDevice mark (logo, combi-
Elements nation of words, pictures or
drawings)
Some of the important elements of the Trade Marks Act, 1999 are as yyColour mark
follows: yyShapes of goods
Itgives exclusive rights of using trade marks to a registered yySound mark
proprietor. yyThree dimension mark
It provides for the registration of trade marks for goods and services.
Period of Protection
The trade mark registration is valid for 10 years from the date of appli-
cation. A trade mark can be renewed from time to time after the appli-
cant has made the application for renewal. It is renewed for 10 years
from the date of expiry of the original registration or the last renewal
of registration.
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Authority
Section 83 of the Trade Marks Act, 1999 empowers the central gov-
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ernment to constitute an appellate board known as Intellectual Prop-
erty Appellate Board (IPAB). The IPAB hears appeals against the
decisions made by the Registrar under this Act.
Elements
Nature of Protection
In India, trade secrets are not covered by any law. Article 39 of the
TRIPS agreement protects trade secrets as undisclosed information.
Each member country of the TRIPS agreement protects trade secrets
and provides a uniform mechanism for protecting trade secrets.
Period of Protection
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are examples of trade secret.
Authority
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There is no specified authority that looks after disputes relating to
trade secrets. Only the judicial system of each member of TRIPS
determines the requirements for obtaining the protection of a trade
secret.
Explanation: For the purposes of this clause, any name which is not
the name of a country, region or locality of that country shall also be
considered as the geographical indication if it relates to a specific geo-
graphical area and is used upon or in relation to particular goods orig-
inating from that country, region or locality, as the case may be.
Elements
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Some important elements of GIs are as follows:
The GI’s register is maintained in two parts, Part A and Part B.
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Part A contains all registered GIs and Part B contains the details
of registered authorised users.
GIs are registered in different classes.
Certain GIs are prohibited from being registered.
The law empowers the central government to make laws and rules
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Period of Protection
GIs are registered for 10 years and can be renewed from time to time.
Similarly, authorised users are registered for a period of 10 years or
till the date on which the registration of the GI in respect of which the
authorised user is registered expires.
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shape, pattern, colour of good, etc. Industrial designs are protectable
if they are new and original.
Elements
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In India, industrial designs are governed by the Designs Act, 2000; the
Designs Rules, 2001; the Designs (Amendment) Rules 2008; and the
Designs (Amendment) Rules 2014.
Some of the important elements of the Designs Act, 2000 are as fol-
lows:
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As per the Designs Act, 2000, India has adopted the Locarno
classification for the registration of industrial designs and this
classification is based only on the subject matter of design.
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The design must be such that it does not hurt the sentiments of
the people.
Period of Protection
The diversity that exists in various life forms on the earth is known
as biodiversity. Biodiversity is an essential feature of the earth and is
important for the functioning of the ecosystem.
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associated knowledge along and intellectual property which is depicted at international level using
with facilitating the access to several treaties. India also has ratified the CBD treaty and has enacted
these resources in a sustainable the Biological Diversity Act, 2002.
manner.
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Elements
Committees (BMCs)
Creating biodiversity funds at national, state and local levels and
using them for conserving biodiversity
Respecting and protecting the knowledge of local communities
Protecting biodiversity-related traditional knowledge
Conserving biological diversity sites
4.3.2 IMPACT OF IPR
Prior to the development of the IPR laws in India, the risk of infringe-
ment of IPRs was extremely high. In the absence of strong IPR laws,
individuals and organisations did not show much interest in R&D
works in India which resulted in a low rate of innovations and inven-
tions, high risk of infringement and monetary loss. To mitigate and
handle this situation, India strengthened its IPR regime by enacting
various laws related to IPRs that you have read about in the preceding
sections.
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tection provisions can affect businesses which would further impact financial aid to technologists
job creation and consumerism. and researchers. All this has
strengthened the status of
Most of the developing nations including India have made various R&D in the country.
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reforms in respect of IP enforcement methods because the methods
underlined in the TRIPS agreement are quite stringent. The enforce-
ment in these countries is often restricted.
In case the IPRs of an owner are contravened, the owner has the right
to seek either reactive or proactive enforcement. Some of the infringe-
ment remedies that are available to the owner of IP are:
Stop unauthorised use of IP
Prevent any further infringements
Obtain recovery
Seek compensation for the damages
owner has the option to seek a legal remedy which may be a civil or
criminal remedy.
Civil and criminal remedies are mentioned under these laws for IPR’s
NOTE enforcement.
Some of the proactive
enforcement remedies available In case of IP infringement, civil remedies may be enforced by filing
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in case of IP violations include infringement suit in a designated and competent court. The court may
civil remedies and criminal
grant reliefs of civil nature as follows:
remedies. Civil remedies include
infringement and passing off, Injunction: An injunction suit prohibits an action by a party to a
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whereas criminal remedies
lawsuit.
include administrative actions.
Anton pillar order/ex-parte orders: Such an order permits the
lawyer of the party who files the suit (plaintiff) to enter into the
premises of the infringers so that he/she may seize the evidence of
infringement.
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Bayer Corporation and Ors. Vs. Union of India and Ors. 162(2009)
DLT 371 (Decided on 18th August, 2009)
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India and only the Controller of Patents has the authority to deter-
mine patent standards. It was also held that mere market approval
of a drug does not lead to patent infringement and the jurisdiction of
which does not lie with the drug authorities.
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Indian Performing Rights Society Vs. Eastern Indian Motion Pic-
tures Ltd. AIR1977 SC1443
Activity
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has become a menace. Anyone could be a victim of sexual harassment
at workplace irrespective of their gender, race, caste, nationality, etc.
Till recently, there were no laws under which cases of sexual harass-
ment at the workplace could be tried. However, India has enacted the
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Sexual Harassment of Women at Workplace (Prevention, Prohibition
and Redressal) Act, 2013, specifically for cases of sexual harassment
at the workplace.
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Sexual harassment is considered one of the forms of violence and
crimes against women. It is a direct outcome of male chauvinism
which is a belief that men are better and superior to women. It is a
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mind-set owing to which women are seen as objects rather than equal
human beings. Sexual harassment is a phenomenon that is found in
all countries of the world.
In the last few decades, the education levels among women has
increased and they have started to go out and earn their livelihoods.
They are now employed in almost all fields of work. The cases of
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ter of Ramkaran Gujjar who was less than a year old. Despite all her
NOTE efforts, she could not stop the marriage. However, Ramkaran Gujjar
Vishakha guidelines formed the became an enemy of Bhanwari Devi. She was exposed to social pun-
basis of The Sexual Harassment
of Women at Workplace
ishment and boycott. To seek vengeance, Ramkaran Gujjar and his
(Prevention, Prohibition and five friends gang raped Bhanwari Devi in front of her husband.
Redressal) Act, 2013.
After this crime, Bhanwari Devi had to face a lot of hardships during
her legal battle to get justice. Initially, the trial court acquitted the
accused. Despite this, she did not lose hope. She along with all female
social workers who were supporting her filed a writ petition in the
Supreme Court of India under the name ‘Vishakha’. Following this
case, the Supreme Court framed the guidelines for preventing sexual
harassment at workplace. These guidelines are called the Vishakha
Guidelines.
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In this case, the judgement was pronounced on 13th August, 1997 by
a bench comprising the then CJI, J.S. Verma, Justice Sujata Manohar
and Justice B.N. Kripal against the writ petition filed by ‘Vishakha’.
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The court had observed that the fundamental rights under Articles
14, 19(1)(g) and 21 of the Constitution of India must be maintained
and every profession, trade and occupation should provide safe work-
ing environment to employees. The judgement also put forward var-
ious guidelines for employees to avoid sexual harassment. The main
objective of the Supreme Court was to ensure that women do not face
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Exhibit
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4.4.3 THE SEXUAL HARASSMENT OF WOMEN AT
WORKPLACE (PREVENTION, PROHIBITION AND
REDRESSAL) ACT, 2013
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In 2013, the Indian Government enacted the Sexual Harassment of
Women at Workplace (Prevention, Prohibition and Redressal) Act,
2013 (“POSH Act”). This law was enacted to provide protection to
women against sexual harassment at workplace and to prevent and
redress the complaints of sexual harassment at workplace and related
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Under this POSH Act, the employer needs to set up an Internal
Complaints Committee in each office or branch which has 10 or
more employees.
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District officers need to create a committee at the district level.
Complaints committees are empowered with the powers similar to
civil courts for collection of evidence.
If the complainant requests for conciliation before formal inquiry
begins, the committee must arrange for the same.
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Employers that do not comply with the provisions of the POSH Act
can be fined up to ` 50,000. Repeat cases involve higher penalties
and may even lead to cancellation of license and registration of
business.
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Appointment
Members
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3. Member A person from an NGO or any association
that is working for women-centric issues
and sexual harassment.
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All the members of the ICC can hold office for a period not more than
three years from the date of their nomination. In case the members
are appointed from NGOs or associations, they must be paid fees or
allowances as may be prescribed by the employer.
Procedure
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After the ICC has created its report, it is forwarded to the District Offi-
cer by the employer.
Actions to be Taken
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impacting its competitive market efficiency. A congenial work envi-
ronment is bound to positively affect productivity, human relations
and work satisfaction.
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The cases of sexual harassment can create various challenges for
organisations, such as:
Higher employee turnover
Lower employee productivity
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Increased absenteeism
Increased sick leaves
Hurts the value and bottom line of the companies
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Activity
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The IT Act consists of 94 sections and four schedules. The sections are
divided into 13 chapters. Apart from paper-based methods of commu-
nication and storage of information, there are electronic methods of
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communication and information storage and exchange. This IT Act
provides legal recognition to all such transactions. Following this IT
Act, data storage was given recognition for being used by legal pur-
poses. After the enactment of this IT Act, some other Acts, such as
the Indian Evidence Act, 1872 and the Indian Penal Code, 1860 were
also amended to provide legal recognition to the documents that were
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specified in IT Act.
The purpose of developing the IT Act was to promote the use of e-com-
merce, e-transactions and e-governance practices. This law had intent
to increase the use of e-transactions. IT Act grants legal recognition
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and validation to all the online transactions and data exchange only if
they are done using authorised websites.
The objectives of IT Act are as follows:
Granting legal recognition to transactions that are carried out
by means of Electronic Data Interchange (EDI) or other means
of electronic communication which are usually called electronic
commerce transactions
Enabling electronic filing of documents with government agencies
Amending the Indian Penal Code, 1860, the Indian Evidence Act,
1872, the Banker’s Book Evidence Act, 1891 and the Reserve Bank
of India Act, 1934
Granting legal recognition to digital signatures for authentication
of any information as required by the law
Enablingelectronic filing of documents and its acceptance by the
government
Facilitating electronic storage of data
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All electronic contracts made using secure electronic channels are
legal and valid as per this IT Act
All digital signatures have a legal recognition
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Digitalsignatures and electronic records are secured by relevant
measures
Controllers of Certifying Authorities (CCAs) are appointed for
licensing and regulating the Certifying Authorities
Certifying Authorities act as repositories of all digital signatures
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This Act empowers the senior police officers (not below the rank of
a Deputy Superintendent of Police) to enter any public place and
they can even search and arrest without having a warrant
Cyber Regulations Advisory Committee has been established to
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As per Section 1(4) of the Information Technology Act, 2000, this law
is not applicable to documents and transactions that are specified in
the first schedule of this Act. Therefore, the scope of the Information
Technology Act, 2000 is restricted to documents that have been men-
tioned in the First Schedule. There are five types of documents that
are included in the First Schedule as follows:
A Negotiable Instrument (other than a cheque) as defined in
Section 13 of the Negotiable Instruments Act, 1881 (26 of 1881)
A Power of Attorney as defined in Section 1A of the Power
of Attorney Act (7 of 1882)
A trust as defined in Section 3 of the Indian Trusts Act, 1882
(2 of 1882)
A will as defined in Clause (h) of Section 2 of the Indian Succession
Act, 1925 (39 of 1925), any testamentary deposition
Any contact for the sale or conveyance of immovable property or
any interest in such property
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Technology Act, 2000 except the following electronic transactions:
The Information Technology Act, 2000 is not applicable for
attestation for creating trust using electronic means. It means that
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physical attestation is a must for creating a trust.
The Information Technology Act, 2000 is not applicable for
attestation using non electronic means.
The Information Technology Act, 2000 is not applicable to contracts
of sale of immovable properties.
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The major provisions under the Information Technology Act, 2000 are
as follows:
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4.5.4 E-COMMERCE
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buying and selling using the Internet. In simple terms, any kind of
business transaction that is conducted electronically is called e-com-
merce. Customers, business organisations, suppliers, banks, financial
institutions, financial service enablers, government agencies, etc., are
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all involved in e-commerce transactions.
The Indian markets too have gained a lot of importance and growth
in e-commerce. Such high levels of growth in the Indian e-commerce
markets pose numerous legal and regulatory challenges. Some import-
ant challenges that are related to the Indian e-commerce include:
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Security: With the ease of online transactions, cyber malpractices,
such as authenticity, privacy and data protection, have also
increased to a large extent. Nowadays, many cyber complaints are
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registered regarding security issues.
Junk mail and spamming: This issue is not discussed in detail
in IT Act, but this is one of the upcoming issues where a person
receives a large number of unwanted promotional mails from
organisations advertising their products and services. There is no
personal or business relationship with the recipient and because
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Thereafter, the second set of e-commerce rules was drafted in Febru-
ary 2019. The main provisions of these rules were:
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Ensuring that the data is stored locally
More and more data centres and server farms should be located
within India
On 26th June, 2019, the Press Information Bureau of the Indian Gov-
ernment notified that the draft national e-commerce policy has been
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prepared and placed in public domain. This policy addresses six areas
related to e-commerce, such as:
1. Data
2. Infrastructure development
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3. E-commerce marketplaces
4. Regulatory issues
5. Stimulating domestic digital economy
6. Export promotion
This policy has been drafted keeping in mind the interests of all e-com-
merce stakeholders who include investors, manufacturers, MSMEs,
traders, retailers, start-ups and consumers.
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Allforeign e-commerce sites need to follow the Indian 2-factor
authentication while processing payments by Indian cards
Provision for domestic standards for the Internet of Things (IOT)
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Creating conducive environment for angel investors.
No e-commerce companies should buy phones and other expensive
electronics in bulk quantity as these distort the market price of
such products.
Alle-commerce organisations will be required to disclose their
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Brings transparency
Increases convenience
Helps in reducing overall cost
Increases the reach of government
Provides a chance to the constituents to directly participate with
the help of e-governance
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level or local bodies, the exchange is at the horizontal level, while
between one state government and another, the exchange is at the
vertical level.
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G2C (Government to Citizen): The interaction among the
government and general public is said to be G2C. It helps
citizens access a wide variety of services. The general public can
share views and grievances on government policies anytime and
anywhere.
G2B (Government to Business): The interaction between
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The Act has redefined the terms like ‘communication device’ in con-
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text of current usage and validating electronic signature, etc., in order
to deal with electronic commerce and cybercrime. This Act has intro-
duced various provisions to foster an effective enforcement of cyber
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law in India.
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4.5.7 CYBERCRIME
A cybercrime refers to any and all types of crimes that are used with
? DID YOU KNOW the help of computers and computer networks. According to the Inter-
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Cybercrime is also called the pol, ‘Pure cybercrime’ refers to crimes against computers and informa-
bane of the Internet. tion systems, where the aim is to gain an unauthorised access to a device
or deny access to a legitimate user.
TYPES OF CYBERCRIMES
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organisations, government and society are as follows:
Phishing: Malicious websites are created to look like real websites
which trick users to provide their login IDs, passwords and other
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details.
E-mail bombing: It takes place when a large number of e-mails
are sent to one particular e-mail address.
Social media hacking: This malpractice takes place when the
hackers hack the social media accounts, such as the Twitter,
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S
puter network without the permission
of the owner for downloading, copying
and extracting any data
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Dishonestly or fraudulently receiv- Up to 3 years 1,00,000
ing or retaining any stolen computer
resource or communication device
Dishonestly or fraudulently making Up to 3 years 1,00,000
use of electronic signature, password
or any other Unique Identification Fea-
ture of any other person
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S
cause wrongful loss or wrongful gain
discloses, without the consent of the
person
Publishing an electronic signature cer- Up to 2 years 1,00,000
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tificate and making it available to any
other person with the knowledge that
the Certifying Authority has not issued
it, or the Subscriber has not accepted it,
or the Certificate has been revoked or
suspended
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html
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obscene material in electronic form) (1st event) (1st event)
Up to 3 years 10,00,000
(2nd event) (2nd event)
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Section 67A (Publishing or transmitting of Up to 5 years 10,00,000
material containing a sexually explicit act (1st event) (1st event)
in an electronic form) Up to 7 years 10,00,000
(2nd event) (2nd event)
Section 67B (Publishing or transmitting Up to 5 years 10,00,000
material depicting children in a sexually (1st event) (1st event)
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Section 70 (Punishment of any person who Up to 10 years Not
secures access or attempts to secure access Specified
to a protected system which has been
declared to be a protected system by the
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appropriate government)
Section 70B (Punishment for not comply- Up to 1 year 1,00,000
ing with the directions of the Indian Com-
puter Emergency Response Team
Section 71 (Obtaining any license or Digital Up to 2 years 1,00,000
Signature Certificate if any person makes
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2000 is providing a legal framework for mitigating and check-
ing ___________.
9. The purpose of developing the Information Technology Act,
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2000 was to promote the use of e-commerce, e-transactions
and e-governance practices.
a. True b. False
Activity
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S
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4.6 Summary
A negotiable instrument is a document which promises the
payment of a certain sum of money to the assignee or some specific
person.
A negotiable instrument means a promissory note, bill of exchange
or cheque payable either to order or to bearer.
All the payments and settlements are regulated and governed by
the Payment and Settlement Systems (PSS) Act, 2007.
Section 138 of the Negotiable Instruments Act, 1881 deals with
the penalties that are applicable in case of dishonour of certain
cheques due to insufficient funds.
Creations and inventions that are created by the human mind,
such as literary works, artistic works, symbols, names, images,
designs, etc., are called Intellectual Property (IP).
India is a member of the WTO and is a signatory to the TRIPS
agreement. The Trade Related Aspects of Intellectual Property
Rights is an international and legal agreement signed between all
member countries of the WTO.
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Trademarks
Copyrights
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Designs
Biodiversity-Geographical Indications
Registration of designs of Semiconductors and Integrated
Circuits
Trade Secrets
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key words
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at Workplace (Prevention, Prohibition and Redressal) Act, 2013.
5. Outline various provisions of the Information Technology Act,
2000.
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4.8 Answers and Hints
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4.9 Suggested Readings & References
Suggested Readings
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Sushma Arora. (2018) Business Laws. Taxmann
Tulsian, P. (2014). Business Law. New Delhi: McGraw Hill Education
(India) Private Limited.
E-REFERENCES
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amendment_act_2008.html
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Contents
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5.1 Introduction
5.2 Alternative Dispute Resolution (ADR)
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5.2.1 Meaning and History of ADR
5.2.2 Features of ADR
5.2.3 Advantages of ADR
Self Assessment Questions
Activity
5.3 Types of ADR
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5.3.1 Negotiation
5.3.2 Mediation
5.3.3 Conciliation
5.3.4 Lok Adalats
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Introductory Caselet
CONVENIENCE IN ARBITRATION
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The parties who refer their disputes to an arbitral tribunal are not
required to pay the court fee. Moreover, the parties may not have
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to engage a lawyer to put forward their arguments to the arbitral
tribunal, since the procedural law is not applicable to arbitral pro-
ceedings. There is no bar on the disputing parties arguing their
own case before the tribunal. The commercial parties benefit by
keeping their dispute away from the prying eyes of the press. It
helps in maintaining the confidentiality of their business matters.
In a nutshell, by opting arbitration, the parties save various types
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Learning objectives
5.1 Introduction
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In the previous chapter, you have studied various laws that affect busi- Quick Revision
nesses such as Negotiable Instruments Act, 1881, Intellectual Property
Law and Information Technology Law. All these laws play an active
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role in offering a legal framework to businesses to operate ethically.
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can decide the place of sitting of tribunal, dispense with formal legal
procedure, settle the fees payable to the private adjudicator, and pre-
scribe a time schedule for giving the award. ADR methods may include
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early neutral evaluation, negotiation, mutual give and take and alike.
place for dispute resolution. The Indian judiciary was initially set up
to make the legal framework more formal and authorised. However,
there were a large number of pending cases in courts. Due to time
and cost crunch, even trial courts were struggling to fulfil the need of
the system. This necessitated the formation of an alternative formal
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Section 89 of the Civil Procedure Code, 1908, was the first legislation
that empowered the court to persuade parties to choose ADR for
resolving their disputes. At that time, there was no other law that pro-
vided for any alternative to formal litigation. Subsequently, the first
Arbitration Act, 1940, provided for arbitration, but there was consid-
erable judicial interference in arbitration during that period. Much
later, the Arbitration and Conciliation Act of 1996 came into force
which reduced the judicial interference to almost a negligible extent.
The Legal Services Authority Act, 1985, provided for the establish-
ment of Lok Adalat in every judicial court, from district court to the
Supreme Court. Similarly, Sections 5, 6 and 9 of the Family Courts
Act, 1984 provide for the appointment of agencies and counsellors
besides obliging the court to make efforts for settlement before taking
evidence. Thus, the central focus of the legal system is to encourage
ADR.
ADR can be used along with existing legal systems within common
law jurisdictions. ADR traditions differ by country and culture. These
methods are used for resolving disputes outside of official formal judi-
cial mechanisms such as informal tribunals, informal mediation pro-
cesses formal tribunals and formal mediation processes. These meth-
ods have become global necessity as it offers cheaper, informal and
speedier redressal. ADR has also found favour with parties engaged
in international commercial disputes as it is neutral to the law, lan-
guage and institutional culture of the parties. This helps in maintain-
ing equality among parties and prevents some parties getting the
home-court advantage when compared to the court-based litigation
in respective countries.
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ADR provides a better, time-saving and cost-effective way to resolve
disputes among private parties as compared to court litigation. There
NOTE
are certain common features among several alternate dispute resolu- There are two categories of
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ADR, which are court-annexed
tion mechanisms, which are as follows: options (mediation and
conciliation) and community-
Informality: The process of ADRs is relatively less formal than
based dispute resolution
the judicial processes. The proceedings are flexible without any mechanism (Lok-Adalat).
formal extensive written documentation or formal pleading or
technicalities which make it quite easy and appealing to seek
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5.2.3 ADVANTAGES OF ADR
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The third party involved in ADR happens to be neutral to provide
unbiased decisions. Also, the said third party is chosen by both the
disputing parties by a mutual agreement.
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It settles the dispute without too much delay.
It provides practical solutions to parties that protect their interests.
1. ADR includes:
a. Informal tribunals
b. Informal mediation processes
c. Formal tribunals
d. All of these
2. Section 89 of the Civil Procedure Code, 1908, was the first
legislation that empowered the court to persuade parties to
choose ADR for resolving their disputes.
a. True
b. False
Activity
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to resolve a dispute between the conflicting parties. Hence, he/she
is the ultimate decision maker. The arbitrator arrives at a decision
based on the facts and arguments presented by the disputing
parties.
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Advice: There are procedures that involve a neutral or non-binding
party to inform or advice the conflicting parties on the basis of case
evaluation or expert opinion. It involves non-binding arbitration,
facts finding, neutral evaluation, etc.
In the sub-section, you will study some of the major ADR mechanisms
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in detail.
5.3.1 NEGOTIATION
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5.3.2 MEDIATION
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recognition by the Arbitration mutually agreed terms, there emerges a win-win situation for the par-
and Conciliation Act, 1996. ties involved in the dispute. Each of the parties tries to focus on their
particular interests and priorities. Mediation is centered on active and
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direct participation of the parties. Also, mediation implies the involve-
ment of a third party called a mediator, who facilitates the resolution
of disputes between the parties. The function of the mediator is that
of a facilitator. The mediator cannot be called to the court or be asked
to testify to any of the proceedings or reveal any discussion that may
have taken place during the mediation process. The entire mediation
process is carried out confidentially and without prejudice. On account
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forum whatever may have transpired during the process.
Fairness of process: The mediation process of dispute resolution
should be performed in a fair manner, i.e., all parties are treated
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fairly and not arbitrarily. Also, their concerns should be addressed
properly.
Voluntary process: The element of voluntariness is the magic
of mediation which encourages autonomy and party self-
determination. Any compulsion to participate is counter-
productive and makes mediation similar to litigation.
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5.3.3 CONCILIATION
MEANING OF CONCILIATION
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request by either or both the parties. The conciliator simply assists them
in their negotiations and decision making, resolves the impasse and
removes bottlenecks.
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In a manual for workers’ education on collective bargaining published
by the International Labour Organization (ILO), conciliation has been
defined as practice by which the services of a neutral party are used in a
dispute as a means of helping the disputing parties to reduce the extent
of their differences and to arrive at an amicable settlement or agreed
solution.
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ROLE OF CONCILIATOR
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participative ADR method. It is considered to be the people’s court,
yySpiritualisation of justice
which provides an easy access to justice with mutual consent. dispensation: Process of
uplifting society by educating
As per Section 19(5) of the Legal Services Authorities Act, 1987, Lok its members to do justice to
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Adalat shall have jurisdiction to determine and arrive at a compro- each other
mise or settlement between the parties to a dispute in respect of any
case pending before, or any matter which is falling within the jurisdic-
tion of and is not brought before, any court for which the Lok Adalat
is organised.
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Lok Adalat means people’s court. When disputes are referred to Lok Know More
Adalat for settlement, it is done in accordance with the provisions of As per Justice Ramaswamy,
the Legal Services Authority Act, 1987. “Resolving disputes through
Lok Adalat not only minimizes
litigation expenditure, it saves
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The first part of the law deals with domestic arbitration and interna-
tional arbitration held in India. The second part is designed to deal
with international commercial arbitration. There is an exclusion of
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judicial intervention though the arbitral tribunal may take judicial
assistance for technical matters such as the recording of evidence.
DEFINITION OF ‘ARBITRATION’
two or more parties to a ing by an independent and impartial private adjudicator called an
person chosen by the parties
arbitrator selected by the disputing parties who decides in an expedi-
or appointed under statutory
authority for determination of the tious manner by avoiding procedural technicalities peculiar to courts
same. besides maintaining privacy of parties.
ARBITRATION AGREEMENT
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into the contract itself so that if any dispute arises in the future, the
dispute can be referred to the arbitrator as per the agreement. It is
also possible to refer to a dispute to arbitration after the dispute has
arisen. The important aspects of an arbitration agreement are as fol-
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lows:
Must be in writing: Section 7(3) requires the arbitration agreement
to be in writing and an oral agreement is not valid.
Must relate to the reference of dispute to arbitration: Arbitration
agreement must relate to the reference of a present or future
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yyContractual capacity
reference of dispute to arbitration in the prescribed manner. In
case, the arbitration agreement gives a unilateral right of referring yyFree consent
to only one of the parties, it shall not be valid. It is not mandatory yyLawful object
to mention the arbitrator’s name. yyLawful consideration
Exhibit
Appointment of Arbitrators
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arbitrator.
In case, both the parties have appointed their nominees, these
arbitrators shall in their turn nominate a third arbitrator who
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shall act as the presiding arbitrator. If the party in dispute
cannot appoint the arbitrator within 30 days or the first two
arbitrators fail to appoint the sole arbitrator, the arbitrator shall
be appointed by the Chief Justice of a High Court or any other
person or institution designated by him in the case of domestic
arbitration.
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The arbitral tribunal may also provide adequate security to the party
for any of the interim measures provided in the above points.
PROCESS OF ARBITRATION
party filing the claim is called the Claimant, and the party against
whom the claim is filed is called the Respondent. The Respondent is
provided with ample time to respond in writing whether they agree
to resolve the dispute through arbitration. The acceptance from both
parties to start the proceedings through arbitration starts the actual
process of arbitration where the role of arbitrator comes into the pic-
ture. An arbitrator is selected by the parties or a panel of arbitrators is
approved by the parties to continue the proceedings. Then, there will
be prehearing conferences and formalities. Then, after several arbi-
tration hearings, testimony from both the parties and their respective
witnesses are heard, and all the evidence is submitted. In the end,
closing arguments are made by the attorneys. The final decision is
made after considering all the evidences that have been notified to the
parties, usually in 30-90 days.
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ARBITRAL AWARD: MAKING, FINALITY AND ENFORCEMENT
Meaning of Award
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The decision of the Arbitral Tribunal is termed as ‘Arbitral Award’.
It is analogous to a court judgment although it is made by a mutually NOTE
private adjudicator. An award is a determination on merits about all A judgement or final decision
of an arbitrator on matters
the matters in dispute which have been referred to the tribunal. It
referred to him is called the
includes any final, interim or partial award and any award on costs or ‘arbitral award’ or ‘award’. The
interest. Authority of the tribunal ceases after the submission of the arbitrator’s authority ceases as
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There is no particular form for the validity of an award except for the
following rules contained in Section 31 of the Arbitration and Concil-
iation Act:
(i) An arbitral award shall be made in writing and signed by the
sole arbitrator or majority of the members of the arbitral tribu-
nal. In case a particular member of tribunal has omitted to sign,
reasons for the same must be given. Once the award has been
signed, the tribunal becomes functus officio. (no further official
authority).
(ii) The arbitral award shall state the reasons for the award unless
the parties have dispensed with the need to give reasons, or the
award is an arbitral award on agreed terms as per Section 30.
(iii) The arbitral award shall state its date and the place of arbitra-
tion as determined under Section 20.
(iv) A signed copy of the arbitral award shall be delivered to each
party to the arbitration agreement in accordance with the
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costs, the amount of costs or method of determining that amount
and the manner in which the costs shall be paid.
include an award that was made in the arbitral proceedings but omit-
ted from the arbitral award.
has specified the following grounds on which the court may set aside
an arbitral award rendered in India:
1. Incapacity of Parties [Section 34(2) (a) (i)]: An arbitral award is
not binding and may be set aside if it has been made against a
party that is incapable looking after its interests such as a minor
or a person of unsound mind or it does not have a guardian or
another person to represent its interests. Therefore, it is essen-
tial to get a guardian appointed in terms of Section 9 of the Arbi-
tration and Conciliation Act in respect of minors and persons of
unsound mind for the purpose of arbitral proceedings. On fail-
ure to do so, the award given against the incompetent party shall
be liable to be set aside.
2. Invalidity of Arbitration Agreement [Section 34(2) (a) (ii)]: The
validity of an arbitral agreement may be challenged on the same
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grounds on which the validity of a contract may be challenged
[State of U.P. v. Allied Constructions]. The validity of the arbitral
agreement shall be examined by reference to the law to which
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the parties are subjected it and is in force.
3. Failure to Give Notice to Other Party [Section 34(2) (a) (iii)]:
An arbitral award is liable to be set aside if the other party has
not been given proper notice of the following:
the appointment of an arbitrator
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of arbitral proceedings
the other party was for some reasons unable to present his case
If a party is prevented from appearing and presenting its case
before the tribunal, the award will be liable to be set aside as the
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duties, etc.
CASE LAW
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State Trading Corp. vs. Molasses Co., the Bengal Chamber of
Commerce [1981],
arbitration proceedings.
6. Subject Matter of Dispute Not Being Arbitrable [34(2)(b)(i)]:
The existence of a dispute is a condition precedent to arbitrators
proceeding with arbitration. Only matters on which parties have
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Appeals shall also lie with the court if the arbitral tribunal refuses to
provide interim measures to the parties and where the arbitral tribu-
nal is exceeding its jurisdiction or deciding the matters that are not in
its scope.
The Arbitration and Conciliation Act, 1996 was amended in 2015 and
2019. The Arbitration and Conciliation (Amendment) Act, 2015 (here-
inafter referred to as the ‘Amendment Act, 2015’) was enacted to make
the arbitration process cost-effective and speedy with minimum court
intervention.
Some of the key highlights of the Amendment Act, 2015, are as follows:
The Amendment Act, 2015, distinguishes between an international
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commercial arbitration and domestic arbitration insofar as the
definition of court is concerned. For domestic arbitration, the
definition of Court is the same as defined in the 1996 Act. For
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international commercial arbitration, Court means the High Court
of competent jurisdiction.
Section 2(2) of the Arbitration and Conciliation Act has been
amended insofar as Section 9 (interim measures), Section 27 (taking
of evidence), Section 37(1) (a), and 37(3) shall apply to international
commercial arbitrations even if the seat of arbitration is outside
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and if the relationship between the arbitrator and any party falls in
any of the categories mentioned in the seventh schedule, then the
arbitrator will be ineligible.
Section14 was amended and it provides for the termination of the
mandate of the arbitrator.
Section 17 relates to interim measures by arbitral tribunal and as
per the amended section, an arbitral tribunal shall have the same
powers as are available to a court under Section 9. Also, interim
orders passed by an arbitral tribunal will be enforceable in same
manner as if it is an order of a court.
Section 23 of the amended Arbitration and Conciliation Act, 1996
empowers the respondent to submit a counter claim or plead a
set-off.
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Section 24 of the amended Arbitration and Conciliation Act,
1996 states that the arbitral tribunal should hold hearing for the
presentation of evidence or oral arguments on day-to-day basis.
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Also, the tribunal should not grant any adjournments if there is
no sufficient cause. In case of adjournments, the tribunal may also
impose exemplary cost.
New sections, namely Section 29A and 29B were inserted. Section
29A deals with the time limit for arbitral award and Section 29B
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deals with fast track procedure. These sections provide for time
bound arbitrations. The arbitral tribunal must address the case
within 12 months extendable by a maximum 6 months by the
consent of the parties.
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Act, 2019’) received the assent of the President of India. Some of the
key highlights of the Amendment Act, 2019, are as follows:
Section 1(ca) defined ‘arbitral institution’ as an institution
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designated by the Supreme Court or High Court.
Amendment of Section 11 relates to the appointment of arbitrators.
This section empowers the Supreme Court and the High Courts
to designate arbitral institutions for appointing arbitrators. These
arbitration institutions are graded by the Arbitration Council of
India.
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This issue arose in Chloro Controls (India) Pvt Ltd. vs Severn Trent
Water Purification Inc&Ors (2013) 1 SCC 641 where disputes arose
between an Indian company and its foreign collaborator due to lat-
ter’s parent company operating through entities other than those
covered by the agreement. The Indian party sought injunction to
prevent breach by the respondents and for referring the parties to
arbitration under Sections 45 of the Arbitration and Conciliation Act,
1996. Respondents alleged that Shareholders Agreement (SHA) was
the main document incorporating the arbitration clause to which
the other two respondents were not signatories. Other agreements
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between parties did not have the arbitration clause. Appellant con-
tended that the expression ‘person claiming through or under’ in
Section 45 covers within its ambit persons who are in legal relation-
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ships via multiple and multi-party agreements, though they may not
all be signatories to any one agreement or arbitration clause. Hence,
even non-signatory parties can pray for and be referred to arbitra-
tion. The Section did not refer only to parties to agreement but ‘per-
sons in general’ and that the Shareholders’ Agreement is a composite
document.
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The following factors must be kept in mind while referring third par-
ties to arbitration:
(a) The parties must have a direct relationship with the party signa-
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In P. Anand Gajapathi Raju vs. PVG Raju (2000) 4 SCC 539, during the
pendency of the appeal before the Supreme Court, all the parties made
a jointly signed application that included an arbitration agreement to
refer their dispute to a retired SC Judge as the sole arbitrator. This
agreement was challenged. It was held that the agreement need not
already be in existence at the time when the dispute arose. The phrase
‘which is the subject of an arbitration agreement’ does not necessarily
require the agreement to be already in existence before the filing of
suit in the court. The phrase also includes an arbitration agreement
brought into existence while the action is pending provided it meets
the requirements of Section 7 of the Arbitration and Conciliation Act.
Under Section 8, it is obligatory for the court to refer the parties to
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arbitration in terms of their agreement.
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a. The arbitrator can be of any nationality unless otherwise
agreed by the parties
b. The parties are free to finalise the procedure of selecting
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an arbitrator
c. Both a. and b.
d. None of these
10. In conciliation, the third party who solves the dispute is called
a __________.
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Activity
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own procedures and authorities. In 1988 came the ‘Prevention of Cor-
ruption Act, 1988’ (further referred to as the ‘PC Act’) which is consid-
ered as the primary law to fight against corruption. However, regular
amendments have been made in this Act. The last amendment was
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made in 2018.
As per the Corruption Perceptions Index, 2018, India has attained 78th
position out of 180 countries. The Indian government has started tak-
ing strong steps on corruption issues by introducing and amending
several anti-corruption laws. The following are the three crucial acts
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The PC Act, 1988 came into existence to deal with the corruption spe-
cifically in government departments. It offers the provision of prose-
cution and punishment for public servants who are involved in cor-
rupt practices such as bribery. The PC Act was first set up in 1988. The
amendment in the Act is done to review anti-bribery and anti-corrup-
tion and the provisions provided in the Act ensure more transparency
and accountability in the government or public servants working.
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(ii) Any person in the service or pay of a local authority.
(iii) Any person in the service or pay of a corporation established by or
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under a Central, Provincial or State Act, or an authority or a body
owned or controlled or aided by the Government or a Government
company as defined in section 2(45) of the Companies Act, 2013.
(iv) Any Judge, including any person empowered by law to discharge,
whether by himself or as a member of any body of persons, any
adjudicatory functions.
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(vi) Any arbitrator or other person to whom any cause or matter has
been referred for decision or report by a court of justice or by a
competent public authority.
( vii) Any person who holds an office by virtue of which he is empowered
to prepare, publish, maintain or revise an electoral roll or to con-
duct an election of part of an election.
(viii) Any person who holds an officer by virtue of which be is authorised
or required to perform any public duty.
(ix) Any person who is the president, secretary or other office-bearer of
a registered co-operative society engaged in agriculture, industry,
trade or banking, receiving or having received any financial aid
front the Central Government or State Government or from any
corporation established by or under a Central, Provincial or State
Act, or any authority or body owned or controlled or aided by the
Government or a Government company as defined in Section 2(45)
of the Companies Act, 2013;
(x) Any person who is a chairman, member or employee of any Service
Commission or Board, by whatever name called, or a member of
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A public servant is also penalised if he gets involved in criminal mis-
conduct. As per section 13 of this PC Act, 1988, the criminal miscon-
duct by a public servant is stated as follows:
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A public servant is said to commit the offence of criminal misconduct in
following cases:
(a) If he habitually accepts or obtains or agrees to accept or attempts
to obtain from any person for himself or for any other person any
gratification other than legal remuneration as a motive or reward
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S
imprisonment of upto three years or a fine and the property that is
considered as benami is acquired by a prescribed authority in return
of no money. It helps in tracing black money, illegal financial transac-
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tion and safeguarding the adjudicating authority.
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tioned in the schedule of the Prevention of Money Laundering Act,
2002. The penalty and punishment under this Act mentioned for the
offence of money laundering is a fine of up to ` 5 lakh or imprisonment
of three to seven years. The Central government appoints the adjudi-
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cating authority that decides whether any of the property attached or
seized involved in money laundering.
which involves two provisions, the first one prohibits bribery of for-
eign public officials and the second one says that publically traded ? DID YOU KNOW
companies need to maintain their book of accounts to ensure finan- In 2014, the Parliament of India
passed The Whistleblower
cial controls. The FCPA covers both criminal and civil proceedings
Protection Act. However, it
and imposes fines, disgorgements, forfeitures and other sanctions on has still not come into effect.
corrupt practices that are collected by the US government. The FCPA This law tried to establish a
does not involve coverage of private-level bribery. However, some mechanism to gather complaints
relating to corruption or wilful
other US legislations cover such practices. The FCPA says the person misuse of power by public
involved in offering the bribe with a ‘corrupt’ intent is the real culprit servants and to inquire into
and it only covers active bribery, which means it penalises the per- those complaints.
son who offers bribe. Under the FCPA, the culprit is penalised up to
$250,000 per violation or he may be given five years of imprisonment.
Also, under the FCPA, a company is held liable to pay a fine up to USD
$2,000,000 per violation. However, under the PC Act, a public ser-
vant is punished for accepting bribes or any other undue advantages
and criminal misconduct. For instance, X gives Y, a public servant, `
1,00,000 in return for Y to give fast approval for the X’s construction
project. Here, Y is held liable for this corruption practice.
Chanda Kochhar, the former ICICI Bank MD was alleged for “dis-
honestly sanctioning loans to the Videocon Group” under CBI FIR
as she received illegal gratification from her husband, Deepak Koc-
char who was the Videocon MD. Since, by sanctioning a term loan of
` 300 crore to Videocon International Electronics Ltd., she misused her
official position, various charges were leveled up on her for criminal
conspiracy and cheating. The FIR against her says On August 26, 2009,
a rupee term loan of Rs 300 crore was sanctioned to Videocon Interna-
tional Electronics Ltd (VIEL) in contravention of rules and policy by the
sanctioning committee… Kochhar was one of the members of the sanc-
tioning committee, who in criminal conspiracy… dishonestly by abusing
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her official position sanctioned this loan in favour of VIEL, She violated
the bank’s code of conduct. ICICI bank also released a statement for
this case stating “Ms Chanda Kochhar was in violation of the ICICI
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Bank Code of Conduct, its framework for dealing with conflict of inter-
est and fiduciary duties, and in terms of applicable Indian laws, rules
and regulations”
bribes and slush funds. The company was held guilty in the Federal
court in Washington because of violating the 1977 law that bans the
corrupt practices in foreign business dealings. According to Joseph
Persichini Jr., the head of the Washington office of the Federal Bureau
of Investigation, They were standard operating procedures for corpo-
rate executives who viewed bribery as a business strategy.
Activity
Search the Internet and find out the ‘anti-corruption laws’ of other
nations and mark the distinction among them.
5.5 Summary S
Alternative dispute resolution, also called ‘ADR’, is a generic
term that refers to a wide range of methods of dispute resolution,
which provide an alternative to the adversarial court-based public
litigation.
ADR is neutral to the law, language and institutional culture of
the parties that helps in maintaining equality among parties which
prevents some parties from getting the home-court advantage when
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compared to the court-based litigation in respective countries.
There are various types of alternate dispute resolution available
other than the court proceedings such as negotiations, arbitration,
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and mediations.
Negotiation is an informal technique of resolving a dispute, where
the parties in dispute directly try to communicate with each other
and reach a conclusion.
Mediation is a voluntary, non-binding, confidential and structured
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key words
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initiating the process of arbitration
Litigation: The process of settling disputes through legal
procedures
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Confidentiality: A set of rules to ensure the privacy of the
disputing parties
Seized: The legal possession or having an ownership of property
or an estate
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12. a. True
13. 78th
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HINTS FOR DESCRIPTIVE QUESTIONS
1. Today, ADR techniques are considered as one of the most accept-
able dispute resolution techniques used worldwide, either along-
side or combined with the legal systems. Refer to Section 5.2.3
Advantages of Alternative Dispute Resolution
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Suggested Readings
Clarkson, K., Miller, R., Jentz, G., & Cross, F. (2014). Business law:
Text and cases (11th ed.). Cengage Learning.
Keenan, D., & Riches, S. (2007). Business law. Harlow: Pearson
Longman.
E-REFERENCES
(2020). Retrieved 27 April 2020, from http://www.nishithdesai.com/
fileadmin/user_upload/pdfs/Research_Papers/Overview-of-Anti-
Corruption-Laws-in-India-Web1.pdf
S
ADR Types & Benefits - alternative_dispute_resolution. (2020).
Retrieved 27 April 2020, from https://www.courts.ca.gov/3074.htm
Types of Alternative Dispute Resolution (ADR). (2020). Retrieved
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27 April 2020, from https://www.legalmatch.com/law-library/
article/types-of-alternative-dispute-resolution-adr.html
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Contents
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6.1 Introduction
6.2 Consumer Protection Act, 2019
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6.2.1 Objective of the Act
6.2.2 Scope of the Act
6.2.3 Important Definitions
6.2.4 Important Provisions and Features of the Consumer Protection Act, 2019
6.2.5 Difference between Consumer Protection Act, 1986 and Consumer
Protection Act, 2019
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Activity
6.4 Consumer Protection Councils (CPCs)
6.4.1 Functions of CPCs
6.4.2 Central Consumer Protection Council (CCPC)
6.4.3 State Consumer Protection Councils (SCPCs)
6.4.4 District Consumer Protection Councils (DCPCs)
Self Assessment Questions
Activity
6.5 Consumer Disputes Redressal
6.5.1 Consumer Disputes Redressal Machinery
6.5.2 Procedure of Dispute Resolution
6.5.3 Procedure for Filing a Complaint before the Consumer Protection Body
6.5.4 Nature and Scope of Remedies
6.5.5 Appeals and Limitations
Self Assessment Questions
Activity
CONTENTS
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Introductory Caselet
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In India, consumers are mostly unaware of their rights and they
think of bad products and services as unavoidable. It has been
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noted that even if some consumers file consumer complaints and
pursue legal battles, they often lose interest in the case because
litigation takes a lot of time. Sometimes, consumers also refrain
from filing complaints because of a lack of evidence.
The infamous case of Maggi and various other cases were fol-
lowed by the enactment of the new Consumer Protection Act,
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2019. Under this Act, the central government will establish a Cen-
tral Consumer Protection Authority (CCPA) to specifically inter-
vene in matters related to unfair trade practices and misleading
advertisements.
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Learning objectives
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>> Explain various product liability provisions under the
Consumer Protection Act, 2019
>> Outline the revised amounts of pecuniary jurisdiction
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>> Explain how mediation and alternate dispute redressal is
used to dispose of consumer complaints under the Consumer
Protection Act, 2019
>> Discuss new provisions such as e-filing of complaints
>> Explain the newly created regulator Central Consumer
Protection Authority
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6.1 Introduction
Quick Revision In the previous chapter, you studied various laws related to enforce-
ment and redressal mechanism in the business including dispute
resolution, alternate dispute resolution and anti-corruption laws as
applicable in India.
The Consumer Protection Act, 2019 has been enacted for protecting
the interests of consumers by establishing various provisions, con-
sumer councils, commissions and a central authority for settling dis-
putes of consumers. The Consumer Protection Act, 2019 formed the
Central Consumer Protection Authority (CCPA) which is responsible
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for promoting, protecting and enforcing the rights of consumers.
In this chapter, you will study the Consumer Protection Act, 2019, its
objective, scope and provisions. The chapter explains various provi-
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sions and definitions such as unfair trade practices, product liability,
e-filing facility, etc. All the rights of consumers as per this Act have
also been discussed. The role of consumer protection councils as advi-
sory bodies and the consumer disputes redressal mechanism under
the law is also described. Towards the end, the state of consumer laws
across the globe has been discussed briefly.
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The Consumer Protection Act, 2019 received the assent of the Presi-
NOTE
dent of India in August 2019 and was published in the official gazette The Consumer Protection
Act, provided for three-tier
on 9th August 2019. The Consumer Protection Act, 2019 came into consumer dispute redressal
force on 20th July, 2020. It was a long-awaited Act because it intends machinery at the national,
to resolve a large number of consumer complaints that are pending in state and district levels.
CASE LAW
Karnataka Power Transmission Corporation (KPTC) vs. Ashok
Iron Works Private Limited
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taka High Court by the respondent Ashok Iron Works, under the
Consumer Protection Act, 1986.
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KPTC raised legal argument:
Complaint was not maintainable since the Consumer Protection
Act, 1986, excludes commercial supply of goods.
Complaint is not maintainable because the complainant is not a
‘person’ under Section 2(1)(m) of the Act, 1986.
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held to be a person.
Supply is not sale or supply is not equivalent to a sale. Therefore,
the electricity supply by the KPTC would be covered under
Section 2(1)(o) being ‘service’ and in case the supply of electrical
energy to a consumer is not provided in time as is agreed upon,
then under Section (2)(1)(g), there may be a case for deficiency in
service. Thus, the clause stating “supply” of goods for commercial
purposes would not apply.
Thus, the court allowed the complaint on the two grounds that the
applicant – Ashok Iron Works Private Limited, can sue as a person,
and that supply of electricity if found deficient can be a fit ground
for claiming compensation. The Court sent the case back to District
Forum for retrial on these grounds.
Source: https://vakilsearch.com/advice/the-top-ten-consumer-court-cases-and-trials-in-india/
Some of the other objectives of the Consumer Protection Act, 2019 are
as follows:
To provide a simple and effective consumer grievance redressal
process
Todispose of all the consumer grievance complaints in the least
amount of time
To ensure effective disposing of all the cases pending in the
consumer courts
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To conduct investigations into violations of consumer rights and
institute complaints
To order the recall of unsafe goods and services
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To order the discontinuance of unfair trade practices and
misleading advertisements
To impose penalties on manufacturers/endorsers/publishers of
misleading advertisements
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In addition, the scope of this Consumer Protection Act, 2019 has also
been widened by providing a wider definition to terms such as the
complainant, consumer, deficiency, etc.
6.2.3 IMPORTANT DEFINITIONS
Some of the important definitions that have been included under the
Act are as follows:
Advertisement: Any audio or visual publicity, representation,
endorsement or pronouncement made by means of light, sound,
smoke, gas, print, electronic media, internet or website and
includes any notice, circular, label, wrapper, invoice or such other
documents is an advertisement.
Central authority: Under Section 10 of the Consumer Protection
Act, 2019, the Central Authority refers to the Central Consumer
Protection Authority (CCPA).
Complainant: Complainant may mean any of the following:
A consumer
Any voluntary consumer association registered under any law
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for the time being in force
The Central Government or any State Government
The Central Consumer Protection Authority
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One or more consumers, where there are numerous consum-
ers having the same interest
In the case of the death of a consumer, his legal heir or legal
representative
In the case of a consumer being a minor, his parent or legal
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guardian
Consumer: A consumer may be any of the following:
Any person who buys any goods for a consideration whether
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paid or promised
Any person who buys goods for a consideration that is partly
paid and partly promised
Any person who hires or avails of any service for a paid con-
NOTE sideration or for a consideration that is partly paid and partly
promised
The consumer purchases goods
and services only for self-use. Any person who makes online purchases
When a person purchases any
goods or avails any service for a Consumer dispute: It is a dispute where the person against whom
resale or commercial purpose, a complaint has been made, denies or disputes the allegations
he/she is not considered a
contained in the complaint.
consumer.
Defect: Any fault, imperfection or shortcoming in the quality,
quantity, potency, purity or standard must be present in the good.
Deficiency: Any fault, imperfection, shortcoming or inadequacy
in the quality, nature and manner of performance of a good
required by the law. In addition, any act of negligence or omission
or commission by a person due to which a consumer experiences
loss or injury or any act of deliberately withholding relevant
information from a consumer by a seller is a deficiency.
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be goods.
Injury:Any harm that is caused illegally to a person’s body, mind
or property is considered to be an injury.
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National Commission: The National Consumer Disputes
Redressal Commission (NCDRC) can also be simply called the
National Commission.
Product: Any goods or substance or raw material present in either
gaseous, liquid, or solid state and that possesses an intrinsic value
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all sellers at each level of MLM can be exposed to liability and not
just product manufacturers.
Inclusion of e-commerce: As per the new Act, buying or selling
of goods and services including digital services using digital or
electronic means are also considered valid. This Act also states
that consumers are also eligible for buying and selling using direct
selling, e-commerce and electronic service providers. After the
government officially notifies the Act, the central government may
also prescribe certain rules relevant for e-commerce and direct
selling.
New grounds for filing complaints: This Act contains seven
grounds using which a consumer can file a complaint against a seller
or manufacturer, where earlier there were six. The introduction
of unfair contracts and the expansion of the definition of unfair
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trade practices are the chief additions. Now, the seven grounds are
[Section 2(6)]:
i. When any trader or service provider adopts any unfair con-
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tract or a unfair or restrictive trade practice
ii. When the goods purchased by a consumer suffers from one or
more defects
iii. When the services hired or availed or agreed to be hired or
availed of by a consumer suffer from any deficiency
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iv. When a trader or a service provider has charged from the con-
sumer a price that is more than the price that has been fixed as
per law or the price that is printed over the goods or the price
that is displayed by the trader in a price list or the price that is
mutually agreed by both the parties.
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sumers with respect to the nature, substance, quantity or qual-
ity of such product or service.
Any advertisement that deliberately conceals important infor-
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mation.
Any advertisement which conveys an express or implied rep-
resentation made by the manufacturer or seller or service pro-
vider and constitutes an unfair trade practice.
Deletion of healthcare from the definition of services: Healthcare
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services have been removed from the list of services covered under
this Act. It was removed after a lot of opposition from medical
fraternity that this Act is highly likely to be misused against them.
Increase in the pecuniary jurisdiction of the commissions: As
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per this Act, the pecuniary jurisdictions of the district, state and
national commission have been increased.
INTERMEDIARIES
E-COMMERCE
PRODUCT LIABILITY
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the establishment of CCPAs.
As per Section 86, a product seller can be held liable in the following
situations:
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When the seller had exercised substantial control over the
designing, testing, manufacturing, packaging or labelling of a
product that caused harm
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When the seller had altered or modified the product due to which
harm was caused
When the seller has made an express warranty of a product
independent of any express warranty made by a manufacturer
and the harm is caused due to failure of such express warranty
made by the product seller
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When the product has been sold by the product seller and the
identity of product manufacturer of such product is not known, or
if the identity is known, the service of notice or process or warrant
cannot be effected on him
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REVISION OF JURISDICTION AMOUNTS
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Under the Consumer Protection Act, 2019, the government will consti-
tute multiple bodies for redressing consumer disputes.
rights under this Act at the national, state and district levels.
After the CPCs, the second level of the consumer redressal is the Con-
sumer Disputes Redressal Commissions (CDRCs) that will be set up
at three levels. This is also called the three-tier Consumer Dispute
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The Consumer Protection Act, 1986, did not have a provision for alter-
nate dispute resolution. However, in accordance with Section 74 of the
new Consumer Protection Act, 2019, the State Government will estab-
lish mediation cells to be attached to all the district and state commis-
sions of that state. In addition, the Central Government will establish
a consumer mediation cell to be attached to the National Commission.
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settle their disputes using mediation, the commission can refer the
matter to mediation.
E-FILING OF COMPLAINTS
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The Consumer Protection Act, 2019 allows for the filing of complaints
using electronic or online means, also called e-filing.
Section 35 of the Act deals with the manner in which the complaint
can be made. This section states that a complaint may be filed with a
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One of the most significant features of the Act of 2019 is that it calls for
the setting up of a regulatory body known as the Central Consumer
Protection Authority (CCPA). This regulator is to be set-up because,
under the previous version of the Act, there was no provision for a
central regulator to look after the consumer rights issues.
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The CCPA has received directions from the central govern-
ment.
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The CCPA may also take suo moto cognisance of the consumer
rights violations in any form.
Undertaking an action against the accused, if proved guilty.
After conducting the enquiry, the District Collector has to submit his
report to the CCPA or to the Commissioner of a regional office which
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is the same source through which the complaint was received.
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Advising the Central and State Government departments and
ministries regarding the consumer welfare measures
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Issuing guidelines for preventing unfair trade practices
a prima facie case, the CCPA can direct Director General or District
Collector to conduct an investigation.
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advertisements contained in the Consumer Protection Act, 2019, let us
first study some relevant definitions as follows:
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According to Section 2 (1), advertisement means any audio or visual
publicity, representation, endorsement or pronouncement made by
means of light, sound, smoke, gas, print, electronic media, internet or
website and includes any notice, circular, label, wrapper, invoice or such
other documents.
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The Consumer Protection Act, 2019, contains strict penalties for mis-
leading or false advertisements. The CCPA has the authority to regu-
late matters relating to the violation of unfair trade practices and false
or misleading advertisements. The CCPA has the authority to impose
a penalty of up to ` 10 lakhs on a manufacturer or an endorser for the
first offence and imprisonment of up to two years if it is found respon-
sible for the false or misleading advertisement.
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The inclusion of endorsers under the Consumer Protection Act, 2019
implies that now the celebrities who endorse or promote false or mis-
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leading advertisements and adulterated goods can be penalised under
this Consumer Protection Act, 2019. In addition, the endorsers may be
prohibited from doing any promotions or endorsements for a period of
one year for the first offence and a period of up to three years for any
subsequent offence.
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In its present form, the Consumer Protection Act, 2019 does not cover
healthcare in the list of services listed under the definition of service.
Interestingly, the bill that was passed by the Lok Sabha included
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MEDIATION
PENALTIES
In case any party defies any order of the commission, the punishment
of imprisonment shall be for atleast 1 month, or a fine, which shall not
be less than twenty-five thousand rupees, but which may extend to
one lakh rupees, or both.
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care of the fact that India has been witnessing a booming e-commerce
industry and the methods of providing goods and services to consum-
ers have changed and now includes online sales, tele-shopping, direct
selling and multi-level marketing apart from the traditional methods.
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Some major differences between the Consumer Protection Act, 1986
and the Consumer Protection Act, 2019 are shown in Table 6.2:
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multi-level marketing would now have a legal recourse in case
of fraud.
a. True b. False
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3. ____________ means that in any commercial relationship, the
responsibility and accountability of the sellers with respect to
the products and services has to be fixed.
Activity
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consumers are given a variety of options at competitive prices
offered by different companies.
Example: There are different brands of tea like Tata, Taj Mahal,
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Red Label, Wagh Bakri, etc. Consumers have the right to choose the
preferred tea for consumption.
4. Right to be heard: This right ensures that consumers are able
to raise their complaints and concerns related to a product
which ensures that their disputes can be handled efficiently and
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responsively.
Example: Heena received a parcel from an e-commerce company
and got a defective product. She has the right to raise a complaint
related to the product.
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In 1985, the United Nations added four more rights to the existing four
rights in order to protect consumers as follows:
1. Right to satisfaction of the basic needs: This right is related to a
consumer’s right to have access to the basic, essential goods and
services, such as food, clothing, shelter, healthcare, education,
public utilities, water and sanitation.
2. Right to redress: This right relates to the consumers’ right to
seek redressal in terms of a fair settlement of just claims, com-
pensation for misrepresentation, unscrupulous exploitation of
consumers’ unsatisfactory services, unfair trade practices, etc.
3. Right to consumer education: Consumers have a right to acquire
the knowledge and skills needed for making informed decisions.
The consumers must also be aware of the basic rights and duties
of consumers.
4. Right to a healthy environment: Consumers have a right to live NOTE
and work in a safe, clean, healthy and sustainable environment
In India, consumers enjoy all
that does not threaten their well-being. eight consumer rights.
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3. Right to present case via video conferencing: The new law has
a provision for hearing of a complaint using video conferencing
in addition to the traditional mode of hearing in person in the
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District Commissions.
4. Right to file a complaint against unfair contract: The Con-
sumer Protection Act, 2019 has a provision that allows consum-
ers to file a complaint against sellers or service providers for any
of the unfair trade practices or one-sided contracts that favour
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Activity
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CPCs have been created as advisory bodies whose function is to advise
for the promotion and protection of consumers’ rights within their
jurisdictions.
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6.4.2 CENTRAL CONSUMER PROTECTION COUNCIL (CCPC)
The Central Government will form the CCPC or the Central Council
as an advisory body that will be chaired by the Minister-in-Charge of
the Department of Consumer Affairs. The CCPC must meet at least
once a year. The objective of the CCPC is to advise for the promotion
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All the states will form the SCPC or the State Council as an advisory
body that will be chaired by the Minister-in-charge of the Department
of Consumer Affairs in the State Government. The SCPCs must meet
at least twice a year. The objective of the SCPC is to provide advice for
the promotion and protection of consumers’ rights within their states.
All the states will form the DCPC or the District Council as an advisory
body that will be chaired by the collector of the district. The DCPCs
must meet at least twice a year. The objective of the DCPC is to pro-
vide advice for the promotion and protection of consumers’ rights
within their respective districts.
Activity
List a few activities that have been carried out by the CPCs for the
protection of consumer rights.
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lations. For all such violations, consumers have a right to lodge con-
sumer disputes with the appropriate consumer disputes redressal
machinery.
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6.5.1 CONSUMER DISPUTES REDRESSAL MACHINERY
As per the Consumer Protection Act, 2019, consumers can get a res-
olution to their consumer complaints with the three-tier structure.
Under this structure, the Consumer Courts are set up at three levels
as follows:
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ii. None of the points of the dispute are mutually resolved by the
parties and the court passes an order stating the same. This is a
case of failed mediation. In this case, the matter is moved back to
the court.
iii. The parties to a dispute can resolve one or more points of dis-
putes but not all. This is a case of partially successful mediation.
Here, the designated Commission shall record settlement of
the issues that have been so settled and continue hearing other
issues that could not be resolved through mediation.
The first step in filing a complaint with the consumer protection body
is to file a complaint in a written or electronic form with the concerned
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Consumer Commission or the consumer court. As already discussed,
the complainant may be an individual consumer, the State Govern-
ment or the Central Government or even the CCPA. The complaint
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is accepted only if it is accompanied by the requisite amount of fees.
mediation within five days from the date of submitting such mediation
application. The proceedings of the case continue as per the results of
mediation.
(c) Returning the total price or the charges paid by the complainant
along with the interest on such price
(d) Paying compensation to the consumer for any loss or injury
suffered by the consumer due to the negligence of the opposite
party
(e) Awarding compensation in case of product liability action
(f) Removing the defects in goods or deficiencies in the services
(g) Discontinuing the unfair trade practices or restrictive trade
practices and not repeating them
(h) Not offering sale of hazardous or unsafe goods
(i) Withdrawing the offer for sale of hazardous or unsafe goods
(j) Discontinuing the manufacture of hazardous goods and restrain-
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ing from offering hazardous services
(k) Awarding a sum determined by the commission if the commis-
sion is of the opinion that loss or injury has been suffered by
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a large number of consumers who cannot be identified conve-
niently
(l) Issuing corrective advertisement to neutralise the effect of mis-
leading advertisement at the cost of the opposite party responsi-
ble for issuing such misleading advertisement
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The various appeals and their period of limitation under the Con-
sumer Protection Act, 2019 are as follows:
If a person has been aggrieved by any order that has been passed
by the CCPA, then he/she may file an appeal with the National
Commission within 30 days from the date of receipt of such order.
If a person has been aggrieved by an order made that has been
passed by the District Commission, then, he/she may file an appeal
against such order with the concerned State Commission within
45 days from the date of such an order.
If a person has been aggrieved by an order made that has been
passed by the State Commission, then, he/she may file an appeal
NOTE against such order with the concerned National Commission
within 30 days from the date of such an order.
An appeal always lies with the
National or State Commission if If a person is aggrieved by an order made by the National
the State or District Commission Commission, then he/she may appeal against such order to the
respectively has passed an ex
parte order. Supreme Court within 30 days of such order.
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Activity
There are four main objectives that form the foundation of any coun-
try’s state policy and include:
1. Consumers are fully informed and can take decisions.
2. Consumers are not discriminated on the basis of their gender,
race, colour, region, income level, religion, culture, caste, etc.
Know More State policies are constructed to ensure that there are no misleading
The Federal Service for or false advertisements, and the pricing, selling and retailing practices
Surveillance on Consumer are kept fair. Consumers are also regulated so that they may not file
Rights Protection and Human false claims against the sellers.
Wellbeing or Rospotrebnadzor is
the federal service responsible In the USA, various self-regulatory bodies may carry considerable
for the supervision of consumer influence on organisations and government. In India, there is no con-
rights protection and human
wellbeing in Russia.
cept of self-regulatory bodies and only the government regulatory bod-
ies have the authority and influence over government and industries.
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tions of society. Such countries establish laws to ensure that the chil-
dren and other psychologically vulnerable sections do not fall prey to
the marketing tactics of organisations. When compared to the USA,
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India remains behind and needs to work on these aspects.
10. The USA has strict laws for drug manufacture and sale and
for checking adulteration.
a. True
b. False
Activity
Make a list of ten developed countries of the world and study their
consumer protection laws. Compare these laws and their provi-
sions with the consumer laws of India.
6.7 Summary S
The use of digital means has offered various benefits as well
as challenges related to consumer protection. To meet these
challenges faced by consumers, the Indian Government enacted
the Consumer Protection Act, 2019.
The objective of the Consumer Protection Act, 2019 is to provide
timely and effective administration and settlement of consumer
disputes.
Some important features and provisions of the Consumer
Protection Act, 2019 are:
Broadening the term consumer
Inclusion of e-commerce
New grounds for filing complaints
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Introduction of product liability
Advertising claims
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Introduction of the CCPA (Central Consumer Protection Au-
thority), a regulatory body
Including within its scope misleading advertisements
Deletion of healthcare from the definition of services
Increase in the pecuniary jurisdiction of the Commissions
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bodies whose function is to provide advice for the promotion and
protection of consumer’s rights.
The disputes are resolved through the consumer courts or the
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consumer commissions.
After the commission receives the complaint, it has to decide
whether or not to admit the complaint. The commission has to
decide whether to admit or reject the complaint within 21 days and
if the commission does not give any decision within this period, the
complaint is deemed to be admitted automatically.
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key words
S
Topic Q. No. Answer
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Consumer Protection Act, 2019 1. c. A minor
2. a. True
3. Product liability
Rights of a Consumer 4. be heard
5. a. True
Consumer Protection Councils 6. b. False
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7. SCPC
Consumer Disputes Redressal 8. d. 21
9. a. True
Comparison of Consumer Law in Vari- 10. a. True
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ous Countries
Suggested Readings
Tiwari, G. (2014). Understanding Laws Consumer Rights (1st ed.).
Lexis Nexis.
Kaushal, A. (2016). Practical Guide to Consumer Protection Law
(4th ed.). Universal Law Publishing Co Pvt Ltd.
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E-REFERENCES
(2020). Retrieved 27 April 2020, from http://egazette.nic.in/
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WriteReadData/2019/210422.pdf
Roysam, V. (2020). Marketers say, ‘so jaograhak so jao’. Consumers,
do you know these important rights?. Retrieved 27 April 2020, from
https://yourstory.com/2017/03/consumer-rights
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Contents
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7.1 Introduction
7.2 The Right to Information (RTI) Act, 2005
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7.2.1 Objectives of the RTI Act
Self Assessment Questions
Activity
7.3 Public Authorities (Chapter II of the Act)
7.3.1 Obligations/Duties of Public Authority (Chapter II of the Act)
7.3.2 Framework of Public Information Authority (Section 5)
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CONTENTS
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Introductory Caselet
The Right to Information (RTI) Act , 2005 not only brought about
greater transparency and accountability in the functioning of Case Objective
various governmental agencies but also helped bust multiple This caselet discusses how
scams in the country. It is rightly called the ‘sunshine law’ due the Right to Information (RTI)
to its potential to expose the scandalous actions of the high and Act has been contributing
the mighty. Since its inception, the law has been contributing in in revealing scams worth
billions, whereby the
revealing scams worth billions, whereby the taxpayers’ money or taxpayers’ money or public
public property has been looted by the corrupt politicians and cor- property has been looted by
porations. Some of the infamous scams that had been brought into the corrupt politicians and
light include Public Food Distribution Scam in Assam (2007), the corporations.
2G Scam (2008), Adarsh Society Scam (2010) in which the defence
was cornered by several well-known politicians and bureaucrats,
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Commonwealth Games Scam and scams involving diversion
of Dalit funds, Wakf Board Land Scam in Karnataka (2012), the
Coal Allocation Scam (2012), Indian Red Cross Society Scam, and
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many others. The significance of the legislation lies in compelling
the leaders working in various positions to improve governance
for the socio-economic betterment of the citizenry, rather than
personal aggrandisement.
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Learning objectives
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7.1 Introduction
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Quick Revision In the previous chapter, you have studied consumer-oriented laws
such as the Consumer Protection Act, 2019. This chapter discusses
the RTI Act, 2005 (hereinafter referred to as ‘RTI Act’). The right to
information is the pivot of a participatory democracy, which aims
to bring about accountability and good governance. The higher the
ease of access about the quality of governance, the higher shall be
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In this chapter, you will study the objectives of the RTI Act. Next, you
will study the public authorities and their framework. The chapter will
then discuss the procedure for obtaining information. Then, you will
study the role of Information Commissions (ICs). Finally, the chapter
discusses the impact of the RTI Act.
According to Section 2(j) of the RTI Act, 2005 the term “right to
information” means the right to information accessible under this
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Act which is held by or under the control of any public authority and
includes the right to—
(i) inspection of work, documents, records;
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(ii) taking notes, extracts, or certified copies of documents or records;
(iii) taking certified samples of material;
(iv) obtaining information in the form of diskettes, floppies, tapes,
video cassettes or in any other electronic mode or through print-
outs where such information is stored in a computer or in any
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other device;
The type of information that may be obtained under the RTI Act is
defined in Section 2(f) as ‘any material in any form, including records,
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S
instrumentalities accountable to those governed
To preserve the confidentiality of sensitive information
To uphold democratic ideals by the virtue of transparency in
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information
2. The main aim of the RTI Act is to promote _______ and _______.
Activity
N
Briefly describe some cases known to you or which you may have
read somewhere about the way the RTI Act, 2005 was used by any
Indian citizen(s) to obtain information.
As per the RTI Act, there are two sets of organisations that are con-
sidered to be ‘public authority’. The first one involves bodies that are
formulated by the enactment of the legislation or constitution of India,
such as all the political parties, state legislatures such as Securities
and Exchange Board of India (SEBI), Reserve Bank of India (RBI),
and Telecom Regulatory Authority of India (TRAI). The second type
of public authorities includes bodies that are substantially financed
by the government. For instance, planning commission or education
institutions created by law, etc. Therefore, they owe their existence
to the funds given directly or indirectly by the government. These
authorities can be at the state level or district level or sub-district level.
Also, the RTI Act mandates that every public authority shall proac-
S
tively disclose information pertaining to it and maintain its documents
and records to facilitate the right to information under the Act. These
authorities have statutory or public duties that are to be performed for
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the benefit of the public.
Every public authority, within 100 days of enactment of the Act, shall
designate the Central Public Information Officers (Central PIO) or the
State Public Information Officers (State PIO) in their respective pub-
lic or administrative offices. These designated officers shall be respon-
sible for providing necessary information to the public. The Central
PIO or the State PIO officer shall provide reasonable help to the per-
sons seeking information from them. Any officer whose assistance is
required by the above-mentioned officers shall render such assistance
at a reasonable time. At every sub-divisional level and sub-district
level, Central PIO or State PIO, as applicable, shall be designated to
receive requests for information and to arrange to provide the same.
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DUTIES
of his/her duties.
Section 7 obligates the PIO to provide the information expeditiously
within 30 days of the receipt of the request provided the requisite
fees has been paid, either provide the information on payment of
such fee as may be prescribed or reject the request for any of the
reasons specified in Sections 8 or 9 of the Act.
If the requested information concerns the life or liberty of a person,
the same shall be provided within 48 hours of the receipt of the
request.
If the PIO fails to give a decision on the request within the period
specified, he/she is deemed to have rejected the request. Where a
request has been rejected, the PIO needs to communicate to the
requester: (a) the reasons for such rejection, (b) the period within
which an appeal against such rejection may be preferred, and (c)
the particulars of the appellate authority.
To provide information in the form in which it is sought unless
it would disproportionately divert the resources of the public
authority or would be detrimental to the safety or preservation of
the record in question.
If the PIO allows only partial access, where such part is not
exempted from disclosure and such part can be easily severed
from the part exempt, the PIO should give a notice to the applicant
informing: that only part of the record requested, after severance
of the record containing information which is exempt from
disclosure, is being provided.
The PIO should give reasons for the decision, including any
findings on any material question of fact, referring to the material
on which those findings were based; the name and designation of
the person giving the decision; the details of the fees calculated by
him/her and the amount of fee which the applicant is required to
deposit; and his/her rights with respect to review of the decision
regarding non-disclosure of part of the information, the amount of
fee charged, or the form of access provided.
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If the information sought has been supplied by a third party or
is treated as confidential by that third party, the PIO shall give
a written notice to the third party within 5 days from the receipt
of the request and take its representation into consideration. The
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third party must be given a chance to make a representation before
the PIO within 10 days from the date of receipt of such notice.
self-government.
a. True b. False
4. The RTI Act seeks to attain the following objectives:
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Activity
S
state. The request should clearly state the information sought for.
There is no need to give reasons for seeking the information in the
application.
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Time limit and fees: The time limit for obtaining information is as
follows:
The time limit of supplying the information is 30 days from the
date of receipt of the application.
If the information relates to the life and liberty of a person, it
shall be provided within 48 hours of the receipt of the applica-
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tion.
An additional 5 days shall be added to the above-mentioned
time limits if the information is to be furnished by the Assistant
PIO.
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Activity
S
Visit the RTI Act’s website to find the details of the fee applicable to
people living below the poverty line.
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INFORMATION EXEMPTED FROM
7.5
DISCLOSURE (Section 8)
Under the RTI Act, the following types of information are exempted
to be provided to the public:
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S
any public activity or interest or which would cause unwarranted
invasion of the privacy of the individual
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self assessment Questions
Activity
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S
The constitution of SIC is provided in Section 15 of the Act. The SIC
shall be constituted by the State government, which will consist of the
following:
a. The State Chief Information Commissioner
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b. Such number of State Information Commissioners, which shall
not exceed ten
The State Chief Information Commissioner and State Information
Commissioners shall be appointed by the Governor of the State on the
recommendation of a committee consisting of the following:
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S
forwarding
Who has been denied access to the information requested
under this RTI Act
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Who has not been given a response to a request or access to
information within the time limit specified
Who has been required to pay any fee which he/she feels is
unreasonable
Who believes that the information given is completely misleading
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Any person who does not receive the decision within the time limit
specified in the RTI Act or who is aggrieved with any of the decisions
of the PIO may file an appeal within 30 days from the expiry of such
period or from the receipt of the decision to the officer who is senior in
rank to the PIO as the case may be who is the First Appellate Author-
ity. However, the aggrieved party may appeal even after 30 days, if
sufficient reason is shown for the delay.
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The second appeal shall be filed within 90 days from the date by which
decision should have been made or is actually received. The appeal
shall be made before the Information Commissioners.
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APPEAL BY A THIRD PARTY
third party (usually where the PIO initially rejected the application
for disclosing information of a third party), then the concerned PIO
must send a written notice to such third party within 5 days of receipt
of application and give them an opportunity to be heard on why such
information shall not be disclosed.
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In the first case, the appellate authority should make sure that the
desired information has immediately been supplied to the appellant.
7.6.6 JURISDICTION
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challenge has been laid out in the Act. The appeal against the decision
of the information officer shall be made to the first appellate authority.
The second appeal shall be made to the Information Commissioners.
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However, the orders of the authorities under the Act or the denial of
the information can be challenged by way of the writ petition before
the High Court or by means of a Special Leave Petition before the
Supreme Court in terms of Article 226 or 32, as the case may be. The
Supreme Court after reference may remove the State/Central Com-
missioner and thereupon the Governor or the President, as the case
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S
a. Information Commission
b. First appellate authority
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c. Supreme Court
d. Any public office of your choice
Activity
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tax refunds, etc. People are massively using the RTI Act to get their
work done and they feel empowered. With greater transparency in
governance, RTI Act has given a boost to the freedom of speech and
expression. All the levels of government, centre, state, or village-level
Panchayats should put their record in the public domain.
Activity
Research on the Internet and find out how the RTI Act has revealed
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the scam in the Crawford Market redevelopment issues in Mumbai.
12. Section 8 of the RTI Act, 2005 relates to the exemption from
disclosure of information.
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a. True
b. False
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Activity
Using the Internet, find out about the role played by PIO with
respect to the RTI Act.
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7.9 Summary S
The Right to Information (RTI) Act was passed ‘to provide for
setting out the practical regime of right to information for citizens’.
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S
within the specified time or supplies incorrect and incomplete
information, the RTI Act has made appeal provisions to enable the
citizens to approach the appellate authorities.
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A penalty of ` 250 per day may be imposed on the PIO by the
Central/State Information Commission, as the case may be, till
the time the information is furnished for failing to furnish the
information on time or for furnishing misleading information.
People are massively using the RTI Act to get their work done and
they feel empowered. With greater transparency in the governance,
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RTI Act has given a boost to the freedom of speech and expression.
key words
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S
4. d. All of the above
Procedure for Obtaining 5. b. False
Information (Sections 6 and 7)
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Information Exempted from 6. c. Both a and b
Disclosure (Section 8)
Information Commissions (ICs) 7. a. Civil Procedure Code, 1908
8. a. 30 days
9. a. True
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Suggested Readings
Aggarwal, S; Singhal, K. (2006). Indian business laws. New Delhi:
Galgotia.
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Padhi, P. (2013). Legal aspects of business. New Delhi: PHI Learning.
E-REFERENCES
(2020). Retrieved 4 May 2020, from http://nromoef.gov.in/Guide%20
For%20the%20Public%20Authorities.pdf
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Contents
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8.1 Introduction
8.2 Competition—What and Why
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8.2.1 Need for a Competition Policy
8.2.2 Genesis of Competition Law
8.2.3 Comparison of the US and Indian Competition Laws
Self Assessment Questions
Activity
8.3 Competition Act, 2002
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Activity
8.4 Anti-competitive Agreements
8.4.1 Vertical Agreements
8.4.2 Horizontal Agreements
8.4.3 Cartels
8.4.4 Bid Rigging
Self Assessment Questions
Activity
8.5 Competition Commission of India (CCI)
8.5.1 Composition of CCI
8.5.2 Powers and Jurisdiction of the CCI
8.5.3 Inquiry into Certain Agreement and Dominant Position of Enterprises
8.5.4 Powers and Jurisdiction of the Director General
8.5.5 Procedure for Enquiry into the Complaints (Section 19)
8.5.6 Anti-competitive Acts taking place Outside India but having Adverse
Effect on Competition in India (Section 32)
CONTENTS
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8.8 Leading Cases under the Competition Law in India
Self Assessment Questions
Activity
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8.9 Summary
8.10 Descriptive Questions
8.11 Answers and Hints
8.12 Suggested Readings and References
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Introductory Caselet
ABUSE OF DOMINANCE
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However, these airlines were alleged for the violation of Sections
3 and 4 of the Competition Act as they formed a cartel by domi-
nating the market share and hampering the competitor’s market
and profit share. The Competition Commission of India (CCI) held
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both the airlines responsible for violating Sections 3 and 4 of the
Act because such tricks of the trade can lessen the competition
within the market.
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Learning objectives
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jurisdiction
>> Explain the meaning of combinations
>> Examine how combinations are regulated
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>> Identify the factors that are considered while determining
an Appreciably Adverse Effect on Competition (AAEC) in
the relevant market
>> List the penalties imposed under Competition Act, 2002
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8.1 INTRODUCTION
Quick Revision In the previous chapter, you studied about the Right to Informa-
tion (RTI) Act, 2005 and its objectives. You also studied about public
authorities, the procedure for obtaining information, information that
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The Indian legislature had also passed the Competition Act, 2002. This
Competition Act, 2002 defines various anti-competitive practices such
as entering into anti-competitive agreements, abuse of dominant posi-
tion and combinations. The different authorities involved, penalties
and punishments for violations and the procedure using which the
authorities decide whether or not violation has indeed taken place are
all described under this Competition Act, 2002.
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industry engage or participate in an attempt to gain or win something
by establishing superiority over others. While doing business, busi-
ness owners have to face competition in every form such as price,
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quality, design, sales, location, etc. In markets, competition can be
direct, indirect or potential.
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Increased choice for consumers
Increased innovation
The MRTP Act, 1969 was the first competition law of India that defined
restrictive trade practices. However, this law was not adequate for
promoting competition and trade, and reducing anti-competitive
practices.
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of Canada
The Combines Investigation Act, 1910 of Canada
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The MRTP Act, 1969 was meant to regulate the concentration of eco-
nomic power, competition law and consumer protection. This Act was
applicable to almost all areas of business such as production, distribu-
tion, pricing, investment, procurement, packaging, advertising, sales
promotion, mergers, amalgamations, takeovers, undertakings, etc.
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law.
Clayton Act: This Act was enacted to address certain areas not
addressed by the Sherman Antitrust Act. The scope of this law is
as follows:
Preventing mergers and acquisitions that may substantially
lessen the competition or tend to create a monopoly
Preventing discriminatory prices, services and allowances in
dealings between merchants, requiring large firms to notify
the government of possible mergers and acquisitions
The Federal Trade Commission Act: This law bans all unfair
methods of competition and deceptive acts or practices.
In the US, there are six institutions that help in implementing the
competition law of US, which are as follows:
The Department of Justice Juries
In the case of India, the antitrust law is the Competition Act, 2002. The
institutions that help in implementing the competition law of India
include the following:
Competition Commission of India
National Company Law Appellate Tribunal (NCLAT)
SupremeCourt Competition Commission of India, the National
Company Law Appellate Tribunal (NCLAT) and the Supreme
Court.
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2. Which of the following is not a sign of healthy competition
policy?
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a. Wider choice for consumers
b. Reduced competition
c. Decreased prices
d. Improved quality
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Activity
Find out which of the countries have the strongest and weakest
competition policy.
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To prevent anti-competitive practices
To penalise organisations engaging in any such acts
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To protect free and fair competition and freedom of trade
To protect the interests of consumers
To prevent monopolies
To prevent needless intervention by the government
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Let us now study these features of the Competition Act, 2002 in detail.
Prohibits anti-competitive agreements (Section 3): An agreement
is considered anti-competitive if it causes or may potentially cause
an adverse effect on competition. An important feature of the
Competition Act, 2002 is to prohibit anti-competitive agreements
such as tie-in arrangements, exclusive supply and distribution
agreements, etc.
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of businesses, combination may refer to any type of corporate
restructuring such as merger, amalgamation, acquisition of shares,
acquiring of control, etc.
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If one organisation (or a group of organisations) is able to
regulate combinations, it can potentially cause adverse effect on
competition within the concerned market. The Competition Act,
2002 also regulates operations and activities of combinations. It
is important to note that the operation of this Act is not limited
to combination transactions within India but it also regulates
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to all the activities carried out by the CCI that aim at promoting
competition. Apart from this, the basic task of the CCI is to enforce
the competition law.
8.3.3 Acquisition
ACQUISITION
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storage, acquisition, or control of goods or provision of services, which
causes or is likely to cause an appreciable adverse effect on competition
within India.
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There are no clear instructions or rules which can be used to state
whether an agreement causes or is likely to cause AAEC. However,
Section 19 (3) of the Competition Act, 2002 lists certain factors that the
CCI must consider while determining whether or not an agreement
has an AAEC. These factors are:
creation of barriers to new entrants in the market;
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In May 2017, the central government dissolved the CAT and replaced
it with NCLAT. Now, NCLAT is the appellate body that works under
the Competition Act, 2002. The right to appeal to NCLAT remains
unchanged. It is also the relevant authority to seek compensation
under the Competition Act, 2002.
GROUP
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According to the Competition Act, 2002, a group refers to two or more
enterprises which may directly or indirectly are in a position to do one
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of the following:
Exercise 20% or more of the voting rights in the other enterprise
Appoint more than 50% of the members of the Board of directors in
the other enterprise
Control the management or affairs of the other enterprise
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PREDATORY PRICING
ANTITRUST LAW
MONOPOLY
PERFECT COMPETITION
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Entry and exit are easy
OLIGOPOLY
MONOPOLISTIC COMPETITION
RELEVANT MARKET
The Act defines the relevant market as the market which may be deter-
mined by the commission with reference to the relevant product market
or the relevant geographic market or with reference to both the markets.
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The Competition Act, 2002 defines the relevant product market as a
market comprising all those products or services which are regarded as
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interchangeable or substitutable by the consumer, by reason of character-
istics of the products or services, their prices, and intended use.
a. Section 2
b. Section 3
c. Section 4
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d. Sections 5 and 6
4. Under the Competition Act, 2002, the CCI has been entrusted
with various tasks such as __________, creating awareness,
and providing training.
5. The Competition Act, 2002 prohibits any agreement that is
related to the production, supply, distribution, storage, and
acquisition or control of goods or services and which has
caused or may potentially cause an __________.
6. The CCI consists of a Chairperson and not less than two and
not more than 6 members which are appointed by the central
government.
a. True b. False
Activity
Find out the instances of rigged bidding in the recent past in the
Indian market.
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Based on the provisions contained in Sections 3(3) and 3(4), the
anti-competitive agreements can be classified into horizontal agree-
ments and vertical agreements.
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8.4.1 VERTICAL AGREEMENTS
into an agreement with the supplier that he/she would not make
the same engine for any other buyer.
Under exclusive distribution agreement, restrictions are imposed
on the supply of certain goods which may limit the availability of
the goods. At times, such restrictions with respect to allocation of
any area or market or sale of goods are also covered under this
Competition Act, 2002.
Resale price maintenance: Any agreement to sell goods on
condition that the prices to be charged on the resale by the
purchaser shall be the prices stipulated by the seller unless it is
clearly stated that prices lower than those prices may be charged
is called resale price maintenance. In simple words, resale price
maintenance involves any attempt by an upstream supplier to
control or maintain the minimum price at which a product can be
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resold by a customer. Such restrictions ensure that the resellers
do not compete too fiercely which leads to lower profits. If an
agreement prescribes that a product is resold at a specific margin
or limits, the discount offered by a reseller restricts a reseller’s
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ability to set a price; such agreements are prohibited.
Refusal to deal: Any agreement that restricts or may potentially
restrict the persons or classes of persons to whom goods are sold
or from whom goods are bought are prohibited under the Act.
Such agreements are considered as anti-competitive.
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8.4.3 CARTELS
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The association of organisations
reducing or eliminating competition. Such a collusive agreement may
on a horizontal arrangement are be explicit or tacit in nature.
known as cartels.
Businesses involved in a cartel take decisions or steps which would
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help them to dominate the market and control market prices. Such
collusive decisions lead to the creation of a monopoly or a duopoly.
Most cartels and collusive agreements are illegal. When cartels are
able to convert the perfectly competitive market into a monopoly
or a duopoly, they gain control over all critical business areas such
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Most cartels are illegal; however, export cartels in most countries and
at international level are legal. For example, the Organisation of the
Petroleum Exporting Countries (OPEC) is a legal international cartel.
There are three major types of bid rigging, which are as follows:
1. Cover bidding: It is also known as complementary bidding.
Under cover bidding, a group of bidders submit collusive bids so
that some other bidder can win the contract.
2. Bid suppression: It occurs when many bidders agree not to bid
or they withdraw their bids. This is done in order to make a par-
ticular bidder win the bid.
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3. Bid rotation: It refers to a process wherein all bidders take turns
to submit a low bid with an intention to make each bidder win on
a rotational basis.
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self assessment Questions
Activity
CCI believes that competition is a means for ensuring that the com-
mon people of India can access a range of goods and services at com-
petitive prices. It aims to regulate competition so that the producers
can have maximum incentive for facilitating innovation and bring-
ing specialisation. Healthy competition in markets leads to reduced
costs and increased choice available to consumers. Therefore, the
CCI works towards providing a level playing field to the market par-
ticipants and at the same time take care of the interests of the con-
sumers as well.
The CCI is the body through which the central government aims at
achieving the objectives of the Competition Act, 2002. The CCI con-
sists of a Chairperson and not less than two and not more than 6 mem-
bers which are appointed by the central government. The major activ-
ities of the CCI are as follows:
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Eliminating practices having AAEC
Promoting and sustaining competition
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Protecting the interests of consumers
Ensuring the freedom of trade in Indian markets
Undertaking competition advocacy
Creating public awareness
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Conducting inquiry into cases of combinations and determining if
such an agreement has AAEC
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Regulating its own procedure for discharging its functions, as it is
not bound by rules of Civil Procedure Code, 1908
Imposing monetary penalty
Issuing interim orders if the CCI is satisfied that it is a case of anti-
competitive agreements or abuse of dominant position
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As of now, the jurisdiction of the CCI has been widely debated. There
have been cases wherein some other courts have stayed the verdict
of the CCI. There are various jurisdictional challenges related to CCI
encroaching the jurisdiction of another regulator or court. The CCI
actually faces a lot of issues because it sees an overlap between its own
jurisdiction and that of other regulators.
The Competition Act, 2002 does not specify any rules based on which
the CCI can decide the cases to be taken cognisance of. There have
been numerous instances of overlap and exercise of authority between
CCI and other regulators. This often leads to delay in justice.
Exhibit
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posal before the High Court.
Source: https://www.mondaq.com/india/antitrust-eu-competition-/392738/jurisdic-
tion-of-the-cci-navigating-through-muddy-waters [Retrieved on DD-MM-YYYY]
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8.5.3 INQUIRY INTO CERTAIN AGREEMENT AND
DOMINANT POSITION OF ENTERPRISES
The CCI has the power to inquire into any alleged violation of Sec-
tions 3 and 4, i.e., anti-competitive agreements and abuse of dominant
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position by taking suo moto cognisance (on its own motion) or in the
following cases:
When the CCI receives any information from any person, consumer,
or their association which is accompanied with the required fee
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amount
When the CCI receives a reference made to it by the central
government or state government or statutory authority
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inquiry in accordance with Section 19 of the Act. The CCI can order
for an investigation to be initiated by the DG. The CCI must not form
any opinion before the investigation is initiated.
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8.5.5 PROCEDURE FOR ENQUIRY INTO THE COMPLAINTS
(SECTION 19)
In the first situation, the CCI is satisfied that there exists some sub-
stance in the complaint; then, in such a situation, the CCI directs the
DG to investigate the matter. If the CCI receives any complaints or
information that is similar to any previously received information,
then all the new information should be clubbed with the previously
available information.
In the second situation, the CCI is not satisfied with the matter
referred to it and it does not find that a prima facie case is made out;
then, the CCI closes the matter and passes orders as it deems fit. The
CCI also has to send a copy of this order to the central government
or the state government or to the authority from which the complaint
was received.
When a case is referred to the DG, he/she carries out a thorough inves-
tigation and prepares a report of his/her findings. If the report of the
DG states that there was no contravention of any provisions of the
Competition Act, 2002, the complainant may rebut and appeal against
the findings of the DG to the CCI. Following this, the CCI hears the
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ment with respect to combinations if such an agreement is likely to
have an appreciable adverse effect on competition in the relevant
market in India. This is applicable even if:
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An anti-competitive agreement has been entered into outside of
India
Any party to such agreement is outside India
Any enterprise abusing the dominant position is outside India
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Activity
8.6 COMBINATION
The acquisition of one or more enterprises by one or more persons or
acquiring of control or merger or amalgamation of enterprises under
certain circumstances (exceeding monetary limits of assets or turn-
over as specified in Section 5 of the Act and given below) shall be con-
strued as a combination. The combination is defined as acquisition
of one or more enterprises by way of merger or acquisition or control
over the enterprise. Regulating the combinations is one of the primary
tasks of the Competition Act, 2002 and the Competition Commission
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of India.
must file with the CCI details of such deal within 7 days of the date
of acquisition.
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regarding entering into a combination, it shall inquire into whether
such a combination would cause AAEC in India.
However, the CCI may initiate such an inquiry into the combination
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only within one year after such a combination has taken effect and no
later than that.
This section also states that the central government should enhance
or reduce the value of assets or the value of turnover every two years
in consultation with the CCI and must notify the same.
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c. Two years d. Three years
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Activity
sections of this Act came into effect from 2009 except Section 44 which
came into effect from 2011. These sections have been amended from
time to time.
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Section 31: Orders of Commission on certain combinations
Section 32: Acts taking place outside India but having an effect on
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competition in India
Section 33: Power to issue interim orders
Section 42A: Compensation in the case of contravention of orders
of Commission
Section 43A: Power to impose penalty for non-furnishing of
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information on combinations
This section states that if a person fails to comply with either the
directions of the CCI under Sections 36(2) and 36(4) or the directions
of the DG under Section 41(2), without any reasonable cause, then the
person can be fined an amount of up to ` 1 lakh for each day during
which such failure continues subject to a maximum of ` 1 crore. The
amount is decided by the CCI.
Section 41(2) states that the DG shall have all powers as are conferred
upon the CCI as mentioned in Section 36(2) of the Competition Act,
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2002.
Section 43A of the Act states that if any person or enterprise fails
to give notice to the CCI when they are entering into a combination
agreement [under Section 6(2) of the Act], the CCI may impose a
penalty of up to 1% of the total turnover or the assets of the combi-
nation. This provision was inserted into the Act by the Competition
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(b) If the person omits any material fact which he/she knows is mate-
rial to the case
(c) If the person changes, suppresses, or destroys any document
which is required to be furnished out of his/her own free will
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The CCI cannot impose a lesser penalty in the following cases:
If the CCI receives the report of investigation before such
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disclosures are made; or
If the person who is making the disclosure does not continue to
cooperate with the CCI till the proceedings come to an end; or
If the CCI is satisfied that a producer, seller, distributor, trader, or
service provider which is a part of a cartel had not complied with
the condition on the basis of which the lesser penalty was imposed;
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or
If the CCI is satisfied that a producer, seller, distributor, trader, or
service provider which is a part of a cartel had given false evidence; or
Where the CCI realises that the information provided is not vital,
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Section 47 of the Competition Act, 2002 states that the amount that
the CCI receives by imposing penalties must be credited to the consol-
idated fund of India.
Section 48 of the Competition Act, 2002 states that when there is a per-
son committing any contravention of any of the provisions of this Act
or of any rule, regulation, order, or direction issued under this Act, is a
company; then, every person who is in charge of and was responsible
to the company for the conduct of the business of the company at the
time when the contravention was committed along with the business
will be considered as guilty of the contravention. The CCI will carry on
13. Section 47 of the Competition Act, 2002 states that all the
amount that the CCI receives by imposing penalties must be
credited to the_____________.
14. Amit was a party to a combination and he had made a false
statement with the CCI. What is the maximum penalty that
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CCI can impose on Amit?
Activity
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Explain how non-furnishing of information can hamper the pro-
ceedings of the cases being handled by CCI.
This case was filed by the M/s Reliance Big Entertainment Private
Limited against Tamil Nadu Film Exhibitors Association (hereinafter
referred to as the ‘Opposite Party’ or ‘TNFEA’) under Section 19(1)(a)
of the Competition Act, 2002. The informant alleged that the TNFEA
had contravened the provisions of Sections 3 and 4 of the Act.
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On 29-11-2011, Shri T. Rajhendherr, MD of M/s Kural TV informed
the informant via an e-mail that the TNFEA has decided not to
screen the said film in any of the screens of its members since the
said film’s satellite rights were granted to M/s Sun TV. Rajhendherr
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also attached a copy of the letter issued by the TNFEA to its theatre
members on 24-11-2011. Rajhendherr also informed the informant
that he was unable to block and book the theatres because of this
act of TNFEA.
On 29-11-2011, the informant received another e-mail from Shri
Ashok Kumar of M/s PVR Cinemas. PVR Cinemas was a member
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The informant also informed the CCI that it had learnt from various
newspaper sources that M/s Sun TV owed some money to a few
members of the TNFEA and it had ordered for recovering all the
money from M/s Sun TV by banning all films which are produced
or distributed by M/s Sun TV. TNFEA has also banned films whose
satellite rights were granted to M/s Sun TV.
The informant told the CCI that the TNFEA’s ban on the given film
on theatres in Tamil Nadu because its satellite rights were granted
to M/s Sun TV was unfair and were clearly in contravention of the
provisions of the Act.
The informant alleged that TNFEA was acting in an arbitrary
manner. The film of the informant was boycotted by TNFEA with
an aim to secure a claim of its members against a third party, i.e.,
M/s Sun TV.
The informant claimed that it was not related to the third party in
any manner and the dues that had to be paid by it. The informant
contented that TNFEA’s decision to ban the said film was an abuse
of dominant position.
On the basis of the above facts of the case, the informant prayed the
following:
TNFEA should be restrained and it should be ordered not to
compel its members for not dealing with the film (Osthi) of the
informant including all its upcoming films also.
TNFEA should be restrained and it should be ordered to not allow
the release and exploitation of the said film and forthcoming films
of the informant.
TNFEA should be restrained from imposing any unfair and
unjustified restrictions on the release and exploitation of the
informant’s said film.
TNFEA should be restrained from entering into any anti-
competitive agreements with its members.
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TNFEA should be restrained from abusing its dominant position.
The CCI considered this case and after considering all the facts, it
noted the following:
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M/s Sun TV owed money to a few members of TNFEA.
TNFEA resorted to arm twisting tactics and threatening and in
order to recover its money by ordering that theatres associated
with TNFEA not to exhibit the film with which M/s Sun TV was
associated.
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Following this, the CCI ordered the DG to investigate the matter for
contravention of Sections 3(3) of the Act.
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Offshore’), Triton Maritime Private Limited (‘Triton’), Greatship
(India) Limited (‘Greatship’), etc.
It is stated that ONGC, in order to undertake Oil & Natural Gas
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(hereinafter, O&NG) Exploration and Production (E&P) activities
seek support services from offshore oilfield services providers
(such as the member companies of the Informant) pursuant to a
competitive bidding process. One of the services is the charter-
hire of offshore support vessels (hereinafter, the ‘OSVs’) which are
specialized vessels that support various stages of offshore O&NG
E&P activities undertaken by ONGC. There are several types of
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tow rig anchors from one location to another and to lift and
position rig’s anchors; and
b.
Platform Supply Vessels (‘PSV’) to carry out supply duties
and transit of manpower, fuel, fresh water, tools, and materials
(such as pipes and cement) to offshore drilling locations.
The Informant submitted that for procuring the services of the
aforesaid OSVs, ONGC used to float International Competitive
Bidding (hereinafter, the ‘ICB’) tenders which contained detailed
technical eligibility requirements, bid evaluation criteria, a model
contract comprising General Conditions of Contract (hereinafter,
the ‘GCC’) and Special Conditions of Contract (hereinafter, the
‘SCC’), collectively referred to as the ‘Charter Hire Agreement’
(hereinafter, the ‘CHA’). The CHA sets out the terms and conditions
which govern the contractual relationship between ONGC and the
successful bidder. The Informant claimed that ONGC possesses
a dominant position in the hiring of OSVs and owing to such
dominant position, it had been able to put one-sided clauses in the
CHAs in the nature of boiler plate agreements, allegedly not open
for negotiations.
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companies which is indicative of abuse on its part owing to the
dominant position held by it. Based on these allegations, the
Informant alleged contravention of Section 4(2)(a)(i) of the Act by
ONGC.
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The Commission examined the aforesaid facts and after hearing
both the parties, in a preliminary conference held on 17-05-2018,
was prima facie satisfied that the allegations raised by the Informant
in the information had merit. Prima facie, the Commission found
ONGC to be dominant in the ‘market for charter hire of OSVs
(PSVs and AHTSVs) in the Indian EEZ’. Further, with regard
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given the disproportionate risk that ONGC has to bear in case of
such termination by the OSVs; especially when the Commission
has found, in the given facts and circumstances, that the invocation
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of such clause was not in bad faith. It is unambiguously established
by the evidence on record that the conduct of ONGC was driven
solely in response to an exceptional change in market conditions.
Further, the right of termination for convenience was exercised by
ONGC for the first time in thirty years of the existence of such
clause in the CHA and there is no evidence that any party has raised
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any objections to the existence of such clause all this while. Had
it been found that ONGC invoked this clause capriciously and/or
frequently in order to make illegitimate gains at the expense of the
other contracting party, the Commission may have had the occasion
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Activity
8.9 Summary S
Competition is not necessarily negative, and in fact healthy
competition among organisations is actually good for businesses.
Competition policy involves applying rules to ensure that the
businesses and companies compete fairly with each other.
Presence of a healthy competition policy ensures wider choice for
consumers and helps in reducing prices and improving quality.
The Monopolies and Restrictive Trade Practices (MRTP) Act was
meant to regulate concentration of economic power, competition
law, and consumer protection and was applicable to almost all areas
of business such as production, distribution, pricing, investment,
procurement, packaging, advertising, sales promotion, mergers,
amalgamations, takeovers, undertakings, etc.
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The Competition Act, 2002 was enacted on 13th January, 2003
to regulate and govern the competition and related practices in
India.
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Section 3 of the Competition Act, 2002 relates to the prohibition of
anti-competitive agreements. The Competition Act, 2002 is based
on the philosophy of modern competition laws. It prohibits anti-
competitive agreements and abuse of the dominant position by
enterprises.
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key words
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4. Explain the various types of vertical and horizontal agreements.
5. What are the powers and jurisdiction of the Director General of
the CCI?
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6. Describe the factors that must be considered while determining
the adverse effect of the combination on competition in the rele-
vant market.
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position; Provides for regulation of combinations; and Enjoins
competition advocacy. Refer to Section 8.3 Competition Act,
2002
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3. According to Section 2 (c), cartel includes an association of pro-
ducers, sellers, distributors, traders, or service providers who, by
agreement amongst themselves, limit, control, or attempt to control
the production, distribution, sale or price of, or, trade in goods or
provision of services. Refer to Section 8.3 Competition Act, 2002
4. The anti-competitive agreements are the types of agreements
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Suggested Readings
Pathak, A. (2020). Legal Aspects of Business (7th ed.). McGraw Hill
HED.
Dhall, V. Competition Law Today (2nd ed.). Oxford.
E-REFERENCES
(2020). Retrieved 6 May 2020, from https://www.oecd.org/
investment/toolkit/policyareas/competition/Competition%20
Policy%20Guidance,%20Thomsen.pdf
(2020). Retrieved 6 May 2020, from https://assets.publishing.
service.gov.uk/media/57a08d5b40f0b652dd00190e/CRCwp2.pdf
Pierce, R. (2020). Comparing the Competition Law Regimes of the
United States and India. Retrieved 6 May 2020 from https://papers.
ssrn.com/sol3/papers.cfm?abstract_id=2951944
Editor, V. (2020). Competition Commission of India - Hyundai Case
Study - India Business Law Journal. Retrieved 6 May 2020 from
https://www.vantageasia.com/hyundai-case-a-lesson-for-cci/
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Contents
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9.1 Introduction
9.2 Factories Act, 1948
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9.2.1 Objectives and Applicability
9.2.2 Key Provisions and Features of the Law
9.2.3 Occupation of Occupier (Employer) and Responsibilities of Occupier
Self Assessment Questions
Activity
9.3 Industrial Disputes Act, 1947
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CONTENTS
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Self Assessment Questions
Activity
9.9 Maternity Benefit Act, 1961
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9.9.1 Objectives and Applicability
9.9.2 Key Provisions
Self Assessment Questions
Activity
9.10 Code on Labour Laws
9.10.1 Code on Wages
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Activity
9.11 Summary
9.12 Descriptive Questions
9.13 Answers and Hints
9.14 Suggested Readings & References
Introductory Caselet
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ties for the welfare of the workers, including health facilities and
financial assistance. The management maintained that healthy
workers were very important for the work of the estate. The major
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welfare efforts of the management were as follows:
The workers were given raincoats and woolens during the wet
and cold seasons
The employees were given an assistance of ` 50 for procuring
food grains from ration shops
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Introductory Caselet
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Increase in working hours and workers would be required to
collect more kilos of tea leaves every day
The workers would be barred from taking casual as well as
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sick leaves
No special consideration for sick workers
No raincoats or woolens for workers
Introductory Caselet
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realised, though reluctantly, that production was getting affected.
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Learning objectives
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g. Payment of Gratuity Act, 1972
h. Maternity Benefit Act
>> State the importance of code on labour laws and provide
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features of each of the Code
9.1 Introduction
Quick Revision
In the previous chapter, you have studied about the Competition Act,
2000. In this chapter, you will study employment-related laws.
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In India, there are about 60 laws concerning labour dealing with work-
ing conditions, industrial relations, monetary benefits and social secu-
rity issues in Indian ministries and commercial establishments. The
main objective of these laws is to promote the welfare of workers and
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employees and improve their social life. There are three categories of
labour laws in the country as follows:
A. Laws framed and administered by the Central Government such
as the law relating to provident fund, mines, beedi workers,
industrial disputes etc.
B. Laws framed by the Central Government but administered by
the State Governments such as the law on factories, employ-
ment exchanges (compulsory notification of vacancies), bonded
labour, trade unions, employees’ compensation, etc.
C. Laws framed by Central Government but administered by both
the Central and the State Governments include laws such as the
payment of wages, gratuity, child labour, apprenticeship, equal
remuneration, contract labour and inter-state migrant workers.
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conferences of chief inspectors
workers in a factory. of factories.
for the health, welfare and safety of workers inside factories. It talked
about the working conditions of workers with respect to the hours
of work, minimum age, leave with pay and so on. Consequently, the
Factories Act, 1948 was amended several times. The objectives of the
Factories Act, 1948 are as follows:
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The scope and coverage of the Factories Act, 1948 are as follows:
It aims to improve the working conditions in factories across India
Renewal of licenses
Inspection of factories in case of complaints/accidents/suo
NOTE motto
To renew the licence of a
factory, the following documents
should be submitted: 9.2.2 KEY PROVISIONS AND FEATURES OF THE LAW
yyAn application in form num-
ber 3 (duplicate) Since the object of the Factories Act, 1948 is to protect the interest of
yyTreasury receipt challan with workers from exploitation, the Act recommends certain standards for
prescribed fees safety, welfare and working hours of workers, apart from other pro-
yyOriginal licence visions. The main provisions of the Factories Act, 1948 are as follows:
yyProcess flowchart
Compulsory approval, licensing and registration of factories: It
is mandatory to obtain a licence before a factory is started. The
State Government may make rules related to the licensing and
NOTE registration of factories. As an initial step towards the approval
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for licensing, detailed plans or any class of description of factories
As per Section 18, it is important
to make proper arrangements
must be submitted to the Chief Inspector or the State Government.
for cool drinking water during Later, the plans and specifications of a factory and its location are
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summers, if the factory employs presented in the required format in writing to the Chief Inspector
more than 250 workers. or the state government for its registration.
Health measures: Factories Act, 1948 is intended to ensure that
the conditions in factories do not affect the health of workers
TURN TO THE adversely. Various provisions for cleanliness, disposal of wastes
WEB
and effluents, ventilation and temperature, lighting, artificial
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default/files/Factories_Act_1948. years. No person in the factory shall be allowed to spit at any place
pdf other than spittoons. In case of violation, fine of not more than 5
rupees shall be paid.
Safety measures: Following are the some of the important
NOTE provisions under these sections regarding the safety of workers:
Under Section 40B of the Dangerous machinery such as electric generators must be se-
Factories Act, 1948, it is
curely fenced.
important to appoint a safety
officer by the occupier in case: Work on or near machinery in motion must be carried out only
a. Where 1000 or more workers by specially trained adult male workers wearing tightly fitting
are ordinarily employed
c1othes.
b. Where the state government
is of the opinion that manu- All floors, steps, stairs, passage and gangways shall be of sound
facturing process involves construction and properly maintained. Handrails shall be pro-
any kind of risk such as body
injury, poisoning disease or vided where necessary. Safe means of access shall be provided
other hazard to health to the place where the worker will carry on any work.
The state government can direct No worker shall be made to carry a load so heavy as to cause
or prescribe the occupier the
him injury.
number of safety officers to be
appointed.
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These sections particularly deal with the length of working
hours with regard to women and young persons and the age of
employment. The maximum daily hours of work shall be 9 hours
for women.
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Annual Leave: There are provisions related to weekly holidays,
compensatory holidays and annual leaves. Factories Act, 1948
provides the grant of a leave period with wages to every worker Know More
who has worked for a period of 240 days or more in a factory Women shall not be required or
allowed to work in any factory
during a calendar year. Such workers are allowed to leave with between the hours of 6 AM and
wages during the subsequent calendar year.
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7 PM.
Occupier is the person who has the ultimate control over the affairs
of a factory and is responsible for various functions. He cannot be
anyone who is a mere servant charged with specific duties in regard
to control of the machinery, workmen or office, for example, a man-
ager [Emperor vs. Ram Pratap 20 (1905) Bom 423]. The term ‘occupier’
includes:
Proprietor (owner) in case of sole proprietary concern
Partner of a partnership firm
Director of a Company [J K Industries Ltd. vs. Chief Inspector of
Factories & Boilers & Ors. (1997 SC)]
Person nominated by government in case of government factory
CASE LAW
JK Industries Ltd. and others vs. Chief Inspector of Factories and
Boilers and others (1996)
Facts: In this case, the Supreme Court noted that where a company
owns or runs a factory, it is the company that has the ultimate control
over the affairs of the factory and would therefore be the occupier.
Activity
Use the Internet and make a table showing the nature of offences
and penalties related to those offences under the Factories Act,
1948.
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9.3 INDUSTRIAL DISPUTES ACT, 1947
Industrial dispute is a major area of study in industrial relations and
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labour laws. Employers worldwide spend a significant amount of
time and resources in solving industrial disputes. In simple, indus-
trial disputes refer to various conflicts and differences taking place
between workers and employers in an industry. Industrial disputes
can take different forms, such as gheroas, strikes and demonstrations.
The disputes can originate from the side of employees, employers or
both. Whatever is the source, industrial disputes result in a significant
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The ID Act extends to the whole of India and applies to all the indus-
trial establishments that carry on business, manufacturing units, trade
and services. The main aim is to ensure industrial peace by protecting
the interest of the workmen. The main objectives of this ID Act are:
To maintain a better relationship between labourers and industries
by providing a medium of setting disputes through adjudicating
authorities
The ID Act also prohibits the pendency of the conciliation and adju-
dication settlement proceedings by providing a more organised and
legal way of settling disputes. The ID Act provides provisions to elim-
inate all forms of intimidation, coercion and violence.
CASE LAW
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Workmen of Dimakuchi Tea Estate vs. Dimakuchi Tea Estate
(1958)
Facts: In this case, the Supreme Court laid down the following objec-
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tives of the ID Act:
(i) Promotion of measures of securing and preserving amity and
good relations between the employer and workmen
(ii) Investigation and settlement of industrial disputes between
employers and employers, employers and workmen, or work-
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Applicability
This law extends to the whole of India and shall come in force on the
first day of April, 1947. The Industrial Disputes Act, 1947, applies to
every industrial establishment carrying on any business, trade, man-
ufacture or distribution of goods and services irrespective of the num-
ber of workmen employed therein.
RESOLUTION OF DISPUTES
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3. Adjudication: It is the legal remedy to settle industrial disputes
by involving legal authorities appointed by the government. It
is a legal or mandatory authority to settle industrial dispute by
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a tribunal or labour court. In case of industrial dispute, there
is three-tier machinery, which involves labour courts, industrial
tribunals and national tribunals.
and Lockout
Strike Lockout
Acts as a weapon to workers Acts as a weapon to employers
Involves cessation of work Involves closure of place of business
Impedes production Does not impede production
Happens with a collective decision Takes place with the decision of
of employees employer
9.3.2 EXAMPLES
The joint venture of Hero Group of India and Honda of Japan faced
a financial loss of ` 100 crore because of a labour strike in 2006. In
Hero Honda Gurgaon Plant, 4000 workers were involved in the strike
during April 2006. They demanded hike in wages, medical benefits at
par and extra casual leaves. This resulted halt in production; thereby
lead to financial loss. These contractual workers were paid very low
wages and do not even get any pay slip. Therefore, under the aegis of
Industrial Dispute Act, 1947, a mutual negotiation was done between
Haryana’s Additional Labour Commission Management and workers’
representatives for settlement. It resulted in 30% hike in the salary
and provision of two casual leaves in a month was provided to the
workers.
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has been wracked by continuous problems with workers. No wonder,
the rate of attrition in the company has been quite high. The company
analysed this situation and took the various steps to formulate better
and more worker-friendly policies. It also initiated better pay-outs. All
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these steps have considerably helped in the retention of workers and
registering the appreciable growth of the company. This case high-
lights the significance of industrial relations in the growth of any com-
pany as evidenced by the case of Hero MotoCorp Limited.
Activity
With the help of the Internet, gather information about some major
industrial disputes in India that took place in the last 10 years. Com-
pare these disputes and find out their respective causes.
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organised by International
Labour Organisation (ILO) for to regulate and fix the quantum of wages. Effective implementation
eliminating labour exploitation, of legislation for workers for receiving a minimum wage is the hall-
checking wages level and mark of any progressive nation. It is one of the fundamental premises
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increasing their bargaining of a genuine and harmonious workplace. In India, Minimum Wages
power.
Act, 1948 offers for the fixation and enforcement of minimum wages
in respect of scheduled employment.
were fulfilled, be payable to a The Minimum Wages Act, 1948, protects employees from exploitation
person employed in respect of by ensuring that they are paid their entitled wages, which enables
his employment or of work done them to afford the basic necessities of life. According to this Minimum
in such employment. Wages Act, 1948, it is illegal to pay an employee less than the mini-
mum wages amount. Fluctuations in the rate of minimum wages are
common and vary across countries and sometimes across states or
provinces. The minimum Wages Act, 1948, ensures that workers and
NOTE employees earn wages that are sufficient for their livelihood.
The Minimum Wages Act, 1948,
contains 38 provisions, including 9.4.1 OBJECTIVES AND APPLICABILITY
Sections 22A to 22F and 30A.
The objective of the Minimum Wages Act, 1948, is to promote the wel-
fare of workers by fixing a minimum rate of wages in certain industries
where the labour is not organised and there is prevalence of sweat
labour. The Minimum Wages Act, 1948 seeks to prevent exploitation
of workers by ensuring that they are paid the prescribed minimum
wages for their subsistence and efficiency. The objects of the Mini-
mum Wages Act, 1948, are as follows:
To fix and revise minimum wages in certain employments or
establishments
Applicability
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Dr. B.R. Ambedkar, the father of our constitution, drafted the Minimum
Wages Bill on April 11, 1946. The bill was introduced and enforced on
March 15, 1948 due to delay by constitutional changes.
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The Minimum Wages Act, 1948 is applicable to the whole of India. The NOTE
provisions of this Act are applicable to every employer that employs All the provisions of the Act
more than 1000 employees in a state. The provisions of the Minimum equally apply to both male and
female workers.
Wages Act, 1948 do not apply to the employees undertaken by the cen-
tral government or railways unless the same has been consented by
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Penalties.
ments
c. Procedure for fixing and revising minimum wages
d. All of these
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Activity
their dependents is ensured by law. The law provides for the payment
by certain classes of employers to their workmen of compensation for
injury by accident.
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of the law.
ii. The employment must not be of a casual nature.
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iii. The employment must be for the purpose of employer’s trade
or business.
iv. The capacity in which he is employed must be set out in
Schedule II of the ECA.
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his fingers of the legs cut off by an accident. This is an example
of a “Partial Disablement” because this accident has reduced his
capacity to work in any such employment of similar nature.
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d. Temporary disablement, total or partial: This applies when the
earning capacity of the worker is lost for a certain period.
Activity
The EPF Act has been enacted to provide social security to the
employees after their retirement and to their dependents in case of
the employee’s death. Under the EPF Act, the following three schemes
have been provided:
1. Employees’ Provident Fund Scheme, 1952: Under this scheme,
the employee contributes up to 12% of basic wages, DA, includ-
ing cash value of food concession, and retaining allowance. All
accumulations under the fund including contributions from the
employer are refunded with interest on superannuation/ volun-
tary retirement/permanent disability/migration from India. This
scheme allows making a partial withdrawal from the account.
2. Employees’ Pension Scheme, 1995: In this scheme, the contrib-
utory gets a monthly pension after he/she retires. The amount of
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pension depends on the pensionable salary, which is the average
monthly salary in 12 months preceding the date of exit from the
membership of the Employees Provident Fund, and the length of
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service. The pension is paid on superannuation on attaining 58
years of age/retirement/death during service/ death after super-
annuation/ permanent total disablement.
3. Employees’ Deposit Linked Insurance Scheme, 1976: This
scheme is for those who are members of the provident fund
scheme for the purpose of providing life insurance benefit to
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The key provisions provided in the EPF Act addresses the post retire-
ment needs of employees and their welfare. As per the EPF Act, every
employee of a commercial establishment with salary up to ` 15,000
or less is entitled to join the Employee Provident Fund. However,
employees with salary more than ` 15,000 can also join the scheme.
The retirement benefit plan requires contribution from both the
employer and employee. For employees, 12% of wages or more can
be contributed and for employers, 12% of wages go for contribution
out of which 3.67% goes to provident fund and 8.33% goes to pension
fund. Every employer is required to pay the contribution amount
received from the employee before or on 15th of the following month.
An employee can withdraw funds from the provident fund provided
that he/she does not have employment for a two month period.
Next, the EPF Act has Employees’ Pension Scheme which provides
the provision of superannuation pension, retiring pension and perma-
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The following are the percentage of salary contributed by employer
and employee in various schemes:
Provident Fund:
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Employee’s contribution: 12% on Basic + DA
Employer:
(a) 3.67 % on Basic + DA
(b) Administration Charges: 0.01 % on Basic + DA
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Pension Scheme:
Employee’s contribution: No Contribution
Employer: 8.33% on basic + DA
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Insurance Scheme:
Employee’s contribution: No Contribution
Employer: 8.33% on Basic + DA
Activity
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basis of productivity and profit. The PBA, 1965 is applied on the estab-
lishment that has more than 20 or more persons employed.
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9.7.1 Objectives AND APPLICABILITY
The law provides for the payment of bonus to the persons employed
in certain establishments and for matters connected therewith. How-
ever, the Act has not defined the term ‘bonus’, which involves the
sharing of the prosperity of the concern with those employed therein.
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Applicability
The law extends to the whole of India and covers all the employees
[Section 2(13)] receiving salary or wages up to ` 21,000 per month
[as amended by the Payment of Bonus (Amendment) Act, 2016] and
engaged in any kind of work whether skilled, unskilled, manual,
supervisory, managerial, administrative, technical or clerical, in the
factory or establishment of the employer provided the employee has
worked for at least 30 days in that particular accounting year (Section
8). The minimum bonus payable is 8.33% of the salary or wages of
the employee during the accounting year. This is payable even if the
employers suffer a loss. The maximum bonus payable under the Act is
20% of the basic salary and wages.
The bonus is paid within 8 months of the closure of the accounting year
and is paid on an annual basis. There shall be no bonus to a worker
who has been dismissed for fraud, riotous behaviour, theft, misappro-
priation and sabotage of property.
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8. The minimum bonus payable is _____ of the salary or wages of
the employee during the accounting year.
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9. The Payment of Bonus Act has 40 sections. (True/False)
Activity
Applicability
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vice of five years or more, interrupted only on account of sickness, establishment shall be deemed
accident, leave, absence from duty without leave (not amounting to to be in continuous service if he
has actually worked for not less
break in service under the relevant standing orders), lay off, strike, than 75% of the number of days
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or lockout or cessation of work not due to the fault of the concerned for which the establishment was
employee. in operation.
CASE LAW
Facts: In this case, the court held that a trainee is not excluded from
the definition of the term ‘employee’ under the gratuity act, but only
an ‘apprentice’ is excluded. Section 2(e) of the payment of gratuity
act, 1972 defines an “employee” which excludes only apprentice. The
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a. Superannuation
b. Retirement or resignation
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c. Death or disablement due to accident or disease
CASE LAW
Arasuri Ambajimata Mandir devasthan Trust vs. Jaitabhai Patel,
Shramjivi General Works Union (1983)
Facts: It was held that the post in Temple trust is controlled by State
Government. It is not a post under State government. So as to fall under
the exclusion under section 2(e) and hence it falls under the defini-
tion of employee and is entitled to gratuity under the act which means
though the temple is not mentioned in the section (e) of the act, court
held that it is applicable under this act.
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the job after 5 years or more or on retirement.
a. True b. False
11. Gratuity is payable to the employee if he/she has served a min-
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imum of ______ years with the company.
a. 5 b. 7
c. 3 d. 10
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Activity
Use the Internet to identify the cases in which the gratuity can be
forfeited and how the gratuity amount is calculated.
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This Maternity Benefit Act, 1961 extends to the whole of India and
it applies to commercial establishments with 10 or more employ-
ees. A woman employee needs to complete a period of 80 days in the
establishment in order to get entitled to the maternity benefit. The
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Provisions Maternity Bene- Maternity Benefit (Amendment)
fit Act, 1961 Act, 2017
MATERNITY The maximum This amendment Act has increased
BENEFIT time period of the duration of the paid maternity
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maternity benefit leaves from 12 weeks to 26 weeks,
was 12 weeks out of which most of the 8 weeks of
such benefits can be opted by the
woman employees prior to the date
of expected delivery.
CRECHE No such benefit It has become essential for commer-
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In the case of a third child, the maternity paid leaves is provided only
Know More for 12 weeks out of which 6 weeks leaves can be taken prior to the
When a modern medical expected date of delivery. The increased paid maternity leave benefit
technology known as Surrogacy is only provided for the first two children.
is used, the woman employee
gets entitled to maternity leave
for 12 weeks from the day the CASE LAW
child is handed over to her. Dr. Rachna Chaurasiya vs. State of U.P. and others passed (2017)
Facts: Division Bench of the Court directed the State Government
to grant maternity leave to all female with full pay of 180 days, irre-
spective of nature of employment, i.e., permanent, temporary/ad hoc or
contractual basis. State respondent was further directed to grant Child
Care Leave of 730 days to all female employees, who are appointed
on regular basis, contractual basis, adhoc or temporary basis hav-
ing minor children with the rider that the child should not be more than
18 years of age or older.
CRÈCHE FACILITY
CASE LAW
Rakhi P.V. and Others V. State of Kerala & Another [2018 (2) KHC 251
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Facts: It was held that a woman employee cannot be denied maternity
benefits merely because her status is a contractual employee. And held
that a women cannot be compelled to choose between motherhood and
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employment.
12. As per the Amendments in the Maternity Benefit Act, the work
from home option can be availed after the expiry of 26 weeks
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Activity
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bills. The government has Also, the government has fixed the minimum working hours in a nor-
replaced these bills with new
ones on September 19, 2020.
mal day. Therefore, if the employees or workers perform their duty or
service more than a normal working day, they are entitled to overtime
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wages that has to be at least twice the normal rate of wages. Also,
the Code on Wages provides the provisions for penalties for offences
committed by the employer such as paying less than the due wages
or for contravening the provisions of the Code on Wages. The maxi-
mum amount of penalty can be either the imprisonment for the three
months and a fine up to one lakh rupees.
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6. The Payment of Gratuity Act, 1972
7. The Cine Workers Welfare Fund Act, 1961
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8. The Building and Other Construction Workers Welfare Cess Act,
1996
9. The Unorganised Workers’ Social Security Act, 2008
Under this law, the central government may introduce various social
security schemes for the worker’s benefit. These schemes can include
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The central and state governments fix the working hours, working
conditions and welfare facilities for various types of establishments. It
would simplify and consolidate the existing health and safety laws. All
the factories, mines, docks, buildings, construction company labour,
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construction workers, plantation labour, contract labour, cine work-
ers, etc., are included in this code. According to the Code on Occupa-
tional Safety, Health and Working Conditions, 2020, the following are
the duties of employers:
Providing a workplace that is free from hazards that may cause
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injury or diseases
Providing free annual health examinations to employees in notified
establishments
Issuing appointment letter to employees
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Activity
9.11 Summary S
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In India, there are various laws that ensure equitable remuneration
for employees working in various organisations and factories.
Besides this, there are various provisions to ensure that even
after retirement or in case of an accident, sufficient amount of
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money is accumulated for the survival of the employees and their
dependents.
Inthis direction, the Acts enacted by the Parliament include the
Provident Fund Act, Gratuity Act, Minimum Wages Act, Bonus
Act, Workmen Compensation Act, etc.
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key words
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3. Discuss the obligation of the occupier as per the Factories Act,
1948.
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4. What is Employees Compensation Act? Discuss its scope.
5. Explain the scope and major provisions made in the Payment of
Bonus Act.
6. Discuss the various schemes provided under the Employees
Provident Fund and Miscellaneous Provisions Act.
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15. Wages
SUGGESTED READINGS
Abbott, K., Pendlebury, N., &Wardman, K. (2013). Business law.
Andover: Cengage Learning.
Emerson, R. (2016). Business Law. Hauppauge: B.E.S. Publishing.
Sahi, G., &Singhania, R. (2008). Employment law in India. Hong
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Kong: CCH Hong Kong Ltd.
E-References
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(2020). Retrieved 15 May 2020, from http://adapt.it/adapt-indice-
a-z/wp-content/uploads/2014/09/Labour_Employment_Laws_
India.pdf
(2020). Retrieved 15 May 2020, from https://knowledge.leglobal.
org/wp-content/uploads/sites/2/LEGlobal-Employment-Law-
M
Overview_India_2019-2020.pdf
Employment & Labour Law 2020 | India | ICLG. (2020). Retrieved
15 May 2020, from https://iclg.com/practice-areas/employment-
and-labour-laws-and-regulations/india
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ENVIRONMENT-RELATED LAWS
Contents
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10.1 Introduction
10.2 Laws Aimed at Protecting and Conserving the Environment
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10.2.1 The Environment Protection Act (EPA), 1986
10.2.2 The National Green Tribunal (NGT) Act, 2010
10.2.3 The Air (Prevention and Control of Pollution) Act, 1981
10.2.4 The Water (Prevention and Control of Pollution) Act, 1974
10.2.5 The Hazardous and Other Wastes
(Management and Transboundary Movement) Rules, 2016
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Introductory Caselet
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allegations for expanding its work at Meramandali, Dhenkanal
district of Odisha in violation of the Environment Protection Act
(EPA), 1986.
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In March 2012, the Ministry of Environment and Forest (MOEF)
pointed out the violation of the EPA, 1986 and sent an expert team
to the BSL plant to probe whether the BSL had indeed gone ahead
with the expansion work to expand the production capacity from
3.1 million tonnes to 5.6 million tonnes. The team validated all the
allegations and asked the state government to take an appropriate
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If allegations against BSL are proved, the guilty can get a maxi-
mum punishment of five years jail or `1 lakh fine or both.
Learning objectives
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>> Describe the Public Liability Insurance Act, 1991
>> Discuss the Biological Diversity Act, 2002
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10.1 Introduction
In the previous chapter, you studied various laws that are relevant for Quick Revision
labour welfare.
For the last three decades, the Indian environment law has been evolv-
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ing for the good. Initially, India participated in the United Nations
Conference on the Human Environment which resulted in the emer-
gence of Indian environment in 1972. It had been realised in that con-
ference that a framework of laws was necessary to deal with environ-
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mental hazards that would result from the stage of development that
India was entering in the 1970s. It is a common aspiration of countries
to reduce the damage to the environment and work in a sustainable
manner. However, due to multiple factors, almost all countries harm
and exploit the environment. Therefore, various international organ-
isations, like the United Nations, have come forward and laid down
the standards and the basic law framework that can be adopted by
countries to ensure that they are able to set environmental standards
and can punish individuals or organisations that violate any of the
environmental laws. In India, there are multiple environmental laws.
Some of these laws are discussed in this chapter. These laws protect
the environment; regulate the discharge of pollutants; handle hazard-
ous substances; provide a speedy response in the event of accidents
threatening environment; and award deterrent punishment to those
who endanger human environment, safety and health.
In this chapter, you will study about the Environment Protection Act
(EPA), 1986; the National Green Tribunal (NGT) Act, 2010; the Air
(Prevention and Control of Pollution) Act, 1981; the Water (Prevention
and Control of Pollution) Act, 1974; the Hazardous and Other Wastes
(Management and Transboundary Movement) Rules, 2016; the Wild-
life Protection Act, 1972; the Forest Conservation Act, 1980; the Public
Liability Insurance Act, 1991 and the Biological Diversity Act, 2002.
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the country.
must have compassion for all living creatures. Also, Article 48A of the
Indian Constitution deals with the Directive Principles of the State
Policies and stipulates that the state must also safeguard its forests
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and wildlife.
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or expedient for the purpose
ronment and the prevention of hazards to human beings, other living
of protecting and improving
creatures, plants and property. EPA has been divided into 4 chapters the quality of the environment
and 26 sections. and preventing, controlling and
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abating environmental pollution.
Some important definitions as per the EPA, 1986 are:
Environment includes water, air and land and the interrelation
which exist between water, air, land, human being, plants, animals
other living creatures, micro-organism and property.
Environmental pollutant means any solid, liquid, or gaseous sub-
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To ensure the protection of life as laid down under Article 21 of the
Constitution of India
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Some important provisions of the EPA, 1986 are as follows:
Power of the central government: The government can make
laws as and when needed, i.e., when they analyse the degradation
of the environment. The various actions that the government can
take under the Act inter alia include the following:
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areas
To establish procedures and safeguards for the handling of
hazardous substances
To prohibit and restrict the handling of hazardous substances
and the location of industries and carrying on of processes and
operations in different areas
To establish procedures and safeguards for the prevention of
accidents which may cause environmental pollution and pro-
vide remedial measures for such accidents
Under EPA, the government has the power to issue directions,
make rules, prescribe standards of emission and obligation to fur-
nish information.
Power of the court: Section 22 of the EPA bars the jurisdiction of
civil courts to entertain any suit or proceeding in respect of any-
thing done, any action taken or order or direction issued by any of
the authorities under this EPA. However, nothing can take away
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mental schemes and projects.
Section 11 of the NEAA Act, 1997 says, any aggrieved person may file
an appeal within 30 days of passing of an order granting environmen-
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tal clearance in the areas in which any industries, operations, or pro-
cesses shall not be carried out or shall be carried out subject to certain
safeguards under the EPA. Also, NEAA may entertain an appeal even
after the expiry of the said term if a sufficient cause for delay in filing
such an appeal exists but not after 90 days from the date of such order.
The NEAA is required to dispose of the appeal within 90 days from
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the date of filing of the same. However, it may, for reasons that are to
be recorded in writing, dispose of the appeal within a further period
of 30 days.
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The National Green Tribunal Act (NGT Act) was enacted in 2010
with an aim to establish the National Green Tribunal (NGT) which
would be responsible for dealing with cases related to environment
protection, conservation of forests and other natural resources, etc.,
in an effective and speedy manner. The NGT also has to look after the
enforcement of any legal rights relating to environment. It also has the
powers to give relief and compensation for damages to persons and
property.
The most important provision and objective of this NGT Act is the
establishment of the NGT to look after the laws as mentioned in
Schedule I of the NGT Act as follows:
Water (Prevention and Control of Pollution) Act, 1974
Water (Prevention and Control of Pollution) Cess Act, 1977
Forest Conservation Act, 1980
Air (Prevention and Control of Pollution) Act, 1981
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ment) and such question arises out of implementation of any of the
Acts mentioned in Schedule I (as mentioned above). The NGT has the
power to settle disputes referred to disputes arising from implemen-
tation of abovementioned Acts and pass orders such as order for relief
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and compensation to the victims of pollution and other environmental
damage; restitution of property damaged; and restitution of the envi-
ronment in such areas [Section 15 (1)]. The principles guiding NGT
are those of sustainable development, precautionary principle and
polluter pays. NGT acts as the appellate authority for orders passed
by Tribunals having powers under the Acts mentioned in Schedule I
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of the NGT Act, within a period of 30 days from the passing of such
order/decision/direction (Section 16).
The Air (Prevention and Control of Pollution) Act, 1981 is also called
Know More the Air Act. This Air Act extends to the whole of India. The major
In 1981, the Air (Prevention and
objectives of this Act are as follows:
Control of Pollution) Act was To provide for the prevention, control and abatement of air pollu-
introduced and amended in
1987 for prevention and control tion
of air pollution in India. The Air
To provide for the establishment of the Pollution Control Boards
Act deals with the control of
emission of noxious substances (PCBs) at the central and state levels
from industries and automobiles.
However, it applies only to Two important terms defined under the Air Act are:
specified industrial processes,
in notified areas, called the Air Air pollutant means any solid, liquid, or gaseous substance (includ-
Pollution Control Areas (APCAs). ing noise) present in the atmosphere in such concentration as may
be or tend to be injurious to human beings or other living crea-
tures or plants or property or environment
Air pollution means the presence in the atmosphere of any air pol-
lutant
Under this Air Act, the ambient air quality standards were established.
These standards were meant for resolving the problems associated
with air pollution. The PCBs that have been set up under this Air Act
are responsible for ensuring that air pollution in the country can be
controlled. The Boards also have the power to take action against enti-
ties which do not meet the required air quality standards.
This Air Act seeks to combat air pollution by deploying various provi-
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sions. Some major features of this Air Act are as follows:
Prohibiting the use of polluting fuels and substances
Regulating appliances that lead to air pollution
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Empowering the state government in consultation with the respec-
tive State PCBs to declare any area as APCA (Air Pollution Con-
trol Area) (Section 19)
Establishing or operating any industrial plant in the pollution con-
trol areas that require consent from the respective State PCBs
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among them
Provide technical assistance and guidance to SPCBs to, carry
out and sponsor investigations and research relating to prob-
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lems of air pollution and prevention, control, or abatement of
air pollution
Perform such of the functions of any SPCB as may be specified
by Central Government in case of default by SPCB to comply
with any directions of CPCB due to which grave emergency
has arisen or it is in public interest. Under sub-section (2) of
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Section 18
Plan and organise the training of persons engaged or to be
engaged in programmes for the prevention, control, or abate-
ment of air pollution on such terms and conditions as the CPCB
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may specify
Organise through mass media a comprehensive programme
regarding the prevention, control, or abatement of air pollution
Collect, compile and publish technical and statistical data
relating to air pollution and the measures devised for its effec-
tive prevention, control, or abatement and prepare manuals,
codes, or guides relating to prevention, control, or abatement
of air pollution
Lay down standards for the quality of air
Collect and disseminate information in respect of matters
relating to air pollution
Perform such other functions as may be prescribed
Some of the functions of the SPCB as given under Section 17, are
as follows:
To plan a comprehensive programme for the prevention, con-
trol, or abatement of air pollution and to secure the execution
thereof
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may think necessary, assess the quality of air therein and take
steps for the prevention, control, or abatement of air pollution
in such areas
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To lay down, in consultation with the CPCB and having regard
to the standards for the quality of air laid down by the CPCB
standards for emission of air pollutants into the atmosphere
from industrial plants and automobiles or for the discharge of
any air pollutant into the atmosphere from any other source
whatsoever not being a ship or an aircraft: Provided that differ-
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ent standards for emission may be laid down under this clause
for different industrial plants having regard to the quantity and
composition of emission of air pollutants into the atmosphere
from such industrial plants
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time the offence was committed, was directly in charge of, and was
responsible to the company shall be deemed to be guilty and liable
to be punished accordingly (Section 40).
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For offences committed by a Government Department, the Head
of the Department is the person responsible for department’s acts
and hence he/she is liable to be proceeded against and punished
under this Act (Section 40).
Taking a stock of the water situation and in order to prevent and con-
trol water pollution, the Indian Parliament passed the Water (Preven-
tion and Control of Pollution) Act, 1974. It is also known as the Water
Act.
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pollution
The Water Act, 1974 consists of 64 sections divided into eight Chapters.
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Chapter I defines a few preliminary aspects. Chapter II deals with the
central and state boards for preventing and controlling water pollu-
tion. Chapter III deals with Joint Boards. Chapter IV defines powers
and functions of the boards. Chapter V contains various provisions for
preventing and controlling water pollution. Chapter VII defines pen-
alties and the procedure for prosecuting under this Act.
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Directing the discharges into streams and wells and for opening
new outlets for discharge requires the concerned entity to take
consent from the concerned PCB
Providing the entity affected by the actions of the PCB to appeal
Providing penalties for offences related to violation of the Water
Act
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process which is likely to discharge sewage or trade effluents into
a stream or well or sewer or on land, prior consent of the SPCB is
necessary.
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Under the powers of Section 32 to take emergency actions, SPCBs
may issue orders to move matters which are causing pollution of a
stream or well.
Penalties for contravention of the provisions of and orders and
directions issued under the Act are mentioned in Sections 41 to
45A, ranging from 6 months to maximum 6 years, or fine, or both.
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As per the MOEFCC, hazardous waste is any waste which can poten-
tially harm the health or environment due to its physical, chemical,
or biological composition. The waste may be harmful alone or when
in contact with other wastes. Most hazardous wastes have their own
chemical composition. Most industries discharge these hazardous
wastes without any treatment which ends up poisoning the land and
water posing serious threats to life in all forms, ecology and the envi-
ronment.
Hazardous wastes that are dumped or stored on open land areas may
seep and enter into the groundwater leading to contamination of aqui-
fers and regional water supply. If such hazardous wastes are mixed
into the groundwater, they can contaminate the agricultural produce
and may cause serious health issues if it is used for drinking purpose
by the public. Hazardous wastes are hazardous in nature because
they usually contain heavy metals and carcinogens which may affect
the health of public. When such contaminated food and water is con-
sumed for a long period of time, it might lead to serious conditions
such as gene alteration, reproductive abnormalities, physical defor-
mities, permanent disorders, deaths, etc. Apart from the hazardous
waste that is produced by industries, India also imports hazardous
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waste as raw material for recovering metals.
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Prevention
Minimisation
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Reuse
Recycling
clusters.
The HWM Rules, 2016 have been further amended by the Hazard-
ous and Other Wastes (Management and Transboundary Movement)
Amendment Rules, 2019 (hereinafter referred to as ‘Amendment
Rules, 2019’). Some important features of the Amendment Rules, 2019
are as follows:
Banning the import of solid plastic waste into India even in the
Special Economic Zones (SEZs) and in Export Oriented Units
(EOUs)
Exempting the silk waste exporters from the requirement of
obtaining permission from the Ministry of Environment, Forest
and Climate Change (MOEFCC).
Exempting the electrical and electronic assemblies and compo-
nents that were manufactured in and exported from India for
importing back if these are found defective within a year of export
from the requirement of obtaining permission from the MOEFCC.
The biggest problem facing India at the moment is the high density of
plastic scrap imported by the country, especially since China banned
these imports. However, the country has been making strides in devel-
oping methods for recycling plastic waste.
The rules have been further amended by the Hazardous and Other
Wastes (Management and Transboundary Movement) Amendment
Rules, 2019 (hereinafter referred to as ‘Amendment Rules, 2019’).
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10.2.6 THE WILDLIFE PROTECTION ACT, 1972
living creatures.
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Establishing National Tiger Conservation Authority, a statutory
body under the Ministry of Environment
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Making of a comprehensive list of endangered wildlife species
NOTE Structuring lists in 6 Schedules appended to the Act that give pro-
The Wildlife Protection tection to different classes of flora and fauna, e.g., those in Sched-
Amendment Act, 2002 dictates ule I get absolute protection. Also, trade of animals under Sched-
that sanctuaries and national
parks cannot be exploited for
ules I and II is strictly prohibited and the act is made punishable.
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commercial purpose, while the Establishing 5 types of ‘protected areas’ for protection and welfare
local community is allowed to
collect forest produce for their of endangered species—Sanctuaries, National Parks, Conserva-
bona fide requirements. tion Reserves, Community Reserves and Tiger Reserves
Providing various powers to officers to enforce the Wildlife Act
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The reasons that justify the major push for the conservation of forests
are as follows:
Trees produce oxygen.
Trees absorb carbon dioxide (CO2) which is a major component of
air pollution.
Forests prevent soil erosion.
Forests keep soil pollution under control.
Forests help in maintaining water cycle and the underground
water table.
Forests help in maintaining the moisture level in the ecosystem.
Forests are the natural home and habitat for innumerable animals,
birds, insects, reptiles, aquatic animals and various types of flora.
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Some ways in which forests can be conserved include:
Controlled deforestation
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Afforestation
ernment of India enacted the Forest Conservation Act, 1980. This law
was amended in 1988.
The main objectives of this Forest Conservation Act, 1980 are as fol-
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lows:
To provide for the protection and conservation of forests and
related matters
To ensure the judicious use of forest produce
To check the diversion of forest land for non-forest purposes
It has already been stated that there has been a remarkable growth
Know More in the number and types of industries that have been set up in India.
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As per the EPA, 1986 and the When the number of industries increases, the probability of industrial
Public Liability Insurance Act, accidents also increases. There is a risk to the workmen employed in
1991, the businesses dealing in such industries, to the general public staying in nearabout areas and
a hazardous environment must
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take suitable insurance. to the owners of the industries.
In order to deal effectively with the cases of public liability, the Govern-
ment of India enacted the Public Liability Insurance Act, 1991 which
was amended in 1992 and the Public Liability Insurance Rules, 1991.
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his/her property. It must be remembered that the death, injury, or
damage to property should be due to an accident only.
Duty of the owner to take out insurance policies (Section 4):
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Before starting the handling of hazardous substances, a business
owner has to take out insurance policies to insure against his/her
liability to provide relief in case of an accident, have it renewed
from time to time.
Verification and publication of accident by Collector (Section 5):
For any accident that occurs within the jurisdiction of a Collector,
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Biological diversity (or biodiversity) refers to the variety of life forms
? DID YOU KNOW that exist in our ecosystem. Presence of biological diversity is critical
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Convention on Biological for the sustenance and functioning of the ecosystem in which they are
Diversity is a multilateral treaty. present. Ecosystems provide an array of natural gifts that are critical
The objective is to develop
national strategies for the
for survival of life on Earth. For instance, we get oxygen, food, water,
conservation and sustainable soil, fuel, etc., from ecosystem. The ecosystem also provides ecological
use of biological diversity, services such as preventing soil erosion, moderating storms, mitigat-
and it is often seen as the key
ing climate change, etc. All these gifts and services that ecosystems
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document regarding sustainable
development. provide us help in supporting life. In the absence of all these, life in all
forms would come to an end.
The main objectives of the Biological Diversity Act, 2002 are as fol-
lows:
To conserve the biological diversity in India
To regulate access to Indian biological resources
To ensure fair and equitable benefit sharing arising from the utili-
sation of those biological resources and knowledge
To ensure the sustainable use of the components of the biological
diversity
To establish governing bodies such as the National Biodiver-
sity Authority (NBA) at the national level, the State Biodiversity
Boards (SBBs) at the State level and Biodiversity Management
Committees (BMCs) at the local level.
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Allthe Indian scientists and individuals must take prior approval
from the NBA for transferring the results of their research to for-
eign nationals or organisations.
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Certain biodiverse areas should be declared as biological diversity
heritage sites in order to conserve and develop these areas.
Threatened species must be protected and rehabilitated.
Committees to be constituted as per the Biological Diversity Act,
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isations and individuals do not share the benefits that arise due to
such biodiversity and organisations.
Indian organisations must give intimation to the respective SBBs
if they wish to obtain any bioresource and the SBB has a right
to restrain such organisation from obtaining the said resources if
the organisation violates conservation, sustainable use and benefit
sharing.
State governments in consultation with local bodies can notify
heritage sites.
Create Biodiversity Fund at the national, state and local levels and
its use for conservation of biodiversity.
No person can apply for any Intellectual Property Rights (IPR)
by any name in or outside India for any invention that is based
on a research or biological resource obtained from India without
obtaining a prior approval from the NBA.
BMC has to prepare the People’s Biodiversity Register (PBR) after
consulting the local people.
Exhibit
Powers of NGT
The NGT deals with civil cases related to environment under the
following Acts:
i. The Water (Prevention and Control of Pollution) Act, 1974
ii. The Water (Prevention and Control of Pollution) Cess Act,
1977
iii. The Forest (Conservation) Act, 1980
iv. The Air (Prevention and Control of Pollution) Act, 1981
v. The Environment (Protection) Act, 1986
vi. The Public Liability Insurance Act, 1991
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vii. The Biological Diversity Act, 2002
the company to pay the fine along with compound interest @12
per cent per annum from November 1997 till the amount is paid or
recovered. The company was also asked to pay costs of litigation.
In 2019, the NGT ordered the UP’s PCB to prepare a report for
matter related to disposal of bio-medical waste by M/s Medical
Pollution Control Committee, Growth Center which is a Common
Bio-Medical Waste Treatment Facility (CBMWTF) located near
Jhansi, Uttar Pradesh. The UPPCB filed its report and found var-
ious discrepancies at CBMWTF as follows:
Plant machinery of CBMWTF was not working properly
because it was undergoing modernization.
Incineration of bio-medical waste was done at wrong tempera-
ture.
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Bio-medical waste transported from various medical facilities
was stored within the CBMWTF.
CBMWTF was transporting dry-wet bio-medical waste to its
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sister concern at Panki, Kanpur without the permission of
UPPCB.
a. NEAA
b. CPCB
c. NBA
d. NGT
3. Under the __________ Act, ________, a concerned entity has to
take consent from the concerned PCB to direct the discharges
into streams and wells.
4. When the level of industrialisation increases, it also leads to a
simultaneous increase in the generation of hazardous wastes.
a. True
b. False
5. Which of the following industries does not produce hazardous
wastes?
a. Petrochemical
b. Pulp and paper
c. Pharmaceutical
d. Paint
6. Article _______ of the Indian Constitution states that the in-
dividual citizens of the country have a fundamental duty to
protect and improve the environment.
a. 29
b. 21
c. 51A
d. 14A
Activity
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Perform a research on the Internet and find out the real-life exam-
ples of the organisations who violated the environment protection
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laws in India.
10.3 Summary
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In the Constitution of India, the fundamental duties are laid out in
Article 51A. This Article states that it is the duty of every citizen
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which was amended in 1992 and the Public Liability Insurance
Rules, 1991.
On 5th June, 1992, India signed the United Nations Convention on
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Biological Diversity (CBD). To give effect to the CBD held at Rio
De Janeiro in 1992, the Indian Government enacted the Biological
Diversity Act, 2002.
The main objective of the Biological Diversity Act, 2002 is to con-
serve the biological diversity in India.
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key words
2. d. NGT
3. Water, 1974
4. a. True
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6. c. 51 A
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HINTS FOR DESCRIPTIVE QUESTIONS
1. Some important environment-related legislations include the
National Green Tribunal Act, 2010; the Air (Prevention and
Control of Pollution) Act, 1981; the Water (Prevention and Con-
trol of Pollution) Act, 1974; the Environment Protection Act,
1986; the Hazardous Waste Management Regulations, etc. Refer
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SUGGESTED READINGS
Gupta, K. (2006). Environmental legislation in India. New Delhi:
Atlantic.
Sahasranaman, P. (2012). Handbook of environmental law. New
Delhi, India: Oxford University Press.
E-REFERENCES
Top 6 Environmental Acts Enacted in India. (2020). Retrieved 20
May, 2020, from https://www.biologydiscussion.com/environment/
top-6-environmental-acts-enacted-in-india/16775
(2020). Retrieved 20 May, 2020, from http://awsassets.wwfindia.org/
downloads/mle_024_block_2.pdf
Reporter, B. (2020). Bhushan Steel in soup for violat-
ing Environment Protection Act. Retrieved 20 May 2020,
from https://www.business-standard.com/article/compa-
nies/bhusan-steel-in-soup-for-violating-environment-protec-
tion-act-112070900073_1.html
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CASE STUDIES
CONTENTS
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Case Study 1 National Insurance Company Ltd., vs. Seema Malhotra (2001
Supreme Court)
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Case Study 2 Ravinder Raj vs. Maruti Udyog Limited and M/S Competent Motors
Co. Pvt. Ltd. (2011 Supreme Court)
Case Study 3 Kanodia Knits Pvt. Ltd., vs. Registrar of Companies Delhi & Haryana
(Company Appeal No. 216 of 2018)
Case Study 4 Sampelly Satyanarayan Rao vs. Indian Renewable Energy
Development Agency Ltd. (2016 Supreme Court)
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Case Study 5 Tulsi Narayan Garg vs. The M.P. Road Development Authority,
Bhopal and Ors (2019 Supreme Court)
Case Study 6 TDM Infrastructure Pvt. Ltd., vs. UE Development India (2008
Supreme Court)
Case Study 7 National Insurance Company Ltd. vs. Hindustan Safety Glass Works
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Case Study 1
n ot e s
FACTS
Case Objective
On 21st December 1993, the insured, Yash Paul Malhotra signed
This case study discusses
the facts and judgement of an insurance contract with National Insurance Company. He had
the case, National Insurance insured a Maruti car for a sum of ` 1,50,000 and gave a premium
Company Ltd., vs. Seema cheque to the insurance company. In return, the insurance com-
Malhotra on issue of pany issued a cover note in accordance with Section 149 of the
Consideration in a contract
Motor Vehicles Act, 1988. Unfortunately, the insured met with an
accident in which he died and the vehicle was damaged. Subse-
quently, the bank on which the cheque was drawn by the insured
intimated the insurance company about the dishonour of the pre-
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mium cheque due to insufficiency of funds in the account of the
deceased. At this, the insurance company informed the insured
party and also intimated them of the cancellation of the insurance
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policy with immediate effect.
The widow of the insured filed a claim for the loss of the vehicle,
which the insurance company repudiated. At this, the respon-
dents moved the State Consumer Protection Commission. The
State Commission rejected the claim for the absence of consider-
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bouncing of the cheque though it has been liable from the date of
the accident.
ISSUE
JUDGEMENT
The Supreme Court held that the insurer can cancel the policy
notwithstanding the issue of the cover note if the premium cheque
given to it gets dishonoured due to the cardinal rule of ‘no consid-
eration, no contract’. According to Section 64VB of the Insurance
Act, 1938, in case of the absence of any consideration, there can be
no contract. Therefore, the insurer repudiating the contract was
justified after the bouncing of the premium cheque.
Case Study 1
n o t e s
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is received by him or is guaranteed to be paid by such person
in such manner and within such time as may be prescribed or
unless and until deposit of such amount as may be prescribed,
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is made in advance in the prescribed manner.
(2) For the purposes of this section, in the case of risks for which
premium can be ascertained in advance; the risk may be
assumed not earlier than the date on which the premium has
been paid in cash or by cheque to the insurer.
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The crucial question is about the legal position under the law of
contracts when the premium is paid by means of a cheque, which
gets bounced. In this context, there are three relevant provisions
under the Indian Contract Act, 1872, namely: Sections 51, 52 and
54. These provisions have been included under the ‘Performance
of Reciprocal Promises’ title. Section 51 is concerned with a con-
tract that deals with reciprocal promises to be simultaneously
performed. In this type of contract, the promisee is released from
performing his promise only if the promisor is ready to perform
his part of the promise willingly. Section 52 provides the provi-
sion for the reciprocal promises that are not expressly provided in
the contract but have to be performed. These promises must be
performed in an order that the nature of the transaction warrants
it.
Case Study 1
n ot e s
has been performed, and the promisor of the promise last mentioned
fails to perform it, such promisor cannot claim the performance of
the reciprocal promise, and must make compensation to the other
party to the contract for any loss which such other party may sustain
by the non-performance of the contract.
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Act, 1872 a contract is considered void when any person who has
received any advantage under the contract restores it to the per-
son from whom he has received it. Therefore, an insurer is enti-
tled to receive his money back when he has disbursed the insured
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amount before the cheque was dishonoured or returned to the
insured, whereas if the insured person pays the premium after
the cheque was dishonoured but prior to the date of the accident,
then the case would be entirely different. The payment of con-
sideration in cash can then be treated as a payment in the order
in which the nature of the transaction required it. However, in
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this case, no such event has happened. Therefore, the insurer can
legally refuse to pay the amount claimed by the respondents.
questions
Case Study 2
n o t e s
FACTS
Case Objective
Mr. Ravinder Raj, the complainant filed a case against M/S Com-
This case study discusses
petent Motors who was the first respondent and Maruti Udyog
the facts and judgement of
Limited, the second respondent. He booked a car from the dealer the case, Ravinder Raj vs.
M/S. Competent Motors by paying ` 78,351 as an initial booking Maruti Udyog Limited and M/S
amount. Then, on 5th April 1989, the balance amount was called Competent Motors Co. Pvt.
Ltd. on a purchasers liability
upon and he paid the remaining amount. The official billing of
to pay tax in transaction once
the car was done on 5th April 1989. Then, the car was delivered goods are sold.
to him on 13th April 1989. However, the price of the vehicle was
escalated by ` 6000 during the intervening period. Therefore, he
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had to pay an amount of ` 7000 extra for receiving the delivery of
the car. The complainant filed a case with the complaint number
1133/1990 to get a refund of the excess amount paid against the
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pro forma invoice.
ISSUE
booking amount, also considering the fact that the excise duty
increased after the Company had sent a letter of allotment to the
consumer, but the billing date is at a later date, after the price had
increased.
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JUDGeMENT
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davit by stating whether the said undertaking is correct or not.
However, he avoided filing an affidavit denying its veracity.
on the date of billing would apply. The price on the date of billing
included the increased rate of excise duty. Keeping in view this
fact, and Sections 46(1) and 64A(2) of the Sale of Goods Act, 1930,
Supreme Court dismissed the petition of the consumer and held
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questions
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FACT
Case Objective
This appeal has been filed against the order of the National Com-
This case study discusses the
pany Law Tribunal (NCLT). The appellant company, Kanodia facts and judgement of the
Knits Private Limited had two directors, who were also its share- case, Kanodia Knits Pvt. Ltd.,
holders, namely Mr. Ajay Kanodia and his wife Mr. Anjana Kano- vs. Registrar of Companies
dia with 100% shareholding. The appellant, Mr. Ajay Kanodia, and Delhi & Haryana where
Registrar of Companies have
the appellant company’s name were struck off by the Registrar of a right to strike off the names
the Companies (ROC) because the company had not been carry- of non-operational company
ing any business activity, operations or financial transactions for under Companies Act, 2013.
the past few years. Also, the company did not get the status of a
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dormant company under Section 455 of the Companies Act, 2013.
Before NCLT, the appellant claimed that they had not received
any notice under Section 248 (1) of the Act.
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ISSUE
JUDGeMENT
The ROC replied against the appellant’s complaint that the appel-
lant company had not submitted financial statements from the
financial year starting from 31st March 2004 till 31st March 2011.
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Also, as per ROC, it had issued the notice under Section 248 (5)
of the Companies Act, 2013 to the company on 21st March 2017, a
copy of the same was filed with the court. The appellant did not
respond to the notice. Therefore, further steps to strike off the
name of the company were taken. The appeal was dismissed by
the court because the company documents could not prove that
the organisation was working.
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(Hint: The company documents could not prove that the
organisation was working.)
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FACTS
Case Objective
The appellant is the Director of the Company whose cheques have
been dishonoured. The case involves the loan of ` 11.5 crores, in This case study discusses the
the agreement it was stated that for loan installment repayment, facts and judgement of the
case, Sampelly Satyanarayan
post-dated cheques will be issued by the company, signed by its
Rao vs. Indian Renewable
Director, by way of security. Cheques to the tune of ` 10.3 crores Energy Development Agency
were dishonoured and the appellant was named as a co-accused Ltd. on issuance of post dated
in criminal complaints against the company by the respondents. cheques and its dishonour.
The appellant contends that on the date the cheques were issued,
no debt or liability was created or it was due, hence the dishonour
of post-dated cheques did not fall within the dishonour of cheques
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rules.
ISSUE
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Whether dishonoured post-dated cheques given by way of secu-
rity fall within the ambit of Section 138 of the Negotiable Instru-
ments Act, 1881.
Judgement
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questions
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FACTS
Case Objective
Here, the appellant is the proprietorship firm. The appellant and
first respondent entered into an agreement, where the appellant This case study discusses the
has to construct and maintain two roads. As per the agreement, facts and judgement of the
case, on the issue of whether
the completion data was twelve months, culminating on 21st a person having interest in the
October 2009. However, the first respondent being a state party matter can be an arbitrator
invoked clause 52 of the agreement and terminated the agree- Tulsi Narayan Garg vs. The
ment. The reason for this termination given was the slow progress M.P. Road Development
Authority, Bhopal and Ors.
of work by the appellant. Clauses 44.1 and 53.1 of the agreement
were used by the first respondent to invoke and send a notice to
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the appellant for ascertaining the liquidated damages that were
challenged by the appellant before the high court of Madhya
Pradesh. The same was disposed of, with the option to the appel-
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lant of challenging the order by virtue of arbitral tribunal, which
the appellant undertook before the MP Arbitral tribunal under
Section 7, Adhiniyam, 1983. When the same was pending, the
respondent served notice to the appellant for certain packages to
recover the above-said damages. The appellant then challenged
this action stating that the questions of damages were sub-judice
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ISSUE
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Rule
1. Agreement clauses 44.1 r/w 53.1: The case wherein the
liquidated damages are needed to be paid on the frustration
of the agreement by the contractor, the parties must
follow the procedure as mentioned under Clause 24 of the
agreement.
2. S. 24 of the agreement: The clause specifies a procedure
for the redressal of disputes under the contract through the
arbitration tribunal.
Judgement
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questions
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1. Describe the facts of this case.
(Hint: The agreement between parties where the
appellant has to construct and maintain two roads, a state
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party invoked clause 52 of the agreement and terminated
the agreement. Clauses 44.1 and 53.1 of the agreement
were used by the first respondent to invoke and send a
notice to the appellant.)
2. What was the Judgement given by the court?
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FACTS
Case Objective
The case involves the resolution of a dispute between two com-
This case study discusses the
panies both of which were incorporated under the Indian Com- facts and judgement of the
panies Act, 1956. The respondent company namely UE Develop- case, TDM Infrastructure Pvt.
ment India Private Limited (UED) had been awarded a contract Ltd. vs. UE Development India
on the issue of whether Indian
for up-gradation by the National Highways Authority of India.
domiciled entities can opt
A portion of this contract was subcontracted to the TDM Infra- for international commercial
structure Private Limited (TDM). All the TDM’s directors and arbitration.
shareholders were residents of Malaysia. The contract between
the parties provided for the resolution of disputes between them
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by means of reference to arbitration under the provisions of the
Arbitration and Conciliation Act, 1996. The seat of the arbitration
was to be New Delhi.
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On the occurrence of the dispute, the parties failed to decide on
the nomination of an arbitrator. Consequently, in accordance with
the provisions of Arbitration and Conciliation Act, TDM requested
the Chief Justice of India to appoint an arbitrator in terms of Sec-
tion 11(5) and Section 11(9) of the Arbitration and Conciliation
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Act, 1996. Section 2(f) of the Arbitration and Conciliation Act, 1996
has defined the international commercial arbitration’ to mean an
arbitration relating to disputes arising out of legal relationships,
whether contractual or not, considered as commercial under the law
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in force in India and where at least one of the parties is: (i) A body
corporate which is incorporated in any country other than India; or
is(iii) a company or an association or a body of individuals whose
central management and control is exercised in any country other
than India. The application by the TDM to the Chief Justice of
India was challenged by the respondent on the ground that the
petitioner being a company registered in India must be held to
be a company situated and controlled in India and therefore not
entitled to approach the Chief Justice of India for the nomination
of an arbitrator.
ISSUE
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JUDGEMENT
Section 2(1) (f) of the Arbitration and Conciliation Act, 1996 relates
to international commercial arbitration in which a legal relation-
ship between the parties is commercial or otherwise under the law
in force in India. This legal relationship is established between
an individual who is a national or habitually resident in some
other country. The ‘nationality’ or ‘habitually residence’ of a body
corporate in any country other than India should also receive a
similar construction. The determination of nationality of parties
particularly in the case of international commercial arbitration is
crucial from the standpoint of the appointment of an arbitrator.
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company incorporated in India can only have Indian national-
ity. Under Section 2 (1) (f) of the Act, if both the parties possess
Indian nationalities, then the arbitration between them cannot be
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said to be international commercial arbitration. Notwithstanding
the control and management of a company being located outside
India, it will still be regarded as an Indian company by virtue of its
being registered in India. In the event of its dispute with another
company, which is also an Indian entity, it will not be permissible
to have recourse to foreign law as the governing. If a company
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Section 28 (1) (a) of the Act will be attracted to the case in view of
Section 2(6) of the Act which excludes the domestic arbitration
from derogating from the provisions of Indian law. This is part
of the public policy of the country. Therefore, if both the compa-
nies involved in a dispute are domiciled in India by virtue of their
incorporation under Indian law, they will have Indian national-
ity. Any dispute between them shall be a domestic dispute. They
cannot derogate from the provisions of the Indian law in view of
its being the public policy of the country. Since there is no case
of international commercial arbitration, it is wrong to approach
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international commercial arbitration? Give reasons in
support of your answer.
(Hint: The process of international arbitration can be held
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in India in accordance with the same domestic arbitration
process. However, international arbitration involves one
party or domiciled or controlled from outside India or
when the subject matter is abroad.)
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FACTS
Case Objective
This case study discusses The case involves the purchase of two insurance policies by the
the facts and judgement of respondent Hindustan Safety Glass Works Ltd. from the appel-
the case, National Insurance lant, National Insurance Company. The insurance was subse-
Company Ltd., vs. Hindustan quently renewed for another year. The policies included the
Safety Glass Works Ltd. on the
issue of relief to consumers
damage or loss due to flood and inundation besides buildings,
under Consumer Protection machinery, stock, fixture and furniture, etc. On account of heavy
Act, 1986 rains in 1992, there was a heavy accumulation of rainwater inside
and around the factory of the insured, which caused considerable
damage to raw materials, stocks and goods, furniture, etc., in the
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factory of the respondent. The respondent filed a total claim of
` 72 lakhs. The insurance company appointed a surveyor to assess
the loss. The surveyor estimated the loss to be worth of ` 24 lakhs.
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Since the company did not agree with the report of the surveyor,
it appointed another surveyor who also gave the same estimated
amount of loss as given by the first surveyor. Despite notice to
the insurance company, no reply was given by the insurance com-
pany. As a result, a complaint was filed by the insured with the
National Commission under the provisions of the Consumer Pro-
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ISSUES
(i) Is the plea of a claim that has become time-barred valid?
(ii) Did the National Commission give the correct decision
against the insurance company?
JUDGEMENT
The Supreme Court accepted that financial loss has been caused
to the insured company on account of heavy and unusual rains
for which the claim was filed the very next day of the incident.
However, the surveyor appointed by the insurance company
submitted its report after more than one year of his appointment.
Another year was taken by the second surveyor. Two years were
Case Study 7
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ance company could not explain the reasons for considering the
report of the second surveyor as tainted. In any case, the loss or
damage has been caused to the insured company as already held
by the National Commission. Hence, the appeal of the insurance
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company against the finding of the National Commission was dis-
missed.
questions
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FACTS
Case Objective
This case study discusses The appellant in the case is the Institute of Chartered Accoun-
the facts and judegment tants of India (ICAI), which is a body corporate engaged in the
of the case, Institute of function of conducting examinations for the enrolment of those
Chartered Accountants of passing out as Chartered Accountants. The first respondent was
India vs. Shaunak H. Satya
on the scope of exemption
declared not successful in the Chartered Accountants’ final exam-
of disclosures under Right to ination in November, 2007.
Information Act, 2005.
Thereupon, he applied for verification of marks. It was done and
no discrepancy was found in the evaluation of the answer script.
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On receiving this information, the respondent sought the follow-
ing information under 13 heads in terms of the RTI Act, 2005:
1. Educational qualification of the examiners and moderators
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with subject-wise classifications
2. Procedure established for evaluation of exam papers
3. Instructions issued to the examiners, and moderators oral as
well as written, if any
4. Procedure established for selection of examiners &
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moderators
5. Model answers, if any, given to the examiners and moderators,
if any
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13. Number of times that the council has revised the marks of
any candidate, or any class of candidates in accordance with
regulation
ISSUES
(i) Do the instructions and solutions to the questions given by
the ICAI to the examiners and moderators constitute the
intellectual property of the ICAI so that the disclosure thereof
is exempt under Section 8(1)(D) of the RTI Act?
(ii) Will the access to the afore-noted information sought by the
respondent involves an infringement of the ICAI’s copyright
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and therefore liable to be rejected under Section 9 of the RTI
Act?
(iii) Is the aforementioned information made available to
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examiners and moderators in their fiduciary capacity and
therefore exempted under Section 8(1)(E) of the RTI Act?
(iv) Was the High Court justified in directing the appellant ICAI to
furnish five items of information to the respondent relating to
Regulation 39(2) of Chartered Accountants Regulations, 1988?
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JUDGeMENT
Question (i)
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Hence, Section 8(1) (d) of the RTI Act does not bar or prohibit the dis-
closure of question papers, model answers (solutions to questions)
and instructions, if any, given to the examiners and moderators
after the examination and after the evaluation of answers scripts
is completed since at that stage, such disclosure will not harm the
competitive position of any third party. The apex court rejected the
contention of the ICAI that if information is exempt once, it contin-
ues to be exempt for all time to come.
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Question (ii)
Question (iii)
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As regards the ICAI contention that the information is held in
a fiduciary capacity and therefore protected by Section 8(1) (e),
it was pointed out that the impugned section has used the words
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“information available to a person in his fiduciary relationship”
rather than the words “information available to a public authority
in its fiduciary relationship”. The use of the words “person” in the
impugned provisions widens its scope. Accordingly, the instructions
and solutions to questions communicated by ICAI to the examiners,
head examiners and moderators in their fiduciary relationship is
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Question (iv)
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questions
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FACTS
Case Objective
The appellant, Aditi, filed an RTI application to obtain information
This case study discusses the
on affiliation, extension and upgradation provided to Vidya Bharti facts and judgement of the
School, Rohini. She approached the Commission on 05.06.2014 case, Rajni Maindiratta vs.
to provide an opportunity to her for inspection. The CIC put her Directorate of Education on
application on hold after it was discovered that she filed the RTI the issue of abuse of Right to
application only after she was removed from the school. She had Information Act, 2005.
already filed a petition before the Delhi School Tribunal against
the termination order. CIC ruled that she should wait for the final
verdict of the Tribunal rather than taking the RTI route.
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ISSUE
JUDGeMENT
the RTI. It expressed the opinion that since the appellant is using
RTI for personal vengeance and lack of public interest behind
her request for information dated 6th May, 2015, her application
has been correctly rejected. The Commission noticed vengeance
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and total lack of public interest behind her requests for informa-
tion. It is highly unethical and immoral for such a guilty teacher to
abuse RTI. After CIC’s verdict, the appellant approached the High
Court of Delhi in second appeal in order to get access to requested
documents. The High Court stated that Though undoubtedly, the
reason for seeking the information is not required to be disclosed
but when it is found that the process of the law is being abused, the
same becomes relevant. Neither the authorities created under the
RTI Act nor the Courts are helpless if they witness the provisions of
law being abused and, in fact, they owe a duty to immediately put a
stop to such nuisance activities.
Case Study 9
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RTI route.)
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FACTS
Case Objective
A complaint was filed under Section 19 of the Competition Act,
2002 by Reliance Jio Infocomm Ltd. (RJIL) against three telecom This case study discusses the
facts and judgement of the
operators namely Bharti Airtel, Vodafone and Idea Cellular, for case, Competition Commission
adopting anti-competitive agreement and cartelisation. Upon of India vs. Bharti Airtel Ltd.
receipt of the complaint, the Commission directed the Direc- & ANR.
tor-General to conduct an investigation into the complaint filed
by Reliance Jio. Against the order of the investigation, four writ
petitions were filed in the High Court of Delhi by Bharti Airtel,
Vodafone, Idea Cellular, and the Cellular Operators Association
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of India, with a prayer for quashing the investigation order. The
High Court ordered the quashing of investigation on the ground
that CCI has no jurisdiction to look into various agreements and
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contracts, which are to be settled by the authority under the Tele-
com Regulatory Authority of India (TRAI) Act, 1997. Aggrieved by
the decision of the High Court, both the CCI and Reliance Jio filed
a petition in the Supreme Court.
ISSUE
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JUDGeMENT
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questions
1. Why was the appeal made by the CCI and Reliance Jio
dismissed by the apex court?
(Hint: The disputes need to be decided by TRAI in the first
instance as TRAI has been set up as an expert regulatory
body to specifically govern the Telecom sector.)
2. Discuss the functions and the areas of jurisdiction of both
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CCI and TRAI.
(Hint: CCI deals with matters related to unfair trade
practices or anti-competitive agreements, abuse of
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dominance and combination, whereas TRAI has been set
up as an expert regulatory body to specifically govern the
Telecom sector.)
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Facts
Case Objective
Maruti Suzuki India Limited, a subsidiary of Suzuki Motor Cor-
poration of Japan, has been the leader of the Indian car market This case study highlights
the labour unrest at Maruti
for many years. Maruti faced various problems in handling indus-
Suzuki India Limited issue
trial relations with its labour force. In 2012, Maruti’s Manesar of maintaining industrial
plant observed labour (contract workers) strikes, a lockout and relations.
the brutal murder of the General Manager of the company. These
happenings led to a loss of ` 25 billion to the company.
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the Maruti Udyog Kamgar Union (MUKU) that was in place was
inefficient. Thus, after a lot of struggle, they set up a new union,
Maruti Suzuki Workers’ Union (MSWU), with new committee
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members. The union negotiated for higher wages (contract work-
ers were paid half the minimum wage of permanent employees),
transportation facilities, regularisation of leave benefits and eas-
ing the robotic work. It demanded an increase in the basic salary,
a monthly conveyance allowance of ` 10,000, a gift with every new
car launch and a house/home loan for every worker. However,
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outcome
Case Study 11
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questions
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management, workers and plant. What were the main
reasons for the failure of sound industrial relations in the
Manesar strike?
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(Hint: Lack of communication between HR people and
workers, discrimination between workers’ pay)
2. What could have been done to solve the grievances of the
workers and avoid the Manesar violence?
(Hint: Management should have dealt in an unbiased way
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FACTS
Case Objective
In 1998, Salman Khan, one of the prominent bollywood actors This case study discusses the
was alleged of poaching two blackbucks, an endangered species, facts and judgement of the
in Rajasthan. There were four other co-accused stars, Sonali case, State of Rajasthan vs.
Bendre, Tabu, Neelam and Saif Ali Khan, during the shooting of Salman Khan and Others.
the film “Hum Saath-Saath Hain” on 26th September, 1998. As per
the Wildlife (protection) Act, hunting of such species is prohib-
ited by the law. Therefore, firstly, Salman Khan was arrested on
12th October, 1998 by the Forest Department and spent 18 days
in imprisonment in Jodhpur Jail. Subsequently on February 17,
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2006, Salman Khan was sentenced to undergo one-year imprison-
ment in Jodhpur Central Jail along with a fine of ` 5000. Later on,
the case was transferred to the High Court. The State of Rajas-
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than also appealed to increase the period of sentence awarded to
Salman Khan. An Appeal was filed against this order in the High
Court.
ISSUE
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The issue before the Hon’ble High Court of Rajasthan was that
since the charge levied against the accused was that he has com-
mitted an act of mischief, as defined in Section 425 of the Indian
Penal Code, whether the mischief or damage to animals herein
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JUDGeMENT
As per the court judgment, A damage caused to the wild life even
if the same cannot be evaluated or calculated in terms of money is
definitely a loss to the ecology and as a result thereof, it can be con-
sidered to be a loss to the public and society at large… It is the firm
opinion of this Court that by the act of using fire arms for killing
wild life, the accused committed the offence of mischief as defined
in Sections 425 and 429 IPC. Since the Clause Thirdly of Section 141
Indian Penal Code, 1860 (IPC) covers in its ambit, mischief, crimi-
nal trespass or other offence..., the provision of Section 141 IPC can
very well be applied to an offence of mischief when committed in
relation to a wild animal also. Accordingly, the term ‘other offence’
as mentioned in Section 141 covers in its ambit, an offence under
Wild Life Protection Act. Therefore, every member of the unlawful
assembly which participates in the act of hunting is definitely liable
Case Study 12
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for being prosecuted for the offence under Section 51 of the Wild
Life Protection Act with the aid of Section 149 IPC. According to
Section 51 of the Wildlife (Protection) Act, it is not allowed to hunt
or capture any animal species that are included in the Schedules
I-IV.
HM Saraswat, the lawyer of Salman Khan said that the act has
been targeted in a “false and malicious campaign”. However, On
5th April, 2018, he was sentenced to five years imprisonment along
with a fine of ` 10,000 after he was found guilty for killing two
blackbucks in Jodhpur. The court took exactly twenty years to
convict Salman Khan. All other co-accused, Saif Ali Khan, Tabu,
Neelam and Sonali Bendre were acquitted by the court under the
virtue of ‘benefit of doubt’ for the incident. The verdict states that
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The accused is a popular actor whose deeds are followed by people.
Despite this, the accused hunted two black bucks. It is not justified
to give Salman Khan the benefit of probation in view of the manner
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in which he hunted by shooting two innocent, moot black bucks that
come under the purview of the Wildlife Conservation Act. After the
court provided its sentence, the accused filed an application for
bail in the session court. The appeal against the High Court’s ver-
dict is still pending.
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questions